Company Financial Analysis - Billabong Company

Billabong International Limited Financial report ended 30 June 2015 Appendix 4E Preliminary final report Name of entity BILLABONG INTERNATIONAL LIMITED ABN Financial year ended 17 084 923 946 30 JUNE 2015 Comparative Financial year ended 30 JUNE 2014 Results for announcement to the market Results $A'000 Revenues from continuing operations Up 2.8% to 1,056,130 Profit from ordinary activities after tax attributable to members Up n/a to 4,150 Net profit for the period attributable to members Up n/a to 4,150 Dividends Amount per security Franked amount per security Tax rate for franking Current period – 2015 Final dividend --- --- n/a Interim dividend --- --- n/a Previous corresponding period – 2014 Final dividend --- --- n/a Interim dividend --- --- n/a The Board has not declared a final ordinary dividend for the year ended 30 June 2015. The Dividend Reinvestment Plan (DRP) remains suspended.

NTA backing 2015 2014 Net tangible asset backing per ordinary security $0.12 $0.14 Billabong International Limited Financial report ended 30 June 2015 Compliance statement This report is based on the consolidated financial report which has been audited. Refer to the attached full financial report for all other disclosures in respect of the Appendix 4E. Signed: ............................................................ Date: 27 August 2015 Neil Fiske Chief Executive Officer Billabong International Limited ABN 17 084 923 946 Contents Page Directors’ report 2 Auditor’s independence declaration 46 Corporate governance statement 47 Financial report 48 Directors’ declaration 139 Independent auditor’s report to the members 140 Shareholder information 142 : : FULL FINANCIAL REPORT 2014 - 15 Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 2 Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Billabong International Limited (the Company) and the entities it controlled at the end of, or during, the year ended 30 June 2015.

Directors The following persons were Directors of the Company during the whole of the financial year and up to the date of this report:

I. Pollard N. Fiske G.S. Merchant H. Mowlem J. Mozingo S.A.M Pitkin M. Wilson A. Doshi (Alternate to J. Mozingo) T. Casarella (Alternate to M. Wilson) Principal activities During the year the principal continuing activities of the Group consisted of the wholesaling and retailing of surf, skate, snow and sports apparel, accessories and hardware, and the licensing of the Group trademarks to specified regions of the world.

Dividends – Billabong International Limited No dividends were paid to members during the financial year.

The Board has not declared a final ordinary dividend for the year ended 30 June 2015. The Dividend Reinvestment Plan (DRP) remains suspended.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 3 Operating and Financial Review Group overview The Group’s business is the wholesaling and retailing of surf, skate, snow and sports apparel, accessories and hardware currently comprising multiple brands and retail banners over three key reporting segments being Asia Pacific, Americas and Europe.

The Group’s brands at year-end included Billabong, Element, RVCA, Kustom, Palmers, Honolua, Xcel, Tigerlily, Sector 9 and Von Zipper. The Group operates 404 retail stores as at 30 June 2015 in regions/countries around the world including but not limited to:

North America (60 stores), Europe (102 stores), Australia (123 stores), New Zealand (30 stores), Japan (46 stores) and South Africa (27 stores). Stores trade under a variety of banners including but not limited to: Billabong, Element, Surf Dive ‘n’ Ski (SDS), Jetty Surf, Rush, Amazon, Honolua, Two Seasons and Quiet Flight. The Group also operates online retail ecommerce for each of its key brands.

Significant changes in the state of affairs The statement below should be read in conjunction with note 41 (events occurring after the balance sheet date) of the annual report for the year ended 30 June 2014 and any public announcements made by the Company during the financial year.

On 5 September 2014 the Group sold its 51% stake in the multi-brand ecommerce business SurfStitch.com in Australia and Europe (“SurfStitch”) and its 100% ownership of Swell.com in North America (“Swell”). Refer to note 10 of the financial statements for detailed disclosure in relation to these divestments.

Other than matters dealt with in this report there were no significant changes in the state of affairs of the Group during the financial year.

Group financial performance The Group results for the period and the prior corresponding period (“pcp”) include certain significant items including but not limited to contingent consideration and fair value adjustment charges and costs associated with the various control/refinancing proposals and strategic reform programs announced during the years ended 30 June 2013 and 30 June 2014. Refer to note 8 of the financial statements for detailed disclosure in relation to these items. During the period the Group sold its 51% stake in the multi-brand ecommerce business SurfStitch and its 100% ownership of Swell. During the year ended 30 June 2014, the Company made the decision to write off the majority of its deferred tax assets (net of deferred tax liabilities) as it was estimated that it was not probable for taxable profits to be generated in a period where the conditions for utilisation of the assets would be met including continuity of ownership tests. During the year ended 30 June 2015, the Company maintains this same position in most tax jurisdictions with the exception of Australia and Japan where it has been estimated that previously unrecognised temporary differences will now meet the conditions for utilisation of these assets. The reinstatement of these deferred tax assets resulted in a tax benefit of $16.8 million.

In order to provide users with additional information regarding the continuing operations excluding the aforementioned significant items and to help understand the impact of these events on the results of the Group (and the impact of currency movements on the translation of the Group’s international operations into AUD), the segment results are presented in three separate tables.

Table A presents the segment results on a basis including all significant items and including the operations of SurfStitch and Swell (and in the pcp DaKine and West 49) for the relevant period of ownership. See Table A “Segment Results As Reported – Including significant items and discontinued operations”.

Table B presents the results excluding significant items and discontinued operations (SurfStitch and Swell are excluded from both the current year and pcp and previously divested businesses DaKine and West 49 are removed from the pcp).

See Table B “Adjusted Segment Results – Continuing Operations As Reported – Excluding significant items and discontinued operations”.

Table C presents the results on the same basis as in Table B but on a constant currency basis (i.e. using the current period monthly average exchange rates to convert the prior period foreign earnings) to remove the impact of foreign exchange movements from the Group’s performance against the pcp. The constant currency comparatives are not compliant with Australian Accounting Standards. See Table C “Adjusted Segment Results – Continuing Operations (Constant Currency) – Excluding significant items and discontinued operations”. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 4 Operating and Financial Review (continued) Table A: Segment Results As Reported – Including significant items and discontinued operations Segment revenues Segment EBITDAI* 2015 2014 2015 2014 $’000 $’000 $’000 $’000 Asia Pacific 428,476 480,500 10,461 14,593 Americas 455,565 537,969 15,345 (48,988) Europe 179,699 199,041 25,937 (20,754) Third party royalties 3,461 2,842 3,461 2,842 Segment revenues / EBITDAI* 1,067,201 1,220,352 55,204 (52,307) Less: Net interest expense (28,354) (34,205) Depreciation and amortisation (33,489) (39,654) Fair value adjustment on reclassification of West 49 as held for sale during the prior year --- (17,718) Impairment charge (3,040) (29,255) Profit/(loss) before income tax expense (9,679) (173,139) Income tax benefit/(expense) 12,231 (66,794) Profit/(loss) after income tax expense 2,552 (239,933) Loss attributable to non-controlling interests 1,598 6,221 Profit/(loss) attributable to members of Billabong International Limited 4,150 (233,712) * Segment Earnings Before Interest, Taxes, Depreciation, Amortisation and Impairment (EBITDAI) excludes inter-company royalties and sourcing fees and includes an allocation of global overhead costs (which include corporate overhead, international advertising and promotion costs, central sourcing costs and foreign exchange movements).

Table B: Adjusted Segment Results – Continuing Operations As Reported – Excluding significant items and discontinued operations Adjusted EBITDAI by Segment: 2015 Excluding significant items and discontinued operations* $’000 2014 Excluding significant items and discontinued operations* $’000 Asia Pacific 29,446 33,391 Americas 27,180 25,192 Europe 5,592 (1,080) Third party royalties 3,461 2,842 Adjusted EBITDAI 65,679 60,345 Less: Depreciation and amortisation (32,831) (34,458) Net interest expense (28,340) Adjusted net profit/(loss) before income tax benefit 4,508 Adjusted income tax benefit/(expense) (1,497) Adjusted net profit/(loss) after income tax benefit 3,011 Loss attributable to non-controlling interest --- Adjusted net profit/(loss) attributable to members of Billabong International Limited 3,011 * Excludes SurfStitch, Swell, DaKine and West 49.

The Group results for the period and the pcp include certain significant items including but not limited to contingent consideration and fair value adjustment charges, costs associated with the various control/refinancing proposals and strategic reform programs announced during the years ended 30 June 2013 and 30 June 2014 (collectively significant items). Refer to note 8 of the financial statements for detailed disclosure in relation to these items.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 5 Operating and Financial Review (continued) Table C: Adjusted Segment Results – Continuing Operations (Constant Currency)** – Excluding significant items and discontinued operations Adjusted EBITDAI by Segment: 2015 Excluding significant items and discontinued operations* $’000 2014 Excluding significant items and discontinued operations* $’000 Asia Pacific 29,446 33,557 Americas 27,180 30,079 Europe 5,592 (1,447) Third party royalties 3,461 2,842 Adjusted EBITDAI 65,679 65,031 Less: Depreciation and amortisation (32,831) (34,521) Net interest expense (28,340) Adjusted net profit/(loss) before income tax benefit 4,508 Adjusted income tax benefit/(expense) (1,497) Adjusted net profit/(loss) after income tax benefit 3,011 Loss attributable to non-controlling interest --- Adjusted net profit/(loss) attributable to members of Billabong International Limited 3,011 * Excludes SurfStitch, Swell, DaKine and West 49.

** Due to a significant portion of the Group’s operations being outside Australia, the Group is exposed to currency exchange rate translation risk i.e. the risk that the Group’s offshore earnings and assets fluctuate when reported in Australian Dollars.

The Group’s segment information for the prior period has therefore also been presented on a constant currency basis (i.e.

using the current period monthly average exchange rates to convert the prior period foreign earnings) to remove the impact of foreign exchange movements from the Group’s performance against the pcp. The constant currency comparatives are not compliant with Australian Accounting Standards.

Adjusted EBITDAI excludes pre-tax significant items of income and expense. Refer to note 8 of the financial statements for detailed disclosure in relation to these items.

Comments on the operations and the results of those operations are set out below:

Consolidated result including significant items Net Profit After Tax for the year ended 30 June 2015 was $4.2 million compared to a Net Loss After Tax of $233.7 million in the prior corresponding period (pcp). The results were impacted by the abovementioned significant items in both years (including impairment (2015: $3.0 million; 2014: $29.3 million) and tax (2015: benefit $13.7 million; 2014: expense $73.2 million) and in 2014 the fair value adjustment ($17.7 million), refinancing ($43.7 million)) and the sale of SurfStitch and Swell in the current year and DaKine and West 49 in the pcp.

Group performance excluding significant items and excluding discontinued operations Group sales to external customers of $1,048.4 million, excluding third party royalties, represents an as reported 2.6% increase on the pcp. In constant currency terms Group revenues decreased 0.6% on the pcp. In constant currency terms, sales revenue in Asia Pacific decreased 0.4%, the Americas decreased 0.4% and Europe decreased 1.7% compared with the pcp.

Consolidated gross margins were 53.0% (53.2% in the pcp). Adjusting for the impact of divestments consolidated gross margins were 52.7% (51.6% in the pcp).

Adjusted EBITDAI excluding discontinued operations of $65.7 million for the period compares to $60.3 million for the pcp.

This is an increase of 8.8% (an increase of 1.0% in constant currency terms). Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 6 Operating and Financial Review (continued) The Adjusted EBITDAI excluding discontinued operations was impacted by:

 In Asia Pacific Adjusted EBITDAI was down $3.9 million (11.8%) compared to the pcp with revenues being 0.3% lower than the pcp in as reported terms (0.4% in constant currency terms), with the effect of the lower AUD impacting gross margins in the wholesale business, while a weaker retail performance saw comparable store sales trading lower in Australia by 4.7% compared to the pcp.  In Americas Adjusted EBITDAI was up $2.0 million (7.9%) compared to the pcp (down $2.9 million or 9.6% in constant currency terms). Revenue was up 8.1% compared to the pcp in as reported terms (down 0.4% in constant currency terms). This result reflects improvement in the US market with brands Billabong and RVCA showing sales growth on the pcp on a like for like basis however Element has remained weak during the year. In particular the second half performance in the Americas showed improvement compared to the first half. In constant currency terms sales in the second half were up 0.4% and Adjusted EBITDAI grew from $18.7 million to $22.0 million. This improvement reflected better performance on the pcp from each of Billabong and RVCA with wholesale external USA sales growing 13.7% and 15.3% respectively in the second half. Whilst Element sales in the Americas were below the prior year some positive signs are seen in the forward orders. As well the negative effects from the Canadian market (including the impact of the sale of West 49 retail operations) abated in the second half relative to the first half. Gross margins in the second half were ahead of the prior year and overhead costs down compared to the pcp.

 In Europe Adjusted EBITDAI was up $6.7 million compared to the pcp which is the result of a significant improvement in gross margins (from 48.4% to 55.2%) on the pcp due to focus on key accounts and territories and contracting the customer set to reduce low margin customers/unprofitable business.

Group performance including significant items and including discontinued operations Group sales to external customers of $1,063.7 million, excluding third party royalties, represents a 12.6% decrease on the pcp in as reported terms or a decrease of 14.9% in constant currency terms. At a segment level, in as reported terms, sales revenue in the Americas decreased 15.3%, Europe decreased 9.7% and Asia Pacific decreased 10.8% compared with the pcp reflecting the SurfStitch and Swell revenues included for the whole of the pcp however only for the period 1 July 2014 to 5 September 2014 in the current year and the West 49 revenues included for the period 1 July 2013 to 6 February 2014 however not in the current year. The prior year also has DaKine revenues included for the period 1 July 2013 to 23 July 2013.

EBITDAI of $55.2 million for the period compares to a $52.3 million loss for the pcp. The current year includes significant items expense of $8.0 million compared to an expense of $99.2 million for the pcp. In addition to the significant items and divestment differences the comparison is impacted by the trading matters noted above. Significant items Pre-tax significant items for the year ended 30 June 2015 of $11.0 million includes $3.0 million of impairment charge and $8.0 million of items decreasing EBITDAI.

Pre-tax significant items for the year ended 30 June 2014 of $146.2 million includes $17.7 million of fair value adjustment to assets held for sale, impairment charge of $29.3 million and $99.2 million of items decreasing EBITDAI (which included costs of $43.7 million associated with the various control/refinancing proposals announced during the years ended 30 June 2013 and 30 June 2014).

Refer to note 8 of the financial statements for detailed disclosure in relation to these items.

Depreciation and amortisation expense Depreciation and amortisation expense of $32.8 million (excluding significant items and excluding divestments) decreased 4.7% in reported terms compared to the pcp ($34.5 million).

Fair value adjustment on reclassification of West 49 as held for sale during the year – relates to the year ended 30 June 2014 On 4 November 2013 the Group announced that it had entered into an agreement to sell its Canadian retail chain, West 49, to YM Inc. As at 31 December 2013 West 49 was reported as an asset held for sale and a discontinued operation. The assets were adjusted to their fair value with a $17.7 million expense recognised based on information available at 31 December 2013 balance sheet date using the terms of the sales agreement.

In addition to the fair value adjustment of $17.7 million, a loss on sale of $10.1 million was recognised in relation to the sale of West 49. This loss included the reclassification of the foreign currency translation reserve to the income statement ($4.0 million) and the recognition of a provision for onerous contracts ($2.2 million). Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 7 Operating and Financial Review (continued) Net interest expense The decrease in net interest expense from $34.2 million to $28.4 million was driven by the Term Loan Facility which was reduced from US$360 million to US$203.8 million following the completion of the C/O Placement and the Rights issue in February and March 2014 respectively. Income tax expense The statutory loss before tax for the year ended 30 June 2015 was $9.7 million with an income tax benefit of $12.2 million (2014 income tax expense of $66.8 million). During the year ended 30 June 2014 the Company made the decision to write off the majority of its deferred tax assets (net of deferred tax liabilities) as it was estimated that it was not probable for taxable profits to be generated in a period where the conditions for utilisation of the assets would be met including continuity of ownership tests. During the year ended 30 June 2015, the Company maintains this same position in most tax jurisdictions with the exception of Australia and Japan where it has been estimated that previously unrecognised temporary differences will now meet the conditions for utilisation of these assets. The reinstatement of deferred tax assets resulted in a tax benefit of $16.8 million.

Consolidated balance sheet, cash flow items and capital expenditure Working capital at $164.5 million represents 15.2% of the prior twelve months’ sales (excluding SurfStitch and Swell external sales) stated at year end exchange rates, being 1.6% higher compared to the pcp of 13.6% (excluding West 49 and DaKine’s North America and Europe wholesale external sales). Working capital as a percentage of sales at June 2015 is higher than June 2014 in part due to the divestments being retail businesses with inherently lower working capital balances (SurfStitch and Swell working capital was still part of the Group’s balance sheet as at 30 June 2014).

Cash outflow from operating activities was $14.6 million, compared to an outflow of $76.6 million in the pcp, principally because the prior year included the impact of the costs of the refinancing. Receipts from customers net of payments to suppliers and employees of $14.0 million were lower compared to $22.5 million in the pcp which is primarily due to the divestments having cash inflows in the pcp.

Cash inflow from investing activities of $11.1 million includes the proceeds from the sale of SurfStitch and Swell.

Net debt increased from $74.3 million in the pcp to $113.5 million, principally reflecting foreign exchange differences, significant item payments, financing charge and capital expenditure offset by proceeds from sale of SurfStitch and Swell.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 8 Operating and Financial Review (continued) Strategy and future performance The strategies and prospects for the Group’s existing business operations are outlined below. On 21 September 2013 Neil Fiske was appointed as Chief Executive Officer and Managing Director. Since his appointment he has put in place a new executive leadership team and on 10 December 2013 announced a Turnaround Strategy to improve the financial performance of the Group specifically highlighting a focus on the following key strategic priorities: Turnaround Strategy Part Description Brand  Re-orient the Company to building strong global brands, with particular focus on the biggest three (Billabong, Element, RVCA)  Focus on the authentic core youth consumer  Implement brand management processes and disciplines  Tailor specific strategies based on the unique position of each brand, its geographic strengths, growth potential and portfolio fit  Leverage the creativity and uniqueness of the brand founders Product  Build a strong merchant focus for the business. Develop clear assortment strategies - category plans, key item distortion, co-ordinated product launches and optimised balance of global vs regional mix  Fewer, bigger, better styles leading to significant reduction in product lines  Implement design to adopt ratios by category; design and assort to fixture  Elevate design and innovation Marketing  Develop 12 month integrated marketing calendar for each region  Build customer database and establish an advanced CRM programme  Re-mix spend toward digital, CRM and demand generation  Invest ahead of biggest growth opportunities (examples: RVCA and Billabong women’s) Omni-Channel  Prioritise “brand” before “multi-brand”  Build the mono-brand direct to consumer platform (retail + digital + CRM)  Evaluate strategic options for multi-brand ecommerce  Develop wholesale channel win-back strategy  Drive retail profitability closures, productivity, rent, specialty retail disciplines, inventory management  Unify platforms for scale benefits – cost and capability Supply Chain  Configure supply chain for speed to improve inventory turns  Consolidate suppliers  Diversify out of China for cost and capability  Drive down distribution/logistics costs Organisation  Develop global brand structure for the big three; foster brand specific cultures  Strengthen merchandising, design and marketing (“high leverage talent”)  Build global scale in Finance, Supply Chain, IT and Direct to Consumer platform  Rationalise general administration structure based on organisational design and spans/layers  Re-energise the organisation with focus on “offense” and “defence” agenda Financial Discipline  Strategy determines resource allocation and management Key Performance Indicators  Drive inventory and other working capital improvement; focus on cash flow conversion  Prioritise capital expenditure towards customer facing and enabling projects Within the framework of the above Turnaround Strategy, the Group’s more immediate priorities included:

 Addressing the negative sales trend of the Billabong brand in the key US wholesale market;  Addressing the negative sales trend of the Element brand in the key US wholesale market, whilst continuing to grow sales and earnings in Europe;  Re-establishing the strong sales growth for RVCA, which had slowed in 2014;  Stabilising the deteriorating financial performance of the Group’s European operations;  Regaining total control over the Group’s branded ecommerce activities; and  Reduce the Group’s exposure to multi-brand retailing where it lacked scale.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 9 Operating and Financial Review (continued) In the year ended 30 June 2015 the Group has made satisfactory progress towards the immediate priorities outlined above and execution of the strategy more generally. Billabong and RVCA are growing again in the USA, Element is yet to return to growth in the USA but the forward sales outlook is more encouraging, Europe’s financial performance has improved markedly, the Group now has 100% control of all of its branded ecommerce businesses following the sale of SurfStitch and the sale of West 49 was completed more than twelve months ago.

In the year ended 30 June 2015 the Group consolidated its reform initiatives into four major cross regional/cross brand projects that are expected to underpin the success of the Group’s turnaround over the next few years. A description and summary of these projects together with a status update is set out below:

Project/Initiative Description Status Omni-Channel  To develop true best in class Omni- Channel retailer capability  Single view of the customer  Single view of inventory  Single back end bricks and mortar merchandising planning systems  World class ecommerce and Application experiences  Effective CRM program  Project team in place  Software supplier contracted April 2015  Planning supplier contracted June 2015  Detailed project plan in place  First launch planned for first half calendar 2016 Sourcing  To develop a global approach to product sourcing to reduce cost and improve speed to market and efficiency  Organisational changes made  Consolidation of preferred vendors largely complete  Global standard operating procedures adopted, including capacity planning, to enable volume aggregation and decrease order to delivery cycles  Vendor adoption of pre-production, production, and post-production quality assurance processes underway  Assortment design successful in enabling cost effectiveness Logistics  To develop a global approach to product logistics to reduce cost and improve speed to market and efficiency  Contracts signed with third party provider to establish consolidation centres in Asia  Distribution centre networks reformulated  Rationalisation of existing distribution centres announced  Demand planning programs in testing to streamline product flow Concept to Customer  To complete a holistic process redesign of our entire design to delivery process to improve speed to market, assist more informed buying decisions, and reduce inventory markdowns  Consistent, repeatable merchandise planning, design and development processes and calendars rolled out in North American markets, and under development globally  Sourcing support steps incorporated into early design and development calendars to quicken order to delivery times Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 10 Operating and Financial Review (continued) Material risks The material risks that have the potential to affect the financial prospects of the Group, and the manner in which the Group manages these risks, include:

Risk Summary of risk Brand Possible damage or loss of market appeal to the brands or the image of the Group’s brands. The Group addresses this risk through keeping abreast of economic and consumer data/research, innovative product development and brand management. Also refer to the aforementioned Turnaround Strategy which details the prominence of brand positioning as a key component of the strategy.

Fashion Failure to design and deliver products that appeal to customers. The Group addresses this risk through customer feedback, innovative product development and brand building. Also refer to the aforementioned Turnaround Strategy which details the prominence of product design and innovation as a key component of the strategy.

Macro-economic environment The financial performance of the Group will fluctuate due to various factors including movements in the Australian and international capital markets, interest rates, foreign currency exchange rates, inflation, consumer sentiment, macro-economic conditions in the markets in which Group operates (including any significant and extended economic downturn in Australia, Asia, North America, Europe, South America and Africa), change in government, fiscal, monetary and regulatory policies, prices of commodities, investor perceptions and other factors that may affect the Group's financial position and earnings. Currency fluctuations The Group receives revenue in more than ten currencies and movements in these currencies could have an impact on the Group's profitability and net asset position. This risk arises when assets and liabilities, and forecasted purchases and sales are denominated in a currency other than the functional currency of the respective entities. As sales are mainly denominated in the respective local currency, whereas the major inventory purchases are typically negotiated and denominated in United States Dollars (USD). This creates input pricing risk for all markets other than the United States.

This risk is mitigated to an extent by hedging, but significant movements in the USD, like have occurred during 2015, still can impact the comparability of profitability of seasons between financial years.

Competition The Group competes for discretionary income spend. The Group's performance may be adversely affected by competitors' actions, for example, by lowering their sale prices or creating new product lines that are more attractive in the marketplace or by agreeing to pay more for production, other services or talent and employment costs or alternate channels to market.

The Group addresses this risk by focusing on innovative product development and brand building to promote customer loyalty and remunerating employees fairly. Seasonal factors Part of the Group's business is seasonal in nature and prolonged unseasonal weather conditions in a particular region may adversely affect sales in that region.

Product sourcing and delivery A material disruption in the capabilities and availability of the Group’s product sourcing and/or delivery arrangements could have an adverse impact on the Group, given the importance of the quality, performance and timely delivery of our products.

The Group addresses this risk by planning the capacity utilization of its preferred mills and factories well below their full capacity, securing space on their production lines that is most advantageous to the Group’s calendar and supply chain needs, and maintaining secondary production alternatives among the Group’s preferred vendors.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 11 Operating and Financial Review (continued) Risk Summary of risk Online retailing Continued migration of consumers to online retail purchases may adversely impact the performance of the Group's bricks and mortar retail outlets and wholesale customers and the historically higher margin regions. The Group addresses this risk by focusing on the omni-channel as part of the aforementioned Turnaround Strategy to ensure the Group has a best in class mono-brand direct to consumer platform which uses the Group’s stores and websites to lead the brands. Debt covenants Failure to comply with its financial covenants caused by a significant decline in revenue or earnings or a further material change in the AUD:USD exchange rate may require the Group to seek amendments, waivers of covenant compliance or alternative borrowing arrangements.

The Group is focussed on delivering the Turnaround Strategy to mitigate this risk. Centerbridge / Oaktree Consortium’s (“C/O Consortium”) involvement in the Group While the C/O Consortium has a substantial equity ownership in the Company and is therefore likely to be focused on maximising value (and therefore its incentives should be broadly aligned to those of other Shareholders), there is a risk that as a debt holder the C/O Consortium's interests may not always align with those of other Shareholders. If so, the C/O Consortium's significant holding of Shares and entitlement to nominate two Directors to the Board mean it would be in a position to influence decisions of the Company.

The Group mitigates this risk by ensuring that the Board and all Board committees are chaired by an Independent Director, there is a majority of Independent Directors on all committees and that the C/O Consortium’s nominated directors (Mr. Mozingo and Mr. Wilson) do not have any business interest or other relationships that could materially interfere with the exercise of their independent judgement and their ability to act in the best interest of the Company. Social risk Given that the Group sources goods manufactured in countries such as China, where there have been risks surrounding the workplace health and safety standards of factories, the Group is utilising an external auditing body to audit social compliance of the Company's factories against an approved Code Of Conduct, which contains standards equivalent to SA8000 and Worldwide Responsible Accredited Production (WRAP).

Asset impairment The Group's assets may be required to be written down or become impaired (in accordance with relevant accounting standards), which may negatively impact the Group's financial performance and position.

The Group is focussed on delivering the Turnaround Strategy to mitigate this risk.

Proceeds from the refinancing may not provide sufficient funding to execute the Company's Turnaround Strategy Should the Group experience a protracted decline in earnings, there is a possibility that the quantum of debt funding available to the Company would not be sufficient to execute its Turnaround Strategy, which could have a negative impact on its future financial performance or position.

The Group is focussed on delivering the Turnaround Strategy to mitigate this risk.

Strategy implementation risk The Group’s Turnaround Strategy includes significant process and system reform. Effective change management is a key mitigant in respect of the disruption and project risk inherent in such an agenda. The Group has a dedicated Chief Turnaround Officer to co-ordinate and facilitate the successful reform program and appropriate change management program, testing and redundancy plans are key elements of the project plans.

The Group does not have any dependencies on key customers given its diverse customer base. The Group maintains relationships with a number of suppliers for its products to help mitigate supply and supplier dependency risks. As the Group operates in countries across the world, the Group is impacted by macroeconomic trading conditions across all of these countries.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 12 Matters subsequent to the end of the financial year There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature that would be likely, in the opinion of the Directors, to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

Likely developments and expected results of operations Since the end of the financial year in the wholesale channel, the Group continues to see growth in forward order books around the globe consistent with the view that the Group’s big three brands are making progress. In retail, trading has been more mixed. In North America, the early part of back to school saw a slow start, not just for the Group, but for the sector as a whole. Europe, on the other hand, has been above expectations. The trend in Asia Pacific has been improving since year end with trading broadly in line with the prior year. The Group results note a number of risk factors including the impact of currency on input prices and debt, and further disruption from the operational issues with the Paris distribution centre. However, we do expect the benefits of supply chain and other initiatives to begin in the second half of the year ending 30 June 2016.

Environmental regulation The Group is not subject to any significant environmental regulation or mandatory emissions reporting.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 13 Information on Directors IAN POLLARD (Non-Executive Chair) Experience and expertise Dr Ian Pollard is an actuary, Rhodes Scholar and a Fellow of the Australian Institute of Company Directors. He has held a wide range of senior business roles including as Chair of Just Group Limited and as a Director of OPSM Group Limited and DCA Group Limited, which he founded. He is currently Chair of RGA Reinsurance Company of Australia Limited and an executive coach with Foresight’s Global Coaching. With an extensive background in corporate finance, strategic investment and retail, Dr Pollard has chaired several public company audit committees and was a member of the ASX Corporate Governance Implementation Review Group from 2003 to 2007.

Mr Pollard was appointed as Non-Executive Director and Chair of the Company on 24 October 2012.

Other current directorships Milton Corporation Limited, director since 6 August 1998.

Shopping Centres Australasia Property Group, stapled securities of Shopping Centres Australasia Property Management Trust and Shopping Centres Australasia Property Retail Trust (director of responsible entity, Shopping Centres Australasia Property Group RE Limited (SCPRE), director since 26 September 2012.

Former directorships in last 3 years No former directorships of Australian listed entities. Special responsibilities Chair of the Board and Nominations Committee and member of Human Resource and Remuneration, Class Action and Audit and Risk Committees.

Interests in shares and options 152,979 ordinary shares in Billabong International Limited.

MCNEIL SEYMOUR FISKE JR (Executive Director) Experience and expertise Neil Fiske was appointed as Chief Executive Officer and Managing Director of the Company on 21 September 2013. He has 25 years of experience in the consumer and retail industry as an operator, consultant and investor. Prior to joining the Company he was an Industry Partner to Canadian private equity firm Onex, where he acted as a senior advisor focused on retail. From 2007 to 2012 Mr Fiske was CEO of Eddie Bauer an outdoor lifestyle store chain based in the USA. From 2003 to 2007 Mr Fiske was the CEO of Bath and Body Works, a division of NYSE listed Limited Brands. From 1989 to 2003 he was in the Consumer and Retail Practice of the Boston Consulting Group. Mr Fiske received an M.B.A. from Harvard Business School and a B.A. in Political Economy from Williams College.

Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities Chief Executive Officer and Managing Director.

Interests in shares and options 669,643 ordinary shares in Billabong International Limited.

1,785,714 ordinary shares in Billabong International Limited to be held in voluntary escrow until commencement of trade on 10 January 2016.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 14 Information on Directors (continued) GORDON MERCHANT AM (Non-Executive Director) Experience and expertise Gordon Merchant founded Billabong’s business in 1973 and has been a major stakeholder in the business since its inception. Mr Merchant has extensive experience in promotion, advertising, sponsorship and design within the surfwear apparel industry. Mr Merchant was awarded a Member of the Order of Australia in the 2010 Australia Day Honours List for service to business, particularly the manufacturing sector, as a supporter of medical, youth and marine conservation organisations, and to surf lifesaving. Mr Merchant was appointed as director of Plantic Technologies Limited on 31 March 2005 and resigned on 2 April 2015. Mr Merchant was appointed as Non-Executive Director of the Company on 4 July 2000. Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities None.

Interests in shares and options 100,575,183 ordinary shares in Billabong International Limited.

HOWARD MOWLEM (Non-Executive Director) Experience and expertise Howard Mowlem is experienced in many segments of the international retail industry and specifically in Asia. From 2001 to 2010 he was Chief Financial Officer of Dairy Farm International Holdings Limited, a Hong Kong based retail company operating over 5,000 stores across Asia with turnover in excess of US$10 billion. Prior to this Mr Mowlem held various senior financial positions over a 12 year period with the Coles Myer Group. He brings extensive experience in corporate finance, mergers and acquisitions, financial reporting, treasury, tax, investor relations, audit and governance. Mr Mowlem was appointed as Non-Executive Director of the Company on 24 October 2012. Mr Mowlem holds a Bachelor of Economics (Hons), M.B.A., and Securities Industry Diploma. He is a Fellow of CPA Australia.

Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities Chair of Audit and Risk Committee and member of Nominations and Human Resource and Remuneration Committees.

Interests in shares and options 137,500 ordinary shares in Billabong International Limited.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 15 Information on Directors (continued) JASON MOZINGO (Non-Executive Director) Experience and expertise Jason Mozingo is a Senior Managing Director at Centerbridge Partners, L.P. Mr Mozingo leads the firm’s retail and consumer investment efforts. Prior to joining Centerbridge, he was a Principal with Avista Capital Partners (spun-out of DLJ Merchant Banking in 2005) and DLJ Merchant Banking Partners, a leverage buyout group managing in excess of $9 billion.

He joined DLJ in 1998. Mr Mozingo graduated from UCLA Phi Beta Kappa, summa cum laude with a degree in economics and received an M.B.A.

with high distinction from Harvard Business School in 1998, where he was a Baker Scholar. He is a CFA charter holder and a member of the CFA Institute and currently serves as a Director of P.F. Chang’s, CraftWorks Restaurants & Breweries and GT Holdings, LLC. Mr Mozingo was appointed as Non-Executive Director of the Company on 4 November 2013. Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities Member of Nominations, Human Resource and Remuneration, and Audit and Risk Committees.

Interests in shares and options None. SALLY PITKIN (Non-Executive Director) Experience and expertise Dr Sally Pitkin has nineteen years' experience as a non-executive director in the listed, private, public and non-profit sectors. She has eleven years' experience as a non-executive director of ASX200 companies, including experience in international markets. Industry sectors in which she has experience as a non-executive director include retail, finance and insurance, technology commercialisation, gaming, energy and transport. She is a lawyer and former partner of Clayton Utz with banking law, corporate law and corporate governance expertise. Dr Pitkin is a non-executive director and Fellow of the Australian Institute of Company Directors and is President of the Queensland Division. She holds a Doctor of Philosophy (Governance), awarded in 2012, a Master of Laws and Bachelor of Laws.

Dr Pitkin was appointed as Non-Executive Director of the Company on 28 February 2012.

Other current directorships Super Retail Group Limited, director since 1 July 2010.

IPH Limited, director since 23 September 2014.

Echo Entertainment Group Limited, director since 19 December 2014.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities Chair of Human Resource and Remuneration and Class Action Committees and member of Audit and Risk and Nominations Committees.

Interests in shares and options 96,250 ordinary shares in Billabong International Limited. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 16 Information on Directors (continued) MATTHEW WILSON (Non-Executive Director) Experience and expertise Matthew Wilson is a Managing Director at Oaktree Capital Management, L.P. and is based in Los Angeles. He leads Oaktree’s retail and consumer investing efforts, including investments in the apparel, retail, consumer products, food, beverage, and restaurants sectors. Prior to Oaktree, Mr Wilson was with H.I.G. Capital, LLC, a leading middle market private equity firm managing over $13 billion of capital. Prior thereto, he worked in the middle market buyout group at J.H. Whitney & Co. and the investment banking division at Merrill Lynch & Co. in New York. Mr Wilson graduated with a B.A. degree with Distinction in Economics and History from the University of Virginia and an M.B.A. from the Harvard Business School. He currently serves on the Boards of Directors of AdvancePierre Foods, AgroMerchants Group, Diamond Foods (Nasdaq: DMND), and The Bridge Direct HK and is Chair of the Board of Trustees of the Children’s Bureau of Los Angeles. Mr Wilson was appointed as Non-Executive Director of the Company on 4 November 2013.

Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities Member of the Nominations, Human Resource and Remuneration and Audit and Risk Committees.

Interests in shares and options None.

AMAR DOSHI (Alternate Director for Jason Mozingo) Experience and expertise Amar Doshi is a Principal at Centerbridge Partners, L.P and focuses on the firm’s investments in the retail and consumer sectors. Prior to joining Centerbridge, Mr Doshi was a Vice President at Bain Capital and previously was an Associate Consultant at Bain & Company. Mr Doshi graduated class valedictorian with a B.S. in electrical engineering from Columbia University and received an M.B.A. with honors from The Wharton School of the University of Pennsylvania. He currently serves as a Director of P.F. Chang’s and CraftWorks Restaurants & Breweries. Mr Doshi was appointed as Alternate Director of the Company on 10 December 2013.

Other current directorships No other directorships of Australian listed entities.

Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities None.

Interests in shares and options None.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 17 Information on Directors (continued) THOMAS CASARELLA (Alternate Director for Matthew Wilson) Experience and expertise Thomas Casarella is a Senior Vice President at Oaktree Capital Management, L.P. and is based in Los Angeles. Mr Casarella helps lead Oaktree’s retail and consumer investing efforts, including investments in the apparel, retail, consumer products, food, beverage, and restaurants sectors. Prior to Oaktree, Mr Casarella was the Deputy Chief Restructuring Officer at the United States Department of the Treasury, where he helped lead the Troubled Asset Relief Program (TARP).

Prior thereto, he worked in the private equity group at Brookfield Asset Management and the investment banking division of Lazard and Goldman Sachs. Mr Casarella graduated with an A.B. degree summa cum laude from Bowdoin College, an M.A. in Economics from Oxford University, and an M.B.A. from the Harvard Business School. He is a member of the Board of Trustees of the Children’s Bureau of Los Angeles. Mr Casarella was appointed as Alternate Director of the Company on 10 December 2013.

Other current directorships No other directorships of Australian listed entities. Former directorships in last 3 years No former directorships of Australian listed entities.

Special responsibilities None.

Interests in shares and options None.

COMPANY SECRETARY The Company Secretary is Ms Tracey Wood, BA (Psych), LLB, LLM. Ms Wood was appointed to the position of Company Secretary on 18 July 2014 and continues as Company Secretary at the date of this report. She joined the Company on 1 July 2008 and is the International General Counsel for the Group. Ms Joanna Brand, BA, JD, M.B.A. (Executive), GAICD, was appointed as an additional Company Secretary on 12 September 2014 until her resignation on 27 August 2015 to cover Ms Wood whilst on maternity leave. She also served as International General Counsel for the Group during that time. Ms Maria Manning was appointed as Company Secretary on 27 April 2006 until her resignation on 18 July 2014. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 18 Information on Directors (continued) Meetings of Directors The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2015, and the numbers of meetings attended by each Director, were:

Billabong International Limited Board Audit Committee Nominations Committee Human Resource and Remuneration Committee Class Action Committee Scheduled Meetings Unscheduled Meetings Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended I. Pollard 13 13 - - 44 11 6 6 99 M.S Fiske Jr 13 13 - - AA AA A A AA G.S. Merchant 13 13 - - AA AA A A AA H. Mowlem 13 13 - - 44 11 6 6 AA J. Mozingo 13 12 - - 44 11 6 5 AA S.A.M. Pitkin 13 12 - - 44 11 6 5 95 M. Wilson 13 10 - - 42 10 6 3 AA A. Doshi - 1 B - - -- -- - 1 B -- T. Casarella - 3 C - - -2 C -1 C - 3 C -- A Not a member of the relevant Committee. B Alternate Director for Jason Mozingo. C Alternate Director for Matthew Wilson.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 19 Remuneration Report MESSAGE FROM THE BOARD The Board of Billabong International Limited presents the 2014-15 Remuneration Report. The Board remains committed to delivering remuneration strategy outcomes that support our strategic imperatives, reflect our company performance, and appropriately reward high quality executives and other team members. This report sets out the remuneration outcomes for 2014-15. During 2014-15, the Board approved the long range plan established by Billabong in support of the Turnaround Strategy.

Reward programs and processes throughout the Company were refined to support the strategic objectives and long range plan. Some of these refinements included:  the introduction of a company-wide financial performance gateway that must be achieved before any Short- Term Incentive (STI) rewards can be earned, in addition to the previously used regional/brand gateways,  the development of a company-wide framework to ensure all STI participants were focused on Key Performance Indicators that support the Turnaround Strategy and appropriately reward for financial success,  the refinement of the Long-Term Incentive (LTI) program to include the key executive leadership across all of our brands/regions, and  the linkage of the LTI Earnings Per Share metric with the long range plan.

Executive Director The Board reviewed the remuneration arrangements of the CEO and determined it was appropriate to transfer his employment agreement from a contract based in Australia to one based in the United States. The success of the Turnaround Strategy required the CEO to rebuild the North American leadership and operations, and as a result, the change in his contract reflects the significantly greater amount of time that the CEO has spent and continues to spend in the USA compared with what was anticipated at the start of his employment with Billabong. As a global business, the expectation of the Board has been and remains that the CEO will travel widely and regularly across its operations to meet with staff, stakeholders and shareholders.

Non-Executive Directors For the 2014-15 financial year, the Non-Executive Director fees were increased by 2.5% in line with the Company’s average remuneration increase, plus $5,000 per Director to recognise the additional travel demands being placed on the directors following the recapitalisation of the Company. For the 2015-16 financial year, the Non-Executive Director fees will not be increased. Sally Pitkin Human Resources and Remuneration Committee Chair Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 20 Remuneration Report (continued) CONTENTS The information provided in this report has been prepared based on the requirements of the Corporations Act 2001 and the applicable accounting standards. The report has been audited and is set out under the following headings. 1.  INTRODUCTION 21   2.  REMUNERATION GOVERNANCE 21   3. BILLABONG KEY MANAGEMENT PERSONNEL DISCLOSED IN THIS REPORT 22   4.  REMUNERATION PRINCIPLES, STRATEGY AND OUTCOMES 24   Remuneration principles 24   Guiding Principles for Total Rewards 24   Remuneration strategy 24   Statutory remuneration outcomes 27   Executive remuneration structure 31   Fixed annual remuneration 31   Short-Term Incentive structure 32   Short-Term Incentive (STI) outcomes 33   Mid Term Incentive (MTI) Structure 34   Long-Term Incentive structure 34   Long-Term Incentive (LTI) outcomes 37   Summary of executive contracts 38   5. NON-EXECUTIVE DIRECTOR REMUNERATION 39   Approved fee pool 39   Approach to setting Non-Executive Director remuneration 39   Non-Executive Director remuneration 40   6. OTHER STATUTORY DISCLOSURES 41   Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 21 Remuneration Report (continued) 1. INTRODUCTION This Billabong Group Remuneration Report forms part of the Billabong Group Directors’ Report and has been audited in accordance with the Corporations Act 2001. The Remuneration Report details remuneration information for the Key Management Personnel (KMP) of the Group, comprising the Non-Executive Directors, the Managing Director and Chief Executive Officer (CEO) and Group Executives who led significant parts of the business. 2. REMUNERATION GOVERNANCE The Group’s remuneration strategy, policies, and practices are designed to support the strategy and operational demands of the business, and to fairly reward employees having regard to sustainable performance, shareholder returns and good governance. The Board provides guidance on the remuneration strategy, and oversight of the remuneration policies and practices. To assist with this responsibility, the Board has a Human Resource and Remuneration Committee made up of Non-Executive Directors only. The primary objective of the Committee is to assist the Board in establishing remuneration policies and practices which:

 enable the Group to attract and retain executives and Directors (Executive and Non-Executive) who will create sustainable value for shareholders;  fairly and responsibly reward executives and Directors having regard to the Group’s overall strategy and objectives, the performance of the Group, the performance of the executive and the general market environment within the geographic locations where the Group has operations;  link reward to the creation of sustainable value for shareholders; and  comply with the law and high standards of governance.

The Group’s Human Resource and Remuneration Committee Charter and Group Remuneration Policy, which documents the Group’s overall approach to remuneration, are available on the corporate website at www.billabongbiz.com.

The Board approves, based on recommendations from the Human Resources and Remuneration Committee, all remuneration decisions and outcomes for the CEO, and all executives who report directly to the CEO. The CEO approves short-term incentives and merit increase payment pools for the Group as well as material changes to remuneration for executives who report to his direct reports. The Committee draws on the services of independent remuneration advisors from time to time. Independent remuneration advisors are engaged by, and report directly to, the Committee and provide advice and assistance on a range of matters, including:

 updates on remuneration trends, regulatory developments and shareholder views;  review, design or implementation of the executive remuneration strategy and its underlying components (such as incentive plans); and  market remuneration analysis.

The Group’s Remuneration Policy is reviewed annually by the Committee. Recommendation provided No remuneration recommendations from independent remuneration advisors were received during the 2014-15 financial year. Securities Trading Policy Executives are prohibited under Billabong’s Securities Trading Policy from hedging or otherwise reducing or eliminating the risk associated with equity-based incentives. If the executive hedges in breach of this policy, the incentives will be forfeited or lapsed as the case may be. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 22 Remuneration Report (continued) 3. BILLABONG KEY MANAGEMENT PERSONNEL DISCLOSED IN THIS REPORT The key management personnel (KMP) for the Group in 2014-15 comprised the Non-Executive Directors, the Managing Director and Chief Executive Officer, and Group Executives who led significant parts of the business. Executive Directors Neil Fiske Managing Director and Chief Executive Officer (CEO).

Group Executives classified as KMP Paul Burdekin General Manager, Billabong Group, Asia Pacific (GM Asia Pacific) from 17 July 2014. Prior to this was Acting GM Asia Pacific.

Ed Leasure President Americas (President Americas). Peter Myers Chief Financial Officer (CFO).

Shannan North Global President, Brand Billabong.

Jean-Louis Rodrigues General Manager, Billabong Group Europe (GM Europe). Former Key Management Personnel (KMP) Jeffery Streader Global Chief Operating Officer (COO) until 24 April 2015. Non-Executive Directors Ian Pollard Chair Gordon Merchant AM Director Howard Mowlem Director Jason Mozingo Director Sally Pitkin Director Matt Wilson Director Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 23 Remuneration Report (continued) A short profile of the Executive KMP follows:

2014-15 Executive Key Management Personnel profiles Neil Fiske, Executive Director, Chief Executive Officer and Managing Director Neil Fiske joined Billabong on 21 September 2013 as CEO and Managing Director. He has 25 years of experience in the consumer and retail industry as an operator, consultant and investor. Prior to joining Billabong, Neil was an Industry Partner to Canadian private equity firm Onex, where he acted as a senior advisor focused on retail; CEO of Eddie Bauer; CEO of Bath and Body Works, a division of NYSE listed Limited Brands; and a Partner in the Consumer and Retail Practice at the Boston Consulting Group. Neil received an M.B.A from Harvard Business School and a B.A. in Political Economy from Williams College. Paul Burdekin, General Manager Asia Pacific Paul Burdekin joined Billabong Australia on 21 January 2008 as General Manager for Tigerlily, and his brand portfolio quickly grew to include VZ, RVCA and Nixon. Prior to joining Billabong, Paul held international and domestic senior management roles within the retail and wholesale industry. In March 2014, Paul was promoted to KMP role, Acting General Manager Asia Pacific. This role was confirmed on 17 July 2014. Paul holds a M.B.A. and Bachelor of Industrial Design. Ed Leasure, President Americas Ed Leasure joined Billabong USA on 10 August 2008 when Billabong acquired Quiet Flight, a successful surf retail chain which Ed opened and owned and operated for many years. Ed initially joined the Company to serve as President of Quiet Flight but was later appointed to lead the entire US retail division. In October 2013 Ed was appointed to KMP role, Acting President Americas. This role was confirmed in December 2013. Ed holds a Bachelor of Business Administration.

Peter Myers, Global Chief Financial Officer Peter Myers joined Billabong on 14 January 2013 as Global Chief Financial Officer. He has over 30 years of experience in his field, primarily in the diversified media industry. Prior to joining Billabong, Peter held CFO roles at Northern Star Holding LTD, Century Yuasa Batteries, Network Ten Limited and APN News & Media Limited. In 2013, he also held the position of acting CEO for Billabong from 5 August to 19 September. Peter is a CPA and holds a Bachelor of Business. Shannan North, Global President, Brand Billabong Shannan North joined Billabong Australia on 9 August 1993, working in various retail, marketing, sales and merchandising roles. Shannan was appointed General Manager Asia Pacific in 2004. On 3 March 2014 Shannan was promoted to Global President, Brand Billabong. Jean-Louis Rodrigues, General Manager Europe Jean-Louis Rodrigues joined Billabong on 3 September 2008 as Europe’s Retail Director. He has extensive experience in the action sports industry, including senior roles at Reebok, Quiksilver and O’Neill where he was the General Manager for southern Europe. In September 2013 Jean-Louis was promoted to KMP role, Acting General Manager Europe. This role was confirmed in December 2013. He holds qualifications in International Commerce.

Profiles of Non-Executive Directors can be found on pages 13 - 17.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 24 Remuneration Report (continued) 4. REMUNERATION PRINCIPLES, STRATEGY AND OUTCOMES Remuneration principles The Group’s approach to remuneration is framed by the strategic direction and operational demands of the business, the international context in which the business operates, sustainable shareholder returns, the regulatory environment and high standards of governance. A number of principles underpin our remuneration policy:

Attract, motivate and retain top talent  The Group operates in global and local markets where it competes for a limited pool of talent. In order to attract, motivate and retain high calibre people, the Group aims to provide a market competitive reward opportunity which encourages retention and high performance.

Support the execution of business strategy  Apply performance targets in the performance management system and in the awarding of performance based rewards that support the Group’s strategic objectives and business performance expectations.

 Apply performance metrics that are explicitly defined, verifiable and relevant to the employee's role in the organisation.

Alignment with business performance and sustainable shareholder return  Create alignment within the remuneration structure between senior executive remuneration, sustainable business performance and shareholder returns, including through long-term equity based incentives and performance metrics. Fairness, equity and consistency  Structure remuneration arrangements to achieve equity for like positions.  Prepare clearly documented remuneration policies and processes and make them available to all employees.  Implement a robust and transparent remuneration decision making process and performance review system. Guiding Principles for Total Rewards In 2014-15, the Group established several principles that supplement and expand on the Company’s remuneration principles. These additional principles are used to guide decisions related to the design of our Total Rewards programs for all of our employees. The guiding principles are intended to orient our remuneration programs to:

 drive behaviours that align with the interests of our shareholders;  target median of relevant external market, stretch for critical talent when necessary and reward exceptional performance at above market levels;  strive for global consistency in the application of our principles;  be simple to explain;  pay for performance;  align performance measures with individual employee contributions;  promote accountability and an ownership mentality; and  ensure that minimum group or company performance gates are achieved before short-term incentives are paid. Remuneration strategy The Group’s executive remuneration strategy provides a strong link between performance and reward by making executive long-term reward outcomes dependent on delivering long-term value to shareholders, while at the same time motivating and retaining top talent through market competitive fixed remuneration and an incentive framework that rewards for results delivered. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 25 Remuneration Report (continued) Remuneration strategy (continued) The following diagram illustrates how the Group’s executive remuneration strategy aligns with business objectives and links executive remuneration to company performance and the delivery of shareholder returns.

Business objective The Group remains committed to and continues to focus on the execution of the seven part Turnaround Strategy (brand, product, marketing, omni-channel, supply chain, organisation and financial discipline) that was initially announced on 10 December 2013. The prevailing opportunity is to continue to build the foundation for years of profit growth and sustained shareholder returns by focusing on “fewer, bigger, better” brands and initiatives across the Company. The Group’s vision remains: “To maintain a global leadership position in the design, marketing, wholesaling and retailing of action sports inspired apparel and accessories targeted at the youth market, and, in turn, build long-term value for stakeholders.” Remuneration strategy objectives and approach Align executive remuneration to company performance and deliver results to shareholders.

 Short and long-term incentive components of remuneration (STI and LTI) are “at risk” based on business performance and return to shareholders.

 In 2014-15, we introduced a common financial gateway for the STI requiring a minimum global group EBITDA performance before any incentives can be earned. The program continues to focus on financial performance with STI based primarily on EBITDA, and for some KMP, a smaller portion based on Inventory Turn/Working Capital and/or Functional Achievement metrics.  LTI remains measured against relative Total Shareholder Return (relative TSR) and Earnings Per Share (EPS) with three year testing and vesting. Attract and retain executive talent in a highly competitive global market.

 Reward competitively in the global markets in which the Group operates, which include Asia Pacific, the Americas and Europe.

 Offer remuneration that balances fixed and variable (“at risk”) short and long-term incentives. Fixed remuneration Short-Term Incentive (STI) Long-Term Incentive (LTI) Consists of… Base salary plus benefits (which vary by country). Annual payment opportunity (part cash, part deferred equity), subject to financial gateway being achieved. Participation in the Executive Long- Term Incentive Plan (ELTIP). Granted annually at the discretion of the Board. Rewards for… Experience, skills and capabilities. Performance over a 12-month period (EBITDA, Inventory Turn/Working Capital and/or Functional Achievement). Achievement of the Group’s EPS target and TSR relative to a comparator group over a three year period. Is… Fixed Reviewed annually. At risk Wholly dependent on achieving agreed performance objectives. At risk Awards depend on hurdles being met.

Value to the executive depends wholly on the Group’s performance. Determined by… Referencing global and local market movements for the role, market pay comparisons, individual experience and role accountabilities. Performance against defined financial and operational measures.

STI is only payable if financial gateway is met and targets are achieved. Alignment to the Group’s business strategy and requirement for key executives to drive company performance. Performance assessed using EPS and relative TSR. EPS is a financial indicator of the Group’s performance over a certain period. TSR demonstrates value returned to shareholders relative to a comparator group. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 26 Remuneration Report (continued) Remuneration for other employees The remuneration for all other employees is aligned with our approach for Key Management Personnel. In particular:  Fixed remuneration is aligned to market and is reviewed annually;  Certain management personnel are eligible to participate in the STI program, with similar financial gateways and targets; and  Certain management personnel are eligible to participate in the LTI program with the same three year EPS and relative TSR financial hurdles. Summary - Remuneration outcomes for current Executive Key Management Personnel Table A sets out the 2014-15 (non-statutory) remuneration outcomes of The Group’s current Executive KMP. This table sets out the rewards received over the year, excluding any payments in respect of the 2013-14 financial year which were paid in 2014-15 and reported in last year’s Remuneration Report.

The ‘non-statutory remuneration’ data set out below do not reconcile directly to Table B: Statutory Remuneration Comparison, as that table includes the share based remuneration allocation and long service leave expenses for each KMP reported during the year.

Table: A 1: 2014-15 Remuneration outcomes Neil Fiske 5 Paul Burdekin Ed Leasure 5 Peter Myers Shannan North 5 Jean-Louis Rodrigues 5 Cash Salary 1,063,964 444,231 418,144 725,000 752,659 395,105 Short-term incentive (STI) earned (cash) 2 --- --- --- --- 112,899 177,802 Short-term incentive (STI) vested (equity) --- --- --- --- --- --- Non-monetary benefits 3 170,979 9,846 17,908 2,983 114,263 42,283 Superannuation --- 18,783 --- 18,783 18,783 --- Long-term incentives (value vested during the year) 4 --- 19,789 8,312 --- --- 19,723 Total remuneration realised 1,234,943 492,649 444,364 746,766 998,604 634,913 1 This Table A excludes details of accrued long service leave and accounting charges for share based payments.

Details of these items are set out in Table B on page 27-30. 2 The STI for the financial year ended June 2015 will be paid in September 2015. 3 These amounts for certain KMP include family travel, clothing allowance, vehicle allowance or vehicle lease value, health and welfare insurance, retirement benefits, one-off relocation benefits and in France, an annual statutory payment. Non-monetary benefits for Neil Fiske include tax preparation assistance, health cover, spouse travel, expatriate allowance (part year ending February 2015) and accommodation benefits (part year ending September 2014). 4 The vested long-term incentive relates to the value of all retention based shares that vested during the financial year and is based on the volume weighted average price of Billabong International Limited shares ($0.57) trading in the 5 days up to and including 2 September 2014, and for Jean-Louis Rodrigues, the volume weighted average price of Billabong International Limited shares ($0.66) trading in the 5 days up to and including 11 September 2014. These retention based shares were awarded in September 2012 under the previous Executive Performance Share Plan. 5 Remuneration impacted by exchange rate fluctuations. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 27 Remuneration Report (continued) Statutory remuneration outcomes Table B sets out statutory remuneration for the KMP. Amounts in the share based payments columns represent accounting expenses and not vested awards. Table B: Statutory remuneration comparison Neil Fiske 1, Ω Launa Inman 2 Paul Naude 3 2015 2014 2015 2014 2015 2014 Cash salary 982,121 715,701 --- 152,408 --- 63,631 Sign-on incentive cash --- 250,000 --- --- --- --- Sign-on incentive equity --- 589,286 --- --- --- --- Retention payment - cash --- --- --- --- --- --- STIP payment – cash --- --- --- --- --- --- STIP deferred – equity* --- --- --- --- --- --- Other payments --- --- --- --- --- --- Non-monetary benefits † 170,979 135,817 --- 27,680 --- 9,771 Superannuation --- --- --- 19,826 --- 858 Annual leave 81,843 59,642 --- 12,701 --- 5,303 Long-service leave --- --- --- --- --- --- Termination benefits --- --- --- 1,232,909 --- 762,278 Share based payments- options ‡ --- --- --- --- (1,110,542) Share based payments- rights﬩ 480,122 148,195 --- (61,194) --- --- Total remuneration 1,715,065 1,898,641 --- 1,384,330 --- (268,701) % of Total Remuneration provided as performance related pay^ 28% 7.8% --- 0.0% --- 0.0% % of Total Remuneration provided as fixed pay ♯ 72% 92. 2% --- 100.0% --- 100% 1 2013-14 remuneration reflects commencement of employment on 21 September 2013. 2 Ceased performing her role on 2 August 2013. 3 Employment ceased 5 August 2013. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 28 Remuneration Report (continued) Statutory remuneration outcomes (continued) Table B: Statutory remuneration comparison (continued) Paul Burdekin 4 Franco Fogliato 5 Colin Haggerty 6 2015 2014 2015 2014 2015 2014 Cash salary 410,059 106,217 --- 418,230 --- 329,416 Sign-on incentive cash --- --- --- --- --- --- Sign-on incentive equity --- --- --- --- --- --- Retention payment - cash --- --- --- --- --- --- STIP payment – cash --- 54,396 --- --- --- --- STIP deferred – equity* --- --- --- --- --- --- Other payments --- --- --- --- --- --- Non-monetary benefits † 9,846 3,300 --- 5,348 --- 24,167 Superannuation 18,783 3,376 --- --- --- 17,775 Annual leave 34,172 8,851 --- 44,493 --- 25,793 Long-service leave 21,456 10,928 --- --- --- --- Termination benefits --- --- --- 631,040 --- 461,572 Share based payments- options ‡ --- --- --- (418,027) --- --- Share based payments- rights﬩ 53,323 5,297 --- (18,495) --- (16,445) Total remuneration 547,639 192,365 --- 662,589 --- 842,278 % of Total Remuneration provided as performance related pay^ 10% 33% --- 0% --- 0% % of Total Remuneration provided as fixed pay ♯ 90% 67% --- 100% --- 100% 4 2013-14 cash salary and STI reflect period in KMP role only (promoted to KMP role 3 March 2014). 5 Ceased performing his role on 2 November 2013. 6 Ceased performing his role on 19 November 2013. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 29 Remuneration Report (continued) Statutory remuneration outcomes (continued) Table B: Statutory remuneration comparison (continued) Ed Leasure 7, Ω Peter Myers 8 Shannan North Ω 2015 2014 2015 2014 2015 2014 Cash salary 385,979 256,451 669,231 689,589 694,762 641,966 Sign-on incentive cash --- --- --- --- --- --- Sign-on incentive equity --- --- --- --- --- --- Retention payment - cash --- --- --- --- --- --- STIP payment – cash --- --- --- --- 112,899 175,875 STIP deferred – equity* --- --- --- --- 32,086 19,542 Other payments --- --- --- 450,000 --- --- Non-monetary benefits † 17,908 6,784 2,983 9,000 114,263 5,500 Superannuation --- --- 18,783 17,775 18,783 17,775 Annual leave 32,165 21,371 55,769 57,466 57,897 53,497 Long-service leave --- --- --- --- 4,121 37,971 Termination benefits --- --- --- --- --- --- Share based payments- options ‡ --- --- --- --- --- 47,595 Share based payments- rights﬩ 96,342 35,445 113,865 38,800 53,067 87,901 Total remuneration 532,394 320,051 860,631 1,262,630 1,087,878 1,087,622 % of Total Remuneration provided as performance related pay^ 18% 11% 13% 39% 18% 30% % of Total Remuneration provided as fixed pay ♯ 82% 89% 87% 61% 82% 70% 7 2013-14 cash salary reflects period in KMP role only (promoted to KMP role 8 October 2013). 8 2013-14 “Other Payment” represents a one-off bonus payment in recognition of his contribution to the successful re-financing/re-capitalisation of the Company.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 30 Remuneration Report (continued) Statutory remuneration outcomes (continued) Table B: Statutory remuneration comparison (continued) Jean-Louis Rodrigues 9, Ω Jeffery Streader 10, Ω Total for all executives 2015 2014 2015 2014 2015 2014 Cash salary 357,114 280,723 518,466 87,871 4,017,732 3,742,203 Sign-on incentive cash --- --- --- 54,448 --- 304,448 Sign-on incentive equity --- --- --- --- --- 589,286 Retention payment - cash --- 147,732 --- --- --- 147,732 STIP payment – cash 177,802 91,614 --- --- 290,701 321,885 STIP deferred – equity* 29,944 10,188 --- --- 62,030 29,730 Other payments --- --- --- --- --- 450,000 Non-monetary benefits † 42,283 23,478 20,396 1,269 378,658 252,114 Superannuation --- --- --- --- 56,349 77,385 Annual leave 37,991 29,864 43,205 7,323 343,042 326,304 Long-service leave --- --- --- --- 25,577 48,899 Termination benefits --- --- 636,590 --- 636,590 3,087,799 Share based payments- options ‡ --- --- --- --- --- (1,480,974) Share based payments- rights﬩ 71,720 30,087 --- --- 868,439 249,591 Total remuneration 716,854 613,686 1,218,657 150,911 6,679,118 8,146,402 % of Total Remuneration provided as performance related pay^ 39% 21.5% 0% 0% 18% 11% % of Total Remuneration provided as fixed pay ♯ 61% 78.5% 100% 100% 82% 89% 9 2013-14 cash salary and STI reflect period in KMP role only (promoted to KMP role 25 September 2013). 10 2013-14 remuneration reflects commencement of employment on 4 May 2014. Ceased performing his role on 24 April 2015. Remained in employment and available to assist the Company through a transition period until 8 May 2015. Ω Remuneration impacted by exchange rate fluctuations.

* 2014-15 STI payment – equity represents one third of the value of the portion of the STI (25%) granted in respect of the 2013-14 and 2014-15 financial years and deferred into equity for a 2 year period. 2013-14 STI payment – equity represents one third of the value of the portion of the STI (25%) granted in respect of the 2013-14 financial year and deferred into equity for a 2 year period. † These amounts for certain KMP include clothing allowance, vehicle allowance or vehicle lease value, health and welfare insurance, one-off relocation benefits, retirement benefits and in France, an annual statutory payment. Non- monetary benefits for Neil Fiske include tax preparation assistance, health cover, spouse travel, an expatriate allowance (part year ending February 2015) and accommodation benefits (part year ending September 2014). ‡ Includes an accounting charge recognised in the Group's income statement based on the fair value of the award at the date of grant amortised on a straight line basis over the vesting period of the EPRP. The accounting charge is reflected as an expense in the financial statements regardless of whether the EPRP may fully vest, partially vest or not vest at all. ﬩ Includes an accounting charge recognised in the Group's income statement in respect of the long-term incentive plan. The accounting charge reflects at 30 June 2015 and 30 June 2014 the most probable likelihood of the 2012- 13, 2013-14 and 2014-15 grants vesting to the individual. Also includes negative amounts for the write back in the accumulated expense previously recognised in the Group’s income statement in respect of the long-term incentive plan as a result of performance hurdles and retention requirements in relation to certain components of the long- term incentive plan not being met or which are unlikely to be met. ^ % of Total Remuneration received as performance related pay includes the total of STI payment cash, STI deferred equity, other payments and share based payments – options and rights. ♯ % of Total Remuneration received as fixed pay includes the total of cash salary, sign on incentive - cash and equity, retention payment – cash and equity, non-monetary benefits, superannuation, annual and long service leave and termination benefits. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 31 Remuneration Report (continued) Executive remuneration structure Remuneration mix Fixed annual remuneration provides a “base” level of remuneration. Short and long-term variable (“at risk”) incentives reward executives for meeting and exceeding pre-determined performance targets linked to the achievement of the Group’s business objectives. This structure links variable reward to the business outcomes necessary for value creation for shareholders. As executives gain seniority within the Group, the balance of the remuneration mix shifts to a higher proportion of variable reward to strengthen the connection between senior executive reward and performance. As per Table B, for Executive KMP the percentage of pay delivered as performance-related during 2014-15 ranged from 8% to 39%. Chart A (non-statutory) shows remuneration mix for current Executive KMP exclusive of any one-off outcomes, such as relocation benefits. Chart A includes cash salary, superannuation, target and stretch short-term incentive potential and long-term incentive awards quantified based on 5 day volume weighted average price prior to and including grant date (for 2014-15 this was $0.65). Chart A: Remuneration mix (cash salary, STI and LTI potential*) * STI and LTI potential as a percentage of base salary. Fixed annual remuneration Fixed annual remuneration typically includes base salary, non-cash benefits (such as vehicle, clothing allowance and health cover) and retirement contributions. It rewards executives for effective delivery of the requirements of their roles and behaviour in accordance with the Group’s culture and values. The Group has typically appointed executives at salaries commensurate with the Company’s context and market data, with remuneration more heavily skewed to incentives for financial performance. The Group may determine that it is appropriate to stretch fixed annual remuneration in order to attract critical talent where necessary, such as for the CEO. Although above market for similarly sized capitalisation organizations, the Board determined that it was appropriate to offer a fixed base salary competitive with the CEO’s prior roles in order to attract a CEO with his talent, experience and past success in retail turnaround environments.

In respect of 2014-15 the Board determined that fixed remuneration would not be increased for KMPs continuing in the same role. The Board further determined that in respect of Neil Fiske, the truly international nature of his responsibilities and geographic diversity of the Group’s activities meant that it would be more appropriate to base his employment contract in California. This change reflects the amount of time that he has spent and will continue to spend in the USA rebuilding the Americas leadership and operations in support of the Turnaround Strategy. The Board further determined that his AUD base salary should be converted to USD using the FX conversion rate that was in effect at the time of his appointment in September 2013 in order to maintain parity with his original offer of employment. Each KMP’s base salary is disclosed in local currency in Table H. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Neil Fiske Paul Burdekin Ed Leasure Peter Myers Shannan North Jean-Louis Rodrigues Fixed At risk Target STI potential At risk Stretch STI potential At risk LTI potential 100% 60% 1 00% 69% 80% 60% 100% 4 0% 4 0% 40% 4 0% 125% 30% 51% 35% 60% 30% US$945,000 AU$450,000 US$350,000 AU$725,000 US$630,000 EUR275,000 Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 32 Remuneration Report (continued) Short-Term Incentive structure Short-Term Incentive (STI) What is the purpose of the STI? STI performance hurdles focus executive attention on the Group’s critical performance metrics and rewards executives for achieving or exceeding Group performance targets. Who participates? All Executive KMP and selected senior executives. How much can be earned under the STI Plan? The target STI opportunity for KMP starts at 60% of base salary and goes up to 100% of base salary for certain roles. For stretch/over performance, KMP generally have the ability to earn between an additional 40% of base salary or in the case of the CEO, an additional 100% of base salary. What are the performance conditions? No STI is payable unless a minimum Global Group EBITDA performance gate and assigned financial targets are achieved. Performance on the primary EBITDA target assigned to the KMP, as well as overall performance on the targeted bonus, determines the stretch STI payable.

Details of the performance measures (KPIs) set for the KMP for 2014-15 are provided in Table C on page 33. Financial Measures There are three levels of targeted performance for each measure in the 2014-15 STI: 1. Threshold, which is the minimum required to potentially qualify for any incentive payment; 2. Target, where budgeted targets have been achieved; and 3. Stretch, where primary EBITDA budget has been exceeded. STI Financial Measures Threshold Target Stretch Percentage of criteria required (inclusive of STI payments) 90% 100% 120%+ Percentage of STI target payable Note: linear progression of payout percentage applies 25% 100% 100% to 200% Over what period is it measured? Performance is measured over the 12 month period from 1 July to 30 June. STI payments are made early the following September. How is it paid? For all executive direct reports of the CEO, the STI reward is a combination of a cash payment (75%) and deferred equity (25%). The deferred equity is normally granted on 1 September following the financial year and vests after a two year period. The deferred portion is forfeited if the executive resigns before the end of the two year vesting period. The reward for other employees participating in the STI program is a cash payment. Executives cannot vote nor receive dividends in respect of unvested deferred equity. When and how is it reviewed? STI measures are reviewed annually in line with a review of budgets and the annual business plan. Who assesses performance against targets? The Board assesses the CEO’s performance against KPIs. The CEO provides an assessment of performance for his direct reports to the Human Resource and Remuneration Committee.

The Human Resource and Remuneration Committee reviews this assessment and makes recommendations to the Board. What are the clawback provisions? Clawback provisions apply to the portion of STI that is deferred into equity (25%) under the same provisions as the Long-Term Incentive awards, as outlined on page 36. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 33 Remuneration Report (continued) Short-Term Incentive structure (continued) Summary of executive performance measures The table below shows the 2014-15 performance measures (KPIs) set for KMP. Table C: 2014-15 KPIs for KMP Executive Summary of performance measures / KPIs Weighting Achievement 2 CEO and Managing Director Neil Fiske Global Group EBITDA 100% Not Achieved GM Asia Pacific Paul Burdekin Global Group EBITDA Asia Pacific EBITDA Asia Pacific Inventory Turn and Working Capital 25% 60% 15% Not Achieved Not Achieved Achieved President Americas Ed Leasure Global Group EBITDA Americas EBITDA Americas Inventory Turn and Working Capital 25% 60% 15% Not Achieved Not Achieved Not Achieved CFO Peter Myers Global Group EBITDA Global Inventory Turn and Working Capital Functional Achievement 60% 20% 20% Not Achieved Not Achieved N/A 3 Global President, Brand Billabong Shannan North Global Brand EBITDA 100% Partially Achieved GM Europe Jean-Louis Rodrigues Global Group EBITDA Europe EBITDA Europe Inventory Turn and Working Capital 25% 60% 15% Not Achieved Over Achieved Not Achieved COO Jeffery Streader 1 Global Group EBITDA Inventory Turn and Working Capital Functional Achievement 60% 20% 20% N/A N/A N/A 1 Jeffery Streader ceased employment on 8 May 2015 and therefore he was not eligible to participate in 2014-15 STI plan. 2 Performance less than the minimum threshold of 90% on the primary EBITDA target will typically result in no STI payable, even if other performance measures/KPIs are achieved. 3 As primary KPI was not achieved, performance under the functional achievement metric is not applicable. Short-Term Incentive (STI) outcomes In respect of 2014-15 performance, the Company achieved its minimum Global Group EBITDA performance gate. As a result, KMP that achieved their primary EBITDA target were eligible for an STI payment. An STI payment was made to Jean-Louis Rodrigues, GM Europe and to Shannan North, Global President, Brand Billabong. This payment was in relation to EBITDA performance of Europe for Jean-Louis Rodrigues and global Billabong EBITDA for Shannan North. Table D shows 2014-15 cash and equity STI earned. The equity portion is deferred for a period of two years until 1 July 2017. Table D: 2014-15 STI payments Executive 2014-15 STI payment (cash) 2014-15 STI payment (equity) GM Europe Jean-Louis Rodrigues $177,802 $59,267 Global President, Brand Billabong Shannan North $112,899 $37,633 Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 34 Remuneration Report (continued) Mid Term Incentive (MTI) Structure 1 As part of Shannan North’s agreement to accept the role of Global President Brand Billabong and transfer from Australia to the United States, the Company implemented a one-off MTI program for him. Given the size and significance of brand Billabong in the Company’s brand portfolio, the MTI arrangement is directly linked to global revenue and EBITDA growth over a two year period in order to incentivise Shannan to achieve stretch brand growth while controlling costs. How much can be earned under the MTI and how is it paid? USD$630,000 (75% cash and 25% deferred equity, which vests after a two year period). The deferred portion is forfeited if the executive resigns before the end of the two year vesting period. Clawback provisions apply to the portion of MTI that is deferred into equity (25%) under the same provisions as the Long-Term Incentive awards, as outlined on page 36. When was it granted? Year ending 30 June 2014 (base year). What are the performance conditions? The Board has set a challenging growth target for global brand Billabong EBITDA and global brand Billabong revenue to be achieved by the 2015-16 financial year as compared to the base year. Both targets must be achieved for payment to be earned. The EBITDA measure will be inclusive of the MTI payment. EBITDA will be ‘normalised’ to reflect like for like global brand Billabong results. 1 The Company has not accrued for a payment of MTI at this time.

Long-Term Incentive structure Long-Term Incentive (LTI) What is the purpose of the ELTIP? LTI for the Group is delivered through the ELTIP. The ELTIP focuses executives on the long-term performance of the Group through an equity-based reward opportunity that vests based on the achievement of certain performance hurdles. Who participates? Participants comprise the executives and senior management of the Group who play a role in driving the growth strategy of the Group. All Executive KMP participate. Executive Director grants are subject to shareholder approval. What is the vehicle? Awards granted in 2014-15 are in the form of performance rights which are equity settled share based payments. A small number of non-KMP participants were granted performance-based contingent cash awards due to tax complications in certain countries. If the performance hurdles are met, the employee will be allocated the relevant number of shares (or cash) as soon as practicable following the vesting date. An employee awarded performance rights is not legally entitled to shares in Billabong International Limited before the rights allocated under the ELTIP vest. Once vested, each right entitles the employee to receive one share in the Company. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 35 Remuneration Report (continued) Long-Term Incentive structure (continued) What are the performance conditions and what is the performance period? Awards under the ELTIP vest only if the performance hurdles are satisfied in the relevant performance period. The performance periods are summarised in the table below:

Grant Performance hurdle % of award that vests Performance Period 2014-15 Pre-tax EPS Performance Minimum performance threshold based on the Long Range (three year) Plan 50% Financial year ended 30 June 2017 Stretch performance based on the Long Range (three year) Plan 100% TSR performance relative to comparator group 50th percentile or above 50% 1 July 2014 to 30 June 2017 75th percentile or above 100% 50% of awards are based on executives meeting the Group’s three-year pre-tax EPS performance targets. EPS is a financial indicator of the Group’s earnings in the final year of the performance period. In previous periods the EPS performance hurdle was determined based upon three year compound growth rates in EPS from a base year. However, due to the significant changes to the capital structure of the Group, the Board has selected an interim EPS approach based on the Board approved Long Range Plan as the appropriate internal performance metric. These targets are robust, but will not be reported until the end of the performance period in order not to provide competitors with commercially sensitive information on the Group’s long range financial plan, and so as not to provide future earnings forecasts. The Board will be using the same approach for grants in FY16. 50% of awards are based on relative TSR. Relative TSR measures how the Group has returned value to its shareholders relative to a select comparator group over a three year period. This means executives will be rewarded only where the Group’s shareholder return has at least met the median of its comparator group, with 100% of the ELTIP grant vesting only if the Group’s performance is in the upper quartile of the selected comparator group. For 2014-2015, the Board determined to adjust the 2013-14 comparator group from:  40 ASX listed companies within an appropriate market capitalisation range and significant overseas operations or in a similar industry sector to the Group to:  20 ASX listed companies within an appropriate market capitalisation range in the “Consumer Discretionary” industry sector as well as five select USA listed peer companies. The comparator companies will be weighted such that the ASX listed companies will have a weighting of 100% and the five selected USA peer companies will have a weighting of 200% each (i.e. the ASX listed companies will be counted once in the comparator group and the USA peer companies will be counted twice). The companies included in the TSR comparator group are listed below. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 36 Remuneration Report (continued) Long-Term Incentive structure (continued) What companies are in the TSR comparator group? ASX Listed Companies ARB Corporation Limited Ardent Leisure Group APN News and Media Limited Cash Converters International Corporate Travel Management Limited Dick Smith Holdings Limited GUD Holdings Limited Iproperty Group Limited iSelect Limited Kathmandu Holdings Limited ASX Listed Companies Pacific Brands Limited Retail Food Group Limited Slater & Gordon Limited STW Communications Group Limited Ten Network Holdings Limited The Reject Shop Limited Thorn Group Limited Vocation Limited Webjet Limited Wotif.com Holdings Limited USA Listed Companies Pacific Sunwear of California Inc.

Quiksilver Inc.

Tilly’s Inc.

V.F. Corporation Zumiez Inc.

How is it paid? Grants are approved annually and vest no earlier than the third anniversary of the commencement of the performance period, subject to meeting the performance hurdles in the relevant performance period. The performance periods for outstanding awards are as follows: Grant approved Date granted Performance period Vesting subject to performance testing 2012-13 21 February 2013 From July 2012 to June 2015 September 2015 2013-14 18 December 2013 For EPS portion of grant - Financial year ended 30 June 2016 For TSR portion of grant - 1 January 2014 until 30 September 2016 October 2016 2014-15 2 December 2014 For EPS portion of grant - Financial year ended 30 June 2017 For TSR portion of grant - 1 July 2014 until 30 June 2017 September 2017 Executives cannot vote nor receive dividends in respect of unvested grants When and how is performance assessed? At the end of each performance period, the Human Resource and Remuneration Committee considers the relevant performance measures and determines the extent to which the awards should vest. How are performance conditions set? Performance hurdles are set in line with economic conditions and business objectives and are designed to be challenging but ultimately achievable if the Group performs in accordance with its business strategy. Each year, prior to awards being granted, the Human Resource and Remuneration Committee considers the market environment, the Group’s business strategy, performance expectations and shareholder expectations and sets the performance targets for the awards to be granted. What happens if a change of control occurs? If a change of control occurs prior to the vesting of an award, then the Board may determine in its absolute discretion whether some or all of a participant’s unvested award vests, is lapsed or forfeited or remains subject to the applicable conditions and/or performance period; or becomes subject to substitute or varied conditions and/or performance period. What are the clawback provisions? If an award which would not have otherwise vested, vests or may vest as a result of fraud, dishonesty or breach of obligations (including, without limitation, a material misstatement of financial information), or other action or omission of any person, the Board may determine that no unfair benefit is obtained by the participant. Conversely, if an award, which may otherwise have vested, has not vested as a result of the same circumstances, the Board may determine that the award should be vested. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 37 Remuneration Report (continued) Long-Term Incentives Equity awards Details of equity instruments, comprising performance rights, provided as remuneration to each KMP in the 2014-15 financial year are set out in Table E. When vested, each instrument will entitle the holder to one ordinary share of the Company. Rights will vest only if applicable performance hurdles and/or service conditions are satisfied in the relevant performance period. Table E: Rights Name Number of rights awarded during 2014-15 Number of rights vested during 2014-15 Executive Directors Neil Fiske (approved at the 2014 Annual General Meeting) 1,909,645 --- Other Key Management Personnel Paul Burdekin 1 206,242 34,932 Ed Leasure 1 302,378 14,672 Peter Myers 387,658 --- Shannan North 741,812 2 --- Jean-Louis Rodrigues 1 260,438 2 29,694 Jeffery Streader 554,359 --- 1 Rights vested represent awards granted as non-hurdled, retention based awards in 2012 under the former Executive Performance Share Plan. 2 Rights awarded include both LTI and STI deferred equity. During the year ended 30 June 2015 the assessed fair value at grant date of rights granted under the ELTIP were for the performance rights tested under the EPS performance hurdle $0.65 per right (2014: $0.43) and the performance rights tested under the TSR performance hurdle $0.52 per right (2014: $0.34). The fair value at grant date is determined by reference to Billabong International Limited’s share price at grant date, taking into account the terms and conditions under which the rights were granted, the expected dividend yield and the expected price volatility of the underlying share.

Participants do not need to pay for awards on grant, vesting or exercise.

Long-Term Incentive (LTI) outcomes During 2014-15 no hurdled LTI awards vested. Since the introduction of a hurdled LTI plan in 2004, only two grants have vested. The 2004-05 grants vested fully in 2006-07 at 100% based on growth in EPS in excess of 20%. The 2005-06 grant vested partially in 2007-08 at 87.5% based on 17.5% growth in EPS. No other hurdled awards have met the required performance hurdles for vesting. Non-hurdled, retention based awards granted in 2012 under the former Executive Performance Share Plan vested in September 2014. As a result, Paul Burdekin, Ed Leasure and Jean-Louis Rodrigues each received vested shares. Details of these can be found in Table E.

Other equity arrangements Other Group Executives A total of 30 senior executives (in addition to KMP) received equity awards under the ELTIP. Due to certain tax complications associated with performance rights in Europe, an additional eight senior (non-KMP) executives in Europe have the potential to receive a fixed cash amount rather than equity if the same EPS and relative TSR hurdles are achieved as those applicable to the ELTIP. Equity arrangements for Billabong Employees No other equity arrangements were offered to Billabong Employees in 2014-15.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 38 Remuneration Report (continued) Summary of executive contracts Executive contracts set out remuneration details and other terms of employment for each individual executive. The contracts provide for base salary inclusive of superannuation, performance-related bonuses, other benefits including health insurance, car allowances and clothing allowances, and participation, where eligible, in long-term incentive plans. The key provisions of the KMP contracts relating to terms of employment and notice periods are set out in Table H. Contractual terms vary due to the timing of contracts, individual negotiations and different local market practices. Table H: Executive contracts summary 1 Payment will be ‘scaled back’ if it would otherwise exceed the 12 month average base salary termination benefit cap applicable under Australian law.

2 Neil Fiske was transferred from a contract governed by Australian law to a contract governed by California law effective 1 January 2015. The success of the Turnaround Strategy required the CEO to rebuild the North American leadership and operations, and as a result, the change in his contract reflects the significantly greater amount of time that the CEO has spent and continues to spend in the USA compared with what was anticipated at the start of his employment with the Group. 3 Paul Burdekin was offered a new contract as a result of his appointment to the General Manager Asia Pacific. 4 Ed Leasure’s contract has been allowed to lapse, however he will remain employed by the Group with the terms of his employment governed by California and USA law. 5 Shannan North was transferred from a contract governed by Australian law to a contract governed by California law effective 18 August 2014 as a result of his appointment to Global President, Brand Billabong on 3 March 2014 and subsequent relocation to the USA. 6 Jean-Louis Rodrigues was offered a new contract as a result of his appointment to General Manager Europe. 7 Consistent with at will employment provisions in the USA, although the Company may choose to give notice to an employee, no notice period is required by the Company if the Company triggers termination of an employee with or without cause. 8 Base salary in local currency. Date of contract Term of contract Base Salary 8 Notice period required to be given by the Company Maximum contractual payment for termination by the Company without cause CEO and Managing Director Neil Fiske 2 1 January 2015 On-going USD 945,000 n/a 7 12 months 1 GM Asia Pacific Paul Burdekin 3 13 January 2015 On-going AUD 450,000 9 months Payment in lieu of notice President Americas Ed Leasure 4 1 July 2012 30 June 2015 USD 350,000 n/a 7 6 months base salary or base salary until 30 June 2015 (whichever is the lesser) CFO Peter Myers 11 January 2013 On-going AUD 725,000 6 months Payment in lieu of notice Global President Brand Billabong Shannan North 5 18 August 2014 On-going USD 630,000 n/a 7 12 months 1 GM Europe Jean-Louis Rodrigues 6 17 June 2015 On-going EUR 275,000 6 months Payment in lieu of notice 1 Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 39 Remuneration Report (continued) Summary of executive contracts (continued) Given that the executive contracts are governed by laws in different jurisdictions (California, Australia and France), restraint of trade terms vary and in the case of GM Europe, Jean-Louis Rodrigues, there is no restraint.

Termination Arrangements Chief Operating Officer, Jeffery Streader, ceased employment 8 May 2015. As per the terms of his Executive Employment Agreement, upon ceasing employment Jeffery Streader received 50 weeks of base remuneration. In addition, he received a one-time payment of $4,779 to be used towards post-employment medical premiums. The total termination payment is less than his 12 months average base salary. 5. NON-EXECUTIVE DIRECTOR REMUNERATION Approved fee pool Non-Executive Director fees are determined within a maximum Directors’ fee pool limit. In 2010, with shareholder approval, this pool fund was increased from $1,200,000 to $1,500,000 to provide flexibility to make required additions to the Board and to revise fees in line with external market rates. The fee pool is inclusive of superannuation. No director fees are paid to Executive Director, Neil Fiske. Total board remuneration paid during 2014-15 were $867,900. Approach to setting Non-Executive Director remuneration Non-Executive Directors receive fixed remuneration in the form of a base fee plus a fee for chairing of Board committees.

Non-Executive Directors do not receive variable remuneration or other performance-related incentives such as equity-based awards or retirement benefits other than statutory superannuation payments.

Effective 2013-14 Non-Executive Director base fees were reduced by 30% to take into account the Company’s reduced market capitalisation. For the 2014-15 financial year, those fees increased by 2.5% in line with the Company’s 2014-15 budgeted increase in employee remuneration levels. In addition Non-Executive Directors each receive an amount of $5,000 per annum to recognize the additional time required for international travel. Effective 1 November 2014, the temporary position of Chair of the Class Action Subcommittee was approved for fees consistent with the other committee chair positions due to the amount of time required to fulfil the duties of this position. For the 2015-16 financial year, the Non-Executive Director fees will not be increased. The 2013-14 and 2014-15 annual Non-Executive Directors fees are as follows: Table I: 2013-14 and 2014-15 Non-Executive Director Remuneration Non-Executive Director fees Fee 2013-14 Amount 1 2014-15 Amount 1 Board Chair fee 227,500 238,188 Director fee 91,000 98,275 Committee Chair fee (Audit and Risk, Class Action and Human Resource and Remuneration) – paid in addition to base fee 25,000 25,000 1 Excludes superannuation.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 40 Remuneration Report (continued) Non-Executive Director remuneration Table J sets out the Non-Executive Director fees paid in 2014-15 and the year prior. Table J: Fees paid during 2014-15 (and comparatives) Name Fees Non- monetary benefit 1 Superannuation Long service leave Total remuneration Ian Pollard 2014-15 2013-14 238,188 231,250 3,960 4,000 18,783 17,775 --- --- 260,931 253,025 Tony Froggatt 2 2014-15 2013-14 --- 35,100 --- 4,400 --- 3,700 --- --- --- 43,200 Gordon Merchant 2014-15 2013-14 98,275 92,500 4,371 4,400 9,320 8,556 --- --- 111,966 105,456 Howard Mowlem 2014-15 2013-14 123,375 117,500 4,000 4,000 11,695 10,869 --- --- 138,070 132,369 Jason Mozingo 3 2014-15 2013-14 98,275 59,850 609 2,667 --- --- --- --- 98,884 62,517 Colette Paull 4 2014-15 2013-14 --- 57,150 --- 4,400 --- 5,286 --- --- --- 66,836 Sally Pitkin 2014-15 2013-14 139,942 117,500 2,600 4,400 13,202 10,869 --- --- 155,744 132,769 Jesse Rogers 5 2014-15 2013-14 --- 25,928 --- --- --- --- --- --- --- 25,928 Keoni Schwartz 5 2014-15 2013-14 --- 25,928 --- --- --- --- --- --- --- 25,928 Matt Wilson 3 2014-15 2013-14 98,275 59,850 3,030 2,667 --- --- --- --- 101,305 62,517 Total 2014-15 2013-14 796,330 822,556 18,570 30,934 53,000 57,055 --- --- 867,900 910,545 1 Non-monetary benefit includes a clothing allowance, reported as retail value. 2 Resignation effective 4 November 2013. 3 Appointed 4 November 2013. 4 Resignation effective 30 January 2014. 5 Appointed 23 July 2013, resignation effective 4 November 2013.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 41 Remuneration Report (continued) 6. OTHER STATUTORY DISCLOSURES Table K: Short and Long term incentives Name Short-Term Incentive 2 Equity Awards Granted (performance shares, conditional rights and deferred STI) 2014-15 Paid 2014-15 Forfeited Year granted Vested Forfeited Financial years in which may vest Maximum total value of grant yet to vest (as at 30 June 2015) 1 Neil Fiske --- 100% 2015 2014 --- --- --- --- 30 June 2018 30 June 2017 1,250,054 969,178 Paul Burdekin --- 100% 2015 2013 --- 100% --- --- 30 June 2018 30 June 2015 135,006 --- Ed Leasure --- 100% 2015 2014 2013 --- --- 100% --- --- --- 30 June 2018 30 June 2017 30 June 2015 197,937 193,446 --- Peter Myers --- 100% 2015 2014 2014 --- --- --- --- --- --- 30 June 2018 30 June 2017 30 June 2016 253,761 253,750 22,656 3 Shannan North 17% 83% 2015 2015 2014 2014 2013 2012 --- --- --- --- --- --- --- --- --- --- --- 100% 30 June 2018 30 June 2017 30 June 2017 30 June 2016 30 June 2016 30 June 2015 415,666 58,625 3 210,001 87,500 3 186,068 --- Jean-Louis Rodrigues 60% 40% 2015 2015 2014 2013 --- --- --- 100% --- --- --- --- 30 June 2018 30 June 2017 30 June 2017 30 June 2015 121,752 40,857 3 119,130 --- 1 The maximum total value of grant yet to vest as at 30 June 2015. The figures above are calculated as the grant date value based on the 5 day volume weighted average price at grant date of the performance shares and conditional rights and assuming 100% of the award vests. 2 Represents the value of the total short-term incentive earned (cash and equity) as a % of the total short-term incentive potential (target and stretch). 3 Represents the value of deferred STI yet to vest, stated as the value at the time of deferral. Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 42 Remuneration Report (continued) Relationship between remuneration and company performance Company performance has declined over the last five years. The Group’s profit from ordinary activities after income tax has decreased from a profit of $145,988,000 in 2010 to a profit of $4,150,000 in 2015 including significant items. Shareholder wealth has also decreased at a compound rate of 40.4% per annum. Total KMP compensation decreased over the same period at a compound rate of 6.6% per annum, including $0.6 million of termination payments in 2015 (no KMP termination payments were made in 2010). Excluding termination payments, KMP compensation decreased at a compound rate of 8.2% per annum over the period. Equity instrument disclosures relating to KMP The number of options over ordinary shares in the Company held during the financial year by each Director of Billabong International Limited and other KMP of the Group, including their personally related parties, are set out in Table L.

Table L: 2015 Options Holdings 2015 Name Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Other key management personnel of the Group Shannan North 314,503 --- --- --- 314,503 1 --- 1 Options lapsed in the 2013-14 financial year as a result of the required hurdles not being met, however these options have an expiry date of 31 October 2015.

The number of rights over ordinary shares in the Company held during the financial year by each Director of Billabong International Limited and other KMP of the Group are set out in Table M.

Table M: 2015 Rights Holdings 2015 Name Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Directors of Billabong International Limited1 Neil Fiske 2,242,429 1,909,645 --- --- 4,152,074 --- Other key management personnel of the Group 1 Jeffery Streader 2 --- 554,359 --- (554,359) --- --- Shannan North 940,603 741,812 --- (51,400) 1,631,015 --- Peter Myers 634,937 387,658 --- --- 1,022,595 --- Paul Burdekin 34,932 206,242 (34,932) --- 206,242 --- Ed Leasure 462,256 302,378 (14,672) --- 749,962 --- Jean-Louis Rodrigues 305,330 260,438 (29,694) --- 536,074 --- 1 Includes rights granted under the Executive Long-Term Incentive Plan, Executive Performance Share Plan and the Short-Term Incentive Deferral.

2 Employment ceased 8 May 2015.

Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 43 Remuneration Report (continued) Equity instrument disclosures relating to KMP (continued) The numbers of ordinary shares in the Company held during the financial year by each Director of Billabong International Limited and other key management personnel of the Group, including their personally related entities, are set out in Table N.

Table N: 2015 Share holdings 1 Includes 1,785,714 ordinary shares to be held in voluntary escrow until commencement of trade on 10 January 2016. 2 Paul Burdekin was appointed Acting General Manager, Billabong Group Asia Pacific on 3 March 2014 and was permanent in this role from 17 July 2014. 3 Includes an exercised rights holding of 10,923 shares which are held in escrow for a 24 month restriction period following the allocation date. 4 Jeffery Streader ceased employment on 8 May 2015. 5 Includes awards granted in the periods before considered to be in a KMP role. Other transactions with Directors and other key management personnel A subsidiary of the Company leases a retail store in the United States of America from Ed Leasure, President Americas, and his wife. The rental agreement is based on normal, arms-length terms and conditions. 2015 Name Balance at the start of the year Received on the exercise of rights holdings 5 Received on the exercise of options Other changes during the year 5 Balance at the end of the year Directors of Billabong International Limited Ian Pollard 90,078 --- --- 62,901 152,979 Neil Fiske 2,455,357 1 --- --- --- 2,455,357 Gordon Merchant 97,082,594 --- --- 3,492,589 100,575,183 Howard Mowlem Jason Mozingo 137,500 --- --- --- --- --- --- --- 137,500 --- Sally Pitkin Matthew Wilson Amar Doshi Thomas Casarella 96,250 --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- 96,250 --- --- --- Other key management personnel of the Group Paul Burdekin 2 51,680 40,892 --- --- 92,572 Ed Leasure Peter Myers 106,768 --- 14,672 --- --- --- --- --- 121,440 --- Shannan North 209,894 --- --- --- 209,894 Jean-Louis Rodrigues Jeffery Streader 4 18,937 3 --- 29,694 --- --- --- (7,424) --- 41,207 3 --- Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 44 Insurance of officers During the financial year Billabong International Limited paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all executive officers of the Group against a liability incurred as such a Director, Secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Group. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. These assignments are principally tax advice and due diligence reporting on acquisitions and disposals, or where PricewaterhouseCoopers is awarded assignments on a competitive basis.

Details of the amount paid or payable to the auditor for non-audit services provided during the year are set out below.

Shares under option Unissued ordinary shares of the Company under option at the date of this report are as follows:

Number Grant date Issue price of shares Expiry date Executive Performance and Retention Plan 314,503 31 October 2008 $11.08 31 October 2015 Refinancing proposal- Altamont 42,259,790 16 July 2013 $0.50 16 July 2020 Refinancing proposal- C/O Placement 29,581,852 3 December 2014 $0.50 3 December 2020 Executive Option Plan 1,200,000 31 January 2014$0.60 31 January 2024 Total 73,356,145 Performance shares and conditional rights Performance shares and conditional rights awarded under the EPSP at the date of this report are as follows:

Type of right Balance Grant date Performance/service determination date Performance Shares 215,611 21 February 2013 30 June 2015 Total 215,611 Directors’ report : : Billabong International Limited 2014-15 Full Financial Report Page 45 The Board of Directors have considered the position and, in accordance with the advice received from the Audit and Risk Committee, are satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditor imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor’s independence requirements of the Corporations Act 2001 for the following reasons:

 all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the integrity and objectivity of the auditor; and  none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the consolidated entity, acting as an advocate for the consolidated entity or jointly sharing risks and rewards.

During the year the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related audit firms in relation to non-audit services:

Consolidated 2015 $ 2014 $ PricewaterhouseCoopers Australian firm: International tax consulting together with separate tax advice on acquisitions and disposals 303,509 189,668 Due diligence services --- 138,845 General accounting advice --- --- Network firms of PricewaterhouseCoopers Australia:

International tax consulting together with separate tax advice on acquisitions and disposals 81,527 182,012 Other services --- 116,362 Total remuneration for non-audit services 385,036 626,887 Amounts paid or payable by the consolidated entity for audit and non-statutory audit services are disclosed in note 32 to the financial statements.

Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 46.

Rounding of amounts The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

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

Ian Pollard Chair Gold Coast, 27 August 2015 PricewaterhouseCoopers, ABN 52 780 433 75 7 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Auditor’s Independence Declaration As lead auditor for the audit of Billabong International Limited for the year ended 30 June 2015, I declare that, to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Billabong International Limited and the entities it controlled during the period.

Kristin Stubbins Sydne y Partner PricewaterhouseCoopers 27 August 2015 Corporate governance statement : : Billabong International Limited 2014-15 Full Financial Report Page 47 The Board of Directors is responsible to shareholders for the performance of the Group and believes that high standards of corporate governance underpin the Company’s objective of maximising returns to shareholders. The Board is committed to a high level of governance and endeavours to foster a culture that rewards ethical standards and corporate integrity. The Group has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council.

The 2015 corporate governance statement is dated as at 30 June 2015 and reflects the corporate governance practices in place throughout the 2015 financial year. The 2015 corporate governance statement was approved by the board on 26 August 2015. A description of the Group's current corporate governance practices is set out in the Group's corporate governance statement which can be viewed at www.billabongbiz.com. Billabong International Limited ABN 17 084 923 946 Contents Page Consolidated income statement 49 Consolidated statement of comprehensive income 50 Consolidated balance sheet 51 Consolidated statement of changes in equity 52 Consolidated cash flow statement 53 Notes to the consolidated financial statements 54 Directors’ declaration 139 Independent auditor’s report to the members 140 : : FINANCIAL REPORT 30 JUNE 2015 This financial report covers the consolidated entity consisting of Billabong International Limited and its subsidiaries. The financial report is presented in Australian currency.

Billabong International Limited is a company limited by shares, incorporated and domiciled in Australia.

Its registered office and principal place of business is:

Billabong International Limited 1 Billabong Place Burleigh Heads QLD 4220 A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on pages 2 – 12, which is not part of this financial report.

The financial report was authorised for issue by the Directors on 27 August 2015. The Company has the power to amend and reissue the financial report.

Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the Company. All press releases, financial reports and other information are available on our corporate website at www.billabongbiz.com. Consolidated income statement For the year ended 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 49 Notes 2015 $’000 2014 $’000 Revenue from continuing operations 5 1,056,130 1,027,471 Cost of goods sold 7 (495,308) (491,040) Other income 6 10,553 6,328 Selling, general and administrative expenses 7 (429,614) (423,027) Other expenses 7 (127,681) (165,945) Finance costs 7 (34,275) (82,237) Loss before income tax (20,195) (128,450) Income tax benefit/(expense) 9 12,231 (74,499) Loss from continuing operations (7,964) (202,949) Profit/(loss) from discontinued operations after income tax 10 10,516 (36,984) Profit/(loss) for the year 2,552 (239,933) Loss attributable to non-controlling interests 1,598 6,221 Profit/(loss) for the year attributable to the members of Billabong International Limited 4,150 (233,712) Earnings per share for loss from continuing operations attributable to the ordinary equity holders of the Company Cents Cents Basic earnings per share 42 (0.6) (24.0) Diluted earnings per share 42 (0.6) (24.0) Earnings per share for pro fit/(loss) attributable to the ordinary equity holders of the Company Basic earnings per share 42 0.5 (28.6) Diluted earnings per share 42 0.5 (28.6) The above consolidated income statement should be read in conjunction with the accompanying notes. Consolidated statement of comprehensive income For the year ended 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 50 Notes 2015 $’000 2014 $’000 Profit/(loss) for the year 2,552 (239,933) Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of cash flow hedges, net of tax 29(b) 3,602 (3,175) Exchange differences on translation of foreign operations 29(b) (5,972) 9,488 Net investment hedge, net of tax 29(b) (917) (10,751) Other comprehensive expense for the year, net of tax (3,287) (4,438) Total comprehensive expense for the year (735) (244,371) Loss attributable to non-controlling interests 1,598 6,221 Total comprehensive income/(expense) for the year attributable to members of Billabong International Limited 863 (238,150) Total comprehensive income/(expense) for the year attributable to members of Billabong International Limited arises from: Continuing operations (9,653) (201,166) Discontinued operations 10,516 (36,984) 863 (238,150) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Consolidated balance sheet As at 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 51 Notes 2015 $’000 2014 $’000 ASSETS Current assets Cash and cash equivalents 11 153,334 145,070 Trade and other receivables 12 164,504 153,850 Inventories 13 187,125 180,222 Current tax receivables 1,934 3,202 Other 14 16,856 13,457 Total current assets 523,753 495,801 Non-current assets Receivables 15 7,202 10,275 Property, plant and equipment 16 89,504 94,305 Intangible assets 17 161,534 143,664 Deferred tax assets 18 15,384 840 Other 19 6,603 6,981 Total non-current assets 280,227 256,065 Total assets 803,980 751,866 LIABILITIES Current liabilities Trade and other payables 20 207,917 185,687 Borrowings 21 6,905 7,358 Current tax liabilities 22 4,115 4,179 Provisions 23 20,108 28,447 Total current liabilities 239,045 225,671 Non-current liabilities Borrowings 24 259,950 212,033 Deferred tax liabilities 25 --- --- Provisions and payables 26 23,401 31,570 Deferred payment 27 --- 23,556 Total non-current liabilities 283,351 267,159 Total liabilities 522,396 492,830 Net assets 281,584 259,036 EQUITY Contributed equity 28 1,094,274 1,094,274 Treasury shares 29(a) (20,959) (22,508) Option reserve 29(b) 10,664 10,760 Other reserves 29(b) (105,258) (111,215) Retained losses 29(c) (697,137) (701,287) Capital and reserves attributable to members of Billabong International Limited 281,584 270,024 Non-controlling interests --- (10,988) Total equity 281,584 259,036 The above consolidated balance sheet should be read in conjunction with the accompanying notes. Consolidated statement of changes in equity For the year ended 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 52 Attributable to members o f Billabong International Limited Notes Contri- buted equity Reserves Retained earnings Total Non con- trolling interests Total equity $’000 $’000 $’000 $’000 $’000 $’000 Balance at 30 June 2013 910,836 (126,427) (467,575) 316,834 (4,767) 312,067 Loss for the year --- --- (233,712) (233,712) (6,221) (239,933) Other comprehensive expense --- (4,438) --- (4,438) --- (4,438) Total comprehensive expense for the year --- (4,438) (233,712) (238,150) (6,221) (244,371) Transactions with equity holders in their capacity as equity holders:

CEO Sign-on 28(f) 500 --- --- 500 --- 500 C/O Placement 28(g) 135,000 --- --- 135,000 --- 135,000 Rights issue, net of transaction costs 28(h) 47,938 --- --- 47,938 --- 47,938 Option reserve in respect of employee share plan 29(b) --- (276) --- (276) --- (276) Option reserve in respect of employee sign-on issues 29(b) --- 339 --- 339 --- 339 Fair value of options in respect of recapitalisation option issues 29(b) --- 7,839 --- 7,839 --- 7,839 183,438 7,902 --- 191,340 --- 191,340 Balance at 30 June 2014 1,094,274 (122,963) (701,287) 270,024 (10,988) 259,036 Profit for the year --- --- 4,150 4,150 (1,598) 2,552 Other comprehensive expense --- (3,287) --- (3,287) --- (3,287) Total comprehensive expense for the year --- (3,287) 4,150 863 (1,598) (735) Transactions with equity holders in their capacity as equity holders:

Option reserve in respect of employee share plan 29(b) --- 1,453 --- 1,453 --- 1,453 Other equity reserve reclassified to income statement 29(b) --- 9,244 --- 9,244 --- 9,244 Non-controlling interest reclassified to income statement 10 --- --- --- --- 12,586 12,586 --- 10,697 --- 10,697 12,586 23,283 Balance at 30 June 2015 1,094,274 (115,553) (697,137) 281,584 --- 281,584 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Consolidated cash flow statement For the year ended 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 53 Notes 2015 $’000 2014 $’000 Cash flows from operating activities Receipts from customers (inclusive of GST) 1,137,365 1,356,946 Payments to suppliers and employees (inclusive of GST) (1,123,390) (1,334,426) 13,975 22,520 Interest received 1,692 1,183 Other revenue 4,815 4,244 Finance costs (32,873) (92,252) Income taxes paid (2,234) (12,314) Net cash outflow from operating activities 40 (14,625) (76,619) Cash flows from investing activities Payments for purchase of subsidiaries and businesses, net of cash acquired 36 --- (41,588) Payments for property, plant and equipment (20,277) (15,855) Payments for finite life intangible assets (7,381) (9,012) Proceeds from sale of business, net of cash divested and transaction costs 10 38,439 83,878 Proceeds from sale of property, plant and equipment 283 168 Net cash inflow from investing activities 11,064 17,591 Cash flows from financing activities Proceeds from issues of shares and other equity securities 28 --- 182,088 Proceeds from borrowings 32 873,886 Repayment of borrowings --- (962,012) Net cash inflow from financing activities 32 93,962 Net (decrease)/increase in cash and cash equivalents (3,529) 34,934 Cash and cash equivalents at the beginning of the year 145,070 113,324 Effects of exchange rate changes on cash and cash equivalents 11,793 (3,188) Cash and cash equivalents at the end of the year 11 153,334 145,070 Financing arrangements 24 Non-cash investing and financing activities 41 The above consolidated cash flow statement should be read in conjunction with the accompanying notes. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 54 Contents of the notes to the consolidated financial statements Page Note 1.   Summary of significant accounting policies 55   Note 2.   Financial risk management 71   Note 3.   Critical accounting estimates and judgements 78   Note 4.   Segment information 79   Note 5.   Revenue 84   Note 6.   Other income 84   Note 7.   Expenses 85   Note 8.   Significant items 86   Note 9.   Income tax expense 90   Note 10.   Discontinued operations 92   Note 11.   Current assets – Cash and cash equivalents 95   Note 12.   Current assets – Trade and other receivables 96   Note 13.   Current assets – Inventories 97   Note 14.   Current assets – Other 97   Note 15.   Non-current assets – Receivables 98   Note 16.   Non-current assets – Property, plant and equipment 99   Note 17.   Non-current assets – Intangible assets 100   Note 18.   Non-current assets – Deferred tax assets 105   Note 19.   Non-current assets – Other 105   Note 20.   Current liabilities – Trade and other payables 106   Note 21.   Current liabilities – Borrowings 106   Note 22.   Current liabilities – Current tax liabilities 106   Note 23.   Current liabilities – Provisions 107   Note 24.   Non-current liabilities – Borrowings 108   Note 25.   Non-current liabilities – Deferred tax liabilities 110   Note 26.   Non-current liabilities – Provisions and payables 110   Note 27.   Deferred payment 111   Note 28.   Contributed equity 112   Note 29.   Treasury shares, reserves and retained (losses)/profits 115   Note 30.   Dividends 117   Note 31.   Derivative financial instruments 118   Note 32.   Remuneration of auditor 120   Note 33.   Contingencies 121   Note 34.   Commitments 121   Note 35.   Related party transactions 123   Note 36.   Business combinations 124   Note 37.   Subsidiaries 125   Note 38.   Deed of cross guarantee 127   Note 39.   Events occurring after the balance sheet date 128   Note 40.   Reconciliation of profit/(loss) for the year to net cash outflow from operating activities 129   Note 41.   Non-cash investing and financing activities 129   Note 42.   Earnings per share 130   Note 43.   Share-based payments 131   Note 44.   Parent entity financial information 138   Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 55 Note 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Billabong International Limited and its subsidiaries (the Group or consolidated entity).

(a) Basis of preparation The general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The Group is a for-profit entity for the purpose of preparing the financial report.

Compliance with IFRS The financial report of the consolidated entity also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Early adoption of standards The Group has elected not to early apply accounting standards that are not applicable to the accounting period ended 30 June 2015.

Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Billabong International Limited (the Company or parent entity) as at 30 June 2015 and the results of all subsidiaries for the year then ended.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(h)).

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 56 Note 1. Summary of significant accounting policies (continued) Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, statement of comprehensive income, statement of changes in equity and balance sheet respectively.

Investments in subsidiaries are accounted for at cost, net of impairment charges, in the separate financial statements of Billabong International Limited.

(ii) Employee Share Trust The Group has trusts for storing unvested and forfeited performance shares sourced for the purposes of the Group’s Executive Long-Term Incentive Plan. The trusts are consolidated, as the substance of the relationship is that the trusts are controlled by the Group.

Shares held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust are disclosed as treasury shares and deducted from equity.

(iii) Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interest to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to members of Billabong International Limited.

When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 57 Note 1. Summary of significant accounting policies (continued) (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (CEO).

(d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency.

(ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges, or are attributable to part of the net investment in a foreign operation.

(iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;  income and expenses for each income statement and statement of comprehensive income are translated at average monthly exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and  all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised for the major business activities as follows:

(i) Sale of goods Revenue from sale of goods is recognised when it can be reliably measured, the significant risks and rewards of ownership have passed to, and the goods been accepted by, the customer and collectability of the related receivable is probable.

Sales terms determine when risks and rewards are considered to have passed to the customer. Given that sales terms vary between regions and customers the Group recognises some wholesale sales on shipment and others on delivery of goods to the customer, whichever is appropriate. The Group recognises retail sales at the time of sale of the goods to the customer. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 58 Note 1. Summary of significant accounting policies (continued) (ii) Interest income Interest income is recognised on a time proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income over the discounted period.

(iii) Royalty income Royalty income is recognised as it accrues.

(iv) Agent commissions Revenue earned from the sourcing of product on behalf of licensees is recognised net of the cost of the goods, reflecting the sourcing commission only. Sourcing commission is recognised when the goods are provided.

(v) Sale of consignment inventory Agreements are entered into with certain customers whereby a consignment stock arrangement is in place.

Revenue is recognised in accordance with AASB 118, at the point at which the risks and rewards are substantially transferred, which in this case is the point at which the Group’s customer makes a sale to the end customer. Under this arrangement, inventory is concurrently de-recognised at this stage.

(f) Income tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 59 Note 1. Summary of significant accounting policies (continued) (g) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

The property, plant and equipment acquired under finance lease is depreciated over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 34). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.

(h) Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred or contingent on future events, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the market risk free rate. Amounts classified as a payable are subsequently remeasured to fair value with changes in fair value recognised in the income statement.

(i) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

No amortisation is provided against the carrying value of purchased brands on the basis that these assets are considered to have an indefinite useful life.

Key factors taken into account in assessing the useful life of brands are:

 The brands are well established and protected by trademarks across the globe which are generally subject to an indefinite number of renewals upon appropriate application; and  There are currently no legal, technical or commercial obsolescence factors applying to the brands or the products to which they attach which indicate that the life should be considered limited.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 60 Note 1. Summary of significant accounting policies (continued) (j) Cash and cash equivalents For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(k) Trade receivables All trade receivables are recognised at the date they are invoiced, initially at fair value and subsequently measured at amortised cost, and are principally on 30 day terms. They are presented as current assets unless collection is not expected for more than 12 months after the balance sheet date.

Collectability of trade receivables is reviewed on an ongoing basis. Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment charge is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement.

Other receivables is comprised of amounts receivable as a result of transactions outside the normal course of trading.

(l) Inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value. (i) Raw materials Cost is determined using the first-in, first-out (FIFO) method and standard costs approximating actual costs. (ii) Work in progress and finished goods Cost is standard costs approximating actual costs including direct materials, direct labour and an allocation of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost also includes the transfer from equity of any gains/losses on qualifying cash flow hedges relating to purchases.

(m) Discontinued operations A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the income statement.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 61 Note 1. Summary of significant accounting policies (continued) (n) Investments and other financial assets Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit and loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

(i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in trade and other receivables (note 12) and receivables (note 15) in the balance sheet. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Subsequent measurement Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.

Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend income, are presented in the income statement within other income or other expenses in the period in which they arise.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. The translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Changes in the fair value of other monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive income.

Details on how the fair value of financial instruments is determined are disclosed in note 2.

Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment charge on that financial asset previously recognised in profit and loss – is reclassified from equity and recognised in the income statement. Impairment charges recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.

Assets carried at amortised cost For loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 62 Note 1. Summary of significant accounting policies (continued) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.

Impairment testing of trade receivables is described in note 1(k).

(o) Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

 hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges), or  hedges of a net investment in a foreign operation (net investment hedges).

The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 31.

Movements in the hedging reserve in shareholders' equity are shown in note 29(b). The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

(i) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expenses.

Amounts accumulated in equity are reclassified in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). When the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) the gains and losses previously deferred in equity are reclassified from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of inventory.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss.

(ii) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.

Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expenses.

Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 63 Note 1. Summary of significant accounting policies (continued) (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement and are included in other income or other expenses.

(p) Property, plant and equipment Land is shown at cost. All other property, plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows:

 Buildings 20-40 years  Owned and leased plant and equipment 3-20 years  Furniture, fittings and equipment 3-20 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)).

Gains and losses on disposals are determined by comparing proceeds with an asset’s carrying amount. These are included in the income statement.

(q) Intangible assets (i) Goodwill Goodwill is measured as described in note 1(h). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment charges. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

(ii) Brands Expenditure incurred in developing or enhancing brands is expensed as incurred. Brands are shown at historical cost. Brands have a limited legal life, however the Group monitors global expiry dates and renews registrations where required. Brands recorded in the financial statements are not currently associated with products which are likely to become commercially or technically obsolete. Accordingly, the Directors are of the view that brands have an indefinite life.

Brands are tested annually for impairment and carried at cost less accumulated impairment charges.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 64 Note 1. Summary of significant accounting policies (continued) (iii) Computer software and Omni-Channel platform Costs associated with maintaining software programmes are recognised as an expense as incurred.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:

 it is technically feasible to complete the software so that it will be available for use;  the Group intends to complete the software and use it;  there is an ability to use the software;  it can be demonstrated how the software will generate probable future economic benefits;  adequate technical, financial and other resources to complete the development and to use the software are available; and  the expenditure attributable to the software during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software include employee costs and an appropriate portion of relevant overheads. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use over their estimated contractual lives (three to five years).

Acquired computer software and omni-channel platform licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated contractual lives (three to five years).

(iv) Key money When the Group enters into leases in some locations, a payment is made to the incumbent tenant; these payments are referred to as key money. The original cost is capitalised, and classified as an indefinite life intangible asset and accounted for under the cost model. As a result of the restrictions on lessor’s powers, and the right to renew leases held by the Group, the Directors are of the view that key money has an indefinite life. Key money is considered annually for impairment and reversal of any previous impairment, and is held at cost less accumulated impairment charges.

(r) Trade and other payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the balance sheet date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

(s) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs on the loan to the extent that it is probable that some or all of the facility will be drawn down and amortised on a straight-line basis over the term of the facility. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised on a straight-line basis over the term of the facility.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

(t) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 65 Note 1. Summary of significant accounting policies (continued) (u) Provisions Provisions, other than for employee entitlements, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

(v) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The short-term employee benefit obligations are presented as other payables.

(ii) Other long-term employee benefit obligations The liabilities for long service leave and annual leave which are not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting period using the projected unit credit method.

Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments are recognised in profit or loss.

The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.

(iii) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of AASB 137 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.

(iv) Profit-sharing and short-term incentive plans The Group recognises a liability and an expense for short-term incentives and profit-sharing, based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where a payment is contractually obliged or where there is a past practice that has created a constructive obligation.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 66 Note 1. Summary of significant accounting policies (continued) (w) Contributed equity Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration.

(x) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date.

(y) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing:

 the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares  by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

(ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

 the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and  the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

(z) Employee and executive share plans Equity-based compensation benefits are provided to employees via the Billabong Executive Long-Term Incentive Plan, Billabong Executive Performance Share Plan, the Short-Term Incentive deferral scheme and the Executive Performance and Retention Plan.

Billabong Executive Long-Term Incentive Plan Share-based compensation benefits are provided to the executive team via the Billabong Executive Long-Term Incentive Plan. Information relating to this Plan is set out in note 43.

The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefit expense with a corresponding increase in equity when the employees become entitled to the shares.

The fair value of equity instruments granted under the Billabong Executive Long-Term Incentive Plan is recognised as an employee benefit expense over the period during which the employees become unconditionally entitled to the instruments. There is a corresponding increase in equity, being recognition of an option reserve. Once the employees become unconditionally entitled to the instruments the option reserve is set-off against the treasury shares vested.

The fair value of equity instruments granted is measured at grant date and is determined by reference to the Billabong International Limited share price at grant date, taking into account the terms and conditions upon which the rights were granted.

The Group has trusts for storing unvested and forfeited performance shares sourced for the purposes of the Group’s Executive Long-Term Incentive Plan. The trusts are consolidated, as the substance of the relationship is that the trusts are controlled by the Group. Shares held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust are disclosed as treasury shares and deducted from equity.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 67 Note 1. Summary of significant accounting policies (continued) Current equity-based instruments granted under the Billabong Executive Long-Term Incentive Plan include performance rights. Performance rights are subject to performance hurdles. Through contributions to the trusts the consolidated entity purchases shares of the Company on market to underpin performance rights issued. The shares are recognised in the balance sheet as treasury shares. Treasury shares are excluded from the weighted average number of shares used as the denominator for determining basic earnings per share and net tangible asset backing per share. The performance rights of the Billabong Executive Long-Term Incentive Plan are treated as potential ordinary shares for the purposes of diluted earnings per share.

The Group incurs expenses on behalf of the trusts. These expenses are in relation to administration costs of the trusts and are recorded in the income statement as incurred.

Billabong Executive Performance Share Plan Share-based compensation benefits were provided to the executive team via the Billabong Executive Performance Share Plan. Information relating to this Plan is set out in note 43.

The market value of shares issued to employees for no cash consideration under the employee share scheme were recognised as an employee benefit expense with a corresponding increase in equity when the employees become entitled to the shares.

The fair value of equity instruments granted under the Billabong Executive Performance Share Plan were recognised as an employee benefit expense over the period during which the employees become unconditionally entitled to the instruments. There was a corresponding increase in equity, being recognition of an option reserve. Once the employees became unconditionally entitled to the instruments the option reserve was set-off against the treasury shares vested. The fair value of equity instruments granted were measured at grant date and were determined by reference to the Billabong International Limited share price at grant date, taking into account the terms and conditions upon which the rights were granted.

The Group has trusts for storing unvested and forfeited performance shares sourced for the purposes of the Group’s Executive Long-Term Incentive Plan. The trusts are consolidated, as the substance of the relationship is that the trusts are controlled by the Group. Shares held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust are disclosed as treasury shares and deducted from equity.

Equity-based instruments granted under the Billabong Executive Performance Share Plan included performance shares and conditional rights. Both performance shares and conditional rights were subject to performance hurdles. Through contributions to the trusts the consolidated entity purchased shares of the Company on market to underpin performance shares and conditional rights issued. The shares were recognised in the balance sheet as treasury shares. Treasury shares are excluded from the weighted average number of shares used as the denominator for determining basic earnings per share and net tangible asset backing per share. The performance shares and conditional rights of the Billabong Executive Performance Share Plan are treated as potential ordinary shares for the purposes of diluted earnings per share.

The Group incurs expenses on behalf of the trusts. These expenses are in relation to administration costs of the trusts and are recorded in the income statement as incurred.

Short-Term Incentive deferral The fair value of deferred shares granted to employees for nil consideration under the short-term incentive scheme is recognised as an expense over the relevant service period, being the year to which the short-term incentive relates and the vesting period of the shares. The fair value is measured at the grant date of the shares and is recognised in equity in the option reserve. The number of shares expected to vest is estimated based on the non-market vesting conditions. The estimates are revised at each reporting date and adjustments are recognised in profit or loss and the option reserve.

The Group has trusts for storing unvested and forfeited performance shares sourced for the purposes of the Group’s Executive Short-Term Incentive Plan. The trusts are consolidated, as the substance of the relationship is that the trusts are controlled by the Group. Shares held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust are disclosed as treasury shares and deducted from equity.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 68 Note 1. Summary of significant accounting policies (continued) Billabong Executive Performance and Retention Plan Share-based compensation benefits were also provided to the executive team via the Billabong Executive Performance and Retention Plan. Information relating to this Plan is set out in note 43.

The fair value of the options granted under the Billabong Executive Performance and Retention Plan were recognised as an employee benefit expense with a corresponding increase in equity. The fair value were measured at grant date and recognised over the period during which the executive team becomes unconditionally entitled to the options.

The fair value at grant date was independently determined using the Monte-Carlo simulation valuation technique taking into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The fair value of the options granted were adjusted to reflect market vesting conditions, but excluded the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions were included in assumptions about the number of options that were expected to become exercisable. At each reporting date, the entity revised its estimate of the number of options that were expected to become exercisable. The employee benefit expense was recognised at each period taking into account the most recent estimate. The impact of the revision to original estimates, if any, was recognised in the income statement with a corresponding adjustment to equity.

(aa) Financial guarantee contracts Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

(bb) Parent entity financial information The financial information for the parent entity, Billabong International Limited, disclosed in note 44 has been prepared on the same basis as the consolidated financial report, except as set out below.

Investments in subsidiaries Investments in subsidiaries are accounted for at cost, tested for impairment on an annual basis, in the financial report of Billabong International Limited. Dividends received from subsidiaries are recognised in the parent entity’s income statement when its right to receive the dividend is established.

Tax consolidation legislation Billabong International Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2002.

The head entity, Billabong International Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Billabong International Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 69 Note 1. Summary of significant accounting policies (continued) The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Billabong International Limited for any current tax payable assumed and are compensated by Billabong International Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Billabong International Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.

(cc) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

(dd) Significant items The Group results for the period and the prior corresponding period (pcp) include certain significant items including but not limited to impairment charges, costs associated with the various control and/or refinancing proposals previously announced and the restructuring of the Group’s operations pursuant to the various strategic reform programs announced in August 2012 and December 2013. Refer to note 8 of the financial statements for more information in relation to these items.

For an expense or credit to be included as a significant item one of the following is generally applicable:

(i) The item is non-recurring in nature; (ii) The item is an accounting expense which is not reflective of the trading during the financial year (eg restatement of derivative liabilities or contingent consideration, reclassification of FCTR balances to the income statement due to wind up of legal entities or divestments, accounting compensation expense for business combinations / agreements); (iii) The item is an impairment charge; (iv) The item is a gain / loss / fair value adjustment / cost associated with divesting brands or retail chains; (v) The item relates to a fundamental restructuring of the business so as to align the business with the new strategic agenda announced in December 2013 following the appointment of a new CEO and board changes to reflect the introduction of two new major shareholders. This restructuring is resulting in a significant change to management, business mix and process. The expenses associated with the change are non-recurring in nature – but may span more than one financial year. These expenses will not recur once the restructuring is complete; (vi) The item relates to reversals of previous significant items; (vii) The item relates to the refinancing of the Group; or (viii) The item relates to strategic decisions to write down assets which are material and unusual in nature.

The Group results may be impacted by other significant items in future reporting periods. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 70 Note 1. Summary of significant accounting policies (continued) (ee) Rounding of amounts The Company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

(ff) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2015 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below:

(i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9, AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) and AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transaction Disclosures (effective from 1 January 2018) In AASB 9, the AASB added requirements for the classification and measurement of financial liabilities that are generally consistent with the equivalent requirements in AASB 139 except in respect of the fair value option; and certain derivatives linked to unquoted equity instruments. The AASB also added the requirements in AASB 139 in relation to derecognition of the financial assets and financial liabilities to AASB9. AASB9 retained but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets; amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The guidance in AASB 139 on hedge accounting continues to apply as long as hedge accounting provisions in AASB 2013-9 are not applied.

The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2018 and is not expected to have a significant impact on the financial statements.

(ii) AASB 15 Revenue from contracts with customers (effective from 1 January 2017) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The standard permits a modified retrospective approach for the adoption. Under this approach entities will recognise transitional adjustments in retained earnings on the date of initial application (eg 1 July 2017), ie without restating the comparative period. The Group will only need to apply the new rules to contracts that are not completed as of the date of initial application. The Group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2018 and the Group will continue to review the impact of these changes on the financial statements.

There are no other standards that are not yet effective and are expected to have a material impact on the consolidated entity in the current or future reporting periods and on foreseeable future transactions.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 71 Note 2. Financial risk management The Group’s activities expose it to a variety of financial risks; market risk (including foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes and not for trading or speculative purposes.

(a) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to United States Dollars. Foreign currency transaction risk arises when assets and liabilities, and forecasted purchases and sales are denominated in a currency other than the functional currency of the respective entities. As sales are mainly denominated in the respective local currency which is the functional currency, the major transactional exposure is in relation to inventory purchases, other than for the United States of America, which are typically denominated in United States Dollars. The risk is measured using sensitivity analysis and cash flow forecasting.

Forward contracts are used to manage foreign exchange risk on inventory purchases. The Group’s Risk Management Policy is for each region to hedge greater than 80% of forecast foreign denominated inventory purchases for the upcoming season.

Further hedges can be executed following receipt of customer orders. All hedges of projected purchases qualify as “highly probable” forecast transactions for hedge accounting purposes. The Group has, as outlined in note 31, forward exchange contracts designated as cash flow hedges.

The carrying amounts of the Group’s financial assets and liabilities that are denominated in Australian Dollars and other significant foreign currencies (amounts reported in Australian Dollars), are set out below:

Notes 2015 $’000 2014 $’000 Australian Dollars Cash and cash equivalents 11 48,779 40,745 Trade and other receivables 12, 15 21,618 21,460 Borrowings 21, 24 (5) (550) Trade and other payables 20 (26,046) (44,728) 44,346 16,927 United States Dollars Cash and cash equivalents 11 68,090 64,657 Trade and other receivables 12, 15 81,068 59,982 Borrowings 21, 24 (257,775) (208,410) Trade and other payables 20 (127,538) (71,893) (236,155) (155,664) European Euros Cash and cash equivalents 11 4,862 13,259 Trade and other receivables 12, 15 25,207 32,901 Borrowings 21, 24 (3,805) (5,244) Trade and other payables 20 (22,349) (33,011) 3,915 7,905 Othe r Cash and cash equivalents 11 31,603 26,409 Trade and other receivables 12, 15 43,813 49,782 Borrowings 21, 24 (5,270) (5,187) Trade and other payables 20 (31,984) (36,055) 38,162 34,949 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 72 Note 2. Financial risk management (continued) (a) Market risk (continued) Sensitivity analysis The majority of the carrying amounts of the Group’s financial assets and liabilities are denominated in the functional currency of the relevant subsidiary and thus there is no foreign exchange exposure. The majority of foreign exchange exposure as at 30 June 2015 relates to intra-group monetary assets or liabilities, and whilst these are eliminated on group consolidation, there is an exposure at balance date which is recognised in the consolidated income statement as unrealised foreign exchange gains or losses. This is because the monetary item represents a commitment to convert one currency into another and exposes the Group to a gain or loss through currency fluctuations.

At 30 June 2015 had the Australian Dollar as at 30 June 2015 weakened / strengthened by 10% against the United States Dollar with all other variables held constant, post-tax profit for the year would have been $0.7 million lower / $0.9 million higher (2014: $1.6 million lower / $1.9 million higher), mainly as a result of intra-group monetary assets or liabilities as at 30 June 2015. Profit is less sensitive to movements in the Australian Dollar / United States Dollar in 2015 than 2014 because of a decreased net amount of United States Dollar denominated monetary assets and liabilities as at 30 June 2015 compared with as at 30 June 2014. Equity (excluding the effect to the Foreign Currency Translation Reserve of translating the United States of America operations’ net assets/equity to Australian Dollars) would have been $7.7 million higher / $7.5 million lower (2014: $1.2 million higher / $0.3 million lower). The Group’s exposure to other foreign exchange movements as at 30 June 2015 is not material.

(ii) Cash flow interest rate risk Other than cash deposits at call, the Group has no significant interest-bearing assets and therefore the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from current borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk.

As at the reporting date, the Group had the following variable rate borrowings outstanding:

2015 $’000 2014 $’000 Bank loans, syndicated facility, drawdown facility and cash advance facilities 5,271 5,187 Net exposure to interest rate risk 5,271 5,187 An analysis by maturities is provided in (c) below and a summary of the terms and conditions is in note 21.

The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift.

Group sensitivity analysis At 30 June 2015 if interest rates had changed by - / + 50 basis points from the year-end rates with all other variables held constant, post-tax profit for the year would have been $0.1 million lower / higher (2014: $0.1 million lower / higher). Equity would have been $0.1 million lower / higher (2014: $0.1 million lower / higher).

(b) Credit risk Credit risk represents the loss that would be recognised if a counterparty failed to perform as contracted. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Group has no significant concentrations of credit risk.

Derivative counterparties and cash deposits are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 73 Note 2. Financial risk management (continued) (b) Credit risk (continued) It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their financial position, past experience and other factors. Credit limits are set for each individual customer in accordance with parameters set by the Board. These credit limits are regularly monitored. In addition, receivable balances are monitored on an ongoing basis. Sales to retail customers are settled in cash or using major credit cards, mitigating credit risk.

Credit risk further arises in relation to financial guarantees given to certain parties. Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval.

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. The vast majority of cash at bank and short- term bank deposits are held with banks with at least a credit rating of ‘A’. The vast majority of trade receivables are with existing customers (who have been customers for at least six months) with no defaults in the past (for further information about impaired trade receivables and past due but not impaired receivables refer to note 12).

(c) Liquidity risk Due to the financial liabilities within the Group, the Group is exposed to liquidity risk, being the risk of encountering difficulties in meeting such obligations. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to closeout market positions. At the end of the reporting period the Group held deposits at call of $22.0 million (2014: $32.8 million).

Due to the dynamic nature of the underlying businesses, the Group aims at maintaining flexibility in funding by keeping committed credit lines available. Refer to note 24 for information in regard to the Group’s financing arrangements. Refer to note 28(k) for information in regard to the Group’s capital management strategy.

Management monitors rolling forecasts of the Group’s liquidity reserve (comprising the undrawn borrowing facilities) and cash and cash equivalents (note 11) on the basis of expected cash flows. This is generally carried out at a local level in the operating companies of the Group in accordance with practice and limits set by the Group. These limits vary by location to take into account the liquidity of the market in which the entity operates. In addition, the Group’s liquidity management policy involves monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

The table below analyses the Group’s financial liabilities, net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. For net settled and gross settled derivatives the cash flows have been estimated using spot interest rates applicable at the reporting date.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 74 Note 2. Financial risk management (continued) (c) Liquidity risk (continued) 2015 Less than 6 months $’000 Between 6 and 12 months $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 Carrying amount (assets) / liabilities $’000 Non-interest bearing trade and other payables 207,476 --- --- --- --- 207,476 207,476 Fixed rate debt 17,509 17,054 37,986 334,969 --- 407,518 261,584 Variable rate debt 5,271 --- --- --- --- 5,271 5,271 Net variable rate liabilities 5,271 --- --- --- --- 5,271 5,271 Less: Cash (i) (153,334) --- --- --- --- (153,334) (153,334) Net variable rate liquidity position (148,063) --- --- --- --- (148,063) (148,063) Gross settled derivatives (forward exchange contracts) - (inflow) (90,505) (36,795) --- --- --- (127,300) (3,438) - outflow 88,027 36,469 --- --- --- 124,496 --- (2,478) (326) --- --- --- (2,804) (3,438) Refer to note 24 in regards to the Group’s financing facilities as at 30 June 2015.

2014 Less than 6 months $’000 Between 6 and 12 months $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Total contractual cash flows $’000 Carrying amount (assets) / liabilities $’000 Non-interest bearing trade and other payables 183,857 --- --- --- --- 183,857 183,857 Non-current deferred payment --- --- 23,496 --- --- 23,496 23,556 Fixed rate debt 14,903 14,072 28,497 60,234 244,400 362,106 214,204 Variable rate debt 5,187 --- --- --- --- 5,187 5,187 Net variable rate liabilities 5,187 --- --- --- --- 5,187 5,187 Less: Cash (i) (145,070) --- --- --- --- (145,070) (145,070) Net variable rate liquidity position (139,883) --- --- --- --- (139,883) (139,883) Net settled derivatives (put and call options) --- --- 3,376 6,849 --- 10,225 9,054 Gross settled derivatives (forward exchange contracts) - (inflow) (64,626) (22,368) --- --- --- (86,994) --- - outflow 66,247 22,493 --- --- --- 88,740 1,739 1,621 125 --- --- --- 1,746 1,739 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 75 Note 2. Financial risk management (continued) (c) Liquidity risk (continued) Refer to note 24 for further information in regard to the Group’s refinancing.

(i) Cash Cash is considered in managing the Group’s exposure to liquidity and interest rate risks. As at 30 June 2015 the Group held a cash balance of $153.3 million (2014: $145.1 million). (d) Fair value measurements (i) Fair value hierarchy The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. The following table presents the Group’s assets and liabilities measured and recognised at fair value at 30 June 2015 and 30 June 2014. At 30 June 2015 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Recurring fair value measurements Financial assets Forward exchange contracts – cash flow hedges --- 3,879 --- 3,879 Total financial assets --- 3,879 --- 3,879 Financial Liabilities Forward exchange contracts – cash flow hedges --- 441 --- 441 Contingent consideration --- --- 10,827 10,827 Total financial liabilities --- 441 10,827 11,268 At 30 June 2014 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Recurring fair value measurements Financial assets Forward exchange contracts – cash flow hedges --- 91 --- 91 Total financial assets --- 91 --- 91 Financial Liabilities Forward exchange contracts – cash flow hedges --- 1,830 --- 1,830 Contingent consideration --- --- 15,709 15,709 Derivative liability --- --- 9,054 9,054 Total financial liabilities --- 1,830 24,763 26,593 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 76 Note 2. Financial risk management (continued) (d) Fair value measurements (continued) There were no transfers between levels 1, 2 and 3 for recurring fair value measurements during the year. Recurring fair value measurements Level 1 The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. These instruments are included in level 1. The Group does not hold any of these financial instruments at 30 June 2015 or 30 June 2014.

Level 2 The fair value of financial instruments that are not traded in an active market (for example, forward exchange contracts) are determined using valuation techniques. These instruments are included in level 2 and comprise of derivative financial instruments. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. The valuation of foreign currency forward contracts is based upon the forward rate applicable at valuation date (available from dealer quotes for similar instruments or the counterparty of the forward contract).

The future cash flow is then discounted back at the risk-free rate applying at that time. Level 3 In the circumstances where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in level 3. This is the case for contingent consideration and derivative liabilities. (e) Fair value measurements using significant unobservable inputs (Level 3) Contingent consideration The following table presents the changes in level 3 instruments for the years ended 30 June 2015 and 30 June 2014:

Changes in contingent consideration 2015 $’000 2014 $’000 Balance 1 July 15,709 19,286 Unwind of discount --- 711 Amounts recognised in other income (note 27) (7,748) --- Amounts recognised in expenses --- (2,552) Exchange (gains)/losses 2,866 (1,736) Balance 30 June 10,827 15,709 (i) Valuation inputs and relationships to fair value The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements for the 2015 financial year:

Fair Value $'000 Unobservable inputs Range of inputs (probability weighted average) Relationship of unobservable inputs to fair value 30 June 2015 Contingent Consideration Payable 10,827 EBITDA $18.7 million - $22.9 million ($20.8 million) If the expected EBITDA was 10% higher or lower, the fair value would increase/decrease $5.0m. 30 June 2014 Contingent Consideration Payable 15,709 EBITDA $18.1 million - $22.1 million ($20.1 million) If the expected EBITDA was 10% higher or lower, the fair value would increase/decrease $4.8m.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 77 Note 2. Financial risk management (continued) (e) Fair value measurements using significant unobservable inputs (Level 3) (continued) (ii) Valuation processes Valuations of contingent consideration payable are performed by the finance department of the Group based on the four year business plan projecting forecast profitability and cash flows prepared by management and approved by the Board.

Derivative liabilities The following table presents the changes in level 3 instruments for the years ended 30 June 2015 and 30 June 2014:

Changes in derivative liabilities 2015 $’000 2014 $’000 Balance 1 July 9,054 12,922 Unwind of discount --- 646 Amounts recognised in other income --- (4,514) Amounts recognised in other income (note 10) (9,054) --- Balance 30 June --- 9,054 (i) Valuation inputs and relationships to fair value The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements for the 2014 financial year:

Description Fair Value at 30 June 2014 $'000 Unobservable inputs Range of inputs (probability weighted average) Relationship of unobservable inputs to fair value Other Derivative Liability - Part 1 3,138 EBIT $2.5 million - $3.1 million ($2.8 million) If the expected EBIT was 10% higher or lower, the fair value would increase/decrease $0.3m.

Other Derivative Liability - Part 2 5,916 EBIT $3.5 million - $4.3 million ($3.9 million) If the expected EBIT was 10% higher or lower, the fair value would increase/decrease $0.6m.

(ii) Valuation processes Valuations of the other derivative liabilities were performed by the finance department of the Group based on the four year business plan projecting forecast profitability and cash flows prepared by management and approved by the Board.

(f) Other fair value measurements The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of borrowings is based upon market prices where a market exists or by discounting the expected future cash flows by the current market interest rate that is adjusted for own credit risk. Refer to note 15(b) and 24(d) for further information.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 78 Note 3. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwill and indefinite life intangibles The Group tests annually, or when indicators of impairment arise, whether goodwill and indefinite life intangibles have suffered any impairment and if any intangibles cease to have an indefinite life, in accordance with the accounting policy stated in note 1(i). The recoverable amounts of the cash-generating units (CGU’s) have been determined based on value- in-use (VIU) calculations. These calculations require the use of estimates and judgements, in particular the achievement of forecast growth rates which are determined through a Board approved budgeting process. Assumptions used in impairment testing are detailed in note 17.

If the VIU of a CGU is lower than its carrying amount, then the CGU’s fair value less costs of disposal (FVLCD) is determined in these circumstances as AASB 136 requires the recoverable amount of a CGU to be the higher of VIU and FVLCD. In applying the FVLCD approach, the recoverable amount of a CGU is assessed using market based valuation techniques such as comparable transactions and observable trading multiples. Assumptions used in impairment testing are detailed in note 17.

Estimated impairment of property, plant and equipment The Group tests, when indicators of impairment arise, whether property, plant and equipment has suffered any impairment in accordance with the accounting policy stated in note 1(i). Impairment tests are performed based on the ‘expected recoverable amount’ of the asset using either the VIU or FVLCD method. Assumptions used in impairment testing are detailed in note 16.

Deferred or contingent consideration In relation to the RVCA acquisition, deferred and contingent consideration is payable in cash if certain specific conditions are achieved. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange (refer note 33). The discount rate used is the market risk-free rate. Amounts classified as a payable are subsequently remeasured to fair value with changes in fair value recognised in the income statement. Details on how the fair value of the contingent consideration is determined are disclosed in note 2.

The calculation of the amount payable requires the use of estimates and judgements which are reviewed at each reporting period.

Taxation The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group's understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. Given the Group is in a period of restructuring and having regard to the existing financial structure, it has been estimated that it is not probable in all tax jurisdictions for taxable profits to be generated in a period where all the conditions including Continuity of Ownership tests for utilisation of the assets will be met. In such tax jurisdictions, carried forward tax losses and temporary differences have only been recognised as deferred tax assets to the extent of the available deferred tax liabilities.

Refer note 9.

Onerous Lease and Restructuring provisions The Group identified a number of loss making or underperforming retail stores in its portfolio and closed or intended to close these stores by either early termination or trading the stores to expiry (refer note 8(c)). Judgments and estimates are made in respect of the measurement of provisions for costs associated with the execution of initiatives arising from these initiatives and reviews.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 79 Note 4. Segment information (a) Description of segments Management has determined the operating segments based on the reports reviewed by the CEO. The results of the operating segments are analysed and strategic decisions made as to the future operations of the segment. This review is also used to determine how resources will be allocated across the segments.

The CEO currently considers the business principally from a geographic perspective and has identified three reportable segments being Asia Pacific, Americas and Europe. The CEO monitors the performance of these geographic segments separately from individual countries as each region operates in similar economic and seasonal environments. Each segment’s areas of operation include the wholesaling and retailing of surf, skate and snow apparel and accessories.

The geographic segments are organised as below:

Asia Pacific This segment includes Australia, New Zealand, Japan, South Africa, Singapore and Indonesia.

Americas This segment includes the United States of America, Canada and Brazil. Europe This segment includes the Czech Republic, England, France, Germany and Spain.

Rest of the world This segment relates to royalty receipts from third party operations.

Segment Earnings Before Interest, Taxes, Depreciation, Amortisation and Impairment (“EBITDAI”) excludes inter-company royalties and sourcing fees and includes an allocation of global overhead costs (which include corporate overhead, international advertising and promotion costs, central sourcing costs and foreign exchange movements). (b) Segment information provided to the CEO The segment information provided to the CEO for the reportable segments for the year ended 30 June 2015 is as follows:

The below shows the total of results from continuing and discontinued operations. For a breakdown of continuing and discontinued operations, refer to (c) below. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 80 Note 4. Segment information (continued) (b) Segment information provided to the CEO (continued) 2015 Asia Pacific Americas Europe Rest of the World Total $’000 $’000 $’000 $’000 $’000 Total from continuing and discontinued operations including significant items Sales to external customers 428,476 455,565 179,699 --- 1,063,740 Third party royalties --- --- --- 3,461 3,461 Total segment revenue 428,476 455,565 179,699 3,461 1,067,201 EBITDAI 10,461 15,345 25,937 3,461 55,204 Less: depreciation and amortisation (33,489) Less: impairment charges (3,040) Less: net interest expense (28,354) Loss before income tax (9,679) Segment assets 339,168 329,188 120,240 --- 788,596 Unallocated assets: Deferred tax 15,384 Total assets 803,980 Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 17,984 10,408 2,313 --- 30,705 2014 Asia Pacific Americas Europe Rest of the World Total $’000 $’000 $’000 $’000 $’000 Total from continuing and discontinued operations including significant items Sales to external customers 480,500 537,969 199,041 --- 1,217,510 Third party royalties --- --- --- 2,842 2,842 Total segment revenue 480,500 537,969 199,041 2,842 1,220,352 EBITDAI 14,593 (48,988) (20,754) 2,842 (52,307) Less: depreciation and amortisation (39,654) Less: impairment charges (29,255) Less: fair value adjustment to assets held for sale during the prior year (17,718) Less: net interest expense (34,205) Loss before income tax (173,139) Segment assets 335,652 282,703 132,671 --- 751,026 Unallocated assets: Deferred tax 840 Total assets 751,866 Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 13,364 14,983 4,749 --- 33,096 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 81 Note 4. Segment information (continued) (c) Breakdown of segment results between continuing and discontinuing operations The table below is a breakdown of the total segment results shown in (b) above between continuing and discontinued operations.

2015 Asia Pacific Americas Europe Rest o f the World Total $’000 $’000 $’000 $’000 $’000 From continuing operations including significant items Sales to external customers 418,900 451,773 177,684 --- 1,048,357 Third party royalties --- --- --- 3,461 3,461 Total segment revenue 418,900 451,773 177,684 3,461 1,051,818 EBITDAI 19,597 14,087 6,872 3,461 44,017 Less: depreciation and amortisation (32,831) Less: impairment charges (3,040) Less: net interest expense (28,341) Loss before income tax (20,195) 2015 Asia Pacific Americas Europe Rest o f the World Total $’000 $’000 $’000 $’000 $’000 From discontinued operations including significant items Sales to external customers 9,576 3,792 2,015 --- 15,383 Third party royalties --- --- --- --- --- Total segment revenue 9,576 3,792 2,015 --- 15,383 EBITDAI (9,136) 1,258 19,065 --- 11,187 Less: depreciation and amortisation (658) Less: net interest expense (13) Profit before income tax (note 10) 10,516 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 82 Note 4. Segment information (continued) (c) Breakdown of segment results between continuing and discontinuing operations (continued) 2014 Asia Pacific Americas Europe Rest o f the World Total $’000 $’000 $’000 $’000 $’000 From continuing operations including significant items Sales to external customers 420,024 417,857 183,609 --- 1,021,490 Third party royalties --- --- --- 2,842 2,842 Total segment revenue 420,024 417,857 183,609 2,842 1,024,332 EBITDAI 9,932 (30,115) (13,096) 2,842 (30,437) Less: depreciation and amortisation (34,458) Less: impairment charges (29,255) Less: net interest expense (34,300) Loss before income tax (128,450) 2014 Asia Pacific Americas Europe Rest o f the World Total $’000 $’000 $’000 $’000 $’000 From discontinued operations including significant items Sales to external customers 60,476 120,112 15,432 --- 196,020 Third party royalties --- --- --- --- --- Total segment revenue 60,476 120,112 15,432 --- 196,020 EBITDAI 4,661 (18,873) (7,658) --- (21,870) Less: depreciation and amortisation (5,196) Less: impairment charges --- Less: fair value adjustment to assets held for sale during the prior year (17,718) Add: net interest income 95 Loss before income tax (note 10) (44,689) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 83 Note 4. Segment information (continued) (d) Other segment information (i) Segment revenue Sales between segments are carried out at arm’s length and are eliminated on consolidation. The revenue from external parties reported to the CEO is measured in a manner consistent with that in the income statement.

Segment revenue reconciles to total revenue from continuing operations as follows:

2015 $’000 2014 $’000 Total segment revenue 1,067,201 1,220,352 Other revenue, including interest revenue 4,312 3,139 Less: sales revenue from discontinued operations (15,383) (196,020) Total revenue from continuing operations 1,056,130 1,027,471 (ii) EBITDAI The CEO assesses the performance of the operating segments based on total revenue and EBITDAI. A reconciliation of EBITDAI to operating profit before income tax is provided in (b) above.

(iii) Other segment revenue information Based on statutory legal entity reporting, segment revenue in relation to Australia represents 65% of Asia Pacific (2014:

68%), segment revenue in relation to the United States of America represents 84% of Americas (2014: 64%) and segment revenue in relation to France represents 84% of Europe (2014: 86%).

Segment revenue in relation to retail represents 45% of the Group's total revenue for the year ended 30 June 2015 (2014:

54%), 66% of Asia Pacific's total revenue for the year ended 30 June 2015 (2014: 71%), 26% of Americas' total revenue for the year ended 30 June 2015 (2014: 43%) and 41% of Europe's total revenue for the year ended 30 June 2015 (2014:

41%).

No single customer represents more than 10% of the Group’s total revenue for the years ended 30 June 2015 and 30 June 2014.

(iv) Segment assets The amounts provided to the CEO with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset. A reconciliation of the segment assets to the total assets is provided in (b) above.

Segment assets, excluding deferred tax assets, in relation to Australia represents 76% of Asia Pacific (2014: 76%), in relation to the United States of America represents 85% of Americas (2014: 80%) and in relation to France represents 82% of Europe (2014: 83%).

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 84 Note 5. Revenue 2015 $’000 2014 $’000 From continuing operations Sales revenue Sale of goods 1,048,357 1,021,490 Royalties 3,461 2,842 1,051,818 1,024,332 Other revenue Interest 1,901 1,110 Other 2,411 2,029 4,312 3,139 Total revenue from continuing operations 1,056,130 1,027,471 From discontinued operations (note 10) Sale of goods 15,383 196,020 Interest 7 344 15,390 196,364 Note 6. Other income 2015 $’000 2014 $’000 From continuing operations Foreign exchange gains 1,638 4,120 Gain from adjustment to contingent consideration (note 27) 7,748 --- Other 1,167 2,208 10,553 6,328 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 85 Note 7. Expenses 2015 $’000 2014 $’000 F rom continuing operations Profit/(loss) before income tax includes the following specific expenses:

Expenses Cost of goods sold * 495,308 491,040 Selling, general and administrative expenses * 429,614 423,027 Employee benefits expense (included in the amounts above)* 218,853 220,683 Depreciation Buildings 786 792 Plant and equipment 20,664 22,662 Plant and equipment under finance lease 1,471 1,612 Total depreciation ^ 22,921 25,066 Amortisation of finite life intangible assets ^ 6,186 7,055 Interest and finance charges Interest expense 30,242 35,410 Other finance costs 309 2,428 Amortisation of capitalised borrowing costs 3,724 2,337 Write-off of capitalised borrowing costs (note 8) --- 42,062 Total interest and finance charges 34,275 82,237 Net loss on disposal of property, plant and equipment and intangibles ^ 1,691 467 Loss from adjustment to contingent consideration (note 8) ^ --- 5,915 Rental expense relating to operating leases Minimum lease payments 83,356 83,757 Contingent rentals 482 1,123 Sub-leases 101 --- Total rental expense relating to operating leases ^ 83,939 84,880 Impairment of other assets Inventories (included in the cost of goods sold amount above) 2,939 23,366 Trade receivables ^ 9,904 13,307 Intangibles ^ --- 29,255 Property, plant and equipment ^ 3,040 --- * Included in these expenses are a number of significant items. Refer to note 8 for further information.

^ Included within the other expenses line item in the income statement.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 86 Note 8. Significant items The following significant items of expense/(income) are included in the financial results:

2015 $’000 2014 $’000 From continuing operations: Significant items included in cost of goods sold (note (a)) Net realisable value shortfall expense on inventory realised 2,668 13,452 2,668 13,452 Significant items included in other income (note (b)) Term debt repayment foreign exchange derivative impact --- (4,220) Gain from adjustment to contingent consideration (note 6) (7,748) --- Foreign currency translation reserve reclassified to income statement --- (680) (7,748) (4,900) Significant items included in selling, general and administrative expenses (note (c)) Specific doubtful debts expense (918) (1,263) Early termination of leases and onerous lease/restructuring expense 416 (1,019) Potential control or refinancing proposal costs --- 1,595 Turnaround Strategy and other restructuring costs 21,560 19,210 Redundancy costs 2,044 5,985 South American sales tax provision/restructuring --- 5,252 RVCA compensation expense (note 27) 2,320 4,493 25,422 34,253 Significant items included in other expenses (note (d)) Loss from adjustment to contingent consideration (note 27) --- 5,915 Impairment of goodwill, brands and other intangibles (note 17) --- 29,255 Impairment of property, plant and equipment (note 16) 3,040 --- Asset disposals 1,320 --- 4,360 35,170 Significant items included in finance costs (note (e)) Borrowing costs --- 42,062 --- 42,062 Total from continuing operations 24,702 120,037 From discontinued operations (note 10): Significant items included in discontinued operations (note (f)) SurfStitch and Swell gain on sale, net of transaction costs (13,711) --- West 49 loss on sale, including transaction costs --- 10,141 Fair value adjustment on reclassification of West 49 as held for sale during the year --- 17,718 DaKine loss on sale, including transaction costs --- 1,189 Redundancy costs --- 1,235 Fair value adjustment to derivative liabilities --- (4,514) SurfStitch compensation and other expense --- 243 Net realisable value shortfall expense on inventory realised --- 160 Total significant items from discontinued operations (13,711) 26,172 Total significant items 10,991 146,209 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 87 Note 8. Significant items (continued) (a) Significant items included in cost of goods sold (i) Net realisable value shortfall expense on inventory realised In the year ended 30 June 2014 as a result of further analysis of previously written down inventory (included in prior year significant items), an adjustment was made in relation to this inventory given the limited distribution channels due to the age of the product and consideration of the inventory valuations on a consistent basis across the Group. As a result of the restructuring of the South American business a significant write down of inventory was required.

In the year ended 30 June 2015 an adjustment to Australian inventory balance was required regarding unrealised profit elimination as well as additional freight expenses surrounding the industrial dispute at major Californian ports.

(b) Significant items included in other income (i) Term debt repayment foreign exchange derivative impact In the year ended 30 June 2014 as a result of the $135.0 million share placement to Centerbridge / Oaktree Consortium (“C/O Consortium”) which occurred on 6 February 2014, it had been agreed the New Term Debt would be deemed to be prepaid by the amount of the net issuance proceeds converted into USD at the rate of 0.924 AUD/USD. This agreed exchange rate resulted in a realised foreign exchange gain in the income statement which was non-recurring in nature. (ii) Gain from adjustment to contingent consideration In accordance with Australian Accounting Standards, adjustments to deferred consideration payable must be recorded through the income statement. During the year ended 30 June 2015 this item relates to RVCA deferred consideration payable which was restated taking into account the latest Board approved forecasts and is considered to be a significant item given its nature is outside of normal trading.

(iii) Foreign currency translation reserve reclassified to income statement During the year ended 30 June 2014 the Group wound up a number of foreign denominated functional currency entities in Asia and South America. In prior years the cumulative amount of exchange differences arising from the translation of these entities to AUD has been carried forward in the foreign currency translation reserve in equity. As a result of the winding up of these entities the cumulative exchange differences are removed from this reserve and recognised in the income statement.

(c) Significant items included in selling, general and administrative expenses (i) Specific doubtful debts expense During the years ended 30 June 2014 and 30 June 2015 the Group reversed a portion of the prior year’s specific doubtful debts expense as either cash was collected or it was determined that a portion would be recoverable at a future date. (ii) Early termination of leases and onerous lease / restructuring expense During the years ended 30 June 2014 and 30 June 2015 the Group continues to adjust the onerous lease provision on a number of loss making or underperforming stores in its portfolio that are intended to close by either early termination or trading the stores to expiry. Any provision recognised in a prior year which was surplus to the Group’s requirement is recognised as a significant income write-back. (iii) Potential control or refinancing proposal costs As a result of the various recapitalisation and takeover proposals the Group received during the years ended 30 June 2014 and 30 June 2013, significant bid related costs were incurred in responding to these proposals and facilitating due diligence.

(iv) Turnaround Strategy and other restructuring costs As a result of the Turnaround Strategy announced to the market in December 2013 following the appointment of CEO Neil Fiske, significant consulting costs were incurred, as work was and continues to be undertaken to develop and implement the restructure of the Group.

In the year ended 30 June 2014 restructuring initiatives include the exit of certain geographies, conversion to distributor models in certain geographies and/or the exit of certain brands in particular geographies where those brands are sub-scale.

These initiatives were intended to simplify the operations of the Group and enable management to focus on those areas of the business which will deliver the greatest return.

In the year ended 30 June 2015 restructuring initiatives include consulting costs in relation to the supply chain reconfiguration and other key strategic priorities as part of the Turnaround Strategy. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 88 Note 8. Significant items (continued) (c) Significant items included in selling, general and administrative expenses (continued) (v) Redundancy costs During the year ended 30 June 2015 as result of continued restructuring of the Group in line with the Turnaround Strategy restructuring plans, redundancy costs were incurred.

During the year ended 30 June 2014 as a result of the restructuring of the South American business (including the appointment of a distributor in Peru and Chile), continued restructuring of Europe and senior management of the Group in line with the various restructuring plans, redundancy costs were incurred. Actual costs included costs expected for those redundancies to occur post 30 June 2014 where there was a constructive obligation and it was probable that an outflow of economic resources will be required to settle the obligation and the amount could be reliably estimated.

(vi) South American sales tax provision / restructuring A provision for VAT (Value Added Tax) credits and associated penalties and interest (that are being disputed by the tax authorities) was recognised in the year ended 30 June 2014 results however the provision relates to transactions which occurred in the years ended 30 June 2009 through 30 June 2011. The matter is being defended. (vii) RVCA compensation expense Under the terms of the new contract with Pat Tenore, the founder of RVCA, announced to the market on 6 February 2014 and in accordance with Australian Accounting Standards, the Company is required to recognise through the income statement any deemed compensation expense attached to the employment arrangement which has been entered into. The financial aspects of the agreed contractual extension include an amendment to the 2015 earn out arrangements which were negotiated as part of the original acquisition in 2010, a new performance related component for the period to 2018, and the issue of 1.2 million ten year options exercisable at $0.60 per option. These resulted in non-cash accounting items for the years ended 30 June 2015 and 30 June 2014. These will only become a cash item if the required targets under the agreement are met in future reporting periods. RVCA compensation expense is considered to be a significant item given its nature is outside of normal trading.

(d) Significant items included in other expenses (i) Loss from adjustment to contingent consideration In accordance with Australian Accounting Standards, adjustments to deferred consideration payable must be recorded through the income statement. During the year ended 30 June 2014 this item relates to RVCA deferred consideration payable which was restated taking into account the latest Board approved forecasts and this is considered to be a significant item given its nature is outside of normal trading.

(ii) Impairment of goodwill and brands and other intangibles Refer to note 17 for detailed disclosure surrounding the impairment of goodwill and brands and other intangibles during the year ended 30 June 2014.

(iii) Impairment of property, plant and equipment Refer to note 16 for detailed disclosure surrounding the impairment of property, plant and equipment during the year ended 30 June 2015.

(e) Significant items included in finance costs (i) Borrowing costs During the year ended 30 June 2014 as a result of the Group’s announcement on 19 September 2013 of its intention to recapitalise the Group through the C/O Consortium, all capitalised borrowing costs associated with the establishment of the Altamont Consortium facility in July 2013 together with the break fee of $6.0 million (paid in November 2013) were written off. A portion of C/O Consortium capitalised borrowing costs associated with the establishment of the C/O Consortium facility were also written off due to the prepayment of part of this facility during the year ended 30 June 2014 by way of the equity raising (refer notes 24 and 28). Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 89 Note 8. Significant items (continued) (f) Significant items included in discontinued operations (i) Fair value adjustment on reclassification of West 49 as held for sale during the year During the year ended 30 June 2014 as result of the sale of West 49, as at 31 December 2013 the assets classified as held for sale were adjusted to their fair value based on information available at balance sheet date using the terms of the sales agreement.

(ii) Fair value adjustment to derivative liabilities In accordance with Australian Accounting Standards, adjustments to derivative liabilities held at fair value must be recorded through the income statement. During the year ended 2014 this item related to SurfStitch put and call options which were restated taking into account the latest Board approved forecasts at that time and was considered to be a significant item given its nature was outside of normal trading.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 90 Note 9. Income tax expense 2015 $’000 2014 $’000 (a) Income tax expense Current tax 2,739 4,246 Deferred tax (14,515) 57,544 Adjustments for current tax of prior periods (455) 5,004 (12,231) 66,794 Income tax (benefit)/expense is attributable to: Loss from continuing operations (12,231) 74,499 Loss from discontinued operations (note 10) --- (7,705) Aggregate income tax (benefit)/expense (12,231) 66,794 Deferred income tax revenue/(expense) included in income tax expense comprises: (Increase)/decrease in deferred tax assets (note 18) (3) 50,468 (Decrease)/increase in deferred tax liabilities (note 25) (14,512) 7,076 (14,515) 57,544 (b) Reconciliation of income tax (benefit)/expense to prima facie tax payable Loss from continuing operations before income tax expense (20,195) (128,450) Profit/(loss) from discontinuing operation before income tax expense 10,516 (44,689) (9,679) (173,139) Tax at the Australian tax rate of 30% (2014: 30%) (2,904) (51,941) Tax effect of amounts which are not (taxable)/deductible in calculating taxable income: Net exempt expense 1,669 809 Impairment --- 14,573 Non-claimable credits 1,326 4,226 Unwind of contingent tax provision --- (7,782) Sundry items (5,771) 3,708 Non-deductible options --- 1,232 Other non-deductible permanent differences 142 3,237 (5,538) (31,938) Difference in overseas tax rates (147) (4,404) (Over)/under provision in prior years (455) 5,002 Prior year tax losses previously not recognised (1,343) (309) Prior year temporary differences previously not recognised (16,763) --- Tax losses not recognised in current period 13,766 55,803 Other temporary differences not recognised in current period (1,751) --- Other deferred tax assets derecognised in current period --- 45,189 Foreign currency related items --- (2,549) Income tax (benefit)/expense (12,231) 66,794 (c) Amounts recognised directly in equity Deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited to equity: Net deferred tax (745) (1,112) (745) (1,112) (d) Tax expense /(benefit) relating to items of other comprehensive income Cash flow hedges (note 18, note 25) 1,559 (1,023) Investment hedge (note 18, note 25) --- --- 1,559 (1,023) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 91 Note 9. Income tax expense (continued) (e) Unrecognised tax losses and temporary differences 2015 Gross losses and temporary differences Potential tax benefit $’000 $’000 Unused federal tax losses for which no deferred tax asset has been recognised 547,086 167,179 Unused USA state tax losses for which no deferred tax asset has been recognised 531,319 24,175 Unused capital losses for which no deferred tax asset has been recognised 57,939 17,382 Unused temporary differences for which no deferred tax asset has been recognised 104,447 35,217 Unused tax credits for which no deferred tax asset has been recognised --- 18,102 2014 Gross losses and temporary differences Potential tax benefit $’000 $’000 Unused federal tax losses for which no deferred tax asset has been recognised 433,476 139,667 Unused USA state tax losses for which no deferred tax asset has been recognised 408,556 14,708 Unused capital losses for which no deferred tax asset has been recognised 44,573 13,372 Unused temporary differences for which no deferred tax asset has been recognised 150,630 47,765 Unused tax credits for which no deferred tax asset has been recognised --- 18,102 Tax loss expiry date 2015 2014 Federal tax losses USA state tax losses Federal tax losses USA state tax losses $’000 $’000 $’000 $’000 Subject to expiry within 12 months 181 --- --- --- Subject to expiry in more than 12 months but less than 5 years 1,589 --- 2,229 --- Subject to expiry in more than 5 years 284,987 531,319 193,582 408,556 Utilisation of all tax losses is subject to various loss testing rules in the relevant tax jurisdictions.

(f) Tax consolidation legislation Billabong International Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2002. The accounting policy in relation to this legislation is set out in note 1(bb).

On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Billabong International Limited.

The entities have also entered into a tax funding agreement under which the wholly-owned Australian controlled entities fully compensate Billabong International Limited for any current tax payable assumed and are compensated by Billabong International Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Billabong International Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current inter-company receivables or payables.

(g) Other matters The statutory loss before tax for the year ended 30 June 2015 was $9.7 million with an income tax benefit of $12.2 million (2014 income tax expense of $66.8 million). During the year ended 30 June 2014 the Company made the decision to write off the majority of its deferred tax assets (net of deferred tax liabilities) as it was estimated that it was not probable for taxable profits to be generated in a period where the conditions for utilisation of the assets would be met including continuity of ownership tests. During the year ended 30 June 2015, the Company maintains this same position in most tax jurisdictions with the exception of Australia and Japan where it has been estimated that previously unrecognised temporary differences will now meet the conditions for utilisation of these assets. The reinstatement of deferred tax assets resulted in a tax benefit of $16.8 million.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 92 Note 10. Discontinued operations (i) Description 2015 On 5 September 2014 the Company completed the sale of its 51% stake in SurfStitch and its 100% ownership of Swell to a consortium of investors including SurfStitch founders Justin Cameron and Lex Pedersen for a purchase price of more than $35 million comprising sale proceeds, loan repayments and other consideration. The results of SurfStitch and Swell to 5 September 2015 have been reported in these financial statements as discontinued operations.

2014 On 23 July 2013 the Company announced it had sold the DaKine brand and its operations to Altamont for a purchase price of $70 million. The results of DaKine to 23 July 2013 were reported in these financial statements as a discontinued operation.

On 4 November 2013 the Group announced that it had entered an agreement to sell its Canadian retail chain, West 49, to YM Inc. The Group also announced that it had entered into an approximate CAD$34 million non-exclusive wholesale agreement with YM Inc. over the next two years. On 6 February 2014 the Company announced it had sold West 49 to YM Inc. for a purchase price of CAD$3 million. The results of West 49 to 6 February 2014 were reported in these financial statements as a discontinued operation.

Financial information relating to the discontinued operations for the years ended 30 June 2015 and 30 June 2014 is set out below. Refer to note 4 for the impact of divestments on operating segments. (ii) Financial performance and cash flow information The financial performance and cash flow information presented are for the year ended 30 June 2015 and the year ended 30 June 2014. 2015 $’000 2014 $’000 Revenue (note 5) 15,390 196,364 Expenses (18,585) (229,723) Loss before income tax (includes significant items- see below) (3,195) (33,359) Income tax benefit --- 7,705 Loss after income tax of discontinued operations (3,195) (25,654) Profit/(loss) on sale, including transaction costs before income tax (note 8) 13,711 (11,330) Income tax expense --- --- Profit/(loss) on sale, including transaction costs after income tax 13,711 (11,330) Profit/(loss) from discontinued operations 10,516 (36,984) 2015 $’000 2014 $’000 Net cash inflow from operating activities 167 9,572 Net cash inflow from investing activities* 37,801 82,906 Net cash outflow from financing activities --- (1,250) Net increase in cash generated by discontinued operations 37,968 91,228 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 93 Note 10. Discontinued operations (continued) (ii) Financial performance and cash flow information (continued) * 2015 includes proceeds from sale of SurfStitch and Swell, net of cash divested and transaction costs totalling $38.5 million.

Partially offsetting the $38.5 million are payments for property, plant and equipment.

* 2014 includes proceeds from sale of business, net of cash divested and transaction costs totalling $83.9 million. This relates to inflow of $69.2 million from the sale of DaKine, inflow of $1.0 million from the sale of West 49 and inflow of $13.7 million relating to other immaterial divestments including Peru and Chile. Partially offsetting the $83.9 million is payments for property, plant and equipment and DaKine deferred consideration totalling US$1.5 million (refer note 36). Peru and Chile results have not been included in discontinued operations due to the impact on the Group’s income statement not being material as the Group continues to generate revenue and earnings by selling directly to a distributor.

(iii) Details of the sale of SurfStitch and Swell 2015 $’000 Consideration received or receivable: Cash net of transaction costs 38,439 Total disposal consideration 38,439 Carrying value of net assets sold (14,812) Foreign currency translation reserve reclassified to income statement 313 Other derivative liabilities reclassified to income statement 9,054 Provisions for employee entitlements reclassified to income statement 1,074 Non-controlling interest reclassified to income statement (12,586) Related party receivables retained 1,473 Other equity reserve reclassified to income statement (9,244) Gain on sale, net of transaction costs before income tax 13,711 Income tax --- Gain on sale, net of transaction costs after income tax 13,711 The carrying value of assets and liabilities as at the date of sale (5 September 2014) were:

5 September 2014 Carrying value $’000 Cash and cash equivalents 1,472 Trade and other receivables 1,291 Inventory 22,887 Prepayments 678 Plant and equipment (note 16) 2,428 Identifiable intangible assets (note 17) 5,950 Deferred tax assets 226 Total assets 34,932 Trade and other payables (18,779) Borrowings (313) Employee Entitlements (802) Deferred tax liabilities (226) Total liabilities (20,120) Net assets 14,812 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 94 Note 10. Discontinued operations (continued) (iv) Details of the sale of DaKine 2014 $’000 Consideration received or receivable: Cash net of transaction costs 69,207 Total disposal consideration 69,207 Carrying value of net assets sold (70,396) Loss on sale, including transaction costs before income tax (1,189) Income tax --- Loss on sale, including transaction costs after income tax (1,189) The carrying value of assets and liabilities as at the date of sale (23 July 2013) were:

23 July 2013 Carrying value $’000 Trade and other receivables 23,685 Inventory 22,675 Plant and equipment (note 16) 1,428 Identifiable intangible assets (note 17) 36,947 Total assets 84,735 Trade and other payables (14,339) Total liabilities (14,339) Net assets 70,396 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 95 Note 10. Discontinued operations (continued) (v) Details of the sale of West 49 2014 $’000 Consideration received or receivable: Cash net of transaction costs 954 Total disposal consideration 954 Carrying value of assets sold (4,810) Foreign currency translation reserve reclassified to income statement (4,039) Present value of onerous contracts (2,246) Loss on sale, including transaction costs before income tax(10,141) Income tax expense --- Loss on sale, including transaction costs after income tax (10,141) The carrying value of assets and liabilities as at the date of sale (6 February 2014) were:

6 February 2014 Carrying value $’000 Cash and cash equivalents 64 Trade and other receivables 2,029 Inventory 17,350 Plant and equipment (note 16) 164 Total assets 19,607 Trade and other payables (14,280) Employee entitlements (517) Total liabilities (14,797) Net assets 4,810 Note 11. Current assets – Cash and cash equivalents 2015 $’000 2014 $’000 Cash at bank and in hand 131,355 112,236 Deposits at call 21,979 32,834 153,334 145,070 Interest rate risk exposure The Group’s exposure to interest rate risk is discussed in note 2.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 96 Note 12. Current assets – Trade and other receivables 2015 $’000 2014 $’000 Trade receivables 184,245 178,187 Provision for impairment of receivables (note (a)) (24,676) (29,104) Provision for sales returns (7,403) (5,111) 152,166 143,972 Other receivables (note (c)) 12,338 9,878 164,504 153,850 (a) Impaired trade receivables As at 30 June 2015 current trade receivables of the Group with a nominal value of $28.4 million (2014: $35.8 million) were impaired. The amount of the provision was $24.7 million (2014: $29.1 million). The individually impaired receivables mainly relate to retailers encountering difficult economic conditions. It was assessed that a portion of the impaired receivables is expected to be recovered.

The ageing of these receivables is as follows:

2015 $’000 2014 $’000 Up to 3 months 5,206 7,585 3 to 6 months 2,656 1,827 Over 6 months 20,495 26,398 28,357 35,810 Movements in the provision for impairment of receivables and sales returns are as follows:

2015 $’000 2014 $’000 At 1 July 34,215 45,073 Provision for impairment recognised during the year 9,919 13,307 Receivables written off, collected or returns during the year (12,170) (23,901) Disposal of discontinued operations (260) (631) Exchange differences 375 367 At 30 June 32,079 34,215 The creation and release of the provision for impaired receivables has been included in 'other expenses' in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

(b) Past due but not impaired As at 30 June 2015, trade receivables of $37.0 million (2014: $35.0 million) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

2015 $’000 2014 $’000 Up to 3 months 29,997 25,162 3 to 6 months 4,505 5,612 Over 6 months 2,515 4,223 37,017 34,997 The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 97 Note 12. Current assets – Trade and other receivables (continued) (c) Other receivables Other amounts included in other receivables generally arise from transactions outside the usual operating activities of the consolidated entity. Collateral is not normally obtained.

(d) Foreign exchange and interest rate risk Information about the Group’s exposure to foreign exchange risk and interest rate risk in relation to trade and other receivables is provided in note 2.

(e) Fair value and credit risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. The Group does not hold any collateral as security. Refer to note 2 for more information on the Risk Management Policy of the Group and the credit quality of the Group’s trade receivables.

Note 13. Current assets – Inventories 2015 $’000 2014 $’000 Raw materials and stores – at cost 1,767 2,179 Work in progress – at cost 6,554 6,589 Finished goods: – at cost 171,242 158,078 – at net realisable value 7,562 13,376 187,125 180,222 Inventory expense Inventories recognised as an expense from continuing operations during the year ended 30 June 2015 amounted to $492.4 million (2014: $467.6 million). Write-downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2015 amounted to $2.9 million (2014: $23.4 million). The expense has been included in ‘cost of goods sold’ in the income statement. The $2.9 million (2014: $23.4 million) write down included $2.7 million (2014: $13.6 million) of significant item write downs (refer to note 8).

Note 14. Current assets – Other 2015 $’000 2014 $’000 Prepayments 12,977 13,366 Derivative financial assets (note 31) 3,879 91 16,856 13,457 Risk exposure Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 2.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 98 Note 15. Non-current assets – Receivables 2015 $’000 2014 $’000 Other receivables 7,202 10,275 7,202 10,275 Other receivables predominantly relate to store lease deposits.

(a) Impaired receivables and receivables past due None of the non-current receivables are impaired (2014: Nil) and none of the non-current receivables are considered past due but not impaired (2014: Nil).

(b) Fair values The fair values and carrying values of non-current receivables are as follows:

2015 2014 Carrying amount Fair value Carrying amount Fair value $’000 $’000 $’000 $’000 Other receivables 7,202 7,202 10,275 10,275 For the majority of the non-current receivables, the fair values are not significantly different to their carrying amounts as the balance outstanding approximate the amounts expected to be collected.

(c) Risk exposure Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk is provided in note 2.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 99 Note 16. Non-current assets – Property, plant and equipment Land and buildings Furniture, fittings and equipment Leased plant and equipment Total $’000 $’000 $’000 $’000 At 30 June 2013 Cost 52,842 295,460 18,767 367,069 Accumulated depreciation and impairment (22,976) (218,013) (7,529) (248,518) Net book amount 29,866 77,447 11,238 118,551 Year ended 30 June 2014 Opening net book amount 29,866 77,447 11,238 118,551 Additions --- 15,975 --- 15,975 Disposals --- (467) --- (467) Disposal of discontinued operations (note 10) --- (1,592) --- (1,592) Disposals- immaterial divestments --- (1,102) --- (1,102) Depreciation charge (792) (25,076) (1,612) (27,480) Fair value adjustment on reclassification of West 49 as held for sale during the year (note 8) --- (9,587) --- (9,587) Exchange differences (53) (278) 338 7 Closing net book amount 29,021 55,320 9,964 94,305 At 30 June 2014 Cost 52,816 258,949 19,280 331,045 Accumulated depreciation and impairment (23,795) (203,629) (9,316) (236,740) Net book amount 29,021 55,320 9,964 94,305 Land and buildings Furniture, fittings and equipment Leased plant and equipment Total $’000 $’000 $’000 $’000 Year ended 30 June 2015 Opening net book amount 29,021 55,320 9,964 94,305 Additions --- 21,243 --- 21,243 Disposals --- (1,216) (418) (1,634) Disposal of discontinued operations (note 10) --- (2,428) --- (2,428) Depreciation charge (786) (20,820) (1,471) (23,077) Impairment charge (note (a)) --- (3,040) --- (3,040) Exchange differences 1,031 3,072 32 4,135 Closing net book amount 29,266 52,131 8,107 89,504 At 30 June 2015 Cost 53,998 272,245 15,481 341,724 Accumulated depreciation and impairment (24,732) (220,114) (7,374) (252,220) Net book amount 29,266 52,131 8,107 89,504 Non-current assets pledged as security Refer to note 24(a) for information on non-current assets pledged as security by the consolidated entity.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 100 Note 16. Non-current assets – Property, plant and equipment (continued) (a) Impairment tests for furniture, fittings and equipment As a result of the impairment review of furniture, fittings and equipment, certain assets relating to company owned retail stores were written down to their recoverable amount being their value-in-use. Value-in-use was assessed by reference to management’s best estimate of the risk adjusted future earnings performance of each store over the remaining life of the lease. An impairment charge was also recognised in relation to some warehouse fittings and equipment as the Group intends to exit certain warehouses as part of the supply chain reconfiguration. This resulted in a pre-tax impairment charge in respect of furniture, fittings and equipment in various countries which amounted to $3.0 million. This impairment charge was included within the other expenses line item in the income statement. As at 30 June 2014, no impairment charge was required to be recognised.

Note 17. Non-current assets – Intangible assets Goodwill Indefinite life Finite life Total Brands Other * $’000 $’000 $’000 $’000 $’000 At 30 June 2013 Cost 553,520 573,524 9,332 51,706 1,188,082 Accumulated amortisation and impairment (458,257) (483,270) (2,590) (31,279) (975,396) Net book amount 95,263 90,2546,74220,427 212,686 Year ended 30 June 2014 Opening net book amount 95,263 90,2546,74220,427 212,686 Additions --- --- --- 9,716 9,716 Disposal of discontinued operations (note 10) --- (36,807) --- (140) (36,947) Disposals --- ------(168) (168) Amortisation charge --- --- --- (9,837) (9,837) Impairment charge (note (a)) (24,858) (4,040)(357)--- (29,255) Fair value adjustment on reclassification of West 49 as held for sale during the year (note 8) --- --- --- (1,797) (1,797) Exchange differences (573) (459)105193 (734) Closing net book amount 69,832 48,948 6,490 18,394 143,664 At 30 June 2014 Cost 441,955 525,240 9,501 55,833 1,032,529 Accumulated amortisation and impairment (372,123) (476,292) (3,011) (37,439) (888,865) Net book amount 69,832 48,9486,49018,394 143,664 * Other indefinite life intangible assets relate to key money.

** Goodwill additions include other immaterial acquisitions.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 101 Note 17. Non-current assets – Intangible assets (continued) Goodwill Indefinite life Finite life Total Brands Othe r* $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2015 Opening net book amount 69,832 48,948 6,490 18,394 143,664 Additions --- --- --- 3,207 3,207 Work in progress --- --- --- 6,255 6,255 Disposal of discontinued operations (note 10) --- --- --- (5,950) (5,950) Disposals --- --- (180) (160) (340) Amortisation charge --- --- --- (6,688) (6,688) Exchange differences 14,622 7,278 (202) (312) 21,386 Closing net book amount 84,454 56,226 6,108 14,746 161,534 At 30 June 2015 Cost 488,837 532,596 8,991 57,117 1,087,541 Accumulated amortisation and impairment (404,383) (476,370) (2,883) (42,371) (926,007) Net book amount 84,454 56,226 6,108 14,746 161,534 * Other indefinite life intangible assets relate to key money.

Amortisation charge Amortisation charge of $6.7 million (2014: $9.8 million) has been included in ‘other expenses’ in the income statement.

(a) Impairment tests for goodwill and brands Goodwill is allocated to the Group’s cash-generating units (CGU) identified according to brands acquired or geographical regions where operations existed at the time goodwill arose. Brands are allocated to the Group’s cash-generating units (CGUs) identified according to individual brands.

The recoverable amount of a CGU is firstly determined based on value-in-use (VIU) calculations. These calculations use cash flow projections based on financial budgets with anticipated growth rates approved by the Board of Directors covering a four year period and include a terminal value based upon maintainable cash flows.

If the VIU of a CGU is lower than its carrying amount, then the CGU’s fair value less costs of disposal (FVLCD) is determined as AASB 136 requires the recoverable amount of a CGU to be the higher of VIU and FVLCD. In applying the FVLCD approach, the recoverable amount of a CGU is assessed using market based valuation techniques such as discounted cash flow analysis, comparable transactions and observable trading multiples.

The movement in the carrying value of brands and goodwill relates to foreign exchange spot rate differences between 30 June 2015 and 30 June 2014.

Carrying value Goodwill Brands 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Von Zipper --- --- 1,187 1,187 Kustom --- --- 8,785 8,785 Honolua 501 409 4,385 4,385 Xcel 4,231 3,450 4,427 3,609 Tigerlily --- --- 2,470 2,470 Sector 9 --- --- 8,930 7,280 RVCA 75,548 61,592 26,042 21,232 New Zealand 4,174 4,381 --- --- 84,454 69,832 56,226 48,948 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 102 Note 17. Non-current assets – Intangible assets (continued) (a) Impairment tests for goodwill and brands (continued) As at 30 June 2015 and 2014, all of the above CGUs were tested for impairment in accordance with AASB 136. The Group experienced declines in sales and profitability across a number of regions and brands and as a result impairment charges were recognised in the year ended 30 June 2014 for the CGUs set out in the table below. (b) Key assumptions used for value-in-use calculations The recoverable amounts of the CGU’s in the table below have been determined using value-in-use (VIU) calculations. The VIU calculations have been based on a four year business plan projecting forecast profitability and cash flows prepared by management and approved by the Board. A terminal value is calculated for subsequent years referencing the terminal growth rates (see table below).

Growth rates used were generally determined by factors such as industry sector, the market to which the CGU is dedicated, the size of the CGU, current reduced levels of profitability in some CGU’s, geographic location, past performance and the maturity and establishment of the brand or region.

The rates used in discounting the projected cash flows are pre-tax rates which reflect the specific risks relating to the relevant region of operation or the brand.

The terminal growth rates used reflect the maturity and establishment of the brand or region and do not exceed the long- term average growth rates for the markets to which these assets are dedicated.

EBITDA projections for brand CGUs are discounted using a pre-tax discount rate range between 15.1% and 16.3% (2014:

15.1% and 16.3%) for brand intangibles and their associated goodwill.

EBITDA projections for regional CGUs with allocated goodwill are discounted using a pre-tax discount rate of 14.5%. (2014:

14.5%).

The following key assumptions shown in the table below have been used in the calculations. Impairment charge Goodwill Brands 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Kustom --- 1,763 --- 1,755 Sector 9 --- 13,521 --- 2,285 Honolua --- 6,605 --- --- New Zealand --- 2,969 --- --- --- 24,858 --- 4,040 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 103 Note 17. Non-current assets – Intangible assets (continued) (b) Key assumptions used for value-in-use calculations (continued) Average EBITDA Growth Rate FY15–FY19* % Headroom** 2015 $’m Discount rate 2015 % Impact on headroom of +0.5% change in discount rate $’m Terminal growth rate % Impact on headroom of -0.5% change in terminal growth rate $’m Impact on headroom of -10% change in EBITDA $’m 30 June 2015 Von Zipper 38.4 9.2 15.8 (0.7) 2.5 (0.5) (1.2) Kustom 22.4 --- 16.3 (1.8) 2.5 (1.7) (2.8) Honolua 24.3 7.9 16.3 (0.5) 2.5 (0.4) (1.9) Tigerlily 26.8 8.4 15.8 (0.7) 2.5 (0.5) (2.5) RVCA 38.0 126.5 15.8 (8.9) 2.5 (6.9) (27.8) New Zealand 14.8 7.7 14.5 (1.0) 2.5 (0.8) (4.4) The below 30 June 2014 key assumptions and sensitivities were based on the four year business plan at that point in time: Average EBITDA Growth Rate FY14–FY18* % Headroom** 2014 $’m Discount rate 2014 % Impact on headroom of +0.5% change in discount rate $’m Terminal growth rate % Impact on headroom of -0.5% change in terminal growth rate $’m Impact on headroom of -10% change in EBITDA $’m 30 June 2014 Von Zipper 40.7 12.1 15.8 (0.9) 2.5 (0.7) (1.2) Honolua 33.8 --- 16.3 (0.3) 2.5 (0.2) (1.3) Tigerlily 31.5 2.6 15.8 (0.5) 2.5 (0.4) (2.3) Sector 9 86.4 --- 16.3 (0.6) 2.5 (0.4) (2.9) RVCA 38.0 84.7 15.8 (6.4) 2.5 (5.2) (22.4) * Growth rates impacted by relatively small absolute change from a low initial EBITDA amount.

** Headroom is the difference between the carrying value and the VIU calculation for the CGU. (c) Key assumptions used for fair value less costs of disposal calculations The recoverable amounts of the CGU’s in the table below have been determined using fair value less costs of disposal (FVLCD). In applying the FVLCD approach, the recoverable amount of a CGU is assessed using market based valuation techniques such as comparable transactions and observable trading multiples. The CGU's headroom amounts are sensitive to movements in both EBITDA and multiple (due to EBITDA being an unobservable input the fair value is considered to be a level 3 fair value valuation technique). EBITDA includes certain allocations of Group costs. The following key assumptions shown in the table below have been used in the calculations.

Multiple Headroom* $’m Impact on headroom o f -10% change in EBITDA $’m Impact on headroom of a -1 times change in multiple $’m 30 June 2015 Xcel 8.0 4.6 (1.4) (2.2) Sector 9 8.0 1.8 (1.3) (2.3) Multiple Headroom* $’m Impact on headroom o f -10% change in EBITDA $’m Impact on headroom of a -1 times change in multiple $’m 30 June 2014 Kustom 6.0 --- (1.1) (2.3) Xcel 6.0 0.9(1.0)(2.1) New Zealand 5.0 --- (2.1) (3.7) * Headroom is the difference between the carrying value and the FLVCD calculation for the CGU. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 104 Note 17. Non-current assets – Intangible assets (continued) (c) Key assumptions used for fair value less costs of disposal calculations (continued) Given the balance sheet stabilisation post the Group’s refinancing, the EBITDA multiple that could be achieved for a brand divestment was reassessed and an 8 times multiple was deemed appropriate for brands subject to FVLCD calculations given the 6 times multiple used previously recognised the risk that the Company and its assets were in a distressed condition. (d) Sensitivity The estimates and judgments included in the calculations (including the four year projected business plan period and terminal value) are based on historical experience and other factors, including management’s and the Board’s expectations of future events that are believed to be reasonable under the current circumstances.

The inherent nature of projected results means that, by definition, the resulting accounting estimates will seldom equal the related actual results. The recoverable amount is particularly sensitive to key assumptions including, EBITDAI growth, the long term growth rate and multiples. As a result the Group has conducted a range of sensitivities on the recoverable amount (refer to the tables above).

Management and the Board believe that other reasonable changes in key assumptions on which recoverable amounts have been calculated, would not cause the Group’s carrying amounts for goodwill and brands to exceed their recoverable amounts. The Group has and continues to undertake a range of strategic initiatives to deliver the EBITDAI growth included in the four year 2016 to 2019 business plan.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 105 Note 18. Non-current assets – Deferred tax assets 2015 $’000 2014 $’000 The deferred tax assets balance comprises temporary differences attributable to:

Trade and other receivables 4,265 576 Employee benefits 2,462 987 Inventories 2,448 976 Trade and other payables 3,487 609 Property, plant and equipment 7,160 8,685 Rights issue 1,260 1,926 Other 2,525 2,655 Tax losses 243 79 Finance lease liabilities 638 4,670 Cash flow hedges 46 308 Provisions 817 1,371 Total deferred tax assets 25,351 22,842 Set-off of deferred tax assets against deferred tax liabilities pursuant to set-off provisions (note 25) (9,967) (22,002) Net deferred tax assets 15,384 840 Movements:

Opening balance at 1 July 22,842 71,778 Credited/(charged) to the income statement (note 9) 3 (50,468) (Charged)/credited to other comprehensive income (note 9) (172) 450 Credited to equity (note 9) 745 1,112 Adjustment to prior year tax 106 425 Exchange differences 1,827 (455) Closing balance at 30 June 25,351 22,842 Deferred tax assets to be recovered after more than 12 months 15,252 22,721 Deferred tax assets to be recovered within 12 months 10,099 121 25,351 22,842 Note 19. Non-current assets – Other 2015 $’000 2014 $’000 Prepayments 2,360 2,704 Prepaid borrowing costs for facilities not drawn at 30 June 4,243 4,277 6,603 6,981 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 106 Note 20. Current liabilities – Trade and other payables 2015 $’000 2014 $’000 Trade payables 133,735 129,930 Other payables 73,741 53,927 Derivative financial liabilities (note 31) 441 1,830 207,917 185,687 (a) Fair value and risk exposure Due to the short-term nature of these payables, their carrying amount is assumed to approximate their fair value. Information about the Group’s exposure to foreign exchange risk is provided in note 2.

(b) Other payables As at 30 June 2015, included in other payables is deferred payment payable of $20.4 million relating to RVCA. Refer to note 27 for further information on deferred payment. As at 30 June 2014, there was no current deferred payment payable.

Note 21. Current liabilities – Borrowings 2015 $’000 2014 $’000 Unsecured Bank loans 5,271 5,187 Lease liabilities (note 34) 1,634 2,171 Total unsecured current borrowings 6,905 7,358 (a) Bank loans Bank loans represent term loans at variable interest rates.

(b) Risk exposure Details of the Group’s exposures to risks arising from current and non-current borrowings are set out in note 2.

Note 22. Current liabilities – Current tax liabilities 2015 $’000 2014 $’000 Income tax 4,115 4,179 As shown on the consolidated balance sheet the current tax receivable is $1.9 million (2014: $3.2 million).

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 107 Note 23. Current liabilities – Provisions 2015 $’000 2014 $’000 Employee benefits 11,667 11,497 Onerous lease and restructuring provisions (note (a)) 8,441 16,950 20,108 28,447 (a) Onerous lease and restructuring provisions The Group identified a number of loss making or underperforming stores in its portfolio and closed or intended to close these stores by either early termination or trading the stores to expiry. A provision has been raised for the negotiated and estimated settlement costs of terminating the leases early or the minimum unavoidable costs of trading the stores to lease expiry. (b) Movements in provisions Movements in each class of provision during the financial year, other than employee benefits provision, are set out below:

2015 Onerous lease and restructuring provisions $’000 Carrying amount at start of year 16,950 Additional provisions recognised 2,631 Unused amounts reversed (4,471) Amounts used during the year (11,923) Reclassification from non-current to current 4,962 Exchange differences 292 Carrying amount at end of year 8,441 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 108 Note 24. Non-current liabilities – Borrowings 2015 $’000 2014 $’000 Secured Term loan facility 257,097 207,576 Total secured non-current borrowings 257,097 207,576 Unsecured Lease liabilities (note 34) 2,853 4,457 Total unsecured non-current borrowings 2,853 4,457 Total non-current borrowings 259,950 212,033 Centerbridge / Oaktree Consortium (“C/O Consortium”) Term Loan facility The Group has a senior secured term loan facility which is denominated in US Dollars and has a maturity date of 16 September 2019. The facility has a single financial covenant that is tested on a quarterly basis from 31 December 2014.

The facility incurs a fixed interest rate of 11.9% per annum (5.9% must be paid in cash and up to 6.0% paid in kind at the Company’s option). The facility is subject to prepayment premiums, where in event of early repayment of any amount the C/O Consortium will be entitled to be paid a premium over and above the face value of the debt which is being repaid by the Company.

At 30 June 2015 the Group had $265.3 million (US$203.8 million) of borrowings under the term loan, offset by prepaid borrowing costs of $8.2 million. No amounts were drawn or prepaid during the year ended 30 June 2015.

At 30 June 2014 the Group had $216.3 million (US$203.8 million) of borrowings under the term loan, offset by prepaid borrowing costs of $8.7 million.

General Electric Capital Corporation (“GE Capital”) ABL facility Asset-Based Revolver and Letter of Credit sub-facility The Group has an asset-based multi-currency revolving credit facility with a maturity date of 13 December 2018. Whilst the facility limit is US$100 million, the amount available for drawing is determined by reference to the value of certain borrowing base assets held by relevant Group entities that are party to the facility. These borrowing base assets are subject to seasonal fluctuations. At 30 June 2015 the amount of the borrowing base was US$58.3 million (85% is readily available to drawdown at any time) of which US$14.1 million was drawn by way of letters of credit giving the net available amount for drawing as at balance date of US$44.2 million (2014: US$59.5 million).

At 30 June 2015 the Group had no borrowings drawn on the asset-based multi-currency revolving credit facility (2014: Nil).

(a) Assets pledged as security The carrying amounts of assets pledged as security for current and non-current borrowings are:

2015 $’000 2014 $’000 Current Cash and cash equivalents 141,040 125,318 Trade and other receivables 143,418 123,977 Inventories 160,877 135,000 Current tax receivables 1,174 2,562 Other 14,763 8,953 Total current assets pledged as security 461,272 395,810 Non-current Receivables 2,683 4,005 Property, plant and equipment 82,807 83,320 Intangible assets 159,629 135,516 Deferred tax assets 14,092 --- Other 2,167 2,615 Total non-current assets pledged as security 261,378 225,456 Total assets pledged as security 722,650 621,266 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 109 Note 24. Non-current liabilities – Borrowings (continued) (a) Assets pledged as security (continued) Billabong International Limited and certain of its subsidiaries have granted security interests in Australia and other jurisdictions such as Canada and the United States of America over certain of its assets and properties in favour of their financiers. The security interests will typically be enforceable by a financier if an event of default occurs and is continuing under the facility with that financier.

(b) Financing arrangements 2015 $’000 2014 $’000 Credit standby arrangements Total facilities Bank overdrafts and at-call facilities 1,447 2,403 Trade finance, cash advance and other facilities 330,002 287,636 331,449 290,039 Used at balance date Bank overdrafts and at-call facilities --- --- Trade finance, cash advance and other facilities 287,689 233,294 287,689 233,294 Unused at balance date Bank overdrafts and at-call facilities 1,447 2,403 Trade finance, cash advance and other facilities 42,313 54,342 43,760 56,745 Bank loan facilities (current and non-current) Total facilities 14,427 14,199 Used at balance date 5,271 5,187 Unused at balance date 9,156 9,012 (c) Risk exposure Information about the Group’s exposure to interest rate and foreign currency changes is provided in note 2.

(d) Fair value For the majority of the borrowings, the fair values are not materially different to their carrying amounts since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Material differences are identified only for the following borrowings:

2015 2014 Carrying amount Fair value Carrying amount Fair value $’000 $’000 $’000 $’000 On-balance sheet Lease liabilities (current and non-current) 4,487 4,246 6,628 6,187 Term loan facility 257,097 265,313 207,576 216,306 261,584 269,559 214,204 222,493 In regards to the term loan facility the difference between the carrying amount and the fair value amount above is the prepaid borrowing costs. The Company’s financing arrangements were entered into less than two years ago and at this time the Company has no reason to believe that the terms and conditions on these borrowings represent anything other than fair value.

All other fair values equal the carrying values of borrowings.

The fair values are classified as level 3 fair values due to the use of unobservable inputs, including own credit risk.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 110 Note 25. Non-current liabilities – Deferred tax liabilities 2015 $’000 2014 $’000 The deferred tax liabilities balance comprises temporary differences attributable to:

Trade and other receivables 1 639 Property, plant and equipment 427 7,523 Prepayments 6,298 6,133 Other 2,119 682 Intangible assets – brands --- 6,993 Cash flow hedges 1,122 32 Total deferred tax liabilities 9,967 22,002 Set-off of deferred tax assets pursuant to set-off provisions (note 18) (9,967) (22,002) Net deferred tax liabilities --- --- Movements:

Opening balance at 1 July 22,002 15,481 (Credited)/charged to the income statement (note 9) (14,512) 7,076 Charged/(credited) to other comprehensive income (note 9) 1,387 (573) Adjustment to prior year tax 88 --- Exchange differences 1,002 18 Closing balance at 30 June 9,967 22,002 Deferred tax liabilities to be settled after more than 12 months 7,461 21,098 Deferred tax liabilities to be settled within 12 months 2,506 904 9,967 22,002 Note 26. Non-current liabilities – Provisions and payables 2015 $’000 2014 $’000 Employee benefits 10,667 8,230 Derivative financial liabilities (note 31) --- 9,054 Onerous lease and restructuring provisions (note (a)) 3,445 8,071 Other 9,289 6,215 23,401 31,570 (a) Onerous lease and restructuring provisions The Group identified a number of loss making or underperforming stores in its portfolio and closed or intended to close these stores by either early termination or trading the stores to expiry. A provision has been raised for the negotiated and estimated settlement costs of terminating the leases early or the minimum unavoidable costs of trading the stores to lease expiry. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 111 Note 26. Non-current liabilities – Provisions and payables (continued) (b) Movements in provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below:

2015 Onerous lease and restructuring provisions $’000 Carrying amount at start of year 8,071 Additional provisions recognised 210 Unused amounts reversed (265) Amounts used during the year --- Reclassification from non-current to current (4,962) Exchange differences 391 Carrying amount at end of year 3,445 Note 27. Deferred payment 2015 $’000 2014 $’000 Current liabilities RVCA deferred payment (refer note 20) 20,378 --- Total current deferred payment 20,378 --- Non-current liabilities RVCA deferred payment --- 23,556 Total non-current deferred payment --- 23,556 Total deferred payment 20,378 23,556 RVCA A new contract with Pat Tenore, the founder of RVCA, was entered into during the year ended 30 June 2014. The financial aspects of the agreed contractual extension include: 1. An amendment to the 2015 earn out arrangements which were negotiated as part of the original acquisition in 2010 including the prepayment of US$20.0 million of deferred consideration (refer note 36) and the forgiveness of US$7.5 million of loans which would have otherwise been receivable coinciding with the 2015 earn out arrangements; 2. A performance related component for the period to 2018; and 3. The issue of 1,200,000 ten year options in Billabong International Limited exercisable at $0.60. The current deferred payment was recalculated during the year ended 30 June 2015 taking into account the latest Board approved forecasts. This resulted in a decrease in the underlying USD payable relating to RVCA which has been recognised in the income statement and is included as a significant items given the nature is outside of normal trading. Refer to note 8.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 112 Note 27. Deferred payment (continued) The split between guaranteed and contingent consideration for RVCA is as follows:

2015 $’000 2014 $’000 Guaranteed deferred consideration 9,551 7,847 Contingent deferred consideration (refer note 2) 10,827 15,709 20,378 23,556 As part of the RVCA deferred consideration arrangement the remaining loan receivable of $3.4 million as at 30 June 2015 (2014: $2.7 million (following the loan forgiveness mentioned above)) can be offset in the balance sheet as there is an intention to settle this loan receivable and the deferred consideration payable on a net basis.

Gross amounts Gross amounts set off in the balance sheet Net amounts presented in the balance sheet $’000 $’000 $’000 2015 Current deferred consideration payable 23,755 (3,377) 20,378 2014 Non-current deferred consideration payable 26,303 (2,747) 23,556 As at 30 June 2015 and 30 June 2014 the deferred consideration relating to all acquisitions has been fully recognised at present value taking into account the latest Board approved forecasts. Refer to note 33.

Note 28. Contributed equity Notes 2015 Shares 2014 Shares 2015 2014 ’000 ’000 $’000 $’000 (a) Share capital Ordinary shares Fully paid (b),(c) 990,370 990,370 1,091,323 1,091,323 Other equity securities (d) ------ 2,951 2,951 Total contributed equity 990,370 990,370 1,094,274 1,094,274 (b) Movements in ordinary share capital Date Details Notes Number of shares $’000 1 July 2013 Opening balance 478,944,292 907,885 10 January 2014 CEO Sign-on (f) 1,785,714 500 6 February 2014 C/O Placement (g) 329,268,294 135,000 6 March 2014 Rights issue- Institutional component (h) 68,022,391 19,078 31 March 2014 Rights issue- Retail component (h) 112,349,343 31,426 1,093,889 Less: Transaction costs arising on rights issue (h) (3,666) Deferred tax credit recognised directly in equity (h) 1,100 30 June 2014 Closing balance 990,370,034 1,091,323 30 June 2015 Closing balance 990,370,034 1,091,323 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 113 Note 28. Contributed equity (continued) (c) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.

(d) Other equity securities The amount shown for other equity securities is the value of the options issued in relation to the Element acquisition. (e) Executive performance share plan The Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust holds 2,485,417 (2014: 3,694,577) shares on issue at the end of the year. Refer to note 29 and 43.

(f) CEO Sign-on On 10 December 2013 shareholders voted to issue the Company’s CEO, Neil Fiske, shares pursuant to the sign-on provisions of Mr. Fiske’s employment contract with the Group. The sign-on arrangement was in recognition of some of the income forgone or costs incurred on departing his previous role outside of the Group. Mr Fiske was paid a sign-on incentive comprised of:

 $250,000 cash (less tax); and  $250,000 to subscribe for shares in the Company at the same price as the 2014 rights issue to shareholders ($0.28 per share). Mr Fiske separately invested $250,000 in the Company’s shares from his own funds.

On 10 January 2014 $500,000 of ordinary equity at $0.28 per share was issued resulting in the issuance of 1,785,714 shares to Mr Fiske.

Shares issued to Mr Fiske are subject to escrow for the period commencing on the date of issue of such shares and ending on 10 January 2016.

This incentive includes a share-based payment component, which has been recognised in the option reserve (refer to note 29(b)).

(g) 2014 C/O Placement On 30 January 2014 shareholders voted to support the strengthening of the Company’s balance sheet by approving the issue of $135 million of ordinary equity to the C/O Consortium in order to reduce debt and provide a stronger financial platform for the Turnaround Strategy outlined by the Company’s CEO Neil Fiske at the AGM on 10 December 2013. On 6 February 2014 $135 million of ordinary equity at $0.41 per share was issued resulting in the issuance of 329,268,294 shares to the C/O Consortium with the proceeds subsequently used to pay down the term loan.

Shares issued to the C/O Consortium on exercise of the Options and under the Placement are subject to escrow for the period commencing on the date of issue of such shares and ending on 19 September 2015.

(h) 2014 Rights issue Retail/Institutional Entitlement Offer On 26 February 2014 the Company announced a non-underwritten pro-rata accelerated renounceable entitlement offer to subscribe for 3 new ordinary shares for every 8 existing ordinary shares at an issue price of $0.28 per new share with such shares to be issued on, and rank for dividends after 1 April 2014. As a result, 180.4 million new shares were issued, resulting in gross cash proceeds of $50.5 million. Expenses Arising From 2014 Rights Issue Costs incurred in relation to the rights issue up to and including 30 June 2014 were $3.7 million ($2.6 million net of deferred tax credits recognised directly in equity). Directly attributable equity raising costs incurred have been recognised net of any tax effects directly in equity, and therefore do not impact earnings for the year ended 30 June 2014. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 114 Note 28. Contributed equity (continued) (i) C/O Options On 19 September 2013 the Company announced that it had agreed to issue 29,581,852 options (“the Options”) to the C/O Consortium upon funding of the new term loan. The Options will be exercisable at the election of the C/O Consortium at a strike price of $0.50 per share and will expire seven years from the date of grant. Shares issued upon exercise of the Options will rank equally with the then shares on issue. On 3 December 2013 the Company granted the Options to the C/O Consortium, following receipt by the C/O Consortium of approval from the Foreign Investment Review Board. The options have not been exercised as at 30 June 2015.

The fair value of these options were recognised within prepaid borrowing costs which netted off against the Term loan facility carrying balance included in non-current borrowings (note 24).

(j) Altamont Options On 16 July 2013 the Company announced that it had agreed to issue 42,259,790 options to the Altamont Consortium. The options are exercisable at the election of the Altamont Consortium at a strike price of $0.50 per share and will expire seven years from the date of grant. Shares issued upon exercise of the options will rank equally with the then shares on issue. On 16 July 2013 the Company granted the options to the Altamont Consortium.

The options have not been exercised as at 30 June 2015.

The fair value of these options were expensed in borrowing costs as a significant item for the year ended 30 June 2014.

(k) Capital risk management The Group’s objectives when managing capital are to:

 safeguard the ability to continue as a going concern, so that the Group can continue to provide returns for shareholders and benefits for other stakeholders, and  target an optimal capital structure to reduce the cost of capital.

The Group defines gearing ratio as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the balance sheet (including non-controlling interests) plus net debt.

During 2015, the Group’s strategy, which was unchanged from 2014, was to maintain an appropriate gearing ratio for the Group. The gearing ratios at 30 June 2015 and 30 June 2014 were as follows:

Notes 2015 $’000 2014 $’000 Total borrowings 21, 24 266,855 219,391 Less: cash and cash equivalents 11 (153,334) (145,070) Net debt 113,521 74,321 Total equity 281,584 259,036 Total capital 395,105 333,357 Gearing ratio 29% 22% The increase in the gearing ratio during 2015 resulted primarily from spot rate foreign exchange differences between 30 June 2014 and 30 June 2015 upon translation of the USD denominated term loan facility to AUD.

In the year ended 30 June 2015 Billabong International Limited complied with the financial covenants of its borrowing facilities.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 115 Note 29. Treasury shares, reserves and retained (losses)/profits 2015 $’000 2014 $’000 (a) Treasury shares (20,959) (22,508) Movement:

Balance 1 July (22,508) (24,861) Treasury shares held by employee share plan trusts --- --- Employee share scheme issue 1,549 2,353 Balance 30 June (20,959) (22,508) Treasury shares are shares in Billabong International Limited that are held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust for the purpose of issuing shares under the Group’s Executive Long-Term Incentive Plan (note 43). Date Details Number of shares 1 July 2013 Balance 4,344,668 Acquisition of shares by the employee share plan trusts --- Employee share scheme issue (650,091) 30 June 2014 Balance 3,694,577 Acquisition of shares by the employee share plan trusts --- Employee share scheme issue (1,209,160) 30 June 2015 Balance 2,485,417 2015 $’000 2014 $’000 (b) Reserves Option reserve 10,664 10,760 Other reserves Foreign currency translation reserve (105,682) (98,793) Cash flow hedge reserve 424 (3,178) Total other reserves (105,258) (101,971) Other equity reserve --- (9,244) Total reserves (94,594) (100,455) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 116 Note 29. Treasury shares, reserves and retained (losses)/profits (continued) (b) Reserves (continued) 2015 $’000 2014 $’000 Movements in reserves:

Option reserve Balance 1 July 10,760 5,211 Share-based payment expense/(income) 1,453 (276) Employee share scheme issue (1,549) (2,353) Fair value of options in respect of recapitalisation option issues --- 7,839 Option reserve in respect of sign-on issues --- 339 Balance 30 June 10,664 10,760 Foreign currency translation reserve Balance 1 July (98,793) (97,530) Net investment hedge (917) (10,751) Foreign currency translation reserve reclassified to income statement (313) 3,359 Currency translation differences arising during the year (5,659) 6,129 (105,682) (98,793) Cash flow hedge reserve Balance 1 July (3,178) (3) Revaluation - gross 3,565 (1,801) Deferred tax (1,233) 587 Transfer to inventory - gross 1,835 (2,997) Deferred tax (601) 1,039 Effect of exchange rate changes 36 (3) Balance 30 June 424 (3,178) Other equity reserve Balance 1 July (9,244) (9,244) Other equity reserve reclassified to income statement 9,244 --- Balance 30 June --- (9,244) (c) Retained losses Movements in retained losses were as follows:

2015 $’000 2014 $’000 Balance 1 July (701,287) (467,575) Net profit/(loss) for the year 4,150 (233,712) Dividends (note 30) --- --- Balance 30 June (697,137) (701,287) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 117 Note 29. Treasury shares, reserves and retained (losses)/profits (continued) (d) Nature and purpose of reserves Option reserve The option reserve is used to recognise:

 the grant date fair value of options issued but not exercised;  the grant date fair value of shares issued to employees; and  the issue of shares held by the Billabong Executive Performance Share Plan – Australia trust and the Billabong Executive Performance Share Plan trust to employees.

Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entities are taken to the foreign currency translation reserve, as described in note 1(d).

Cash flow hedge reserve The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 1(o). Amounts are recognised in the income statement when the associated hedged transaction affects profit and loss.

Other equity reserve As a result of the sale of SurfStitch during the year ended 30 June 2015, the reserve relating to the acquisition of the non- controlling interest of Surfstitch Pty Ltd was reclassified to the income statement. The results of SurfStitch have been reported in these financial statements as discontinued operations. Refer to note 10.

At 30 June 2014 this reserve was in relation to the symmetrical put and call options at the present value of the expected redemption amount for the acquisition of the non-controlling interest of Surfstitch Pty Ltd. Note 30. Dividends The Board has not declared an interim ordinary dividend for the year ended 30 June 2015 and nor for the year ended 30 June 2014.

The Dividend Reinvestment Plan (DRP) remains suspended.

The Company’s finance agreements place certain restrictions on the Company’s ability to declare and/or make cash dividend payments depending upon the Company’s leverage position and expected undrawn capacity.

(a) Franked dividends The franked portions of future dividends recommended after 30 June 2015 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2015.

Parent entity 2015 $’000 2014 $’000 Franking credits available for subsequent financial years to the equity holders of the parent entity based on a tax rate of 30% (2014: 30%) --- --- As the Board has not declared a final ordinary dividend for the year ended 30 June 2015, there is no impact on the franking account in relation to dividends recommended but not recognised as a liability at year end (2014: Nil).

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 118 Note 31. Derivative financial instruments Notes 2015 $’000 2014 $’000 Current assets Forward foreign exchange contracts – cash flow hedges14 3,879 91 Total current derivative financial instrument assets 3,879 91 Current liabilities Forward foreign exchange contracts – cash flow hedges 20 441 1,830 Total current derivative financial instrument liabilities 441 1,830 Non-current liabilities Other derivative liability 26 --- 9,054 Total non-current derivative financial instrument liabilities --- 9,054 Net derivative financial instruments 3,438 (10,793) As a result of the sale of SurfStitch during the year ended 30 June 2015, the other derivative liability relating to the acquisition of the non-controlling interest of Surfstitch Pty Ltd was reclassified to the income statement. The results of SurfStitch have been reported in these financial statements as discontinued operations.Refer to note 10. During the year ended 30 June 2014 the other derivative liability relating to the acquisition of the non-controlling interest of Surfstitch Pty Ltd was restated taking into account the latest Board approved forecasts. This resulted in a non-cash credit to the income statement totalling $4.5 million. (a) Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates in accordance with the Group’s financial risk management policies (refer to note 2). (i) Forward exchange contracts – cash flow hedges – product purchases From time to time and in order to protect against exchange rate movements, the Group enters into forward exchange contracts to purchase USD, EUR and AUD. The contracts are hedging highly probable forecast purchases for the upcoming season and are timed to mature when major shipments of inventory are scheduled to arrive. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 119 Note 31. Derivative financial instruments (continued) (a) Instruments used by the Group (continued) The cash flows are expected to occur at various dates within one year from the balance date. At balance date, the details of outstanding contracts are: Buy USD Average exchange rate 2015 USD$’000 2014 USD$’000 2015 2014 0 – 6 Months Sell Euro 23,000 21,500 1.1689 1.3586 Sell AUD 30,500 18,835 0.7754 0.8964 Sell BRL --- 900 --- 0.4344 Sell CAD 4,905 7,342 0.8184 0.9021 Sell Yen 4,634 2,645 0.0091 0.0102 Sell ZAR 2,076 2,280 0.0822 0.0927 Sell NZD 600 450 0.7185 0.8228 6 – 12 Months Sell Euro 10,700 15,500 1.1178 1.3569 Sell AUD 14,000 --- 0.7751 --- Sell Yen 2,923 5,000 0.0084 0.0098 Sell NZD 175 100 0.7369 0.8323 Buy Euro Average exchange rate 2015 EUR’000 2014 EUR’000 2015 2014 0 – 6 Months Sell USD --- 1,400 --- 0.7218 Buy AUD Average exchange rate 2015 AUD$’000 2014 AUD$’000 2015 2014 0 – 6 Months Sell NZD 4,938 3,600 0.9517 0.9142 6 – 12 Months Sell NZD 600 500 0.9616 0.9102 Amounts disclosed above represent currency acquired, measured at the contracted rate. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flow occurs, the Group adjusts the initial measurement of the inventory recognised in the balance sheet by the related amount deferred in equity.

At balance date these contracts were net assets of $3.4 million (2014: net liability of $1.7 million). (ii) Hedge of net investment in foreign entity The foreign exchange loss of $0.9 million (2014: loss of $10.8 million) on translation of inter-company loans to AUD at reporting date is transferred to the foreign currency translation reserve, in equity (note 29(b)). There was no ineffectiveness to be recorded from net investments in foreign entity hedges.

(b) Risk exposures Information about the Group’s exposure to credit risk, foreign exchange and interest rate risk and about the methods and assumptions used in determining fair values is provided in note 2. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 120 Note 32. Remuneration of auditor During the year the following fees were paid or payable for services provided by the auditor of the Group, its related practices and non-related audit firms:

2015 $ 2014 $ (a) PwC Australia (i) Audit and other assurance services Audit and review of financial reports 1,053,747 1,004,359 Other assurance services 16,891 27,300 Total remuneration for audit and other assurance services 1,070,638 1,031,659 (ii) Taxation services International tax consulting together with separate tax advice on acquisitions and disposals 303,509 189,668 Total remuneration for taxation services 303,509 189,668 (iii) Other services Due diligence services --- 138,845 Total remuneration for other services --- 138,845 Total remuneration of PwC Australia 1,374,147 1,360,172 (b) Network firms of PwC Australia (i) Audit and other assurance services Audit and review of financial reports 266,655 829,639 Other assurance services 493 81,349 Total remuneration for audit and other assurance services 267,148 910,988 (ii) Taxation services International tax consulting together with separate tax advice on acquisitions and disposals 81,527 182,012 Total remuneration for taxation services 81,527 182,012 (iii) Other services General accounting advice --- 116,362 Total remuneration for other services --- 116,362 Total remuneration of Network firms of PwC Australia 348,675 1,209,362 Total auditor’s remuneration 1,722,822 2,569,534 It is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important and where undertaking those assignments would not compromise PricewaterhouseCoopers’ independence. These assignments are principally tax advice and due diligence reporting on acquisitions, or where PricewaterhouseCoopers is awarded assignments on a competitive basis.

The Group and its Audit and Risk Committee are committed to ensuring the independence of the external auditor, both in appearance as well as in fact. Accordingly, significant attention is directed toward the appropriateness of the external auditor to perform services other than the audit. A formal pre-approval policy of audit and non-audit services provided by the external auditor has been adopted in this regard such that proposed services may either (1) be pre-approved without consideration of specific case-by-case services by the Audit and Risk Committee (“general pre-approval”), for example statutory or financial audits/reviews; or (2) require the specific pre-approval of the Audit and Risk Committee (“specific pre-approval”), for example taxation and other services. The Audit and Risk Committee believes that the combination of these two approaches, and the inclusion of prohibited services, in this policy will result in an effective and efficient procedure to pre- approve services performed by the external auditor. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 121 Note 33. Contingencies Details and estimates of maximum amounts of contingent liabilities as at 30 June 2015 are as follows:

Guarantees For information about guarantees given by entities within the Group, including the parent entity, please refer to notes 38 and 44.

Contingent Consideration As at 30 June 2015 the deferred consideration relating to the RVCA acquisition has been fully recognised taking into account the latest Board approved forecast. The contingent consideration of $10.8 million as at 30 June 2015 was classified as trade and other payables in current liabilities. Refer to note 20. As at 30 June 2014 the contingent consideration of $15.7 million was included in the deferred consideration recorded in the financial statements. Refer to note 27.

In the year ending 30 June 2016 the Group will calculate and finalise the deferred consideration relating to the RVCA acquisition.

Letters of Credit The Group had $18.4 million letters of credit in favour of suppliers executed but undrawn as at 30 June 2015 (2014: $13.1 million). The letters of credit related to both trade letters of credit for the purchase of inventory and standby letters of credit for various beneficiaries including, but not limited to, leases and insurance. All letters of credit are part of the ordinary course of business.

Class Action As announced on 26 March 2015, the Company is defending a representative proceeding (shareholder class action) commenced in the Federal Court of Australia. The applicants comprise persons who are said to have acquired ordinary shares or American Depository Receipts in the Company between 18 February 2011 and 19 December 2011. The applicants are seeking declarations and unquantified damages. The Company wholly rejects and is vigorously defending the claim, which focuses on market disclosures that occurred in 2011.

No material losses are anticipated in respect of any of the above contingent liabilities.

Note 34. Commitments 2015 $’000 2014 $’000 (a) Lease commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Within one year 74,972 79,608 Later than one year but not later than five years 136,112 164,990 Later than five years 12,546 20,064 223,630 264,662 Representing: Non-cancellable operating leases 223,271 264,176 Future finance charges on finance leases 359 486 223,630 264,662 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 122 Note 34. Commitments (continued) (a) Lease commitments (continued) (i) Operating leases The Group leases various retail stores, offices and warehouses under non-cancellable operating leases. The leases have varying terms, escalating clauses and renewal rights. On renewal, the terms of the leases are renegotiated. In some instances early termination of these operating leases is possible with negotiation with the relevant landlord through payment of an agreed amount.

2015 $’000 2014 $’000 Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year 74,841 79,479 Later than one year but not later than five years 135,884 164,633 Later than five years 12,546 20,064 223,271 264,176 (ii) Finance leases The Group leases various plant and equipment with a carrying amount of $8.1 million (2014: $10.0 million).

2015 $’000 2014 $’000 Commitments in relation to finance leases are payable as follows: Within one year 1,765 2,300 Later than one year but not later than five years 3,081 4,814 Later than five years --- --- Minimum lease payments 4,846 7,114 Future finance charges (359) (486) Total lease liabilities recognised as a liability 4,487 6,628 Representing lease liabilities: Current (note 21) 1,634 2,171 Non-current (note 24) 2,853 4,457 4,487 6,628 The present value of finance lease liabilities is as follows: Within one year 1,634 2,171 Later than one year but not later than five years 2,853 4,457 Later than five years --- --- Minimum lease payments 4,487 6,628 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 123 Note 35. Related party transactions (a) Parent entities The ultimate parent entity within the Group is Billabong International Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 37.

(c) Key management personnel compensation 2015 $ 2014 $ Short-term employee benefits 5,906,963 7,017,192 Long-term employee benefits – long service leave 25,577 48,899 Termination benefits 636,590 3,087,799 Post-employment benefits 109,349 134,440 Share-based payments 868,439 (1,231,383) 7,546,918 9,056,947 Detailed remuneration disclosures are provided in the Remuneration Report.

(d) Transactions with other related parties In addition to the interest paid (refer to (f) below) the following transactions occurred with other related parties:

Line fees and expense reimbursement 2015 $ 2014 $ Oaktree Capital Management, L.P 114,807 468,690 Centerbridge Partners, L.P 225,341 788,870 Non-Executive Director remuneration Oaktree Capital Management, L.P 101,305 62,517 Centerbridge Partners, L.P 98,884 62,517 (e) Outstanding balances arising from transactions with other related parties Line fees and expense reimbursement 2015 $ 2014 $ Oaktree Capital Management, L.P 8,730 66,491 Centerbridge Partners, L.P 37,178 286,520 Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 124 Note 35. Related party transactions (continued) (f) Loans from related parties Oaktree Capital Management, L.P 2015 2014 $ $ Balance 1 July 108,152,866 --- Loans advanced --- 193,735,097 Loan repayments received --- (87,018,551) Interest charged 14,759,360 11,345,064 Interest paid (15,068,300) (11,327,403) Exchange differences 24,812,324 1,418,659 Balance 30 June 132,656,250 108,152,866 Centerbridge Partners, L.P 2015 2014 $ $ Balance 1 July 108,152,866 --- Loans advanced --- 193,735,097 Loan repayments received --- (87,018,551) Interest charged 14,759,360 11,345,064 Interest paid (15,068,300) (11,327,403) Exchange differences 24,812,324 1,418,659 Balance 30 June 132,656,250 108,152,866 (g) Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates.

Outstanding balances are unsecured and are repayable in cash.

Note 36. Business combinations 2015 There were no business combinations that were of a material nature for the year ended 30 June 2015.

2014 There were no business combinations that were of a material nature for the year ended 30 June 2014. The payments for purchase of subsidiaries and businesses, net of cash acquired in the consolidated cash flow statement were in relation to the deferred consideration payments for RVCA, SDS/Jetty Surf and DaKine.

On 1 November 2013 and 17 December 2013 the deferred consideration payments in relation to SDS/Jetty Surf were paid in full and therefore no further amounts are due in relation to this acquisition.

On 31 January 2014 a prepayment of US$20.0 million was made as part of the amendments to the RVCA 2015 earn out arrangements, which were negotiated as part of the original acquisition in 2010 and the forgiveness of US$7.5 million of loans which otherwise would have been receivable coinciding with the 2015 earn out arrangements.

On 17 April 2014 the deferred consideration payment in relation to the remaining amount outstanding for DaKine (US$1.5 million) was paid in full and therefore no further amounts are due in relation to this acquisition.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 125 Note 37. Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following significant subsidiaries in accordance with the accounting policy described in note 1(b):

Name of entity Country of incorporation Class o f shares Equity holding ** 2015 % 2014 % Amazon (New Zealand) Pty Ltd * Australia Ordinary 100 100 Beach Culture International Pty Ltd Australia Ordinary 100 100 Board Sports Retail Pty Ltd Australia Ordinary 100 100 Burleigh Point, Ltd USA Ordinary 100 100 GSM (Canada) Pty Ltd * Australia Ordinary 100 100 BBG Asia Pty Ltd formerly known as GSM (Central Sourcing) Pty Ltd * Australia Ordinary 100 100 GSM (Duranbah) Pty Ltd Australia Ordinary 100 100 GSM (Europe) Pty Ltd * Australia Ordinary 100 100 GSM (Japan) Limited Japan Ordinary 100 100 GSM (NZ Operations) Limited New Zealand Ordinary 100 100 GSM (Operations) Pty Ltd * Australia Ordinary 100 100 GSM (Trademarks) Pty Ltd Australia Ordinary 100 100 GSM Trading (South Africa) Pty Ltd * Australia Ordinary 100 100 GSM Brasil Ltda Brazil Ordinary 100 100 GSM England Retail Ltd England Ordinary 100 100 GSM Espana Operations Sociedad Limitada Spain Ordinary 100 100 GSM Retail Inc USA Ordinary 100 100 GSM Rocket Australia Pty Ltd Australia Ordinary 100 100 GSM Trading (Singapore) Pty Ltd Australia Ordinary 100 100 Pineapple Trademarks Pty Ltd * Australia Ordinary 100 100 Rocket Trademarks Pty Ltd Australia Ordinary 100 100 Seal Trademarks Pty Ltd Australia Ordinary 100 100 Surfection Pty Ltd Australia Ordinary 100 100 Surfstitch Pty Ltd Australia Ordinary --- 51 Surfstitch (Europe) Pty Ltd Australia Ordinary --- 51 * These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. For further information refer to note 38.

** The proportion of ownership interest is equal to the proportion of voting power held.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 126 Note 37. Subsidiaries (continued) (a) Non-controlling interests (NCI) On 5 September 2014 the Company completed the sale of its 51% stake in SurfStitch. The results of SurfStitch have been reported in these financial statements as discontinued operations, refer to note 10.

Set out below is summarised financial information for the non-controlling interests that are material to the Group. The amounts disclosed for each subsidiary are before inter-company eliminations.

Surfstitch Pty Ltd Surfstitch (Europe) Pty Ltd 2015 2014 2015 2014 $’000 $’000 $’000 $’000 Summarised balance sheet Current assets --- 19,719 --- 4,440 Current liabilities --- 14,944 --- 4,326 Current net assets --- 4,775 --- 114 Non-current assets --- 4,834 --- 3,344 Non-current liabilities --- 9,163 --- 24,983 Non-current net liabilities --- (4,329) --- (21,639) Net assets/(liabilities) --- 446 --- (21,525) Accumulated NCI --- 760 --- (11,282) Summarised statement of comprehensive expense Revenue 9,663 60,613 2,015 12,682 Loss for the period (723) (1,172) (2,538) (11,524) Total comprehensive expense (723) (1,172) (2,538) (11,524) Loss allocated to NCI (354) (574) (1,244) (5,647) Summarised cash flows Cash flows from operating activities 134 1,629 (230) (5,002) Cash flows from investing activities (2,460) (1,778) (96) 3,622 Cash flows from financing activities --- (1,250) --- --- Net (decrease)/increase in cash and cash equivalents (2,326) (1,399) (326) (1,380) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 127 Note 38. Deed of cross guarantee Billabong International Limited, GSM (Europe) Pty Ltd, GSM (Operations) Pty Ltd, Pineapple Trademarks Pty Ltd, BBG Asia Pty Ltd formerly known as GSM (Central Sourcing) Pty Ltd, Amazon (New Zealand) Pty Ltd, GSM Trading (South Africa) Pty Ltd and GSM (Canada) Pty Ltd are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. (a) Consolidated income statement, statement of comprehensive expense and summary of movements in consolidated retained profits The above companies represent a ‘Closed Group’ for the purposes of the Class Order. Set out below are the condensed consolidated income statement, a consolidated statement of comprehensive expense and a summary of movements in consolidated retained profits for the year ended 30 June 2015 of the Closed Group, consisting of Billabong International Limited, GSM (Europe) Pty Ltd, GSM (Operations) Pty Ltd, Pineapple Trademarks Pty Ltd, BBG Asia Pty Ltd formerly known as GSM (Central Sourcing) Pty Ltd, Amazon (New Zealand) Pty Ltd, GSM Trading (South Africa) Pty Ltd and GSM (Canada) Pty Ltd.

Prior year figures set out below represent the condensed consolidated income statement, a consolidated statement of comprehensive expense and a summary of movements in consolidated retained profits for the year ended 30 June 2014 of the Closed Group, at that time consisting of the entities Billabong International Limited, GSM (Europe) Pty Ltd, GSM (Operations) Pty Ltd, Pineapple Trademarks Pty Ltd, GSM (Central Sourcing) Pty Ltd, Amazon (New Zealand) Pty Ltd, GSM Trading (South Africa) Pty Ltd, Board Sports Retail Pty Ltd and GSM (Canada) Pty Ltd.

2015 $’000 2014 $’000 Income statement Revenue from continuing operations 548,923 617,064 Other income 26,070 9,604 Finance costs (2,677) (21,800) Other expenses (598,989) (809,857) Loss before income tax (26,673) (204,989) Income tax benefit/(expense) 9,600 (29,102) Loss for the yea r (17,073) (234,091) Loss attributable to non-controlling interests 1,598 6,221 Loss for the year attributable to the members of the Closed Group (15,475) (227,870) Statement of comprehensive expense Loss for the yea r (17,073) (234,091) Other comprehensive expense Items that may be reclassified to profit or loss Changes in the fair value of cash flow hedges, net of tax 2,685 (2,888) Exchange differences on translation of foreign operations (16,879) (12,762) Net investment hedge, net of tax (7,894) 1,264 Other comprehensive expense for the year, net of tax (22,088) (14,386) Total comprehensive expense for the yea r (39,161) (248,477) Loss attributable to non-controlling interests 1,598 6,221 Total comprehensive expense for the year attributable to members of the Closed Group (37,563) (242,256) Summary of movements in consolidated retained losses Retained losses at the beginning of the financial yea r (428,167) (270,251) Loss for the year (15,475) (227,870) Dividends received --- 2,762 Retained losses at the end of the financial yea r (443,642) (495,359) Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 128 Note 38. Deed of cross guarantee (continued) (b) Balance sheet Set out below is a consolidated balance sheet as at 30 June 2015 and 30 June 2014 of the Closed Group, consisting of the entities as named above at each point in time.

ASSETS 2015 $’000 2014 $’000 Current assets Cash and cash equivalents 96,849 83,407 Trade and other receivables 74,336 97,414 Inventories 97,543 99,663 Current tax receivables 1,154 1,311 Other 7,421 4,044 Total current assets 277,303 285,839 Non-current assets Receivables 171,974 107,907 Other financial assets 432,637 410,630 Property, plant and equipment 32,325 37,979 Intangible assets 36,093 32,247 Deferred tax assets 10,735 248 Other 3,685 4,145 Total non-current assets 687,449 593,156 Total assets 964,752 878,995 LIABILITIES Current liabilities Trade and other payables 99,377 116,474 Borrowings 1,644 1,625 Provisions 12,667 13,966 Total current liabilities 113,688 132,065 Non-current liabilities Borrowings 254,097 204,448 Deferred tax liabilities 2,481 --- Provisions 2,967 5,803 Other 3,905 10,686 Total non-current liabilities 263,450 220,937 Total liabilities 377,138 353,002 Net assets 587,614 525,993 EQUITY Contributed equity 1,094,274 1,094,274 Reserves (63,018) (61,934) Retained losses (443,642) (495,359) Capital and reserves attributable to members of the Closed Group 587,614 536,981 Non-controlling interests --- (10,988) Total equity 587,614 525,993 Note 39. Events occurring after the balance sheet date There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature that would be likely, in the opinion of the Directors, to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 129 Note 40. Reconciliation of profit/(loss) for the year to net cash outflow from operating activities 2015 $’000 2014 $’000 Profit/(loss) for the year, before non-controlling interests 2,552 (239,933) Depreciation and amortisation (excluding amortisation of capitalised borrowing costs) 29,765 37,317 Impairment of intangibles --- 29,255 Fair value adjustment for assets held for sale during the year --- 17,718 Impairment of property, plant and equipment 3,040 --- Share-based payment amortisation expense 1,453 63 Deferred consideration unwinding of discount --- 1,678 Net loss on sale of non-current assets 1,691 467 Restructuring costs and other non-cash charges --- 38,266 (Gain)/loss on sale, including transaction costs (13,711) 11,330 Foreign currency translation reserve reclassified to income statement --- (680) (Gain)/loss from adjustment to contingent consideration (7,748) 5,915 Fair value adjustment to derivative liabilities --- (4,514) Foreign exchange impact of term debt repayment --- (4,220) Net exchange differences 5,663 2,739 Change in operating assets and liabilities, adjusted for the sale of SurfStitch and Swell (2014: DaKine and West 49) (Increase)/decrease in trade debtors (11,945) 22,486 (Increase)/decrease in inventories (29,790) 25,714 (Increase)/decrease in deferred tax assets (14,544) 55,062 (Increase)/decrease in provision for income taxes receivable 1,268 7,032 (Increase)/decrease in other operating assets 4,518 1,289 Increase/(decrease) in trade creditors and other operating liabilities 19,879 (40,563) Increase/(decrease) in provision for income taxes payable (64) 1,489 Increase/(decrease) in deferred tax liabilities --- --- Increase/(decrease) in other provisions (6,652) (44,529) Net cash outflow from operating activities (14,625) (76,619) Note 41. Non-cash investing and financing activities 2015 $’000 2014 $’000 Acquisition of plant and equipment, and finite life intangibles by means of finance lease --- 546 --- 546 Dividends satisfied by the issue of shares under the Dividend Reinvestment Plan are shown in note 30.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 130 Note 42. Earnings per share 2015 2014 Cents Cents (a) Basic earnings per share From continuing operations attributable to the ordinary equity holders of the Company (0.6) (24.0) From discontinued operations 1.1 (4.6) Total basic earnings per share attributable to the ordinary equity holders of the Company 0.5 (28.6) (b) Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the Company (0.6) (24.0) From discontinued operations 1.1 (4.6) Total diluted earnings per share attributable to the ordinary equity holders of the Company 0.5 (28.6) (c) Reconciliations of earnings used in calculating earnings per share 2015 $’000 2014 $’000 Basic earnings per share Profit/(loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share: From continuing operations (6,366) (196,728) From discontinued operations 10,516 (36,984) 4,150 (233,712) Diluted earnings per share Profit/(loss) attributable to the ordinary equity holders of the Company used in calculating diluted earnings per share:

From continuing operations (6,366) (196,728) From discontinued operations 10,516 (36,984) 4,150 (233,712) (d) Weighted average number of shares used as the denominato r 2015 2014 Numbe r Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 987,672,600 818,285,428 Adjustments for calculating diluted earnings per share: Performance shares and conditional rights --- --- Options --- --- Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 987,672,600 818,285,428 In line with the requirements of AASB133, the assessment of the requirement to dilute earnings per share is based on whether there is profit from continuing operations attributable to ordinary shareholders. As this is a loss in the current year, there is no dilutionary effect. This also applies to discontinued operations, regardless of its profit or loss making position.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 131 Note 42. Earnings per share (continued) (e) Information concerning the classification of securities Performance shares and conditional rights Performance shares and conditional rights granted to employees under the Billabong Executive Performance Share Plan are considered to be potential ordinary shares and have not been included in the determination of diluted earnings per share because they are anti-dilutive for the year ended 30 June 2015. The performance shares and conditional rights have also been excluded in the determination of basic earnings per share. Details relating to the rights are set out in note 43.

Options The 314,503 options granted on 31 October 2008 in relation to the Billabong Performance and Retention Plan are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 30 June 2015.

These options could potentially dilute basic earnings per share in the future.

The 42,259,790 options granted on 16 July 2013 to the Altamont Consortium are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 30 June 2015. These options could potentially dilute basic earnings per share in the future.

The 29,581,852 options granted on 3 December 2013 to the C/O Consortium are not included because they are anti-dilutive for the year ended 30 June 2015. These options could potentially dilute basic earnings per share in the future.

The 1,200,000 options granted on 31 January 2014 to Pat Tenore, the founder of RVCA, are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 30 June 2015. These options could potentially dilute basic earnings per share in the future.

Note 43. Share-based payments (a) Billabong Executive Long-Term Incentive Plan (ELTIP) In the prior year, the Board reviewed the Company’s long-term incentive plan and approved changing the award vehicle from Performance Shares to Performance Rights. The use of Performance Rights instead of Performance Shares required changing the name of the plan from the Executive Performance Share Plan to the Executive Long-Term Incentive Plan.

Participants Participants comprise the executives of the Group who are directly responsible for driving the growth strategy of the Group.

The objectives of the ELTIP for participants remain the same i.e. to provide executives with an equity-based reward opportunity that vests based on the achievement of certain performance hurdles. For the awards granted, 50% of awards will be tested on the Group’s EPS hurdle (EPS), with the remaining 50% of awards tested on Relative Total Shareholder Return (TSR). Under the ELTIP the Group awards the following:

Equity vehicle Overview Performance rights Awards granted are in the form of performance rights which are equity settled share-based payments. If the performance hurdles are met, the Company will allocate or procure the transfer of the relevant number of shares to the employee as soon as practicable following the vesting date. An employee awarded performance rights is not legally entitled to shares in the Company before the rights allocated under the ELTIP vest. Once vested, each right entitles the employee to receive one share in the Company.

Note that for the purposes of the remuneration tables in this report, performance rights, performance shares and conditional rights are collectively referred to as “rights”.

Award, vesting and exercises under the ELTIP are made for no consideration.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 132 Note 43. Share-based payments (continued) (a) Billabong Executive Long-Term Incentive Plan (ELTIP) (continued) Executive Long-Term Incentive Plan – performance hurdles Awards under the ELTIP vest only if the performance hurdles for the portion of the award are satisfied in the relevant performance period. The performance periods are summarised in the table below:

Grant Performance hurdle % of award that vests Performance period 2013-14 Earnings Per Share performance (EPS) 2.0 cents per share 50% Financial year ended 30 June 2016 4.0 cents per share 100% TSR performance relative to comparator group 50 th percentile or above 50% 1 January 2014 until 30 September 2016 75th percentile or above 100% 2014-15 Pre-tax Earnings Per Share performance (EPS) Minimum performance threshold based on the Long Range (three year) Plan 50% Financial year ended 30 June 2017 Stretch performance based on the Long Range (three year) Plan 100% TSR performance relative to comparator group 50 th percentile or above 50% 1 July 2014 until 30 June 2017 75th percentile or above 100% For the 2014-15 grant, the percentage of performance rights subject to the EPS Hurdle that vest, if any, will be determined by reference to EPS achieved at the performance determination date compared to the threshold and stretch targets. For the 2013-14 grant, the percentage of performance rights subject to the EPS performance hurdle was determined by the Board to be selected EPS. Due to the significant changes to the capital structure of the Group this was determined as an appropriate internal performance metric. For the 2014-15 grant of performance rights subject to the TSR hurdle is based on the TSR growth of the Company relative to a group of comparator companies which comprise of approximately 20 ASX listed companies within an appropriate market capitalisation range in the “Consumer Discretionary” industry sector and five selected USA listed peer companies, being Pacific Sunwear of California Inc, Quiksilver Inc, Tilly’s Inc, V.F. Corporation and Zumiez Inc. To further ensure that the mix of comparator companies is aligned with the Company’s situation and geographic business mix, the comparator companies are weighted such that the ASX listed companies have a weighting of 100% each and the five selected US listed peer companies have a weighting of 200% each. For the 2013-14 grant of performance rights subject to the TSR hurdle is based on the TSR growth of the Company relative to a group of comparator companies which comprise of 40 ASX listed companies within an appropriate market capitalisation range which have significant overseas operations and/or are within a similar industry sector to the Company. Over 75% of those companies are, like the Company, classified as "Consumer Discretionary". Each year, prior to awards being granted, the Human Resource and Remuneration Committee considers the market environment, the Group’s business strategy, performance expectations and shareholder expectations, and sets the performance targets for the awards to be granted that year. At the end of the relevant performance period, in line with its charter, the Human Resource and Remuneration Committee consider the EPS and TSR performance of the Group and determines to what extent the awards should vest based on the above vesting conditions.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 133 Note 43. Share-based payments (continued) (a) Billabong Executive Long-Term Incentive Plan (ELTIP) (continued) Set out below is a summary of performance rights awarded under the ELTIP:

Type of right Balance at start of year Granted during the year Exercised during the year Expired during the year Balance at end of year Number Number Number Number Number 2015 Performance Rights 4,115,956 7,480,642 --- (844,193) 10,752,405 4,115,956 7,480,642 --- (844,193) 10,752,405 2014 Performance Rights --- 4,115,956 --- --- 4,115,956 --- 4,115,956 --- --- 4,115,956 Fair value of rights granted During the year ended 30 June 2015, the assessed fair value at grant date of the performance rights tested under the EPS performance hurdle was $0.66 per right (2014: $0.43) and the performance rights tested under the TSR performance hurdle was $0.52 per right (2014: $0.34). The fair value at grant date is determined by reference to the Billabong International Limited share price at grant date, taking into account the terms and conditions upon which the rights were granted, the expected dividend yield and the expected price volatility of the underlying share.

(b) Billabong Executive Performance Share Plan (EPSP) Following the review of executive remuneration undertaken by the Committee in 2008, the EPSP was restructured into Tier 1 and Tier 2. EPSP – Tier 1 Tier 1 participants comprise the executives of the Group who are directly responsible for driving the growth strategy of the Group. The objectives of the EPSP for Tier 1 participants remain the same i.e. to provide executives with an equity-based reward opportunity that vests based on the achievement of certain performance hurdles. For awards granted in 2011-12 and 2012-13, a second performance hurdle has been adopted so that 50% of awards will be tested on the Group’s three year EPS performance, with the remaining 50% of awards tested on Total Shareholder Return (TSR). The establishment of the EPSP was approved by shareholders at the 2004 Annual General Meeting.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 134 Note 43. Share-based payments (continued) (b) Billabong Executive Performance Share Plan (EPSP) (continued) Under the EPSP the Group awarded the following equity subject to the tax implications in the relevant jurisdiction:

Equity vehicle Overview Tier 1 Performance shares An employee awarded performance shares is not legally entitled to shares in the Company before the performance shares allocated under the EPSP vest. For awards granted in 2011-12 and 2012- 13, the employee cannot vote and EPSP dividends will be held in trust during the performance period and net dividends will be paid to executives only on performance shares that vest. If no shares vest, no dividends are payable.

For Australian employees, once the shares have vested they remain in the trust until the earlier of the employee leaving the Group, the tenth anniversary of the date the performance shares were awarded or the Board approving an application for their release. For non-Australian employees, once their performance shares vest the shares are transferred to them (or sold on their behalf if they choose). If the performance shares do not vest, they are forfeited by the employee for no consideration.

Tier 1 Conditional rights An employee awarded conditional rights is not legally entitled to shares in the Company before the rights allocated under the EPSP vest. Once vested, each right entitles the employee to receive one share in the Company. For French employees granted rights after 1 July 2005 and up to and including 2012-13, shares associated with vested rights are automatically transferred to the employee. These shares cannot be disposed of before the end of a 24 month restriction period following the allocation date, except in the event of death. Until such time that the rights have vested the employee cannot use the rights to vote or receive dividends. For all other employees, from the time of the employee receiving notice of the rights having vested they have one month to exercise the rights and either sell the shares or transfer them into their name. If the rights are not exercised by the employee they will automatically exercise and the shares will be transferred to the employee. Until such time that the rights are exercised the employee cannot use the rights to vote or receive dividends. However, if the conditional rights do not vest they are forfeited by the employee for no consideration.

Award, vesting and exercises under the EPSP are made for no consideration.

Awards under the EPSP vest on the third anniversary of grant only if the performance hurdles are satisfied in the relevant performance period. The performance periods are summarised in the table below:

Grant Performance period 2011-12 2010-11 (base year EPS and TSR) to 2013-14 2012-13 2011-12 (base year EPS and TSR) to 2014-15 Executive Performance Share Plan (Tier 1) – performance hurdles Year % of award tested on EPS EPS compound growth hurdles % of award that vests % of award tested on TSR TSR performance relative to comparator group* % of award that vests 2011-12 50% 6.00% 50% 50% 8.00% 75% 50 th percentile or above 50% 10.00% 100% 75 th percentile or above 100% 2012-13 50% 15.00% 50% 50% 17.50% 75% 50 th percentile or above 50% 20.00% 100% 75 th percentile or above 100% * Comparator group comprises Australian companies listed in the S&P/ASX 200 at the beginning of each performance period, excluding those companies classified within the Financials and Energy sectors and the Metals and Mining Industry Group. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 135 Note 43. Share-based payments (continued) (b) Billabong Executive Performance Share Plan (EPSP) (continued) The Board selected EPS and TSR (for awards granted in 2011-12 and 2012-13) as the appropriate hurdles for the EPSP as the EPSP is intended to focus executives on the long-term (three year) earnings performance of the Group, and allows the Group to balance an internal performance metric (EPS) with an external performance metric (TSR). Each year, prior to awards being granted, the Human Resource and Remuneration Committee considers the market environment, the Group’s business strategy and performance expectations and shareholder expectations and sets the performance targets for the awards to be granted that year. Due to the challenges faced by the Group and a resulting lower EPS base, the targets set at grant differ for each of the 2011-12 and 2012-13 grants. EPSP - Tier 2 Tier 2 participants comprise other senior management of the Group. The primary objective of the Tier 2 EPSP is retention.

Under the EPSP, Tier 2 participants are awarded performance shares and conditional rights. The awards do not vest unless the employee has completed a period of two years of employment from the date the awards are granted. The Group awards the following equity subject to the tax implications in the relevant jurisdiction: Equity vehicle Overview Tier 2 Performance shares An employee awarded performance shares is not legally entitled to shares in the Company before the performance shares allocated under the EPSP vest. However, the employee can vote and receive dividends in respect of shares allocated to them. Once the shares have vested the shares are transferred to the employee. However, if the performance shares do not vest they are forfeited for no consideration.

Tier 2 Conditional rights An employee awarded conditional rights is not legally entitled to shares in the Company before the rights allocated under the EPSP vest. Once vested, each right entitles the employee to receive one share in the Company. Until such time that the rights are exercised the employee cannot use the rights to vote or receive dividends.

However, if the conditional rights do not vest they are forfeited for no consideration.

Set out below is a summary of equity-based rights (performance shares and conditional rights) awarded under the EPSP:

Type of right Balance at start of year Granted during the year Exercised during the year Expired during the year Balance at end of year Number Number Number Number Number 2015 Performance Shares 1,080,995 --- (791,142) (74,242) 215,611 Conditional Rights 456,499 --- (418,018) (38,481) --- 1,537,494 --- (1,209,160) (112,723) 215,611 2014 Performance Shares 3,033,887 --- (414,844) (1,538,048) 1,080,995 Conditional Rights 1,101,006 --- (198,134) (446,373) 456,499 4,134,893 --- (612,978) (1,984,421) 1,537,494 None of the rights awarded under the Tier 1 EPSP vested or became exercisable during the year.

The total equity-based rights that expired during the year ended 30 June 2015 and have not yet been granted under a new award was 2,269,806 (2014: 2,157,083). These expired equity-based rights are held pending further awards being granted.

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 136 Note 43. Share-based payments (continued) (c) Short-Term Incentive (STI) deferral The STI grants for 2012-13 were in the form of deferred performance rights. Under the Group’s short-term incentive (STI) scheme, executives are granted performance rights which are equity settled share-based payments. The deferred equity will vest to participants after a period of two years.

With STI deferral a portion (25% to 30%) of the incentive earned is deferred into equity. This is in the form of either shares or rights. The deferred equity will vest to participants after a period of two years.

The Group awards the following equity subject to the tax implications in the relevant jurisdiction: Equity vehicle Overview Performance rights Awards granted from 2012-13, are in the form of performance rights which are equity settled share- based payments.

Once vested, each performance right entitles the employee to receive one share in the Company.

Until such time that the rights are exercised the employee cannot use the rights to vote or receive dividends. However, if the performance rights do not vest they are forfeited for no consideration.

Performance shares Awards granted in 2010-11 were in the form of performance shares. An employee awarded performance shares is not legally entitled to shares in the Company before the performance shares allocated under the STI deferral vest. However, the employee can vote and receive dividends in respect of shares allocated to them. Once the shares have vested the shares are transferred to the employee. However, if the performance shares do not vest they are forfeited for no consideration.

Conditional rights An employee awarded conditional rights is not legally entitled to shares in the Company before the rights allocated under the STI deferral vest. Once vested, each right entitles the employee to receive one share in the Company. Until such time that the rights are exercised the employee cannot use the rights to vote or receive dividends.

However, if the conditional rights do not vest they are forfeited for no consideration.

Set out below is a summary of equity-based rights (performance rights, performance shares and conditional rights) awarded under STI deferral:

Type of right Grant date Performance determination date Balance at start of year Granted during the year Exercised during the year Expired during the year Balance at end of year Number Number Number Number Number 2015 Performance Rights 1 September 2014 30 June 2016 --- 181,272 --- --- 181,272 Performance Rights 1 September 2013 30 June 2015 443,553 --- --- --- 443,553 443,553 181,272 --- --- 624,825 2014 Performance Rights 1 September 2013 30 June 2015 --- 443,553 --- --- 443,553 Performance Shares 1 September 2011 30 June 2013 26,585 --- (26,585) --- --- Conditional Rights 1 September 2011 30 June 2013 10,528 --- (10,528) --- --- 37,113 443,553 (37,113) --- 443,553 Fair value of rights granted The assessed fair value at grant date of performance rights granted under the STI deferral during the year ended 30 June 2015 was $0.55 per right (2014: $0.47). The fair value at grant date is determined by reference to the Billabong International Limited share price at grant date, taking into account the terms and conditions upon which the rights were granted, the expected dividend yield and the expected price volatility of the underlying share. Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 137 Note 43. Share-based payments (continued) (d) Billabong Executive Performance and Retention Plan (EPRP) The EPRP was a one-off initiative in 2008-09 which requires executives to achieve two Total Shareholder Return (TSR) performance targets: a ‘gateway’ hurdle which requires above median TSR performance relative to a comparator group and a ‘stretch’ hurdle requiring the achievement of a 120% target over five years.

Once vested the options remain exercisable for a period of two years. Options granted under the EPRP carry no dividend or voting rights.

When exercisable each option is convertible into one ordinary share upon receipt of funds. The exercise price of options is based on the weighted average price at which the Company's shares are traded on the Australian Securities Exchange during the five trading days immediately before the options are granted. Amounts received on the exercise of options are recognised as share capital.

Set out below are summaries of options granted under the EPRP.

2015 Grant date Expiry date Exercise price Balance at start of year Granted during the year Exercised during the year Forfeited during the year Balance at end of year Exercisable at end of year Number Number Number Number Number Number 31 October 2008 31 October 2015 $11.08 314,503 --- --- --- 314,503 --- 314,503 --- --- --- 314,503 --- Weighted average exercise price $11.08 $11.08 2014 Grant date Expiry date Exercise price Balance at start of year Granted during the year Exercised during the year Forfeited during the year Balance at end of year Exercisable at end of year Number Number Number Number Number Number 31 October 2008 31 October 2015 $11.08 838,673 --- --- (524,170) 314,503 --- 24 November 2008 24 November 2015 $10.80 314,503 --- --- (314,503) --- --- 1,153,176 --- --- (838,673) 314,503 --- Weighted average exercise price $11.00 $10.98 $11.08 (e) Other options granted On 19 September 2013 the Company announced that it had agreed to issue 29,581,852 options (“the Options”) to the C/O Consortium upon funding of the new term loan. The assessed fair value at grant date of the C/O Consortium options was $0.15. The fair value of these options ($4.3 million) was recognised within prepaid borrowing costs which netted off against the Term loan facility carrying balance included in non-current borrowings (note 24). Refer to note 28 (i) and note 29(b). On 16 July 2013 the Company announced that it had agreed to issue 42,259,790 options to the Altamont Consortium. The assessed fair value at grant date of the C/O Consortium options at grant date was $0.08. The fair value of these options ($3.5 million) was recognised in borrowing costs as a significant item for the year ended 30 June 2014. Refer to note 28(j) and note 29(b).

Notes to the consolidated financial statements 30 June 2015 : : Billabong International Limited 2014-15 Full Financial Report Page 138 Note 43. Share-based payments (continued) (f) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefits expense were as follows:

2015 $ 2014 $ Operating costs of the Billabong Long-Term Incentive Plans 25,908 25,400 Share-based payment expense/(income) 1,453,052 (275,934) 1,478,960 (250,534) For the period ended 30 June 2014, the share-based payment income was a result of a write back in accumulated expenses previously recognised in the Group’s income statement in respect of the EPRP as a result of performance hurdles and retention requirements in relation to certain components of the EPRP not being met.

The CEO Sign-on incentive granted to Neil Fiske (refer to note 28) and the options granted to Pat Tenore (refer to note 27), are both classified as share-based payments.

Note 44. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts:

Parent entity 2015 $’000 2014 $’000 Current assets 7,925 28,881 Total assets 757,787 698,474 Current liabilities 7,878 3,712 Total liabilities 482,028 467,672 Shareholders’ equity Issued capital 1,094,274 1,094,274 Reserves Option reserve 48,858 47,404 Retained earnings (867,373) (910,876) 275,759 230,802 Profit/(loss) for the yea r 43,503 (498,368) Total comprehensive income/(expense) 43,503 (498,368) (b) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 30 June 2015 or 30 June 2014.

(c) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2015 the parent entity had no contractual commitments for the acquisition of property, plant or equipment.

(d) Guarantees entered into by the parent entity Billabong International Limited is a party to the deed of cross guarantee as described in note 38. No deficiencies of assets exist in any of the companies described in note 38.

Billabong International Limited also provide guarantees to other subsidiaries in the Group for rental obligations and the RVCA deferred payment.

Director’s declaration : : Billabong International Limited 2014-15 Full Financial Report Page 139 In the Directors’ opinion:

(a) the financial statements and notes set out on pages 48 to 138 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2015 and of its performance for the financial year ended on that date, and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in note 38 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 38. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

Ian Pollard Chair Gold Coast 27 August 2015 PricewaterhouseCoopers, ABN 52 780 433 75 7 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Independent auditor’s report to the members of Billabong International Limited Report on the financial report We have audited the accompanying financial report of Billabong International Limited (the company), which comprises the consolidated balance sheet as at 30 June 2015, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Billabong International Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards.

Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s opinion In our opinion:

(a) the financial report of Billabong International Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity's financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

(b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report We have audited the remuneration report included in pages 19 to 43 of the directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s opinion In our opinion, the remuneration report of Billabong International Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Kristin Stubbins Sydne y Partner 27 August 2015 Shareholder information : : Billabong International Limited 2014-15 Full Financial Report Page 142 The shareholder information set out below was applicable as at 25 August 2015.

Distribution of Equity Securities Analysis of numbers of equity security holders by size of holding:

Ordinary shares Unquoted options Number of share holders Number o f shares Number of option holders Number of options 1 1,000 8,733 3,392,820 --- --- 1,001 5,000 5071 12,127,129 --- --- 5,001 10,000 1320 9,782,555 --- --- 10,001 100,000 1860 53,456,134 --- --- 100,001 and over 267 911,611,396 7 73,356,145 17,251 990,370,034 7 73,356,145 There were 7,954 holders of less than a marketable parcel of ordinary shares.

Equity Security Holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below:

Ordinary shares Name Number held Percentage of issued shares CCP II Dutch Acquisition-E BV 164,634,147 16.62% OCM Clean Wave Holdings BV 164,634,147 16.62% J P Morgan Nominees Australia Limited 109,825,391 11.09% Citicorp Nominees Pty Limited 96,876,125 9.78% HSBC Custody Nominees (Australia) Limited-GSCO ECA 58,978,202 5.96% National Nominees Limited 50,636,630 5.11% Gordon Merchant No 2 Pty Ltd 39,458,380 3.98% Gordon Merchant No 2 Pty Ltd 39,323,757 3.97% HSBC Custody Nominees (Australia) Limited 38,968,782 3.93% GSM Superannuation Pty Ltd 10,344,828 1.04% UBS Nominees Pty Ltd 7,252,847 0.73% BNP Paribas Noms Pty Ltd 6,699,928 0.68% Mr Micheal Mcauliffe & Ms Colette Paull 4,723,600 0.48% Gordon Merchant No 2 Pty Ltd 3,492,589 0.35% GSM Superannuation Pty Ltd 3,469,950 0.35% HSBC Custody Nominees (Australia) Limited - A/C 2 3,135,073 0.32% GSM Pty Ltd 3,119,867 0.32% Billytoo Pty Ltd 2,792,867 0.28% Mr McNeil Seymour Fiske Jr 2,455,357 0.25% National Nominees Limited 2,317,865 0.23% 813,140,332 82.09% Shareholder information : : Billabong International Limited 2014-15 Full Financial Report Page 143 Unquoted Equity Securities Number on issue Numbe r of holders Options issued under the Executive Performance and Retention Plan as approved by shareholders at the Annual General Meeting on 28 October 2008:

Class – BBGAI 314,503 1 The options listed above are the only unquoted equity securities on issue. The following people hold 20% or more of these securities:

Class – BBGAI Shannan North 314,503 Options issued under the refinancing proposal as announced to the Australian Securities Exchange on 16 July 2013:

Class – BBGAO 42,259,790 3 The following entities hold 20% or more of these securities:

Class – BBGAO ACP Burleigh Holdings, LLC FS Investment Corporation FS Investment Corporation II 7,747,628 17,256,081 17,256,081 Options issued under the recapitalisation proposal as announced to the Australian Securities Exchange on 19 September 2013:

Class – BBGAQ 29,581,852 2 The following entities hold 20% or more of these securities:

Class – BBGAQ CCP II Dutch Acquisition – E, B.V.

OCM Clean Wave Holdings B.V. 14,790,926 14,790,926 Options issued pursuant to the Company’s Executive Option as announced to the Australia Securities Exchange on 6 February 2014:

Class – BBGAS 1,200,000 1 The following entities hold 20% or more of these securities:

Class – BBGAS Patrick M, Tenore, Jr 1,200,000 Substantial Holders As at 25 August 2015 the names of substantial holders in the Company who have notified the Company in accordance with section 671B of the Corporations Act 2001 are set out below:

Ordinary Shares Number Percentage CCP II Dutch Acquisition – E, B.V. 190,526,501 19.24% OCM Clean Wave Holdings B.V. 190,526,501 19.24% Gordon Stanley Merchant 104,675,103 10.57% Voting Rights The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary shares On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(b) Options No voting rights. Shareholder information : : Billabong International Limited 2014-15 Full Financial Report Page 144 Stock Exchange Listing The shares of the Company are listed under the symbol BBG on the Australian Securities Exchange. The Company's home branch is Brisbane. Shareholder Enquiries If you are a shareholder with queries about your holdings you should contact the Company’s Share Registry as follows:

Computershare Investor Services Pty Limited GPO Box 2975 MELBOURNE VIC 3001 Telephone Australia: 1300 850 505 Telephone International: +61 3 9415 4000 Fax: +61 3 9473 2500 Email: [email protected] Become an Online Shareholder You can also access your current shareholding and update your details online. To register, you should visit the share registry at and enter your personal securityholder information (e.g. Holder Identification Number (HIN) or Securityholder Reference Number (SRN)) and postcode, then click on 'Submit' and follow the prompts. Change of Address Issuer sponsored shareholders should notify the share registry immediately upon any change in their address quoting their Securityholder Reference Number (SRN) either in writing or online. Changes in addresses for broker sponsored holders should be directed to the sponsoring brokers with the appropriate Holder Identification Number (HIN).

Dividends If a dividend is declared the payments may be paid directly into your nominated financial institution in Australia, New Zealand, United Kingdom or United States. Dividend payments are electronically credited on the dividend payment date and confirmed by payment advices mailed directly to your registered shareholder address. Application forms are available from our Share Registry or update your details online. If you have not provided direct credit instructions to have your dividend paid directly into a nominated financial institution or you do not have your shareholding registered in one of the above four countries, then you will receive an Australian dividend cheque. Billabong International Limited also pays dividends by local currency cheque to shareholders who maintain a registered address in the following jurisdictions: Europe – Euro, Hong Kong - $HK, Japan- Yen, New Zealand - $NZ, United Kingdom – GBP, and United States - $US. Dividend Reinvestment Plan The Board has not declared a final ordinary dividend for the year ended 30 June 2015. The Dividend Reinvestment Plan (DRP) remains suspended.

Annual Report The latest Annual Report can be accessed from the Company’s corporate website at www.billabongbiz.com. If you are a shareholder and you wish to receive a hard copy of the Annual Report, please contact our Share Registry or update your details online Tax File Numbers (TFN) Billabong International Limited is obliged to deduct tax from unfranked or partially franked dividends paid to shareholders registered in Australia who have not provided their TFN to the Company. If you wish to provide your TFN, please contact the Share Registry or update your details online. Consolidation of Multiple Shareholdings If you have multiple shareholding accounts that you wish to consolidate into a single account, please advise the Share Registry in writing. If your holdings are broker sponsored, please contact the sponsoring broker directly.

Other Shareholder Information Visit the Company’s corporate website at www.billabongbiz.com for the Company’s latest information.