ColleC tion House limited ANNUAL REPORT 2008 C o l l e C t i o n H o u s e l i m i t e d A N N U A L R E P O R T 2 0 0 8 2 Overview 6 Business Performance 8 Who We Are 10 Our Responsibilities NOTICE OF ANNUAL GENERAL MEETING The Annual General Meeting of Collection House Limited will be held on 31 October 2008 at 11.00am at the Emporium Hotel, 1000 Ann Street, Fortitude Valley, Brisbane 4006. The business of the meeting is outlined in the formal Notice and Proxy Form that are enclosed with this report. 43 Financial Statements Contents 21 Directors’ Report 120 Corporate Directory 41 Auditors’ Indepedence Declaration Contents Overview Who We Are Directors’ Report ................................21 Performance Highlights ............................2 Board of Directors ......................................8 Auditor’s Independence Declaration .41 Chairman’s Statement ...............................3 Executive Management ............................9 Financial Statements Contents ......... 43 Chief Executive’s Review ...........................4 Our Responsibilities Corporate Directory .........................120 Business Performance Corporate Social Responsibility .............. 10 Supporting the Environment ................... 10 Financial Basics Foundation ................. 10 Learning for Life ................................. 10 Corporate Governance Statement ..........11 Company Profile .......................................6 Divisional Performance .............................6 Lion Finance Pty Ltd ............................... 6 Contingent Collections .............................. 6 Receivables Management .......................... 6 Human Resources .................................... 6 Compliance ............................................. 7 Information Technology ............................ 7 COLLECTION HOUSE LIMITED 1 OVERVIEW Performance Highlights FY07 FY08 Inc exceptional items Pre Tax Profit ($m’s) $m 18 16 14 12 10 8 6 4 2 0 Cents 10 9 8 7 6 5 4 3 2 1 0 $m 90 80 70 60 50 40 30 20 10 0 Cents 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 FY07 FY08 Shareholders Equity ($m’s) FY07 FY08 FY07 FY08 Underlying earnings per share (c) Dividend per share (c) 2 ANNUAL REPORT 2008 Net profit before tax $16.2m + 271% Pre-tax underlying profit $10.1m + 130% Shareholder equity $85.1m + 10% Underlying earnings per share 7.6 cents + 96% Dividends per share 4.7 cents + 135% The Board’s confidence in our future has been significantly reinforced by the reappointment of Tony Aveling as Chief Executive Officer. Tony’s contract was due to expire next February but, subject to shareholder approval of his remuneration package, he will continue to lead his experienced team of senior executives for an indefinite period. We begin 2008/09 with a sound strategy, a strong business and a healthy trading momentum. On the other hand, we are certainly moving into a much more challenging economic environment which will test our ability to match the past year’s very good result. Our focus will be on serving our clients, assisting our customers, building our business and producing consistent financial returns, in the belief that these, over time, are the surest path to value creation. Dennis Punches Chairman Chairman’s Statement Fellow shareholders, Our goal at Collection House is to increase the value of your company for the long term. The year gone by saw us make a significant step in that direction. However, we look back on 2007/08 with mixed feelings. On the one hand we derive considerable satisfaction from our much improved financial and operational performance. That sense of satisfaction is however tempered somewhat by our disappointment that the share price did not reflect the material progress we undoubtedly made. In 2006/07 I pointed out that it was a year of contrasting halves with a poor first half followed by recovery in the second half. This year we performed well throughout the year, enabling the Company to post substantial increases in revenues and profits and a stronger balance sheet. Shareholders benefited directly from an increase in dividends together with the introduction of dividend franking. Unfortunately, during the year under review this improved performance brought no reward in share price terms. Amid more turbulent market conditions than encountered for very many years, we have been buffeted by three forces: the overall market is well down, small cap stocks in particular have been out of favour, and our own industry fell from grace after significant downgrades by a major competitor. The reality is that the share price is whatever the market believes it should be. However, history tells us that depressed markets can bring a silver lining for long term investors – the chance to acquire shares in companies at historically attractive multiples and yields. We continue to believe that, in the long term, sustained growth in earnings and cash returns will be the most reliable way for Collection House to increase shareholder value. COLLECTION HOUSE LIMITED 3 OVERVIEW Chief Executive’s Review As the Chairman has outlined, 2007/08 saw a substantial rise in our profitability. Underlying profits after tax rose from $3.8 million to $7.4 million. After including exceptional gains of $4.9 million, net profit reached $12.3 million. Our strategic aim is to achieve success by quickly solving our return for our shareholders. Where returns were inadequate we customers’ financial problems. Our strengths are our strong relationships with the top financial institutions, what we believe to be our No. 1 ranking for compliance and brand protection, and our growing reputation with regulators and consumer Groups for our ethical approach to collections. Strategy Our focus remains on our core businesses of receivables management, debt purchasing and contingent collections. This is our area of expertise and our clients tell us we do this well. tried to improve productivity and renegotiate terms, but where this was insufficient we have been prepared to switch valued resources to more profitable parts of our business. Margins have started to improve and we have been pleased with the results so far. Past challenges Each six months, I have disclosed to shareholders the principal priorities we have set. Over the past year these have been: converting revenue into profitability, attracting quality staff, securing new premises to counter an escalating rental environment, securing funding from our bankers, investing spare funding capacity into more By sticking to our knitting, we also reduce our risk profile. We aim to profitable purchased debts, reallocating resources to areas of greatest compete where we have a competitive advantage. When we do that, risk adjusted return, and improving productivity of our growing there is less chance of unexpected surprises which can occur when collections staff. businesses stretch themselves too thinly. Business performance We paid a record $71 million buying debt during the year, well up on the $29 million in the prior year. This not only gives us fresh debt to collect, it also provides a pipeline which should deliver revenues for many years to come. The substantial increase was partly driven by the one-off impact of reinvesting the proceeds arising from the sale of a number of subsidiaries. For the year, the Account Asset Management Division recorded a 33% increase in revenue. Collection Services revenue declined by 7% as a result of a deliberate change in strategy. In the past, our emphasis was on revenue growth, but during the year we switched to requiring a more satisfactory 4 ANNUAL REPORT 2008 With all but one of these goals we have been successful. The one possible exception is productivity which, in seasonal terms, is relatively static. That in itself is quite a reasonable outcome at a time of growing numbers of collection staff. I’d like to especially mention our forthcoming Brisbane Head Office move. In October approximately 300 staff will be transferring to a brand new, larger building – all at a considerable rental saving than if we had remained in our existing premises. The building is the first finished in Queensland to achieve a 6 Star Green Star rating, a feature that is of considerable appeal to both the Company and our staff. Future challenges For the next six months, we have three principal challenges. The first is In the first few weeks of 2008/09 we are benefitting from increased to achieve recovery rates in line with expectations. With the likelihood of increased financial stress on both consumers and businesses, this will be no easy task. profitability in our contingent business. However, our larger purchased debt business is being negatively impacted as the debt we own becomes harder to collect and recovery rates come under pressure. The next two challenges revolve around our all important people. We need to further increase the number of Customer Service Officers Thanks (CSOs), but to do so without a decline in productivity. It takes many We have an experienced executive team, hundreds of enthusiastic months of training and development for our CSOs to be fully proficient Customer Service Officers, and a valued support staff without and we must carefully balance the investment we are making in the whom none of this progress would be possible. To them go my Company’s future with continuing to provide today’s shareholders with congratulations and sincere thanks. Tony Aveling Chief Executive Officer appropriate returns. Our most productive CSOs are often the most experienced and here our challenge is to retain them for longer. Exceptional items We tend to focus on underlying profitability because that best reflects our performance and prospects for the future. However, it would be remiss not to mention the substantial contribution to profitability and growth of shareholders funds made by the very successful sale of a number of non-core subsidiaries. In all, we made an after tax profit of $8 million from these sales. This allowed us to set aside $1.3 million in restructuring expenses and $1.8 million against monies potentially payable to the Queensland Office of State Revenue, still leaving a surplus of $4.9 million. Looking forward With the turmoil in financial markets and a decline in economic activity, we see it as prudent to plan for a period of consolidation. The collections environment has become tougher as customers struggle with higher fuel and food prices, as well as high interest rates and rentals. Unemployment is also forecast to rise. Many customers will no longer have access to unused credit card limits or a margin on their home equity lines to pay off or settle their debts. COLLECTION HOUSE LIMITED 5 BUSINESS PERFORMANCE Company Profile Contingent Collections Collection House Limited is Australia’s leading receivables manager, whose core business is providing debt purchasing services (Lion Finance Pty Ltd), contingent collection services and receivables management. As a public company, listed on the Australian Stock Exchange In 2007/08 we successfully wound down some contracts within our Contingent Collections Division which were not delivering acceptable returns. As a result, revenue from this segment was down, however, and more importantly, underlying profitability is now trending in the right direction. This change has not only enabled us to deploy collection resources into more profitable debt purchase areas, but also free up (ASX Code: CLH), Collection House operates throughout Australia and capacity to handle new contingent opportunities in the market at a time New Zealand. when there is high demand for debt collection services. We enjoy strong business relationships with a diverse range of blue chip clients including major Australian and New Zealand banks, financial institutions, insurance houses, large corporations, public utilities and governments. We focus on enhancing our stakeholders’ brand protection by maintaining the highest ethical standards and a strong culture of compliance with the laws and regulations governing our business. We believe Collection House sets the benchmark in ethical debt collection. The success of our business is undoubtedly underpinned by the quality of our people. Reinforcing these quality standards are innovative training and development programs providing professional career advancement in debt collection. Headquartered in Brisbane, Receivables Management Increasing living costs and associated higher delinquencies amongst consumers are driving increasing demand for our Receivables Management Division, which is now in its eighth year of operation. This area of our business continues to grow as large organisations increasingly appreciate the flexibility and lower cost of outsourcing earlier in the credit lifecycle. Our growth strategy for our collection operations is based around increasing productivity through staff retention, training and applied technology. During these more uncertain economic times we are confident that this will secure our ongoing success and assist in achieving our goal of quickly solving customer’s financial problems. Given prevailing market conditions this is now a more relevant factor Collection House now employs over 560 staff in 10 Australasian offices. than ever. For further shareholder, investment and career information, please visit www.collectionhouse.com.au Human Resources Divisional Performance Lion Finance Lion Finance is Collection House’s specialist debt purchase subsidiary. 2007/2008 proved a year of growth for the Company’s collection operations, with the ongoing focus on productivity and continuous improvement delivering positive results. Debt purchase operations grew sharply with almost half of the current portfolio acquired during calendar years 2007 and 2008. Younger debt and a steady increase in collection staff have underpinned The Company fully appreciates the importance of retaining key operational staff and the impact this has on both productivity and profitability. As such, we view this as an intrinsic investment in our success and our ability to build shareholder value. While this is an overriding objective, we also remain conscious of the need to monitor our cost structures, including those of staff, to ensure Group wide productivity is maximised. In line with this objective, in 2007/08 we established a Corporate Services Division, which has seen administrative resources nationally reduced by 5 staff and ongoing automation of processes. In a separate exercise support staff numbers were reduced by 20%, resulting in salary savings of over $1 million per annum. much of the growth recorded during this period. Importantly, we have During the year a number of other key objectives were also met, also maintained a clear focus on preserving value across the entire including: portfolio by maintaining an appropriate level of resourcing to the older sections of the book. In maintaining this focus across the whole debt portfolio, we have been able to carefully manage discounting levels and the overall credit quality of the arrangement book. - Reviewed our existing premises that resulted in a relocation of our Sydney office and a scheduled relocation of our Brisbane Head Office staff in October this year. These relocations will deliver the decided benefits of lower rentals and improved facilities for staff. - Achieved Registered Training Organisation status resulting in all Customer Service Officers being able to obtain a Certificate III in Financial Services. 6 ANNUAL REPORT 2008 - Established Succession Planning within each Division, to Information Technology underwrite our planned growth for the coming twelve months and establish more clearly defined career paths for staff. - Introduced a number of key incentives, including a yearly tenure bonus, unlimited access to counselling services for employees In 2007/08 Collection House Technologies again played a key role in improving Group-wide efficiency and generating savings for the Company. and their immediate family members and further refinement of Among the initiatives implemented during the year, the Web Department Customer Service Officer productivity and performance incentives. completed a project to enable the Corporate Services Division (CSD) to Our employee benefits and programs centre around the theme of facilitate organisation of CSD duties on the Company Intranet. “Together We Achieve Success”, and we have recently undertaken an exercise to reiterate to all staff the benefits and rewards available through working for Collection House. This exercise was themed – “What’s in it for Me?” Compliance Evolution of The Controller (our proprietary collections application) continued via the efforts of the Programming Department. Programming processes have been further streamlined to control system modifications and improve the quality of the programs written by our programmers. In line with best practice, major system changes to The Controller are enabled once a month, subsequent to passing Collection House remains totally committed to professional, ethical an enhanced user acceptance testing system. and compliant conduct in all Group business activities to protect both our and our clients brands and reputations, and to consolidate a solid foundation for the Company’s continued growth. As part of this commitment, in 2007/2008 we: • entered our fifth year of accreditation under the Professional Practices Management System (PPMS), a collection industry specific quality assurance program which overlays ISO 9001; In 2007/08 our Business Objects software delivered improved reporting, promoting a higher standard of reports and data/ trend analysis. As a result, the Business Improvement Team and the Programming Departments have developed improvements to workflow processes for collection and support departments. One particular example of workflow progression achieved exemplifies the progress made over the past year: by improving the program and process, the time we spent on a daily task for a major financial • continued to provide our customers with independent external institution was cut from an entire day to ninety minutes. complaint and dispute resolution as a non-bank member of the Financial Ombudsman Service Limited; • worked closely with consumer organisations, community based welfare Groups and regulators in the resolution of both individual customer concerns and shared problems; Our Infrastructure Department has been instrumental in the organisational growth of the Company, managing the infrastructure requirements of office relocations and the establishment of our new West Auckland office, along with the efficient transition of a number of subsidiaries sold during the year. The rollout of VOIP technology • continued to promote on-going dialogue among stakeholders to also continued, along with the commencement of a major voice- achieve uniform legislation relating to the collection of debt across recording project. all Australian jurisdictions; • maintained contact with our major regulators and consumer Groups to ensure ongoing compliance with regulatory requirements and awareness of consumer issues; • recorded only 144 complaints about our conduct. Given that in 2007/08 our collectors worked on over 300,000 accounts, this is a complaint rate of 0.05% and, averaged across the working days of the year, is less than one complaint per day; and • conducted ongoing reviews and revision of existing policies and procedures, the critical examination of practices and the monitoring of staff performance. COLLECTION HOUSE LIMITED 7 WHO WE ARE Board of Directors as at 30 June 2008 Dennis Punches Bsc Chairman. Age 72. Experience and expertise Appointed to the Board in July 1998, and in 2000 was appointed as Chairman of Collection House Limited. Re-elected Director 26 October 2007. Former director of Attention LLC Inc, Analysis and Technology Inc, and co-founder and former Chairman of Payco American Corporation. Co-Chairman of the International Collectors Group and a Trustee for Wisconsin’s Carroll College. Resides Florida, USA. Foundation. Chairman of the Brisbane Lions Foundation. Resides Queensland, Australia. Special responsibilities Managing Director & Chief Executive Officer. Other current directorships (other than personal corporate entities) None Former directorships in last 3 years (other than personal corporate entities) None Special responsibilities Deputy Chairman (re-elected 25 October 2007, effective 26 October 2007) Interest in shares and options (direct and indirect holdings) 226,400 ordinary shares in Collection House Limited. 2,000,000 options granted in accordance with the Managing Director & Chief Executive Officer’s employment agreement and approved by the shareholders on 28 February 2007 – for details see pages 35 and note 40 of the Financial Statements. The Board of Directors have decided to issue to the Managing Director & Chief Executive Officer an additional 2,000,000 performance based options in accordance with a variation to his current employment agreement, subject to approval of the new remuneration package by shareholders at the Annual General Meeting on 31 October 2008. Details of the Managing Director & Chief Executive Officer’s new remuneration package, including the performance based options, will be contained in the Explanatory Memorandum attached to the Notice of Annual General Meeting to be sent to shareholders with this report. Barrie Adams PSM, FCPA. Lead Independent Director. Age 63. Experience and expertise Appointed to the Board in November 2002 and Chairman of the Audit & Risk Management Committee in January 2003. Member of the Remuneration Committee. Chairman of Financial Basics Foundation and associated companies. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) Steel Foundations Limited and associated companies. Ingeus Limited. Nuplant Ltd. Former directorships in last 3 years (other than personal corporate entities) Pro Super Holdings (resigned 4 October 2006) Special responsibilities Lead Independent Director. Chairman – Audit & Risk Management Committee. Other current directorships (other than personal corporate entities) Interests in shares and options (direct and indirect holdings) NOVO 1. Tejus Securities, Texas. Former directorships in last 3 years (other than personal corporate entities) 11,816,130 ordinary shares in Collection House Limited. Intrum Justitia AB (resigned May 2008) Tony Aveling SFFin, FAIM, FAICD Special responsibilities Managing Director & Chief Executive Officer. Chairman of the Board (re-appointed 25 October 2007, effective 26 October 2007) Age 64. Experience and expertise Chairman – Nominations Committee. Member – Remuneration Committee. Interests in shares and options (direct and indirect holdings) 14,150,101 ordinary shares in Collection House Limited. John Pearce FAICM Deputy Chairman. Age 63. Experience and expertise Co-founder of Collection House Limited and appointed to the Board in April 1993. In April 2003 returned to former position of Managing Director & Chief Executive Officer which had been held from mid 1998 until December 2002. Stepped down as Chief Executive Officer effective 30 June 2005 and was appointed Managing Director and Deputy Chairman effective 1 July 2005. Resigned as Managing Director on 26 October 2006. Re-elected Director 26 October 2007. Remains Deputy Chairman of the Board. Member of the International Fellowship of Certified Collectors. Chairman of Financial Basics Foundation 2002 to 2007. Board Member of The Rutherglen Cemetery Forty five years in the financial services industry including thirty four years at Westpac Banking Corporation. Senior positions included Chief Executive Business and Private Banking, Managing Director & Chief Executive Officer Australian Guarantee Corporation, and General Manager Europe. Three years as Chief Executive Officer Australian Bankers’ Association. Is a Senior Fellow of the Financial Services Institute of Australasia (SFFin), a Fellow of the Australian Institute of Management (FAIM), a Fellow of the Australian Institute of Company Directors (FAICD), and a graduate of the Advanced Management Program of the Harvard Business School. Honorary Governor Science Foundation for Physics within the University of Sydney. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) Global MoneyLine Limited (resigned 20 March 2008) 8 ANNUAL REPORT 2008 Member – Nominations Committee (resigned 25 October 2007) Member – Remuneration Committee (appointed 25 October 2007) Interests in shares and options (direct and indirect holdings) Representatives. Past board member of the Merchants Research Council, Charter Bank Willowbrook. Resides Texas, USA. Other current directorships (other than personal corporate entities) None None. Tony Coutts Non-Executive Director. Age 49. Experience and expertise General Manager of Collection House Limited from 1995 to 1998. Appointed an Executive Director in September 1998 with executive responsibilities as Director of Sales. Non- Executive Director from 1 July 2006 (re-elected 26 October 2007). Eighteen years in the finance and insurance industry (Australian Guarantee Corporation Ltd). Thirteen years in the debt collection industry, the last eleven of which were spent at Collection House. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None Special responsibilities None. Former directorships in last 3 years (other than personal corporate entities) None Special responsibilities Member – Audit & Risk Management Committee. Member – Nominations Committee (appointed 25 October 2007). Bill Hiller Independent Director. Age 69. Experience and expertise Appointed to the Board June 2003. Forty years experience in the automotive finance industry including as General Manager – Automotive Finance for St George Bank Limited. Resides New South Wales, Australia. Other current directorships (other than personal corporate entities) None. Interest in shares and options (direct and indirect holdings) Former directorships in last 3 years (other than personal corporate entities) 4,164,600 ordinary shares in Collection House Limited. None. Special responsibilities Bill Kagel Independent Director. Age 71. Experience and expertise Appointed to the Board in February 2000. Appointed Chairman of the Remuneration Committee in June 2003. Over forty years debt collection industry experience. Co-founder and Senior Vice President of Payco American Corporation, USA and former Director of Outsourcing Solutions Inc. Resides Wisconsin, USA. Other current directorships (other than personal corporate entities) None. Special responsibilities Chairman – Remuneration Committee. Interests in shares and options (direct and indirect holdings) 551,269 ordinary shares in Collection House Limited. Executive Management Adrian Ralston Chief Financial Officer Interests in shares and options (direct and indirect holdings) Former directorships in last 3 years (other than personal corporate entities) 20,000 ordinary shares in Collection House Limited. None. Barry Connelly BJ. Independent Director. Age 68. Experience and expertise Appointed to the Board in June 2003. Charter member of the Board of NASDAQ listed company, First Advantage and in August 2007 was elected to the Board of privately held Microbilt Corp. of Kenesaw, GA. Retired President of the International Consumer Data Industry Association and former member of the Texas House of Member – Audit & Risk Management Committee. Kylie Lynam Member – Nominations Committee. Member – Remuneration Committee (resigned 25 October 2007) Interests in shares and options (direct and indirect holdings) 43,000 ordinary shares in Collection House Limited. General Manager, Human Resources Matthew Thomas Chief Operating Officer Michael Watkins General Counsel and Company Secretary COLLECTION HOUSE LIMITED 9 OUR RESPONSIBILITIES Corporate Social Responsibility Supporting the Environment: New Head Office A range of recommendations and changes will be incorporated As outlined earlier in this report, one of our primary business objectives is attracting and retaining quality employees. In line with this key objective in 2006/07 we initiated the relocation of our Brisbane Head Office to new premises which will offer our people a significantly enhanced working environment. Located in the heart of the vibrant urban renewal precinct of Fortitude Valley, Green Square North Tower occupies a prominent site, just 250 metres from Brunswick Street Railway Station – one of only three major railway stations in Brisbane which are serviced by all trains. Brisbane City Council buses servicing most Brisbane suburbs can also be accessed directly in front of the site, offering our employees an unparalleled range of convenient public transport options. Green Square has achieved a coveted 6 star Green Star rating under the Green Building Council of Australia Scheme – an environmental rating tool which evaluates the environmental performance of in future editions of this invaluable teaching resource which will be published in September 2008, including a new module about “Scams”. In 2007 the Foundation launched an online e-learning game ESSI Money. ESSI which stands for Earning, Saving, Spending and Investing, is a truly innovative resource requiring participants to make real life choices in a simulated environment, with the aim of avoiding financial mishap. The Foundation was inundated in 2007/08 with positive praise about the game and we have been overwhelmed by the response from teachers and students alike. ESSI Money registered 11,360 users within the first 12 months of its release, and continues to be highly demanded from around Australia. “The kids really enjoyed using the game, to the extent that they played it at home as well. From a teachers point of view the game was buildings based on an extensive criteria. engaging and relevant”. Wendy (Victoria) In keeping with the 6 star Green Star rating, the new Head Office has been fitted out with as many environmentally friendly facilities as possible, which will provide decided benefits to both our people and the wider community. Financial literacy is becoming a critical life skill and the Financial Basics Foundation remains a forerunner in providing material to better educate young Australians in this area. In the year ahead, the Foundation will work more closely with community Groups and agencies to deliver financial literacy programs to All Collection House Head Office staff are due to be relocated to the disadvantaged communities. new building in October 2008. Financial Basics Foundation The Financial Basics Foundation was established in 2002 by Collection House in response to the need for greater financial literacy amongst young Australians. The work of the Financial Basics Foundation would not be possible without the generous support of founding corporate partner, Collection House Limited. For more information about the Financial Basics Foundation, Operation Financial Literacy or ESSI Money go to www.financialbasics.org.au The Foundation dream is to ensure that all young Australians leaving the secondary education system have an understanding of the credit Learning for Life system and financial management practices, so they are empowered Collection House is now enjoying our third year of supporting the to make informed, independent decisions on their financial affairs. With the assistance of educators and students from around Australia, the Foundation develops and distributes financial literacy teaching resources to Australian secondary schools. Operation Financial Literacy, a 10 module hardcopy teaching resource that includes detailed teacher notes and student worksheets, has been distributed free of charge to over 1300 secondary schools across Australia. As a teaching resource, it is imperative that the material and content within Operation Financial Literacy remains current and relevant, and the Foundation conducted a full assessment and review of the Smith Family's Learning for Life program. This program helps provide vital education and support to children from financially disadvantaged homes. With our only senior secondary sponsored student now at University, we recently made the decision to increase our financial support to four students. The funds provided cover the cost of books, uniforms and excursions for the students along with an Education Support Worker (ESW). Having satisfied the fundamental educational needs of our sponsored students, we see it as equally significant to assist with the personal support component of the program, provided by the ESW. Our decision to offer continuing support for the program reflects our ongoing commitment to social community responsibility. material in 2007/08. 10 ANNUAL REPORT 2008 Corporate Governance Statement 1. Introduction a) Date of statement This Statement reflects our corporate governance framework, policies and procedures which have been in place since 1 January 2008 and were approved by the Collection House Limited Board on 26 June 2008. b) Access to information on the website This Corporate Governance Statement, and the documents referred to in the Statement, are available for viewing on our website in the corporate governance section (unless otherwise stated) at ‘www.collectionhouse.com.au’. 2. Our approach to corporate governance a) Framework and approach to corporate governance Our approach to corporate governance is based on a set of values and behaviours that underpin everyday activities, ensures transparency and fair dealing, and protects stakeholder interests. The Board continues to review this framework and our practices to ensure that we meet the interests of our stakeholders. This approach includes a commitment to the highest standards of governance and the revised ‘Corporate Governance Principles and Recommendations’ which our Board sees as fundamental to shareholder and market confidence and to the sustainability of our business and performance. b) Compliance with the ASXCGC’s Principles and Recommendations The ASX Listing Rules require listed entities, such as our Company, to include a statement in their Annual Report disclosing the extent to which they have followed the twenty seven (27) ASXCGC Principles and Recommendations (ASXCGC’s Recommendations) during the reporting period, identifying any recommendations that have not been followed and providing reasons for that variance. We believe that our corporate governance practices comply with the ASXCGC’s Principles and Recommendations, other than for Recommendations 2.1, 2.2 and 2.4, which relate to independence. Our reasoning on independence and an explanation for our variance on the ASXCGC’s Recommendations 2.1, 2.2 and 2.4 are set out in section 3(e) of this Statement at page 12. A checklist summarising our compliance with the ASXCGC’s Recommendations is on our website at ‘www.collectionhouse. com.au’. ASXCGC’s Recommendations 2.1, 2.2 and 2.6 3. The Board of Directors a) Membership and expertise of the Board Directors’ membership, period of office held, experience and shareholdings are provided in greater detail under the section titled ‘Who we are’ at page 8. ASXCGC’s Recommendations 2.6 b) Board role and responsibility The roles and responsibilities of the Board are formalised in the Board Charter. The Charter also defines the matters that are reserved for the Board and its Committees, and those that the Board has delegated to management. The Board is accountable to shareholders for our performance, and the Board’s responsibilities include: • providing strategic direction and approving significant corporate strategic initiatives; • providing input into, and approval of, management’s development of corporate strategy and performance objectives; • reviewing and approving business plans; • overseeing and monitoring the financial and non financial key performance indicators; • Board performance and composition; • Board and executive leadership selection; • succession planning for the Board and executives; • enhancing and protecting the brand and reputation of the Company; • setting MD/CEO and Non-executive Director remuneration; • considering and approving our half-yearly and annual financial statements; • selecting and recommending to shareholders the appointment of the external auditor; • approving our risk management strategy and various risk management frameworks and monitoring their effectiveness; • • corporate responsibility – considering the social, ethical and environmental impact of our activities, setting standards and monitoring compliance; maintaining a direct and ongoing dialogue with relevant regulators in Australia and ensuring that the market and our shareholders and other investors are continuously informed of material developments; and • determining the scope of delegated authorities. COLLECTION HOUSE LIMITED 11 OUR RESPONSIBILITIES The Board has delegated a number of these responsibilities to its Committees. The responsibilities of these Committees are detailed in section 4 of this Statement. The Board has delegated to Executive Management, responsibility for: • developing and implementing corporate strategies and making recommendations on significant corporate strategic initiatives; • making recommendations for the appointment of Executive Management, determining terms of appointment, evaluating performance, and developing and maintaining succession plans for Executive Management roles; • developing our annual budget plan and managing day-to- day operations within the budget plan; • maintaining effective risk management frameworks; • keeping the Board and market fully informed about material developments; and • managing day-to-day operations in accordance with standards for social, ethical and environmental practices, which have been set by the Board. ASXCGC’s Recommendation 1.1 c) Board size and composition The Board considers that the optimum number of Directors is between seven and nine, with Non-executive Directors and Independent Directors comprising the majority of the Board. There are currently three Non-independent Non-executive Directors, four Independent Non-executive Directors and one Executive Director on our Board. Our Constitution sets a maximum of ten Directors. The Chairman of the Board is non- executive, separate and independent of the role of the MD/CEO. The Nominations Committee assesses: the Board composition and size and recommends to the Board changes to the Board composition and size; and the skills required to discharge the Board’s duties, having regard to our business mix, financial position and strategic direction, including specific qualities or skills that the Nominations Committee believes are necessary for one or more of the Directors to possess. ASXCGC’s Recommendations 2.1, 2.3 and 2.4 d) The Chairman The Board elects one of the Non-executive Directors to be Chairman. The current Chairman, Dennis Punches, is a Non-executive Director. He has been a Director of the Company since 1 July 1998 and Chairman since 2000. The Chairman is a member of the Remuneration Committee and is Chairman of the Nominations Committee. The Company’s Chairman, Dennis Punches is considered by the Board not to be independent in terms of the ASX Corporate Governance Council’s definition of Independent Director. However, the Board considers that for the reasons set out in section 3(e), the Chairman’s extensive experience and professionalism allows him to, and does, bring quality, unfettered and independent judgment to all relevant issues falling within the scope of the role of Chairman of the Board and Chairman of the Nominations Committee. ASXCGC’s Recommendation 2.2, 2.4 e) Director independence Directors are considered to be independent if they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment. Materiality is assessed on a case-by-case basis by reference to each Director’s individual circumstances rather than by applying general materiality thresholds. Directors must disclose any interests or relationships, including any related financial or other details, to the Board to determine whether the relationship could, or could reasonably be perceived to, materially interfere with the exercise of a Director’s unfettered and independent judgment. The Board considers that a majority of the Board is not independent. However, the Board considers that the individuals on the Board can, and do make quality, unfettered and independent judgments in the best interests of the Company on all relevant issues. Directors who have a conflict of interest in relation to a particular item of business must, and do, absent themselves from the Board meeting before commencement of discussion on the topic. In addition to ensuring that the Board has a broad range of necessary skills, knowledge, and experience to govern the Company and understand the challenges that the Company faces, the Board considers that its membership should represent an appropriate balance between Directors with experience and knowledge of the Company and Directors with an external perspective. The Board also considers that its size should be conducive to effective discussion and efficient decision-making. The Board believes that its current composition meets these requirements. The Nominations Committee charter discloses a process for selection and appointment of new Directors and re-election of incumbent Directors. 12 ANNUAL REPORT 2008 Exceptions to ASXCGC’s Recommendations f) Avoidance of conflicts of interest by a Director 2.1 A majority of the Board should be Independent Directors Of our Board, four Directors are considered not to be independent in accordance with Recommendation 2.1, as at the date of this report. These Directors are Dennis Punches (Chairman), John Pearce (Deputy Chairman), Tony Aveling (MD/CEO) and Tony Coutts (Non-Executive Director). Due only to their respective substantial shareholdings in the Company, Dennis Punches, John Pearce and Tony Coutts as a previous Executive Director, are not classed as Independent Directors. The Board maintains however, that their individual and combined industry experience and knowledge of international and domestic trends in the collection industry are invaluable to the Company. Directors’ experience and shareholdings are provided in greater detail under the section titled “Who we are” at page 8. 2.2 and 2.4 The Chairperson should be an Independent Director While the Chairman of the Board and the Nominations Committee, Dennis Punches, is not classed as independent (Recommendations 2.2 and 2.4), his experience and knowledge of the industry, coupled with his ability to lead, has enabled him to be, and continue to be, a valuable and effective Chairman, for both the Board and the Nominations Committee and a member of the Remuneration Committee, with a scope well beyond that of other candidates, at either a national or international level. As noted, Tony Aveling is not deemed to be independent by virtue of his role as MD/CEO of the Company. Notwithstanding, the Board does not consider there are any matters that may materially interfere with the exercise by Dennis Punches and Tony Aveling of unfettered and independent judgment. The appointment of Barrie Adams, in June 2003, as Lead Independent Director coupled with the remaining Independent Non-executive Directors, ensures that the Board can operate independently of Executive Management and provides for special professional expertise. The Board does not consider that a majority of Directors being independent is, on its own, a sufficiently compelling factor to justify additional appointments to the Board at this time. ASXCGC’s Recommendations 2.1, 2.4 and 2.6 The Board is conscious of its obligations to ensure that Directors avoid conflicts of interest (both real and apparent) between their duties as Directors of the Company and their other interests and duties. In accordance with our Constitution, all Directors are required to disclose any actual or potential conflict of interest on appointment as a Director and are required to keep these disclosures up to date. Any Director with a material personal interest in a matter being considered by the Board must declare their interest and, unless the Board resolves otherwise, they may not participate in boardroom discussions or vote on matters in respect of which they have a conflict. Our Constitution and Code of Conduct for Directors and Senior Executives can be obtained from our website at ‘www. collectionhouse.com.au’. ASXCGC’s Recommendation 3.1 g) Meetings of the Board and their conduct The Board has scheduled meetings each year and meets whenever necessary between scheduled meetings to deal with specific matters needing attention. The Chairman, with input from the MD/CEO and the Company Secretary, establishes meeting agendas for assessing our coverage of financial, strategic and major risk areas, throughout the year. The Directors have the opportunity to review meeting materials in advance. Directors are always encouraged to participate with a robust exchange of views and to bring their independent judgments to bear on the issues and decisions at hand. Details of meetings attended by Directors during the year are reported in the Directors’ Report at page 29. h) Succession planning The Board considers Director succession in conjunction with the Nominations Committee. Together they are responsible for developing and implementing succession planning for Non- executive Directors, taking into account the challenges and opportunities facing us and the skills and expertise which are likely to be needed on the Board today and in the future. The Board is responsible for MD/CEO succession planning. The MD/CEO is actively involved with Executive Management succession. COLLECTION HOUSE LIMITED 13 OUR RESPONSIBILITIES The Board is responsible for approving the MD/CEO financial and non-financial performance objectives and for evaluating the performance of the MD/CEO against those objectives. The MD/CEO oversees the process of objective setting for Executive Management and monitors the performance of Executive Management against those objectives. ASX CGC’s Recommendation 1.2 i) Review of Board and Committee performance The Board undertakes an annual review of its performance and of the performance of the Chairman, individual Directors and Board Committees. The performance review process is facilitated internally, and can include interviews with Directors and written surveys of Directors, Executive Management and the Company Secretary and General Counsel. These reviews are conducted in accordance with the Company’s performance evaluation process for Directors and Executive Management. The Chairman formally discusses the results with individual Directors and Committee chairs. The Chairman is reviewed by his fellow Directors adjudging his performance and contributions to the Board, Board discussions, leadership, and in guiding and assisting the Board to comply with its charter. A performance evaluation of the Directors and Senior Executives consistent with the approach above has occurred during the reporting period. ASXCGC’s Recommendations 2.5, 2.6 and 8.1 j) Nomination and appointment of new Directors The Nominations Committee considers and makes recommendations for nominations of new Directors to the Board as a whole and operates in accordance with its Board approved charter, a summary of which is available from the corporate governance section of the Company’s website at ‘www. collectionhouse.com.au’. New Directors receive a letter of appointment, which sets out their duties, the terms and conditions of appointment including expected term of appointment, remuneration and the expectations of the role. This letter conforms with ASXCGC’s Principles and Recommendations. If the Board appoints a new Director during the year, that person will stand for election by shareholders at the next Annual General Meeting (AGM). Shareholders are provided with relevant background information on the candidates for election. The Nominations Committee reviews appointment criteria from time to time and makes recommendations concerning the re-election of any Director by shareholders. ASXCGC’s Recommendation 2.4 k) Board access to information and advice All Directors have unrestricted and unfettered access to Company records and information and receive regular detailed financial and operational reports from Executive Management to enable them to carry out their duties. The Chairman and other Non-executive Directors regularly consult with the MD/CEO, the CFO, Company Executives, the Company Secretary and General Counsel. In addition, Directors may consult with, and request additional information from, any of our employees. The Board collectively, and each Director individually, has the right to seek independent professional advice, at our expense, to help them carry out their responsibilities. While the Chairman’s prior approval is needed, it may not be unreasonably withheld and, in the Chairman’s absence, Board approval may be sought. ASXCGC’s Recommendation 2.1 and 2.6 l) Company Secretary Our Company Secretary is Michael Watkins, who combines his role as Company Secretary and as General Counsel of the Company. Michael joined us in 2000 as General Counsel and was appointed to his present role as Company Secretary and General Counsel in December 2006 with responsibility for the management and delivery of company secretarial, legal and governance advice and support to the Board, executive and business. Responsibilities for the secretariat function include providing advice to Directors and officers on corporate governance and regulatory matters, developing and implementing our governance framework, coordinating the completion and dispatch of the Board and Committee Meeting agendas and papers, and giving practical effect to the Board’s and the Committees’ decisions. Prior to Michael’s current appointment, he practised commercial law in private practice from 1978 and was a partner in his own Brisbane CBD law firm from 1980, until accepting the appointment as General Counsel of the Company in 2000. All Directors have access to advice from the Company Secretary and General Counsel at any time. 4. Board Committees a) Board Committees and membership We have three standing Board Committees. The Committee Charters (available on our website) describe their roles and powers, as approved by the Board. The three Board Committees and their membership at 30 June 2008 are set out in the table on the facing page: 14 ANNUAL REPORT 2008 Barrie Adams Bill Hiller Barry Connelly Bill Kagel Dennis Punches John Pearce Audit and Risk Management Committee Nominations Committee Chairman and Lead Independent Director Independent Director Independent Director Independent Director Independent Director Remuneration Committee Lead Independent Director Attendances of Directors at Committee meetings are set out in the Directors’ Report at page 29. ASXCGC’s Recommendations 2.6, 4.1, 4.2, 4.3, 4.4, 8.1 and 8.2. b) Committee procedures Composition and independence of the Committees Committee members are chosen for the skills, experience and other qualities they bring to the Committees. The Audit and Risk Management Committee is currently, composed of only Independent Non-executive Directors. Operation of the Committees and reporting to the Board During the year, the Board Committees meet at least annually, and at other times as necessary. Each Committee is entitled to the resources and information it requires and has direct access to our employees and advisers. The MD/CEO is invited to attend all Committee meetings, except where the MD/CEO has a material personal interest in a matter being considered. Executive Management and other selected employees are invited to attend Committee meetings as necessary. How the Committees report to the Board At the next Board meeting following each Committee meeting, the Board is given an oral report by the Chair of each Committee. In addition, all Committee minutes are tabled at Board meetings. How Committees’ performance is evaluated The performance of Committees is discussed and reviewed initially within each Committee and then reviewed as part of the Board’s performance review. The performance of each Committee member (other than the MD/CEO) is evaluated as part of the annual review of each Director. ASXCGC’s Recommendation 2.5, 4.1, 4.2, 4.4, 7.1, 7.2, 7.4, 8.1, 8.2 and 8.3. Chairman and Non-independent Director Chairman and independent Director Non-independent Director Non-independent Director c) Audit and Risk Management Committee Role of the Committee The Audit and Risk Management Committee operates in accordance with its Board approved charter, a copy of which is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. The Audit and Risk Management Committee oversees the risk profile and approves our risk management framework within the context of the risk-reward strategy determined by the Board. The Committee monitors the alignment of our risk profile with our risk appetite. The Committee oversees how we manage the risks which are relevant to our operations. The determination of the risk-reward strategy includes recommendations from the Audit and Risk Management Committee, the MD/CEO and Executive Management on the parameters of our risk-reward profile and appropriate strategy. Our Board shares oversight responsibility for risk management by the Audit and Risk Management Committee. The Audit and Risk Management Committee, oversees all matters concerning: • integrity of the financial statements and financial reporting systems; • making recommendations to the Board for the appointment of the external auditor; • external auditor’s qualifications, performance, independence and fees; • oversight and performance of the internal audit function; • compliance with financial reporting and related regulatory requirements; • reviews and approves the frameworks for managing our market, operational and compliance risk; • determines, approves and reviews the limits and conditions that apply to the taking of risk, including the authority delegated by the Board to the MD/CEO and Executive Management; COLLECTION HOUSE LIMITED 15 OUR RESPONSIBILITIES monitors the risk profile, performance, capital levels, exposures against limits and management and control of our risks; the Board, individual Directors, and to make recommendations for the appointment and removal of Directors. The Nominations Committee is responsible for: • • monitors changes anticipated for the economic and business environment and other factors considered relevant to our risk profile; • reviews and monitors any related party transactions and assesses their propriety; • oversees the development and ongoing review of appropriate policies that support our frameworks for managing risk; and • reviews significant issues that may be raised by internal audit as well as the length of time and action taken to resolve such issues. In fulfilling its responsibilities, the Audit and Risk Management Committee: • receives regular reports from management, the internal and external auditors; • meets with the internal and external auditors at least twice a year, or more frequently, if necessary; • reviews the processes the MD/CEO and CFO have in place to support their certifications to the Board; • • • reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved; meets separately with the external auditors and the internal auditor at least twice a year without Executive Management being present; provides the internal and external auditors with a clear line of direct communication at any time to either the Chairman of the Committee or the Chairman of the Board. The Audit and Risk Management Committee met on 5 occasions during the reporting year. The Audit and Risk Management Committee regularly updates the Board about its activities. ASXCGC’s Recommendations 4.1, 4.2, 4.3, 4.4, 7.1 and 7.2 d) Nominations Committee Role of the Committee The Nominations Committee operates in accordance with its Board approved charter, a summary of which is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. The Nominations Committee assists the Board in fulfilling its oversight responsibility to shareholders. The principal functions of the Committee are to assess the desirable competencies of the Board members, review Board succession plans, provide a framework for the evaluation process of the performance of 16 ANNUAL REPORT 2008 • developing and reviewing policies on Board composition, strategic function and size; • performance review process of the Board, its Committees and individual Directors; • conducting an annual review of, and conclude on, the independence of each Director; • succession planning for the Board including developing eligibility criteria for nominating Directors; • developing and implementing induction programs for new Directors and ongoing education for existing Directors; • recommending appointment of Directors to the Board; • making recommendations on Board composition and appointments; and • reviewing our approach to corporate governance. The Committee’s policy for the appointment of Directors is to select candidates whose skills, expertise, qualifications, networks, and knowledge of the industry in which the Company operates and other potential markets into which it may expand, complement those of existing Board members. When selecting new Directors for recommendation to the Board, the Committee reviews prospective Directors’ CVs, meets with them and speaks with their referees and others who have previously worked with them to assess their suitability. The Board has also adopted a Director’s Letter of Appointment covering the matters referred to in Principle 1 of the ASX Corporate Governance Guidelines ensuring Directors clearly understand their corporate duties and responsibilities. ASXCGC’s Recommendation 2.4 e) Remuneration Committee Role of the Committee The Remuneration Committee operates in accordance with its Board approved charter, a copy of which is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. The Remuneration Committee assists the Board by reviewing and approving its remuneration policies and practices. The principal function of the Committee is to assist the Board in ensuring that the Company’s remuneration levels are appropriate and sufficient to attract and retain the Directors and key executives needed to run the Company. The Remuneration Committee: • reviews and approves executive remuneration policy; • reviews and makes recommendations to the Board on the performance of the MD/CEO against the MD/CEO’s corporate goals and objectives; • makes recommendations to the Board on the remuneration of the MD/CEO; • makes recommendations to the Board on the remuneration of Non-executive Directors, taking into account the shareholder approved fee pool; • approves contracts and remuneration packages for positions reporting directly to the MD/CEO; • considers and evaluates the performance of Executive Management when making remuneration determinations and otherwise as required; • monitors organisational structure and succession planning strategies; • evaluates and reviews current industry standards and practices; • reviews and makes recommendations to the Board on equity- based plans; • approves all performance recognition expenditure; and • oversees general remuneration practices across the Group. The Remuneration Committee also reviews and makes recommendations to the Board concerning the recruitment, retention, termination, and succession planning policies and procedures for the MD/CEO and for Executive Management positions reporting directly to the MD/CEO. This process was undertaken during the reporting year. The Committee meets at least annually with additional meetings being convened as required. The Committee has access to Executive Management of the Company and may consult independent remuneration consultants to benchmark our reward practices and levels against market practice, where it considers this necessary in order to effectively discharge its responsibilities. – – enable true and fair financial statements to be prepared and audited; and are retained for seven years after the transactions covered by the records are completed. the financial statements and notes required by the accounting standards for the financial year comply with the accounting standards; the financial statements and notes for the financial year give a true and fair view of the Company’s and consolidated entities’ financial position and of their performance; any other matters that are prescribed by the Corporations Act regulations as they relate to the financial statements and notes for the financial year are satisfied; the risk management and internal compliance and control systems are sound, appropriate and operating efficiently and effectively; and that the statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. • • • • • ASXCGC’s Recommendation 4.4 and 7.3 6. Promoting ethical and responsible behaviour a) Our Principles for Doing Business and Code of Conduct Our Code of Conduct and Philosophy sets out the principles that govern our conduct and the behaviours that stakeholders can expect from us. The Principles apply without exception to all Directors, executives, management and employees, and are aligned to our core values. Our Code of Conduct and Philosophy sets out the seven foundation principles, namely: • act with honesty and integrity; • respect the law and act accordingly; • respect confidentiality and do not misuse information; ASXCGC’s Recommendations 1.2, 1.3 and 8.1 • act professionally, ethically and honourably; 5. Managing Director and Chief Executive Officer and Chief Financial Officer assurance The Board receives regular reports about our financial condition and operational results as well as that of our controlled entities. The MD/CEO and CFO annually provide formal statements to the Board that in all material respects: • the financial records of the Company for the financial year have been properly maintained in that they: – are complete and present; – correctly record and explain its transactions and financial position and performance; • act as a team; • manage conflicts of interest responsibly; and • strive to be a good corporate citizen with the highest standards of integrity, ethics, practice, privacy and security. A summary of the Company’s Code of Conduct for Directors and Senior Executives and our Philosophy are available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. ASXCGC’s Recommendations 3.1 and 3.3 COLLECTION HOUSE LIMITED 17 OUR RESPONSIBILITIES b) Internal policies and procedures In addition to our Code of Conduct and Philosophy, we are committed to external regulator guidelines, such as the Australian Securities and Investments Commission and Australian Competition and Consumer Commission Debt Collection Guideline: for collectors and creditors. We also have a number of key policies to manage our compliance and human resource requirements. There is a range of guidelines, communications and training processes and tools to support these policies. These tools include a dynamic online learning module ‘Code of Conduct’ which incorporates training for a range of key compliance requirements. Individual business units also have systems and procedures in place to support Company policies. ASXCGC’s Recommendations 3.1 and 3.3 c) Concern reporting and whistleblowing All employees are encouraged to bring any concerns or problems to the attention of management, the human resources team or the compliance team. This includes activities or behaviours that may not be in accord with our Philosophy, the Code of Conduct, Securities Trading Policy, other policies, or other regulatory requirements or laws. In 2005, the Board introduced a Whistleblower Protection Policy that specifically outlines procedures for dealing with allegations of improper conduct. Concerns can be raised in a number of ways, including in writing, anonymously through the Company’s online whistleblower reporting system, or by telephone. Any concerns that are reported are assessed and handled by the Disclosure Coordinator, in conjunction with the Company’s Company Secretary and General Counsel. The Company does not tolerate known or suspected incidents of fraud, corrupt conduct, adverse behaviour, illegal activities or regulatory non-compliance, or questionable accounting and auditing matters by its employees. Nor does the Company tolerate taking reprisals against those who come forward to disclose such conduct. The Company will take all reasonable steps to protect employees who make such disclosures from any reprisal or detrimental action following the disclosure. ASXCGC’s Recommendations 3.1 and 3.3 d) Securities trading policy Directors and employees are restricted from dealing in our shares if they are in possession of inside information. To highlight the importance of compliance with these requirements and to ensure high standards of conduct, we have a Securities Trading Policy which applies to all employees. In addition, for Directors and any employees who, because of their seniority or the nature of their position, come into contact with key financial or strategic information about the Company all or most of the time (Prescribed Employees), additional restrictions apply. Those restrictions limit the periods in which the Directors and Prescribed Employees can trade in our shares or other company securities. The periods in which Directors and Prescribed Employees can trade (Trading Windows) commence two business days after the release of our half-yearly results, our annual results and after our Annual General Meeting. The Trading Windows are normally 30 days in length. Directors and Prescribed Employees must also notify the MD/CEO of their intention to trade during those periods and confirm they do not have any inside information. Any trading remains subject to legal obligations to not trade while in the possession of inside information. The Compliance Division monitors the trading of the Company’s shares by Directors and Prescribed Employees on a daily basis. Directors and senior executives may only deal in the Company securities outside of these times with the express prior approval of the Chairman or the Managing Director. A summary of the Securities Trading Policy is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. ASXCGC’s Recommendations 3.2 and 3.3 7. Remuneration framework It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and Executive Management team by remunerating Directors and key executives fairly and appropriately in accordance with market conditions and reflective of their contribution. The expected outcomes of this remuneration philosophy are: • retention and motivation of key executives; • attraction and retention of quality management to the Company; and • performance incentives which allow executives to share the rewards of the success of the Company. The Board is keen to encourage equity holdings by employees to align staff interests with those of shareholders. Many employees have participated in the Company’s various share and option plans from time to time. In February 2007, the shareholders approved certain share options in favour of the MD/CEO as part of his employment agreement. Details of the share options are set out in the Remuneration Report. In June 2007, certain share options were issued to eligible senior employees under an Executive Share Option Plan. Details of the 18 ANNUAL REPORT 2008 Executive Share Option Plan were presented and approved by the shareholders at the Annual General Meeting of the Company in October 2007. The Board considers that the composition of executive remuneration and equity related staff incentive plans are the domain of the Board and the MD/CEO, subject to meeting the Company’s statutory and ASX Listing Rule disclosure obligations. No Directors participate in share plans. Non-executive Directors receive only cash compensation and reimbursement of expenses for their services. For additional information relating to the Company’s remuneration practices and details relating to Directors’ and executives’ remuneration during the year, refer to the Directors’ Report. Details of our remuneration framework are included in the Remuneration Report. ASXCGC’s Recommendations 8.1, 8.2 and 8.3 8. Market disclosure We are committed to maintaining a level of disclosure that meets the highest standards and provides all investors with timely and equal access to information. In achieving these standards we have a Board-approved Continuous Disclosure Policy, which governs how we communicate with our shareholders and with the investment community. The policy reflects the ASX continuous disclosure obligations. The policy spells out that information which a reasonable person would expect to have a material effect on the price of the Company’s securities, must be immediately disclosed subject to certain exceptions. The Company Secretary and the MD/CEO are responsible for: • • making decisions on what should be disclosed publicly under the market disclosure policy, and for developing and maintaining relevant guidelines, including guidelines on information that may be price sensitive; and for ensuring compliance with the continuous disclosure requirements of the listing rules of the ASX, relevant securities and corporations legislation, and overseeing and coordinating information disclosure to regulators, analysts, brokers, shareholders, the media and the public. All market announcements are released to the ASX where the Company has ordinary shares listed. We also publish on our website the Annual Review, Annual Reports, profit announcements, notices of meetings and media releases. A copy of the Continuous Disclosure Policy is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. ASXCGC’s Recommendations 5.1, 5.2 and 6.1 9. Shareholder communications and participation We are also committed to giving all shareholders comprehensive, timely and equal access to information about our activities so that they can make informed investment decisions. The Board aims to ensure that shareholders are informed of all information necessary to assess the performance of the Company. Information is communicated to the shareholders through: • the Annual Report which is distributed to all shareholders via the Company’s website or a printed version upon request (other than those who elect not to receive it); • the Annual General Meeting and other shareholder meetings called to obtain approval for Board action, as appropriate; • making available all information released to the Australian Stock Exchange on the Company’s website immediately following confirmation of receipt by the ASX; • ensuring all press releases issued by the Company are posted on the Company’s website as soon as it is disclosed to the ASX; • encouraging active participation by shareholders at shareholder meetings; • • • actively encouraging shareholders to provide their email address to facilitate more timely and effective communication with shareholders at all times; contacting shareholders who have provided their email addresses directly to provide details of upcoming events of interest; and encouraging all shareholders who are unable to attend general meetings to communicate issues or ask questions by writing to the Company. A copy of the Board approved Shareholder Communications Guidelines is available from the corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. ASXCGC’s Recommendations 6.1 and 6.2 10. Health and safety The Company aims to provide and maintain a safe and healthy work environment within all operations. The Company acts to meet this commitment by implementing work practices and procedures throughout the Company that comply with the relevant regulations governing workplace health and safety. Employees are expected to take all practical measures to ensure a safe and healthy working environment in keeping with their defined responsibilities and the relevant regulations. ASXCGC’s Recommendations 3.1 and 3.3 COLLECTION HOUSE LIMITED 19 OUR RESPONSIBILITIES 11. International financial reporting standards (IFRS) The Australian Accounting Standards Board (AASB) has adopted International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS. The Company adopted the Australian equivalents to IFRS in its consolidated entity’s financial statements since 31 December 2006. ASXCGC’s Recommendations 3.1 and 3.3 12. Carbon Emissions Trading Collection House is committed to reducing its energy consumption and carbon emissions. In this regard, Collection House has reviewed its business operations and obligations under the prevailing Environmental legislation to determine whether it is required to establish a Carbon Emissions Trading Scheme. Based on the prescribed reporting thresholds contained in the current law, Collection House does not have an obligation to report to the relevant regulators as its energy consumption and carbon emissions do not exceed the specified thresholds. Notwithstanding, Collection House has commenced initiatives to reduce its carbon footprint starting with the relocation of our Head Office to a 6 Star, Green Star rated building in Brisbane. 20 ANNUAL REPORT 2008 DIRECTORS’ REPORT Your directors present their report on the consolidated entity (referred to hereafter as the Company or the Group, as the context requires) consisting of Collection House Limited and the entities it controlled at the end of, or during, the year ended 30 June, 2008. Directors The following persons were directors of Collection House Limited during the whole of the financial period and up to the date of this report, unless stated otherwise: Dennis Punches John Pearce Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel Principal activities During the year the principal continuing activities of the Group were the provision of debt collection services throughout Australasia. There were no significant changes in the nature of the activities of the Group during the year except for the sale of the following non-core businesses: • Australian Business Research Pty Ltd • National Tenancy Database Pty Ltd • National Revenue Corporation Pty Ltd • Insurance Claims Solutions Pty Ltd (formerly CHIP No. 1 Pty Ltd) Dividends – Collection House Limited Dividends paid to members during the financial year were as follows: Final ordinary dividend for the year ended 30 June, 2007 of 2 cents fully franked (2006 – 2 cents unfranked) per fully paid share paid on 26 November, 2007. Interim ordinary dividend for the year ended 30 June, 2008 of 2.2 cents fully franked (2007 – nil) per fully paid share paid on 28 March, 2008. 30 June 2008 $’000 30 June 2007 $’000 1,946 1,946 2,141 4,087 - 1,946 In addition to the above dividends, since the end of the financial year the directors have recommended the payment of a final fully franked ordinary dividend of $2.4 million (2.5 cents per fully paid share) to be paid on 28 November 2008 out of retained profits as at 30 June 2008. COLLECTION HOUSE LIMITED 21 DIRECTORS’ REPORT Review of operations A summary of consolidated revenues and results by significant industry segments is set out below: Revenue Results Collection Services Account Asset Management Intersegment eliminations Discontinued operations 30 June 2008 $’000 34,465 64,183 (3,152) 16,213 111,709 30 June 2007 $’000 36,931 48,373 (3,206) 19,912 102,010 Unallocated revenue less unallocated expenses Profit before income tax expense Income tax expense Profit for the year Less: Profit / (loss) attributable to minority interest Profit / (loss) attributable to members of Collection House Limited Comments on the operations and the results of those operations are set out below: Results 30 June 2008 $’000 5,633 15,966 (5,918) 11,327 27,008 (10,795) 16,213 (3,896) 12,317 (1) 12,316 30 June 2007 $’000 4,234 11,658 1,142 800 17,834 (13,849) 4,344 (567) 3,777 34 3,811 Excluding exceptional items, net profit after tax was $7.4 million compared with $3.8 million for the corresponding period: an increase of 95%. Net profit after tax for the year was $12.3 million compared to $3.8 million for the corresponding period. This includes the net profit after tax on the divestment of a number of subsidiary businesses of $8.0 million offset by restructuring expenses of $1.3 million and a $1.8 million charge for monies potentially payable to the Queensland Office of State Revenue (OSR) with respect to debt purchased in 2008, likely further adverse determinations for debt purchased between 2002 and 2008, and associated legal costs. Further details of the stamp duty issue are set out under “Significant changes in the state of affairs” in this report. Total income from continuing operations ordinary activities was up to $95.5 million (2007: $80.7 million). Revenue from the Account Asset Management segment grew (up 32.7% to $64.2 million) at the expense of the Contingent Collection segment (down 7% to $34.5 million), continuing the trend in the market towards purchase debt forward flow arrangements. The Company continues its review of Contingent clients with a view to achieving acceptable returns or reallocating resources elsewhere. The consolidated cash flow from operating activities (including discontinued operations) was $38.3 million for the year compared to $29.9 million for the previous year, an increase of 27.9%. EBITDA for the year (before fair value adjustments and impairment) was up by 29.2% to $44.7 million (2007: $34.6 million). Basic earnings per share excluding discontinued operations (“EPS”) were 4.0 cents (2007: 6.6 cents). The increased profit after tax attributable to members reflects the impact of the disposal of non-core businesses, the growth in revenues and the achievement of cost reductions and efficiencies from the restructuring process that the Company has undertaken. Assets and Liabilities Consolidated net assets have increased from $77.1 million to $85.1 million predominantly due to the purchase of new debt portfolios and the use of profits from the sales of various subsidiaries and businesses to minimise draw downs from the company’s banking facility. The sale of the business assets of four subsidiary companies namely Australian Business Research Pty Ltd, National Tenancy Database Pty Ltd, Insurance Claims Solutions Pty Ltd (renamed to ACN 100 115 571 Pty Ltd) and National Revenue Corporation Pty Ltd (renamed to ACN 073 212 772 22 ANNUAL REPORT 2008 Pty Ltd) and of the Group interest in a fifth, Chip No.1 Pty Ltd (renamed to Insurance Claims Solutions Pty Ltd) was consistent with our strategy of focussing on the core collection business. In September 2007, the Group completed the sale of assets of Australian Business Research Pty Ltd and its subsidiaries to Veda Advantage Information Services and Solutions Limited. The assets sold comprised the operational assets of the following companies: • Australian Business Research Pty Ltd • National Tenancy Database Pty Ltd In February 2008, National Revenue Corporation Pty Ltd was sold, making a small profit. Also In February 2008, the company CHIP No. 1 Pty Ltd (renamed to Insurance Claims Solutions Pty Ltd) was sold to the minority shareholders at a small profit. The profit contribution of these companies to the consolidated result has been disclosed as part of the profit from the discontinued operations and is not included in the profit from ordinary activities disclosed above. The results of the previous corresponding period have also been adjusted to exclude the discontinued operations. The individual companies were not sold and remain as non-trading entities within the Group and will be deregistered in the financial year 2008/2009. During the reporting period new debt portfolios were purchased for A$70.8 million and NZ$0.5 million in the Australian and New Zealand markets respectively, which was funded from operating cash flow and an increase in bank debt. Cash flow As a result of the increased levels of debt purchased during the year, the Group needed to draw on the financing facility during the year. During the year, an additional $4.9 million was drawn in commercial bills and the overdraft facility was drawn to $2.8 million. It is anticipated that the overdraft, a current liability, will be repaid during the year, and the commercial bills will be repaid as funds become available. The Board has confirmed its confidence in the Group’s current and future trading position. The Directors have recommended the payment of a fully franked final dividend as stated on page 21. Significant changes in the state of affairs Significant changes in the state of affairs of the Group during the financial year were as follows: (a) in Australia, the Group purchased new debt portfolios for A$70.8 million; (b) in New Zealand, the Group purchased new debt portfolios for NZ$0.5million; (c) the following non-core businesses were sold: • Australian Business Research Pty Ltd • National Tenancy Database Pty Ltd • National Revenue Corporation Pty Ltd • Insurance Claims Solutions Pty Ltd (formerly CHIP No. 1 Pty Ltd) (d) the Group is relocating its Head Office operations to Green Square North Tower, St Pauls Terrace, Fortitude Valley, Brisbane. The new premises comprising two floors (3,952 m2) will consolidate the Group’s 300 Brisbane-based staff in one building and provide the Group with room to continue on its current strong growth path; and (e) at the Company’s request, the Queensland Office of State Revenue (OSR) has provided its position in relation to the interpretation of a particular section of the Duties Act 2001 in relation to debt purchased by its subsidiary Lion Finance Pty Ltd in 2008. It is likely that there will be further adverse determinations for debt purchased between 2002 and 2008. The Company will pursue its rights to object and appeal any adverse determination by the OSR. COLLECTION HOUSE LIMITED 23 DIRECTORS’ REPORT Matters subsequent to the end of the financial year A fully franked final dividend has been declared of 2.5 cents per fully paid share for a total of $2.4 million, payable on 28 November 2008. No provision has been raised in these accounts. On 18 July 2008, the Company issued additional performance based options up to in aggregate 1,437,500 options to certain eligible employees, at the sole discretion of the MD/CEO, under an Executive Share Option Plan approved by shareholders at the Company’s Annual General Meeting held in October 2007. The additional performance based options were issued at an exercise price of $0.4927, being the volume weighted trading price over the five days prior to 26 June 2008, the date on which the Board made its decision. Share price qualifying hurdles $0.60, $0.70, $0.80, $0.90 and $1.00 will apply. A summary of the material terms of the additional performance based options issued on 18 July 2008 are set out in the Appendix 3B Announcement lodged with the Australian Stock Exchange on 18 July 2008. Other than the matters discussed above, no matter or circumstance has arisen since 30 June 2008 that has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years, or (b) the results of those operations in future financial years, or (c) the Group’s state of affairs in future financial years. Likely developments and expected results of operations There were no likely developments in the operations of the Group from time to time that have not been finalised at the date of this report. Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Company or the Group. Environmental regulation The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. 24 ANNUAL REPORT 2008 Information on directors as at 30 June 2008 Dennis Punches Bsc Chairman. Age 72. Experience and expertise Appointed to the Board in July 1998, and in 2000 was appointed as Chairman of Collection House Limited. Re-elected Director 26 October 2007. Former director of Attention LLC Inc, Analysis and Technology Inc, and co-founder and former Chairman of Payco American Corporation. Co-Chairman of the International Collectors Group and a Trustee for Wisconsin’s Carroll College. Resides Florida, USA. Other current directorships (other than personal corporate entities) NOVO 1. Tejus Securities, Texas. Former directorships in last 3 years (other than personal corporate entities) Intrum Justitia AB (resigned May 2008). Special responsibilities Chairman of the Board (re-appointed 25 October 2007, effective 26 October 2007). Chairman – Nominations Committee. Member – Remuneration Committee. Interests in shares and options (direct and indirect holdings) 14,150,101 ordinary shares in Collection House Limited. John Pearce FAICM Deputy Chairman. Age 63. Experience and expertise Co-founder of Collection House Limited and appointed to the Board in April 1993. In April 2003 returned to former position of Managing Director & Chief Executive Officer which had been held from mid 1998 until December 2002. Stepped down as Chief Executive Officer effective 30 June 2005 and was appointed Managing Director and Deputy Chairman effective 1 July 2005. Resigned as Managing Director on 26 October 2006. Re-elected Director 26 October 2007. Remains Deputy Chairman of the Board. Member of the International Fellowship of Certified Collectors. Chairman of Financial Basics Foundation 2002 to 2007. Chairman of the Brisbane Lions Foundation. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None. Special responsibilities Deputy Chairman (re-elected 25 October 2007, effective 26 October 2007). Member – Remuneration Committee (appointed 25 October 2007). Interests in shares and options (direct and indirect holdings) 11,816,130 ordinary shares in Collection House Limited. COLLECTION HOUSE LIMITED 25 DIRECTORS’ REPORT Tony Aveling SFFin, FAIM, FAICD Managing Director and Chief Executive Officer. Age 64. Experience and expertise Forty five years in the financial services industry including thirty four years at Westpac Banking Corporation. Senior positions included Chief Executive Business and Private Banking, Managing Director & Chief Executive Officer Australian Guarantee Corporation, and General Manager Europe. Three years as Chief Executive Officer Australian Bankers’ Association. Is a Senior Fellow of the Financial Services Institute of Australasia (SFFin), a Fellow of the Australian Institute of Management (FAIM), a Fellow of the Australian Institute of Company Directors (FAICD), and a graduate of the Advanced Management Program of the Harvard Business School. Honorary Governor Science Foundation for Physics within the University of Sydney. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) Global MoneyLine Limited (resigned 20 March 2008). Special responsibilities Managing Director & Chief Executive Officer. Interests in shares and options (direct and indirect holdings) 226,400 ordinary shares in Collection House Limited. 2,000,000 options granted in accordance with the Managing Director & Chief Executive Officer’s employment agreement and approved by the shareholders on 28 February 2007 – for details see page 35 and note 40 of the Financial Statements. The Board of Directors have decided to issue to the Managing Director & Chief Executive Officer an additional 2,000,000 performance based options in accordance with a variation to his current employment agreement, subject to approval of the new remuneration package by shareholders at the Annual General Meeting on 31 October 2008. Details of the Managing Director & Chief Executive Officer’s new remuneration package, including the performance based options, will be contained in the Explanatory Memorandum attached to the Notice of Annual General Meeting to be sent to shareholders. Barrie Adams PSM, FCPA. Lead Independent Director. Age 63. Experience and expertise Appointed to the Board in November 2002 and Chairman of the Audit & Risk Management Committee in January 2003. Member of the Remuneration Committee. Chairman of Financial Basics Foundation and associated companies. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) Steel Foundations Limited and associated companies. Ingeus Limited. Nuplant Ltd. Former directorships in last 3 years (other than personal corporate entities) Pro Super Holdings (resigned 4 October 2006). Special responsibilities Lead Independent Director. Chairman – Audit & Risk Management Committee. Member – Remuneration Committee. Member – Nominations Committee (resigned 25 October 2007). Interests in shares and options (direct and indirect holdings) None. 26 ANNUAL REPORT 2008 Tony Coutts Non Executive Director. Age 49. Experience and expertise General Manager of Collection House Limited from 1995 to 1998. Appointed an Executive Director in September 1998 with executive responsibilities as Director of Sales. Non-Executive Director from 1 July 2006 (re-elected 26 October 2007). Eighteen years in the finance and insurance industry (Australian Guarantee Corporation Ltd). Thirteen years in the debt collection industry, the last eleven of which were spent at Collection House. Resides Queensland, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None. Special responsibilities None. Interests in shares and options (direct and indirect holdings) 4,164,000 ordinary shares in Collection House Limited. Barry Connelly BJ. Independent Director. Age 68. Experience and expertise Appointed to the Board in June 2003. Charter member of the Board of NASDAQ listed company, First Advantage and in August 2007 was elected to the Board of privately held Microbilt Corp. of Kenesaw, GA. Retired President of the International Consumer Data Industry Association and former member of the Texas House of Representatives. Past board member of the Merchants Research Council, Charter Bank Willowbrook. Resides Texas, USA. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None. Special responsibilities Member – Audit & Risk Management Committee. Member – Nominations Committee (appointed 25 October 2007). Interests in shares and options (direct and indirect holdings) 20,000 ordinary shares in Collection House Limited. COLLECTION HOUSE LIMITED 27 DIRECTORS’ REPORT Bill Hiller Independent Director. Age 69. Experience and expertise Appointed to the Board June 2003. Forty years experience in the automotive finance industry including as General Manager – Automotive Finance for St George Bank Limited. Resides New South Wales, Australia. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None. Special responsibilities Member – Audit & Risk Management Committee. Member – Nominations Committee. Member – Remuneration Committee (resigned 25 October 2007). Interests in shares and options (direct and indirect holdings) 43,000 ordinary shares in Collection House Limited. Bill Kagel Independent Director. Age 71. Experience and expertise Appointed to the Board in February 2000. Appointed Chairman of the Remuneration Committee in June 2003. Over forty years debt collection industry experience. Co-founder and Senior Vice President of Payco American Corporation, USA and former Director of Outsourcing Solutions Inc.. Resides Wisconsin, USA. Other current directorships (other than personal corporate entities) None. Former directorships in last 3 years (other than personal corporate entities) None. Special responsibilities Chairman – Remuneration Committee. Interests in shares and options (direct and indirect holdings) 551,269 ordinary shares in Collection House Limited. 28 ANNUAL REPORT 2008 Company secretary The Company Secretary to 30 June, 2008 was Michael Watkins. Mr Watkins was appointed to the position of Company Secretary on 21 December 2006. Before joining Collection House Limited, Michael Watkins was in practice as a commercial lawyer from 1978 and as a partner in his own Brisbane CBD law firm from 1980, until accepting the appointment as General Counsel of the Company in 2000. Mr Watkins undertakes the combined roles of General Counsel and Company Secretary for Collection House Limited and its subsidiaries. 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 2008, and the numbers of meetings attended by each director were: Full meetings of directors Audit and Risk Management Meetings of committees Nomination Remuneration Dennis Punches John Pearce Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel A 6 7 7 7 4 7 7 7 7 B 7 7 7 7 4 7 7 7 7 A ** ** ** 5 ** 4 5 ** B ** ** ** 5 ** 5 5 ** A 1 ** ** 1 ** 1 1 ** B 1 ** ** ** Resigned 25/10/2007 ** 1 Appointed 25/10/2007 1 ** A 4 2 Appointed 25/10/2007 ** 4 ** ** 2 Resigned 25/10/2007 4 B 4 2 ** 4 ** ** 3 4 A Number of meetings attended B Number of meetings held during the time the director held office or was a member of the committee during the year ** Not a member of the relevant committee COLLECTION HOUSE LIMITED 29 DIRECTORS’ REPORT Remuneration report The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Share-based compensation E Additional information. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. A Principles used to determine the nature and amount of remuneration (audited) The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: • competitiveness and reasonableness • acceptability to shareholders • performance linkage / alignment of executive compensation • • transparency capital management. In consultation with key members of the Board who have many years industry operational experience and the General Manager – Human Resources, the Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to shareholders’ interests: • • has economic profit as a core component of plan design focuses on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key non-financial drivers of value • attracts and retains high calibre executives. Alignment to program participants’ interests: • • rewards capability and experience reflects competitive reward for contribution to growth in shareholder wealth • provides a clear structure for earning rewards • provides recognition for contribution. The framework provides a mix of fixed and variable pay, and a blend of short and long term incentives. As executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of ‘’at risk’’ rewards. 30 ANNUAL REPORT 2008 Non-Executive Directors Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Payments are allowed for additional responsibilities for Board Chairmanship, Deputy Chairmanship, the Lead Independent Director role and for membership of Board Committees and subsidiary Boards. It should be noted that the Chairman has voluntarily reduced his fee to $50,000 per annum as from 1 April, 2003 and the Deputy Chairman has requested that no fee be paid to him. Bill Kagel, as Chair of the Remuneration Committee, has waived the fee normally due to him for this role. Directors’ fees and payments are reviewed annually by the Remuneration Committee. The Committee’s recommendations are forwarded for approval by the Board. Non-executive Directors do not receive share options. Executive Directors Tony Aveling, was appointed as Managing Director and Chief Executive Officer on 27 November, 2006. He was paid in accordance with the terms of his employment contract for the 2007/08 financial year. Refer to page 35. On 26 June 2008, the Collection House Board agreed to vary the MD/CEO’s remuneration package, subject to shareholder approval. A summary of the varied remuneration package is set out in the remuneration report on page 36. Directors’ fees The current base remuneration was last reviewed with effect from October 2007. The Chairman’s remuneration is inclusive of committee fees while other non-executive directors who chair, or are a member of, a committee receive additional yearly fees. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. Retirement allowances for directors There are no retirement allowances paid to non-executive directors, in line with recent guidance on non-executive directors’ remuneration. Executive pay The executive pay and reward framework has three components: • base pay and short term incentive (STI); • • long term incentives through participation in the Executive Option Plan, and other remuneration such as superannuation. The combination of these comprises the executive’s total remuneration. Base pay Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ discretion. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role. Base pay for executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion. Short Term Incentive A portion of an executive’s pay is by way of an “at risk” bonus. This is subject to satisfactory completion of set objectives and payable at the discretion of the MD/CEO in consultation with the Board. A decision has been made to hold executive base pay and over time increase the “at risk” component. This is consistent with trends in the market and has the Board’s approval. COLLECTION HOUSE LIMITED 31 DIRECTORS’ REPORT Retirement Benefits There are no retirement benefits made available to executives, other than as are required by statute. Benefits The major benefit provided to executives is the ability to participate in the Executive Option Plan. Collection House Executive Option Plan Long term incentives are provided to certain employees via the Executive Option Plan, see page 36 for further information. B Details of remuneration (audited) Amounts of remuneration Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Collection House are set out in the following tables. The key management personnel of the Group includes Tony Aveling as MD/CEO and the following executive officers who have authority and responsibility for planning, directing and controlling the activities of the entity: • A. Ralston – Chief Financial Officer • M. Thomas – Chief Process Officer (Chief Operating Officer from 26 June 2008) • M.Watkins – General Counsel and Company Secretary • K.Lynam – General Manager – Human Resources • B.Savage – Consultant (and General Manager – Business Development to 9 November 2007) In addition, the following persons must be disclosed under the Corporations Act 2001 as they are among the highest remunerated Group and/or Company executives: • T. Aveling – MD/CEO • M.Watkins – General Counsel and Company Secretary • A. Ralston – Chief Financial Officer • M. Thomas – Chief Process Officer (Chief Operating Officer from 26 June 2008) • K.Hansen – General Manager – Australian Business Research Pty Ltd (to 21 September 2007) 32 ANNUAL REPORT 2008 Key management and highest paid personnel of the Group for the year ended 30 June 2008. 2008 Short-term employee benefits Post-employment benefits Cash salary and fees $ Cash bonus $ Non monetary benefit $ Other $ Super- annuation* $ Retirement benefits $ Name Non-executive directors D. Punches J. Pearce B. Adams A. Coutts B. Connelly B. Hiller B. Kagel Sub-total non- executive directors Executive directors 50,000 - 107,692 50,000 71,667 70,000 50,000 399,359 - - - - - - - - T. Aveling 500,000 475,000 Sub-total executive directors 500,000 475,000 - - - - - - - - - - - - - - - - - - - - 9,692 4,500 - 6,300 - 20,492 98,800 87,750 98,800 87,750 Other key management personnel A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant to 9 November 2007) Sub-total key management personnel compensation Total directors and key management personnel compensation Highest paid executives T. Aveling M. Watkins M.Thomas A. Ralston K. Hansen Total highest paid executives 219,807 234,635 239,818 128,816 19,000 21,000 21,000 11,000 6,052 6,052 6,052 6,052 101,750 - - 924,826 72,000 24,208 - - - - - - 21,493 23,007 23,474 12,583 - 80,557 1,824,185 547,000 24,208 98,800 188,799 500,000 475,000 - 98,800 239,818 234,635 219,807 21,000 21,000 19,000 41,077 154,715 6,052 6,052 6,052 - - - - 87,750 23,474 23,007 21,493 17,615 1,235,337 690,715 18,156 98,800 173,339 Long-term benefits Long service leave $ Share-based payments Options $ Total $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 50,000 - 117,384 54,500 71,667 76,300 50,000 419,851 200,651 1,362,201 200,651 1,362,201 23,426 29,283 23,426 14,641 289,778 313,977 313,770 173,092 - 101,750 90,776 1,192,367 291,427 2,974,419 200,651 1,362,201 23,426 29,283 23,426 - 313,770 313,977 289,778 213,407 276,786 2,493,133 - - - - - - - - - - - - - - - - - - - - - - - * Superannuation of 9% was paid on cash bonuses. The superannuation on the bonuses has been included in the superannuation figure in the table above. COLLECTION HOUSE LIMITED 33 DIRECTORS’ REPORT Key management and highest paid personnel of the Group for the year ended 30 June 2007. 2007 Short-term employee benefits Post-employment benefits Cash salary and fees $ Cash bonus $ Non monetary benefits $ Other $ Super- annuation* $ Retirement benefits $ Name Non-executive directors D. Punches B. Adams B. Connelly B. Hiller B. Kagel A. Coutts R. King S. Walker Sub-total non- executive directors Executive directors J. Pearce T. Aveling C. Day 50,000 120,000 75,000 70,000 50,000 50,000 30,150 28,500 473,650 - 278,846 369,934 - - - - - - - - - - 298,000 - - - - - - - - - - - - - - - - - - - - - - - - 55,100 - - 10,800 - 6,300 - - 2,714 2,565 22,379 - 56,875 29,949 55,100 86,824 Sub-total executive directors 648,780 298,000 Other key management personnel A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant to 9 November 2007) Sub-total key management personnel compensation Total directors and key management personnel compensation Highest paid executives T. Aveling C. Day P. Carroll B. Savage M. Watkins Total highest paid executives 210,000 200,385 235,000 100,000 10,000 12,500 12,500 5,000 6,052 6,052 6,052 6,052 280,481 - - 1,025,866 40,000 24,208 - - - - - - 19,800 19,160 22,275 9,450 - 70,685 2,148,296 338,000 24,208 55,100 179,888 278,846 369,934 272,387 280,481 235,000 298,000 - - - - - 6,052 - 12,500 6,052 55,100 - - - - 56,875 29,949 23,469 - 22,275 1,436,648 310,500 12,104 55,100 132,568 Long-term benefits Long service leave $ Share-based payments Options $ Total $ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 60,305 - 50,000 130,800 75,000 76,300 50,000 50,000 32,864 31,065 496,029 - 749,126 399,883 60,305 1,149,009 3,008 3,760 3,008 1,880 248,860 241,857 278,835 122,382 - 280,481 11,656 1,172,415 71,961 2,817,453 60,305 - - - 3,008 749,126 399,883 301,908 280,481 278,835 63,313 2,010,233 - - - - - - - - - - - - - - - - - - - - - - - - - - * Superannuation of 9% was paid on cash bonuses. The superannuation on the bonuses has been included in the superannuation figure in the table above. 34 ANNUAL REPORT 2008 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name T. Aveling Other key management personnel of Group A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant) (1 July 2007 to 9 November 2007) C Service agreements (audited) Performance based Fixed remuneration 2008 52.7 2007 51.4 2008 47.3 2007 48.6 15.2 16.6 14.8 15.4 - 5.5 7.1 5.9 5.9 84.8 83.4 85.2 84.6 100.0 94.5 92.9 94.1 94.1 100.0 Remuneration and other terms of employment for the MD/CEO, Chief Financial Officer and the other key management personnel are also formalised in service agreements. Major provisions of the agreements relating to remuneration are set out below. Except as otherwise stated, all contracts with executives may be terminated early by either party with three months notice. T Aveling – MD/CEO • Term of agreement is 27 November, 2006 to 28 February, 2009. • Annual base salary of $500,000 per annum plus compulsory superannuation. • • Living away from home allowance of up to $2,000 per week. Performance cash bonus is granted upon achievement of performance criteria as set by the Board. For 2008, the Board agreed performance objectives for the MD/CEO. The key objective related to Collection House profitability. Supporting objectives covered leadership, sales, stakeholder relationships, recruitment, trade debtors, organisational structure, succession planning, SME’s, funding, premises, book quality, compliance and regulatory obligations, legal profitability and the exit from non-core businesses. The indicators chosen were considered to be the best measures of financial and non-financial achievement. At the year end, the Board was provided with the financial and non-financial information relating to the MD/CEO’s performance. Based on this information, the Board determined the level of STI to be made to the MD/CEO. For the year ended 30 June 2008, the Board determined that the MD/CEO’s STI payment would be $475,000 which is 95% of the payment target specified in his contract. The payment was calculated based on performance against objectives (key objective exceeded and 90% of supporting objectives met or exceeded) and the Board’s exercise of discretion. • Issued 2,000,000 options after shareholder approval in February 2007, with each component tranche subject to a market condition based on qualifying share prices in order for the options to be exercised. COLLECTION HOUSE LIMITED 35 DIRECTORS’ REPORT On 26 June 2008, the Collection House Board agreed to vary the MD/CEO’s remuneration package, subject to shareholder approval. A summary of the varied MD/CEO’s remuneration package is as follows: • A deed of variation of the MD/CEO’s employment agreement will extend the appointment for a no fixed term. • Annual base salary of $500,000 per annum, plus compulsory superannuation will continue to be paid (no change). • • • • Living away from home allowance of up to $2,000 per week will continue for as long as the MD/CEO remains located in Queensland (no change). Performance cash bonus up to a maximum level of $500,000 plus compulsory superannuation will continue (no change). Any cash bonus amount payable to the MD/CEO will be granted upon achievement of financial and non-financial performance objectives agreed by the Board, on similar criteria as set out above. An additional grant of 2,000,000 performance based options was agreed by the Board for the MD/CEO to acquire shares in the company with an exercise price of $0.4927, being the volume weighted trading price over the five days prior to 26 June 2008, the date on which the Board reached its decision. Share price qualifying hurdles of $0.60, $0.70, $0.80, $0.90 and $1.00 will apply. Shareholder approval of the varied MD/CEO remuneration package including the grant of additional performance options will be sought at the Company’s Annual General Meeting in October 2008. Details of the varied MD/CEO remuneration package, the option terms and the value of the options will be sent to shareholders in an Explanatory Memorandum together with the Notice of Annual General Meeting. A. Ralston – Chief Financial Officer * • Annual base salary inclusive of superannuation for the year ended 30 June, 2008 of $239,590 • Performance cash bonus of $19,000 was paid for the year ended 30 June 2008. M. Thomas – Chief Process Officer (Chief Operating Officer from 26 June 2008)* • Annual base salary inclusive of superannuation for the year ended 30 June, 2008 of $255,635 • Performance cash bonus of $21,000 was paid for the year ended 30 June, 2008. M. Watkins – General Counsel and Company Secretary* • Annual base salary inclusive of superannuation for the year ended 30 June, 2008 of $261,402. • Performance cash bonus of $21,000 was paid for the year ended 30 June, 2008. K. Lynam – General Manager, Human Resources* • Annual base salary inclusive of superannuation for the year ended 30 June, 2008 of $140,409. • Performance cash bonus of $11,000 was paid for the year ended 30 June, 2008. B. Savage – General Manager – Business Development (to 9 November 2007) • Consultant in the role of General Manager – Business Development until 9 November 2007. • Consultancy arrangement but no formal consultancy agreement was in place for this period during 2007/08. * On 18 July 2008, the Company issued additional performance based options up to in aggregate 1,437,500 options to certain eligible employees, at the sole discretion of the MD/CEO, under an Executive Share Option Plan approved by shareholders at the Company’s Annual General Meeting held in October 2007. The additional performance based options were issued at an exercise price of $0.4927, being the volume weighted trading price over the five days prior to 26 June 2008, the date on which the Board made its decision. Share price qualifying hurdles $0.60, $0.70, $0.80, $0.90 and $1.00 will apply. A summary of the material terms of the additional performance based options issued on 18 July 2008 are set out in the Appendix 3B Announcement lodged with the Australian Stock Exchange on 18 July 2008. 36 ANNUAL REPORT 2008 D Share-based compensation (audited) Options Options were granted to T. Aveling as MD/CEO under his employment contract, subject to certain qualifying hurdles, and approved by shareholders on 28 February, 2007. See note 40 of the financial statements. Options were granted to certain senior personnel under the Collection House Executive Option Plan approved by shareholders at the Annual General Meeting in October 2007. See note 40 of the financial statements. The terms and conditions of all options mentioned above affecting remuneration in the previous, this or future reporting periods are set out in note 40 of the financials statements. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share. Details of options over ordinary shares in the Company provided as remuneration to each director of Collection House and each of the key management personnel of the Group are set out below. When exercisable, each option is convertible into one ordinary share of Collection House. Further information on the options is set out in note 40 to the financial statements. Name Directors of Collection House Limited T. Aveling Other key management personnel of the Group A. Ralston M. Thomas M. Watkins K. Lynam Number of options granted during the year Number of options vested during the year 2008 2007 2008 2007 - 2,000,000 - - - - 200,000 250,000 200,000 125,000 - - - - - - - - - - The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently determined using a modified binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, 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. Shares provided on exercise of remuneration options Details of ordinary shares in the Company provided as a result of the exercise of remuneration options to each director of Collection House and other key management personnel of the Group are set out below. Name Directors of Collection House Limited Nil Other key management personnel of the Group Nil Date of exercise of options Number of ordinary shares issued on exercise of options during the year 2008 2007 - - - - COLLECTION HOUSE LIMITED 37 DIRECTORS’ REPORT The amounts paid per ordinary share by each director and other key management personnel on the exercise of options at the date of exercise were as follows: Exercise date Nil Amount paid per share $Nil E Additional information Principles used to determine the nature and amount of remuneration: relationship between remuneration and company performance The overall level of executive reward takes into account the performance of the Group over a number of years, with greater emphasis given to the current and prior year. Details of the relationship between the Company remuneration policy and Company performance over the last 5 years is detailed below. No. of employees at year end Net profit after tax ($M) Net Assets ($M) Dividends Declared Change in share price 2004 692 $10.64 $90.40 2005 632 $12.95 $93.67 2006 634 $6.08 $75.09 7 cents unfranked 8 cents unfranked 2 cents unfranked Commenced Ended $1.16 $1.43 $1.54 $1.40 $1.41 $0.975 2007 638 $3.81 $77.08 2 cents franked $1.03 $0.75 2008 570 $12.32 $85.13 4.7 cents franked $0.78 $0.46 Basic Earnings per share (including discontinued operations) 11.01 cents 13.3 cents 6.2 cents 3.9 cents 12.7 cents Details of remuneration: cash bonuses and options For each cash bonus and grant of options included in the tables on pages 33 and 34, the percentage of the available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonuses is payable in future years. The options vest on 28 February, 2009, provided the vesting conditions are met. No options will vest if the conditions are not satisfied, hence the minimum value of the option yet to vest is nil. The maximum value of the options yet to vest has been determined as the amount of the grant date fair value of the options. See a summary of the options set out at note 40 of the financial statements. Cash bonus Options Paid % Forfeited % Year granted Vested % Forfeited % Financial years in which options may vest Minimum total value of grant yet to vest $ Maximum total value of grant yet to vest $ Name Directors of Collection House Limited T. Aveling 95.0 5.0 2007 Other key management of the Group A. Ralston M.Thomas M. Watkins K. Lynam 79.2 80.8 79.2 81.5 20.8 19.2 20.8 18.5 2007 2007 2007 2007 Loans to directors and executives - - - - - - - - - - 2009 2009 2009 2009 2009 394,176 41,988 52,485 41,988 26,243 Information on loans to directors and executives, including amounts, interest rates and repayment terms are set out in note 33 to the financial statements. 38 ANNUAL REPORT 2008 Shares under option Unissued ordinary shares of the Company under option at the date of this report are as follows: Date options granted 12 March, 2007 (MD/CEO Options)*1 15 June, 2007 (Executive Plan Options)*2 Expiry date Refer to note 40 28 February 2011 Issue price of shares Number under option $1.0327 $1.0327 2,000,000 1,250,000 3,250,000 *1 The 2,000,000 options approved by the Board in favour of the MD/CEO were granted under the terms of his employment contract with the Company and approved by the shareholders on 28 February 2007. *2 The Executive Plan Options were approved by the shareholders at the Company’s Annual General Meeting in October 2007. Shares issued on the exercise of options The following ordinary shares of Collection House were issued during the year ended 30 June, 2008 on the exercise of options. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Date options granted Nil Insurance of officers Issue price of shares Number of shares issued $Nil Nil During the financial year, Collection House Limited paid a premium of $36,439 to insure the directors and secretaries of the Company and its Australian based controlled entities, and the general managers of each of the divisions of the Group. 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 Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. COLLECTION HOUSE LIMITED 39 DIRECTORS’ REPORT Non-audit services The Board of Directors in accordance with advice from the Audit & Risk Management Committee is satisfied that the provision of the non audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. During the year the Company’s auditors have performed no other services in addition to their statutory duties. All non audit services are subject to the corporate governance procedures adopted by the Company. Details of the amounts paid to the auditors of the Company, Hacketts DFK, are set out below. 1. Audit services Hacketts DFK Audit and review of the financial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services 2. Other assurance services Hacketts DFK Audit of regulatory returns Total remuneration for audit-related services Total remuneration Auditor’s independence declaration Consolidated 30 June 2008 $ 30 June 2007 $ 145,000 145,000 177,000 177,000 79,000 79,000 83,000 83,000 224,000 260,000 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 41. Rounding of amounts The Company is of a kind referred to in Class Order 98/100, 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 Hacketts DFK continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors. COLLECTION HOUSE LIMITED Tony Aveling Managing Director and Chief Executive Officer Brisbane 28 August 2008 40 ANNUAL REPORT 2008 AUDITOR’S INDEPENDENCE DECLARATION 28 August 2008 The Chairman The Board of Directors Collection House Limited 488 Queen St Brisbane QLD 4001 Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 to the Directors of Collection House Limited As lead audit partner for the audit of the financial report of Collection House Limited for the year ended 30 June 2008, 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. Yours faithfully HACKETTS DFK Shaun Lindemann Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation COLLECTION HOUSE LIMITED 41 44 Income Statement 4 5 Balance Sheet 46 Statement of Changes in Equity 47 Cash Flow Statement 42 ANNUAL REPORT 2008 116 Independent Audit Report 48 Notes to the Financial Statements 118 Shareholder Information 115 Directors’ Declaration Financial Statement Contents Income Statement ............................ 44 Directors’ Declaration ...................... 115 Balance Sheet .................................. 45 Independent Audit Report ............... 116 Statement of Changes in Equity ....... 46 Shareholder Information ................. 118 Cash Flow Statement ........................ 47 Notes to the Financial Statements .... 48 COLLECTION HOUSE LIMITED 43 INCOME STATEMENT For the year ended 30 June 2008 Revenue from continuing operations Other income Depreciation and amortisation expense Impairment of goodwill Other expenses Employee expenses Search fees Direct collection costs Bad and doubtful debts Operating lease rental expense Consultancy fees Legal expenses Impairment of other assets Fair value losses on other financial assets Net (gain)/loss on disposal of property Finance costs Restructuring costs Profit before income tax Income tax expense Profit from continuing operations Profit from discontinued operations Profit for the year Profit is attributable to: Equity holders of Collection House Limited Minority Interest Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company: Basic earnings per share Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 95,497 80,745 65,446 49,318 (5) (2,307) - (4,370) (33,275) (680) (9,997) 203 (3,169) (230) (56) - (29,730) 10 (5,133) (1,872) 4,886 (1,197) 3,689 8,628 12,317 12,316 1 12,317 53 (2,528) - (2,479) (30,339) (326) (9,710) (412) (2,986) (824) (458) - (21,799) (1,082) (4,310) - 3,545 2,872 6,417 (2,640) 3,777 3,811 (34) 3,777 - (1,621) - (5,090) (27,537) (648) (10,369) 243 (2,120) (103) (53) - (1,892) (247) (3,845) (24,118) (553) (9,682) (316) (1,905) (771) (454) (3,693) (4,596) - (6) (4,862) (1,872) 7,715 3,212 10,927 13 10,940 10,940 - 10,940 - (452) (4,279) - (3,792) 4,773 981 - 981 981 981 4.0 6.6 12.7 3.9 Notes 5 6 7 19 7 8 9 39 39 The above income statement should be read in conjunction with the accompanying notes. 44 ANNUAL REPORT 2008 BALANCE SHEET As at 30 June 2008 ASSETS Current assets Cash and cash equivalents Receivables Other financial assets at fair value through profit or loss Current tax receivables Other current assets Non-current assets classified as held for sale Total current assets Non-current assets Other financial assets at fair value through profit or loss Receivables Available-for-sale financial assets Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Payables Interest bearing liabilities Provisions Other current liabilities Total current liabilities Non-current liabilities Payables Interest bearing liabilities Provisions Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Minority interest Total equity Consolidated Company Notes 2008 $’000 2007 $’000 2008 $’000 2007 $’000 10 11 12 14 13 12 15 16 17 19 18 20 21 22 23 24 25 27 26 29 30 30 31 937 4,186 36,511 1,937 1,488 - 45,059 2,699 9,531 23,481 316 1,440 14,120 51,587 801 2,599 - 2,598 645 - 717 17,124 - 970 835 - 6,643 19,646 106,959 79,188 - - 3,516 20,259 - 292 - - 3,476 24,091 - 298 - 134,929 16,116 3,242 13,736 2,515 - - 99,102 20,432 3,236 13,703 3,057 27 131,026 107,053 170,538 139,557 176,085 158,640 177,181 159,203 6,107 2,801 3,070 105 8,086 23 2,346 - 12,083 10,455 - 61,100 159 17,428 192 78,879 90,962 85,123 67,256 (319) 19,504 86,441 (1,318) 85,123 - 56,200 138 14,767 - 81,560 77,080 67,256 (127) 11,276 78,405 (1,325) 77,080 12,422 4,099 2,738 105 19,364 18,631 61,100 144 - 192 99,431 77,750 67,256 475 10,019 77,750 - 11,679 2,845 1,956 - 16,480 15,840 56,200 132 - - 72,172 88,652 70,551 67,256 128 3,167 70,551 - 71,105 80,067 The above balance sheet should be read in conjunction with the accompanying notes. 77,750 70,551 COLLECTION HOUSE LIMITED 45 STATEMENT Of CHANgES IN EquITy For the year ended 30 June 2008 Total equity at the beginning of the financial year 77,080 75,091 70,551 71,426 Consolidated Company Notes 2008 $’000 2007 $’000 2008 $’000 2007 $’000 Adjustment on adoption of AASB 132 and AASB 139, net of tax, to: Retained profits (Profit)/Loss attributable to Minority Interest Exchange differences on translation of foreign operations Profit for the year Total recognised income and expense for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Dividends provided for or paid Movement in Share-based payments reserve Movement in Foreign Currency translation reserve Total changes in minority interest Total equity at the end of the financial year Total recognised income and expense for the year is attributable to: Equity holders of Collection House Limited Minority interest 1 30 29 32 30 - - - 12,317 12,317 - (4,088) 347 (539) 6 (4,274) 85,123 12,317 - 12,317 - 34 - 3,776 3,810 - (1,946) 90 307 (272) (1,821) - - - 10,940 10,940 - (4,088) 347 - - (3,741) 77,080 77,750 3,776 34 3,810 10,940 - 10,940 - - - 981 981 - (1,946) 90 - - (1,856) 70,551 981 - 981 The above statement of changes in equity should be read in conjunction with the accompanying notes. 46 ANNUAL REPORT 2008 CASH fLOw STATEMENT For the year ended 30 June 2008 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Other sundry income Interest paid Income taxes refund / (paid) Net cash (outflow) inflow from operating activities 42 Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired Proceeds from sale of property, plant & equipment Payments for property, plant and equipment Payments for other financial assets Payments for leasehold improvements Payments for purchased debt Payments for intangible assets Payment for databases Payment for Legal costs capitalised Proceeds from sale of discontinued operation Net cash (outflow) inflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid to company’s shareholders 32 Net cash inflow (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 10 Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 Notes 109,093 144,579 42,954 50,743 (65,203) 43,890 1,477 323 (5,132) (2,295) 38,263 - - (1,246) - (180) (111,493) 33,086 827 472 (4,287) (191) 29,907 (218) 11 (1,024) - - (73,525) (25,968) (51) (1,060) (536) 1,072 (41,137) 1,817 287 - (4,355) 1,568 (683) - - (1,043) - (222) - (34) - - - (45,900) 4,843 241 45 (4,279) (321) 529 (218) - (944) (5,190) - - (151) - - - (27,774) (1,299) (6,503) 2,407 (15) (1,946) 446 2,579 4,900 - (4,088) 812 (1,170) 10,179 (2,110) (1,946) 6,123 149 120 (2,128) (2,277) - 2,699 - (3,298) - (2,128) (34) - - 31,370 (43,615) 4,900 (23) (4,088) 789 (4,563) 2,699 - (1,864) The above cash flow statements should be read in conjunction with the accompanying notes. COLLECTION HOUSE LIMITED 47 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Collection House Limited as an individual entity and the consolidated entity consisting of Collection House Limited and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IfRS Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRSs). Compliance with AIFRSs ensures that the consolidated financial statements and notes of Collection House Limited comply with International Financial Reporting Standards (IFRSs). The Parent Entity (Company) financial statements and notes also comply with IFRSs except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair value through profit or loss and certain classes of non-current assets. Critical accounting estimates The preparation of financial statements in conformity with AIFRS 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 Collection House Limited (‘’Company’’ or ‘’Parent Entity’’) as at 30 June 2008 and the results of all subsidiaries for the year then ended. Collection House Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another 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 purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(h)). The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals of minority interests result in gains or losses for the Group that are recorded in the income statement. Purchases of minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of the identifiable net assets of the subsidiary. Intercompany 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. Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. (c) Segment reporting A business segment is identified for a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments. 48 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (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 Collection House Limited’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 they are 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. Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets are included in the fair value reserve in equity. (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 are translated at average 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 as a separate component of equity. 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 taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable net of the amount of Goods and Services Tax (GST) payable to the Australian Taxation Office. Exchanges of goods and services of the same nature and value without any cash consideration are not recognised as revenue. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities as follows: (i) Rendering of services Revenue from rendering services is recognised to the extent that it is probable that the revenue benefits will flow to the Entity and the revenue can be reliably measured. (ii) Sale of non current assets The net gain or loss on disposal are included as either a revenue or an expense at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal. Any related balance in the asset revaluation reserve is transferred to the capital profits reserve on disposal. COLLECTION HOUSE LIMITED 49 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (e) Revenue recognition (continued) (iii) Dividends Revenue from dividends and distributions from controlled entities is recognised by the Parent Entity when they are declared by the controlled entities. Revenue from dividends from other investments is recognised when received. (iv) Interest Interest received is recognised as it accrues, taking into account the effective yield on the financial asset. (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. 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 reporting 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. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation legislation Collection House Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The Head Entity, Collection House 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, Collection House 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. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group (note 8). 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. (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 (note 17). 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 leases is depreciated over the shorter of the asset’s useful life and 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 36). 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. 50 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (h) Business combinations The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(p)). If the cost of acquisition is less than the Group’s share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. 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. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. (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 loss 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 to sell 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). (j) Cash and cash equivalents 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 Trade receivables are recognised initially at fair value less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the date of recognition. Collectibility of trade receivables is reviewed on an ongoing basis. A provision for doubtful 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 receivables. The amount of the provision is recognised in the income statement. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement within “other expenses”. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against other expense in the income statement. (l) Non-current assets (or disposal groups) held for sale and discontinued operations Non-current assets (or disposal Groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets, investment property and non- current biological assets that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement. Non-current assets (including those that are part of a disposal Group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal Group classified as held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal Group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal Group classified as held for sale are presented separately from other liabilities in the balance sheet. COLLECTION HOUSE LIMITED 51 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (l) Non-current assets (or disposal groups) held for sale and discontinued operations (continued) A discontinued operation is a component of the entity 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 on the face of the income statement. (m) financial assets Classification The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) financial assets at fair value through profit or loss - Purchased debt ledgers (PDL’s) Purchased debt ledgers have been included in this category of financial assets as it is managed and its performance is evaluated on a fair value basis. Purchased debt ledgers are initially recorded at cost (including incidental costs of acquisition) and thereafter at fair value in the balance sheet. In the absence of an active market the fair value of a particular ledger is determined based on a valuation technique. The valuation is based on the present value of expected future cash flows. When a ledger is impaired the carrying amount is reduced to its recoverable amount (fair value), being the anticipated future cash flows discounted to present value. Realised and unrealised gains and losses arising from changes in the fair value of these ledgers are included in the income statement in the period in which they arise. Purchased debt ledgers are included as non-current assets, except for the amount of the ledger that is expected to be realised within 12 months of the balance sheet date, which is classified as a current asset. (ii) 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 arise when the Company provides money, goods or services directly to a debtor with no intention of selling the receivable. They are initially measured at cost and 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. The nominal value less credit adjustments of trade receivables are assumed to approximate their fair values. Loans and receivables are included in trade and other receivables in the balance sheet. The Company assesses at each balance date whether there is objective evidence that loans and receivables are impaired. (iii) Shares in subsidiaries Available-for-sale financial assets comprise investments in the ordinary issued capital of various entities. There are no fixed returns or fixed maturity date attached to these investments. The fair value of unlisted available-for-sale financial assets cannot be reliably measured as variability in the range of reasonable fair value estimates is significant. As a result, all unlisted investments are reflected at cost. Unlisted available-for-sale financial assets exist within active markets and could be disposed of if required. Impairment At each reporting date, the Group assesses whether there is objective evidence whether any available-for-sale financial instruments have been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement. (n) fair value estimation of financial assets and liabilities The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Company uses estimated discounted cash flows to determine fair value. 52 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (o) Property, plant and equipment All assets acquired including property, plant and equipment and intangibles other than goodwill are initially recorded at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition. When equity instruments are issued as consideration, their market price at the date of acquisition is used as fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity subject to the extent of proceeds received, otherwise these costs are expensed. Where settlement of any part of cash consideration is deferred, the amounts payable are recorded at their present value, discounted at the rate applicable to the Company if similar borrowings were obtained from an independent financier under comparable terms and conditions. The costs of assets constructed or internally generated by the consolidated entity, other than goodwill, include the cost of materials and direct labour. Directly attributable overheads and other incidental costs are also capitalised to the asset. Borrowing costs are capitalised to qualifying assets as set out in note 1(s). Expenditure, including that on internally generated assets, is only recognised as an asset when the Entity controls future economic benefits as a result of the costs incurred, it is probable that those future economic benefits will eventuate, and the costs can be measured reliably. Costs attributable to feasibility and alternative approach assessments are expensed as incurred. All assets, including intangibles other than goodwill, are depreciated / amortised using the straight-line method over their estimated useful lives taking into account estimated residual values with the exception of purchased debt which is depreciated on a basis that is representative of the pattern of benefits to be derived from the asset. Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. Depreciation and amortisation rates and methods are reviewed annually for appropriateness. When changes are made, adjustments are reflected prospectively in current and future periods only. - Plant and equipment - Computer equipment 2008 4-8 years 3-5 years 2007 4-8 years 3-5 years - Leasehold improvements Term of Lease Term of Lease The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting 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 carrying amount. These are included in the income statement. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (p) Intangible assets (i) goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. 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 losses. 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. Each of those cash-generating units represents the Company’s investment in each primary reporting segment (note 4). (ii) Computer software Costs incurred in developing products or systems and costs incurred in acquiring software and licence fees that will contribute to future period financial benefits through revenue generation and / or cost reduction are capitalised. Costs capitalised include external direct costs of materals and services, direct payroll and payroll-related costs of employees’ time spent on the project. Amortisation is applied on a straight line basis over period generally ranging over periods of 2 to 12 years. (iii) Other intangible assets Licences and intellectual property are considered to have an infinite useful life and are carried at cost less impairment losses. All costs associated with the maintenance and protection of these assets are expensed in the period consumed. COLLECTION HOUSE LIMITED 53 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (q) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (r) Borrowings All borrowings are recognised at their principal amounts subject to setoff arrangements which represent the present value of future cash flows associated with servicing the debt. Where interest is payable in arrears the interest expense is accrued over the period it becomes due, is recorded at the contracted rate as part of “Other creditors and accruals”. Where interest is paid in advance, the interest expense is recorded as a part of “Prepayments” and released over the period to maturity. 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 date. (s) 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. Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings, foreign exchange losses net of any hedged amounts on borrowings, including trade creditors and lease finance charges. Ancillary costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings. (t) Provisions Provisions for legal claims and service warranties are recognised when the Group has a present legal or constructive obligation as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating losses. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is treated as part of the expense related to the particular provision. (u) Employee benefits (i) wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave 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 date 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 reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Superannuation Plans The Company and other controlled entities make statutory contibutions to several superannuation funds in accordance with the directions of it’s employees. Contributions are expensed in the period to which they relate. 54 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (u) Employee benefits (continued) (iv) Share-based payments Share-based compensation benefits are provided to the Chief Executive Officer (MD/CEO) via the the employment agreement between the Company and the MD/CEO. Share-based compensation benefits are provided to employees other than the MD/CEO via the Collection House Limited Executive Share Option Plan. Information relating to these schemes is set out in note 40. Shares options granted after 7 November 2002 and vested after 1 January 2005. The fair value of options granted under the Executive Share Option Plan and the MD/CEO employment agreement is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Monte Carlo option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature 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 is adjusted to reflect market vesting conditions, but excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital. (v) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after reporting date are discounted to present value. (v) Dividends Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. (w) 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 financial year, adjusted for bonus elements in ordinary shares issued during the year. (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. (x) 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 flows. COLLECTION HOUSE LIMITED 55 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 1 Summary of significant accounting policies (continued) (y) Rounding of amounts The Company is of a kind referred to in Class order 98/100, 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, the nearest dollar. 2 Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price 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 different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis for interest rate risk, aging analysis for credit risk and cashflow analysis to determine the risk associated with the Purchased Debt Ledger portfolio. Risk management is carried out by the Finance Department under the guidance of the Audit and Risk Management Committee of the Board. Under the authority of the Board of Directors the Audit and Risk Management Committee ensures that the total risk exposure of the Group is consistent with the business strategy and within the risk tolerance of the Group. Regular risk reports are tabled before the Audit and Risk Management Committee. Within this framework, the Finance team identifies, evaluates and manages financial risks in close co-operation with the Group’s operating units. (a) Market risk (i) foreign exchange risk The Group and the Parent Entity operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NZ dollar. Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency and net investments in foreign operations. At 30 June 2008, had the Australian Dollar weakened/strengthened by 10% against the NZ Dollar with all other variables held constant, the impact for the year would have been immaterial to both profit for the year and equity. (ii) Price risk The parent is exposed to price risk in respect of its investments in unlisted private subsidiary companies. The Group is not exposed to price risk, as there are no subsidiary company investments in the consolidated results. The price risk for the unlisted securities is immaterial in terms of the possible impact on profit or loss or total equity. It has therefore not been included in the sensitivity analysis. (iii) Cash flow and fair value interest rate risk The Group is exposed to interest rate risk from two sources – Trade interest rate risk and Investment interest rate risk. Trade interest rate risk As the Group has no significant interest bearing assets, the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. The Group and Parent main trade interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group and Parent to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group and Parent to fair value interest rate risk. Neither the Group nor the Parent currently has fixed rate borrowings. During 2007 and 2008, the Group and Parent borrowings at variable rate were denominated in Australian Dollars only. The Group and Parent analyses Trade interest rate exposure in the context of current economic conditions. Management is aware of the impact on profits of specific interest rate increases, and annual budgets and ongoing forecasts are framed based upon the Company’s and the market’s expectations of interest rate levels for the coming year. Interest rate hedges and swaps are an available tool for managing interest rate risk in the Company. If it is determined that it would be profitable and / or advantageous to the Company, these tools will be used. No interest rate hedges or swaps are currently in place (2007: $Nil). 56 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) As at the reporting date, the Group had the following variable rate borrowings outstanding: 30 June 2008 30 June 2007 Weighted average interest rate % 8.5% weighted average interest rate % 6.8% Balance $’000 63,901 63,901 Balance $’000 56,223 56,223 Bank overdrafts and bank loans Net exposure to cash flow interest rate risk Investment interest rate risk In addition the Group is exposed to Investment interest rate risk which arises from the significant investment in Purchased Debt Ledgers (“PDL”). A number of different types of risk arise from the PDL investments. All PDL risks are managed together as described below. Interest rate risk group sensitivity At 30 June 2008, if interest rates had changed by +/- 25 basis points from the year end rates with all other variables held constant, post tax profit for the year would have been $112,000 lower/higher (2007 - change of 25 bps: $98,000 lower/higher), mainly as a result of higher/lower interest expense from net borrowings. Other components of equity would have been $112,000 lower/higher (2007 - $98,000 lower/higher) mainly as a result of an increase/decrease in cash not required for interest payments. Other financial assets and liabilities are not interest bearing and therefore are not subject to interest rate risk. Parent Entity sensitivity At 30 June 2008, if interest rates had changed by +/- 25 basis points from the year end rates with all other variables held constant, post tax profit would have been $114,000 lower/higher (2007 - change of 25 bps: $103,000 lower/higher) mainly as a result of lower interest expense from net borrowings. Other components of equity would have been $114,000 lower/higher (2007 - $103,000 lower/higher) as a result of an increase/ decrease in cash not required for interest payments. Other financial assets and liabilities are not interest bearing and therefore are not subject to interest rate risk. foreign exchange risk Sensitivity to changes in the exchange rate between AUD and NZD has been assessed within a range of -0.5% to +10.0% and has been found to be immaterial against both Group and parent profits and equity. Other price risk As none of the financial assets or liabilities of the Group and the parent are traded in financial markets, there is no other price risk in either the Group or the parent. COLLECTION HOUSE LIMITED 57 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) (iv) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk. Interest rate risk -25 bps +25 bps Carrying amount $’000 Profit $’000 Equity $’000 Profit $’000 Equity $’000 63,901 112 112 112 112 (112) (112) (112) (112) Carrying amount $’000 56,200 Carrying amount $’000 65,199 Carrying amount $’000 59,045 Interest rate risk -25 bps +25 bps Profit $’000 Equity $’000 98 98 98 98 Profit $’000 (98) (98) Interest rate risk -25 bps +25 bps Profit $’000 Equity $’000 114 114 114 114 Profit $’000 (114) (114) Interest rate risk -25 bps +25 bps Profit $’000 103 103 Equity $’000 103 103 Profit $’000 (103) (103) Equity $’000 (98) (98) Equity $’000 (114) (114) Equity $’000 (103) (103) Consolidated 30 June 2008 Financial assets Financial liabilities Borrowings Total increase/ (decrease) Consolidated 30 June 2007 Financial liabilities Borrowings Total increase/ (decrease) Company 30 June 2008 Financial liabilities Borrowings Total increase/ (decrease) Company 30 June 2007 Financial liabilities Borrowings Total increase/ (decrease) 58 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) (b) Credit risk The Group is exposed to credit risk from two sources – Trade credit risk and Investment credit risk. Trade credit risk Trade credit risk is managed on a Group basis. Trade credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to clients, including outstanding receivables and committed transactions. The Group and Parent have no significant concentrations of trade credit risk. The Group has policies in place to ensure that the sales of products and services are made to customers with an appropriate credit history. The Group has policies that limit the amount of credit exposure to any one financial institution. Investment credit risk In addition the Group is exposed to Investment credit risk which arises from the significant investment in Purchased Debt Ledgers (“PDL”). A number of different types of risk arise from the PDL investments. All PDL risks are managed together as described below. (c) Liquidity risk 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 close out market positions. Due to the dynamic nature of the underlying businesses, the Finance Team aims at maintaining flexibility in funding by keeping committed credit lines available. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow. Cashflow is forecast on a day-to-day basis across the Group to ensure that sufficient funds are available to meet requirements. financing arrangements The Group and the parent had access to a $70,000,000 Multiple Option Facility throughout the year (2007: $65,000,000). The facility expires on 1 July 2009, and is subject to meeting a number of financial undertakings. The undertakings were materially met at all times during both the current and prior years. The facility is subject to review at the end of the term. The facility is made up of a Cash Advance option, a commercial bill option, an Overdraft option, and a Set-off option. The cash advance option or the commercial bill option can be drawn upon with 2 days notice to the finance provider, and the overdraft option or the set-off option may be drawn upon at any time. The allocation between the various options is at the discretion of the Group subject to the total not exceeding the $70,000,000 commitment from the finance provider. The overdraft and set-off options are repayable on demand, and the commercial bill and cash advance options are repayable at the end of the term. The undertakings are reviewed by the Audit and Risk Management Committee each month, and are reported on to the finance provider quarterly. All companies within the Group are required to notify the finance provider of any event of default as soon as it becomes aware of them. In addition to the above the Group is required to keep the finance provider fully informed of relevant details of the Group as they arise. Further details of the banking facility are set out in note 25. The table opposite analyses the Group’s financial liabilities 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. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. COLLECTION HOUSE LIMITED 59 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) Group - At 30 June 2008 Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows $’000 $’000 $’000 $’000 $’000 $’000 Non-derivatives Non-interest bearing Variable rate Total non-derivatives 1,610 2,801 4,411 - - - - - - - 61,100 61,100 - - - 1,610 63,901 65,511 Group - At 30 June 2007 Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows $’000 $’000 $’000 $’000 $’000 $’000 Non-derivatives Non-interest bearing Variable rate Total non-derivatives 3,053 23 3,076 - - - - - - - 56,200 56,200 - - - 3,053 56,223 59,276 Parent - At 30 June 2008 Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows $’000 $’000 $’000 $’000 $’000 $’000 Non-derivatives Non-interest bearing Variable rate Total non-derivatives 10,310 4,099 14,409 - - - - - - - 61,100 61,100 - 14,745 14,745 25,055 65,199 90,254 Parent - At 30 June 2007 Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows $’000 $’000 $’000 $’000 $’000 $’000 Non-derivatives Non-interest bearing Variable rate Total non-derivatives (d) fair value estimation 10,121 2,845 12,966 - - - - - - - 56,200 56,200 - 15,840 15,840 25,961 59,045 85,006 Carrying Amount (assets)/ liabilities $’000 1,610 63,901 65,511 Carrying Amount (assets)/ liabilities $’000 3,053 56,223 59,276 Carrying Amount (assets)/ liabilities $’000 25,055 65,199 90,254 Carrying Amount (assets)/ liabilities $’000 25,961 59,045 85,006 The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments that are not traded in an active market (for example, purchased debt portfolios in the Group, and investments in subsidiaries in the parent) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated discounted cash flows, are also used to determine fair value for the financial instruments. The key assumption which underpins the valuation of financial instruments in the Group is the recovery rate. Assumptions are made about the recovery rate based on experience and market conditions. Sensitivity of profit and equity to changes in the actual recovery rate achieved is set out in the sensitivity analysis below. 60 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) (d) fair value estimation (continued) Other Financial Assets at Fair Value through the Profit and Loss as disclosed in the Parent Entity represent investments in subsidiary companies. These investments in the parent are valued based upon the carrying value of the underlying assets in the subsidiaries. These assets are carried at the lower of cost or valuation in accordance with Australian Accounting Standards. Sensitivity to movements in the variables noted above has been determined to be immaterial in relation to both profit and equity. The carrying value less doubtful debts provision of trade receivables and payables is a reasonable approximation of their fair values due to the short-term nature of trade receivables. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Purchased Debt Ledgers Other Financial Assets at Fair Value through the Profit and Loss as disclosed in the Group entity represent investments in debt ledgers. To manage the interest rate and credit risks arising from investments in debt portfolios, the Group analyses the price to be paid for each tranche before it is purchased. Debt prices paid are determined by a bidding process in the market place, with each bidder determining the prices which they are prepared to pay based on their own analysis. The price offered by the Group for any paticular tranche of debt is determined based upon existing in-house knowledge of the tranche, macro-economic and micro-economic factors and the experience of senior management. In-house knowledge of a tranche exists if the tranche has been previously worked by the Company on a commission basis. Due to contractual restrictions on the Company’s ability to subsequently deal with the purchased debt portfolio, it is considered that there is not an active market in debt portfolios in which the Company can participate. Initial recognition value The factors that determine the price paid for a particular tranche of debt are: 1. The face Value of the debt being purchased The face value of debt is dependent upon the value of debt that the vendor is prepared to sell. 2. The expected Recovery Rate of the debt being purchased The expected recovery rate is the percentage of the face value of a debt that is expected to be recovered as a result of collection activity, and is based upon the Company’s historical experience with the particular tranche being purchased. Historical experience can vary from a detailed knowledge of the tranche if it has been previously worked by the Company on a commission basis, to a general knowledge of the type of debt being purchased from a new vendor, and specific knowledge discovered as part of a pre-purchase due diligence process. 3. The Price Multiple which can be obtained The price multiple is the discount factor between the recoverable amount of the debt and the price which is paid for it. The discount factor is determined by the amount that the vendor is prepared to accept in exchange for the debt, and the amount that the company is able to pay to acquire the debt and achieve an acceptable profit margin. Subsequent measurement of carrying value After a tranche has been purchased, the carrying value is amortised in line with the revenue collected against it. The carrying value is continuously reviewed to ensure that it is not in excess of fair value based upon a discounted cash flow (DCF) model. The inputs to the DCF model are the same as are used in the original purchase price calculation with actual results substituted for expected estimates. In this context the only variable is the recovery rate, as neither the face value nor the price multiple can change as a result of working a debt. COLLECTION HOUSE LIMITED 61 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 2 Financial risk management (continued) (d) fair value estimation (continued) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets at Fair Value through the Profit & Loss to the achieved recovery rate. Consolidated 30 June 2008 Financial assets Financial assets at FVTPL Total increase/ (decrease) Consolidated 30 June 2007 Financial assets Financial assets at FVTPL Total increase/ (decrease) Carrying amount $’000 143,470 Carrying amount $’000 102,669 Recoverability -2.0% +2.0% Profit $’000 Equity $’000 Profit $’000 Equity $’000 (415) (415) (415) (415) 415 415 415 415 Recoverability -2.0% +2.0% Profit $’000 Equity $’000 Profit $’000 Equity $’000 (323) (323) (323) (323) 323 323 323 323 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. (a) Critical accounting estimates and assumptions 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 significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(p). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to note 19 for details of these assumptions and the potential impact of changes to the assumptions. (ii) Estimated impairment of non-financial assets and intangible assets other than goodwill The Group tests annually whether the non-financial assets or intangible assets of the Group (other than goodwill) have suffered any impairment, in accordance with the accounting policy stated in note 1(i). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. (iii) Estimated fair value of other financial assets At each reporting date the Group determines the fair value of financial assets in accordance with the accounting policy stated at 1(m). The calculation of impairment requires the use of assumptions. 62 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 4 Segment information (a) Description of segments Individual business segments are identified on the basis of Grouping individual products or services subject to similar risks and returns. The business segments reported are: Contingent Collection Services, and Account Asset Management. In prior years, there was one business allocated to Credit Reporting and two businesses allocated to Other Operations. These businesses were sold during the years ended 30 June 2008 and 30 June 2007 respectively, and the information regarding these businesses is now in the discontinued operations column. For further information refer to note 9. Business segments The consolidated entity comprises the following business segments, based on the Group’s management reporting system: Contingent Collection Services The earning of commissions on the collection of debts for clients; Account Asset Management The collection of debts from client ledgers acquired by the Company. geographical segments Although the consolidated entity’s divisions are managed on a global basis they operate in two main geographical areas, Australia and New Zealand. COLLECTION HOUSE LIMITED 63 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 4 Segment information (continued) (b) Primary reporting format - business segments Segment result (notes (ii)) 5,633 15,966 (5,918) Collection services $’000 Account asset management $’000 Intersegment eliminations/ unallocated $’000 Total continuing operations $’000 Discontinued operations (note 9) $’000 Consolidated $’000 30,604 3,833 34,437 28 34,465 64,183 - 64,183 - 64,183 54 (3,847) (3,793) 641 (3,152) 94,841 (14) 94,827 669 95,496 - 95,496 15,681 (5,133) (5,662) 4,886 (1,197) 3,689 5,696 15 5,711 98 5,809 10,404 16,213 11,327 - - 11,327 (2,699) 8,628 100,537 1 100,538 767 101,305 10,404 111,709 27,008 (5,133) (5,662) 16,213 (3,896) 12,317 131,817 146,135 (116,007) 161,945 9,403 171,348 6,114 118,645 (120,196) - 4,737 166,682 4,563 - 81,692 86,255 - - 9,403 4,707 - - 4,707 - 4,737 176,085 9,270 - 81,692 90,962 2,693 56,193 - 58,886 1,350 60,236 122 (72) 645 1,540 2,307 2,307 30,480 502 30,910 15 15 (45) 2,322 2,322 30,865 2008 Segment revenue Sales to external customers Intersegment sales Total sales revenue Other revenue Total segment revenue/income Profit on discontinued operations Consolidated revenue Segment result Interest expense & borrowing costs Unallocated revenue less unallocated expenses Profit before income tax Income tax benefit / (expense) Profit for the year Segment assets and liabilities Segment assets Intersegment elimination Unallocated assets Total assets Segment liabilities Intersegment elimination Unallocated liabilities Total liabilities Other segment information Acquisitions of property, plant and equipment, intangibles and other non-current segment assets Depreciation and amortisation expense Total depreciation and amortisation Other non-cash expenses 64 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 4 Segment information (continued) (b) Primary reporting format - business segments (continued) 2007 Segment revenue Sales to external customers Intersegment sales Total sales revenue Profit from discontinued operations / Other revenue Collection services $'000 Account asset management $'000 Intersegment eliminations/ unallocated $'000 Total continuing operations $'000 Discontinued operation (note 9) $'000 32,939 3,992 36,931 48,372 - 48,372 - 1 807 (4,348) (3,541) 335 (3,206) 82,118 (356) 81,762 336 82,098 - 22,353 356 22,709 (2,797) 19,912 - Consolidated $'000 104,471 - 104,471 (2,461) 102,010 - Total segment revenue 36,931 48,373 Unallocated revenue Consolidated revenue Segment result Segment result (notes (ii)) 4,234 11,658 1,142 82,098 19,912 102,010 17,034 (4,310) (9,179) 3,545 2,872 6,417 (2,419) - 3,219 800 (3,440) (2,640) 14,615 (4,310) (5,960) 4,345 (568) 3,777 Interest expense & borrowing costs Unallocated revenue less unallocated expenses Profit before income tax Income tax benefit / (expense) Profit for the year Segment assets and liabilities Segment assets Intersegment elimination Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information Acquisitions of property, plant and equipment, intangibles and other non current segment assets Depreciation and amortisation expense Impairment of goodwill (note 19) Impairment of other assets 110,095 106,073 (87,200) 128,968 26,480 155,448 9,904 76,906 (94,566) - 3,190 - - - 3,190 132,158 26,480 158,638 (7,756) 73,272 65,516 16,044 - 16,044 8,288 73,272 81,560 1,701 34,660 - 36,361 21 36,382 166 - - 544 1,836 2,546 - - - - - - - - - 2,546 - - Other non cash expenses 510 22,430 595 23,535 (11) 23,524 COLLECTION HOUSE LIMITED 65 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 4 Segment information (continued) (c) Secondary reporting format - geographical segments Segment revenues from sales to external customers Segment assets 30 June 2008 $’000 92,658 7,663 100,321 30 June 2007 $’000 97,228 4,782 102,010 30 June 2008 $’000 162,004 9,344 171,348 4,737 176,085 30 June 2007 $’000 151,250 4,072 155,322 3,190 158,512 Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 30 June 2008 $’000 60,236 65 60,301 30 June 2007 $’000 36,467 22 36,489 Australia New Zealand Unallocated assets Total assets Segment revenues are allocated based on the country in which the customer is located. Segment assets and capital expenditure are allocated based on where the assets are located. (i) Accounting policies Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1 and Accounting Standard AASB 114 Segment Reporting. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other creditors, employee benefits and interest bearing liabilities. Segment assets and liabilities do not include income taxes. Unallocated items mainly comprise interest or dividend-earning assets and revenue, interest bearing loans, borrowing costs and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than Collection Services Account Asset Management 30 June 2007 % 30 June 2008 % 30 June 2007 % Discontinued Operations 30 June 30 June 2007 2008 % % 11 25 24 70 (12) 30 June 2008 % 16 one period. (ii) Segment margins Margin on sales revenue 66 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 5 Revenue From continuing operations Sales revenue Revenue from rendering of services Other revenue Rent received Interest Dividends Other Income Net gain / (loss) from sale of businesses and related assets (excluding discontinued operations) Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 93,769 93,769 79,961 79,961 63 1,477 - 188 - 1,728 - 748 - 36 - 784 39,417 39,417 63 577 25,164 210 15 26,029 65,446 39,558 39,558 - 574 9,145 34 7 9,760 49,318 Total revenue from continuing operations 95,497 80,745 (a) Revenue from discontinued operations Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 From discontinued operations (note 9) National Revenue Corporation Pty Ltd Insurance Claims Solutions Pty Ltd (formerly CHIP No.1 Pty Ltd) 535 312 Australian Business Research Pty Ltd / National Tenancy Database Pty Ltd 4,962 Insurance Claims Solutions Pty Ltd Rapid Ratings Pty Ltd - - 5,809 475 - 22,722 29,721 234 53,152 - - - - - - - - - - - - COLLECTION HOUSE LIMITED 67 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 6 Other income Foreign exchange gains/(losses) (net) Export Market Development Grant 7 Expenses Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 (5) - (5) 4 49 53 - - - - - - Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 Profit before income tax includes the following specific expenses: Depreciation Dep - Leasehold improvements, plant and equipment Total depreciation Amortisation Amortisation - Leasehold improvements Amortisation - Leased plant and equipment Amortisation - Other intangibles Amortisation - Legal and court cost capitalised Total amortisation finance costs Interest and finance charges paid/payable Interest and finance charges - related parties Total finance costs 1,666 1,666 - 1 27 613 641 5,133 - 5,133 2,006 2,006 - 1 - 521 522 4,281 29 4,310 Fair Value losses on other financial assets (note 12) 29,730 21,799 1,594 1,594 1,892 1,892 - - 27 - 27 4,862 - 4,862 - - - - - - 4,279 - 4,279 - 68 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 8 Income tax expense (a) Income tax expense Current income tax provision Deferred income tax provision Tax on discontinued operations Under (over) provided in prior years Income tax expense is attributable to: Income tax expense/(benefit) - Profit from continuing operations Income tax expense/(benefit) - Profit from discontinued operations Aggregate income tax expense Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (note 18) (Decrease) increase in deferred tax liabilities (note 26) (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit from continuing operations before income tax expense Profit from discontinuing operations before income tax expense Tax at the Australian tax rate of 30% (2007 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-deductible expenses Non-deductible depreciation Non-deductible amortisation Non-deductible impairment Non-assessable inter-company dividends from members of the tax-consolidated Group Capital gain on consolidation of new Group members Tax benefit on wind up of discontinued operations Non-deductible writedown of investments in subsidiaries Tax losses not recognised Sundry items Difference in overseas tax rates Adjustments for current tax of prior periods Sundry items Previously unrecognised tax losses now recouped to reduce current tax expense Income tax expense Consolidated Company 30 June 2008 $’000 1,676 2,661 - - (443) 3,894 1,197 2,697 3,894 77 2,584 2,661 4,886 11,327 16,213 4,864 30 June 2007 $’000 1,104 62 (598) 568 30 June 2008 $’000 (3,711) 542 - - (37) (3,206) 30 June 2007 $’000 (3,347) (1,231) (195) (4,773) (2,872) (3,212) (4,773) 3,440 6 - 568 (3,206) (4,773) (31) 93 62 3,545 799 4,344 1,303 562 (20) 542 (1,228) (3) (1,231) 7,715 (3,792) 19 - 7,734 2,320 (3,792) (1,138) 278 79 138 65 - - - - - - - - - - - - - - - (700) 61 4,503 32 (641) (609) 3,894 - - - - - - 150 83 709 (39) 2,285 (7,549) 1,452 1,013 (2,626) 51 - (445) (580) - - (1,323) (1,717) 568 - - - - - - (1,145) (2,744) 83 (2,159) 2,598 (32) (4,472) (301) (580) (3,206) (301) (4,773) COLLECTION HOUSE LIMITED 69 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations National Revenue Corporation Pty Ltd In February 2008 the Company entered into agreements for the sale of the business of National Revenue Corporation Pty Ltd, which was included in the Contingent Collections segment of the Company. The sale transaction was completed on 22 February 2008 and the company is reported as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal is set out below. Further information is set out in note 4 - segment information. (a) financial performance and cash flow information The financial performance and cash flow information presented are for the period ended 22 February 2008 (2008 column) and the year ended 30 June 2007. Revenue (note 5) Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain on sale of the division before income tax Income tax expense Gain on sale of the division after income tax Profit from discontinued operations (b) Details of the sale of the division Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 535 (625) (90) 27 (63) 254 108 362 299 - - - 475 (721) (246) 12 (234) - - - - - (234) - - - - - - - - - 36 (11) 25 25 Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 Consideration received or receivable: Cash Total disposal consideration Carrying amount of net assets sold - Expense Gain on sale before income tax Income tax expense Gain on sale after income tax 91 91 163 254 108 362 - - - - - - - - 17 17 19 36 (11) 25 - - - - - - - 70 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations (continued) Insurance Claims Solutions Pty Ltd (formerly CHIP No.1) (a) Description On 22 February 2008, the Company sold its majority shareholding in Insurance Claims Solutions Pty Ltd (formerly Chip No 1 Pty Ltd) to the minority shareholders of that company. The sale of this business and its financial performance to disposal date is reported in this financial report as a discontinued operation. (b) financial performance and cash flow information The financial performance and cash flow information presented are for the period ended 22 February 2008 (2008 column) and the year ended 30 June 2007. Revenue (note 5) Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain on sale of the division before income tax Income tax expense Gain on sale of the division after income tax Profit from discontinued operations (c) Details of the sale of the division Cash Total disposal consideration Carrying amount of net assets sold Cost of disposal Gain on sale before income tax Income tax expense Gain on sale after income tax Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 312 (387) (75) 23 (52) 225 28 253 201 - - - - - - - - - - - - - - 7 - - - - - - - - - (24) (17) (17) Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 250 250 (14) (11) 225 28 253 - - - - - - - 250 250 (260) (14) (24) (17) - - - - - - - 7 As a result of the sale of Insurance Claims Solutions Pty Ltd in the previous year, intellectual property with the value of $500,000 in CHIP No. 1 Pty Ltd was written off to nil. This transaction does not relate to the final sale of Insurance Claims Solutions Pty Ltd (formerly CHIP No.1 Pty Ltd). COLLECTION HOUSE LIMITED 71 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations (continued) Australian Business Research Pty Ltd / National Tenancy Database Pty Ltd (a) Description On 30 June 2007 the Company entered into conditional agreements for the sale of the businesses of Australian Business Research Pty Ltd and National Tenancy Database Pty Ltd, which made up the credit reporting segment of the Company. The agreements, subject to certain conditions precedent, also required regulatory clearance from the Australian Competition and Consumer Commission. This clearance was given in August 2007, and the other conditions were met in September 2007. The sale transaction was completed on 6 September 2007, and the division is reported in this financial report as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal (31 December 2006) is set out below. Further information is set out in note 4 - segment information. (b) financial performance and cash flow information The financial performance and cash flow information presented are for the two months ended 31 August 2007 (2008 column) and the year ended 30 June 2007. Revenue (note 5) Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain on sale of the division before income tax Income tax expense Gain on sale of the division after income tax Profit from discontinued operations Net cash inflow (outlow) from operating activities Net cash inflow (outflow) from investing activities Net cash (outflow) from financing activities - Consolidated Company 30 June 2008 $’000 4,962 (3,879) 1,083 (325) 758 9,928 (2,558) 7,370 8,128 (5,861) 31,070 30 June 2007 $’000 22,722 (21,752) 970 (529) 441 441 1,113 (1,128) - - - - 30 June 2008 $’000 30 June 2007 $’000 - - - - - 7 5 5 - - - - (2) - - - - - - - - - - - - - Net increase in cash generated by the division 25,209 (15) (c) Carrying amounts of assets and liabilities The carrying amounts of assets sold as at the date of sale (6 September 2007) and 30 June 2007 are: Consolidated Company 6 September 2007 $’000 30 June 2007 $’000 31 August 2008 $’000 30 June 2007 $’000 268 18,144 18,412 18,412 82 14,038 14,120 14,120 - - - - - - - - Property, plant and equipment Intangibles Total assets Net assets 72 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations (continued) (d) Details of the sale of the division Cash Total disposal consideration Carrying amount of net assets sold Expenses Gain on sale before income tax Income tax expense Gain on sale after income tax Insurance Claims Solutions Pty Ltd (a) Description Consolidated Company 30 June 2008 $’000 31,070 31,070 (18,412) (2,730) 9,928 (2,558) 7,370 - - - - - - - 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 - - - 7 7 5 - - - - - - - (2) On 11 May 2007, (as announced to market) the non wholly owned subsidiary Insurance Claims Solutions Pty Ltd sold its insurance claims management services business to Claims Services Australia Pty Ltd. The sale of this business and its financial performance to disposal date is reported in this financial report as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal (11 May 2007) is set out below. Further information is set out in note 4 - segment information. (b) financial performance and cash flow information The financial performance and cash flow information presented are for the year ended 30 June 2008 and the period ended 11 May 2007 (2007 column). Revenue (note 5) Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain on sale of the division before income tax Income tax expense Gain on sale of the division after income tax Profit from discontinued operations Consolidated Company 30 June 2008 $’000 - - - - - - - - - 30 June 2007 $’000 29,721 (29,169) 552 (90) 462 726 (250) 476 938 - - - - - - - - - 30 June 2008 $’000 30 June 2007 $’000 - - - - - - - - - COLLECTION HOUSE LIMITED 73 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations (continued) (c) Details of the sale of the division Consideration received or receivable: Cash Carrying amount of net assets sold Expenses Gain on sale before income tax Income tax expense Gain on sale after income tax Rapid Ratings Pty Ltd (a) Description Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 - - - - - - 1,065 (207) (132) 726 (250) 476 - - - - - - - - - - - - On 31 December 2006, (as announced to market) Collection House Limited sold substantially all of subsidiary Rapid Ratings’ assets to Rapid Ratings International Inc. The sale of this business and its financial performance to disposal date is reported in this financial report as a discontinued operation. Financial information relating to the discontinued operation for the period to the date of disposal (31 December 2006) is set out below. Further information is set out in note 4 - segment information. (b) financial performance and cash flow information The financial performance and cash flow information presented are for the year ended 30 June 2008 and the six months ended 31 December 2006 (2007 column). Revenue (note 5) Expenses Profit before income tax Income tax expense Profit after income tax of discontinued operations Gain / (Loss) on sale of the division before income tax Profit from discontinued operations Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 - - - - - - - 234 (1,443) (1,209) (2,583) (3,792) (3,785) - - - - - - - 7 - - - - - - - 74 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 9 Discontinued operations (continued) (c) Details of the sale of the division Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 30 June 2007 $’000 Consideration received or receivable: Cash Total disposal consideration Gain on sale before income tax Income tax expense Gain on sale after income tax Summary of Discontinued Operations National Revenue Corporation Pty Ltd Insurance Claims Solutions Pty Ltd (formerly CHIP No.1) - - - - - 7 7 7 - 7 - 299 201 Australian Business Research Pty Ltd / National Tenancy Database Pty Ltd 8,128 Insurance Claims Solutions Pty Ltd Rapid Ratings Pty Ltd Profit from discontinued operations - - 8,628 10 Current assets - Cash and cash equivalents - - - - - 5 - - (234) 441 938 (3,785) (2,640) - - - - - - - - - - - 25 (17) 13 Cash at bank and in hand (a) Reconciliation to cash at the end of the year The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows: Bank overdraft right of set-off Balances as above Bank overdrafts (note 22) Balances per statement of cash flows (b) Cash at bank and on hand Consolidated Company 2008 $’000 937 937 2007 $’000 2,699 2,699 2008 $’000 801 801 2007 $’000 717 717 Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 937 2,699 2,801 - 3,738 2,699 801 4,099 4,900 717 2,845 3,562 Information concerning the effective interest rates is set out in the non-current receivables note 15. (c) fair value The carrying amount for cash and cash equivalents equals the fair value. (d) Bank overdraft right of set-off With effect from 1 July 2004, the Company holds a contractual right of set-off between the current overdraft balance and the cash-at-bank balances. COLLECTION HOUSE LIMITED 75 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 11 Current assets - Receivables Net trade receivables Trade debtors Provision for doubtful trade debtors Loans to controlled entities Other loans Other debtors Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2,928 (690) 2,238 (9) 49 - - 1,908 1,957 4,186 10,206 (1,808) 8,398 1,133 1,133 9,531 1,890 (448) 1,442 201 48 - 908 956 4,406 (1,374) 3,032 13,506 586 586 2,599 17,124 (a) Impaired trade receivables As at 30 June 2008 current trade receivables of the Group with a nominal value of $907,000 (2007 - $2,410,000) were impaired. The amount of the provision was $690,000 (2007 - $1,808,000). The individually impaired receivables mainly relate to debtors which have been outstanding for more than 90 days. It has been assessed that a portion of these receivables are expected to be recovered. As at 30 June 2008 current trade receivables of the Parent with a nominal value of $603,000 (2007 - $1,832,000)) were impaired. The amount of the provision was $448,000 (2007 - $1,374,000). The individually impaired receivables mainly relate to debtors which have been outstanding for more than 90 days. It has been assessed that a portion of these receivables are expected to be recovered. The ageing of these receivables is as follows: 1 to 3 months 3 to 6 months Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - - - - 907 907 2,410 2,410 603 603 1,832 1,832 As of 30 June 2008, trade receivables of the Group of $556,000 (2007 - $1,364,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. As of 30 June 2008, trade receivables of the Parent of $488,000 (2007 - $239,000) 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: Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - 556 556 - 1,364 1,364 - 488 488 - 239 239 Up to 3 months 3 to 6 months 76 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 11 Current assets - Receivables (continued) Movements in the provision for impairment of receivables are as follows: At 1 July Provision for impairment recognised during the year Receivables written off during the year as uncollectible Unused amount reversed Consolidated Company 2008 $’000 1,808 456 (891) (683) 690 2007 $’000 2,206 550 (742) (206) 1,808 2008 $’000 2007 $’000 1,374 367 (652) (641) 448 1,880 367 (764) (109) 1,374 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. 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. The Group does not hold any collateral in relation to these receivables. (b) Other receivables These amounts relate to accrued revenue and rental bonds of the Group and the Parent. In addition, for the Parent Entity, this item includes receivables from Group companies. (c) Effective interest rates and credit risk Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in the non-current receivables note 15. (d) foreign exchange and interest rate risk Refer to note 15(d) for an analysis of Group’s exposure to foreign currency risk in relation to trade and other receivables. Information about the Group’s and the Parent Entity’s exposure to exposure to foreign currency 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. Refer to note 2 for more information on the risk management policy of the Group and the credit quality of the entity’s trade receivables. COLLECTION HOUSE LIMITED 77 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 12 Other financial assets at fair value through profit or loss Current and Non-Current At beginning of year Reclassification of capitalised costs Adjustment on adoption of AASB 132 and AASB 139 Additions Fair value gain / (loss) At end of year Other Financial Assets at fair value The amount of the above financial assets are classified as follows: Current Non Current Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 102,669 95,506 - - - - 70,395 (29,594) 143,470 28,962 (21,799) 102,669 Consolidated 2008 $’000 143,470 143,470 2007 $’000 102,669 102,669 Consolidated 2008 $’000 36,511 106,959 143,470 2007 $’000 23,481 79,188 102,669 - - - - - - - - - - - - - - - - - Company 2008 $’000 2007 $’000 - - Company 2008 $’000 2007 $’000 - - - Gains / (losses) in fair values of other financial assets at fair value through profit or loss are recorded in the income statement. (a) Risk exposure Information about the Group’s and the Parent Entity’s exposure to credit risk, foreign exchange and price risk are provided in note 2. 13 Current assets - Non-current assets classified as held for sale Plant and equipment Intangibles Databases Consolidated Company 2008 $’000 - - - - 2007 $’000 82 3,118 10,920 14,120 - - - - 2008 $’000 2007 $’000 - - - - In June 2007, the directors of Collection House Limited decided to sell the businesses of Australian Business Research Pty Ltd & National Tenacy Database Pty Ltd. As announced to the market on 2nd July 2007, Collection House Limited entered into conditional contracts to sell the Australian and New Zealand businesses, Australian Business Research Pty Ltd and National Tenancy Database Pty Ltd to Veda Advantage Limited (Veda). The agreements, subject to certain conditions precedent, also required regulatory clearance from the Australian Competition and Consumer Commission. This clearance was given in August 2007. On satisfactory compliance with the conditions precedent under each business sale agreement, completion of these transactions occured in September 2007. The assets held for sale are presented within the total assets of the Discontinued businesses segment in note 4. 78 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 14 Current assets - Other current assets Other deposits Prepayments Other 15 Non-current assets - Receivables Loans to controlled entities Consolidated Company 2008 $’000 22 694 772 1,488 2007 $’000 2008 $’000 2007 $’000 437 - 1,003 1,440 - - 645 645 - 254 581 835 Consolidated Company 2008 $’000 2007 $’000 - - - - 2008 $’000 134,929 134,929 2007 $’000 99,102 99,102 * Refer to note 11 for the current portions of these receivables. Further information relating to loans to related parties and key management personnel is set out in notes 33 and 37 respectively. (a) Impaired receivables and receivables past due None of the non-current receivables are impaired or past due but not impaired. (b) fair values The fair values and carrying values of non-current receivables are as follows: Parent Entity Loans to related parties 2008 2007 Carrying amount $’000 130,484 130,484 Fair value $’000 130,484 130,484 Carrying amount $’000 99,102 99,102 fair value $’000 99,102 99,102 The carrying amount of the intercompany receivable is reviewed each year to ensure that there are sufficient underlying assets in the related party to recover the debts. If there are insufficient assets, the carrying amount is reduced accordingly. COLLECTION HOUSE LIMITED 79 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 15 Non-current assets - Receivables (continued) (c) Interest rate risk The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following tables. 2008 Trade receivables Other deposits Other receivables Purchased Debt Cash & cash equivalents Weighted average interest rate (%) 2007 Trade receivables Other deposits Other receivables Purchased debt Cash & cash equivalents Weighted average interest rate fixed interest maturing in: 1 year or less $’000 floating interest rate $’000 - - - - - - - - - - 4 - % fixed interest maturing in: 1 year or less $’000 253 5 253 5.7% 238 238 7.5% floating interest rate $’000 2,694 2,694 5.1% Non- interest bearing $’000 2,240 24 1,899 143,470 147,637 - % Non- interest bearing $’000 8,396 184 1,133 102,669 112,387 - % - - - - - - - - Total $’000 2,240 24 1,899 143,470 242 147,875 Total $’000 8,396 437 1,133 102,669 2,699 115,334 (d) foreign currency and interest rate risk The carrying amounts of the Group’s and Parent Entity’s current and non-current receivables are denominated in Australian dollars. (e) Credit risk 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. 80 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 16 Non-current assets - Available-for-sale financial assets At beginning of year Additions Disposals (sale and redemption) Losses from impairment At end of year (a) fair values Consolidated Company 2008 $’000 2007 $’000 - - - - - - - - - - 2008 $’000 20,432 844 (1,467) - (3,693) 16,116 2007 $’000 20,462 8,630 (8,660) 20,432 Available-for-sale financial assets include the following classes of financial assets: Unlisted securities (note (b)) Equity securities (b) unlisted securities Consolidated Company 2008 $’000 2007 $’000 2008 $’000 - - - - 16,116 16,116 2007 $’000 20,432 20,432 Unlisted securities are traded in inactive markets. Their fair value is determined based on the fair value of the net assets of the underlying subsidiaries. The assets of each subsidiary are tested for impairment annually using expected cashflows for the entity within its cash generating unit. If the net assets are less than the carrying value of the investment and it is considered that the carrying value of the asset is not recoverable, the investment is impaired to the point at which the carrying amount is recoverable from the underlying assets. COLLECTION HOUSE LIMITED 81 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 17 Non-current assets - Property, plant and equipment Plant and equipment $’000 Leasehold improvements $’000 Leased plant & equipment $’000 Work-in- progress $’000 - - - 797 (175) 622 622 156 (42) (90) 22 668 909 (241) 668 4 4 - - - - - - 3 8 3 20 (16) (1) - - - - - - (5) - 847 847 847 504 (879) 472 472 472 17,569 (13,973) 3,596 3,596 365 (552) 284 (82) (1,296) 18 2,333 11,584 (9,251) 2,333 Total $’000 19,233 (14,164) 5,069 5,069 1,025 (594) 284 (82) (1,387) (839) 3,476 12,973 (9,497) 3,476 Consolidated At 1 July 2006 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2007 Opening net book amount Additions Disposals Impairment charge recognised in profit and loss - Reversal of Impairment charge in profit and loss Transfers to assets held for sale Depreciation charge Transfers Closing net book amount At 30 June 2007 Cost or fair value Accumulated depreciation Net book amount Consolidated At 1 July 2006 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2007 Opening net book amount Additions Disposals Impairment charge recognised in profit and loss - Reversal of Impairment charge in profit and loss Transfers to assets held for sale Depreciation charge Transfers Closing net book amount At 30 June 2007 Cost or fair value Accumulated depreciation Net book amount 82 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 17 Non-current assets - Property, plant and equipment (continued) Consolidated Year ended 30 June 2008 Opening net book amount Additions Disposals Reversal of Impairment charge in profit and loss Transfers to assets held for sale Depreciation charge Transfers Closing net book amount At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Consolidated Year ended 30 June 2008 Opening net book amount Additions Disposals Reversal of Impairment charge in profit and loss Transfers to assets held for sale Depreciation charge Transfers Closing net book amount At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Plant and equipment $’000 Motor vehicles $’000 Leasehold improvements $’000 Leased plant & equipment $’000 - - - 668 557 (269) (83) 873 3 - - - - - 2 1,090 8 (217) 873 2 (1) (6) 2,333 560 (342) (703) - 9 - - - - - 1,848 9 10,719 (8,871) 1,848 9 - 9 Work-in- progress $’000 472 768 - - (456) 784 784 784 - - - - - - - - Total $’000 3,476 1,894 (611) (787) (456) 3,516 12,610 (9,094) 3,516 COLLECTION HOUSE LIMITED 83 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 17 Non-current assets - Property, plant and equipment (continued) Company At 1 July 2006 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2007 Opening net book amount Additions Disposals Reversal of Impairment charge in profit and loss Depreciation charge Transfers Closing net book amount At 30 June 2007 Cost or fair value Accumulated depreciation Net book amount Company Year ended 30 June 2008 Opening net book amount Additions Disposals Depreciation charge Impairment loss Transfers Closing net book amount At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Plant and equipment $’000 Leasehold improvements $’000 Work-in- progress $’000 14,867 (11,802) 3,065 3,065 295 (365) 192 (1,127) (11) 2,049 10,556 (8,507) 2,049 - - - - - - 708 (141) 567 567 178 (31) (85) 629 849 (220) - 629 905 905 905 277 (624) 558 558 558 Total $’000 16,480 (11,943) 4,537 4,537 750 (396) 192 (1,212) (635) 3,236 11,963 (8,727) 3,236 Plant and equipment $’000 Leasehold improvements $’000 Work-in- progress $’000 Total $’000 - - - 2,049 543 (121) (710) (164) 1,597 9,897 (8,300) 1,597 629 552 (240) (80) 861 1,071 (210) 861 - - - - - 558 768 (542) 784 784 784 3,236 1,863 (361) (790) (706) 3,242 11,752 (8,510) 3,242 (a) Non-current assets pledged as security Refer to note 25 for information on non-current assets pledged as security by the Parent Entity and its controlled entities. 84 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 18 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Tax losses Accruals Future deductible windup costs Doubtful debts Provisions and employee benefits Receivables impairment (note 30(a)) Fixed assets Sundry Set-off of deferred tax liabilities pursuant to set-off provisions (note 26) Net deferred tax assets Movements: Opening balance at 1 July Change on adoption of AASB 132 and AASB 139 (note 1) Credited/(charged) to the income statement (note 8) Closing balance at 30 June Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - - - 407 934 200 713 68 320 863 3,505 (3,505) 3,582 (77) 3,505 - - - 135 238 1,246 542 820 68 - 395 138 3,582 (3,582) 271 934 87 601 318 307 2,518 (3) 2,515 - - 121 236 1,246 412 688 377 3,080 (23) 3,057 3,551 3,080 1,852 - - 31 3,582 (562) 2,518 1,228 3,080 COLLECTION HOUSE LIMITED 85 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 18 Non-current assets - Deferred tax assets (continued) Movements - Consolidated At 1 July 2006 (Charged)/credited to the income statement At 30 June 2007 Movements - Consolidated At 1 July 2006 (Charged)/credited to the income statement At 30 June 2007 Movements - Consolidated At 30 June 2007 Charged/(credited) to the income statement At 30 June 2008 - Movements - Consolidated At 30 June 2007 Charged/(credited) to the income statement At 30 June 2008 Tax losses $’000 1,063 (928) 135 Sundry $’000 95 43 138 Tax losses $’000 135 (135) Sundry $’000 138 725 863 Receivables impairment & accruals $’000 Future deductible windup costs $’000 116 - 190 306 1,246 1,246 Employee benefits $’000 Doubtful Debts $’000 Fixed Assets $’000 664 (122) 542 661 (266) 395 952 (132) 820 Total $’000 3,551 31 3,582 Employee benefits $’000 Doubtful Debts $’000 Fixed assets $’000 Receivables impairment & accruals $’000 Future deductible windup costs $’000 542 (342) 200 395 (75) 320 306 169 475 1,246 (312) 934 820 (107) 713 Total $’000 3,582 (77) 3,505 86 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 18 Non-current assets - Deferred tax assets (continued) Movements - Company entity At 1 July 2006 (Charged)/credited to the income statement At 30 June 2007 Movements - Company entity At 1 July 2006 (Charged)/credited to the income statement At 30 June 2007 - - Movements - Company entity At 30 June 2007 (Charged)/credited to the income statement At 30 June 2008 Movements - Company entity At 30 June 2007 - (Charged)/credited to the income statement At 30 June 2008 Receivables impairment & accruals $’000 Future deductible windup costs $’000 62 - 174 236 1,246 1,246 Tax losses $’000 Employee benefits $’000 Doubtful Debts $’000 Fixed Assets $’000 564 (152) 412 245 132 377 135 (14) 121 Sundry $’000 - 846 (158) 688 Total $’000 1,852 1,228 3,080 Tax losses $’000 Employee benefits $’000 Doubtful Debts $’000 Fixed assets $’000 Receivables impairment & accruals $’000 Future deductible windup costs $’000 412 (325) 87 377 (59) 318 236 35 271 1,246 (312) 934 121 (121) - Sundry $’000 307 307 688 (87) 601 Total $’000 3,080 (562) 2,518 COLLECTION HOUSE LIMITED 87 Goodwill $’000 Computer software $’000 Other intangible assets $’000 Total $’000 43,130 (15,293) 27,837 27,837 50 (3,124) 14 (1,007) (776) 1,097 24,091 37,870 (13,779) 24,091 31,551 (7,019) 24,532 24,532 (2,618) (4) (207) 9,492 (7,106) 2,386 2,386 50 (506) 12 (1,007) (69) - - 6 - 1,097 - 21,703 1,963 7,587 (5,624) 1,963 2,087 (1,168) 919 919 (500) 425 1,587 (1,162) 425 28,696 (6,993) 21,703 Goodwill $’000 21,703 (3,856) Computer software $’000 Other intangible assets $’000 Total $’000 1,963 826 (820) (42) - - - - - - 425 60 24,091 886 (820) (3,898) - - 17,847 1,927 485 20,259 28,026 (10,179) 17,847 6,194 (4,267) 1,927 1,005 (520) 485 35,225 (14,966) 20,259 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 19 Non-current assets - Intangible assets Consolidated At 1 July 2006 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2007 Opening net book amount Additions Transfers to assets held for sale Impairment charge Amortisation charge Disposals Transfers Closing net book amount At 30 June 2007 Cost Accumulated amortisation and impairment Net book amount Consolidated Year ended 30 June 2008 Opening net book amount Additions Foreign Exchange effect Amortisation charge Disposals Transfers Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount 88 ANNUAL REPORT 2008 - - - - - - - NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 19 Non-current assets - Intangible assets (continued) Company At 1 July 2006 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2007 Opening net book amount Additions Amortisation charge Disposals Closing net book amount At 30 June 2007 Cost Accumulated amortisation and impairment Net book amount Company Year ended 30 June 2008 Opening net book amount Additions Impairment charge Depreciation charge Disposals Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount Goodwill $’000 Computer software $’000 Other intangible assets $’000 Total $’000 - - - - - - 14,687 (3,333) 11,354 11,354 11,354 14,687 (3,333) 11,354 5,046 (3,367) - 1,679 450 450 20,183 (6,700) 13,483 1,679 968 (705) (43) 1,899 - - - 450 13,483 968 (705) (43) 450 13,703 5,306 (3,407) - 1,899 450 450 20,443 (6,740) 13,703 Goodwill $’000 Computer software $’000 Other intangible assets $’000 Total $’000 11,354 450 - 11,804 14,687 (2,883) 11,804 - - 1,899 810 (807) (5) 1,897 6,124 (4,227) 1,897 - 450 35 (450) 35 485 (450) 35 13,703 1,295 (807) (455) 13,736 21,296 (7,560) 13,736 COLLECTION HOUSE LIMITED 89 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 20 Non-current assets - Other non-current assets Deferred expenditure - at cost Deferred expenditure - accumulated amortisation Legal and court costs capitalised 21 Current liabilities - Payables Trade creditors Other creditors and accruals Intercompany Loans (a) Risk exposure Consolidated Company 2008 $’000 2007 $’000 291 (291) 292 292 343 (266) 221 298 - - 2008 $’000 291 (291) - Consolidated Company 2008 $’000 1,159 4,948 2007 $’000 1,591 6,495 - - 6,107 8,086 2008 $’000 1,352 2,615 8,455 12,422 2007 $’000 291 (264) 27 2007 $’000 842 2,096 8,741 11,679 Information about the Group’s and the Parent Entity’s exposure to foreign exchange risk is provided in note 2. 22 Current liabilities - Borrowings Secured Bank overdraft Total secured current borrowings Unsecured Unsecured - Other loans Total unsecured current borrowings (a) Risk exposures Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2,801 2,801 - - 4,099 4,099 2,845 2,845 - - 23 23 - - - - Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 2. 90 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 23 Current liabilities - Provisions Provisions - Employee benefits Restructuring Provisions - Other (a) Movements in provisions Consolidated Company 2008 $’000 2007 $’000 2,054 2,303 1,016 - - 43 - 2007 $’000 1,956 2008 $’000 1,722 1,016 - - 3,070 2,346 2,738 1,956 Movements in each class of provision during the financial year, other than employee benefits, are set out below: Consolidated - 2008 Current Carrying amount at start of year - amounts incurred and charged - payments/other sacrifices of economic benefits - overpayment transferred to current receivables Amounts used during the period Carrying amount at end of year Company - 2008 Current Carrying amount at start of year - additional provisions recognised - payments/other sacrifices of economic benefits Carrying amount at end of year 24 Non-current liabilities - Payables Loans from controlled entities - - - - - - Restructuring $’000 Provisions - Other $’000 Total $’000 43 222 (314) 49 - 43 2,094 (1,170) 49 1,016 Total $’000 1,872 (856) 1,016 Restructuring $’000 - - - 1,872 (856) 1,016 1,872 (856) 1,016 Consolidated Company 2008 $’000 2007 $’000 - - 2008 $’000 18,631 18,631 2007 $’000 15,840 15,840 COLLECTION HOUSE LIMITED 91 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 25 Non-current liabilities - Borrowings Secured Secured - Bank loans Total non-current borrowings (a) Total secured liabilities Consolidated Company 2008 $’000 61,100 61,100 2007 $’000 56,200 56,200 2008 $’000 61,100 61,100 2007 $’000 56,200 56,200 The total secured liabilities (current and non-current) are as follows: Bank overdrafts and bank loans Total secured liabilities 63,901 63,901 56,200 56,200 65,199 65,199 59,045 59,045 (b) Secured liabilities and assets pledged as security The total secured liabilities (current and non-current) are as follows: Bank overdrafts and bank loans Total secured liabilities 63,901 63,901 56,200 56,200 65,199 65,199 59,045 59,045 All bank loans and overdraft are denominated in Australian dollars and are secured by a fixed and floating charge over all of the assets and uncalled capital of the Company and certain of its controlled entities. Other loans are secured by a fixed and floating charge over the assets of a controlled entity. The carrying amounts of assets pledged as security for current and non-current borrowings are: Cash and cash equivalents Receivables Financial assets at fair value through profit or loss finance lease Plant and equipment Available-for-sale financial assets Plant and equipment Total assets pledged as security Notes 10 11 12 17 16 17 Consolidated Company 2008 $’000 937 4,186 2007 $’000 2,699 9,531 2008 $’000 801 2,599 2007 $’000 717 17,124 143,470 102,669 - 2 - 3 - - 1,848 150,443 2,333 117,235 - - 16,116 1,597 21,113 20,432 2,049 40,322 92 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 25 Non-current liabilities - Borrowings (continued) (c) fair value The carrying amounts and fair values of borrowings at balance date are: Group On-balance sheet (i) Non-traded financial liabilities Bank overdrafts Bank loans Parent Entity On-balance sheet (i) Non-traded financial liabilities Bank overdrafts Bank loans At 30 June 2008 At 30 June 2007 Carrying amount $’000 Fair value $’000 Carrying amount $’000 fair value $’000 2,801 61,100 63,901 2,801 - - 61,100 63,901 56,200 56,200 56,200 56,200 At 30 June 2008 At 30 June 2007 Carrying amount $’000 Fair value $’000 Carrying amount $’000 fair value $’000 4,099 61,100 65,199 4,099 61,100 65,199 2,845 56,200 59,045 2,845 56,200 59,045 As noted, none of the classes of liabilities are readily traded on organised markets in standardised form. (i) On-balance sheet The fair value of current borrowings equals their carrying amount. The facility is structured as a series of loan instruments which are renewed on a regular basis with terms of less than six months, and the impact of discounting on such instruments is not material. The overall facility is classified as non-current. (d) Risk exposures Information about the Group’s and Parent Entity’s exposure to interest rate and foreign currency changes is provided in note 2. For an analysis of the sensitivity of borrowings to interest rate risk and foreign exchange risk refer to note 2. COLLECTION HOUSE LIMITED 93 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 26 Non-current liabilities - Deferred tax liabilities The balance comprises temporary differences attributable to: Prepayments Purchased debt Intangibles Fixed Assets Sundry (note 29) 6 - Set-off of deferred tax liabilities pursuant to set-off provisions (note 18) Net deferred tax liabilities Movements: Opening balance at 1 July Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 20,873 18,102 77 3 - - - - 45 63 62 18,349 3 (3,582) (3) 14,767 - 43 11 20,933 (3,505) 17,428 Change on adoption of AASB 132 and AASB 139 (note 1) - - - Charged/(credited) to the income statement (note 8) Closing balance at 30 June 2,584 20,933 93 18,349 3 18,349 18,256 23 (20) Movements - Consolidated Property, plant and equipment Prepayments $’000 $’000 Purchased debt $’000 Intangibles $’000 Other $’000 At 1 July 2006 Charged/(credited) to the income statement At 30 June 2007 4 92 (29) 63 73 77 17,660 442 18,102 413 (368) 45 87 (25) 62 Movements - Consolidated Property, plant and equipment Prepayments $’000 $’000 Purchased debt $’000 Intangibles $’000 Other $’000 At 30 June 2007 Charged/(credited) to the income statement At 30 June 2008 63 (52) 11 6 77 (71) 18,102 2,771 20,873 45 (2) 43 - 62 (62) 2 - - - - - 21 23 (23) 26 (3) 23 Total $’000 18,256 93 18,349 Total $’000 18,349 2,584 20,933 Movements - Company At 1 July 2006 Charged/(credited) to the income statement At 30 June 2007 Movements - Company At 30 June 2007 Charged/(Credited) to the Income Statement At 30 June 2008 94 ANNUAL REPORT 2008 Prepayments $’000 Other $’000 Total $’000 2 - 2 2 1 3 24 (3) 21 Prepayments $’000 Other $’000 21 (21) - 3 26 (3) 23 Total $’000 23 (20) NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 27 Non-current liabilities - Provisions Provisions - Employee benefits 28 Employee benefits (a) Superannuation plans Consolidated Company 2008 $’000 159 159 2007 $’000 138 138 2008 $’000 144 144 2007 $’000 132 132 All employees are entitled to varying levels of benefits on retirement, disability or death. The superannuation plans provide accumulated benefits. Employees contribute to the plans at various percentages of their wages and salaries. Where there is a legal requirement the Company contributes the appropriate statutory percentage of employees salaries and wages. 29 Contributed equity (a) Share capital Ordinary shares Fully paid Total contributed equity - Parent Entity (b) Movements in ordinary share capital: Issues of ordinary shares during the year Date Details 1 July 2006 Opening balance 30 June 2007 Balance 1 July 2007 Opening balance 30 June 2008 Balance (c) Ordinary shares Company entity Company entity 2008 Shares 2007 Shares 2008 $’000 2007 $’000 97,321,881 97,321,881 97,321,881 97,321,881 67,256 67,256 67,256 67,256 67,256 67,256 Number of shares 97,321,881 97,321,881 97,321,881 97,321,881 $’000 67,256 67,256 67,256 67,256 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 (refer to note 25). 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. (d) Employee share scheme Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 40. (e) Options Information relating to options provided as part of the the MD/CEO remuneration package and options provided under the Collection House Executive Share Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 40. COLLECTION HOUSE LIMITED 95 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 29 Contributed equity (continued) (f) Capital risk management The Group’s and the Parent Entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, and to provide adequate returns for shareholders and benefits for other stakeholders. “Capital” includes all funding provided under the Group’s funding facility (net of cash balances for which a right of offset is held) plus Equity as shown in the balance sheet. In order to maintain or adjust the capital structure, the Group may: • draw down or repay debt funding, • adjust the amount of dividends paid to shareholders; • negotiate new or additional facilities or cancel existing ones, • return capital to shareholders or issue new shares or • sell assets to reduce debt. The Group and the Parent Entity manage capital to ensure that the goals of continuing as a going concern, and the provision of acceptable stakeholder returns are met. Arrangements with the Group’s financier are in place to ensure that there is sufficient undrawn credit available to meet unforeseen circumstances should they arise. Financing facilities are renegotiated on a regular basis to ensure that they are sufficient for the Company’s projected growth plus a buffer. As far as possible, asset purchases are funded from operational cashflow, allowing undrawn balances to be maintained. Cash is monitored on a daily basis to ensure that immediate and short term requirements can be met. By maintaining a buffer of undrawn funds, the Company reduces the risk of liquidity and going concern issues. Management of mix between debt and equity impacts the Company’s Cost of Capital and hence ability to provide returns to stakeholders, primarily the funding institutions and shareholders. The Company maintains its debt-to-equity mix in accordance with its immediate needs and forecasts at any point in time. Effective management of the capital structure maximises profit and hence franked dividend returns to shareholders. When additional funding is required, it is sourced from either debt or equity, depending upon management’s evaluation as to which is the most appropriate at that point in time. The financing facility includes all funding provided by the Group’s main banker. Details of drawn and undrawn financing facilities are set out in note 25. Quantitative analyses are conducted by management using contributed equity balances shown above together with the the drawn and undrawn loan balances disclosed in note 25. As part of the financing facility, the Company is required to monitor a number of financial indicators as specified by the financier. The Group monitors the indicators on a monthly basis and reports to the funding provider every six months. The Company has materially met these covenants at all times during the year. This strategy was followed during both the 2008 and 2007 financial years. 96 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 30 Reserves and retained profits (a) Reserves Share-based payments reserve Foreign currency translation reserve Movements: Share-based payments reserve Balance at beginning of period Option expense Balance 30 June Movements: foreign currency translation reserve Balance at beginning of period Net investment hedge Currency translation differences arising during the year: Balance 30 June (b) Retained profits Movements in retained profits were as follows: Balance 1 July Net profit for the year Dividends Balance 30 June (c) Nature and purpose of reserves (i) Share-based payments reserve Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 475 (794) (319) 128 (255) - (127) 475 475 - 128 128 Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 128 347 475 39 89 128 128 347 475 39 89 128 Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 (255) (562) - (539) (794) 307 (255) - - - - - Consolidated Company 2008 $’000 11,276 12,316 (4,088) 19,504 2007 $’000 9,411 3,811 (1,946) 11,276 2008 $’000 3,167 10,940 (4,088) 10,019 2007 $’000 4,132 981 (1,946) 3,167 The share based payments reserve is used to recognise the fair value of options issued to employees but not exercised. (ii) foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(d). The reserve is recognised in profit and loss when the net investment is disposed of. COLLECTION HOUSE LIMITED 97 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 31 Minority interest Interest in: Minority interest - Share capital Minority interest - Retained profits 32 Dividends (a) Ordinary shares Fully franked final dividend for the year ended 30 June 2007 - 2.0 cents per share (2006 - 2.0 cents, unfranked) Fully franked interim dividend for the year ended 30 June 2008 - 2.2 cents per share (2007: 0.0 cents) Paid in cash Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - (1,318) (1,318) 227 (1,552) (1,325) - - - - - - Company 30 June 2008 $’000 30 June 2007 $’000 1,946 2,142 4,088 1,946 - 1,946 Company 30 June 2008 $’000 4,088 4,088 30 June 2007 $’000 1,946 1,946 Company 30 June 2008 $’000 30 June 2007 $’000 2,433 2,433 1,946 1,946 (b) Dividends not recognised at year end In addition to the above dividends, since year end the directors have recommended the payment of a fully franked final dividend of 2.5 cents per fully paid ordinary share (2007 - 2.0 cents, fully franked). The aggregate amount of the proposed dividend expected to be paid on 28 November 2008 out of retained profits at 30 June 2008, but not recognised as a liability at year end, is 98 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 32 Dividends (continued) (c) franked dividends The franked portions of the final dividends recommended after 30 June 2008 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 2008. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2008 and will be recognised in subsequent financial reports. Franking credits available for subsequent financial years based on a tax rate of 30% (2007 - 30%) Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 - - - - - - - 30 June 2007 $’000 - The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of the amount of the provision for income tax, (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and (d) franking credits that may be prevented from being distributed in subsequent financial years. The consolidated amounts include franking credits that would be available to the Parent Entity if distributable profits of subsidiaries were paid as dividends. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $1,043,000 (2007: $834,000). The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. 33 Key management personnel disclosures (a) Directors The following persons were directors of Collection House Limited during the financial year: (i) Chairman - non-executive D. G. Punches (re-appointed 25 October 2007, effective 26 October 2007) (ii) Executive directors A.R. Aveling – MD/CEO (iii) Non-executive directors J.M. Pearce, Deputy Chairman (from 26 October 2006 having resigned as Managing Director) B. E. Adams (Lead independent director) A.F. Coutts D. B. Connelly W. L. Hiller W. W. Kagel COLLECTION HOUSE LIMITED 99 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 33 Key management personnel disclosures (continued) (b) Other key management personnel The following persons had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Adrian Ralston Matthew Thomas Michael Watkins Kylie Lynam Brian Savage Chief Financial Officer Chief Process Officer (Chief Operating Officer from 26 June 2008) General Counsel and Company Secretary General Manager - Human Resources Collection House Limited Collection House Limited Collection House Limited Collection House Limited General Manager - Business Development (Consultant) Collection House Limited All of the above persons were also key management persons during the year ended 30 June 2007, except for Brian Savage who consulted to the Company until 9 November 2007. (c) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration Details of options over ordinary shares in the Company provided as remuneration to each director of Collection House Limited and each of the five specified executives of the Group are set out below. When exercisable, each option is convertible into one ordinary share of Collection House Limited. Further information on the options is set out in note 40. (ii) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the remuneration report . (iii) Option holdings The numbers of options over ordinary shares in the Company held during the financial year by each director of Collection House Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2008 Name Balance at start of the year granted as com- pensation Exercised Other changes Balance at end of the year Vested and exercisable unvested Directors of Collection House Limited A.R. Aveling Other key management personnel of the Group A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant to 9 November 2007) 2,000,000 200,000 250,000 200,000 125,000 - - - - - - - - - - - - - - - - - - - 2,000,000 200,000 250,000 200,000 125,000 - - - - - - - 2,000,000 200,000 250,000 200,000 125,000 - 2007 Name Balance at start of the year granted as com- pensation Exercised Other changes Balance at end of the year Vested and exercisable unvested Directors of Collection House Limited A. Coutts C. K. Day Other key management personnel of the Group A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant) 100 ANNUAL REPORT 2008 - 2,000,000 300,000 - - - - - - 200,000 250,000 200,000 125,000 - - - - - - - - - 2,000,000 (300,000) - - - - - - 200,000 250,000 200,000 125,000 - - - - - - - - 2,000,000 - 200,000 250,000 200,000 125,000 - NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 33 Key management personnel disclosures (continued) (c) Equity instrument disclosures relating to key management personnel (continued) (iv) Share holdings The numbers of shares in the Company held during the financial year by each director of Collection House Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares issued under the terms of the Employee Share Plan during the reporting period as compensation. 2008 Name Directors of Collection House Limited Ordinary shares Dennis Punches John Pearce Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel Other key management personnel of the Group Ordinary shares A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant to 9 November 2007) Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 14,098,835 11,738,200 100,000 - 4,164,600 20,000 20,000 500,000 - 2,000 25,000 11,000 62,000 - - - - - - - - - - - - - 51,266 77,930 126,400 - - - 23,000 51,269 - 100,000 - - (34,150) 14,150,101 11,816,130 226,400 - 4,164,600 20,000 43,000 551,269 - 102,000 25,000 11,000 27,850 COLLECTION HOUSE LIMITED 101 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 33 Key management personnel disclosures (continued) (c) Equity instrument disclosures relating to key management personnel (continued) 2007 Name Directors of Collection House Limited Ordinary shares Dennis Punches John Pearce Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel Stephen Walker (resigned 26 October 2006) Colin Day (resigned 27 November 2006) Rhonda King (resigned 5 December 2006) Other key management personnel of the Group Ordinary shares A. Ralston M. Thomas M. Watkins K. Lynam B. Savage (Consultant) Balance at the start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 14,054,835 14,238,200 - - 4,134,000 20,000 5,200 500,000 6,750,000 325,000 35,000 - 2,000 10,000 11,000 24,797 - - - - - - - - - - - - - - - - 44,000 14,098,835 (2,500,000) 11,738,200 100,000 100,000 - - 30,600 4,164,600 - 14,800 - (6,750,000) 70,000 - - - 15,000 - 37,203 20,000 20,000 500,000 - 395,000 35,000 - 2,000 25,000 11,000 62,000 (d) Loans to key management personnel Details of loans made to directors of Collection House Limited and other key management personnel of the Group, including their personally related parties, are set out below. (i) Aggregates for key management personnel group 2008 2007 Balance at the start of the year $ Interest paid and payable for the year $ Interest not charged $ Balance at the end of the year $ Number in group at the end of the year - - - - - - - - - - (ii) Individuals with loans above $100,000 during the financial year No individual’s aggregate loan balance exceeded $100,000 at any time during the financial year. In 2007, no individual’s aggregate loan balance exceeded $100,000 at any time. (e) Other transactions with key management personnel No payments were made to directors or other key management personnel other than as appropriate payments for performance of their duties as directors. 102 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 34 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the Parent Entity, its related practices and non-related audit firms: Consolidated Company 30 June 2008 $ 30 June 2007 $ 30 June 2008 $ 30 June 2007 $ 145,000 145,000 79,000 79,000 177,000 177,000 83,000 83,000 145,000 145,000 79,000 79,000 177,000 177,000 83,000 83,000 224,000 260,000 224,000 260,000 Audit services Audit and review of financial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services Audit-related services Audit of regulatory returns Total remuneration for audit-related services 35 Contingencies (a) Contingent liabilities The Parent Entity and Group had contingent liabilities at 30 June 2008 in respect of: Claims All previous claims have now been settled and provisions for these claims have been utilised. guarantees (a) Bank guarantees (secured) exist in respect of satisfactory contract performance in the normal course of business for the Group amounting to $1,460,913 (including a bank guarantee for the fitout of the new Head Office premisies at Green Square North Tower of $993,652) (2007: $845,000). (b) On 29 October 2002 the Company and certain of its subsidiaries entered into an Interlocking Debt and Interest Guarantee which is supported by a Fixed and Floating charge over all of the assets and uncalled capital of those entities. These guarantees may give rise to liabilities in the Company if the associates do not meet their obligations under the terms of the contracts subject to the guarantees. No material losses are anticipated in respect of any of the above contingent liabilities. COLLECTION HOUSE LIMITED 103 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 36 Commitments (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Consolidated Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 - - - - 3,416 3,416 - - - - Consolidated 2008 $’000 2007 $’000 31,200 54,000 - - 31,200 54,000 Consolidated 2008 $’000 2007 $’000 3,449 3,930 - - 7,379 7,379 3,295 3,309 6,604 6,604 - - - - - - - 3,416 3,416 - - - - Company 2008 $’000 2007 $’000 - - - - Company 2008 $’000 2007 $’000 3,271 3,918 7,189 7,189 - 2,292 2,594 4,886 4,886 Property, plant and equipment Payable: Within one year Later than one year but not later than five years Later than five years Other financial assets at fair value through profit or loss Payable: Within one year Later than one year but not later than five years Later than five years Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Commitments not recognised in the financial statements 37 Related party transactions (a) Parent Entity The Parent Entity within the Group is Collection House Limited. The ultimate Parent Entity is Collection House Limited. (b) Subsidiaries Interests in subsidiaries are set out in note 38. (c) Key management personnel Disclosure relating to key management personnel are set out in note 33. 104 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 37 Related party transactions (continued) (d) Other transactions with key management personnel or entities related to them No other transactions were made to key management personnel or entities related to them other than as appropriate payments for performance of their duties. (e) Transactions with related parties The classes of non director-related parties are: > wholly owned controlled entities; > partly owned controlled entities; and > directors of related parties and their director-related entities. Transactions Transaction between non director related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. The Company provided collection services to and received from collection services from Collection House (NZ) Limited, Lion Finance Pty Ltd and Lion Finance Limited. The Company provided administrative services to all operating subsidiaries. A wholly owned controlled entity Jones King Lawyers Pty Ltd (formerly Collection House Legal Services Pty Ltd), provided legal services to the Company and other wholly owned controlled entities. A wholly owned entity, Australian Business Research Pty Ltd provided credit reporting services to the Company. Loans were advanced by Collection House Limited to and were received from wholly owned controlled entities. Loans were advanced by Collection House Limited to partly controlled entities. COLLECTION HOUSE LIMITED 105 Company 30 June 2008 $ 30 June 2007 $ 22,947,232 17,033,425 3,832,502 3,991,857 60,277 343,529 43,775,282 7,007,745 1,560,775 - 19,537,876 7,279,334 420,708 6,240,079 25,164,453 9,145,000 9,687,656 5,599,577 110,823,290 90,583,159 (1,018,434) (1,018,434) 25,164,453 9,145,000 - 391,884 9,420,807 834,326 18,472,890 14,150,069 157,854 1,689,806 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 37 Related party transactions (continued) (f) Transactions with related parties (continued) Other transactions Revenue from sale of services to: Wholly-owned controlled entities Provision of legal services to: Controlling Entity Wholly owned controlled entities Provision of credit reporting services to: Wholly owned controlled entities Loan advances to: Wholly owned controlled entities Partly owned controlled entities Loan advances from: Wholly owned controlled entities Partly owned controlled entities Dividends receivable from: Wholly owned controlled entities Current receivables from non-director related entities Wholly owned controlled entities (loans) Non-current receivables from non-director related entities Wholly owned controlled entities (loans) Provision for impairment (loans) Wholly owned controlled entities (dividends) Partly owned controlled entities Current payables from non-director related entities Wholly owned controlled entities Non current-payables from non-director related entities Wholly owned controlled entities (loans) Partly owned controlled entities (loans) Percentage of equity interest Details of equity interest held in classes of related parties are set out in note 39. 106 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 38 Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name of entity incorporation Class of shares Equity holding Country of 2008 % 2007 % Collection House Limited Australia Ordinary Controlled entities - incorporated in Australia ACN 100 115 571 Pty Ltd (formerly Insurance Claims Solutions Pty Ltd) (1) Australia Ordinary ACN 096 967 485 Pty Ltd (formerly known as Rapid Ratings Pty Ltd) - wholly owned by CHBD (1) ABR Publications Pty Ltd Australian Corporate Reporting Pty Ltd Collection House Business Diagnostics Pty Ltd (CHBD) (1) Colpro Pty Ltd Countrywide Mercantile Credit Services Pty Ltd Collective Learning and Development Pty Ltd Jones King Lawyers Pty Ltd Lion Finance Pty Ltd Midstate Credit Management Services Pty Ltd Controlled entities - incorporated in New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary ACN 096 967 485 Pty Ltd (formerly Rapid Ratings Pty Ltd (registered in NZ as an overseas company) - wholly owned by CHBD (1) 1071066 Limited (formerly abr.nz Limited) Collection House (NZ) Limited Insurance Claims Solutions Limited (1) Lion Finance Pty Ltd Australia Ordinary New Zealand Ordinary New Zealand Ordinary New Zealand Ordinary New Zealand Ordinary 1189419 Limited (formerly National Tenancy Database Limited) New Zealand Ordinary 1594421 Limited (formerly Rapid Ratings (NZ) Limited) - wholly owned by ACN 096 967 485 Pty Ltd (formerly Rapid Ratings Pty Ltd (registered in NZ as an overseas company and wholly owned by CHBD) (1) New Zealand Ordinary The following Australian companies were voluntarily deregistered in 2007/08 financial year: ACN 069 476 893 Pty Ltd (formerly Australian Creditors Association Pty Ltd) (1) Australian Legal Recoveries Pty Ltd (1) Australian Stockdata Pty Ltd (1) Collection House ALR Pty Ltd (1) Collection House Technologies Pty Ltd (1) R W Receivables Pty Ltd (1 Rent Check Australia Pty Ltd (1) The Creditfax (Aust) Pty Ltd (1) Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 84 100 100 84 100 100 100 100 100 100 84 100 100 100 100 100 84 100 100 100 100 100 100 100 100 100 84 100 100 84 100 100 100 100 100 100 84 100 100 100 100 100 84 100 100 100 100 100 100 100 100 COLLECTION HOUSE LIMITED 107 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 38 Subsidiaries (continued) Name of entity incorporation Class of shares Equity holding Country of 2008 % 2007 % The following Collection House Limited controlled entities’ business assets were sold in 2007/08 financial year. Refer to note 9 for details in relation to discontinued operations: ACN 010 920 411 Pty Ltd (formerly Australian Business Research Pty Ltd) ACN 079 105 052 Pty Ltd (formerly National Tenancy Database Pty Ltd) ACN 073 212 772 Pty Ltd (formerly National Revenue Corporation Pty Ltd) Insurance Claims Solutions Pty Ltd (formerly CHIP No.1 Pty Ltd) (2) Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary - 100 100 100 100 100 100 71 (1) These controlled entities have not traded during the financial year (2) Collection House Limited sold its 71% shareholding in this controlled entity in the financial year. 39 Earnings per share (a) Basic earnings per share Profit / (loss) from continuing operations attributable to the ordinary equity holders of the company Profit / (loss) from discontinued operation Profit attributable to the ordinary equity holders of the company (b) Reconciliations of earnings used in calculating earnings per share Basic earnings per share Profit from continuing operations (Profit) / Loss from continuing operations attributable to minority interests Profit from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share Profit / (loss) from discontinued operation Profit attributable to the ordinary equity holders of the company used in calculating basic earnings per share Profit from discontinued operation Consolidated 30 June 2008 Cents 30 June 2007 Cents 4.0 8.7 12.7 6.6 (2.7) 3.9 Consolidated 30 June 2008 $’000 30 June 2007 $’000 3,689 (1) 3,688 8,628 12,316 8,628 6,417 34 6,451 (2,640) 3,811 (2,640) 108 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 39 Earnings per share (continued) (c) weighted average number of shares used as the denominator Consolidated 30 June 2008 Number 30 June 2007 Number weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 97,321,881 97,321,881 Adjustments for calculation of diluted earnings per share: Options - - weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 97,321,881 97,321,881 40 Share-based payments (a) Share Options for MD/CEO In February 2007, the Shareholders approved the issue of 2,000,000 share options in favour of the MD/CEO as part of his employment agreement. The full terms of the options are contained in the Notice of General Meeting announced to shareholders on 12 January 2007. A summary of the MD/CEO options is as follows: (i) the options are exercisable at $1.0327 per option; (ii) the 2,000,000 options will not vest prior to 28 February 2009; (iii) in addition, 1,600,000 options may only be exercised in the event of the Company’s share price reaching certain qualifying prices of between $1.25 to $2.00 during the life of the options, as follows: Tranche # of options Hurdle Price 1 2 3 4 5 400,000 400,000 400,000 400,000 400,000 $0.00 $1.25 $1.50 $1.75 $2.00 (iv) the options will, except to the extent earlier exercised, expire on the earlier of: * the business day after the expiration of three (3) months, or any longer period determined by the Company after the MD/CEO ceases to be employed by the Company or a subsidiary of the Company; * the MD/CEO ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or * 28 February 2011. COLLECTION HOUSE LIMITED 109 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 40 Share-based payments (continued) (a) Share Options for MD/CEO (continued) fair value of options granted The assessed fair value at grant date of options granted during the year ended 30 June 2007 is set out below. The fair value at grant date is independently determined using a Monte Carlo option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, 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 model inputs and resulting valuations for options granted during the year ended 30 June 2007 included: (i) options granted are exercisable only in the event of the Company’s share price reaching certain qualifying prices of between $1.25 and $2.00 during the life of the options (ii) exercise price: $1.0327 (iii) expiry date of Options * the business day after the expiration of three (3) months, or any longer period determined by the Company after the eligible employee ceases to be employed by the Company or a subsidiary of the Company; * the eligible employee ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or * 28 February 2011. (iv) share price at grant date: $0.91 (v) expected price volatility of the Company’s shares: 43.8% (vi) expected dividend yield: 3.29% (vii) risk-free interest rate: 5.99% The expected price volatility is usually based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. The resulting valuation per option is as follows: Tranche $ per option 1 2 3 4 5 $0.26881 $0.23054 $0.19578 $0.16085 $0.12945 110 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 40 Share-based payments (continued) (b) Executive Option Plan Participation in the executive share option plan is determined by the MD/CEO, through Board approval. The MD/CEO prepares a list of executives and their proposed level of participation in the plan. The executive share option plan were approved by the Board and 1,250,000 options of the 2,000,000 options approved were issued to eligible senior employees on 15 June 2007. The options were submitted for shareholder approval at the Company’s annual general meeting in October 2007. Future options will be issued with not only individual performance being considered but also Company performance hurdles to be achieved before options may be exercised. A summary of the options is as follows: (i) the options are exercisable at $1.0327 per option (ii) the options will not vest prior to 28 February 2009 (iii) the performance hurdle is an increase in the Company’s share price of between $1.25 and $2.00 during the life of the options as follows: Tranche # of options Hurdle Price 1. 2 3 4 312,500 312,500 312,500 312,500 $1.25 $1.50 $1.75 $2.00 (iv) the options will expire on: * the business day after the expiration of three (3) months, or any longer period determined by the Company after the eligible employees cease to be employed by the Company or a subsidiary of the Company; * the eligible employee ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or * 28 February 2011. fair value of options granted The assessed fair value at grant date of options granted during the year ended 30 June 2007 is set out below. The fair value at grant date is independently determined using a Monte Carlo option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, 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 model inputs and resulting valuations for options granted during the year ended 30 June 2007 included: (i) options granted are exercisable only in the event of the Company’s share price reaching certain qualifying prices of between $1.25 and $2.00 during the life of the options (ii) exercise price: $1.0327 (iii) grant date: 15 June 2007 (iv) expiry date: * the business day after the expiration of three (3) months, or any longer period determined by the Company after the eligible employee ceases to be employed by the Company or a subsidiary of the Company; or * the eligible employee ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or * 28 February 2011. (v) share price at grant date: $0.89 (vi) expected price volatility of the Company’s shares: 48.5% COLLECTION HOUSE LIMITED 111 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 40 Share-based payments (continued) (b) Executive Option Plan (continued) (vii) expected dividend yield: 2.92% (viii) risk free interest rate: 6.14% The expected price volatility is usually based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. The resulting valuation per option is as follows: Tranche $ per option 1 2 3 4 $0.26447 $0.20739 $0.17240 $0.14097 Grant Date Expiry date Exercise price Balance at start of the year (Number) Granted during the year (Number) Exercised during the year (Number) Expired during the year (Number) Balance at end of the year (Number) Vested and exercisable at end of the year (Number) Consolidated and company - 2008 12 March, 2007 15 June 2007 1 July 2005 1 July 2005 1 July 2005 Total As stated in note 40(a) As stated in note 40(b) 30 June 2007 30 June 2008 30 June 2009 Weighted average exercise price Consolidated and company - 2007 12 March, 2007 15 June 2007 1 July, 2005 1 July, 2005 1 July, 2005 Total As stated in note 40(a) As stated in note 40(b) 30 June, 2007 30 June, 2008 30 June, 2009 - - - - - - $1.03 2,000,000 $1.03 1,250,000 - - - - - $- $- $- $1.03 $1.03 $- $- $- 3,250,000 $1.03 $- 2,000,000 1,250,000 100,000 100,000 100,000 - - - 300,000 3,250,000 $- - - - - - - - - - - - - - - - - - - - - 2,000,000 1,250,000 - - - 3,250,000 $- $1.03 2,000,000 1,250,000 (100,000) (100,000) (100,000) - - - (300,000) 3,250,000 - - - - - - - - - - - - $- Weighted average exercise price $1.42 $1.03 $- $1.42 $1.03 $- 112 ANNUAL REPORT 2008 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 40 Share-based payments (continued) (c) Employee share scheme An employee of the Company or its subsidiaries with at least three months’ service is eligible to participate in the employee share plan in accordance with terms and conditions disclosed in the Company’s Prospectus issued in 2000. The plan provides for eligible employees to acquire ordinary shares in the Company at a price determined by the directors. Historically, the market price was determined by reference to the average volume weighted share price of the Company’s shares for the five business days prior to and including 30 June. On application, employees must pay application monies of at least 10% of the value of the share offer. The Company may, at its discretion, lend the employee such monies as is required to complete the share purchase. Interest is charged monthly on outstanding loan balances at a rate determined by the directors, which is currently 6% per annum. Repayment of the loan balance is required within two years or the employee’s right to the shares will be forfeited with the current net market price less the outstanding loan balance refunded to the employee. The shares vest immediately upon acquisition but are not able to be traded until the later of ninety days from the acquisition date or the date on which the outstanding loan balance has been fully repaid. No shares issued under this plan in the year ended 30 June 2008 (2007: nil shares issued). The amount recognised in the financial statements of the consolidated entity and the Company in relation to employee shares issued in prior years were: Employee loans Consolidated Company 30 June 2008 $’000 30 June 2007 $’000 30 June 2008 $’000 9 9 10 10 9 9 30 June 2007 $’000 10 10 41 Events occurring after the balance sheet date Dividend On 28 August 2008, the Company declared a fully franked final dividend of 2.5 cents per fully paid share (a total of $2.4 million), payable on 28 November 2008. No provision has been raised in these accounts. Additional share options On 18 July 2008, the Company issued additional performance based options up to in aggregate 1,437,500 options to certain eligible employees, at the sole discretion of the MD/CEO, under an Executive Share Option Plan approved by shareholders at the Company’s Annual General Meeting held in October 2007. The additional performance based options were issued at an exercise price of $0.4927, being the volume weighted trading price over the five days prior to 26 June 2008, the date on which the Board made its decision. Share price qualifying hurdles $0.60, $0.70, $0.80, $0.90 and $1.00 will apply. A summary of the material terms of the additional performance based options issued on 18 July 2008 are set out in the Appendix 3B Announcement lodged with the Australian Stock Exchange on 18 July 2008. Other than the matters discussed above, no matter or circumstance has arisen since 30 June 2008 that has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years, or (b) the results of those operations in future financial years, or (c) the Group’s state of affairs in future financial years. COLLECTION HOUSE LIMITED 113 NOTES TO THE fINANCIAL STATEMENTS For the year ended 30 June 2008 42 Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year Depreciation, amortisation and impairment Impairment of other assets Fair value losses on other financial assets Write off of assets Impairment of goodwill Non-cash employee benefits expense - share-based payments Restructuring expense Management service fee Dividend and interest income Net (gain) loss on sale of discontinued operations Other non-cash expenses Net exchange differences Change in operating assets and liabilities, net of effects from purchase of controlled entity and sale of discontinued operation (Decrease) increase in other operating liabilities (Increase) in trade debtors and bills of exchange (Increase) decrease in sundry debtors (Increase) decrease in current tax receivables (Increase) decrease in deferred tax assets (Increase) decrease in other assets (Decrease) increase in trade creditors Increase/(Decrease) in sundry creditors and accruals Increase (decrease) in provision for income taxes payable Increase (decrease) in deferred tax liabilities Increase (decrease) in deferred expenditure Increase (decrease) in other provisions Net cash (outflow) inflow from operating activities Consolidated Company 30 June 2008 $’000 12,317 2,307 29,730 347 1,016 (12,974) (796) 6,418 (782) (143) 416 (431) (1,858) 2,661 (2) 37 38,263 - - - - - - - - - 30 June 2007 $’000 3,777 4,258 21,799 1,170 88 - - - - (733) (4) - - - - - 552 1,566 2,120 1,215 (409) (1,234) (729) (1,686) (1,152) (691) 29,907 30 June 2008 $’000 10,940 5,331 347 1,016 3,921 (23,847) 19 (114) 1,745 (322) (1,628) 542 254 510 518 85 (683) - - - - - - - - 30 June 2007 $’000 981 1,892 4,843 29 88 (1,431) (9,145) (10) 8,273 1,466 (1,232) (12) (533) 481 (1,452) (3,525) (184) 529 - - - - - - - - 114 ANNUAL REPORT 2008 DIRECTORS’ DECLARATION For the year ended 30 June 2008 In the directors’ opinion: (a) the financial statements and notes set out on pages 44 to 114 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 Company’s and consolidated entity’s financial position as at 30 June 2008 and of their 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) the audited remuneration disclosures set out on pages 30 to 39 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001; and 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. Tony Aveling Managing Director and Chief Executive Officer Brisbane 28 August 2008 COLLECTION HOUSE LIMITED 115 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF COLLECTION HOUSE LIMITED Report on the Financial Report We have audited the accompanying financial report of Collection House Limited (the company), which comprises the balance sheet as at 30 June 2008, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies and other explanatory notes and the directors’ declaration of the company and the entities it controlled at the 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 and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101: Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards (IFRS) ensures that the financial report, comprising the consolidated financial statements and notes, complies with International Financial Reporting Standards (IFRS). Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. 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 judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal 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. Liability limited by a scheme approved under Professional Standards Legislation Auditor’s Opinion In our opinion: a) the financial report of Collection House Limited is in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b) the financial report also complies with International financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report (Sections A to E) included in the directors’ report for the year ended 30 June 2008. 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 (Sections A to E) of Collection House Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited financial report This auditor’s report relates to the financial report and remuneration disclosures of Collection House Limited (the company) for the year ended 30 June 2008 included on Collection House Limited’s web site. The company’s directors are responsible for the integrity of the Collection House Limited web site. We have not been engaged to report on the integrity of this web site. The auditor’s report refers only to the statements and remuneration disclosures named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements or the remuneration disclosures. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration disclosures to confirm the information included in the audited financial report and remuneration disclosures presented on this web site. HACKETTS DFK Shaun Lindemann Partner Chartered Accountants Brisbane, 28 August 2008 Liability limited by a scheme approved under Professional Standards Legislation SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 8 August 2008. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1 1,001 5,001 10,001 – – – – 1000 5,000 10,000 100,000 100,001 and over There were 361 holders of less than a marketable parcel of ordinary shares. B. Equity Security Holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Mr Dennis George Punches Trans Tasman Collections Investments Pty Limited Citicorp Nominees Pty Limited George Laurens (QLD) Pty Ltd (Pearce Family A/C) HSBC Custody Nominees (Australia) Limited RP Prospects Pty Ltd (M & L A/C) City Plaza Inc Mr John Marshall Pearce and Mrs Sandra Anne Pearce (Collection House S/Fund A/C) ANKLA Pty Ltd Mr Anthony Francis Coutts and Mrs Jennifer Elise Coutts (Coutts Super Fund A/C) HSBC Custody Nominees (Australia) Limited Anthony Coutts and Jennifer Coutts (The Coutts Family A/C) J P Morgan Nominees Australia Limited Mr William Kagel Mr Raymond Larkin National Nominees Limited Banjo Superannuation Fund Pty Ltd (P D Evans PSF A/C) Mr Lev Mizikovsky and Mrs Emily Dorothy Mizikovsky (Superfun Superfund A/C) Mr Frederick Benjamin Warmbrand Mr Neil Francis Day Total 118 ANNUAL REPORT 2008 Class of equity security Ordinary shares Holders 583 1170 349 385 52 2539 Shares 379,686 3,206,392 2,768,732 11,402,523 79,564,548 97,321,881 Ordinary shares Numbers held 14,098,835 9,997,798 8,570,946 7,737,925 6,328,610 6,315,136 4,772,427 3,985,905 3,461,374 2,707,000 1,992,460 1,427,000 693,680 500,000 400,000 355,196 345,000 289,628 257,000 250,051 Percentage of is- sued shares 14.49 10.27 8.81 7.95 6.50 6.49 4.90 4.10 3.56 2.78 2.05 1.47 0.71 0.51 0.41 0.36 0.35 0.30 0.26 0.26 74,485,971 76.53 SHAREHOLDER INFORMATION unquoted equity securities Options issued to MD/CEO under his employment contract * Options issued under the Collection House Executive Option Plan* * Details of these options are set out at note 40 of the financial statements. Restricted securities Number of issue Number of holders 2,000,000 1,250,000 1 18 All issued shares in Collection House Limited are quoted on the ASX and there are no shares subject to escrow or other regulated restrictions other than as follows: Voluntary restrictions on securities Employees who participate in the Collection House Employee Share Plan are required to enter into voluntary escrow arrangements with the Company, undertaking not to dispose of any of these shares for 12 months from the date of issue of the relevant shares. There are no such restricted shares at the date of this Report. Under the Collection House Employee Share Plan and Collection House Executive Option Plan, employees may be entitled to acquire shares under an employee loan facility. Employee shares that are subject to an employee loan at the time that the voluntary escrow period expires remain restricted until the relevant employee loan is discharged. As at 8 August 2008, there are 8,000 shares (0.01% of issued capital) that are restricted on this basis. The date that these shares cease to be restricted will depend upon the date that the employee loans are repaid in full. Shares restricted under voluntary arrangements rank pari passu with all fuwlly paid ordinary shares in all other respects. C. Substantial holders Substantial holders in the Company are set out below: Ordinary shares Dennis George Punches (combined shareholdings) John Pearce and Sandra Pearce/George Laurens (Qld) Pty Ltd (combined shareholdings) Trans Tasman Collections Investments Pty Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited R P Prospects Pty Ltd D. Voting rights The voting rights attaching to each class of equity securities are set out below: (a) Ordinary shares Number held Percentage 14,150,101 11,747,830 9,997,798 8,570,946 6,328,610 6,315,136 14.54% 12.07% 10.27% 8.81% 6.50% 6.49% On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. (b) Options No voting rights. COLLECTION HOUSE LIMITED 119 CORPORATE DIRECTORy Head Office Collection House Limited ABN 74 010 230 716 Level 3 488 Queen Street, Brisbane Qld 4000 GPO Box 2584, Brisbane Qld 4001 Telephone: +61 7 3292 1000 Facsimile: +61 7 3832 0222 Website: www.collectionhouse.com.au Locations Australia Brisbane Ballarat Sydney Bendigo Melbourne Newcastle Adelaide Shepparton Perth New Zealand Auckland Stock Exchange Listings Collection House Limited shares are listed on the Australian Stock Exchange. The home exchange is Brisbane. ASX Code: CLH Company Secretary Michael Watkins Phone: +61 7 3307 7231 Facsimile: +61 7 3017 3070 Auditors Hacketts DFK Level 3, 549 Queen Street, Brisbane Qld 4000 Share Registry Computershare Investor Services Pty Limited GPO Box 242 Melbourne, VIC 3001 AUSTRALIA For general enquiries: Phone: 1300 552 270 for calls (within Australia) or +61 3 237 2100 (outside Australia). your Proxy form may be faxed to Computershare on 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia). To access your account or change your details, please visit the Computershare website at www.computershare.com 120 ANNUAL REPORT 2008 ColleC tion House limited ANNUAL REPORT 2008 C o l l e C t i o n H o u s e l i m i t e d A N N U A L R E P O R T 2 0 0 8