Clean Harbors
Annual Report 2009

Plain-text annual report

m i l d e t i t r o p e R 9 0 0 2 l a u n n A i t C e l l o C e s u o H n o 2 overview 7 Business Performance 8 Who We Are 9 our responsibilities Overview Performance Highlights ......................... 2 Chairman’s Statement ........................... 3 Chief Executive’s Review ........................ 4 Notice of ANNuAl GeNerAl MeetiNG The Annual General Meeting of Collection House Limited will be held on 30 October 2009 at 11.00am at the Emporium Hotel, 1000 Ann Street, Fortitude Valley, Brisbane, QLD. The business of the meeting is outlined in the formal Notice and Proxy Form that are enclosed with this report. CORPORATE DIRECTORY Head Office Collection House Limited ABN 74 010 230 716 Level 7 515 St Paul’s Terrace Fortitude Valley, Qld 4006 GPO Box 2247, Fortitude Valley BC Qld 4006 Telephone: +61 7 3292 1000 Facsimile: +61 7 3832 0222 Website: www.collectionhouse.com.au Registered Office Collection House Limited c/- Hacketts DFK Level 3 549 Queen Street Brisbane, Qld 4000 Locations Australia Brisbane Ballarat Sydney Bendigo Melbourne Newcastle Adelaide Shepparton Perth New Zealand Auckland (2) 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: Facsimile: +61 3414 7525 +61 7 3100 1229 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 COLLECTION HOUSE LIMITED 117 20 Directors’ Report 35 Auditor’s Independence Declaration 36 Financial Statements Contents 117 Corporate Directory Business Performance Who We Are Directors’ Report ............................. 20 Company Profile .................................... 7 Board of Directors .................................. 8 Auditor’s Independence Declaration 35 Divisional Performance .......................... 7 Executive Management .......................... 8 Financial Statements Contents ........ 36 Purchased Debt ................................7 Our Responsibilities Independent Audit Report ...............113 Commission Collections Services ....7 Receivables Management ................7 Corporate Social Responsibility ............. 9 Shareholder Information ................115 Environment ......................................9 Corporate Directory ........................117 Financial Basics Foundation ............9 Learning for Life ...............................9 Corporate Governance Statement ....... 10 COLLECTION HOUSE LIMITED 1 OVERVIEW Performance Highlights 2007 2008 2009 Pre tax underlying profit ($m) % growth 4.4 10.1 130% 10.5 4% EBITDA ($m) % growth 34.6 44.7 29% 47.9 7% Dividends per share (cents) % growth 2.0 4.7 135% 4.9 4% Shareholders equity ($m) % growth 77.1 84.3 9% 88.0 4% FY07 FY08 FY09 Pre tax underlying profit ($m’s) FY07 FY08 FY09 EBITDA ($m’s) FY07 FY08 FY09 Dividends per share (c) $m’s 11 10 9 8 7 6 5 4 3 2 1 0 $m’s 50 45 40 35 30 25 20 15 10 0 Cents 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 $m’s 100 90 80 70 60 50 40 30 20 10 0 FY07 Shareholders equity ($m’s) FY09 FY08 2 ANNUAL REPORT 2009 Chairman’s Statement “The Company is well positioned to take advantage of the significant opportunities that we believe will be available in the Australasian market” It is a pleasure to report that the Company has had another excellent year under the stewardship of our CEO Tony Aveling and his dedicated and enthusiastic team. Congratulations Tony to you and your team on a great result. Investors know what a tough past year it has been and for us to report a profit and dividend up on last year, is indicative of both the great team effort of our people and the excellent opportunity that the industry presents. With my election as Chairman taking effect on the 1st of July 2009 I want to thank our Chairman since listing on the ASX on October 4th 2000, Dennis Punches, for his guidance of the Company. His experience and financial support has been essential in us reporting nine consecutive annual profit results. Congratulations Dennis, we are delighted that you are remaining on the Board as Deputy Chairman. With the sound base that has been created, particularly over the last two years, we are now in a position to both consolidate and capitalise on that foundation. We believe that there will be more debt available for both purchase and also in the contingent environment over the next year. And we believe that there will not be as much capital available for the purchase of the available debt. That, along with other factors should lead to lower prices for the debt purchased and increased opportunities for contingent work. This, added to the much better climate for recruiting and retaining quality staff, allows us to feel confident about the year ahead. In the past year we have moved to our new Head Office at “Green Square” in Brisbane, a wonderful facility, a new well fitted office in Sydney and a smaller less expensive location in Perth. These moves consolidate our locations and offices to suit the focused direction in debt management and recovery that we have taken. Put simply, the Company is well positioned to take advantage of the significant opportunities that we believe will be available in the Australasian market. As your new Chairman my focus will be on encouraging Tony Aveling and his team to continue working with our clients and customers to obtain results that will increase shareholder value. I am enthusiastic about the challenge and will work to maximize results for all stakeholders. John Pearce Chairman COLLECTION HOUSE LIMITED 3 OVERVIEW Chief Executive’s Review “Our Company is strong and prosperous, and our task is to make absolutely sure it stays that way” Despite difficult economic conditions, Collection House again exceeded expectations. This was evidenced by achieving an underlying pre tax profit of $10.5 million which is the highest since the introduction of new accounting standards in 2006; growing EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) by 7% to $47.9 million; and delivering a Total Shareholder Return of 15.9% on the back of double digit yielding fully franked dividends. Who we are Collection House is Australia’s leading receivables manager with offices in Queensland, New South Wales (2), Victoria (4), South Australia, Western Australia and New Zealand (2). A difficult 08/09 operating environment To state the blindingly obvious, the world, and to a lesser degree Australia and New Zealand, have been through a severe economic downturn which is by no means over. Investors are only too painfully aware of this and hardly need reminding of that overused term, ‘Global Financial Crisis’. Inevitably these depressive forces impacted our business, principally because those of our customers who are under increased financial pressure are often less able to meet their obligations. This is particularly so where they have lost their jobs or fear that that is likely to happen. Our core businesses are Receivables Management, Commission Collections and Debt Purchasing. Time to amend the strategy We focus on mainly blue chip clients including major banks, financial institutions, insurance houses, large corporations, public utilities and local governments. Our competitive strength lies not only in being very good at collections, but also in our people and training, our brand protection leadership through following high ethical standards, our compliance culture, our proprietary technology, and our management information. What we have done Collection House was floated on the Australian Stock Exchange in 2000. While there have been some ups and downs, the Company has made profits and paid dividends every year since then. Within the industry, we are a unique combination of Top 4 debt buyer, usually top performing agent when contingent rankings are provided by clients, and excellence in Local Government collections. Since inception we have paid $338 million for purchases of debt with a Face Value of $2.9 billion. However, good companies don’t throw up their hands in despair when life gets tough. They amend their strategies and they find a better way. When the financial system started falling apart, we recognised that we not only needed to change but that we had to move fast. The key changes we made were: • Helping protect our ongoing viability by securing longer term funding from our bankers. • Decreasing costs by reducing the number of support staff. • • • Growing our Purchased Debt Ledger book by taking a disciplined approach to pricing debt purchases that reflect more difficult economic conditions. Maintaining book value and cash flow by emphasising the need for customers to enter into repayment arrangements where they were unable to make payment in full. Growing our business by placing greater emphasis on the commission businesses which are more likely to grow as clients look to strengthen their cash flow from receivables. 4 ANNUAL REPORT 2009 • • • • • • • • • What we achieved An exceptional new Head Office Thankfully these moves paid off with key results as follows: After jumping from $4.4 million to $10.1 million in 2007/08, underlying pre tax profits, ie excluding exceptional items, grew to $10.5 million (lower tax credits saw after tax profits dip from $7.5 million to $7.4 million). Revenue from continuing activities was up 7% to $102 million with rises in both Purchased Debt and Commission Collections. EBITDA rose from $44.7 million to $47.9 million while EBIT was up 9% to $15.5 million. Net Assets per share increased to 90.4 cents, considerably higher than the year end share price of 49 cents which itself was up 56% from its November low of 31 cents. Instead of the usual one year facility, we requested and received a two year facility extension from our long term bankers. All covenants were comfortably met. Annual Reports do not usually cover moves to a new Head Office but we are very excited about this and wish to share the news with you. We have moved from two buildings in Brisbane’s Central Business District to one on the fringe CBD. Our previous tenancies were old and tired, had become totally unsuitable for a modern call centre environment, and the rentals were about to more than double. Instead we now have a state of the art Head Office, and as good a call centre as any in Queensland. It presents a professional image for our clients, it has been enthusiastically received by our staff and aids both recruitment and retention. We achieved an exceptional value for money fitout, and the rental is much lower than if we had remained in our previous locations. Best of all, the building achieved a 6 Star Green Star rating, the first in Queensland. This feature is tremendously important to the Company and our staff as we all try to play our part in limiting damage to the environment. We were disciplined with our Purchased Debt pricing, buying 73% of the previous year’s Face Value but for only 48% of the cost. Still a challenging external environment The all important Purchase Debt Arrangement Book, where there is a high propensity to pay, grew 13% to $106 million while the default rate halved. Cash flow was negative $6 million, this being due solely to the one off costs of moving our Head Office. Amortisation of our Purchase Debt Ledgers remained within our usual 47-49% band. • Productivity rose despite the difficult environment. • The ratio of Support to Collection staff reduced yet again, this time from 14.6% to 12.4%. From the all important shareholder perspective, Collection House recorded a positive TSR (Total Shareholder Return) of 15.9% on the back of an attractive fully franked double digit dividend yield. Dividends for the year grew from 4.7 cents to 4.9 cents. While the economic outlook is currently looking brighter, it seems likely to be quite some time before we return to ‘normal’. From the perspectives of this business, the greatest challenge is the near certainty of rising unemployment which will reduce the recoverability of our debt. At the same time, household costs are rising, especially power, water and transport costs, which are squeezing household budgets. We are also seeing Purchase Debt vendor expectations remaining too high, a position encouraged by some purchasers. Our qualitative and quantitative pricing models developed over many years do not support these prices, nor does experience overseas. Finally on the downside, we must acknowledge the benefits we received through the Federal Government’s stimulatory measures in 2008/09 – benefits which will not be received this year. COLLECTION HOUSE LIMITED 5 OVERVIEW Chief Executive’s Review There are many positives though. There is not likely to be a shortage of debt for sale and potential Commission Collections volumes could rise. Relatively low interest rates will continue which benefits both our customers and our own funding costs. We also expect further improvement in the availability, quality and retention of employees as job security assumes greater importance than in recent years. A special thanks to our enthusiastic staff Recent employee satisfaction surveys go some way to explaining why we are performing so well despite the economic doom and gloom. For nearly all questions, over 80% of respondents agreed or strongly agreed with the positive attributes of Collection House. Highlights included 96% of respondents know what is expected of them in their role, 92% understand what the Company’s objectives are and how they contribute to these being achieved, 90% say that communications are good, and 90% have a good relationship with their immediate supervisor. We have an experienced Executive Management team, hundreds of enthusiastic Customer Service Officers, and a valued support staff without whom none of this progress could have been achieved. To them my sincere thanks. Outlook To maintain momentum, our strategies will focus upon building the Arrangement Book, maximising productivity, maintaining disciplined pricing for debt purchases, and gaining profitable new commission clients. Our Company is strong and prosperous, and our task is to make absolutely sure it stays that way. I’m confident that the inspiration of a sound strategy, the guidance of the Board, and the hard work and talent of our people, will enable us to capitalise on our record of growing profits and dividends. Tony Aveling Chief Executive Officer 6 ANNUAL REPORT 2009 BusInEss P ERfORmancE Company Profile Collection House Limited is Australia’s leading receivables manager. Our core business is providing contingent collection services, receivables management and debt purchasing services (Lion Finance Pty Ltd). As a public company, listed on the Australian Stock Exchange (ASX Code: CLH), Collection House operates throughout Australia and New Zealand. 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 government authorities. 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, Collection House now employs over 580 staff in 11 Australasian offices. For further shareholder, investment and career information, please visit www.collectionhouse.com.au Divisional Performance Purchased Debt The impact of the economic downturn has been offset by a continuous emphasis on growing the Arrangement Book via strategies and process improvements implemented throughout the year. This puts in place a growing reoccurring revenue source and supports the carrying value of the debt portfolio. Discounting continued to be well managed and targeted letter and telephony campaigns on older debt portfolios complemented the activity of the Customer Service Officers work upon newer purchases. Staff retention strategies have been effective during the year with an increase in the average length of service of Customer Service Officers from 14 months to 16 months. Further developing our valued staff, a more robust and dedicated training team was also introduced into the Debt Purchase Division thus enhancing the training, development and ongoing support that will underpin future initiatives. Commission Collections Services Within the Commission Collections business we have experienced solid organic growth from our key clients through the referral of additional products. Additionally we have continued to rationalise contracts which were not delivering acceptable returns. While this led to revenue reductions at times, underlying profitability increased. Three primary areas within our Commission Collections Division, being Banking and Finance collections, Insurance and Corporate (Commercial) are all showing positive signs of growth and are expected to be significant contributors to future results. The fourth area, Midstate Credit Management Services Pty Ltd which provides services to Local Government, achieved another outstanding result despite difficulties posted by bushfires and droughts (www.midstatecms.com.au). Receivables Management Global recession, increased living costs and higher unemployment are creating a demand for our Receivables Management business now in its ninth year of operation. Whilst book growth continues, we have managed to maintain staff numbers by up skilling and utilisation of new technology. Collection House’s shared outbound calling team, the National Collections Division, assisted in this by providing support for overflow and conducting weekend and evening campaigns. This year we introduced 100% call recording enabling training and development of our Customer Service Officers. This tool is invaluable as it will also ensure protection for Collection House, our customers and our valued clients. Revenue for the division has increased. As part of our growth strategy we will work toward increased volumes and productivity through the up skilling and retention of staff. COLLECTION HOUSE LIMITED 7 WHO WE aRE Board of Directors 1 2 7 3 4 8 5 6 1 | John Pearce Chairman 4 | Barrie Adams 7 | Bill Hiller Lead Independent Director Independent Director 2 | Dennis Punches Deputy Chairman 3 | Tony Aveling Managing Director & Chief Executive Officer 5 | Tony Coutts 8 | Bill Kagel Non-Executive Director Independent Director 6 | Barry Connelly BJ. Independent Director Further information on our Directors is contained in the Directors’ Report on pages 23 to 25. Executive Management Adrian Ralston Chief Financial Officer Kylie Lynam General Manager – Human Resources Matthew Thomas Chief Operating Officer Michael Watkins General Counsel and Company Secretary 8 ANNUAL REPORT 2009 OuR REsPOnsIBIlItIEs Corporate Social Responsibility Supporting the Environment: New Head Office 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 2008/09 we relocated our Brisbane Head Office to new premises which offers 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 buildings based on extensive criteria. 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 provides benefits to both our people and the wider community. Financial Basics Foundation “Now, more than ever financial education is an essential life skill for all young people. We need to start financial education early with a planned and coherent program throughout the school years so that all young people leaving school have the skills, knowledge and confidence in financial matters to participate fully in society.” Barrie Adams, Chairman 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. We continue to be a major supporter of the Foundation. The completion of the review and update of the Operation Financial Literacy material at the end of last year also included the development of a new module for the Operation Financial Literacy teaching resource. Module 11 - Scams has been incorporated, and as with all of the Foundations resources - the material was written by leading business educators and has been mapped to all state and territory curriculum documents for ease of use in Australian secondary schools. A further 200 new schools have registered in the last financial year for this material. Operation Financial Literacy has now been distributed free of charge to some 1500 secondary schools across Australia. Released in June 2007 the ESSI (Earning, Saving, Spending and Investing) Money online game had 11,360 registered users within the first 12 months. By June 2009 this figured has grown to over 28,848 registered users.The Foundation worked with the game’s developers to produce a CD Rom version of ESSI Money to better facilitate access to this important learning tool to regional schools and those schools with limited bandwidth. The global financial crisis has highlighted the need for programs and resources that not only better educate young Australians about sound financial management skills but that help young people engage in their community and to build their own financial capacity. With the lessons learned from this situation the Foundation is working closely with the management of Collection House to utilise these valuable educational tools with staff in the Company. The Foundation continues to maintain a focussed and long term approach to the development and enhancement of our resources and this was a key outcome in 2009. The Foundation’s resources are now also being provided to well known charitable institutions in Australia. Charities that work with young people who are often disengaged from the traditional education system consider financial literacy as a critical life skill. All of the learning materials and ESSI Money are provided by the Foundation at no cost to schools and charities throughout Australia. For more information about the Financial Basics Foundation, Operation Financial Literacy or ESSI Money go to www.financialbasics.org.au Learning for Life As we enter our fourth year supporting the Smith Family’s Learning for Life program, Collection House’s commitment to this worthwhile cause continues. Learning for Life supports financially underprivileged children through education, assisting with books, uniforms and excursions. This past year, Collection House provided support for four students offering them the opportunity to develop through literary support, mentoring, tutoring and personal development initiatives supplied by the program. We intend to continue the contribution to this very worthwhile program as part of our commitment to social community responsibility. COLLECTION HOUSE LIMITED 9 OuR REsPOnsIBIlItIEs Corporate Governance Statement 1. Introduction 3. The Board of Directors This statement relates to the year under review. a) Membership and expertise of the Board 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 re–approved and re–endorsed by the Collection House Limited Board on 25 June 2009. 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 Directors’ membership, period of office held, experience and shareholdings are provided in greater detail on pages 23 to 25 of the Directors’ Report. ASXCGC’s Recommendations 2.6 b) Board role and responsibility The role 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: 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, 2.4 and 4.2, which relate to independence. Our reasoning on independence and an explanation for our variance on the ASXCGC’s Recommendations 2.1, 2.2, 2.4 and 4.2 are set out in section 3(e) and section 4(b) of this Statement. A checklist summarising our compliance with ASXCGC’s Recommendations ‘www. collectionhouse. com. au’. the is on our website at ASXCGC’s Recommendations 2.1, 2.2 and 2.6 10 ANNUAL REPORT 2009 • • • • • • • • • • • • • • providing strategic direction and approving significant corporate strategic initiatives; providing input into, and approval of, management’s development and performance objectives; corporate strategy of 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 appointment of the external auditor; to shareholders the approving our risk management strategy and various risk management and monitoring their effectiveness; frameworks 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.  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 responsibility for: to Executive Management, • • • • • • 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 in accordance with managing day-to-day operations 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 six and eight, with Independent Non-executive Directors, comprising the majority of the Board. As at 30 June 2009, there were 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, John Pearce, is a Non-executive Director. He has been a Director of the Company since 9 April 1993 and Chairman since 25 June 2009. The Chairman is a member of the Remuneration Committee. Until 25 June 2009, Dennis Punches was Chairman, having held that position since 2000. Both the Company’s current Chairman, John Pearce, and the previous Chairman, Dennis Punches, are 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), both John Pearce and Dennis Punches have extensive experience and professionalism which allows them to exercise quality, unfettered and independent judgment on all relevant issues falling within the scope of the role of Chairman of the Board. Dennis Punches is 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 until 30 June 2009, a majority of the Board is not independent. However, the Board considers that the individuals on the Board can, and do exercise quality, unfettered and independent judgment 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 its current composition meets Board believes these requirements. that The Nominations Committee charter discloses a process for selection and appointment of new Directors and re-election of incumbent Directors. COLLECTION HOUSE LIMITED 11 OuR REsPOnsIBIlItIEs Corporate Governance Statement Exceptions to ASXCGC’s Recommendations f) Avoidance of conflicts of interest by a Director 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. 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. is responsible The Board for MD/CEO succession planning. The MD/CEO is actively involved with Executive Management succession. 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 30 June 2009. These Directors are John Pearce (Chairman appointed 25 June 2009) (previously Deputy Chairman), Dennis Punches (Deputy Chairman appointed 25 June 2009) (previously Chairman), Tony Aveling (MD/CEO) and Tony Coutts (Non-Executive Director). Due only to their respective substantial shareholdings in the Company, John Pearce and Dennis Punches and also Tony Coutts, as a previous Executive Director (resigned 30 June 2006), 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 on pages 23 to 25 of the Directors’ Report. 2.2 and 2.4 The Chairperson should be an Independent Director While the Chairman of the Board, John Pearce and the previous Chairman, Dennis Punches, are not classed as independent (Recommendations 2.2 and 2.4), their experience and knowledge of the industry, both individually and collectively, coupled with their ability to lead, have enabled both of them to be, and continue to be, a valuable and effective Chairman and Deputy Chairman respectively of the Board and in the case of John Pearce, a member of the Remuneration Committee and in the case of Dennis Punches, Chairman of the Nominations 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 John Pearce, 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. ASXCGC’s Recommendations 2.1, 2.4 and 2.6 12 ANNUAL REPORT 2009  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. ASXCGC’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 the Company’s 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 is also a Solicitor Director of Jones King Lawyers Pty Ltd, a wholly owned subsidiary 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. COLLECTION HOUSE LIMITED 13 OuR REsPOnsIBIlItIEs Corporate Governance Statement The three Board Committees and their membership at 30 June 2009 are set out in the table below: Barrie Adams Bill Hiller Barry Connelly Bill Kagel Dennis Punches John Pearce Tony Coutts Audit and Risk Management Committee Chairman and Lead Independent Director Independent Director Independent Director – resigned 30 October 2008 Nominations Committee Independent Director Independent Director Remuneration Committee Lead Independent Director Chairman and Non-independent Director Non-independent Director Non- independent Director Chairman and independent Director Non-independent Director – appointed 30 October 2008 Attendances of Directors at Committee meetings are set out in the Directors’ Report at page 25. ASXCGC’s Recommendations 2.6, 4.1, 4.2, 4.3, 4.4, 8.1 and 8.2 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. b) Committee procedures How the Committees report to the Board Composition and independence of the Committees Committee members are chosen for the skills, experience and other qualities they bring to the Committees. 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. Exceptions to the ASXCGC’s Recommendations How Committees’ performance is evaluated The Audit and Risk Management Committee, on and from 30 October 2008, did not consist only of Independent Non-Executive Directors in accordance with Recommendation 4.2. The Audit and Risk Management Committee was until 30 October 2008, composed of only Independent Non-executive Directors. On and from 30 October 2008, Barry Connelly (Independent Director) resigned, and Tony Coutts was appointed to the Audit and Risk Management Committee. Due only to Tony Coutts’ tenure as an Executive Director, which concluded on 30 June 2006, and the intervening period of 3 years, Tony is considered a Non-Independent Non-Executive Director. From 30 October 2008 the Audit and Risk Management Committee is considered non compliant with Recommendation 4.2. Given Tony Coutts’ industry experience and knowledge of domestic trends in the collection industry, the Board maintains that he is, and will continue to be, a valuable and effective Director in the Audit and Risk Management Committee. On and from 1 July 2009, the Audit and Risk Management Committee is composed of Independent Non-Executive Directors and is structured in compliance with Recommendation 4.2. 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 14 ANNUAL REPORT 2009 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 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 with the Audit and Risk Management Committee. The Audit and Risk Management Committee, oversees all matters concerning: integrity of the reporting systems; financial statements and financial making recommendations to the Board for the appointment of the external auditor; external auditor’s qualifications, performance, independence and fees; • • 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 7 occasions during the reporting year. The Audit and Risk Management Committee regularly updates the Board about its activities. oversight and performance of the internal audit function; ASXCGC’s Recommendations 4.1, 4.2, 4.3, 4.4, 7.1 and 7.2 compliance with regulatory requirements; financial reporting and related d) Nominations Committee • • • • • • • • • • • • reviews and approves the frameworks for managing our market, operational and compliance risk; determines, approves and reviews limits and conditions that apply to the taking of risk, including the authority delegated by the Board to the MD/CEO and Executive Management; the monitors the risk profile, performance, capital levels, exposures against limits and management and control of our risks; 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; reviews significant issues that may be raised by internal audit as well as the length of time and action taken to resolve such issues; and • reviews our approach to corporate governance. fulfilling In Management Committee: its responsibilities, the Audit and Risk • • • • 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; 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 the Board, individual Directors, and to make recommendations for the appointment and removal of Directors. The Nominations Committee is responsible for: • • • • • • • 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; and making and appointments. recommendations on Board composition 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. COLLECTION HOUSE LIMITED 15 OuR REsPOnsIBIlItIEs Corporate Governance Statement 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 and practices; industry standards 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. ASXCGC’s Recommendations 1.2, 1.3 and 8.1 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; 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 16 ANNUAL REPORT 2009 6. Promoting ethical and responsible c) Concern reporting and whistleblowing 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; act professionally, ethically and honourably; 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 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 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. Additional restrictions apply 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). Those restrictions limit the periods in which the Directors and Prescribed Employees can trade in our shares or other company securities. Further, Directors and employees are not permitted to trade in closed periods which operate for two months immediately preceding the half yearly results and the full year results respectively. The periods in which Directors and Prescribed Employees can trade (Trading Windows) commence two business days after the release of our half year and full year results (Trading Window - normally 60 days) and after our Annual General Meeting (Trading Window - normally 30 days). COLLECTION HOUSE LIMITED 17 OuR REsPOnsIBIlItIEs Corporate Governance Statement Directors and Prescribed Employees must also notify the MD/ CEO in writing 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 Corporate Counsel 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. In June 2008, subject to shareholder approval, the Board agreed to vary the MD/CEO’s remuneration and employment agreement to include certain additional share options. The MD/ CEO’s variation of his remuneration and employment agreement and the grant of additional share options were approved by shareholders at the Company’s Annual General Meeting in October 2008. Details of the share options are set out in the Remuneration Report. In June 2008, certain additional share options were issued to eligible senior employees under the Executive Share Option Plan previously approved by shareholders at the Annual General Meeting of the Company in October 2007. Details of the share options are set out in the Remuneration Report. 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 The expected outcomes of this remuneration philosophy are: 8. Market disclosure • • • 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 vario us 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 Executive Share Option Plan were presented, ratified 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. 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 Board is primarily 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. 18 ANNUAL REPORT 2009  All market announcements are released to the ASX first in time. 10. Health and safety We also publish on our website the Annual Reports, profit announcements, presentations, 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 and investor presentations 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. of copy approved Shareholder A the Board Communications Guidelines the is available corporate governance section of the Company’s website at ‘www.collectionhouse.com.au’. from 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 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 financial statements since in 31 December 2006. its consolidated entity’s 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 taken initiatives to reduce its carbon footprint with the relocation of our Head Office to a 6 Star, Green Star rated building in Brisbane. ASXCGC’s Recommendations 6.1 and 6.2 COLLECTION HOUSE LIMITED 19 DIREctORs' REPORt The 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 for the financial year ended 30 June, 2009. 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: John Pearce Dennis Punches Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel See pages 23 to 25 for information on the directors. Principal activities The principal activities of the Group during the financial year were the provision of debt collection services and receivables management throughout Australasia and the purchase of debt by its special purpose subsidiary Lion Finance Pty Ltd. Dividends paid to members during the financial year Final ordinary dividend for the year ended 30 June, 2008 of 2.5 cents fully franked (2007 - 2 cents unfranked) per fully paid share paid on 28 November 2008. Interim ordinary dividend for the year ended 30 June, 2009 of 2.3 cents fully franked (2008 - 2.2 cents fully franked) per fully paid share paid on 27 March, 2009. 30 June 2009 $’000 30 June 2008 $’000 2,433 2,238 4,671 1,946 2,141 4,087 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 $2.5 million (2.6 cents per fully paid share) to be paid on 27 November 2009 out of retained profits as at 30 June 2009. 20 ANNUAL REPORT 2009 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 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 30 June 2009 $’000 36,043 71,313 (5,419) 219 30 June 2008 $’000 34,465 64,183 (3,152) 16,213 30 June 2009 $’000 7,230 17,366 (6,005) 219 (7,832) 10,978 (3,124) 7,854 - 30 June 2008 $’000 5,704 15,966 (5,918) 11,327 (10,795) 16,284 (3,896) 12,388 1 7,854 12,387 Comments on the operations and the results of those operations are as follows: Results Excluding exceptional items, net profit after tax was $7.4 million compared with $7.5 million for the corresponding period. Net profit after tax for the year was $7.9 million compared to $12.4 million for the corresponding period. Total income from continuing operations ordinary activities increased by $6.5 million up to $102 million (2008: $95.5 million). Revenue from the Purchased Debt segment grew up 11.1% to $71.3 million. Revenue from commission collections grew 4.9% to $32.1 million. The company anticipates growing its commission collections services segment in 2010. EBITDA for the year (before fair value adjustments and impairment) was up by 7.2% to $47.9 million (2008: $44.7 million). Basic earnings per share excluding discontinued operations (“EPS”) were 7.9 cents (2008: 4.0 cents). The decreased profit after tax attributable to members reflects the impact of the disposal of non-core businesses in the previous year. Excluding this item, profit after tax from continuing operations has increased by 104.8%, reflecting tight cost control and efficiencies from the restructuring process that the company has undertaken in the past two years. Assets and liabilities Consolidated net assets have increased from $84.3 million to $88.0 million predominantly due to growth in the purchased debt portfolio, new assets acquired in the move to Green Square, and the absence of a bank overdraft at 30 June 2009. Net assets for the prior year have changed as a result of a prior period correction to the way that employee expenses are accounted for, as disclosed in note 5 of the financial statements. In September 2008, Colpro Pty Ltd a non-core business was sold, making a small profit. A number of non-trading entities within the group were voluntarily deregistered in the financial year 2008/2009. See note 39 for details. During the reporting period new debt portfolios were purchased for A$33.3 million and NZ$2.1 million in the Australian and New Zealand markets respectively, which was funded from operating cash flow and an increase in long term bank debt. COLLECTION HOUSE LIMITED 21 DIREctORs' REPORt Cash flow The consolidated cash flow from operating activities (including discontinued operations) was $40.6 million for the year compared to $38.3 million for the previous year, an increase of 6.2%. The Board has confirmed its confidence in the Group’s current and future trading position. The directors have recommended the payment of a final fully franked ordinary dividend as stated on page 20. 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$33.3 million; (b) in New Zealand, the Group purchased new debt portfolios for NZ$2.1 million; (c) Colpro Pty Ltd (a non core business) was sold; and (d) the Group successfully relocated its Head Office operations to Green Square North Tower, St Pauls Terrace, Fortitude Valley, Brisbane as planned with no delays. The new premises comprising two floors (3,952 m2) has consolidated the Group’s 300 Brisbane-based staff in one building, providing the Group room to continue on its current strong growth path. Exceptional items Summary of movements in exceptional items: Items Gain on the divestment of subsidiaries Qld State Office of Revenue (1) Restructuring costs(2) Exceptional Profits/(losses) Before income tax($m’s) After income tax($m’s) 2009 - 1.3 (0.7) 0.7 2008 10.4 (2.4) (1.9) 6.1 2009 - 0.9 (0.4) 0.5 2008 8.0 (1.8) (1.3) 4.9 (1)All aspects of the Stamp Duties issue as reported previously have been resolved with the Office of State Revenue, Queensland. The issue was finalised with a final settlement payment of $1.2 million before income tax. The settlement results in the provision raised at 30 June 2008 being cleared, including the write back of overprovided expenses as set out in note 9 to the financial statements. (2)Excess existing restructuring provisions were written back to profit as no longer required on completion of that stage of restructuring. Additional restructuring provisions were raised during the year for new restructuring activities. The net impact after tax was a negative expense $0.4 million. Further details are set out in note 24 to the financial statements. Prior period correction At the Company’s election, an adjustment has been made to employee expenses to correct prior period errors. The adjustment was posted against the opening balance of retained earnings. Refer note 5 of the financial statements. 22 ANNUAL REPORT 2009 DIREctORs' REPORt Matters subsequent to the end of the financial year The directors have recommended the payment of a final fully franked ordinary dividend of $2.5 million (2.6 cents per fully paid share) to be paid on 27 November 2009 out of retained profits as at 30 June 2009. Other than the matters discussed above, no matter or circumstance has arisen since 30 June 2009 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. Information on directors as at 30 June 2009 John Pearce Experience Chairman. Age 64 Co-founder of Collection House Limited. Appointed to the Board in April 1993. In April 2003, Mr Pearce returned to former position of Managing Director and 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. Appointed Chairman of the Board effective 25 June 2009. Member of the International Fellowship of Certified Collectors. Chairman of Financial Basics Foundation 2002 to 2007. Board Member of The Rutherglen Cemetery Foundation. Director, Brisbane Lions Foundation. Special responsibilities Mr Pearce is a member of the Remuneration Committee. Interest in Shares and Options (direct & indirect) 11,416,130 ordinary shares in Collection House Limited Nil options Dennis Punches Deputy Chairman. Age 73 Qualifications Experience BSC Appointed to the Board in July 1998, and in 2000 was appointed as Chairman of Collection House Limited. Re-elected Director 26 October 2007. Stepped down as Chairman to become Deputy Chairman effective 25 June 2009. 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. Special responsibilities Mr Punches is also the Chairman of the Nomination Committee and a member of the Remuneration Committee. Interest in shares and options (direct & indirect) 17,857,384 ordinary shares in Collection House Limited Nil options COLLECTION HOUSE LIMITED 23 DIREctORs' REPORt Tony Aveling Qualifications Experience Managing Director and Chief Executive Officer. Age 65 SFFin, FAIM, FAICD 46 years in the financial services industry including 34 years at Westpac Banking Corporation. Senior positions included Chief Executive Business and Private Banking, Managing Director & Chief Executive Officer Australian Guarantee Corporation Limited, and General Manager Europe. 3 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. Resigned as Director of Global MoneyLine Limited (March 2008). In October 2008, the Shareholders approved the issue of a further 2,000,000 share options in favour of Mr Aveling as part of his varied employment agreement. The full terms of the options are contained in the Notice of General Meeting announcement to shareholders on 19 September 2008. For details see note 41 of the financial statements. Interest in shares and options (direct & indirect) 449,400 ordinary shares in Collection House Limited 400,000 options Barrie Adams Qualifications Experience Lead Independent Director. Age 64 PSM, FCPA Appointed to the Board in November 2002 as Independent Lead Director and Chairman of the Audit and Risk Management Committee in January 2003. Chairman of Financial Basics Foundation and associated companies. Director of Ingeus Limited. Appointed Chairman, Infocus Wealth Management Ltd and its subsidiaries (December 2008). Resigned as Director of Steel Foundations Limited and associated companies and Nuplant Ltd (June 2009). Resigned as Director of Pro Super Holdings (October 2006). Resigned as a Member of Nominations Committee (October 2007). Special Responsibilities Mr Adams is the Chairman of the Audit and Risk Management Committee and a member of the Remuneration Committee. Interest in shares and options (direct & indirect) Nil ordinary shares in Collection House Limited Nil options Tony Coutts Experience Non-Executive Director (Independent Director as at 1 July 2009). Age 50 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. 18 years in the finance and insurance industry (Australian Guarantee Corporation Ltd). 13 years in the debt collection industry, the last 11 of which were spent at Collection House. Special responsibilities Mr Coutts was appointed a Member of the Audit and Risk Management Committee 30 October 2008. Interest in shares and options (direct & indirect) 4,464,600 ordinary shares in Collection House Limited Nil options Barry Connelly Independent Director. Age 69 Qualifications Experience BJ Appointed to the Board in June 2003. Charter member of the Board of NASDAQ listed company, First Advantage, Board Member of privately held Microbilt Corp. of Kenesaw, GA. Appointed Director of Huaxia D & B China in November 2008. 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. Special responsibilities Mr Connelly is a Member of the Nominations Committee. Interest in shares and options (direct & indirect) 77,143 ordinary shares in Collection House Limited Nil options 24 ANNUAL REPORT 2009 DIREctORs' REPORt Bill Hiller Experience Independent Director. Age 70 Appointed to the Board June 2003. 40 years experience in the automotive finance industry including as General Manager - Automotive Finance for St George Bank Limited. Special responsibilities Mr Hiller is a Member of the Audit and Risk Management and Nominations Committees. Interest in shares and options (direct & indirect) 93,000 ordinary shares in Collection House Limited Nil options Bill Kagel Experience Independent Director. Age 72 Appointed to the Board in February 2000. Over 40 years debt collection industry experience. Co-founder and Senior Vice President of Payco American Corporation, USA and former Director of Outsourcing Solutions Inc. Special responsibilities Mr Kagel is Chairman of the Remuneration Committee. Interest in shares and options (direct & indirect) 951,269 ordinary shares in Collection House Limited Nil options Company secretary The Company Secretary to 30 June, 2009 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 2009, and the numbers of meetings attended by each director were: 2009 Full meetings of directors Audit and Risk Management Nomination Remuneration Meetings of committees Dennis Punches John Pearce Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel A 6 6 6 6 6 6 6 6 B 6 6 6 6 6 6 6 6 A ** ** ** 7 5 2 7 ** B ** ** ** 7 4 Appointed 30/10/2008 2 Resigned 30/10/2008 7 ** A 1 ** ** ** ** 1 1 ** B 1 ** ** ** ** 1 1 ** A 2 2 ** 2 ** ** ** 2 B 2 2 ** 2 ** ** ** 2 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 25 DIREctORs' REPORt Remuneration Report The remuneration report is set out under the following main headings: A B C D E Principles used to determine the nature and amount of remuneration Details of remuneration Service agreements Share-based compensation 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; and • 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; and 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. Directors’ fees Fees and payments are reviewed annually by the Remuneration Committee. The Committee’s recommendations are forwarded for approval by the Board. 26 ANNUAL REPORT 2009 DIREctORs' REPORt 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. Mr John Pearce, appointed as Chairman on 25 June 2009 receives a non-executive director’s fee of $50,000 per annum plus superannuation from 1 July 2009 but is not currently drawing any additional fees for being Chairman of the Collection House Group. Mr Pearce intends to use his director’s fees to purchase shares in the Company. Dennis Punches, Deputy Chairman as at 25 June 2009, receives an annual fee of $50,000 per annum inclusive of being Chair of the Nominations Committee. Barrie Adams, as Lead Independent Director, receives an annual fee of $100,000. Mr Adams’ fee is comprised of a $60,000 director’s fee, (including $10,000 being a fee as Lead Independent Director), and $40,000 as Chairman of the Audit and Risk Management Committee. Bill Kagel, as Chair of the Remuneration Committee, has waived the fee normally due to him for this role. Non executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. Non-executive directors do not receive share options. Executive Directors Tony Aveling was appointed as Managing Director and Chief Executive Officer (MD/CEO) on 27 November 2006 with a projected end date being 28 February 2009. On 26 June 2008, subject to shareholder approval, the Collection House Board agreed to vary Mr Aveling’s employment for no fixed term and Mr Aveling’s Remuneration and Employment Agreement (Agreement) was varied accordingly on 28 August 2008. Mr Aveling’s Agreement was approved by shareholders at the Company’s Annual General Meeting on 31 October 2008. A summary of the varied remuneration package is set out in section C of the remuneration report. 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 Share 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. For the past year, a decision was made to hold executive base pay and increase the “at risk” component. Long Term Incentive Certain eligible employees are offered long term incentives via the Executive Share Option Plan, see section D of the remuneration report for details. COLLECTION HOUSE LIMITED 27 DIREctORs' REPORt Benefits The major benefit provided to executives and eligible employees is the ability to participate in the Executive Share Option Plan. Retirement allowances for Directors There are no retirement allowances paid to non-executive directors, in line with recent guidance on non executive directors’ remuneration. Retirement Benefits for Executives There are no retirement benefits made available to executives, other than as are required by statute. 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 Operating Officer M. Watkins - General Counsel and Company Secretary K. Lynam - General Manager – Human Resources 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 A. Ralston - Chief Financial Officer M. Thomas – Chief Operating Officer M. Watkins - General Counsel and Company Secretary U. Danielian – Solicitor Director, Jones King Pty Ltd (a subsidiary of the Group) 28 ANNUAL REPORT 2009 DIREctORs' REPORt Key management and highest paid personnel of the Group for the year ended 30 June 2009 is as follows: Short Term Benefits Salary & Fees $ Cash Bonus $ Non- Monetary Benefits $ Post Employment Benefits Share Based Payments Other $ Superannuation* $ Options $ Total $ - - 50,000 50,000 100,000 107,692 62,308 50,000 56,667 71,667 70,000 70,000 50,000 50,000 - - - - - - - - - - - - - - 500,000 500,000 500,000 475,000 216,672 216,415 245,103 234,635 241,821 239,818 121,638 119,560 - 101,750 - 40,000 19,000 46,000 21,000 40,000 21,000 22,000 11,000 - - - 41,077 154,715 184,299 18,000 - - - - - - - - - - - - - - - - - - 5,638 6,052 5,638 6,052 5,638 6,052 5,638 6,052 - - - - - - - - - - - - - - - - - - - - 70,300 98,800 - 3,392 - - - - - 9,257 - - - - - - - - - - 9,000 9,692 5,608 4,500 - - 6,300 6,300 - - 96,327 87,750 23,100 21,493 26,127 23,007 25,292 23,474 12,855 12,583 - - - 17,615 18,207 - - - - - - - - - - - - - - - - - 50,000 50,000 109,000 117,384 67,916 54,500 56,667 71,667 76,300 76,300 50,000 50,000 225,656 1,392,283 200,651 1,362,201 26,554 23,426 33,192 29,283 26,554 23,426 16,596 14,641 - - - - - - 311,964 289,778 356,060 313,977 339,305 313,770 178,727 173,092 - 101,750 - 213,407 220,506 - Name DIRECTORS J. Pearce ** Chairman D. Punches ** Deputy Chairman B. Adams Lead Independent Director T. Coutts *** Non- Executive Director B. Connelly Independent Director B. Hiller Independent Director B. Kagel Independent Director T. Aveling Executive Director COMPANY EXECUTIVES A. Ralston Chief Financial Officer M. Thomas Chief Operating Officer 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 M. Watkins General Counsel and Company Secretary 2009 2008 K. Lynam General Manager – Human Resources B. Savage (Consultant to 9 November 2007) GROUP EXECUTIVES K. Hansen (to 21 September 2007) U.Danielian Solicitor Director (Jones King Lawyers Pty Ltd) 2009 2008 2009 2008 2009 2008 2009 2008 * ** Superannuation of 9% was paid on cash bonuses. The superannuation on the bonuses has been included in the superannuation figure in the table above. John Pearce was appointed Chairman 25 June 2009. Dennis Punches stepped down as Chairman to become Deputy Chairman effective 25 June 2009. Both held their retrospective positions from 1 July 2009 to 24 June 2009. *** In accordance with ASX Corporate Governance Principle and Recommendation 2.1, Tony Coutts is deemed an Independent Director from 1 July 2009. COLLECTION HOUSE LIMITED 29 DIREctORs' REPORt The relative proportions of remuneration that are fixed and linked to performance and share based options are as follows: Name 1. T. Aveling 2. A. Ralston 3. M. Thomas 4. M. Watkins 5. K. Lynam 6. B. Savage (Consultant) (1 July 2007 to 9 November 2007) C Service agreements (audited) % Performance based % Fixed 2009 2008 2009 55.4 22.4 23.4 20.7 22.4 - 52.7 15.2 16.6 14.8 15.4 - 44.6 77.6 76.6 79.3 77.6 - 2008 47.3 84.8 83.4 85.2 84.6 100.0 Remuneration and other terms of employment for the MD/CEO and other key management personnel are also formalised in service agreements. Except as otherwise stated, all contracts with executives may be terminated early by either party with three months notice. Major provisions of the agreements relating to remuneration are set out below. T. Aveling MD/CEO Deed of Variation of Employment Agreement On 26 June 2008, the Collection House Board agreed to vary the MD/CEO’s remuneration package, subject to shareholder approval. This approval was given at the AGM on 31 October 2008. Annual base salary $500,000 plus superannuation. Living away from home Up to $2,000 per week (ceased on 27 February 2009). Performance cash bonus Maximum level of $500,000 plus superannuation. (Objectives as agreed by the Board) Options At the year end, the Board was provided with the financial and non-financial information relating to the MD/CEO’s performance. The key objective related to Collection House profitability. Supporting objectives covered leadership, sales, stakeholder relationships, recruitment, trade debtors, organisational structure, succession planning, funding, premises, book quality, compliance and regulatory obligations. Based on this information, the Board determined the level of STI to be made to the MD/CEO. For the year ended 30 June 2009, the Board determined that the MD/CEO’s STI payment would be $500,000 plus superannuation which is 100% of the payment target specified in his contract. The payment was calculated based on performance against objectives and the Board’s exercise of discretion. In accordance with the variation of Employment Agreement approved by the Board on 28 August 2008, a further 2,000,000 options were approved and granted on 31 October 2008 after shareholder approval. Each component tranche is subject to certain conditions in order for the options to be exercised. See note 41 for material terms. A. Ralston Chief Financial Officer Annual Base Salary $237,000 inclusive of superannuation for the year ended 30 June 2009. Performance cash bonus $43,600 inclusive of superannuation was paid for the year ended 30 June 2009. Options Pursuant to the Executive Share Option Plan approved by shareholders in October 2007, a further 200,000 options were issued. Each component tranche is subject to certain conditions in order for the options to be exercised. See note 41 or further details. 30 ANNUAL REPORT 2009 DIREctORs' REPORt M. Thomas Chief Operating Officer Annual Base Salary $267,000 inclusive of superannuation for the year ended 30 June 2009. Performance cash bonus $50,140 inclusive of superannuation was paid for the year ended 30 June 2009. Options Pursuant to the Executive Share Option Plan approved by shareholders in October 2007, a further 250,000 options were issued. Each component tranche is subject to certain conditions in order for the options to be exercised. See note 41 for further details. M. Watkins General Counsel and Company Secretary Annual Base Salary $263,000 inclusive of superannuation for the year ended 30 June 2009. Performance cash bonus $43,600 inclusive of superannuation was paid for the year ended 30 June 2009. Options Pursuant to the Executive Share Option Plan approved by shareholders in October 2007, a further 225,000 options were issued. Each component tranche is subject to certain conditions in order for the options to be exercised. See note 41 for further details. K. Lynam General Manager – Human Resources Annual Base Salary $132,000 inclusive of superannuation for the year ended 30 June 2009. Performance cash bonus $23,980 inclusive of superannuation was paid for the year ended 30 June 2009. Options Pursuant to the Executive Share Option Plan approved by shareholders in October 2007, a further 150,000 options were issued. Each component tranche is subject to certain conditions in order for the options to be exercised. See note 41 for further details. D Share based compensation (audited) Options Options have been granted to T. Aveling as MD/CEO under his Employment Agreement (as varied). Options have also been granted to certain eligible employees under the Collection House Executive Share Option Plan. The terms and conditions of all options mentioned above affecting remuneration in the previous, this or future reporting periods are set out in note 41 of the financial statements. Options granted under the Executive Share Option Plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share of Collection House. 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. Further information on the options is set out in note 41 of the financial statements. Name 1. T. Aveling 2. A. Ralston 3. M. Thomas 4. M. Watkins 5. K. Lynam Number of options granted during the year No of options vested during the year 2009 2,000,000 200,000 250,000 225,000 150,000 2008 - - - - - 2009 400,000 40,000 50,000 40,000 25,000 2008 - - - - - The assessed fair value at grant date of options granted to the individuals is allocated over the period from grant date to vesting date, and the amount is included in the remuneration table in this report. 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. COLLECTION HOUSE LIMITED 31 DIREctORs' REPORt 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 Other key management personnel of the Group Date of exercise of options - - Number of ordinary shares issued on exercise of options during the year Amounts paid per ordinary share 2009 2008 2009 2008 - - - - - - - - No shares issued on the exercise of options during the period. E Additional information (audited) 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. Net profit after tax ($m’s) Dividends Declared Share price commenced Share price ended Basic Earnings per share (including discontinued operations) 2005 2006 2007 2008 2009 $12.95 $6.08 $3.81 $12.39 $7.85 8 cents unfranked 2 cents unfranked 2 cents franked 4.7 cents franked 4.9 cents franked $1.54 $1.40 $1.41 $0.975 $1.03 $0.75 $0.78 $0.46 $0.465 $0.49 13.3 cents 6.2 cents 3.9 cents 12.7 cents 8.1 cents Details of remuneration: cash bonuses and options For each cash bonus and grant of options included in the table on page 29, 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. No options will vest unless the vesting conditions are met (see note 41 for details), hence the minimum value of the options 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 that is yet to be expensed. 32 ANNUAL REPORT 2009 DIREctORs' REPORt Cash bonus Options Name Paid Forfeited % Year granted Vested % Forfeited % Lapsed $ Financial years in which options may vest (subject to certain qualifying hurdles). Refer to note 41 Minimum total value of grant yet to vest Maximum total value of grant yet to vest 1. T. Aveling 100.0 0.0 2. A. Ralston 83.3 16.7 3. M.Thomas 85.2 14.8 4. M. Watkins 75.5 24.5 5. K. Lynam 81.5 18.5 20% - 20% - 20% 20% 20% 2007 2009 2007 2009 2007 2009 2007 2009 2007 2009 - - - - - - - - - - - - - - Loans to directors and executives 2009 - 2011 2011 - 2013 2009 - 2011 2011 - 2013 2009 - 2011 2011 - 2013 2009 - 2011 2011 - 2013 2009 - 2011 2011 - 2013 NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL 199,600 NIL $20,000 NIL $25,000 NIL $22,500 NIL $15,000 Information on loans to directors and executives, including amounts, interest rates and repayment terms are set out in note 34 to the financial statements. Shares under option Long term incentives are provided to certain eligible employees via the Executive Share Option Plan, see note 41 for further information. Unissued ordinary shares of the Company under option at the date of this report are as follows: MD/CEO Options Executive Share Option Plan Date options granted Number under option Issue price of shares 12 March 2007 31 October 2008 15 June 2007 18 July 2008 2,000,000 2,000,000 1,250,000 1,437,500 $1.0327 $0.4927 $1.0327 $0.4927 No of shares issued 2009 nil nil nil nil Expiry date Refer to note 41 Refer to note 41 Refer to note 41 Refer to note 41 E Additional information (unaudited) Insurance of officers During the financial year, Collection House paid a premium of $35,455 to insure the directors and secretaries of the Company and its Australian based controlled entities, and the executives 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. COLLECTION HOUSE LIMITED 33 DIREctORs' REPORt 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. Non-audit services The Board of Directors, in accordance with advice from the Audit and 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 non-audit or assurance services in addition to their statutory duties. All other assurance 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. DESCRIPTION 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 Total remuneration for audit-related services TOTAL REMUNERATION Auditor’s independence declaration Consolidated 30 June 2009 $ 30 June 2008 $ 137,000 137,000 82,050 82,500 219,050 145,000 145,000 79,000 79,000 224,000 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 35. 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 25 August 2009 34 ANNUAL REPORT 2009 auDItOR's InDEPEnDEncE DEclaRatIOn COLLECTION HOUSE LIMITED 35 38 Income Statement 3 9 Balance Sheet 40 Statement of Changes in Equity 41 Cash Flow Statement 36 ANNUAL REPORT 2009 42 Notes to the Financial Statements. 112 Directors’ Declaration 113 Independant Audit Report Income Statement ................................ 38 Directors’ Declaration ........................ 112 Balance Sheet ....................................... 39 Independent Audit Report .................. 113 Statement of Changes in Equity .......... 40 Shareholder Information .................... 115 Cash Flow Statement ........................... 41 Notes to the Financial Statements ...... 42 COLLECTION HOUSE LIMITED COLLECTION HOUSE LIMITED 37 37 IncOmE statEmEnt for the year ended 30 June 2009 Revenue from continuing operations Other income Depreciation and amortisation expense Other expenses Employee expenses Search fees Direct collection costs Bad and doubtful debts Operating lease rental expense Consultancy fees Legal expenses Other expenses - related parties 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 6 7 8 9 17 8,9 10 11 40 40 Consolidated Company Notes 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 101,959 (23) (2,295) (3,533) 95,497 (5) (2,307) (4,370) 62,940 65,446 - (1,531) (3,679) - (1,621) (5,090) (34,072) (33,172) (29,048) (27,434) (545) (648) (12,737) (10,369) 171 (3,128) (52) 103 - (98) - 19 (5,097) (655) 6,663 5,083 11,746 - 11,746 243 (2,120) (103) (53) - (3,693) - (6) (4,862) (1,872) 7,818 3,180 10,998 13 11,011 12,387 11,746 11,011 1 - 12,388 11,746 11,011 (656) (11,649) 132 (3,779) (59) 102 (24) - (680) (9,997) 203 (3,169) (230) (56) - - (30,265) (29,730) 10 (5,133) (1,872) 4,989 (1,229) 3,760 8,628 12,388 43 (4,467) (655) 10,759 (3,059) 7,700 154 7,854 7,854 - 7,854 Cents Cents 7.9 8.1 4.0 12.7 The above income statement should be read in conjunction with the accompanying notes. 38 ANNUAL REPORT 2009 BalancE sHEEt as at 30 June 2009 ASSETS Current assets Cash and cash equivalents Receivables Other financial assets at fair value through profit or loss Current tax receivables Other current assets 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 Borrowings Current tax liabilities Provisions Other current liabilities Total current liabilities Non-current liabilities Payables Borrowings 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 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 12 13 14 15 14 16 17 18 20 19 21 22 23 24 25 26 28 27 30 31(a) 31(b) 32 584 4,630 29,999 - 996 36,209 937 4,188 36,511 2,312 1,489 45,437 132 3,206 - - 943 4,281 801 2,598 - 2,974 645 7,018 116,917 106,959 - - - - 6,957 20,496 - 229 144,599 180,808 4,622 - 1,596 2,000 - 8,218 - 69,700 211 14,719 - 84,630 92,848 87,960 67,256 171 20,533 87,960 - 87,960 - - 3,516 20,259 - 292 131,026 176,463 7,324 2,801 - 3,070 105 13,300 - 61,100 159 17,428 192 78,879 92,179 84,284 67,256 (319) 18,665 85,602 (1,318) 84,284 154,885 134,929 16,017 6,602 13,980 1,934 - 193,418 197,699 14,885 4,678 303 1,701 - 21,567 21,858 69,700 182 - - 91,740 113,307 84,392 67,256 878 16,258 84,392 - 84,392 16,116 3,242 13,736 2,515 - 170,538 177,556 13,636 4,099 - 2,738 105 20,578 18,631 61,100 144 - 192 80,067 100,645 76,911 67,256 475 9,180 76,911 - 76,911 The above balance sheet should be read in conjunction with the accompanying notes. COLLECTION HOUSE LIMITED 39 statEmEnt Of cHangEs In EquIty for the year ended 30 June 2009 Total equity at the beginning of the financial year 84,284 77,080 76,911 70,550 Consolidated Company Notes 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 Adjustment on adoption of AASB 127, net of tax, to: Retained profits - Minority Interest 1,32 (1,318) - Adjustment on correction of prior period error to: Retained profits - accrued wages 31 - (909) Restated total equity at the beginning of the financial year Profit for the year Transactions with equity holders in their capacity as equity holders: Dividends provided for or paid Movement in Share-based payments reserve Movement in Foreign Currency translation reserve Total changes in minority interest 33 31a 32 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 82,966 7,854 76,171 12,388 (4,671) (4,088) 406 87 1,318 (2,860) 87,960 7,854 - 7,854 347 (540) 6 (4,275) 84,284 12,388 - 12,388 The above statement of changes in equity should be read in conjunction with the accompanying notes. - - 76,911 11,746 (4,671) 406 - - (4,265) 84,392 11,746 - 11,746 - (909) 69,641 11,011 (4,088) 347 - - (3,741) 76,911 11,011 - 11,011 40 ANNUAL REPORT 2009 Consolidated Company Notes 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 105,644 109,093 41,556 42,954 casH flOW statEmEnt for the year ended 30 June 2009 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 inflow (outflow) from operating activities 43 Cash flows from investing activities Proceeds from sale of property, plant & equipment Payments for property, plant and equipment Payments for leasehold improvements Payments for purchased debt Payments for intangible assets Payment for Legal costs capitalised Proceeds from sale of discontinued operation (59,042) 46,602 1,817 146 (5,203) (2,744) 40,618 23 (2,877) (3,551) (34,715) (979) - - Net cash (outflow) inflow from investing activities (42,099) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Dividends paid to company’s shareholders 33 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 12 8,600 - (4,671) 3,929 2,448 (1,864) - 584 (65,203) 43,890 1,477 323 (5,132) (2,295) 38,263 - (1,246) (180) (73,525) (34) - 31,370 (43,615) 4,900 (23) (4,088) 789 (4,563) 2,699 (32,593) 8,963 106 - (5,097) (1,976) 1,996 - (2,658) (3,551) - (964) - - (41,137) 1,817 287 - (4,355) 1,568 (683) - (1,043) (222) - (34) - - (7,173) (1,299) 8,600 - (4,671) 3,929 (1,248) (3,298) 4,900 - (4,088) 812 (1,170) (2,128) - - - (1,864) (4,546) (3,298) The above cash flow statements should be read in conjunction with the accompanying notes. COLLECTION HOUSE LIMITED 41 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 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 The financial report of Collection House Limited also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Early adoption of standards The Group has elected to apply the following pronouncements to the annual reporting period beginning 1 July 2008: • • AASB 127 - The Group has elected to apply the amendments to AASB 127 Consolidated and Separate Financial Statements dated March 2008 to the annual reporting period beginning 1 July 2008. In accordance with the transitional provisions of the standard, comparatives have not been restated. AASB 3 - The Group has elected to apply the amendments to AASB 3 Business Combinations dated March 2008 to the annual reporting period beginning 1 July 2008. In accordance with the transitional provisions of the standard, comparatives have not been restated. This includes applying the revised pronouncement to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. None of the items in the financial statements had to be restated as the result of applying these standards. 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 2009 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 to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests 42 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (b) Principles of consolidation (continued) result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary. Changes in the parent company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions, and do not pass through the Profit and Loss. 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. (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 assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary 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 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. COLLECTION HOUSE LIMITED 43 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (d) Foreign currency translation (continued) 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. (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. 44 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (f) Income tax (continued) 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 Ltd and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The Head Entity, Collection House Ltd, 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 Ltd 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 10). 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 18). 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 asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 37). 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. (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. COLLECTION HOUSE LIMITED 45 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (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 and investment property 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. 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, available-for-sale financial assets, and 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. 46 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (m) Financial assets (continued) (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 or significant 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. (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. COLLECTION HOUSE LIMITED 47 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (o) Property, plant and equipment (continued) 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 subject to fair value adjustments based upon the 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 2009 4-8 years 3-5 years - Leased plant and equipment The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Term of Lease 2008 4-8 years 3-5 years Term of Lease 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 any 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. 48 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 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 finance costs. 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. COLLECTION HOUSE LIMITED 49 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (u) Employee benefits (continued) (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. (iv) Share-based payments Share-based compensation benefits are provided to the Chief Executive Officer via the the employment agreement between the Company and the Chief Executive Officer. Share-based compensation benefits are provided to employees other than the Chief Executive Officer via the Collection House Limited Executive Share Option Plan. Further details are set out in note 41. 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 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 and excluding treasury shares (note 30). 50 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 1 Summary of significant accounting policies (continued) (w) Earnings per share (continued) (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. (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. (z) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2009 reporting periods. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 (effective from 1 January 2009) AASB 8 requires adoption of a ‘management approach’ to reporting on financial performance. The information being reported will be based on what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group will adopt AASB 8 from 1 July 2009, however it is unlikely to result in any impact upon the group as segment information is already presented based upon the structure that key decision makers use. (ii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 (effective from 1 January 2009) The September 2007 revised AASB 101 requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If an entity has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Group will apply the revised standard from 1 July 2009. (iii) AASB 2008-7 Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 July 2009) In July 2008, the AASB approved amendments to AASB 1 First-time Adoption of International Financial Reporting Standards and AABS 127 Consolidated and Separate Financial Statements. The Group will apply the revised rules prospectively from 1 July 2009. After that date, all dividends received from investments in subsidiaries, jointly controlled entities or associates will be recognised as revenue, even if they are paid out of pre-acquisition profits, but the investments may need to be tested for impairment as a result of the dividend payment. Under the entity’s current policy, these dividends are deducted from the cost of the investment. Furthermore, when a new intermediate parent entity is created in internal reorganisations it will measure its investment in subsidiaries at the carrying amounts of the net assets of the subsidiary rather than the subsidiary’s fair value. COLLECTION HOUSE LIMITED 51 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, 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 in the case of interest rate, foreign exchange and other price risks, 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 policies approved by 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 2009, 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 2008 and 2009, 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 (2008: $Nil). 52 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management (continued) (a) Market risk (continued) As at the reporting date, the Group had the following variable rate borrowings outstanding: 30 June 2009 30 June 2008 Weighted average interest rate % 6.0% Weighted average interest rate % 6.8% Balance $’000 63,901 63,901 Balance $’000 69,700 69,700 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 2009, 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 $122,000 lower/higher (2008 - change of 25 bps: $112,000 lower/higher), mainly as a result of higher/lower interest expense from net borrowings. Other components of equity would have been $122,000 lower/higher (2008 - $112,000 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 2009, 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 $115,000 lower/higher (2008 - change of 25 bps: $114,000 lower/higher) mainly as a result of lower interest expense from net borrowings. Other components of equity would have been $115,000 lower/higher (2008 - $114,000 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 53 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management (continued) (a) Market risk (continued) (iv) Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk. Consolidated 30 June 2009 Financial assets Financial liabilities Borrowings Total increase/ (decrease) Consolidated 30 June 2008 Financial liabilities Borrowings Total increase/ (decrease) Company 30 June 2009 Financial liabilities Borrowings Total increase/ (decrease) Company 30 June 2008 Financial liabilities Borrowings Total increase/ (decrease) (b) Credit risk Carrying amount $’000 69,700 63,901 65,778 65,199 Interest rate risk -25 bps +25 bps Profit $’000 Equity $’000 Profit $’000 Equity $’000 122 122 112 112 115 115 114 114 122 122 112 112 115 115 114 114 (122) (122) (122) (122) (112) (112) (112) (112) (115) (115) (115) (115) (114) (114) (114) (114) 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. 54 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management (continued) (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 $75,000,000 Multiple Option Facility throughout the year (2008: $70,000,000 facility with an additional $5,000,000 cash advance for fitout of leased premises). The facility expires on 3 January 2011, 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 $75,000,000 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 26. The table below 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. Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying Amount (assets)/ liabilities $’000 $’000 $’000 $’000 $’000 $’000 $’000 Group - At 30 June 2009 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Group - At 30 June 2008 Non-derivatives Non-interest bearing Variable rate Total non-derivatives 4,622 - 4,622 1,610 2,801 4,411 - - - - - - - 69,700 69,700 - 61,100 61,100 - - - - - - - - - - - - 4,622 69,700 74,322 1,610 63,901 65,511 4,622 69,700 74,322 1,610 63,901 65,511 COLLECTION HOUSE LIMITED 55 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management (continued) (c) Liquidity risk (continued) Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying Amount (assets)/ liabilities $’000 $’000 $’000 $’000 $’000 $’000 $’000 Parent - At 30 June 2009 Non-derivatives Non-interest bearing Variable rate Total non-derivatives Parent - At 30 June 2008 Non-derivatives Non-interest bearing Variable rate Total non-derivatives 14,885 4,678 19,563 10,310 4,099 14,409 (d) Fair value estimation - - - - - - - 69,700 69,700 - 61,100 61,100 - - - - - - 21,858 - 36,743 74,378 36,743 74,378 21,858 111,121 111,121 14,745 - 14,745 25,055 65,199 90,254 25,055 65,199 90,254 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. 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 particular 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. 56 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 2 Financial risk management (continued) (d) Fair value estimation (continued) 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, fair value adjustments are made against the the carrying value 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. 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. As a result of the Global Financial crisis, the reasonably likely range for the sensitivity analysis has increased to +/- 4.4% in 2009 (2008: +/- 2.0%). Consolidated 30 June 2009 Financial assets Financial assets at FVTPL Total increase/ (decrease) Consolidated 30 June 2008 Financial assets Financial assets at FVTPL Total increase/ (decrease) Carrying amount $’000 146,919 Carrying amount $’000 143,470 Recoverability -4.4% +4.4% Other Equity $’000 (1,185) (1,185) Profit $’000 1,185 1,185 Recoverability -2.0% +2.0% Other Equity $’000 (415) (415) Profit $’000 415 415 Other Equity $’000 1,185 1,185 Other Equity $’000 415 415 Profit $’000 (1,185) (1,185) Profit $’000 (415) (415) COLLECTION HOUSE LIMITED 57 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 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 2 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 is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. 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(n). The calculation of impairment requires the use of assumptions. (b) Critical judgements in applying the entity’s accounting policies Employee benefits Management judgment is applied in determining the key assumptions used in the calculation of long service leave at balance date: - future increases in wages and salaries - future on-cost rates - experience of employee departures and period of service Impairment of available-for-sale financial assets The Group follows the guidance of AASB 139 Financial Instruments: Recognition and Measurement on determining when an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the underlying assets of the investee company. Useful lives of property, plant and equipment The Group’s management determines the estimated useful lives and related depreciation charges for property, plant and equipment at the time of acquisition. As described in note 1(o) useful lives are reviewed regularly throughout the year for appropriateness. 58 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 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. 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; Although the consolidated entity’s divisions are managed on a global basis they operate in two main geographical areas, Australia and New Zealand. (b) Primary reporting format - business segments Collection services Account asset management Intersegment eliminations/ unallocated Total continuing operations Discontinued operations (note 11) Consolidated $’000 $’000 $’000 $’000 $’000 $’000 2009 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 32,097 4,392 36,489 55 36,544 71,300 - 71,300 13 71,313 (1,459) (4,392) (5,851) (68) (5,919) Segment result (notes [ii]) 7,230 17,366 (6,005) Interest expense & borrowing costs Unallocated revenue less unallocated expenses Profit before income tax Income tax benefit / (expense) Profit for the year 101,938 - 101,938 - 101,938 - 101,938 18,591 (4,467) (3,365) 10,759 (3,059) 7,700 - - - 219 219 - 219 219 - - 219 (65) 154 101,938 - 101,938 219 102,157 - 102,157 18,810 (4,467) (3,365) 10,978 (3,124) 7,854 COLLECTION HOUSE LIMITED 59 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 4 Segment information (continued) (b) Primary reporting format - business segments (continued) Collection services Account asset management Intersegment eliminations/ unallocated Total continuing operations Discontinued operations (note 11) Consolidated $’000 $’000 $’000 $’000 $’000 $’000 150,816 151,929 (121,937) 180,808 2009 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 Total acquisitions Depreciation and amortisation expense Total depreciation and amortisation Other non-cash expenses 2008 Segment revenue Sales to external customers Intersegment sales Total sales revenue Profit from discontinued operations / Other revenue Total segment revenue Unallocated revenue Consolidated revenue Segment result 11,943 132,191 (135,708) 7,338 70,840 - 291 199 669 1,335 31,568 (310) 30,604 3,833 34,437 64,183 - 64,183 28 - 34,465 64,183 54 (3,847) (3,793) 641 (3,152) Segment result (notes (ii)) 5,736 15,966 (5,918) Interest expense & borrowing costs Unallocated revenue less unallocated expenses Profit before income tax Income tax benefit / (expense) Profit for the year 60 ANNUAL REPORT 2009 - - 180,808 8,426 - 84,422 92,848 78,178 78,178 2,295 2,295 31,457 94,841 (14) 94,827 669 95,496 - 95,496 15,784 (5,133) (5,662) 4,989 (1,229) 3,760 - - - - - - - - - - - - - 5,696 15 5,711 98 5,809 10,404 16,213 11,327 - - 11,327 (2,699) 8,628 180,808 - - 180,808 8,426 - 84,422 92,848 78,178 78,178 2,295 2,295 31,457 100,537 1 100,538 767 101,305 10,404 111,709 27,111 (5,133) (5,662) 16,316 (3,928) 12,388 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 4 Segment information (continued) (b) Primary reporting format - business segments (continued) 2008 $’000 $’000 $’000 $’000 $’000 $’000 Collection services Account asset management Intersegment eliminations/ unallocated Total continuing operations Discontinued operations (note 11) Consolidated 132,195 146,135 (116,007) 162,323 9,403 171,726 Segment assets and liabilities Segment assets Intersegment elimination Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 7,331 118,645 (120,196) Other segment information Acquisitions of property, plant and equipment, intangibles and other non-current segment assets Total acquisitions 2,693 56,193 - Depreciation and amortisation expense 122 645 1,540 - 4,737 167,060 5,780 81,692 87,472 58,886 58,886 2,307 2,307 - - - - 9,403 4,707 - 4,707 1,350 1,350 - - - - - 4,737 176,463 10,487 81,692 92,179 60,236 60,236 2,307 2,307 - - Total depreciation and amortisation Impairment of goodwill (note 20) Impairment of other assets Other non-cash expenses - - - - - - (72) 30,480 502 30,910 (45) 30,865 (c) Secondary reporting format - geographical segments Segment revenues from sales to external customers Segment assets Acquisitions of property, plant and equipment, intangibles and other non-current segment assets 30 June 2009 $’000 96,873 5,282 30 June 2008 $’000 92,658 7,663 30 June 2009 $’000 171,559 9,249 30 June 2008 $’000 162,004 9,344 102,155 100,321 180,808 171,348 30 June 2009 $’000 78,016 162 78,178 30 June 2008 $’000 60,236 65 60,301 - 4,737 180,808 176,085 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 COLLECTION HOUSE LIMITED 61 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 4 Segment information (continued) (c) Secondary reporting format - geographical segments (continued) 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 one period. (ii) Segment margins Margin on sales revenue Collection Services Account Asset Management Discontinued Operations 30 June 2009 30 June 2008 30 June 2009 30 June 2008 30 June 2009 30 June 2008 % 19 % 16 % 24 % 25 % 100 % 70 5 Correction of error in reporting expenses in the previous year As noted in the 31 December 2008 half year report, the Company has moved to correct its approach to accounting for employment costs, which have previously been accounted for on an effectively cash basis which is inconsistent with accrual accounting principles. This practice goes back to the incorporation of the company, and it is impraticable to make corrections from when the issue first arose. The cumulative error has been corrected from 1 July 2007, by recognising an accrual for outstanding wages at that time of $1,317,000, together with an adjustment against current tax receivables of $408,000. The $909,000 after tax profit effect of this initial adjustment has been posted as a reduction against the opening balance of retained earnings. It has become necessary for the correction to be made in the current year as a result of it becoming a material adjustment in the context of the company’s expectations of financial performance and financial position in the new environment of the world economic crisis. In prior years, based on the best information available to management, this issue has always been immaterial and not required adjustment. The impact of the change from cash to accrual accounting in respect of wages cost in the current year has been to increase the NPAT by $71,000. Retained earnings and net assets in the balance sheet have reduced by a corresponding amount. The change will have no effect on the cashflows of the consolidated group. The balance sheet for all future years will carry a liability for wages unpaid at the end of the reporting period. This liability can vary between 3 and 13 days for any given year and will be calculated using the most recent payroll data available. In addition to the impact on the prior year’s results as identified above, the change will also have an impact on the way that the Company would have accounted for wages in each financial year, where, as a result of the scheduling of wage payments, the Company would physically pay more wages than have accrued for that working year. One such financial year is that ending 30 June 2010. In that financial year, the effect of the proposed change to accounting for wages is that expenses for wages and salaries for that year under the proposed change will be lower than would have been the case if no change had been made to the method of accounting for wages expenses. That is, the expense from the additional cash payment of wages will be reallocated to the earlier years to which it relates. Adjustments to the current and prior years have been made using the payroll and staffing levels as they stood at the relevant date. The correction has been made during the year ended 30 June 2009 by restating each of the affected financial statement line items for the prior year, as described above. Basic and diluted earnings per share for the prior year have also been restated. The amount of the correction for both basic and diluted earnings per share was an increase of 0.07 cents per share. 62 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 5 Correction of error in reporting expenses in the previous year (continued) The error had the the effect on various line items in the financial statements in the following manner: (a) Consolidated Balance Sheet Current tax receivables Total assets Current payables Total liabilities Retained earnings Total equity Income Statement Employee expenses Profit before income tax Income tax expense Profit from continuing operations Profit for the year (b) Parent Balance Sheet Current tax receivables Total assets Current payables Total liabilities Retained earnings Total equity 30 June 2008 (as reported) $’000 1,937 understated by 375 176,085 (6,107) understated by (90,962) (19,504) (85,123) overstated by 375 (1,217) (1,217) 839 839 30 June 2008 (as reported) $’000 33,275 overstated by (103) (4,886) understated by 1,197 understated by (3,689) understated by (12,317) understated by (103) 31 (71) (71) 30 June 2008 (as reported) $’000 2,599 understated by 177,181 375 375 (12,419) understated by (1,217) 30 June 2008 (revised and per current balance sheet) $’000 2,312 176,460 (7,324) (92,179) (18,665) (84,284) 30 June 2008 (revised and per current Income statement) $’000 33,172 (4,989) 1,228 (3,760) (12,388) 30 June 2008 (revised and per current balance sheet) $’000 2,974 177,556 (13,636) (99,428) (10,019) (77,750) overstated by (1,217) (100,645) 839 839 (9,180) (76,911) COLLECTION HOUSE LIMITED 63 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 5 Correction of error in reporting expenses in the previous year (continued) (b) Parent (continued) Income Statement Employee expenses Profit before income tax Income tax expense Profit from continuing operations Profit for the year 6 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) Total revenue from continuing operations (a) Revenue from discontinued operations From discontinued operations (note 11) National Revenue Corporation Pty Ltd Insurance Claims Solutions Pty Ltd (formerly CHIP #1 Pty Ltd) Australian Business Research group / National Tenancy Database Pty Ltd Downie and Associates Unit Trust 64 ANNUAL REPORT 2009 30 June 2008 (as reported) $’000 27,537 (7,715) (3,211) overstated by understated by understated by (10,927) understated by (10,940) understated by 30 June 2008 (revised and per current Income statement (103) (103) 31 (71) (71) $’000 27,434 (7,818) (3,180) (10,998) (11,011) Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 99,743 99,743 272 1,817 - 127 - 2,216 101,959 - - - 219 219 93,769 93,769 63 1,477 - 188 - 1,728 95,497 535 312 4,962 - 5,809 38,909 38,909 272 107 23,422 208 22 24,031 62,940 - - - - - 39,417 39,417 63 577 25,164 210 15 26,029 65,446 - - - - - nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 7 Other income Foreign exchange gains/(losses) (net) 8 Expenses Profit before income tax includes the following specific expenses: Depreciation Dep - Leasehold improvements, plant and equipment Total depreciation Amortisation Amortisation - Leased plant and equipment Amortisation - Other intangibles Amortisation - Legal and court cost capitalised Total amortisation Finance costs Interest and finance charges paid/payable Total Finance Costs Fair Value losses Fair Value losses on other financial assets (note 14) Total Fair Value losses on other financial assets Consolidated Company 30 June 2009 $’000 (23) 30 June 2008 $’000 (5) 30 June 2009 $’000 - 30 June 2008 $’000 - Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 1,626 1,626 - - 669 669 4,467 4,467 30,265 30,265 1,666 1,666 1 27 613 641 5,133 5,133 29,730 29,730 1,531 1,531 1,594 1,594 - - - - 5,097 5,097 - - - 27 - 27 4,862 4,862 - - 9 Write back of over-provided expenses The following expenses include expense write backs in respect of the release of an overprovision relating to the settlement of the stamp duty issue as disclosed inthe 2008 Annual Report: Other expenses Legal expenses Finance costs Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 (443) (165) (736) (1,344) - - - - - (165) - (165) - - - - COLLECTION HOUSE LIMITED 65 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 10 Income tax expense Consolidated Company 30 June 2009 30 June 2008 (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 19) (Decrease) increase in deferred tax liabilities (note 27) $’000 3,235 (2,711) - 2,600 3,124 3,059 65 3,124 1,407 (4,118) (2,711) (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% (2008 - 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: 10,759 219 10,978 3,293 $’000 1,708 2,661 - (443) 3,926 1,229 2,697 3,926 77 2,584 2,661 4,989 11,327 16,316 4,895 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 (16) 278 - - - - - - - - - - - - - - (700) - - 62 30 June 2009 $’000 (5,784) 575 - 126 30 June 2008 $’000 (3,679) 542 - (37) (5,083) (3,174) (5,083) (3,180) - 6 (5,083) (3,174) 546 29 575 6,663 - 6,663 1,999 132 - - 29 562 (20) 542 7,818 19 7,837 2,351 138 - - - (7,027) (7,549) - - - - - - - 1,452 - 1,014 (2,594) 3,277 4,535 (4,867) 66 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 10 Income tax expense (continued) (b) Numerical reconciliation of income tax expense to prima facie tax payable (continued) Consolidated Company 30 June 2009 $’000 - (153) - - (153) 3,124 30 June 2008 $’000 32 (641) - - (609) 3,926 30 June 2009 $’000 - (216) - - 30 June 2008 $’000 - (580) - - (216) (5,083) (580) (3,174) Difference in overseas tax rates Adjustments for current tax of prior periods Previously unrecognised tax losses used to reduce deferred tax expense Previously unrecognised tax losses now recouped to reduce current tax expense Income tax expense 11 Discontinued operation 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 Revenue (note 6) 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 operation Net cash inflow (outflow) from operating activities Net cash inflow (outflow) from investing activities Net cash (outflow) from financing activities Net increase in cash generated by the division Consolidated Company 30 June 2009 $’000 - - - - - - - - - - - - - 30 June 2008 $’000 535 (625) (90) 27 (63) 254 108 362 299 - - - - 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - - - - - - - - - - - 36 (11) 25 25 - - - - COLLECTION HOUSE LIMITED 67 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 11 Discontinued operation (continued) National Revenue Corporation Pty Ltd (continued) (b) Details of the sale of the division Consideration received or receivable: 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 Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - 91 91 - 163 254 108 362 - - - - - - - 17 17 - 19 36 (11) 25 Insurance Claims Solutions Pty Ltd (formerly CHIP #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). Consolidated Company 30 June 2009 $’000 - - - - - - - - - 30 June 2008 $’000 312 (387) (75) 23 (52) 225 28 253 201 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - - - - - - - (24) 7 (17) (17) Revenue (note 6) 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 operation 68 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 11 Discontinued operation (continued) National Revenue Corporation Pty Ltd (continued) (c) Details of the sale of the division Cash Present value of amount due on 31 March 2011 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 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - 250 - (14) (11) 225 28 253 - - - - - - - 250 - (260) (14) (24) 7 (17) 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 #1 Pty Ltd). Australian Business Research group/ National Tenancy Database Pty Ltd (a) Description On 30 June 2007 the company entered into conditional agreements for the sale of the group 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). Revenue (note 6) 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 operation Consolidated Company 30 June 2009 $’000 - - - - - - - - - 30 June 2008 $’000 4,962 (3,879) 1,083 (325) 758 9,928 (2,558) 7,370 8,128 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - - - - - - - 7 (2) 5 5 COLLECTION HOUSE LIMITED 69 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 11 Discontinued operation (continued) Australian Business Research group/ National Tenancy Database Pty Ltd (continued) Consolidated Company 30 June 2009 $’000 - - - - 30 June 2008 $’000 (5,861) 31,070 - 25,209 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - Consolidated Company 30 June 2009 $’000 - - - - 6 September 2007 $’000 268 18,144 18,412 18,412 30 June 2009 $’000 31 August 2008 $’000 - - - - - - - - Consolidated Company 30 June 2009 $’000 - - - - - - - 30 June 2008 $’000 31,070 - (18,412) (2,730) 9,928 (2,558) 7,370 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - - - 7 7 (2) 5 Net cash inflow (outlow) from operating activities Net cash inflow (outflow) from investing activities Net cash (outflow) from financing activities Net increase in cash generated by the division (c) Carrying amounts of assets and liabilities The carrying amounts of assets sold as at the date of sale (6 September 2007): Property, plant and equipment Intangibles Total assets Net assets (d) Details of the sale of the division Cash Present value of amount due on 31 March 2011 Carrying amount of net assets sold Expenses Gain on sale before income tax Income tax expense Gain on sale after income tax 70 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 11 Discontinued operation (continued) Downie & Associates Unit Trust (a) Recovery of previously impaired assets As reported in the year ended 30 June 2005, on 17 September 2004 the consolidated entity sold the business of Downie & Associates, recording a profit on disposal of $78,000, and recognising a non-current receivable of $970,000. As part of the transition to AIFRS, on 1 July 2005, the company adopted AASB132 - Financial Instruments: Disclosure and Presentation and AASB139 - Financial Instruments: Recognition and Measurement, and at that date, based on management’s assessment, the $970,000 receivable was fully impaired as there appeared to be no prospect of recovery. Under the stricter rules of AIFRS, the company was required to impair the debt to the level of potential recovery. Subsequent to the impairment, $219,000 has been recovered ($151,000 after income tax), which has been included as a profit from discontinued operations. As management has no expectation of further recoveries in future periods, no amounts have been reinstated for this receivable. Any future recoveries will be recorded as profits from discontinued operations as they are received. 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 12 months ended 30 June 2009. There were no recoveries of the non-current receivable in the prior year. Revenue (note 6) Income tax expense Profit from discontinued operation (c) Details of the sale of the division Consideration received or receivable: Cash 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 #1) Australian Business Research group/ National Tenancy Database Pty Ltd Downie & Associates Unit Trust Profit from discontinued operations Consolidated Company 30 June 2009 $’000 219 (65) 154 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - - - Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 - - - - - - - 154 154 - - - - 299 201 8,128 - 8,628 - - - - - - - - - - - - - 25 (17) 5 - 13 COLLECTION HOUSE LIMITED 71 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 12 Current assets - Cash and cash equivalents Cash at bank and in hand Consolidated Company 30 June 2009 $’000 584 584 30 June 2008 $’000 937 937 30 June 2009 $’000 132 132 30 June 2008 $’000 801 801 (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 23) Balances per statement of cash flows (b) Cash at bank and on hand Consolidated Company 30 June 2009 $’000 584 - 584 30 June 2008 $’000 937 (2,801) (1,864) 30 June 2009 $’000 132 (4,678) (4,546) 30 June 2008 $’000 801 (4,099) (3,298) Information concerning the effective interest rates is set out in the non-current receivables note 16. (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. 72 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 13 Current assets - Receivables Net trade receivables Trade debtors Provision for impairment of receivables (note (a)) Loans to controlled entities Other loans Other debtors (a) Impaired trade receivables Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’000 2,078 (318) 1,760 (7) (7) 48 2,829 2,877 4,630 2,927 (690) 2,237 (9) (9) 49 1,911 1,960 4,188 1,462 (185) 1,277 206 206 49 1,674 1,723 3,206 1,889 (448) 1,441 201 201 48 908 956 2,598 As at 30 June 2009 current trade receivables of the Group with a nominal value of $468,000 (2008 - $907,000) were impaired. The amount of the provision was $318,000 (2008 - $690,000). 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 2009 current trade receivables of the Parent with a nominal value of $185,000 (2008 - $603,000) were impaired. The amount of the provision was $185,000 (2008 - $448,000). 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 30 June 2009 $’000 - 468 468 30 June 2008 $’000 - 907 907 30 June 2009 $’000 - 185 185 30 June 2008 $’000 - 603 603 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 30 June 2009 $’000 690 85 - (457) 318 30 June 2008 $’000 1,808 456 (891) (683) 690 30 June 2009 $’000 448 53 - (316) 185 30 June 2008 $’000 1,374 367 (652) (641) 448 COLLECTION HOUSE LIMITED 73 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 13 Current assets - Receivables (continued) (a) Impaired trade receivables (continued) 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) Past due but not impaired As of 30 June 2009, trade receivables of the Group of $291,000 (2008 - $556,000) 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 2009, trade receivables of the Parent of $259,000 (2008 - $488,000) 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: Up to 3 months 3 to 6 months (c) Other receivables Consolidated Company 2009 $’000 291 - 291 2008 $’000 556 - 556 2009 $’000 259 - 259 2008 $’000 488 - 488 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. (d) 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 16. (e) Foreign exchange and interest rate risk Refer to note 16(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. (f) 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. 74 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 14 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 through Profit and Loss The amount of the above financial assets are classified as follows: Current Non Current Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 143,470 102,669 - - 33,711 (30,265) 146,916 - - 70,395 (29,594) 143,470 - - - - - - Consolidated Company 2009 $’000 146,916 146,916 2008 $’000 143,470 143,470 2009 $’000 - - Consolidated Company 2009 $’000 29,999 116,917 146,916 2008 $’000 36,511 106,959 143,470 2009 $’000 - - - - - - - - - 2008 $’000 - - 2008 $’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. 15 Current assets - Other current assets Other deposits Prepayments Other Consolidated Company 2009 $’000 16 980 - 996 2008 $’000 22 695 772 1,489 2009 $’000 1 942 - 943 2008 $’000 - 645 - 645 COLLECTION HOUSE LIMITED 75 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 16 Non-current assets - Receivables Loans to controlled entities * Refer to note 13 for the current portions of these receivables. Consolidated Company 2009 $’000 - - 2008 $’000 - - 2009 $’000 154,885 154,885 2008 $’000 134,929 134,929 Further information relating to loans to related parties and key management personnel is set out in notes 34 and 38 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 2009 2008 Carrying amount $’000 154,885 154,885 Fair value $’000 154,885 154,885 Carrying amount $’000 134,929 134,929 Fair value $’000 134,929 134,929 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. (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. Floating interest rate $’000 - - - - 579 579 6.0% Non- interest bearing $’000 1,760 - 2,877 Total $’000 1,760 - 2,877 146,916 146,916 5 584 151,558 152,137 -% 2009 Trade receivables Other deposits Other receivables Purchased Debt Cash & cash equivalents Weighted average interest rate (%) 76 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 16 Non-current assets - Receivables (continued) (c) Interest rate risk (continued) 2008 Trade receivables Other deposits Other receivables Purchased debt Cash & cash equivalents Weighted average interest rate Floating interest rate $’000 - - - - 238 238 7.5% Non- interest bearing $’000 2,240 24 1,899 Total $’000 2,240 24 1,899 143,470 143,470 4 242 147,637 147,875 -% (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. 17 Non-current assets - Available-for-sale financial assets At beginning of year Additions Disposals (sale and redemption) Losses from impairment (a) Fair values Consolidated Company 2009 $’000 2008 $’000 - - - - - - - - - - 2009 $’000 16,116 - - (99) 16,017 2008 $’000 20,432 844 (1,467) (3,693) 16,116 Available-for-sale financial assets include the following classes of financial assets: Unlisted securities (note (b)) Equity securities Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 - - 16,017 16,116 COLLECTION HOUSE LIMITED 77 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 17 Non-current assets - Available-for-sale financial assets (continued) (b) Unlisted securities 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. 18 Non-current assets - Property, plant and equipment Plant and equipment Motor vehicles Leasehold improvements Leased plant & equipment $’000 $’000 $’000 $’000 909 (241) 668 668 557 (269) - (83) - 873 1,090 (217) 873 8 (5) 3 3 - - - (1) - 2 8 (6) 2 11,584 (9,251) 2,333 2,333 560 (342) - (703) - 1,848 10,719 (8,871) 1,848 Work-in- progress $’000 472 - 472 472 768 - - - (456) 784 - - - - 9 - - - - 9 9 - 9 Total $’000 12,973 (9,497) 3,476 3,476 1,894 (611) - (787) (456) 3,516 Consolidated At 1 July 2007 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2008 Opening net book amount Additions Disposals Impairment charge recognised in profit and loss Depreciation charge Transfers Closing net book amount At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Consolidated At 1 July 2007 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2008 Opening net book amount Additions Disposals Impairment charge recognised in profit and loss Depreciation charge Transfers Closing net book amount 78 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 18 Non-current assets - Property, plant and equipment (continued) Consolidated At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Consolidated Year ended 30 June 2009 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 2009 Cost or fair value Accumulated depreciation Net book amount Consolidated Year ended 30 June 2009 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 2009 Cost or fair value Accumulated depreciation Net book amount Work-in- progress $’000 784 - 784 Total $’000 12,610 (9,094) 3,516 Plant and equipment Motor vehicles Leasehold improvements Leased plant & equipment $’000 $’000 $’000 $’000 873 56 (1,647) - - (245) 3,494 2,531 2,815 (284) 2,531 2 - (2) - - - - - 2 (2) - 1,848 315 (395) 18 - (679) 3,247 4,354 7,399 (3,045) 4,354 Work-in- progress $’000 784 6,886 - - - - (7,605) 65 65 - 65 9 - - - - (2) - 7 9 (2) 7 Total $’000 3,516 7,257 (2,044) 18 - (926) (864) 6,957 10,290 (3,333) 6,957 COLLECTION HOUSE LIMITED 79 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 18 Non-current assets - Property, plant and equipment (continued) Company At 1 July 2007 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2008 Opening net book amount Additions Disposals Depreciation charge Transfers Closing net book amount At 30 June 2008 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2009 Opening net book amount Additions Disposals Reversal of Impairment charge in profit and loss Depreciation charge Impairment loss Transfers Closing net book amount At 30 June 2009 Cost or fair value Accumulated depreciation Net book amount Plant and equipment Leasehold improvements $‘000 $’000 Work-in- progress $’000 10,556 (8,507) 2,049 2,049 543 (121) (710) (164) 1,597 9,897 (8,300) 1,597 1,597 130 (366) 19 (612) - 3,246 4,014 6,586 (2,572) 4,014 849 (220) 629 629 552 (240) (80) - 861 1,071 (210) 861 861 56 (1,647) - (242) - 3,495 2,523 2,796 (273) 2,523 558 - 558 558 768 - - (542) 784 784 - 784 784 6,886 - - - - (7,605) 65 65 - 65 Total $’000 11,963 (8,727) 3,236 3,236 1,863 (361) (790) (706) 3,242 11,752 (8,510) 3,242 3,242 7,072 (2,013) 19 (854) - (864) 6,602 9,447 (2,845) 6,602 (a) Non-current assets pledged as security Refer to note 26 for information on non-current assets pledged as security by the parent entity and its controlled entities. 80 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 19 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Accruals Future deductible windup costs Doubtful debts Provisions and employee benefits Receivables impairment (note 13(a)) Fixed assets Sundry Set-off of deferred tax liabilities pursuant to set-off provisions (note 27) 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 10) Closing balance at 30 June Consolidated Company 2009 $’000 194 623 95 710 - 43 431 2,096 2008 $’000 407 934 200 713 68 320 863 3,505 (2,096) (3,505) - - 3,505 - (1,409) 2,096 3,582 - (77) 3,505 2009 $’000 2008 $’000 194 623 60 610 - 51 428 1,966 (32) 1,934 2,518 - (546) 1,972 271 934 87 601 - 318 307 2,518 (3) 2,515 3,080 - (562) 2,518 Tax losses Employee benefits Doubtful Debts Fixed Assets Receivables impairment & accruals Future deductible windup costs Movements - Consolidated At 1 July 2007 (Charged)/credited to the income statement At 30 June 2008 Movements - Consolidated At 1 July 2007 (Charged)/credited to the income statement At 30 June 2008 $’000 135 (135) - Sundry $’000 138 725 863 $’000 820 (107) 713 Total $’000 3,582 (77) 3,505 $’000 542 (342) 200 $’000 $’000 395 (75) 320 306 169 475 $’000 1,246 (312) 934 COLLECTION HOUSE LIMITED 81 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 19 Non-current assets - Deferred tax assets (continued) Employee benefits Doubtful Debts Fixed assets Receivables impairment & accruals Future deductible windup costs $’000 200 (105) 95 $’000 320 (277) 43 $’000 475 (281) 194 $’000 934 (311) 623 Movements - Consolidated At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 Movements - Consolidated At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 $’000 713 (3) 710 Total $’000 3,505 (1,409) 2,096 Sundry $’000 863 (432) 431 Tax losses Employee benefits Doubtful Debts Fixed Assets Receivables impairment & accruals Future deductible windup costs Movements - Company At 1 July 2007 (Charged)/credited to the income statement At 30 June 2008 Movements - Company At 1 July 2007 (Charged)/credited to the income statement At 30 June 2008 Movements - Company At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 Movements - Company At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 $’000 121 (121) - Sundry $’000 - 307 307 $’000 688 (87) 601 Total $’000 3,080 (562) 2,518 Employee benefits Doubtful Debts $’000 $’000 87 (26) 61 601 9 610 Total $’000 2,518 (546) 1,972 $’000 412 (325) 87 $’000 $’000 377 (59) 318 236 35 271 $’000 1,246 (312) 934 Receivables impairment & accruals Future deductible windup costs Fixed Assets $’000 318 (267) 51 $’000 271 (77) 194 $’000 934 (311) 623 Sundry $’000 307 126 433 82 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 20 Non-current assets - Intangible assets Consolidated At 1 July 2007 Cost Accumulated amortisation and impairment Net book amount Year 30 June 2008 Opening net book amount Additions Impairment charge Amortisation charge Disposals Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount Consolidated Year 30 June 2009 Opening net book amount Additions Impairment charge Amortisation charge Disposals Transfers Closing net book amount At 30 June 2009 Cost Accumulated amortisation and impairment Net book amount Goodwill Computer software Other intangible assets $’000 $’000 $’000 28,696 (6,993) 21,703 21,703 - - - (3,856) 17,847 28,026 (10,179) 17,847 7,587 (5,624) 1,963 1,963 826 - (820) (42) 1,927 6,194 (4,267) 1,927 1,587 (1,162) 425 425 60 - - - 485 1,005 (520) 485 Goodwill Computer software Other intangible assets $’000 $’000 $’000 17,847 - - - (6) - 17,841 28,028 (10,187) 17,841 1,927 222 - (735) - 722 2,136 7,138 (5,002) 2,136 485 34 - - - - 519 20,496 1,039 (520) 519 36,205 (15,709) 20,496 Total $’000 37,870 (13,779) 24,091 24,091 886 - (820) (3,898) 20,259 35,225 (14,966) 20,259 Total $’000 20,259 256 - (735) (6) 722 COLLECTION HOUSE LIMITED 83 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 20 Non-current assets - Intangible assets (continued) Goodwill Computer software Other intangible assets $’000 $’000 $’000 14,687 (3,333) 11,354 11,354 450 - - 11,804 14,687 (2,883) 11,804 5,306 (3,407) 1,899 1,899 810 (807) (5) 1,897 6,124 (4,227) 1,897 450 - 450 450 35 - (450) 35 485 (450) 35 Goodwill Computer software Other intangible assets $’000 $’000 $’000 11,804 - - - - - 11,804 14,687 (2,883) 11,804 1,897 208 - (720) - 722 2,107 7,054 (4,947) 2,107 35 34 - - - - 69 13,980 519 (450) 69 22,260 (8,280) 13,980 Total $’000 20,443 (6,740) 13,703 13,703 1,295 (807) (455) 13,736 21,296 (7,560) 13,736 Total $’000 13,736 242 - (720) - 722 Company At 1 July 2007 Cost Accumulated amortisation and impairment Net book amount Year 30 June 2008 Opening net book amount Additions Amortisation charge Disposals Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount Company Year 30 June 2009 Opening net book amount Additions Impairment charge Amortisation charge Disposals Transfers Closing net book amount At 30 June 2009 Cost Accumulated amortisation and impairment Net book amount 84 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 21 Non-current assets - Other non-current assets Legal and court costs capitalised Legal & Court costs - accumulated amortisation 22 Current liabilities - Payables Trade creditors Other creditors and accruals Intercompany Loans Consolidated Company 2009 $’000 3,929 (3,700) 229 2008 $’000 3,322 (3,030) 292 2009 $’000 - - - 2008 $’000 - - - Consolidated Company 2009 $’000 1,979 2,643 - 4,622 2008 $’000 1,162 6,162 - 7,324 2009 $’000 2,600 3,723 8,562 14,885 2008 $’000 1,352 3,829 8,455 13,636 (a) Risk exposure Information about the Group’s and the parent entity’s exposure to foreign exchange risk is provided in note 2. 23 Current liabilities - Borrowings Secured Bank overdraft Total secured current borrowings Unsecured Total unsecured current borrowings Further information relating to Borrowings is set out in note 26. Consolidated Company 2009 $’000 - - - 2008 $’000 2,801 2,801 2009 $’000 4,678 4,678 2008 $’000 4,099 4,099 - - - COLLECTION HOUSE LIMITED 85 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 24 Current liabilities - Provisions Provisions - Employee benefits Restructuring 2008 Restructuring 2009 (a) Movements in provisions Consolidated Company 2009 $’000 1,950 - 50 2,000 2008 $’000 2,054 1,016 - 3,070 2009 $’000 1,651 - 50 1,701 2008 $’000 1,722 1,016 - 2,738 Movements in each class of provision during the financial year, other than employee benefits, are set out below: Restructuring 2008 Restructuring 2009 $’000 $’000 Consolidated - 2009 Current Carrying amount at start of year - additional provisions recognised - amounts incurred and charged - unused amounts reversed Carrying amount at end of year Company - 2009 Current Carrying amount at start of year - additional provisions recognised - payments/other sacrifices of economic benefits - amounts incurred and charged - unused amounts reversed Carrying amount at end of year 1,016 399 - (1,117) (298) - - 554 - (504) - 50 25 Non-current liabilities - Payables Loans from controlled entities (unsecured) Consolidated Company 2009 $’000 - - 2008 $’000 - - 2009 $’000 21,858 21,858 2008 $’000 18,631 18,631 86 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 26 Non-current liabilities - Borrowings Secured Secured - Bank loans Total non-current borrowings (a) Total secured liabilities Consolidated Company 2009 $’000 69,700 69,700 2008 $’000 61,100 61,100 2009 $’000 69,700 69,700 2008 $’000 61,100 61,100 The total secured liabilities (current and non-current) are as follows: Bank overdrafts and bank loans Total secured liabilities 69,700 69,700 63,901 63,901 74,378 74,378 65,199 65,199 (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 69,700 69,700 63,901 63,901 74,378 74,378 65,199 65,199 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: Consolidated Company 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 Notes 12 13 14 18 17 18 2009 $’000 584 4,630 2008 $’000 937 4,186 146,916 143,470 - - 6,957 6,957 2 - 1,848 1,848 Total assets pledged as security 159,087 150,443 2009 $’000 132 3,206 - - 16,017 6,602 22,619 25,957 2008 $’000 801 2,599 - - 16,116 1,597 17,713 21,113 COLLECTION HOUSE LIMITED 87 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 26 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 On-balance sheet (i) Non-traded financial liabilities Bank overdrafts Bank loans At 30 June 2009 At 30 June 2008 Carrying amount Fair value Carrying amount Fair value $’000 $’000 $’000 $’000 - 69,700 69,700 4,678 69,700 74,378 - 69,700 69,700 4,678 69,700 74,378 2,801 61,100 63,901 4,099 61,100 65,199 2,801 61,100 63,901 4,099 61,100 65,199 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. 88 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 27 Non-current liabilities - Deferred tax liabilities Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 The balance comprises temporary differences attributable to: Prepayments Purchased debt Intangibles Fixed Assets Sundry (note 30) Setoff of deferred tax liabilities pursuant to setoff provisions (note 19) Net deferred tax liabilities Movements: Opening balance at 1 July Change on adoption of AASB 132 and AASB 139 (note 1) Charged/(credited) to the income statement (note 10) Closing balance at 30 June 4 6 16,384 20,873 - - 427 16,815 (2,096) 14,719 43 11 - 20,933 (3,505) 17,428 20,933 18,349 - (4,118) 16,815 - 2,584 20,933 Property, plant and equipment Prepayments Purchased debt Movements - Consolidated $’000 $’000 At 1 July 2007 Charged/(credited) to the income statement At 30 June 2008 63 (52) 11 77 (71) 6 $’000 18,102 2,771 20,873 Property, plant and equipment Prepayments Purchased debt Movements - Consolidated $’000 $’000 At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 11 (11) - 6 (2) 4 $’000 20,873 (4,489) 16,384 Movements - Company At 1 July 2007 Assumption of tax losses from tax consolidated entities At 30 June 2008 At 30 June 2008 Charged/(credited) to the income statement At 30 June 2009 Intangibles $’000 45 (2) 43 Intangibles $’000 43 (43) - Prepayments $’000 2 1 3 3 (1) 2 2 - - - 30 32 (32) - 3 - 29 32 Other $’000 62 (62) - Other $’000 - 427 427 Other $’000 21 (21) - - 30 30 3 - - - - 3 (3) - 23 - (20) 3 Total $’000 18,349 2,584 20,933 Total $’000 20,933 (4,118) 16,815 Total $’000 23 (20) 3 3 29 32 COLLECTION HOUSE LIMITED 89 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 28 Non-current liabilities - Provisions Consolidated Company 2009 $’000 211 211 2008 $’000 159 159 2009 $’000 182 182 2008 $’000 144 144 Provisions - Employee benefits 29 Employee benefits (a) Superannuation plans 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. 30 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 1 July 2007 30 June 2008 1 July 2008 30 June 2009 (c) Ordinary shares Company Company 2009 Shares 2008 Shares 2009 $’000 2008 $’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 Details Number of shares Opening balance 97,321,881 Closing Balance 97,321,881 Opening balance 97,321,881 Closing Balance 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. 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. 90 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 30 Contributed equity (continued) (d) Employee share scheme Information relating to the employee share scheme, including details of shares issued under the scheme, is set out in note 41. (e) Options Information relating to options provided as part of the the MD/CEO remuneration package and option 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 41. (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 2(c). Quantitative analyses are conducted by management using contributed equity balances shown above together with the the drawn and undrawn loan balances disclosed in note 2(c). 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 covenant at all times during the year. This strategy was followed during both the 2009 and 2008 financial years. COLLECTION HOUSE LIMITED 91 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 31 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 Adjustment on adoption of accounting standard (net of tax) (note 14) Balance 30 June (c) Nature and purpose of reserves (i) Share-based payments reserve Consolidated Company 2009 $’000 878 (707) 171 475 403 878 2008 $’000 475 (794) (319) 128 347 475 (794) (255) 83 (711) (539) (794) 2009 $’000 2008 $’000 878 - 878 475 403 878 - - - 475 - 475 128 347 475 - - - Consolidated Company 2009 $’000 18,665 7,854 (4,671) (1,315) 20,533 2008 $’000 10,366 12,387 (4,088) - 2009 $’000 9,183 11,746 (4,671) - 18,665 16,258 2008 $’000 2,257 11,011 (4,088) - 9,180 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. 92 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 32 Minority interest Interest in: Minority interest - Retained profits The remaining 15.8 % minority interest in the Rapid Ratings subsidiary group (Collection House Business Diagnostics Pty Ltd and ACN 096 967 485 Pty Ltd) was purchased for $1 during the year in preparation for the deregistration of the two subsidiary companies. As disclosed in note 1(a), the group has adopted the amendments to AASB 3 and AASB 127 from 1 July 2008, and the Minority Interest in Equity has been transferred directly to Retained Earnings. 33 Dividends Consolidated Company 2009 $’000 - - 2008 $’000 (1,318) (1,318) 2009 $’000 2008 $’000 - - - - (a) Ordinary shares Fully franked final dividend for the year ended 30 June 2008 - 2.5 cents per share (2007 - 2.0 cents, unfranked) Fully franked interim dividend for the year ended 30 June 2009 - 2.3 cents per share (2008: 2.2 cents) Paid in cash (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 2.6 cents per fully paid ordinary share (2008 - 2.5 cents, fully franked). The aggregate amount of the proposed dividend expected to be paid on 27 November 2009 out of retained profits at 30 June 2009, but not recognised as a liability at year end, is Company 30 June 2009 $’000 30 June 2008 $’000 2,433 2,238 4,671 1,946 2,142 4,088 Company 30 June 2009 30 June 2008 $’000 4,671 4,671 $’000 4,088 4,088 Company 30 June 2009 $’000 30 June 2008 $’000 2,530 2,530 2,433 2,433 COLLECTION HOUSE LIMITED 93 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 33 Dividends (continued) (c) Franked dividends The franked portions of the final dividends recommended after 30 June 2009 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 2010. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2009 and will be recognised in subsequent financial reports. Franking credits available for subsequent financial years based on a tax rate of 30% (2008 - 30%) Consolidated Company 30 June 2009 $’000 30 June 2008 $’000 30 June 2009 $’000 30 June 2008 $’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 $1,084,000 (2008: $1,043,000). The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. 94 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 34 Key management personnel disclosures (a) Directors The following persons were directors of Collection House Limited during the financial year: (i) Chairman - non-executive director J.M. Pearce (Appointed Chairman 25 June 2009) (ii) Executive directors A.R. Aveling – Managing Director and Chief Executive Officer (iii) Non-executive directors Mr D Punches (Stepped down as Chairman and became Deputy Chairman 25 June 2009) B. E. Adams (Lead independent director) A.F. Coutts D. B. Connelly W. L. Hiller W. W. Kagel (b) 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: Name Tony Aveling Adrian Ralston Matthew Thomas Michael Watkins Kylie Lynam Position Employer Managing Director and Chief Executive Officer Collection House Limited Chief Financial Officer Chief Operating Officer Collection House Limited Collection House Limited General Counsel and Company Secretary Collection House Limited General Manager - Human Resources Collection House Limited All of the above persons were also key management persons during the year ended 30 June 2008. (c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments Detailed remuneration disclosures are provided in sections A-D of the remuneration report on pages 26 to 34. Consolidated 30 June 2009 $ 30 June 2008 $ 2,657,360 2,689,986 222,816 206,414 - - - - 328,552 291,427 3,208,728 3,187,827 COLLECTION HOUSE LIMITED 95 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 34 Key management personnel disclosures (continued) (d) 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 41. (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. 2009 Name Balance at start of the year Granted as compensation Exercised Other changes Balance at end of the year Vested and exercisable Unvested Directors of Collection House Limited A. Aveling 2,000,000 2,000,000 Other key management personnel of the Group 250,000 200,000 200,000 125,000 250,000 200,000 225,000 150,000 - - - - - - - - - - 4,000,000 400,000 3,600,000 500,000 400,000 425,000 275,000 50,000 40,000 40,000 25,000 450,000 360,000 385,000 250,000 M. Thomas A. Ralston M. Watkins K. Lynam 2008 Name Balance at start of the year Granted as compensation Exercised Other changes Directors of Collection House Limited A. Aveling 2,000,000 Other key management personnel of the Group M. Thomas A. Ralston M. Watkins K. Lynam 250,000 200,000 200,000 125,000 - - - - - - - - - - - - - - - 96 ANNUAL REPORT 2009 Balance at end of the year 2,000,000 250,000 200,000 200,000 125,000 Vested and exercisable Unvested - - - - - 2,000,000 250,000 200,000 200,000 125,000 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 34 Key management personnel disclosures (continued) (d) 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. 2009 Name Directors of Collection House Limited 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 Ordinary shares John Pearce Dennis Punches Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel Other key management personnel of the Group Ordinary shares M. Thomas A. Ralston M. Watkins K. Lynam 2008 Name Directors of Collection House Limited Ordinary shares John Pearce Dennis Punches Tony Aveling Barrie Adams Tony Coutts Barry Connelly Bill Hiller Bill Kagel Other key management personnel of the Group Ordinary shares M. Thomas A. Ralston M. Watkins K. Lynam B. Savage (Consultant) 11,816,130 14,150,101 226,400 - 4,164,600 20,000 43,000 551,269 102,000 - 25,000 11,000 - - - - - - - - - - - - (400,000) 3,707,283 223,000 - 300,000 57,143 50,000 400,000 - - - - 11,416,130 17,857,384 449,400 - 4,464,600 77,143 93,000 951,269 102,000 - 25,000 11,000 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 11,738,200 14,098,835 100,000 - 4,164,600 20,000 20,000 500,000 2,000 - 25,000 11,000 62,000 - - - - - - - - - - - - - 77,930 51,266 126,400 - - - 23,000 51,269 100,000 - - - (34,150) 11,816,130 14,150,101 226,400 - 4,164,600 20,000 43,000 551,269 102,000 - 25,000 11,000 27,850 COLLECTION HOUSE LIMITED 97 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 34 Key management personnel disclosures (continued) (e) 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 2009 2008 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 2008, there were no loans to individuals that exceeded $100,000 at any time. (f) 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. 98 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 35 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 2009 $ 137,000 82,050 219,050 30 June 2008 $ 145,000 79,000 224,000 30 June 2009 $ 137,000 82,050 219,050 30 June 2008 $ 145,000 79,000 224,000 Audit services Audit and review of financial reports Audit-related services 36 Contingencies (a) Contingent liabilities The parent entity and Group had contingent liabilities at 30 June 2009 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 $1,449,478 (2008: $1,460,913) which includes a bank guarantee for the fitout of the new Head Office premisies at Green Square North Tower of $1,002,218 (2008: $993,652). (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 99 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 37 Commitments (a) Capital commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: 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 the Profit or Loss Payable: Within one year Later than one year but not later than five years Later than five years Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 - - - - 3,416 - - 3,416 - - - - 3,416 - - 3,416 Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 29,250 31,200 - - - - 29,250 31,200 - - - - - - - - Consolidated Company 2009 $’000 2008 $’000 2009 $’000 2008 $’000 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 7,969 9,002 4,149 21,120 21,120 3,449 3,930 - 7,379 7,379 5,985 8,969 4,149 19,103 19,103 3,271 3,918 - 7,189 7,189 100 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 38 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 39. (c) Key management personnel Disclosure relating to key management personnel are set out in note 34. (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 101 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 38 Related party transactions (continued) (e) Transactions with related parties (continued) Other transactions Revenue from sale of services to: Wholly-owned controlled entities (note 30(c)) 16,800,111 22,947,232 Company 30 June 2009 $ 30 June 2008 $ 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) 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) Details of equity interest held in classes of related parties are set out in note 39. - - 4,391,592 3,832,502 - 60,277 20,863,747 43,775,282 - 1,560,775 4,276,910 19,537,876 - 420,708 23,421,970 25,164,453 20,696,210 9,687,656 111,991,216 110,823,290 (1,018,434) (1,018,434) 23,421,970 25,164,453 9,432,674 9,420,807 20,987,226 18,472,890 - 157,854 102 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 39 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 Collection House Limited – incorporated in Australia Class of shares: Ordinary Controlled entities incorporated in Australia ABR Publications Pty Ltd (3) ACN 007 279 129 Pty Ltd (formerly Countrywide Mercantile Credit Services Pty Ltd)(4) ACN 010 920 411 Pty Ltd (formerly Australian Business Research Pty Ltd) ACN 073 212 772 Pty Ltd (formerly National Revenue Corporation Pty Ltd) (3) ACN 096 967 485 Pty Ltd (formerly known as Rapid Ratings Pty Ltd) (a wholly owned subsidiary of Collection House Business Diagnostics Pty Ltd) (1)(3)* ACN 079 105 025 Pty Ltd (formerly National Tenancy Database Pty Ltd) (3) Australian Corporate Reporting Pty Ltd (3) Collection House ALR Pty Ltd (deregistered in 2007/2008 and reinstated in 2008/2009) (1) Collection House Business Diagnostics Pty Ltd (CHBD) (1)(2)(3) Collective Learning and Development Pty Ltd Jones King Lawyers Pty Ltd Lion Finance Pty Ltd Midstate Credit Management Services Pty Ltd (4) Controlled entities incorporated in New Zealand Collection House (NZ) Limited Lion Finance Limited 1071066 Limited (formerly abr.nz Limited) The following Australian companies were voluntarily deregistered in 2008/09 financial year: ACN 100 115 571 Pty Ltd (formerly Insurance Claims Solutions Pty Ltd) (1) The following New Zealand companies were voluntarily deregistered in 2008/09 financial year: ACN 096 967 485 Pty Ltd (formerly Rapid Ratings Pty Ltd (registered in NZ as an overseas company) (a wholly owned subsidiary of Collection House Business Diagnostics Pty Ltd) (1)* 1189419 Limited (formerly National Tenancy Database Limited) Insurance Claims Solutions Limited (1) 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) (a wholly owned subsidiary of Collection House Business Diagnostics Pty Ltd) (1)* The following Collection House Limited controlled entities’ business assets were sold in 2008/09 financial year. Refer to note 11 for details in relation to discontinued operations: Equity holding of ordinary shares 2009 % 2008 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 84 100 100 100 84 100 100 100 100 100 100 100 100 84 100 100 84 Colpro Pty Ltd 100 100 (1) These controlled entities have not traded during the financial year. (2) In November 2008, Collection House Business Diagnostics Pty Ltd became a wholly owned subsidiary of the Group. It remains the sole shareholder of the subsidiaries marked with the asterisk above. (3) These controlled entities were voluntarily deregistered on 1 July 2009. (4) The company further streamlined its business activities by the merger of two of its country Victoria subsidiaries Countrywide Mercantile Credit Services Pty Ltd and Midstate Credit Management Services Pty Ltd into one operating business unit. The merged entity will commence trading as Midstate Credit Management Services Pty Ltd from 1 May 2009. COLLECTION HOUSE LIMITED 103 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 40 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 Total basic earnings per share 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 from continuing operations (Profit) / Loss from continuing operations attributable to Minority Interests from discontinued operation (c) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Consolidated 30 June 2009 Cents 7.9 0.2 8.1 30 June 2008 Cents 4.0 8.7 12.7 Consolidated 30 June 2009 $’000 30 June 2008 $’000 7,700 - 154 7,854 3,689 (1) 8,628 12,316 Consolidated 30 June 2009 Number 30 June 2008 Number 97,321,881 97,321,881 104 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 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 these options is identified below as MD/CEO 1. In October 2008, the Shareholders approved the issue of a further 2,000,000 share options in favour of the MD/CEO as part of his varied employment agreement. The full terms of the options are contained in the Notice of General Meeting announced to shareholders on 19 September 2008. A summary of these options is identified below as MD/CEO 2. Exercise price MD/CEO 1 options $1.0327 Earliest possible vesting date 28 February 2009 MD/CEO 2 options $0.4927 25 June 2011 Performance hurdles Tranche # of options Qualifying Price Tranche # of options Qualifying 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 1 2 3 4 5 400,000 400,000 400,000 400,000 400,000 0.60 0.70 0.80 0.90 1.00 Expiry date 25 June 2013 The options will expire on: (a) 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; (b) the MD/CEO ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; (c) or 28 February 2011. Fair value of options granted The assessed fair value at grant date of all options granted is set out below. The fair value at grant date is independently determined using a Monte Carlo option pricing model in relation to MD/CEO 1 options and a combination of Bermudan and Barrier - style option pricing model in relation to MD/CEO 2 options 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 respective options. COLLECTION HOUSE LIMITED 105 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 Share-based payments (continued) (a) Share options for MD/CEO (continued) The model inputs and resulting valuations for options granted included: MD/CEO 1 options MD/CEO 2 options Exercise conditions The options will vest on the later of: (a) 28 February 2009; and (b) in respect of 400, 000 options, the options will be exercisable with no qualifying price applying; and (c) in respect of the remaining 1,600,000 options, the options will only be exercisable, pro-rata, if and when the company’s share price reaches certain qualifying prices between $1.25 and $2.00. The options will vest on the later of: • 25 June 2011; and • for each tranche of options, as follows: A. In respect of the first tranche options, the date that the weighted average closing price shares over a 10 business day period (Qualifying Price) for the first tranche options (namely $0.60) is satisfied; B. In respect of the second tranche options, the Qualifying Price for the second tranche options (namely $0.70) is satisfied; C. In respect of the third tranche options, the Qualifying Price for the second tranche options (namely $0.80) is satisfied; D. In respect of the forth tranche options, the Qualifying Price for the second tranche options (namely $0.90) is satisfied; and E. In respect of the fifth tranche options, the Qualifying Price for the second tranche options (namely $1.00) is satisfied. Exercise price Grant date Expiry date $1.0327 per option 22 February 2007 0.4927 per option 31 October 2008 25 June 2013 The options will expire on: (a) 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; or (b) the MD/CEO ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; (c) or 28 February 2011. Share price at grant date Expected price volatility Expected dividend yield Risk free interest rate $0.91 43.8% 3.29% 5.99% $0.48 55.6% 9% 6.64% 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 MD/CEO 1 options MD/CEO 2 options 1 2 3 4 5 $0.26881 $0.23054 $0.19578 $0.16085 $0.12945 $0.153 $0.152 $0.151 $0.148 $0.146 106 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 Share-based payments (continued) (b) Executive Share Option Plan Participation in the Executive Share option Plan (ESOP) 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 ESOP. The ESOP was approved by the Board and 1,250,000 options were issued to eligible senior employees on 15 June 2007. The options were submitted for shareholder ratification and approval at the Company’s Annual General Meeting in October 2007. A summary of these options is identified below as EXEC1. A further 1,437,500 options were issued to a number of eligible senior employees pursuant to the ESOP on 18 July 2008. A summary of these options is identified below as EXEC2. Future options may be issued pursuant to the ESOP with not only individual performance being considered, but also company performance hurdles to be achieved before options may be exercised. Exercise price Earliest possible vesting date Performance hurdles EXEC1 options $1.0327 28 February 2009 EXEC2 options $0.4927 25 June 2011 Tranche # of options Qualifying Price Tranche # of options Qualifying Price Expiry date 1 2 3 4 5 25 June 2013 287,500 287,500 287,500 287,500 287,500 0.60 0.70 0.80 0.90 1.00 1 2 3 4 5 250,000 250,000 250,000 250,000 250,000 0.00 1.25 1.50 1.75 2.00 the options will expire on: (a) 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; (b) the eligible employee ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or (c) 28 February 2011. Fair value of options granted The assessed fair value at grant date of all options granted is set out below. The fair value at grant date is independently determined using a Monte Carlo option pricing model in relation to EXEC 1 options and a combination of Bermudan and Barrier - style option pricing model in relation to EXEC 2 options 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. COLLECTION HOUSE LIMITED 107 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 Share-based payments (continued) (b) Executive Share Option Plan (continued) The model inputs and resulting valuations for options granted included: EXEC 1 options EXEC2 options The options will vest on the later of: • Namely 25 June 2011; and • for each tranche of options, as follows: A. In respect of the first tranche options, the date that the weighted average closing price shares over a 10 business day period (Qualifying Price) for the first tranche options (namely $0.60) is satisfied; B. In respect of the second tranche options, the Qualifying Price for the second tranche options (namely $0.70) is satisfied; C. In respect of the third tranche options, the Qualifying Price for the second tranche options (namely $0.80) is satisfied; D. In respect of the forth tranche options, the Qualifying Price for the second tranche options (namely $0.90) is satisfied; and E. in respect of the fifth tranche options, the Qualifying Price for the second tranche options (namely $1.00) is satisfied. 0.4927 per option 18 July 2008 25 June 2013 Exercise conditions The options will vest on the later of: (a) 28 February 2009; and (b) in respect of 250, 000 options, the options will be exercisable, pro rata to each eligible employee respectively, with no qualifying price applying; and (c) in respect of the remaining 1,000,000 options, the options will only be exercisable, pro-rata, if and when the company’s share price reaches certain qualifying prices between $1.25 and $2.00. Exercise price Grant date Expiry date $1.0327 per option 15 June 2007 The options will expire on: (a) 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 (b) the eligible employee ceasing to be employed by the Company or a subsidiary of the Company due to fraud or dishonesty; or (c) 28 February 2011 Share price at grant date Expected price volatility Expected dividend yield Risk free interest rate $0.89 48.5% 2.91% 6.14% $0.48 55.6% 9% 6.64% 108 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 Share-based payments (continued) (b) Executive Share Option Plan (continued) 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 Exec 1 options Exec 2 options 1 2 3 4 5 $0.28614 $0.24279 $0.20739 $0.17240 $0.14097 $0.153 $0.152 $0.151 $0.148 $0.146 Balance at start of the year Granted during the year Exercised during the year Expired during the year Balance at end of the year Vested and exercisable at end of the year Grant Date Expiry date Exercise price Number Number Number Number Number Number Consolidated and company - 2009 31 October 2008 18 July 2008 12 March 2007 15 June 2007 As stated above As stated above As stated above As stated above $0.49 $0.49 2,000,000 1,437,500 - 2,000,000 125,000 1,312,500 - - $1.03 2,000,000 $1.03 1,250,000 - - - - - - 2,000,000 400,000 150,000 1,100,000 250,000 275,000 6,412,500 650,000 Total 3,250,000 3,437,500 Balance at start of the year Granted during the year Exercised during the year Expired during the year Balance at end of the year Vested and exercisable at end of the year Grant Date Expiry date Exercise price Number Number Number Number Number Number Consolidated and company - 2008 12 March 2007 15 June 2007 As stated above As stated above $1.03 2,000,000 $1.03 1,250,000 Total 3,250,000 - - - - - - - - - 2,000,000 1,250,000 3,250,000 - - - COLLECTION HOUSE LIMITED 109 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 41 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 were issued under this plan in the year ended 30 June 2009 (2008: 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 2009 $’000 0 0 30 June 2008 $’000 9 9 30 June 2009 $’000 0 0 30 June 2008 $’000 9 9 42 Events occurring after the reporting period Dividend A fully franked final dividend of 2.6 cents, totalling $2.5 million, has been declared, payable on 27th November, 2009. No provision has been raised in these accounts. A number of non-trading entities within the group were voluntarily deregistered on 1 July 2009. Refer to note 39. 110 ANNUAL REPORT 2009 nOtEs tO tHE fInancIal statEmEnts for the year ended 30 June 2009 43 Reconciliation of profit after income tax to net cash inflow from operating activities Consolidated Company Profit for the year Depreciation, amortisation and impairment Fair value losses on other financial assets Non-cash employee benefits expense - share-based payments Restructuring expense Management service fee Stamp duty related expenses written back Dividend and interest income Net (gain) loss on sale of discontinued operations Provision for doubtful debts Assets written off Other non-cash expenses Change in operating assets and liabilities, net of effects from purchase of controlled entity and sale of discontinued operation (Increase)/decrease 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 Increase/(decrease) in trade creditors Increase/(decrease) in sundry creditors and accruals Increase/(decrease) in current tax liability Increase/(decrease) in deferred tax liabilities Increase/(decrease) in deferred expenditure Increase/(decrease) in non-current payables Increase/(decrease) in other provisions Other Net cash inflow (outflow) from operating activities 30 June 2009 $’000 7,854 2,295 30,265 403 655 - (1,344) - - (127) 1,184 (674) 651 (883) 2,312 - (281) 820 (1,395) 1,595 (2,709) - - - (3) 40,618 30 June 2008 $’000 12,388 2,307 29,730 347 1,016 - - - (12,974) - - (796) 6,418 (782) (143) - 416 (431) (1,858) - 2,661 (2) - 37 (71) 38,263 30 June 2009 $’000 11,746 1,629 - 403 655 (1,264) (165) 30 June 2008 $’000 11,011 5,331 - 347 1,016 3,921 - (23,422) (23,847) - - 1,160 (221) 322 (767) 2,974 581 4,735 1,247 (828) - - - 3,227 39 (55) 1,996 19 - - (114) 1,745 (322) (1,628) 542 254 510 518 - - - - 85 (71) (683) COLLECTION HOUSE LIMITED 111 DIREctORs' DEclaRatIOn for the year ended 30 June 2009 In the directors’ opinion: (a) the financial statements and notes set out on pages 38 to 111 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 2009 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 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 25 August 2009 112 ANNUAL REPORT 2009 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 sheets as at 30 June 2009, and the income statements, cash flow statements 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 2009 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 2009. 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 2009, 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 2009 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 Liam Murphy Partner Brisbane 25 August 2009 Liability limited by a scheme approved under Professional Standards Legislation sHaREHOlDER InfORmatIOn The shareholder information set out below was applicable as at 10 August 2009. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1-1000 1,001-5000 5,001-10,000 10,001-100,000 100,001 and over Total There were 552 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: Name Mr Dennis George Punches Trans Tasman Collections Investments Pty Ltd HSBC Custody Nominees (Australia) Limited George Laurens (QLD) Pty Ltd (Pearce Family Account) National Nominees Limited Ankla Pty Ltd Mr John Marshall Pearce and Mrs Sandra Anne Pearce (Collection House S/Fund Account) Mr Anthony Francis Coutts and Mrs Jennifer Elsie Coutts (Coutts S/Fund A/C) Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited – GSCO ECA Anthony Coutts and Jennifer Coutts (The Coutts Family A/C) Mr William Walter Kagel Mr Philip Julian Eriksen and Mr Julian Hans Eriksen (Ace A/C) Mr Lev Mizikovsky and Mrs Emily Dorothy Mizikovsky (Superfun Superfund A/C) Sunstar Australia Pty Ltd Jasscove Pty Ltd (Walker Family Account) TBIC Pty Ltd (Crommelin Family Super A/C) Mooloolaba Consulting Pty Ltd (Super Fund A/C) Mr Lev Mizikovsky Mr Raymond Larkin Total Class of equity security Ordinary shares Holders 549 1,076 321 373 56 Shares 355,884 2,926,011 2,567,630 10,989,578 80,482,778 2375 97,321,881 Units 17,806,118 9,997,798 8,998,111 7,237,925 7,131,383 4,195,020 4,085,905 2,707,000 2,208,377 1,992,460 1,727,000 951,269 746,183 684,363 657,895 600,000 500,000 444,400 438,182 400,000 % of issued capital 18.30 10.27 9.25 7.44 7.33 4.31 4.20 2.78 2.27 2.05 1.77 0.98 0.77 0.70 0.68 0.62 0.51 0.46 0.45 0.41 73,509,389 75.53 COLLECTION HOUSE LIMITED 115 sHaREHOlDER InfORmatIOn Unquoted equity securities The following ordinary share options have been issued to the MD/CEO, as part of his employment agreement and certain of the company’s executives. Details of these options are set out at note 41 of the financial statements. Grant date MD/CEO OPTIONS 31 October 2008 12 March 2007 EXECUTIVE OPTIONS* 18 July 2008 15 June 2007 *No executive holds 20% or more of these securities. Restricted securities Balance at 1 July 2008 Granted during the year Exercised during the year Expired during the year Balance at the end of the year 2,000,000 1,437,500 2,000,000 1,250,000 2,000,000 2,000,000 125,000 150,000 1,312,500 1,100,000 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. Details of the Employee Share Plan are set out in note 41 of the financial statements. Under the Collection House Employee Share Plan and Collection House Executive Share 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 10 August 2009, no shares are restricted on this basis. Shares restricted under voluntary arrangements rank pari passu with all fully paid ordinary shares in all other respects. C. Substantial holders Substantial shareholders of ordinary shares in the Company are set out below: Holder 1. Dennis George Punches (combined shareholdings) Units 17,857,384 2. John Marshall Pearce and Sandra Anne Pearce/George Laurens (Qld) Pty Ltd (combined shareholdings) 11,347,830 3. Mackenzie Financial Corporation 4. Trans Tasman Collections Investments Pty Limited 5. Mr Lev Mizikovsky, Ankla Pty Ltd and Sunstar Australia Pty Ltd (combined shareholdings) 11,091,909 9,997,798 5,975,460 % of issued capital 18.35 11.66 11.40 10.27 6.14 D. Voting rights The voting rights attaching to each class of equity securities are set out below: Ordinary shares 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. Options No voting rights. 116 ANNUAL REPORT 2009 2 overview 7 Business Performance 8 Who We Are 9 our responsibilities Overview Performance Highlights ......................... 2 Chairman’s Statement ........................... 3 Chief Executive’s Review ........................ 4 Notice of ANNuAl GeNerAl MeetiNG The Annual General Meeting of Collection House Limited will be held on 30 October 2009 at 11.00am at the Emporium Hotel, 1000 Ann Street, Fortitude Valley, Brisbane, QLD. The business of the meeting is outlined in the formal Notice and Proxy Form that are enclosed with this report. CORPORATE DIRECTORY Head Office Collection House Limited ABN 74 010 230 716 Level 7 515 St Paul’s Terrace Fortitude Valley, Qld 4006 GPO Box 2247, Fortitude Valley BC Qld 4006 Telephone: +61 7 3292 1000 Facsimile: +61 7 3832 0222 Website: www.collectionhouse.com.au Registered Office Collection House Limited c/- Hacketts DFK Level 3 549 Queen Street Brisbane, Qld 4000 Locations Australia Brisbane Ballarat Sydney Bendigo Melbourne Newcastle Adelaide Shepparton Perth New Zealand Auckland (2) 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: Facsimile: +61 3414 7525 +61 7 3100 1229 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 COLLECTION HOUSE LIMITED 117 m i l d e t i t r o p e R 9 0 0 2 l a u n n A i t C e l l o C e s u o H n o 

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