HUMM GROUP LIMITED — Annual Report 2006

Dec 10, 2006

Flexirent Holdings Pty Limited and its controlled entities Annual report - 30 June 2006
ABN 93 064 046 046

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Contents

Directors' report Financial report Directors' declaration Independent audit report to the members Page
2
5
37 $\overline{38}$

Flexirent Holdings Pty Limited and its controlled entities Directors' report 30 June 2006

The Directors of Flexirent Holdings Pty Limited ("the company") present the following report for the financial year ended 30 June 2006.

Directors

The following persons were directors of Flexirent Holdings Pty Limited during the whole financial year and up to the date of this report:

AJ Abercrombie DW Berkman

R Dhawan and J De Lano were appointed Directors on 17 July 2006 and continue to hold office at the date of this report.

Review of operations

The Group comprises Flexirent Holdings Pty Limited, Flexirent Capital Pty Limited. Flexirent Capital (New Zealand) Limited and six special purpose vehicles. Trading activity is channelled through these entities with the Company being responsible for servicing the needs of the customers and the suppliers to the Special Purpose Vehicles.

The consolidated net profit before tax for the financial year increased by 51% from \$20.4million to \$30.9million. Revenue from operations increased by 17% to \$122.1 million (2005: \$105.9 million) and borrowing costs increased by 12% to \$34.4 million (2005: \$30.6 million).

The shareholders of Flexirent Holdings Pty Ltd appointed Goldman Sachs JBWere in April 2006 to explore a range of strategic alternatives to raise capital to fund the business' growth strategy and monetise part of their current holdings, including a potential IPO or sale of an equity stake to a strategic investor.

Principal activity

The principal activities during the year continued to be the provision of:

• lease, loan and rental financing services for office, personal technology and related equipment
• management services to the Special Purpose Vehicles

No significant change in the nature of these activities occurred during the year, except that the group commenced to offer business loans to its business customers.

Dividends

No dividends were paid or declared in relation to the current or prior financial year.

Significant changes in state of affairs

There were no significant changes in the Group's state of affairs in the year.

Significant developments

Likely developments in the operations of the company and the expected results of those operations in future financial years have not been included in this report as the inclusion of such information is likely to result in unreasonable prejudice to the company.

Share options

No options over issued shares or interests were granted during or since the end of the financial year and there were no options outstanding at the date of this report.

The company has entered into various share based payment instruments which entitle the participants to shares under various conditions. Details of these are set out in note 25 to the financial statements.

Subsequent events

There were no subsequent events that impacted the 30 June 2006 financial statements.

Environmental requiation

The group's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory.

Directors' indemnification

During the year ended 30 June 2006, the company paid insurance premiums in respect of a Directors' and Officers' Liability Insurance contract. Disclosure of the total amount of the premium and the nature of the liabilities in respect of such insurance is prohibited by the policy.

Flexirent Holdings Pty Limited and its controlled entities Directors' report 30 June 2006 (continued)

Proceedings on behalf of the company

No person has applied for leave of Court to bring proceedings on behalf of the company or 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 any part of those proceedings. The company was not a party to any such proceedings during the year.

No proceedings have been brought or intervened in or on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001.

Declaration of interests

Other than as disclosed in the financial report, no director of the company has received or become entitled to receive a benefit other than remuneration by reason of a contract made by the Company or a related corporation with a director or with a firm of which he is a member, or with a Company in which he has a substantial financial interest except that Flexirent Capital Pty Ltd has rented premises in Melbourne owned by a company associated with Mr A Abercrombie. The lease is on standard market terms.

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's Independence Declaration

A copy of the Auditor's Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 4 and forms part of this report.

Auditor

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

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

AJ Abercrombie Director

Sydney 27 October 2006

PRICEWATERHOUSE COPERS

PricewaterhouseCoopers ABN 52 780 433 757

Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia www.pwc.com/au
Telephone +61 2 8266 0000
Facsimile +61 2 8266 9999

Auditor's Independence Declaration

As lead auditor for the audit of Flexirent Holdings Pty Limited and its controlled entities for the year ended 30 June 2006, I declare that to the best of my knowledge and belief, there have been:

no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit, and $(a)$

no contraventions of any applicable code of professional conduct in relation to the audit. $(b)$

This declaration is in respect of Flexirent Holdings Pty Limited and its controlled entities during the period.

Victor Clarke Partner PricewaterhouseCoopers

Sydney 27 October 2006

Liability limited by a scheme approved under Professional Standards Legislation

Flexirent Holdings Pty Limited and its controlled entities Annual financial report - 30 June 2006 ABN 93 064 046 046

Contents

	Page
Financial report
Income statement
Balance sheet
Statement of changes in equity
Cash flow statement
Notes to the financial statements	10
Directors' declaration	37
Independent audit report to the members	38

This financial report covers Flexirent Holdings Pty Limited and its controlled entities. The financial report is presented in the Australian currency.

Flexirent Holdings Pty Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Level 8, The Forum 201 Pacific Highway St Leonards NSW 2065

A description of the nature of the entity's operations and its principal activities is included in the review of operations and activities in the directors' report on pages 2-3, both of which are not part of this financial report.

The financial report was authorised for issue by the directors on 27 October 2006. The company has the power to amend and reissue the financial report.

Flexirent Holdings Pty Limited and its controlled entities
Income statement
For the year ended 30 June 2006

		Consolidated		Parent entity
	Notes	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Revenue from continuing operations	5	122,054	105,872
Borrowing costs	6	(34, 419)	(30, 630)		(131)
Charges in respect of protect plan		(3, 159)	(3,090)
Impairment losses on loans and receivables	6	(10, 573)	(7,926)
Employee benefits expense		(18,004)	(19, 330)
Marketing expenses		(7,048)	(6,045)
Share based payments expense		(50)	(750)
Operating lease rentals		(2, 254)	(1,604)
Travel, courier and postage		(1, 829)	(1,491)
IT system maintenance		(600)	(1,041)
Conference and stationery		(836)	(1, 112)
Telephone and overheads		(1,065)	(1,744)
Depreciation and amortisation expense	6	(3, 475)	(4,953)
Foreign currency loss (unrealised) Other expenses		(134) (7,666)	(5, 723)		(100)
Profit before income tax		30,942	20,433		(231)
Income tax expense	$\overline{7}$	(8,863)	(11, 814)		69
Profit from continuing operations		22,079	8,619	۰	(162)
Profit for the year	25	22,079	8,619	$\blacksquare$	(162)

The above income statement should be read in conjunction with the accompanying notes.

$\sim$ $\sim$

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Flexirent Holdings Pty Limited and its controlled entities
Balance sheet

As at 30 June 2006
--------------------	--	--

		Consolidated		Parent entity
		2006	2005	2006	2005
	Notes	\$'000	\$'000	\$'000	\$'000
ASSETS
Current assets		36,880	23,212
Cash and cash equivalents	8		183,946		7
Loans and receivables	9	205,296 2,659	2,919		$\blacksquare$
Rental equipment	10		210,077		7
Total current assets		244,835
Non-current assets
Loans and receivables	11	226,556	213,059
Plant and equipment	12	3,599	4,435
Deferred tax assets	13	3,930	3,184
Goodwill	14	50,159	50,159
Other intangible assets	15	4,084	4,067		61,723
Other financial assets	16			61,773
Total non-current assets		288,328	274,904	61,773	61,723
				61,773	61,730
Total assets		533,163	484,981
LIABILITIES
Current liabilities
Payables	17	17,240	12,996	31,199	38,301
Borrowings	18	195,975	206,302		921
Current tax liability	19	9,083	1,249	8,016
Provisions	20	490	409		39,222
Total current liabilities		222,788	220,956	39,215
Non-current liabilities
Borrowings	21	230,657	207,279
Deferred tax liabilities	22	21,730	20,565
Provisions	23	348	331
Total non-current liabilities		252,735	228,175	-
Total liabilities		475,523	449,131	39,215	39,222
Net assets		57,640	35,850	22,558	22,508
EQUITY
Contributed equity	24	20,965	20,965	20,965	20,965
Reserves	25(a)	441	730	800	750
Retained profits	25(b)	36,234	14,155	793	793
Total equity		57,640	35,850	22,558	22,508

The above balance sheet should be read in conjunction with the accompanying notes.

$\label{eq:2.1} \frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2\frac{1}{\sqrt{2}}\left(\frac{1}{\sqrt{2}}\right)^2$

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$\sim 10$

Flexirent Holdings Pty Limited and its controlled entities
Statement of changes in equity
For the year ended 30 June 2006

	$\mathcal{L}$	Consolidated		Parent entity
	Notes	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Total equity at the beginning of the financial year		35,850	61,520	22,508	56,923
Exchange differences on translation of foreign		(339)	(36)
operations Net income/(loss) recognised directly in equity 25(a)		(339)	(36)
		22,079	8,619		(162)
Profit for the year Total recognised income and expense for the year		21,740	8,583		(162)
Transactions with equity holders in their capacity
as equity holders;	$\tilde{\mathbf{C}}$		(35,003)		(35,003)
Share Buyback		50	750	50	750
Share based payment reserve	25(a)	50	(34,253)	50	(34, 253)
Total equity at the end of the financial year		57,640	35,850	22.558	22,508

l.

The above statements of changes in equity should be read in conjunction with the accompanying notes.

$\ddot{\phantom{a}}$

Flexirent Holdings Pty Limited and its controlled entities
Cash flow statement
For the year ended 30 June 2006

		Consolidated		Parent entity
		2006	2005	2006	2005
	Notes	\$'000	\$'000	\$'000	\$'000
Cash flows from operating activities
Lease rentals received		348,804	255,593
Bank interest received		2,785	2,406
Fees and other income received		13,082	9,358
Management fees / intercompany tax received / (paid)			(95)	7,102	481
Payment to suppliers and employees		(341, 276)	(267, 514) (30, 630)		(131)
Borrowing costs		(34, 419) (606)	(16)
Taxation paid		14,883	8,135
Disposal proceeds - rental equipment Net cash (outflow)/inflow provided from operating	28	3,253	(22, 763)	7,102	350
activities
Cash flows from investing activities
Purchase of plant and equipment		(362)	(4,045)
Purchase of software		(2, 269)	(5,262)
Disposals of plant and equipment		2	22	(7,095)
Loans to subsidiaries					39,939
Loans from subsidiary		(2,629)	(9, 285)	(7,095)	39,939
Net cash (outflow) inflow from investing activities
Cash flows from financing activities			(35,003)		(35,003)
Share Buyback Loans to shareholder related entities		(7)	(36)	(7)	(36)
Dividends paid to shareholders			(5, 250)		(5,250)
Loans drawn-down		335,684	332.171
Repayment of borrowings		(311, 640)	(260,048)
Loss reserve payments		(10, 993)	(6, 818)
Net cash (outflow) inflow from financing activities		13,044	25,016	$\overline{\mathcal{C}}$	(40, 289)
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the		13,668	(7,032)
financial year		23,212	30,244
Cash and cash equivalents at end of year	8	36,880	23,212	$\qquad \qquad \blacksquare$
Financing arrangements	21(a)

The above cash flow statement should be read in conjunction with the accompanying notes

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$\mathcal{A}$ $\ddot{\phantom{1}}$

Flexirent Holdings Pty Limited and its controlled entities
Notes to the financial statements
30 June 2006

Contents of the notes to the financial statements

	€.	Page
1	Summary of significant accounting policies	11
2	Financial risk management	20
3	Critical accounting estimates	20
4	Segment information	21
5	Revenue	21
6	Expenses	21
7	Income tax expense	22
8	Cash and cash equivalents	23
9	Current assets - Loans and receivables	23
10	Current assets - Rental equipment	23
11	Non-current assets - Loans and receivables	23
12	Non-current assets - Plant and equipment	24
13	Non-current assets - Deferred tax assets	25 25
14	Non-current assets - Goodwill	25
15	Non-current assets - Intangible assets	25
16	Non-current assets - Other financial assets	26
17	Current liabilities - Payables	26
18	Current liabilities - Borrowings	26
19	Current liabilities - Current tax liabilities	26
20	Current liabilities - Provisions	27
21	Non-current liabilities - Borrowings liabilities Non-current liabilities - Deferred tax liabilities	28
22	Non-current liabilities - Provisions	28
23 24	F Contributed equity	28
25	Reserves and retained profits	28
26	Franking Account	30
27	Capital and leasing commitments	30
28	Reconciliation of profit after income tax to net cash inflow/(outflow) from operating activities	30
29	Events occurring after balance date	31
30	Subsidiaries	31
31	Related party transactions	32
32	Remuneration of auditors	33
33	Contingent liabilities	33
34	Explanation of transition to Australian equivalents to IFRSs	34

Summary of significant accounting policies 1

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 Flexirent Holdings Pty Limited as an individual entity and the consolidated entity consisting of Flexirent Holdings Pty Limited and its subsidiaries.

Basis of preparation $(a)$

This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Compliance with IFRS

Australian Accounting Standards include AIFRSs. Compliance with AIFRSs ensures that the consolidated financial statements and notes of Flexirent Holdings Pty Limited and its controlled entities comply with International Financial Reporting Standards (IFRSs). The parent entity financial statements and notes also comply with IFRSs except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure.

Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards These financial statements are the first Flexirent Holdings Pty Limited and its controlled entities financial statements to be prepared in accordance with AIFRSs. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements.

Financial statements of Flexirent Holdings Pty Limited and its controlled entities until 30 June 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Principals (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing Flexirent Holdings Pty Limited and its controlled entities 2006 financial statements, management has amended certain accounting, valuation and consolidation methods applied in the AGAAP financial statements to comply with AIFRS. With the exception of financial instruments, the comparative figures in respect of 2005 were restated to reflect these adjustments. The group has taken the exemption available under AASB 1 to only apply AASB 132 and AASB 139 from 1 July 2005.

Reconcilations and descriptions of the effect of transition from previous AGAAP to AIFRSs on the Group's equity and its net income are given in note 34.

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property.

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.

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Principles of consolidation $(b)$

Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Flexirent Holdings Pty Limited ("company" or "parent entity") as at 30 June 2006 and the results of all subsidiaries for the year then ended. Flexirent Holdings Pty 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.

Investments in subsidiaries are accounted for at cost in the individual financial statements of Flexirent Holdings Pty Limited.

Summary of significant accounting policies (continued) 1

Seament reporting $(c)$

The group operates predominately in one business segment (financial services) and one geographical segment (Australasia).

Foreign currency translation $(d)$

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 Flexirent Holdings Pty Limited's functional and presentation currency.

Transactions and balances (ii)

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

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets are included in the fair value reserve in equity.

Group companies $(iii)$

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet:
• income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
• all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders' equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale where applicable.

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

Revenue recognition $(e)$

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

Lease finance interest revenue $(i)$

Lease finance interest revenue on finance leases is recognised by applying discount rates implicit in the leases to lease balances receivable at the beginning of each payment period.

Secondary lease income, including inertia rentals received and rental income on extended rental assets is recognised when it is due on an accrual basis. Proceeds from the sale of rental assets are recognised upon disposal of the relevant assets.

Interest income and expense $(ii)$

Interest income on loans and cash balances is recognised in the income statement using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses.

Summary of significant accounting policies (continued) 1

Revenue recognition (continued) $(e)$

$(iii)$ Other revenue

The company operates an equipment protection and debt waiver plan entitled Protect. Protect Plan revenue is recognised in the month it is due on an accrual basis. A provision for outstanding expected claims is recognised in the statement of financial position for the cost of Protect Plan claims which have been incurred at year end, but have not yet been notified to the company, or which have been notified to the company but not vet paid.

$(f)$ 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 national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

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

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax consolidation legislation

Flexirent Holdings Pty Limited is the head entity in the tax consolidated group.

Amounts payable or receivable under a tax sharing agreement with the head entity are recognised in accordance with the terms and conditions of the agreement as tax-related amounts receivable or payable. Expenses and revenues arising under these agreements are recognised as income tax expense or revenue.

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

Lease receivables $(g)$

The company's principal activity is the provision of lease and rental financing for office and personal technology and equipment. The company has classified its leases as direct finance leases.

Under a direct finance lease, substantially all the risks and benefits incidental to the ownership of the leased asset are transferred by the lessor to the lessee. The company recognises at the beginning of the lease term an asset at an amount equal to the aggregate of the present value (discounted at the interest rate implicit in the lease) of the minimum lease payments and a conservative estimate of the value of any unguaranteed residual value expected to accrue to the benefit of the company at the end of the lease term.

Uneamed Interest

Unearned interest on lease and other receivables is brought to account over the life of the lease or loan contract based on the interest rate implicit in the lease or loan.

Direct sales costs

Direct sales costs incurred relating to direct financing leases are included as part of lease receivables in the statement of financial position and are amortised over three years.

Summary of significant accounting policies (continued) 1

Loan receivables $(h)$

Loan receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides loans to customers via products such as Business Loan.

Allowance for losses $(i)$

The collectability of receivables is assessed on an ongoing basis. A provision is made for expected losses based on historical roll rates of arrears and the current delinquency position of the portfolio.

$(i)$ Leases - used by the group

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset's useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 27). 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.

Cash and cash equivalents $(k)$

For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Investments $(1)$

From 1 July 2004 to 30 June 2005

The Group has taken the exemption available under AASB 1 to apply AASB 132 and AASB 139 only from 1 July 2005. The Group has applied previous AGAAP to the comparative information on financial instruments within the scope of AASB 132 and AASB 139.

From 1 July 2005

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at each reporting date.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges.

The Group had no assets in this category at 30 June 2006.

Loans and receivables $(i)$

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 Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet (notes 9 and 11)

Held-to-maturity investments $(iii)$

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity.

The Group had no assets in this category at 30 June 2006.

Summary of significant accounting policies (continued) $\ddot{\mathbf{1}}$

Investments (continued) $\mathbf{I}$

Available-for-sale financial assets $(iv)$

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Regular purchases and sales of investments are recognised on trade-date (the date on which the Group commits to purchase or sell the asset). Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category, including interest and dividend income, are presented in the income statement within other income or other expenses in the period in which they arise.

The Group had no assets in this category at 30 June 2006.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences are recognised in profit or loss and other changes in carrying amount are recognised in equity. Changes in the fair value of other monetary and non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

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

Rental equipment $(m)$

Rental equipment is carried at the lower of cost and net realisable value and comprises returned rental equipment and items remaining on rental after the end of the contractual rental period.

Plant and equipment $(n)$

Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of plant and equipment.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Summary of significant accounting policies (continued) 1

Plant and equipment (continued) $(n)$

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

Intangibles $(o)$

Googhwill $\mathbf{r}$

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 at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Software development $(i)$

Costs incurred on software development projects (relating to the design and testing of new or improved software products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including direct labour. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Capitalised development costs are recorded as an intangible asset and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which is assessed at 2.5 years.

$(p)$ Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subiect 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). Non financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Trade and other payables $(q)$

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

$(r)$ Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility.

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 balance sheet date.

Borrowing costs $(s)$

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.

$(t)$ Provisions

Provisions for legal claims are recognised when:

• The Group has a present legal or constructive obligation as a result of past events
• It is probable that an outflow of resources will be required to settle the obligation, and
• The amount has been reliably estimated.

Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

1 Summary of significant accounting policies (continued)

$(t)$ Provisions (continued)

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

$(u)$ Employee benefits

Wages and salaries, annual leave and sick leave $(i)$

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.

$(i)$ Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows

$(iii)$ Profit-sharing and bonus plans

The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

$(iv)$ Share-based payments

Share-based compensation benefits are provided to a supplier and certain employees. Information relating to these schemes is set out in note $25(c)$ .

Shares based payments granted before 7 November 2002 and/or vested before 1 January 2005

No expense is recognised in respect of the instruments issued for nil consideration. Shares issued following the exercise of the instruments are recognised at that time and the proceeds received allocated to share capital. No proceeds are currently expected to be received on exercise.

Share based payments granted after 7 November 2002 and vested after 1 January 2005

The fair value of such instruments is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the relevant party becomes unconditionally entitled to the instruments.

The fair value at grant date is independently determined using a pricing model that takes into account the exercise price, the term of the instrument, the impact of dilution, the estimated value of the company 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 instrument.

The fair value of the instruments granted is adjusted to reflect market vesting conditions, but excludes the impact of any not the search of the and the activities is expressed to construct the search of search of the dealership conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number and value of instruments that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of instruments that are expected to become exercisable. The share based payment expense recognised each period takes into account the most recent estimate.

Upon the exercise of instruments, the balance of the share-based payments reserve relating to those instruments is transferred to share capital and the proceeds received (if any), net of any directly attributable transaction costs, are credited to share capital.

$(v)$ Contributed equity

Ordinary shares are classified as equity.

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

$\blacktriangleleft$ Summary of significant accounting policies (continued)

$(v)$ Contributed equity (continued)

If the entity reacquires its own equity instruments, eg as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity,

Dividends $(w)$

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

Goods and Services Tax (GST) $(x)$

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from taxation authorities. In these circumstances the GST is recognised as part of the cost of acquisition of the assets or as part of an item of the expense.

Receivables and payables in the statement of financial position are shown inclusive of GST with the exception of lease receivables, which are shown net of unearned GST on the lease receivables.

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 98/0100, issued by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.

$(z)$ Fair value estimation

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 traded in active markets (such as publicty traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market 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. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. 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.

$(aa)$ New accounting standards and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2006 reporting periods. The Group's assessment of the impact of these new standards and interpretations is set out below.

UIG 4 Determining whether an Asset Contains a Lease

UIG 4 is applicable to annual periods beginning on or after 1 January 2006. The Group has not elected to adopt UIG 4 early. It will apply UIG 4 in its 2007 financial statements and the UIG 4 transition provisions. The Group will therefore apply UIG 4 on the basis of facts and circumstances that existed as of 1 July 2006. Implementation of UIG 4 is not expected to change the accounting for any of the Group's current arrangements.

$(ii)$ UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds The Group does not have interests in decommissioning, restoration and environmental rehabilitation funds. This interpretation will not affect the Group's financial statements.

1 Summary of significant accounting policies (continued)

$(aa)$ New accounting standards and UIG interpretations (continued)

AASB 2005-9 Amendments to Australian Accounting Standards AASB 4, AASB 1023, AASB 139 & AASB 132. $(iii)$ AASB 2005-9 is applicable to annual reporting periods beginning on or after 1 January 2006. The amendments relate to the accounting for financial guarantee contracts. The Group has not elected to adopt the amendments early. It will apply the revised standards in its 30 June 2007 financial statements. The new rules will be implemented retrospectively with a restatement of the comparatives as required by AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.

The impact on the Group on the implementation of AASB 2005-9 has not yet been assessed.

AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards $(iv)$ AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038. AASB 7 and AASB 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not adopted the standards early. Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's financial instruments.

AASB 2005-6 Amendments to Australian Accounting Standards AASB 121. $(v)$

AASB 2005-6 is applicable to annual reporting periods ending on or after 31 December 2006. The amendment relates to monetary items that form part of a reporting entity's net investment in a foreign operation. It removes the requirement that such monetary items had to be denominated either in the functional currency of the reporting entity or the foreign operation. Flexirent Holdings Pty Limited does not have any monetary items forming part of a net investment in a foreign operation. The amendment to AASB 121 will therefore have no impact on the Group's financial statements.

Financial risk management $\overline{2}$

The Group's activities expose it to a variety of financial risks: market risk (currency risk), credit risk, liquidity risk and interest rate risk.

The Group's overall risk management framework seeks to minimise potential adverse effects on the financial performance of the Group.

Risk management is primarily carried out by the treasury department and the credit and risk department.

(a) Market risk

Foreign exchange risk

The Group is exposed to foreign exchange risk through its operations in New Zealand.

This risk is not considered material as loans extended by the Australian operations to its New Zealand subsidiary total A\$2.2million (2005: A\$2.2million).

The Group does not hedge this exposure and currently has no foreign exchange instruments outstanding. As the New Zealand operations are forecast to be cash positive, it is envisaged that the inter company loan will be repaid over time.

(b) Credit risk

As the principal activities of the Group continue to be the provision of lease, loan and rental financing, the Group is exposed to credit risk.

This credit risk is mitigated through:

• Formally documented credit policies and processes.
• Use of statistical based credit scorecards.

The Group has no significant concentrations of credit risk.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available from a number of financial institutions and investing in highly liquid and rated money market investments.

(d) Interest Rate Risk

The Group's potential interest rate risk arises from the spread between borrowings and interest earned from the receivable portfolio. The Group's receivable portfolio is comprised entirely of fixed rate loans. The Group manages its interest rate risk by funding its loan portfolio through borrowing from funders at a fixed rate of interest.

The Group has no interest rate hedging or derivative contracts outstanding.

Critical accounting estimates 3

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.

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.

Estimation of Unguaranteed residuals on leases $(i)$

The Group estimates the value of unguaranteed lease residuals based on its prior experience for similar contracts.

Allowance for losses $(ii)$

The Group estimates losses incurred on its loans and lease receivables in accordance with the policy set out in Note 1(i).

Segment information $\overline{\mathbf{4}}$

The group operates predominately in one business segment (financial services) and one geographical segment (Australasia).

$\overline{\mathbf{5}}$ Revenue

	Consolidated		Parent entity
	2006	2005	2006	2005
	\$'000	\$'000	\$'000	\$'000
From continuing operations
Interest income - other parties	112,687	97,027
Inertia rental from extended rental assets, net of (loss)/
gain on sale of rental assets	14,841	14,831
	127,528	111,858
Amortisation of Direct Sales Costs	(23, 247)	(20, 528)
Net income on lease and loan receivables	104,281	91,330	$\bullet$
Protect plan revenue and fees received	13,082	9,358
Other revenue
Interest income - Banks	2,785	2,406
Sundry income	168	744
Dishonour fee income	1,738	1,413
Gain on liquidation of subsidiaries		621
	122,054	105,872

Expenses $6\phantom{1}$

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Profit before income tax includes the following specific expenses:
Borrowing costs - other parties	34,419	30,630		131
Depreciation: - plant and equipment	1,191	598
Amortisation: - software	2,284	4,355
Total Depreciation and Amortisation Expense	3,475	4,953
Bad debts written off Movement in allowance for losses	10.256 $\mathcal{R}_{\mathbb{R}}$ 317	9,470 (1, 544)	٠
Impairment losses on loans and receivables	10,573	7,926	٠

Income tax expense $\overline{7}$

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Income tax expense (a)	8,994	(5,745)		(69)
Current tax	419	12,336
Deferred tax	(550)	5,223
Under (over) provided in prior years	8,863	11,814		(69)
Income tax expense is attributable to:
Profit from continuing operations	8,863	11,814
Aggregate income tax expense	8,863	11,814		(69)
Deferred income tax (revenue) expense included in income tax expense comprises:
Decrease (increase) in deferred tax assets (note 13)	(746)	11,233
(Decrease) increase in deferred tax liabilities (note 22)	1,165	1,103
	419	12,336	$\bullet$
Numerical reconciliation of income tax (b) expense to prima facie tax payable
Profit from continuing operations	30,942	20,433		(231)
Tax at the Australian tax rate of 30% (2005: 30%) Tax effect of amounts which are not deductible (taxable)	9,283	6,130		(69)
in calculating taxable income:		192
Non-taxable dividend	130	269
Sundry items	9,413	6,591		(69)
Under (over) provision in prior years	(550)	5,223
	8,863	11,814		(69)

Tax consolidation legislation $(c)$

Flexirent Holdings Pty Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy on implementation of the legislation is set out in note 1(f).

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

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

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of the financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables (see note 9 and 17).

Cash and cash equivalents $\bf{8}$

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Cash at bank and on hand	36,880	23,212
Reconciliation to cash at the end of the year
The above figures reconcile to cash at the end of the financial year, as shown in the statement of cash flows, as follows:
Balances as above	36,880	23,212
Balances per statement of cash flows	36,880	23.212

$\mathcal{A}_\mathrm{L}$

The weighted average interest rate on this balance is 5.75%.

$\overline{9}$ Current assets - Loans and receivables

	$\mathbf{z} = \mathbf{z}$ Consolidated		Parent entity
	2006	2005	2006	2005
	\$'000	\$'000	\$'000	\$'000
Lease and loan receivables
Rental receivables	280.289	246,906
Loan receivables	3.765
Guaranteed residuals	753	155
Unguaranteed residuals	8,439	9.635
Unearned interest	(103,059)	(92,523)
Capitalised initial direct sales costs	12.189	15,415
Allowances for losses	(3, 554)	(4,252)
	198,822	175.336
Other receivables
Other debtors	5,974	8.603
Amounts receivable -director related entities	500
	6,474	8.610
	205,296	183,946

10 Current assets - Rental equipment

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Returned rental equipment	89	272	۰	$\blacksquare$
Extended rental assets	2.570	2.647		$\bullet$
	2,659	2,919		-

11 Non-current assets - Loans and receivables

	Consolidated		Parent entity
	2006	2005	2006	2005
	\$'000	\$'000	\$'000	\$'000
Lease and loan receivables
Rental receivables	248.730	242,490
Loan receivables	9.249
Guaranteed residuals	1,540	1.774	-		۰
Unguaranteed residuals	18.449	18.388	-		$\bullet$
Unearned income	(64, 625)	(56, 381)	$\bullet$		$\bullet$
Capitalised initial direct costs	16.950	10.143	$\blacksquare$	$\blacksquare$
Allowance for losses	(3,737)	(3,355)
	226.556	213.059

Non-current assets - Loans and receivables (continued) $11$

Non current lease receivables are receivable later than one year but not later than five years.

(a) Fair Values
The fair values and carrying values of non-current receivables of the Group approximate the carrying amount stated above, based on the implicit rates of the underlying contracts.

er,

$\frac{1}{2}$

(b) Interest rate risk

The Group's exposure to interest rate is set out in Note 2.

$\overline{a}$

(c) Credit risk

The Group's exposure to credit risk is set out in Note 2.

Non-current assets - Plant and equipment $12$

	Consolidated \$'000	Parent Entity \$'000
Plant & Equipment At 1 July 2004
Cost	2,736
Accumulated depreciation	(1, 326)
Net book amount	1,410
Year ended 30 June 2005	1,410
Opening net book amount	3,645
Additions	(22)
Disposals	(598)
Depreciation charge $\mathbf{E}{\mathcal{O}{\mathcal{O}_{\mathcal{O}}}}$ Closing book amount	4,435
At 30 June 2005
Cost	6.655 (2, 220)
Accumulated depreciation	4,435
Net book amount
Year ended 30 June 2006	4,435
Opening net book amount	362
Additions	(7)
Disposals Depreciation charge	(1, 191)
Closing book amount	3,599
At 30 June 2006 Cost	6,533
Accumulated depreciation	(2, 934)
Net book amount	3,599

$\Delta\phi$

Non-current assets - Deferred tax assets $13$

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
The balance comprises temporary differences attributable to: Amounts recognised in profit or loss
Doubtful debts	2,025	2,103
Employee Entitlements	1,365	929	۰
Provisions	540	152
	3,930	3,184
Movements:	3.184	14,417
Opening balance at 1 July	746	(11,233)
Credited/(charged) to the income statement Closing balance at 30 June	3,930	3,184
Deferred tax assets to be recovered after more than 12 months	269	99
Deferred tax assets to be recovered within 12 months	3,661	3,085
	3.930	3,184

Non-current assets - Goodwill $14$

		Parent entity Consolidated
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Intangibles Goodwill at 1 July	50.159	49.538
Changes as a result of liquidation of subsidiaries	$\blacksquare$	621		-
Balance at 30 June	50.159	50,159		$\bullet$

Non-current assets - Intangible assets 15

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Software	4,067	2.755
Balance at 1 July Additions	2,269	5,262	$\blacksquare$	$\qquad \qquad$
Amortisation charge	(2, 252)	(3,950)	$\blacksquare$	$\qquad \qquad$
Balance at 30 June	4.084	4,067

Non-current assets - Other financial assets 16

	STATE	Consolidated		Parent entity
	2006 \$'000 43,		2005 \$'000	2006 \$'000	2005 \$'000
Shares in subsidiaries: - Flexirent Capital Pty Limited		$\overline{\phantom{0}}$	$\bullet$	61.773	61,723
These financial assets are carried at cost.

Current liabilities - Payables $17$

		Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Trade payables Other payables Amounts payable to related entities	1,313 15,927 $\blacksquare$	593 12,403	$\bullet$ $\blacksquare$ 31,199	- $\bullet$ 38,301
	17.240	12,996	31,199	38,301

Current liabilities - Borrowings 18

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Secured Loan Advances - Secured	209,399	212.241
Total secured current borrowings	209.399	212.241	$\sim$
Loss Reserve	(13, 424)	(5,939)	$\blacksquare$
Total current borrowings	195,975	206,302

Assets pledged as security

The loans are secured by the respective Funders by rentals receivable in respect of the underlying contracts.

Current liabilities - Current tax liabilities 19

		Consolidated		Parent entity
	2006	2005	2006	2005
	\$'000	\$'000	\$'000	\$'000
Income tax	9,083	.249	8,016	921

Current liabilities - Provisions 20

$\overline{a}$

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Protect plan provision
Carrying amount at beginning of year	409	$\blacksquare$	$\overline{\phantom{a}}$
Provisions made during the year	81	409	$\blacksquare$
Carrying amount at end of year	490	409

à.

For a description of the nature of the provision refer to note 1(e(iii)).

$21$ Non-current liabilities - Borrowings liabilities

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Secured
Loan Advance - secured	241.874	214,988
Total secured non current borrowings	241.874	214,988
Loss Reserve	(11.217)	(7,709)
Total non-current borrowings	230,657	207,279

$\mathbb{C}_{2}$

Refer to note 18 for detail on assets pledged as security.

$(a)$ Financing arrangements

سه

Unrestricted access was available at balance date to the following lines of credit

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Total loan facilities available	690.000	490,000	۰
Used at balance date Loan facilities	$\sim$ $\sim$ 451,273	427,229	$\bullet$
Unused at balance date Loan facilities	238.727	62,771	$\blacksquare$

$(b)$ Interest rate risk exposures

The following table sets out the Group's exposure to interest rate risk, including the contractual repricing dates and the effective weighted average interest rate by maturity periods.

Refer to note 2(d) on details on interest rates risk exposures.

					Fixed interest rate
2006	Floating interest	1 year or less	2 years	Over 1 to Over 2 to Over 3 to 3 years	4 years	Over 4 to 5 years	Over 5 years	Total
	rate \$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Loan advances Loss reserve	$\blacksquare$	$(209, 399)$ $(155, 863)$ 13,424	8,241	(82, 107) 2,704	(3, 456) 241	(448) 31		(451, 273) 24,641
	$\blacksquare$	(195,975) (147,622)		(79, 403)	(3, 215)	(417)	$\blacksquare$	(426, 632)
Weighted average interest rate		7.2%	7.4%	7.5%	7.6%	7.6%		7.3%
				Fixed interest rate
2005	Floating interest rate	1 year or less	Over 1 to 2 years	3 years	Over 2 to Over 3 to Over 4 to 4 years	5 years	Over 5 years	Total
	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Loan advances Loan reserve	$\blacksquare$ ۰	$(212,241)$ $(128,532)$ 5,939	5,705	(82, 997) 1,849	(3,211) 144	(248) 11		(427, 229) 13,648
	-	(206,302)	(122, 827)	(81, 148)	(3,067)	(237)		(413,581)
Weighted average interest rate		7.1%	7.4%	7.5%	7.6%	7.5%		7.3%

$\label{eq:2.1} \frac{1}{\sqrt{2}}\sum_{\substack{\alpha\in\mathbb{Z}^3\ \alpha\in\mathbb{Z}^3}}\frac{1}{\sqrt{2}}\sum_{\substack{\alpha\in\mathbb{Z}^3\ \alpha\in\mathbb{Z}^3}}\frac{1}{\sqrt{2}}\sum_{\substack{\alpha\in\mathbb{Z}^3\ \alpha\in\mathbb{Z}^3}}\frac{1}{\sqrt{2}}\sum_{\substack{\alpha\in\mathbb{Z}^3\ \alpha\in\mathbb{Z}^3}}\frac{1}{\sqrt{2}}\sum_{\substack{\alpha\in\mathbb{Z}^3\ \alpha\in\mathbb{Z}^3}}\$

The fair market value of the above liabilities approximates their carrying value.

$22$ Non-current liabilities - Deferred tax liabilities

	Consolidated			Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Depreciation	13,615	12,584
Capitalised Initial Direct Costs	8,115	7,981
	21,730	20,565
Movements:
Opening balance at 1 July	20,565	19,462
Credited/(charged) to the income statement	1,165	1,103
Closing balance 30 June	21,730	20,565	$\bullet$
Deferred tax liabilities	21,730	20,565
Deferred tax liabilities to be settled after more than
12 months	21,320	20,565
Deferred tax liabilities to be settled within 12 months	410
	21.730	20.565

23 Non-current liabilities - Provisions

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Employee benefits - long service leave	348	331	$\blacksquare$	$\blacksquare$

24 Contributed equity

		Parent entity		Parent entity
	2006 Shares	2005 Shares	2006 \$'000	2005 \$'000
(a) Share capital
Ordinary shares - fully paid	32,506,810	32,506,810	20.965	20,965
$\mathbf{L}$ .	協定

$(b)$ Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held.

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

25 Reserves and retained profits

		Consolidated		Parent entity
		2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
(a)	Reserves
	Share based payment reserve (c(ii)) Foreign currency translation reserve (c(i))	800 (359)	750 (20)	800 $\blacksquare$	750
		441	730	800	750
		Service Co

$\hat{\phi}$

		Consolidated		Parent entity
		2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
	Movements:
	Share based payments reserve
	Balance 1 July	750		750
	Share based payments expense	50	750	50	750
	Balance 30 June	800	750	800	750
	Movements:
	Foreign currency translation reserve
	Balance 1 July	(20)	16
	Currency translation differences arising during the year.	(339)	(36)
	Balance 30 June	(359)	(20)	۰
(b)	Retained profits
	Movements in retained profits were as follows:
	Balance 1 July	14,155	5,536	793	955
	Net profit for the year	22,079	8,619		(162)
	Balance 30 June	36,234	14,155	793	793

$(c)$ Nature and purpose of reserves

(i) Foreign currency translation reserve

The foreign currency translation reserve records the foreign currency differences arising from the translation of self-sustaining foreign operations and the translation of foreign currency monetary items forming part of the net investment in self-sustaining operations.

(ii) Share based payment reserve

The company has entered into arrangements with a supplier and a number of senior executives of the company (share scheme participants) under which the company is obliged to issue shares to the share scheme participants upon the occurrence of a "liquidity event" (including a share sale, trade sale or IPO of the company) or make a cash payment (at the company's discretion).

Parties to participate in these arrangements are selected by the company at its discretion.

No directors are currently parties to such arrangements.

No shares have been issued or payments made under these arrangements to date.

Arrangements entered into prior to transition date

The majority of these arrangements were entered into prior to the transition date for adoption of AASB 2 - Share-based Payments, and accordingly no entries have been recorded in the financial statements for these arrangements. The company has not obtained a valuation of these arrangements at grant date.

Each of the arrangements is complex. The number of shares which the company could be obliged to issue under any scenario is not capable of calculation as it depends on a variety of factors which can only be determined on the occurrence of the relevant event. The value of such shares is also unknown at this date.

Arrangements entered into post the transition date

These arrangements relate to a small number of executives and advisors to the company. They have been accounted for in accordance with the accounting policy set out in note $1(u)$ .

Under the terms of these arrangements, the relevant employees are entitled to receive an entitlement to shares or a cash payment (at the company's discretion) depending on agreed thresholds and the ultimate value obtained from the liquidity event. The terms and conditions of each employee's arrangements vary significantly. The arrangements are considered to be equity settled arrangements for the purposes of AASB 2 - Share-based Payments.

The arrangements have been valued by an external valuer for the purpose of preparing the share based payments entries. The assessed fair value of the instruments at grant date amounted to \$900,819 with \$750k expensed in 2005, \$50k expensed in 2006 and the remainder to be expensed in the 2007 financial year.

$\frac{1}{2} \frac{1}{2} \frac{1}{2}$ .

e.,

26 Franking Account

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Franking credits available for subsequent financial years based on a tax rate of 30% (2005 - 30%)	8.094	620	8.094	620

The above adjustments 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 liability at the reporting date; and

(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting value, and

The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of subsidiaries were paid as dividends.

27 Capital and leasing commitments

	Consolidated		Parent entity
	2006 \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Operating lease commitments
Non cancellable operating leases contracted for but not capitalised in the financial statements due:
- within one year	1.326	1.505
- later than one year but not later than five years	1.276	2,932
	2,602	4,437

Reconciliation of profit after income tax to net cash inflow/(outflow) from operating 28 activities

	Consolidated		Parent entity
	2006 $\mathcal{A}_{\mathcal{A}}$ . \$'000	2005 \$'000	2006 \$'000	2005 \$'000
Profit for the year	22,079	8,619		(162)
Share based payments	50	750
Depreciation and amortisation	3,475	4,953
Gain on liquidation of subsidiary		(621)
Amounts transferred to provisions for:
Employee entitlements	17	389
Allowance for losses	(316)	(1,544)
Net cash inflow inflow from operating activities before change in assets and liabilities	25,305	12,546		(162)
Change in operating assets and liabilities:
Decrease/(Increase) in other receivables	2,129	2,784
(Increase)/Decrease in lease and loan receivables	(33, 857)	(44, 848)
Decrease/(Increase) in residuals	771	(3,950)
(Decrease)/Increase in trade and other creditors	4,244	3,522
(Increase)/Decrease in rental equipment	260	(819)
Increase/(decrease) in Protect Plan provision	81	409
(Increase) in Capitalised Direct Sales Costs	(3,581)	(4, 192)
(Decrease)/Increase in current tax	7,482	(551)	7,095
(Decrease)/Increase in deferred tax liabilities	1,165	1,103		512
Decrease/(Increase) in deferred tax assets	(746)	11,233
Net cash inflow / (outflow) from operating activities	3,253	(22, 763)	7.102	350

29 Events occurring after balance date

No significant events have occurred since the balance sheet date.

30 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):

	Country of Incorporation	Percentage of Shares Held 2006 2005
Flexirent Capital Pty Limited	Australia	100%	100%
Flexirent SPV No 1 Pty Limited	Australia	100%	100%
Flexirent SPV No 2 Pty Limited	Australia	100%	100%
Flexirent SPV No 3 Pty Limited	Australia	100%	100%
Flexirent SPV No 4 Pty Limited	Australia	100%	100%
Flexirent SPV No 5 Pty Limited	Australia	100%	100%
Flexirent SPV No 6 Pty Limited	Australia	100%	100%
Flexecom Pty Limited	Australia	100%	100%
Flexirent Capital (NZ) Limited	New Zealand	100%	100%
Flexirent Private Pty Ltd	Australia	100%	100%
A C N 103 556 510 Pty Limited	Australia	100%	100%
Deltaland Limited	United Kingdom	100%	100%