ANNUAL REPORT ANNUAL REPORT 2005

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2 Devine Limited s 214 unit $91 million Casino Towers project in the Brisbane CBD was completed in late June

3 Contents Page No. Company Directory CHAIRMAN S REPORT 4 MANAGING DIRECTOR S REPORT 6 DIRECTORS REPORT 8 STATEMENT OF FINANCIAL PERFORMANCE 19 STATEMENT OF FINANCIAL POSITION 20 STATEMENT OF CASH FLOWS 21 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 22 DIRECTORS DECLARATION 56 INDEPENDENT AUDIT REPORT 57 SHAREHOLDINGS 59 CORPORATE GOVERNANCE STATEMENT 60 DEVINE LIMITED A.B.N Directors D J Ridley (Chairman) D H T Devine (Managing Director) P J Ferris AM R W Parris K M Woodley (Marketing Director) Company Secretary V N Grayson Registered Office 3 Westmoreland Boulevard Springwood, Queensland 4127 Telephone: (07) Solicitors McCullough Robertson ANNUAL GENERAL MEETING The Annual General Meeting of Devine Limited will be held on 9 November 2005, commencing at 11:00 am at the Stamford Plaza Hotel, 39 Edward Street, Brisbane. FINANCIAL CALENDAR Financial Year End 30 June 2005 Ordinary Shares Begin Trading ex-dividend 17 October 2005 Books close for entitlement to Final Dividend on Ordinary Shares 21 October 2005 Final Dividend paid on Ordinary Shares 4 November 2005 Bankers Australia and New Zealand Banking Group Limited Auditors Ernst & Young Level 5, Waterfront Place 1 Eagle Street Brisbane, Queensland 4000 Share Registrar Computershare Registry Services Pty Ltd Level 27, Central Plaza One 345 Queen Street Brisbane, Queensland 4000 Annual General Meeting 9 November 2005 LIMITED 3

4 Devine Homes Victoria display home at Narre Warren South Devine Limited Company Overview Devine Limited is a major force in Australia s residential property market offering affordable housing products in Queensland, Victoria and South Australia. The company is also active in the high-rise residential market in the CBD s of both Brisbane and Melbourne. The company was formed in 1993, when the founding director, David Devine, listed the company on the Australian Stock Exchange. At that time Devine s operations were based solely around southeast Queensland. Its only product was detached housing constructed, in the main, on land that the company had developed. Today, the company can demonstrate geographic and product diversifi cation operating in three states and now actively involved in home building, land development, medium density developments and having an in-house mortgage loan origination, securitisation and servicing business. Devine Limited s core competencies include concept design, product design, marketing and project management. In home building, the Company is the registered builder and sub-contracts all construction work. In relation to its large property development activities, Devine currently contracts building construction work on two of its large projects to one of the major registered builders. In January 2005, the company also formed its own in-house construction division which is currently building one of its CBD developments in Brisbane. In 1996 Devine established a Property Development Division in Queensland and developed the successful 514- unit Cathedral Place project. Following the success of this inaugural project, this Division has completed a total of 1,376 residential units with an end value of $418 million. The company currently has two residential projects under construction in the Brisbane CBD totalling 817 units with an end value of $332M. In September 2003, the company commenced construction of its largest project, a $338M residential unit and mixed-use development in the Dockland s precinct in the Melbourne CBD. This project encompasses 447 residential apartments, 105 serviced apartments and a nine level offi ce building. In May 1997, Devine acquired the contract housing business of Pioneer Homes, giving the company a presence in New South Wales, Victoria and South Australia. Devine has been ranked as high as the third largest builder of detached homes in the annual HIA survey of Australia s leading Home Builders. The company s in-house mortgage origination and securitisation business, First Permanent, continues to play an important role in the provision of housing loans to Devine s customers. 4

5 Financial Summary (Five Year Review) $ Revenues from ordinary activities 200, , , , ,056 Profi t/(loss) from ordinary activities before Interest & Tax 8,991 46,694 26,703 38,434 53,839 Profi t/(loss) from ordinary activities before Tax 1,189 39,111 19,430 22,486 22,722 Profi t/(loss) from ordinary activities after Tax ,748 13,069 15,650 16,125 Net profi t (loss) attributable to outside equity interests (37) (875) (142) - - Net profi t (loss) attributable to members of Devine Ltd ,623 13,211 15,650 16,125 Dividends declared, paid or provided for 1,038 8,094 7,970 *** 8,645 *** 9,617 *** Retained earnings 10,514 29,888 39,995 47,365 53,873 Total assets 126, , , , ,026 Net assets/shareholders equity 42,265 ** 56,274 ** 66,614 ** 82,167 94,604 Net tangible assets 38,195 ** 52,958 ** 63,298 ** 78,851 91,288 Number of ordinary shares on issue ( 000) 116, , , , ,676 Number of preference shares on issue ( 000) Net tangible assets per ordinary share (cents) 32.7 ** 51.2 ** 61.2 ** Earnings per ordinary share (cents) * Dividends per ordinary share (cents) Interim Final Total Closing share price (cents) Return on shareholders equity (%) Dividend yield % (before grossed up effect of franking credits) Price/earnings ratio (times) * Based on weighted average number of ordinary shares outstanding during the year, adjusted for any bonus element. This refl ects the change in treatment as a result of the amendment to AASB1027. The comparatives have not been amended to refl ect this change in standard. ** Refl ects the reclassifi cation in the year ended 30 June 2001 of the share capital relating to the company s Converting Preference Shares as Debt rather than Equity as required by Accounting Standard AASB1033. *** In accordance with AASB 1044, the fi nal dividend declared in respect of the years ended June 2003, June 2004 and June 2005 have not been provided for in the accounts as at June 2003, June 2004 and June Revenue $M s FY01 FY02 FY03 FY04 FY Shareholders Equity $M s FY01 FY02 FY03 FY FY05 Net Profit / (Loss) before tax $M s Net Tangible Assets per Ord. Share (cents) FY01 FY02 FY03 FY04 FY FY01 FY02 FY03 FY FY05 5

6 CHAIRMAN S REPORT Given the positive response by shareholders to the DRP, your Directors intend to retain this option for shareholders who wish to increase their holdings in Devine with no transactional costs and at a discount, which will be reviewed from time to time, to the prevailing market price. Other key ratios were a net tangible asset backing per share of 72.6 cents at year-end, up from 67.9 cents a year earlier and a return on shareholders equity at year-end of 17.1% (last year 19.1%). Key Activities and Initiatives D J Ridley - Chairman Year Ended 30 June 2005 On behalf of your Board, I am pleased to report to you on the results and activities of Devine Limited for the year ending 30 June Despite the softening housing and property market that became evident during the early part of the 2004/05 year, the company s results were in line with the profi t guidance provided in February 2005 and above the profi t reported in the 2003/04 year. It is also pleasing to report that a major new initiative was undertaken during the year which saw Devine commence construction in its own right on its latest CBD project. Results The $16.125M profi t after tax recorded for the year represented a 3% increase on the 2003/04 year. This was generated on increased revenue totaling $ M for the year. Basic earnings per share were 13.3 cents for the year (2004, 14.0 cents) and Directors have declared a fi nal dividend of 4.0 cents per share (fully franked) making the full year dividend 8.0 cents per share fully franked (last year 8 cents fully franked). The fi nal dividend will be paid on 4 November This dividend payment will result in 62% (last year 56%) of the company s after tax earnings being distributed to shareholders for the 2004/05 year. The full year dividend has been maintained at the same level as last year s despite an increase in the number of ordinary shares on issue resulting from the successful Share Purchase Plan offer made to shareholders in November The company also re-instated its Dividend Reinvestment Plan (DRP) which had been suspended for a number of years and this saw an additional issue of shares made in relation to the interim dividend paid in May 05. As mentioned above, the company undertook a signifi cant new initiative in the June 05 half, which saw it establish its own in-house construction capability for large multi-storey projects. Careful consideration was given to this strategy with Directors conscious of the potential risks involved. The decision was taken to proceed in light of the uncompetitive nature of the external contracting environment and was made easier by the fact that a highly experienced and proven team could be assembled. I am pleased to report that the construction of the company s latest Brisbane CBD project, Charlotte Towers by this new Division has started well and further details are provided in the Managing Director s report. Also included in the Managing Director s report is an update on the status of the company s other large property development projects with progress on these proceeding in line with budget expectations. In relation to the Housing Division, the company continues to make signifi cant progress with its strategy of moving towards controlling and developing a greater proportion of its own land stocks rather than relying on other developers for the supply of developed lots. This has seen a 51% reduction over the 12 months to June 05 in the land secured by way of options with other developers and a further reduction in the Company s exposure to this area is planned in the coming year. The Housing Division also reported a signifi cant improvement in the performance of its Queensland operations which had suffered in prior years through its inability to access developed land for housing commencements. With new land being secured and with the positive outlook for Queensland s southeast quarter, this Division will continue to make a valuable contribution to the Devine Group s results. Governance The company continues to place importance on having clearly defi ned corporate governance policies and ensuring adherence to these policies and procedures. These are outlined later in this report. 6

7 Outlook Affordability continues to be a major issue for aspiring fi rst homebuyers. It can be argued that land prices in particular have risen too fast in recent years and this, coupled with cost increases in both materials and labour, have together, been the major cause of the softening in demand for new housing. It is encouraging to see the social consequences of the deterioration in home ownership rates in Australia getting more frequent coverage from politicians and social commentators but action is required by governments at all levels to address this important issue. Delays continue to be experienced in processing development applications through councils. This should ease as activity levels decline but, in the short term, will continue to have an adverse impact on the results of the Housing Division. As stated above and detailed in the Managing Director s report the company s large CBD projects continue to perform well and will again make a signifi cant contribution to the 2005/06 year s results. It is also important to note that the company s results will be reported for the fi rst time under the Australian Equivalents to International Financial Reporting Standards for the 2005/06 year. These new accounting standards will affect the timing and manner of revenue and profi t recognition and are expected to result in a higher profi t being reported for the 2005/06 year, when compared to the 2004/05 year, than would otherwise have been reported. Conclusion Having assumed the role of Chairman in March of this year, I acknowledge on behalf of my fellow directors the valuable contribution made by my predecessor, Mr Kerry Prior AM. Mr Prior was Chairman of Devine for just over 11 years from the date it fi rst listed on the stock exchange and guided the company through many cycles in the housing and property industries. I also acknowledge the contribution made by the talented team of managers and employees and I extend on behalf of the Board and Shareholders our appreciation for their efforts. I also take this opportunity to acknowledge the excellent contribution made by my fellow Directors and thank them for their commitment and support since assuming the role of Chairman. D. J. Ridley Chairman 7

8 MANAGING DIRECTOR S REPORT Market Conditions The Housing market has softened over the last year due mainly to housing affordability caused by increased land prices and building costs. However the key economic indicators of job growth and acceptable interest rates, which drive the housing market, are positive, and will see a soft landing with a turnaround expected over the next 12 to 18 months. Land prices have peaked and land supply has improved which will quicken up site starts to help offset the slowing market. The CBD residential market is also quieter than a year ago due to increased building costs and lower investment yields. We are fortunate to have three major projects under construction that are 95% sold and on which settlements will occur over the next two years. Housing Division David H.T. Devine - Managing Director Review of Operations Year Ended 30 June 2005 I am pleased to report that the company met its earnings expectations for the 2004/05 fi nancial year. A profi t after tax of $16.125M was recorded representing a 3% increase over the previous year. Revenue was 26% higher at $ M refl ecting the increased contribution made during the year by the company s large CBD property development projects. Major highlights for the year were the commencement of the Charlotte Towers project in the Brisbane CBD, the formation of an in-house construction division and the progress made in relation to our strategy to own and develop our own land in the Victorian and South Australian markets. This last initiative will see Devine being less reliant on other developers land in these states and will also enhance the company s margins in the housing and land division. I will comment further on these matters later in this report. Other pleasing aspects of the year were the performance of the Queensland Housing and Land division and the performance of the large CBD projects. Despite the later than expected completion of the Casino Towers project in the Brisbane CBD, the fi nal profi t contribution was above the original budget target. Also pleasing was the settlement performance on this project which confi rmed the quality of the development and the underlying confi dence that the market has in inner-city residential developments. As noted above, the tighter conditions prevailing in the Housing market during the year resulted in a reduction in profi t contribution from this Division from $18.081M to $9.518M. Also having a negative impact on the results from the company s Housing and Land operations was the time taken to get land developments completed to allow housing starts to occur. The primary cause of these delays was the time taken to get development approvals through councils. Property Development Division This Division reported a pre-tax profi t of $17.980M on revenue of $248.7M for the 2004/05 year. This was up 173% and 77% respectively on the previous year representing a signifi cant improvement on that year. As forecast earlier this year, construction commenced in June 2005 on the Company s latest residential development in the Brisbane CBD, Charlotte Towers. 388 (93%) of the 416 units are now sold and 377 (91%) of the total 416 units are at unconditional contract and 10% deposit paid status. Devine has elected to undertake the construction of the Charlotte Towers project in its own right. A highly experienced and proven team was assembled in-house earlier this year and undertook preliminary activities in the months leading up to the commencement of construction. This initiative is expected to generate signifi cantly higher margins than would have been achieved by engaging an external contractor. Finance for the project has been secured and the fi rst drawdown from the funding facility took place in early July of this year. Whilst still in the below-ground phase of construction, 98% of sub-contract and suppliers costs for the project have been locked in thus signifi cantly reducing the company s exposure to any future cost overruns. 8

9 Completion of construction occurred in late June on the 214 unit $91M Casino Towers project in the Brisbane CBD. Confi rming the quality of this project is the fact that all but one of the units settled within fi ve weeks of completion. Construction of the 401 unit, $162M Festival Towers project is proceeding with completion forecast to occur late in the June 2006 quarter. Sales have continued to be made on the project with 391 (97.5%) of the 401 units sold and 382 (95%) of the total units in the project at unconditional contract and 10% deposit paid status. Contractual arrangements with the external builder mean that any delays in completion will not impact adversely on the project s margins. The staged completion of the Victoria Point Docklands project in Melbourne is now occurring with the stand alone nine level Commercial Building completed and settlement having occurred on the 2nd August The Serviced Apartments stage completed in early September 2005 and settlements are occurring. The residential tower is now on track to be completed earlier than previously expected with part of the tower forecast to be handed over in January 2006 and the remainder of the project by early March There are 14 units available for sale out of a total 552 in this development. The development approval process continues to progress positively on a prime residential development site at Currumbin on the Gold Coast. This conditional $27M acquisition is subject to Devine securing a satisfactory development approval for the site from the Gold Coast City Council. Detailed design work has progressed in close consultation with the council and the company s Town Planners. Future Outlook The Reserve Bank recently indicated that interest rates should remain stable. This, together with the prospect of a possible lowering of rates now that the Housing market has come back to more normal levels of activity, is a positive factor for the housing market generally and specifi cally for the First Homebuyer segment. However, affordability remains a key impediment to sales in this segment. The company s major development projects continue to progress well and are expected to produce above budgeted results when completed over the next two years. In relation to the Housing Division, the timing of completion of new land developments and the direction that market conditions take generally, remain the key factors that will infl uence the company s results for the coming year. Achieving a successful development approval outcome on the proposed Currumbin development and the timing of this will also infl uence the year s results. As noted in the Chairman s comments, as is required for all companies, Devine s results will be reported under the new Australian Equivalents to International Financial Reporting Standards for the 2005/06 year. Estimates of the impact of these new accounting standards on the fi nancial results are detailed in the notes to this fi nancial report. These changes will have a material impact on the results for the coming year with the profi t result for the 2005/06 year expected to be higher than the 2004/05 year. Finance Division The loss of $2.912M reported for the year (2003/04 $1.850M loss) was a disappointing result and refl ects the tight Housing market referenced above. The results for this Division are very much dependent on the number of loans that are processed on behalf of Devine s customers. David H. T. Devine Managing Director Directors continue to closely monitor the performance of this Division. 9

10 DIRECTORS REPORT Your directors submit their report for the year ended 30 June DIRECTORS The names and details of the directors of the company in offi ce during the fi nancial year and at the date of this report are as follows. Directors were in offi ce for this entire period unless otherwise stated. D J Ridley, (Chairman) Doug Ridley is a former Senior Executive of AVJennings having been with that company for 34 years, 6 years of which as Chief Executive Offi cer. Mr Ridley has extensive experience in the Housing Industry and since leaving AVJennings, his company has provided consulting services to a number of companies allied to the industry. He is currently Chariman of Bradcorp Holdings Pty Ltd and a director of First Permanent Financial Services Pty Ltd. D H T Devine, (Managing Director) David Devine began his working career with a chemical company in Victoria, before joining Hortico Australia Limited in 1968 where he spent 12 years progressing through the company to manage the company s Queensland and later, its Western Australian operations. As a result of Hortico s management structure he gained wide experience in production, manufacturing, advertising, distribution, marketing and administration. In 1980 he left Hortico and acquired his own business in aluminium boat manufacturing. He entered into property development in 1983, setting up the predecessor entity to Devine Limited. P J Ferris, AM, B.A. (Hons Economics) FCA, FAIM, FAICD Peter Ferris is a former Senior Partner and National Director of Corporate Finance of Ernst & Young. He is on the board of a number of organisations including Sisters of Charity Foundation Limited (Chairman) and a trustee of St Vincent s Hospital Sydney, St Vincent s Clinic Foundation and Catholic Health Care Services (NSW & ACT). He is also a director of First Permanent Financial Services Pty Ltd and AMM Holdings Pty Ltd. His former directorships include Austereo Limited, Hanimex Corporation Limited, the Defence Housing Authority, South Eastern Sydney Area Health Service, Australian Technology Group Limited and the Australian Advisory Board of Marsh Australia Pty Ltd. 10

11 DIRECTORS REPORT (continued) R W Parris, FAICD Rick Parris is a Quantity Surveyor who was formerly Queensland Regional Director for Civil & Civic and the Lend Lease Property Group. He is a director of funds syndicator Investment Management Australia Ltd and director of several private property companies. He is an Honorary Ambassador for the City of Brisbane. K M Woodley, (Marketing Director) Ken Woodley worked in an accounting practice prior to moving into management of a building construction company for nine years, the last four years as Managing Director. Arriving in Australia in 1982, he worked for Peter Kurts Group prior to setting up Stewarts Real Estate in partnership with another real estate agent. During this time at Stewarts he marketed several Devine Group developments and in 1985 joined Devine Group to head the marketing division. COMPANY SECRETARY & CHIEF FINANCIAL OFFICER V N Grayson; B. Business (Accounting), CPA, ACIS, ACIM Viv Grayson joined the company in March Prior to this he spent most of his career at AVJennings Homes having worked with that company from 1973 to During this time he held various accounting and management positions including three and a half years as vice president accounting and fi nance of the company s USA operations. On his return in early 1987, he took up the role of Chief Financial Offi cer in Melbourne. On leaving AVJennings in December 1995, Mr Grayson spent three years as Finance Manager of a large Melbourne based Timber & Hardware company, Bowen & Pomeroy Pty Ltd. RESIGNED DIRECTOR K P Prior, AM, LL.B. (Resigned on the 24 March 2005) Kerry Prior was executive chairman and senior partner of McCullough Robertson, Lawyers. He continues to practice as a partner in the commercial division of McCullough Robertson and has extensive experience in commercial and taxation law. Mr Prior is principal legal adviser to a large number of public and substantial private companies. He is a director of a number of private companies and Chairman of the Sir Albert Sakzewski Foundation and Deputy Chairman of the Royal Children s Hospital Foundation. 11

12 DIRECTORS REPORT (continued) Interests in contracts or proposed contracts with the company No directors have an interest in contracts or proposed contracts with the company except as otherwise disclosed in this report or in the fi nancial report. PRINCIPAL ACTIVITIES The principal activities during the year of entities within the consolidated entity were: * residential property development * residential construction * real estate marketing * medium density residential development & construction EMPLOYEES * loan origination and securitisation The consolidated entity employed 255 employees as at 30 June 2005 (2004: 239 employees). 12

13 DIRECTORS REPORT (continued) OPERATING RESULTS AND DIVIDENDS Operating results for the year ended 30 June $ 000 $ 000 Profi t/(loss) from ordinary activities after tax 16,125 15,650 Net profi t/(loss) attributable to members of Devine Ltd 16,125 15,650 Dividends Paid or Declared for payment are as follows: Interim dividend paid 4,969 4,140 Dividends proposed but not recognised as a liability 5,027 4,648 Converting preference shares dividend paid 1 November The Converting Preference Shares converted to Ordinary shares on 31 October Net Tangible Assets Basic net tangible assets per share 72.6 cents 67.9 cents Diluted net tangible assets per share 70.8 cents 66.1 cents Earnings per share Basic earnings per share 13.3 cents 14.0 cents Diluted earnings per share 13.0 cents 13.3 cents REVIEW OF OPERATIONS The review of operations of the consolidated entity is covered in the Managing Director s Report on pages 6 and 7. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no signifi cant changes in the state of affairs of the company. SIGNIFICANT EVENTS AFTER BALANCE DATE A fully franked fi nal dividend in respect of the 2005 fi nancial year of 4 cents (2004: 4 cents) per share was declared by directors on 26 August In accordance with the adoption of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets no provision has been recognised in the Statement of Financial Position as at 30 June Following its completion in late June 2005, settlements commenced on the company s Casino Towers project in the second week of July All debt associated with the project totaling $65.101M and which is refl ected as a liability in the statement of fi nancial position as at 30 June 2005, was repaid by 14 July There have been no other signifi cant events occur post 30 June LIKELY DEVELOPMENTS AND EXPECTED RESULTS The likely developments and expected results are covered in the Managing Director s Report on pages 6 and 7. In the opinion of the Directors, further information including expected future results, would prejudice the interests of the consolidated entity. 13

14 DIRECTORS REPORT (continued) REMUNERATION REPORT (AUDITED) This report outlines the remuneration arrangements in place for the directors and executives of the Devine Group. Remuneration philosophy A key objective of the company is to maximise shareholder returns through the attraction and retention of a high quality board and executive team. To achieve this, directors and key executives need to receive fair and appropriate remuneration and the Remuneration Committee s approach is to take account of the employment market conditions and to link the nature and amount of the executive directors and senior executives emoluments to the company s fi nancial and operational performance. The expected outcomes of the remuneration structure are: Remuneration committee * To provide satisfactory returns to shareholders * The retention and motivation of key executives * To attract quality management to the company * By way of performance incentives, to allow executives to share in the success of the company The Remuneration Committee of the Board of Directors of Devine Limited is responsible for determining and reviewing compensation arrangements for the directors, the managing director and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such offi cers on a periodic basis. Remuneration structure In accordance with best practice corporate governance, the structure of the non-executive director and senior manager remuneration is separate and distinct. Non-executive director remuneration Objective The Board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount so determined is divided between the directors as agreed. The latest determination was at the Annual General Meeting held on 12 November 2003 where shareholders approved an aggregate remuneration of $350,000 per year. In accordance with the Company s constitution, any amounts paid to non-executive directors for committee work are additional to the allowance for director s fees. The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed annually. The board considers the fees paid to non-executive directors of comparable companies when undertaking the annual review process. Non-executive directors are encouraged by the board to hold shares in the company (purchased by the director on market). It is considered good corporate governance for directors to have a fi nancial stake in the company. The remuneration of non-executive directors for the period ending 30 June 2005 is detailed in Table 1 on page 14 of this report. 14

15 DIRECTORS REPORT (continued) REMUNERATION REPORT (AUDITED) (continued) Executive directors and executive management remuneration Objective The company aims to reward executives with a mix of remuneration commensurate with their position and responsibilities within the company to: * Align the interests of executives with those of shareholders; * Ensure total remuneration is competitive by market standards. Structure In determining the level and make-up of executive remuneration, the Remuneration Committee considers market levels of remuneration for comparable executive roles and, from time to time, engages external consultants to provide comparative information and advice. Remuneration consists of a fi xed remuneration element and variable remuneration elements in the form of short term and long term incentives. The amount of fi xed remuneration and variable remuneration is established for each member of the executive management team by the Remuneration Committee. The following tables detail the total amount and elements of remuneration paid to the fi ve most highly remunerated members of the executive management team and specifi ed executives. Fixed remuneration Objective - The level of fi xed remuneration is set so as to provide a base level of remuneration which is both appropriate to the position and competitive in the market. Fixed remuneration is reviewed annually by the Remuneration Committee and the process consists of identifying and adjusting for any anomalies within the company, reviewing individual performance and considering comparative remuneration on offer in the marketplace. Structure - Executive team members are given the opportunity to receive their fi xed (primary) remuneration in a variety of forms including cash and fringe benefi ts. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the company. Where remuneration is made by way of a fringe benefi t, the cost to the company of the applicable fringe benefi ts tax is absorbed by the executive. Variable remuneration - Short Term Incentive (STI) Objective - The objective of the STI program is to link the achievement of the company s fi nancial targets with the remuneration received by the executive charged with meeting those targets. Another objective of the STI is to motivate executives to better the base fi nancial targets that are set each year. Structure - The total STI is set at a base level so as to remunerate the senior manager for achieving the fi nancial targets. It also incorporates a sliding scale element whereby executives who better their fi nancial targets are rewarded appropriately. The aggregate of the annual STI payments available to executives across the company is subject to the approval of the Remuneration Committee. Entitlements are usually paid by way of a cash bonus. Variable remuneration - Long Term Incentive (LTI) Objective - The objective of the LTI plan is to retain and reward members of the executive management team in a manner which aligns this element of remuneration with the creation of shareholder wealth. Structure - LTI s are offered to executives by way of an allocation of share options in Devine Limited. The frequency, number of options granted and recipients are at the discretion of the Remuneration Committee. The exercise of these options is dependent on specifi ed fi nancial hurdles being met in relation to total shareholder returns. Options granted as part of director and executive remuneration and outstanding as at 30 June 2005 are detailed in Note 24 on page 41 of the Financial Statements. 15

16 DIRECTORS REPORT (continued) REMUNERATION REPORT (AUDITED) (continued) Table 1 : Directors Remuneration for the year ended 30 June 2005 Primary Post Employment Equity Other Total Base Other Non- Super- Retirement & Options Bonuses Salary Fees monetary annuation Termination & Fees Benefits* Benefits $ $ $ $ $ $ $ $ **D.J. Ridley ,421 24,600-7, , ,900 24,200-5, ,031 *D.H.T. Devine , , , , , , , ,000 **P.J Ferris AM ,900 34,400-5, , ,900 15,000-4, ,031 **R.W. Parris ,900 87,600-4, , , ,850-4, ,881 *K.M. Woodley ,995-31,346 24, , , ,495-47,150 23, , ,500 **K.P. Prior AM *** , , , , , ,007 * Denotes Executive Director ** Denotes Non-Executive Director *** Mr Prior resigned as Chairman and a Director effective 24 March 2005 Table 2: Remuneration of the specified and six named executive officers who received the highest remuneration for the year ended 30 June 2005 Primary Post Employment Equity Other Total Base Other Non- Super- Retirement & Options Bonuses Salary Fees monetary annuation Termination & Fees Benefits* Benefits $ $ $ $ $ $ $ $ P. Nash ** ,363-15,000 22, , , ,846-4,154 6, ,044 V. Grayson ,735-27,265 12, , , ,802-24,198 12, , ,500 I. Grant , ,706-12,500 75, , , ,551-12, ,500 J. Shapcott ,002-10,413 11, , , ,068-10,413 10,519-32,500 56, ,500 B. Gillan ,839-5,065 16, , , ,397-4,065 13, , ,498 C. Fusco *** ,927-23,996 13, , , ,563-34,760 20, , ,164 * Includes Motor Vehicle related costs. ** Mr Nash joined the company in March 2004 *** Mr Fusco left the company in March

17 DIRECTORS REPORT (continued) REMUNERATION REPORT (AUDITED) (continued) Fair value of options is based on an indicative valuation prepared by KPMG Corporate Finance (Aust) Pty Ltd using the Black Scholes Model. (a) Remuneration options: Granted and vested during the year No options were granted during the year. (b) Shares issued on exercise of remuneration options 250,000 options were exercised on 13 April 2005 at an exercise price of for $129,150 (2004: Nil). (c) Option holdings of specified directors and specified executives Balance at Granted Options Net Balance at beginning as Exercised Change end Vested at 30 June 2005 of period Remuner- Other of period ation Not 1-Jul Jun-05 Total exercisable Exercisable Specified directors D.H.T. Devine 1,325, ,325,000 1,325,000-1,325,000 K. M. Woodley 850, , , ,000 Specified executives C. Fusco 250, , I. Grant 250, , ,000 - V. Grayson 500, , , ,000 J. Shapcott 250, , , ,000 3,425, ,000-3,175,000 2,925, ,000 2,925,000 From 1 July 2003, options granted as part of remuneration are valued using the Black Scholes Pricing Model & Binomial Model, which take into account factors including the option exercise price, the current level of volitility of the underlying share, current market price of the underlying share and the expected life of the option. (d) Shareholdings of Specified Directors and Specified Executives Shares held in Balance Granted as On Exercise Net Change Balance Devine Limited 1-Jul-04 Remuneration of Options Other 30-Jun-05 (number) Ord Pref Ord Pref Ord Pref Ord Pref Ord Pref Specified directors D. J. Ridley 170, , ,626 D.H.T. Devine 27,385, ,626-27,626,241 - P. J. Ferris AM 200, , ,390 - R. W. Parris 123, , ,149 - K. M Woodley 9,572, ,688-9,577, Specified executives V. Grayson 484, , ,228 - J. Shapcott 505, ,587 - Total 38,442, ,964-38,744,260 - All equity transactions with specifi ed directors and specifi ed executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the entity would have adopted if dealing at arm s length. 17

18 DIRECTORS REPORT (continued) INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS Insurance and indemnity arrangements existing in the previous year concerning offi cers of the Group were renewed or continued. The constitution of Devine Limited provides an indemnity (to the maximum permitted by law) in favour of each director, secretary and executive offi cer. The indemnity is against any liability incurred by that person in their capacity as a director, secretary or executive offi cer to another person (other than Devine or a related body corporate) unless the liability arises out of conduct involving a lack of good faith. The indemnity includes costs and expenses incurred by an offi cer in successfully defending that person s position. The Group has paid a premium regarding a contract insuring each Devine director and each full-time executive, director and secretary of the Group against certain liability incurred in those capacities, to the extent permitted by law. Disclosure of premiums and coverage is prohibited by the contract of insurance. DIRECTORS MEETINGS The number of meetings of directors (including meetings of committees of the directors) held during the year and the number of meetings attended by each director were as follows: Directors Meetings of Committees Meetings Audit Remuneration Number of Meetings Held: Number of Meetings attended: D. J. Ridley K. P. Prior AM* 8-1 D. H. T. Devine P. J. Ferris AM R. W. Parris K. M. Woodley * Mr Prior was only eligible to attend 8 meetings having resigned as a director on 24 March 2005 As at the date of this report, the company had an audit committee and a remuneration committee of the Board of Directors. The members of the Audit Committee are Mr P J Ferris AM (Chairman), Mr R W Parris and Mr D J Ridley. The members of the Remuneration Committee are Mr D J Ridley (Chairman), Mr P J Ferris AM and Mr D H T Devine. ROUNDING The amounts contained in this report and in the fi nancial statements have been rounded to the nearest $1,000 under the option available to the company under ASIC Class Order 98/100. The company is an entity to which the Class Order applies. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Devine Limited support and have adhered to the principles of corporate governance. The company s corporate governance statement is contained in the additional ASX information section of this annual report. TAX CONSOLIDATION Effective 1 July 2003, for the purposes of income taxation, Devine Limited and its 100 % owned subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. The head entity of the tax consolidated group is Devine Limited. 18

19 DIRECTORS REPORT (continued) RISK MANAGEMENT A pro-active approach is taken to risk management. The board is responsible for ensuring that risks and opportunities are identifi ed on a timely basis and that the Group s objectives and activities are aligned with the risks and opportunities identifi ed by the board. In 2002, the company undertook a major review aimed at risk identifi cation and best practice procedures. It is intended that this exercise be reviewed again in the 2005/06 year and recommendations from that review implemented in each of the business operations as appropriate. In October 2003, the Group appointed an Internal Auditor to monitor and assess risk on an ongoing basis. ENVIRONMENTAL REGULATION AND PERFORMANCE The Economic Entity s activities are primarily involved in the sale and construction of houses, medium density and high-rise developments and the development and sale of residential land. As such, it is subject to the relevant Local, State and Federal government environmental regulations relating to these activities. The company strives at all times to meet the requirements of these regulations and is conscious of its obligations to protect the environment. To the best of the Directors knowledge, all activities have been undertaken in compliance with these requirements. AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The directors received a declaration from the auditor of Devine Limited (see page 18). NON-AUDIT SERVICES The following non-audit services were provided by the entity s auditors, Ernst & Young. The directors are satisfi ed that the provision of non-audit services is compatible with the general standards of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of all non-audit services: Tax compliance services $88,600 Capital Restructuring & Corporate Finance advice $24,022 Other assurance services $67,425 Signed in accordance with a resolution of the directors of Devine Limited. D J Ridley Chairman D H T Devine Managing Director Melbourne, 28 September

20 20

21 STATEMENT OF FINANCIAL PERFORMANCE Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Revenues from ordinary activities 2 474, , , ,577 Expenses from ordinary activities, excluding borrowing costs expense 3(a) 420, , ,883 92,772 Borrowing costs expense 3(c) 31,117 15,948 2,927 1,798 Profi t from ordinary activities before income tax expense/credit 22,722 22,486 11,784 6,007 Income tax (expense)/credit relating to ordinary activities 4 (6,597) (6,836) (3,696) 7,012 Profi t from ordinary activities after related income tax expense 16,125 15,650 8,088 13,019 Net profit attributable to members of Devine Limited 21(b) 16,125 15,650 8,088 13,019 Total changes in equity other than those resulting from transactions with owners as owners attributable to members of Devine Limited 16,125 15,650 8,088 13,019 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Franked dividends per share (cents per share) This statement should be read in conjunction with the attached notes. 21

22 STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2005 Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 CURRENT ASSETS Cash assets Receivables 6 118,623 38, ,188 41,647 Inventories 7 304,468 90,763 49,827 72,461 Other assets 8 7,713 3,402 3, TOTAL CURRENT ASSETS 430, , , ,314 NON-CURRENT ASSETS Receivables 9 3,530 2, Investments ,269 5,269 Inventories , , ,811 69,466 Property, plant & equipment 12 4,558 9,855 1,072 4,047 Deferred tax assets ,418 Intangible assets 13 3,316 3,316 3,316 3,316 Other assets 14 2,811 3, TOTAL NON-CURRENT ASSETS 131, , ,529 93,889 TOTAL ASSETS 562, , , ,203 CURRENT LIABILITIES Payables 15 65,280 50, ,529 71,780 Interest bearing liabilities ,852 66,173 71,209 50,634 Provisions 17 3,514 3,143 1,631 1,293 TOTAL CURRENT LIABILITIES 380, , , ,707 NON-CURRENT LIABILITIES Interest bearing liabilities 18 65, ,899 29,318 31,739 Deferred tax liabilities 4 20,864 14,266 19,351 5,318 Provisions TOTAL NON-CURRENT LIABILITIES 86, ,413 48,669 37,057 TOTAL LIABILITIES 467, , , ,764 NET ASSETS 94,604 82,167 51,839 47,439 SHAREHOLDERS EQUITY Contributed equity 20 40,731 34,802 40,731 34,802 Reserves ,316 3,316 Retained profi ts 21 53,873 47,365 7,792 9,321 TOTAL SHAREHOLDERS EQUITY 94,604 82,167 51,839 47,439 This statement should be read in conjunction with the attached notes. 22

23 STATEMENT OF CASH FLOWS Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 406, , ,635 97,643 Payments to suppliers and employees (560,649) (447,769) (161,372) (108,037) Interest received Borrowing costs paid (41,199) (25,463) (2,750) (2,039) Income tax (paid)/received NET CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES 22(b) (194,109) (70,153) (15,907) (11,294) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (839) (1,122) (257) (223) Proceeds from sale of property, plant and equipment 3, , NET CASH FLOWS USED IN INVESTING ACTIVITIES 2,863 (1,103) 3,445 (210) CASH FLOWS FROM FINANCING ACTIVITIES Loans (to)/from related parties - - (2,100) (260) Borrowings - other 201, ,245 23,580 31,121 Repayment of borrowings - other (11,266) (48,721) (10,991) (12,606) Finance lease principal repayments (6) (14) (6) (14) Dividends paid 5 (8,795) (8,280) (8,795) (8,280) Proceeds from issue of shares 5, ,106 - NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES 186,183 67,260 6,794 9,961 NET INCREASE/(DECREASE) IN CASH HELD (5,063) (3,996) (5,668) (1,543) Add opening cash brought forward (3,620) 376 (9,397) (7,854) CLOSING CASH CARRIED FORWARD 22(a) (8,683) (3,620) (15,065) (9,397) Note - The amount refl ected above as Payments to suppliers and employees includes signifi cant cash payments to external contractors engaged to build the company s major CBD property developments. The corresponding receipts from the funding of these property developments is shown as borrowings - other under Cash Flows From Financing Activities. Note - The signifi cant increase in Borrowing Costs during the year ended June 2005 compared to June 2004 relates to the progress on, and hence level of borrowings on, the company s large CBD projects under construction at the end of the year. This statement should be read in conjunction with the attached notes. 23

24 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The fi nancial statements have been prepared in accordance with the historical cost convention, except for brand names and investments in controlled entities, which are held at valuation. The directors have adopted AASB 1010 Recoverable amounts of non-current assets and accordingly do not revalue these assets. The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with the requirements of the Corporations Act 2001 and which includes applicable Accounting Standards. Other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) have also been complied with. Changes in accounting policies The accounting policies adopted are consistent with those of the previous year. Principles of consolidation The consolidated fi nancial statements are those of the consolidated entity, comprising Devine Limited (the parent entity) and all entities that Devine Limited controlled from time to time during the year and at balance date. Information from the fi nancial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated fi nancial statements include the results for the part of the reporting period during which the parent company has control. Subsidiary acquisitions are accounted for using the purchase method of accounting. The fi nancial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profi ts arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Income recognition Property Revenue: Revenue from sale of developed land is recognised on unconditional contract. Where sales are under an unconditional put and call contract, revenue is recognised where the company can demonstrate the risks and rewards associated with the underlying property have passed to the purchaser. Construction contracts: Profi t on construction contracts is brought to account on the percentage of completion basis where it can be reliably estimated. In respect of individual housing contracts, the entity has determined percentage complete based on actual costs incurred as a percentage of total forecast costs. Where losses are foreseeable, such losses are provided for in full. Measurement of the percentage complete is based on information provided by independent consultants on large multi unit construction projects. Finance Revenue: Revenue is recognised to the extent that the economic benefi ts will fl ow to the entity and the revenue can be reliably measured. The following specifi c recognition criteria must also be met before revenue is recognised: * Trust management and servicing - Fee income for the management of securitised loans through trust vehicles is recognised on an accruals basis. * Loan origination and approvals - The group acts as an originator of mortgage loans, fee income from which is recognised on an accruals basis. * Securitisation and warehousing - The group is entitled to residual income from the securitisation programme. The timing and amount of this income is recognised on an accruals basis. 24

25 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and cash equivalents For the purposes of the statement of cash fl ows, cash includes cash on hand and in banks and money market investments readily converting to cash within 2 working days, net of outstanding bank overdrafts. Retention funds held on deposit, which are subject to charges by agreement with fi nancial institutions and which are available to meet costs associated with a loss on resale resulting from the buyer defaulting on their mortgage and repossessions, are classifi ed within other assets. Retention funds have been classifi ed within current assets to the extent the consolidated entity has provided as a current liability for future costs of repossessions. The balance of retention funds have been classifi ed within non-current assets. Receivables Trade receivables are recognised and carried at original invoice amount less provision for any uncollectible debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written-off as incurred. Receivables from related parties are recognised and carried at the nominal amount due. Interest income is taken up on an accrual basis. Inventories Development work in progress: Development land, including acquisition costs of the land, together with associated development costs, is valued at the lower of cost and net realisable value. Interest and other holding costs incurred directly in relation to land are only capitalised for land which is to be held for a period in excess of three years before development commences. No further interest is capitalised once development commences. Construction work in progress: Construction work in progress is stated at cost plus profi t recognised to date less progress billings. Cost includes all costs directly related to specifi c contracts. Expenditure carried forward Signifi cant items of expenditure, including marketing expenditure in respect of large multi-unit development projects, are carried forward provided it is probable that future consolidated benefi ts attributable to the expenditure will be realised. Expenditure carried forward is expensed over the lesser of the period in which the related benefi ts are expected to be realised and three years. Investments Long-term investments (including investment properties not principally occupied by consolidated entity companies) are stated at cost or valuation. There is no policy for regular valuations of investments. Leases Finance leases, which effectively transfer to the consolidated entity substantially all of the risks and benefi ts incidental to ownership of the leased item, are capitalised at the present value of the minimum lease payments, disclosed as leased property, plant and equipment, and amortised over the period the consolidated entity is expected to benefi t from the use of the leased assets. Operating lease payments, where the lessor effectively retains substantially all of the risks and benefi ts of ownership of the leased items, are included in the determination of the operating profi t in equal instalments over the lease term. The lease incentive liability in relation to the non-cancellable operating lease is being amortised on a straight-line basis over the lease term (5 years). Recoverable amount Non-current assets are not revalued to an amount above their recoverable amount, and, where carrying values exceed this recoverable amount, assets are written down. In determining recoverable amount, the expected net cash fl ows have not been discounted to their present value. 25

26 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Trade and other payables Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Payables to related parties are carried at the principal amount. Interest, when recognised by the lender, is recognised as an expense on an accruals basis. Deferred cash settlements are recognised at the present value of the outstanding consideration payable on the acquisition of an asset discounted at prevailing commercial borrowing rates. Property, plant and equipment Cost: Property, plant and equipment are carried at the lower of cost and recoverable amount. Depreciation: Depreciation is provided on a straight line basis on all property, plant and equipment, other than freehold land, at rates calculated to allocate the cost, less estimated residual value at the end of the useful life of the assets, against revenue over those estimated useful lives. Major depreciation periods for the years ended 30 June 2005 and 30 June 2004 are: Buildings Plant and equipment 40 years 2 to 10 years Display homes: Where display homes are classifi ed as non-current they are depreciated on a straight line basis, to their assessed residual value, over the shorter of 5 years or the expected useful life so as to allocate their cost against revenue over that period. Provisions Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifi ce of economic benefi ts to other entities as a result of past transactions or other past events, it is probable that a future sacrifi ce of economic benefi ts will be required, and a reliable estimate can be made of the amount of the obligation. A provision for dividends in relation to the company s ordinary shares is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or before the reporting date. Employee benefits Provision is made for employee benefi ts accumulated as a result of employees rendering services up to the reporting date. These benefi ts include wages and salaries, annual leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee benefi ts expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefi t liabilities are measured at the present value of the estimated future cash outfl ows to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outfl ows, the interest rates attaching to government guaranteed securities which have terms to maturity approximating the terms of the related liability are used. 26

27 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Employee benefits (continued) Employee benefi t expenses and revenue arising in respect of the following categories: * wages and salaries, non-monetary benefi ts, annual leave, long service leave and other leave benefi ts; and * other types of employee benefi ts; are recognised against profi ts on a net basis in their respective categories. The value of the employee share incentive scheme described in Note 24 has not been recognised as an employee benefi t expense in the Statement of Financial Performance. The contribution made to superannuation funds are recognised against profi ts when due. Income tax Tax-effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting profi t after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the fi nancial statements and when items are taken into account in determining taxable income, the net related taxation benefi t or liability, calculated at current rates, is disclosed as a future income tax benefi t or a provision for deferred income tax. The net future income tax benefi t relating to tax losses and timing differences is not carried forward as an asset unless the benefi t is virtually certain of being realised. Brand names Brand names owned by the consolidated entity are carried at cost, less recoverable amount write-downs. No amortisation has been recognised in respect of brand names, as the directors do not believe that they have a limited useful life. Expenditure incurred in developing, maintaining or enhancing brand names is written off against profi t from ordinary activities in the year in which it is incurred. The Directors are of the view that the residual value of the brand name to the company is greater than the carrying value and therefore no depreciable value exists. In addition, the Directors believe that the useful life of the Devine brand has been signifi cantly extended since the date of the last valuation and its value considerably enhanced. This view has been confi rmed by an independent valuation carried out in August 2003, which was performed on an open market basis. Loans and borrowings All loans are measured at the principal amount. Interest is recognised as an expense as it accrues. Finance lease liabilities are determined in accordance with the requirements of AASB 1008 Leases. Converting Preference Shares that exhibit characteristics of liabilities are recognised as liabilities in the Statement of Financial Position. The corresponding dividends are recognised as an interest expense in the Statement of Financial Performance. Goods and services tax Revenues, expenses, assets and liabilities are recognised net of the amount of GST except: * where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and * receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. 27

28 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Goods and services tax (continued) Cash fl ows are included in the Statement of Cash Flows on a gross basis, and the GST component of cash fl ows arising from investing and fi nancing activities, which is recoverable from, or payable to, the taxation authority are classifi ed as operating cash fl ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Financial instruments The company enters into interest rate swap agreements to convert the variable interest rate borrowings to a fi xed rate. The swaps are entered into with the objective of reducing the risk of rising short-term interest rates. It is the company s policy not to recognise interest rate swaps in the fi nancial statements. Net receipts and payments are recognised as an adjustment to interest expense. Earnings per share Basic earnings per share is calculated as net profi t attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares outstanding during the fi nancial year, adjusted for any bonus element. Diluted earnings per share is calculated as net profi t attributable to members, adjusted for: * costs of servicing equity (other than dividends) and preference share dividends; * the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and * the non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. Contributed equity Issued and paid-up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Comparatives Where necessary, comparatives have been reclassifi ed and repositioned for consistency with current year disclosures. 28

29 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 2. REVENUE FROM ORDINARY ACTIVITIES Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Revenue from operating activities Revenue from sale of properties 465, , ,983 94,406 Revenue from loan origination & securitisation 4,314 6, Total revenues from operating activities 470, , ,983 94,406 Revenues from non-operating activities Interest received - other persons/bodies corporate Rent received - other persons/bodies corporate Management fees - wholly owned entities - - 5,983 5,617 Proceeds on sale of other non-current assets 3, , Sundry Income - wholly owned entities Total revenues from outside the operating activities 3, ,611 6,171 Total revenues from ordinary activities 474, , , , EXPENSES & LOSSES (a) Expenses Cost of properties sold 343, , ,690 81,347 Write down of land stocks & other inventory (1,274) 1,532 (1,371) - Marketing expenses 41,512 32,801 3, Land holding expenses 1, Occupancy expenses 2,662 2, Employee expenses 21,202 18,787 7,471 5,701 Administration expenses 7,466 7,642 2,420 2,290 Cost of sale of non-current assets 2, , Other expenses from ordinary activities 1, ,566 1,746 Total expenses from ordinary activities 420, , ,883 92,772 (b) Significant items Profi t from ordinary activities before income tax expense includes the following expenses whose disclosure is relevant in explaining the fi nancial performance of the entity: Reversal of provision against Display Homes 12(c) (832) (due to increase in market value) (Reversal)/Write down of land stocks & other inventory (442) 1,532 (1,371) - (1,274) 1,532 (1,371) - (c) Borrowing costs expense Interest & other borrowing expenses - other persons/bodies corporate 31,116 15,703 2,926 1,553 Finance charges - lease liability Converting preference shares ,117 15,948 2,927 1,798 Converting Preference Share dividends of Nil (2004: $242,636) have been included as an interest expense in the Statement of Financial Performance up until the conversion date of 31 October This disclosure is due to the classifi cation of Converting Preference Shares as debt prior to conversion in accordance with AASB 1033 Financial Instruments. 29

30 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 3. EXPENSES & LOSSES (continued) Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 (d) Depreciation and amortisation Amortisation of non-current assets Plant and equipment under lease 12(c) Depreciation of non-current assets Buildings 12(c) Plant and equipment 12(c) 1,158 1, Display home centres 12(c) ,323 1, Net (profi t)/loss on disposal of property, plant & equipment (687) 42 (687) 2 Total (profi t)/loss on sale of non-current assets (687) 42 (687) 2 (e) Other expenses Bad & doubtful debts (15) - Operating lease rental INCOME TAX The prima facie income tax attributable to operating profi t (loss) differs from the income tax provided in the fi nancial statements as follows: Operating profi t (loss) before income tax 22,722 22,486 11,784 6,007 Prima facie 30% (2004: 30% ) 6,817 6,746 3,535 1,802 Tax effect of permanent differences: CPS dividend Pre 1 July 2004 tax losses recognised - (239) - - Legal costs of subsidiary Capital gain on sale of building Accounting profi t on sale of fi xed assets (206) - (206) - Other Items (net) (194) Adjustment on entry to the tax consolidation regime * (8,981) Under/(Over) provision of previous year (3) Income tax expense/credit attributable to operating profi t 6,597 6,836 3,696 (7,012) Deferred tax assets and liabilities Current tax payable/(refund) - (485) - (231) Future income tax benefi t - non-current ,418 Provision for deferred tax - non-current 20,864 14,266 19,351 5,318 (a) The future income tax benefi t will only be obtained if: i. Future assessable income is derived of a nature and of an amount suffi cient to enable the benefi t to be realised; ii. The conditions for deductibility imposed by tax legislation continue to be complied with; and iii. No changes in tax legislation adversely affect the consolidated entity in realising the benefi t. 30

31 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 4. INCOME TAX (continued) Tax Consolidation Effective 1 July 2003, for the purposes of income taxation, Devine Limited and its 100% owned subsidiaries formed a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly-owned subsidiaries on a pro-rata basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote. The head entity of the tax consolidated group is Devine Limited. * An adjustment to Income Tax Expense of $8,981,011 arises in Devine Limited due to the company s decision to enter into the tax consolidation regime effective 1 July That adjustment has no impact on the consolidated Devine Group, as equal and opposite adjustments were required in other Devine Group companies. 5. DIVIDENDS PAID OR PROVIDED FOR DURING THE YEAR Ordinary Shares: Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Dividends paid - interim (fully franked) (4c per share) (2004: 4c) 4,969 4,140 4,969 4,140 Dividends proposed but not recognised as a liability - fi nal (fully franked) (4c per share) (2004: 4c) 5,027 4,648 5,027 4,648 Dividends paid during the year as set out above differ to the cash payments shown in the statement of cash fl ows as follows: - Previous year fi nal dividend (4c per share) (2004: 4c) 4,648 4,140 4,648 4,140 - Interim dividend paid (4c per share) (2004: 4c) 4,147 4,140 4,147 4,140 - Dividend Re-Investment Plan Allocation ,617 8,280 9,617 8,280 - Converting preference share dividends paid but refl ected as an interest expense in the Statement of Financial Performance and Statement of Cash Flows Dividends paid in cash 8,795 8,645 8,795 8,645 The tax rate at which dividends have or will be franked is 30% (2004: 30%) The amount of franking credits available for the subsequent fi nancial year are: - franking account balance as at the end of the fi nancial year 7,499 11,992 7,499 11,992 - franking credits that will reverse upon receipt of income tax refund due at the end of the fi nancial year - (481) - (481) 7,499 11,511 7,499 11,511 31

32 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 6. RECEIVABLES - CURRENT Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Trade debtors 16,803 27, ,036 Provision for doubtful debts (690) (264) (35) (50) 16,113 27, ,986 Amounts other than trade debtors from related parties: - wholly owned group ,553 34,716 Income tax refund due Other debtors * 96,479 1,695 91, Deposits 6,031 8,889 1,807 4,384 Movement in provision for doubtful debts 118,623 38, ,188 41,647 - balance at beginning of year (264) (323) (50) (80) - bad and doubtful debts provided for during the year (426) bad and doubtful debts (recovered)/written off balance at year end (690) (264) (35) (50) * Other debtors relates to revenue due on large CBD projects. 7. INVENTORIES - CURRENT Land held for sale at cost Cost of acquisition 28,327 31,998 9,978 16,310 Development costs capitalised 21,004 2,845 19,657 2,845 49,331 34,843 29,635 19,155 Work in progress - cost 254,842 54,987 20,192 53,306 Display homes - cost Total inventories at lower of cost and net realisable value 304,468 90,763 49,827 72,461 Included in work in progress at cost are capitalised borrowing costs of $4,154,153 (2004: $2,073,083) 8. OTHER ASSETS - CURRENT Prepayments 6,584 2,480 3, Retention funds 1, RECEIVABLES - NON-CURRENT 7,713 3,402 3, Amounts owing from controlled entities Other debtors 3,530 2, ,530 2,

33 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 10. INVESTMENTS - NON-CURRENT Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Investments in controlled entities - at directors valuation (a) - - 5,438 5,438 Provision for diminution in value - - (169) (169) Investment in controlled entities comprises: - - 5,269 5,269 NAME Notes BENEFICIAL PERCENTAGE HELD BY CONSOLIDATED ENTITY % % $ 000 $ 000 Devine Homes Pty Ltd * (formerly Devine Constructions Pty Ltd) Charlotte Towers Developments Pty Ltd Devine Constructions Pty Ltd First Permanent Financial Services Pty Ltd * First Permanent Securities Pty Ltd * Talcliff Pty Ltd * ,268 4,268 DMB Pty Ltd * Devine Civil Contracting Pty Ltd * Pioneer Homes Australia Pty Ltd * Cathedral Place Developments Pty Ltd * River Place Developments Pty Ltd * (formerly Devine Cathedral Place Pty Ltd and River City Apartments Pty Ltd ) Devine Corporation Pty Ltd 10(b) The Devine Properties Trust 10(b) Amalgamated Mortgage Management Holdings Pty Ltd Cut Price Mortgages Pty Ltd * River City Apartments Pty Ltd * Festival Towers Developments Pty Ltd * (formerly The Devine Georgian JV Company Pty Ltd ) The Devine Georgian Land Company Pty Ltd * Stadium West Developments Pty Ltd * Victoria Point Docklands Pty Ltd All of the above entities are incorporated in Australia. 5,438 5,438 * Pursuant to Class Order 98/1418, relief has been granted to the controlled entities from the Corporations Act 2001 requiremets for preparation, audit and lodgement of their fi nancial reports, with the exception of Devine Constructions Pty Ltd, Charlotte Towers Developments Pty Ltd and Victoria Point Docklands Pty Ltd. As a condition of the Class Order, Devine Limited and the controlled entities subject to the Class Order as indicated above, (the Closed Group ) have entered into a Deed of Cross Guarantee. The effect of the deed is that Devine Limited has guaranteed to pay any defi ciency in the event of winding up of the controlled entities. The controlled entities have also given a similar guarantee in the event that Devine Limited is wound up. 33

34 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS Notes CONSOLIDATED $ 000 $ INVESTMENTS - NON-CURRENT (continued) Investments in controlled entities The consolidated Statement of Financial Performance and Statement of Financial Position of the entities which are members of the Closed Group are as follows: Consolidated Statement of Financial Performance Revenues from ordinary activities 307, ,060 Expenses from ordinary activities excluding borrowing costs (257,689) (262,135) Borrowing costs expense (31,117) (15,948) Profi t from ordinary activities before income tax expense 18,338 20,977 Income tax relating to ordinary activities (5,276) (6,370) Profi t/(loss) from ordinary activities after related tax expense 13,062 14,607 Retained profi ts at the beginning of the fi nancial year 49,145 42,819 Dividends provided for or paid (9,617) (8,280) Retained profits at the end of the financial year 52,590 49,146 Consolidated Statement of Financial Position Current assets Receivables 118,623 35,405 Inventories 89,094 90,763 Other assets 7,713 3,402 Total current assets 215, ,570 Non-current assets Receivables 3,530 2,939 Inventories 98, ,087 Property, plant and equipment 4,558 9,855 Intangible assets 3,316 3,316 Other assets 2,811 3,051 Total non-current assets 112, ,248 Total assets 327, ,818 Current liabilities Payables 65,280 50,471 Interest bearing liabilities 98,689 40,298 Provision 3,514 3,131 Total current liabilities 167,483 93,900 Non-current liabilities Interest bearing liabilities 47, ,899 Deferred tax liabilities 19,101 13,823 Provision Total non-current liabilities 67, ,970 Total liabilities 234, ,870 Net assets 93,321 83,949 Shareholders equity Contributed equity 40,731 34,802 Retained profi ts 52,590 49,146 Total equity 93,321 83,948 34

35 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 10. INVESTMENTS - NON-CURRENT (continued) (a) The carrying value of investments in controlled entities were re-valued by the Directors at 30 June 1998 to take account of the net realisable value for each controlled entity. (b) Devine Corporation Pty Ltd is the trustee of The Devine Properties Trust. The consolidated entity has no ownership interest in Devine Corporation Pty Ltd or The Devine Properties Trust, however both entities are considered to be controlled entities of Devine Limited because: * The articles of association of Devine Corporation Pty Ltd provide that only persons approved by Devine Limited may be nominated for appointment to the board of Devine Corporation Pty Ltd. * Representatives of the board of Devine Limited constitute the whole of the board of the trustee, Devine Corporation Pty Ltd. * The trust deed empowers Devine Limited to remove the trustee from offi ce and replace it with another trustee of Devine Limited s choice. * In October 2003 Devine Limited renewed the irrevocable offer to acquire all the shares in Devine Corporation Pty Ltd for a nominal consideration. The previous offer, having been in place for the preceding 10 years, was due to expire at this time. This renewed offer is open for acceptance for a further ten years. That is until October * Devine Limited is an eligible benefi ciary of The Devine Properties Trust entitling it to receive income and capital distributions. Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ INVENTORIES - NON-CURRENT Land on hand Cost of acquisition 3,082 28,273-19,436 Development costs capitalised - 1,944-1,310 Work in progress 113, , ,811 48, , , ,811 69,466 Included in work in progress at cost are capitalised borrowing costs of $4,882,518 (2004: $7,711,456). 35

36 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 12. PROPERTY, PLANT & EQUIPMENT Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Land - at cost 12(a) Buildings - at cost 12(a) - 2,893-2,893 Less: accumulated depreciation - (850) - (850) - 2,043-2,043 Display homes - at cost 12(b) 2,403 5, Less: accumulated depreciation (210) (1,674) - - 2,193 4, Plant and equipment - at cost 7,386 6,861 3,839 3,606 Less: accumulated depreciation (5,021) (3,881) (2,767) (2,226) 2,365 2,980 1,072 1,380 Plant and equipment - leased 12(a) Less: accumulated amortisation - (5) - (5) Total property, plant and equipment - cost 9,789 16,265 3,839 7,128 Less: accumulated depreciation and amortisation (5,231) (6,410) (2,767) (3,081) Total written down amount 4,558 9,855 1,072 4,047 (a) The freehold land and buildings recorded as an asset at 30 June 2004 were sold during the year. The company continutes to occupy the premises under a normal commercial lease arrangement with the owner. Other assets that are leased are pledged as security for the associated lease liability. (b) (c) Display homes have been recorded at cost or valuation. If the properties were sold at balance date at the valuation amount, no capital gains tax would be payable. The consolidated entity has a set policy for regular valuation of display homes at least once every three years to support carrying values. Asset Reconciliations Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current and previous fi nancial year. Land Carrying amount at beginning Disposals (605) - (605) Buildings Carrying amount at beginning 2,043 2,079 2,043 2,079 Additions Disposals (1,903) - (1,907) - Depreciation expense 3 (d) (81) (96) (77) (96) Transfer (to)/from work in progress (59) - (59) - - 2,043-2,043 36

37 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 12. PROPERTY, PLANT & EQUIPMENT (continued) (c) Asset Reconciliations (continued) Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Display homes Carrying amount at beginning 4,208 5, Additions Disposals - (5) - - Depreciation expense 3 (d) (84) (39) - - Reversal of provision 3 (b) Transfer (to)/from work in progress (3,012) (1,565) - - 2,193 4, Plant and equipment - cost Carrying amount at beginning 2,980 3,546 1,380 1,804 Additions Disposals (0) (57) - (15) Additions through entities (46) 20 (21) 24 Depreciation expense 3 (d) (1,158) (1,286) (544) (596) 2,365 2,980 1,072 1,380 Plant and equipment - Leased Carrying amount at beginning Disposals (14) - (14) - Amortisation expense 3 (d) (5) (11) (5) (11) INTANGIBLE ASSETS Brand name - at cost 5,300 5,300 5,300 5,300 Recoverable amount write-down (1,984) (1,984) (1,984) (1,984) 3,316 3,316 3,316 3,316 The valuation of the company s Brand Names was reviewed and updated by KPMG Corporate Finance (Qld) Pty Ltd on 6 August The value in use of the Devine brand name was assessed as being no less than $9.9 million using the relief from royalty methodology. This approach represents the value of an asset deployed in a going concern business and assumes continuation of existing patterns of use. This updated valuation compares with a value in the range of $3.7 million to $4.0 million when the exercise was previously carried out in September Directors have elected to retain the existing carrying value in the accounts. 14. OTHER ASSETS - NON-CURRENT Retention funds 2,811 3, PAYABLES - CURRENT 2,811 3, Trade creditors 60,556 47,445 9,908 6,165 Sundry creditors 4,724 3,026 3,270 2,147 Amount owing to controlled entities ,351 63,468 65,280 50, ,529 71,780 37

38 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 16. INTEREST-BEARING LIABILITIES - CURRENT Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Secured : Bank overdraft 8,683 3,620 15,065 9,397 Bank loans 302,984 62,263 55,959 40,947 Lease liability Bank loans and the bank overdraft are secured by mortgages over the consolidated entity s inventories including developed and undeveloped land. A fi xed and fl oating charge over all the assets of the consolidated entity is also held by the consolidated entity s principal bankers. The lease liability is secured by a charge over the leased assets. 311,852 66,173 71,209 50, PROVISIONS - CURRENT Dividends - converting preference shares 17(a)(i) Employee benefi ts 1,823 1,531 1, Provision for repossessions 17(a)(ii) 1, Provision for rental guarantee 17(a)(iii) Other 17(a)(iv) ,514 3,143 1,631 1,293 (a) Movements in provisions (i) Dividends - Converting preference shares Carrying amount at the beginning of the fi nancial year Additional provision Amounts utilised during the year - (121) - (121) Carrying amount at the end of the fi nancial year (ii) Repossessions Carrying amount at the beginning of the fi nancial year 922 1, Additional provision Amounts utilised or written back to profi ts during the year (567) (1,419) - - Carrying amount at the end of the fi nancial year 1, (iii) Rental guarantee Carrying amount at the beginning of the fi nancial year Additional provision Amounts utilised or written back to profi ts during the year (131) (236) (84) (40) Carrying amount at the end of the fi nancial year (iv) Other Carrying amount at the beginning of the fi nancial year Additional provision Amounts utilised during the year (155) (774) (54) (140) Carrying amount at the end of the fi nancial year

39 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. INTEREST-BEARING LIABILITIES - NON-CURRENT Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Secured Bank loans 65, ,869 29,318 31,739 Redeemable preference shares Bank loans are secured by mortgages over the consolidated entity s inventories including developed and undeveloped land. A fi xed and fl oating charge over all the assets of the consolidated entity is also held by the consolidated entity s principal bankers. 65, ,899 29,318 31,739 Redeemable Preference Shares During the 2004 year, Victoria Point Docklands Limited issued 1 redeemable preference share to one of its shareholders, RIA (Docklands) Pty Ltd for the purposes of corporate restructuring. Redeemable preference shareholders have the right to receive an annual dividend at a rate of the lesser of: * 10.0% of the net profi t of Victoria Point Docklands Limited in that fi nancial year; or * $30,000 for the 3 fi nancial years after the date of allotment. Victoria Point Docklands Limited also has the right to redeem this share at any time after the expiration of the third fi nancial year from the date of allotment, for $1.00. Otherwise, this share has no rights to the repayments of capital paid on its share, or to share in any surplus assets or profi ts of the company. The redeemable preference shares do not entitle their holder to vote. 19. PROVISIONS - NON-CURRENT Employee benefi ts CONTRIBUTED EQUITY (a) Ordinary shares: Issued and paid up capital 125,675,800 ordinary shares, fully paid (2004: 116,208,250) 40,731 34,802 40,731 34,802 (b) Movements in shares on issue Number of $ 000 Number of $ 000 Shares Shares Balance at beginning of period 116,208,250 34, ,507,838 26,619 Issued during the year 9,467,550 5,929 Conversion of converting preference shares ,700,412 8,183 Balance at end of period 125,675,800 40, ,208,250 34,802 39

40 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 20. CONTRIBUTED EQUITY (continued) Ordinary Shares (a) Dividend Reinvestment Plan : The Devine Limited Dividend Reinvestment Plan was re-instated on 24 February ,442,048 ordinary shares were issued under the plan in May 2005 in respect to the 2004/05 interim dividend. (b) Share Purchase Plan In November 2004, the company made an issue of ordinary shares under a share purchase plan to eligible shareholders who had elected to take up the offer. 7,775,502 shares were issued under the plan. The cost associated with the share issue was $33,000. (c) Employee Share Scheme : An employee share scheme has been in operation during the year. The scheme was approved by members at the Annual General Meeting held on 18 November 1998 and operates at the discretion of the board. No shares were issued under the scheme during the year. (d) Terms and conditions of contributed equity : Ordinary shares have the right to receive dividends as declared, and in the event of winding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company. (e) Share Options : Under the Executive Share Option Plan approved by members on 18 November 1998, 1,325,000 options over ordinary shares were issued to executives of the company in June The options were granted on 16 June 1999, for no consideration at an exercise price of 61.5 cents and expire on 16 June Subsequently, 350,000 of these options lapsed. In March 2002, 2,450,000 additional options were issued to executives of the company. The options were granted on 6 March 2002 for no consideration at an exercise price of 51.7 cents and expire on 6 March Subsequently 500,000 of these options lapsed. 250,000 of these options were exercised in April In July 2002, a further 250,000 options were issued to an executive of the company. The options were granted on 17 July 2002 at an exercise price of 60.0 cents and expire on 17 July In July 2003, a further 250,000 options were issued to an executive of the company. The options were granted on 1 July 2003 at an exercise price of 40.4 cents and expire on 1 July The exercise price was based on the weighted average price of shares sold on the Australian Stock Exchange during the 5 trading days up to and including the date of grant of the options. The earliest date the options can be exercised is 24 months from the date of grant provided that certain performance hurdles, as determined by the board, are met. There are no additional amounts required to be paid on the exercise of the options. 21. RESERVES Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Asset revaluation reserve - - 3,316 3,316 Retained Profi ts 53,873 47,365 7,792 9,321 (a) Asset revaluation reserve (i) Nature and purpose The asset revaluation reserve is used to record increments and decrements in the value of non current assets. The reserve can only be used to pay dividends in limited circumstances (ii) Movement in reserve Balance at beginning and end of year - - 3,316 3,316 40

41 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 21. RESERVES (continued) Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 (b) Retained Profits Balance at beginning of year 47,365 39,995 9,321 4,582 Net profi t/(loss) attributable to members of Devine Limited 16,125 15,650 8,088 13,019 Total available for appropriation 63,490 55,645 17,409 17,601 Dividends for the period (9,617) (8,280) (9,617) (8,280) Balance at end of year 53,873 47,365 7,792 9, STATEMENT OF CASH FLOWS (a) Reconciliation of cash : Cash balance comprises: - cash at bank bank overdraft (8,683) (3,620) (15,065) (9,397) Closing cash balance (8,683) (3,620) (15,065) (9,397) (b) Reconciliation of the operating profit after tax to the net cash flows from operations: Non-cash items - operating profi t after tax 16,125 15,650 8,088 13,019 - depreciation and amortisation of property plant and equipment 1,328 1, CPS dividend accrued - (121) - (121) - interest capitalised (11,063) (9,845) (725) (611) - fi nance lease interest bad debts written off - (59) (15) - - provision for customer subsidies 28 (16) provision for doubtful debts (30) - provision for employee benefi ts 355 (80) 417 (4) - provision for rental guarantee (131) (115) (84) 81 - provision for repossessions 208 (617) provision for warranties - (17) - (17) - loss/(profi t) on sale of non-current assets (687) 43 (687) 2 - transfer of tax losses - - (21,753) - - management fees - - (5,983) (5,617) Changes in assets and liabilities - trade and sundry debtors (82,139) (1,134) 1,423 3,144 - prepayments (780) (488) (3,093) (32) - inventories (136,535) (94,378) (106,231) (9,491) - future income tax benefi t - 1,811 11,417 (8,177) - creditors and accruals 11,697 14,382 84,295 (4,445) - deferred income tax liability 6,598 5,029 14,033 1,170 - retention funds 1,141 (2,721) 2,500 (1,500) - provision for tax other non-current assets (1,166) 596 (368) (57) Net cash fl ow from (used in) operating activities (194,109) (70,153) (15,907) (11,294) 41

42 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 22. STATEMENT OF CASH FLOWS (continued) (c) Bank overdraft facility : The consolidated entity has a multi-option loan facility available to it which includes an overdraft facility of $5,000,000. (2004: $4,798,233). As at balance date usage exceeded the overdraft facility by $3,719,000 (2004: $1,179,233 surplus facility) however temporary accommodation was provided by the consolidated entity s principal bankers given the pending settlement of the Casino Towers project on 8 July 2005 and the surplus funds to fl ow from those settlements. (d) Financing facilities : Financing facilities of $531,152,854 (2004: $584,105,260) were available to the consolidated entity at the end of the fi nancial year. As at that date, $384,449,980 (2004: $213,306,918) of these facilities were in use. 23. EXPENDITURE COMMITMENTS Lease expenditure commitments Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 (a) Finance leases - not later than one year later than one year but not later than fi ve years later than fi ve years Less: future fi nance charges - (1) - (1) Lease liability Current liability Non-current liability (b) (c) Operating leases (non-cancellable) - not later than one year 23(d) 2,359 1, later than one year and not later than fi ve years 23(d) 3,186 3,262 1, later than fi ve years 23(d) Aggregate lease expenditure contracted for at balance date but not provided for 6,076 5,139 3,394 1,076 Total lease Liability: Current: - Finance leases Lease incentive liability 23(e) (d) Operating leases have an average lease term of 4 years and an average implicit interest rate of 7.93% (2004:7.93%). Assets that are the subject of operating leases include motor vehicles and offi ce premises. (e) These commitments refl ect the cash incentive received by the consolidated entity for entering into a non-cancellable operating lease for premises occupied by a controlled entity, entered into in September The lease term is fi ve years and the incentive liability is reduced on a straight line basis over the period of the lease. 42

43 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 24. EMPLOYEE BENEFITS Employee Benefits The aggregate employee benefi ts liability comprises: Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 Provisions (current) 1,823 1,531 1, Provisions (non-current) ,135 1,779 1, Employee share option scheme An employee share scheme has been established where executive directors, executives and certain members of staff of the consolidated entity are issued with options over the ordinary shares of Devine Limited. The options, issued for Nil consideration, are issued in accordance with guidelines established by the directors of Devine Limited. The options are issued for a term of 10 years and are exercisable beginning on the second anniversary of the date of grant. The options cannot be transferred and will not be quoted on the ASX. There are currently 2 directors and 3 executives eligible for this scheme. Information with respect to the number of options granted under the employee share scheme is as follows: Notes Number of Number of Options Options Weighted average exercise price Weighted average exercise price Balance at beginning of year 3,425, ,425, granted , forfeited - - (250,000) exercised (250,000) Balance at end of year 3,175, ,425, Exercisable at end of year 2,925, ,925, (a) Options held at the beginning of the reporting period: The following table summarises information about options held by employees as at 1 July 2004: Number of Options Grant Date Vesting Date Expiry Date Weighted average exercise price 975, Jun Jun Jun ,950,000 6-Mar Mar Mar , Jul Jul Jul ,000 1-Jul Jul Jul (b) Options held at the end of the reporting period: The following table summarises information about options held by employees as at 30 June 2005: Number of Options Grant Date Vesting Date Expiry Date Weighted average exercise price 975, Jun Jun Jun ,700,000 6-Mar Mar Mar , Jul Jul Jul ,000 1-Jul Jul Jul There were 250,000 options exercised during the year (2004: Nil). 43

44 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 25. DIRECTORS AND EXECUTIVES DISCLOSURES (a) Loans to/from Specified Directors and Specified Executives No loans were secured or made during the year ended 30 June 2005 (2004: $4,144,806) (b) Other transactions and balances with Specified Directors and Specified Executives Services K P Prior is a partner of McCullough Robertson. Fees totalling $236,584 (2004: $245,407) were paid or payable to McCullough Robertson during the year in respect of legal services provided to the consolidated entity. These fees were determined under normal commercial terms and conditions. K M Woodley is a partner in a business known as Clayfi eld Galleries. Clayfi eld Galleries provided picture framing services to the group for the year ended 30 June 2005 amounting to $4,536 (2004:Nil). Parris Interiors is an associate of R W Parris. Fees totalling $17,584 (2004: $77,503) were paid or payable to Parris Interiors during the year in respect of interior design services provided to a controlled entity. These fees were determined under normal commercial terms and conditions. (c) The company has applied the exemption under the Corporations Amendments Regulation 2005 which exempts listed companies from providing remuneration disclosure in relation to their specifi c directors and specifi c executives in their annual fi nancial reports by Accounting Standard AASB 1046 Director and Executive Disclosure by Disclosing Entities. These remuneration disclosures are provided in the remuneration section of the Directors Report designated as audited. 26. AUDITORS S REMUNERATION Amounts received or due and receivable by the auditors for: Notes CONSOLIDATED DEVINE LIMITED $ $ $ $ Audit or review of the fi nancial report 230, , , ,000 Other services; Tax advisory and compliance services 88,600 98,489 88,600 98,489 Capital restructuring & Corporate Finance 24,022 62,328 24,022 62,328 advice Other assurance services 67,425 25,300 67,425 25,300 Amounts paid through industry fund 30,296-30, , , , ,117 44

45 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 27. EVENTS SUBSEQUENT TO BALANCE DATE A fully franked fi nal dividend in respect of the 2005 fi nancial year of 4 cents (2004: 4 cents) per share was declared by directors on 26 August In accordance with the adoption of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets no provision has been recognised in the statement of Financial Position as at 30 June Following its completion in late June 2005, settlements commenced on the company s Casino Towers project in the second week of July All debt associated with the project totalling $65.101M and which is refl ected as a liability in the statement of fi nancial position as at 30 June 2005, was repaid by 14 July There have been no other signifi cant events occur post 30 June RELATED PARTY DISCLOSURES (a) Ultimate Parent Devine Limited is the ultimate parent company. (b) Wholly-owned group transactions * Rental income was received from controlled entities under normal commercial terms and conditions. * Management fees were received from controlled entities under normal commercial terms and conditions. * Interest free loans made by Devine Limited to controlled entities repayable on demand. * Interest free loans made to Devine Limited by controlled entities repayable on demand. 45

46 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 29. SEGMENT INFORMATION HOUSING & LAND FINANCE ELIMINATIONS CONSOLIDATED $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 CORPORATE/ OTHER PROPERTY DEVELOPMENT Business Segments: Sales to customers outside the consolidated entity 216, , , ,420 4,314 6, , ,974 Other Revenues from customers outside the consolidated entity , , Intersegment revenues (186) (239) - - Total segment revenue 216, , , ,452 4,500 6,854 4, (186) (239) Unallocated Revenue - - Total consolidated revenue 474, ,581 Results Segment Result 9,518 18,081 17,980 6,581 (2,912) (1,850) (1,864) (326) ,722 22,486 Unallocated expenses - - Consolidated entity profi t from ordinary activities before income tax expense 22,722 22,486 Income tax expense (6,597) (6,836) Net Profi t 16,125 15,650 As management is able to identify funds used by each segment, the interest associated with the use of those funds is allocated to the respective segment. The total amount of borrowing costs allocated to segments is as follows: Housing $1,883,506 (2004: $915,718); Property Development $27,785,292 (2004: $14,381,837); Finance $Nil (2004: $Nil); and Corporate/Other $1,447,243 (2004: $650,383). 46

47 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 29. SEGMENT INFORMATION (continued) HOUSING & LAND FINANCE ELIMINATIONS CONSOLIDATED $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 CORPORATE/ OTHER PROPERTY DEVELOPMENT Assets Segment assets 109, , , ,430 3,602 2,894 17,651 19,804 (14,763) (28,973) 556, ,878 Unallocated assets 5,980 5,489 Total assets 562, ,367 Liabilities Segment liabilities 47,131 41, , , ,555 40,792 (2,400) (20,652) 461, ,711 Unallocated liabilities 5,980 5,489 Total liabilities 467, ,200 Other segment information: Acquisition of non-current assets ,122 Depreciation ,323 1,421 Amortisation Geographical Segments: The Company operates in only one geographic segment; Australia - within Australia operations are carried on in Queensland, Victoria and South Australia 47

48 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 30. CONTINGENT LIABILITIES The parent entity and controlled entities have entered into local authority and other performance guarantees totalling $5,375,587 at 30 June 2005 (June 2004: $6,410,735) relating to individual land developments and other aspects of the company s operations. The guarantees are secured by charges over the assets of the respective entities. No liabilities are expected to arise. In addition, performance guarantees totalling $18,200,000 at 30 June 2005 (June 2004: $18,200,000) associated with the company s Victoria Point Docklands project, have been issued. The guarantees are secured by charges over the assets of the relevant entities. Of this amount, $4,200,000 (June 2004: $3,400,000) is payable as a future cost of the project. No liabilities are expected to arise in respect to the balance amount. The parent entity (Devine Limited) has guaranteed, under the terms of Class Order 98/1418, to pay any defi ciency in the event of winding up of the controlled entities within the group. The controlled entities have also given a similar guarantee in the event that Devine Limited is wound up. The company has deposited $3,818,181 (June 2004: $3,972,574) into bank accounts subject to charges by agreement with the fi nancial institutions which provide funding for mortgages under the Builder Pays Deposit promotion. A further $3,529,456 (June 2004: $2,656,788) is invested in Trust structures associated with the company s loan origination and securitisation business, First Permanent Financial Services Pty Ltd. In addition a performance guarantee totalling $1,500,000 (June 2004: $1,500,000) has been issued to one of the lending institutions. These funds are only available to meet costs associated with a loss on resale occurring as a result of buyer default on mortgages and repossessions. The consolidated entity s liability is limited to between 2% and 7%, of the original loan amount of the defaulting purchaser in each individual case and the amounts held in the bank accounts and performance guarantee in total. That is, the consolidated entity could not be liable for more than $8,847,637 as at 30 June 2005 (June 2004: $8,129,362). As at the 30 June 2005 a provision of $1,129,291 (June 2004: $921,591) has been raised on the basis of expected future costs. The company has an interim funding facility for the provision of mortgage loans to its Housing customers by its subsidiary First Permanent Financial Services Pty Ltd. A contingent liability exists to the extent of $1,500,000 (June 2004: $4,000,000) in relation to Devine Limited undertaking to meet the future working capital requirements of First Permanent Financial Services Pty Ltd. 31. LAND ACQUISITION COMMITMENTS As at 30 June 2005 the group had entered into land marketing agreements to acquire developers land amounting to $28,054,600 (June 2004: $57,433,000). Of this amount, $6,479,400 related to land that had been sold but was not yet at unconditional contract status (June 2004: $14,125,000). At exercise date the consolidated entity is required to acquire land at a predetermined acquisition price. 32. EARNINGS PER SHARE Notes CONSOLIDATED $ 000 $ 000 The following refl ects the income and share data used in the calculations of basic and diluted earnings per share: Net Profi t 16,125 15,650 Adjustments: Earnings used in calculating basic earnings per share 16,125 15,650 Dividends paid on convertible preference shares Earnings used in calculating diluted earnings per share 16,125 15,894 48

49 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 32. EARNINGS PER SHARE (continued) Consolidated Number of Shares Number of Shares Weighted average number of ordinary shares used in calculating basic earnings per share 120,817, ,940,079 Adjusted weighted average number of ordinary shares used in calculating dilutive earnings per share 123,992, ,394,589 During the period, the company offered to existing shareholders the option to subscribe to the company s Share Purchase Plan (SPP). In accordance with ASIC requirements, applications under the SPP were limited to a maximum subscription of $5,000 per shareholder. The shares were issued at a 10% discount to the weighted average price of shares traded over the 5 trading days preceding 22 October ,775,502 shares were issued as a result of the SPP. In addition, the company reinstated its Dividend Reinvestment Plan (DRP) in February 2005 for the 2004/2005 interim dividend. 1,442,048 shares were issued as a result of the DRP. Conversions, calls, subscriptions or issues since 30 June ,000 options issued under the company s employee share plan were exercised on 2 September 2005 and 200,000 ordinary shares were issued. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this fi nancial report. 33. FINANCIAL INSTRUMENTS (a) Terms, conditions and accounting policies (i) Financial assets Recognised Balance Financial Sheet Accounting Policies Terms and Conditions Instruments Notes Trade and other debtors 6,9 Trade and other debtors are carried at nominal amounts due, less any provision for doubtful debts. A provision for doubtful debts is recognised when collection of the full nominal amount is no longer recognised Proceeds due from sales made on completed homes are payable on the settlement date of each sale. The terms of each sale will vary due to individual circumstances. Progress claims issued with regard to homes under construction are due and receivable after 5 working days. Retention Funds 8, 14 Retention funds are carried at the principal amount. Interest is recognised as it is earned. These funds are only available to meet costs associated with a loss on resale occurring as a result of buyer default on mortgages and repossession. The consolidated entity s liability is limited to between 2% and 7% of the original loan amount of the defaulting purchaser in each individual case and the amounts held in the bank accounts in total. 49

50 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 33. FINANCIAL INSTRUMENTS (continued) (a) Terms, conditions and accounting policies (continued) (ii) Financial liabilities Recognised Balance Financial Sheet Accounting Policies Terms and Conditions Instruments Notes Bank overdrafts 16 The bank overdraft is carried at the principal amount. Interest is charged as an expense as it accrues. Interest is charged by the bank at a variable rate of 8.17% (2004: 7.95%). Details of the security over the bank overdraft are set out in note 16. Bank loans 16, 18 Bank loans are carried at the principal amount. Interest is charged as an expense as it accrues. The bank loans are repayable from the proceeds of sales as a percentage of cash receipts. Details of the security over bank loans are set out in note 16 and 18. Interest has been charged at an average rate of 7.08% (2004: 6.24%). Trade and other creditors 15 Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Dividends Payable :Ordinary Shares 5 In accordance with AASB 1044 dividends payable are recognised only when declared by the consolidated entity. Trade liabilities are settled on the due date for payment agreed with individual suppliers. At 30 June 2005, no dividends are payable (2004 $Nil) per ordinary share for the fi nancial year ended 30 June The extent to which the dividends are franked, details of the franking account balance at balance date and franking credits available for the subsequent fi nancial year are disclosed in note 5. Financial lease liability 16 Lease liabilities is accounted As at balance date, there were no for in accordance with outstanding fi nance leases. AASB

51 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 33. FINANCIAL INSTRUMENTS (continued) (a) Terms, conditions and accounting policies (continued) (iii) Equity Recognised Balance Financial Sheet Accounting Policies Terms and Conditions Instruments Notes Ordinary shares 20 Ordinary share capital is recognised at the fair value of the consideration received by the company. Details of shares issued and the terms and conditions of options outstanding over ordinary shares at balance date are set out in note 20. (iv) Unrecognised Financial Instruments Put/Call Option Agreement 31 The consolidated entity enters into put/call option agreements with developers to acquire land. At balance date the consolidated entity had put/call agreements with developers to acquire land amounting to $28,054,600 (2004: $57,433,000). These options all have an exercise date within one year of balance date. Interest Rate Swap Agreement The consolidated entity entered into a interest rate swap agreement to reduce the risk of interest rate movements. The effective date of the agreement was 08/10/2004 for a notional amount of $144,874,860 at a fi xed rate of 5.75% terminating on 01/03/

52 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 33. FINANCIAL INSTRUMENTS (continued) (b) Interest rate risk The consolidated entity s exposure to interest rate risks and the effective interest rates of fi nancial assets and fi nancial liabilities, both recognised and unrecognised at the balance date are as follows: Fixed interest rate maturing in: Total carrying Weighted average effective interest rate amounts per the Balance sheet Non Interest Bearing More than 5 years 1 year or less Over 1 to 5 years Financial interest rate Floating interest rate $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 % (i) Financial assets Cash N/A Trade and other debtors , ,122 N/A Short term deposits 6, , % Retention Funds 3, , % Total fi nancial assets 9, , ,093 N/A (ii) Financial liabilities Bank overdrafts 8, , % Bank loans - 302,984 65, , % Trade and other creditors ,280 65,280 N/A Finance lease liability N/A Total fi nancial liabilities 8, ,984 65,570-65, ,517 N/A 52

53 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 33. FINANCIAL INSTRUMENTS (continued) (b) Interest rate risk (continued) The consolidated entity s exposure to interest rate risks and the effective interest rates of fi nancial assets and fi nancial liabilities, both recognised and unrecognised at the balance date are as follows: Fixed interest rate maturing in: Total carrying Weighted average effective interest rate amounts per the Balance sheet Non Interest Bearing More than 5 years 1 year or less Over 1 to 5 years Financial interest rate Floating interest rate $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 % (i) Financial assets Cash N/A Trade and other debtors ,062 34,062 N/A Short term deposits 7, , % Retention Funds 3, , % Total fi nancial assets 11, ,062 45,135 N/A (ii) Financial liabilities Bank overdrafts 3, , % Bank loans 72,526 14,636 78, , % Trade and other creditors - - ` - 50,471 50,471 N/A Dividends payable N/A Finance lease liability % Total fi nancial liabilities 76,145 14,655 78,971-50, ,242 N/A 53

54 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 33. FINANCIAL INSTRUMENTS (continued) (c) Net fair values The aggregate net fair values of fi nancial assets and recognised fi nancial liabilities, at balance date, are equivalent to their carrying values. The net fair value of unrecognised fi nancial liabilities excluding the associated asset to be recognised on recognition of the liability, at balance date, is $28,054,600 (2004: $57,433,000) which is the maximum amount the group is liable to pay on land marketing agreements in place at balance date. The following methods and assumptions are used to determine the net fair values of fi nancial assets and liabilities. Recognised financial instruments : Cash and cash equivalents The carrying amount approximates fair value because of their short term to maturity. Trade and other debtors The carrying amount approximates fair value. Dividends payable The carrying amount approximates fair value. Trade and other creditors Trade and other creditors represent the principal amounts outstanding at balance date plus, where applicable, any accrued interest. The carrying amount approximates net fair value because credit terms are not greater than 60 days. Borrowings Bank loans are recognised in the fi nancial statements on the basis of the nominal amounts outstanding at balance date plus accrued interest which is charged at current market rate. Finance lease liability The carrying amount of fi nance lease liability approximates net fair value because interest is charged at market rates. (d) Credit risk exposures The consolidated entity s maximum exposures* to credit risk at balance date in relation to each class of recognised fi nancial assets is the carrying amount of those assets as indicated in the balance sheet. Concentrations of credit risk (a) (b) The company minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers. However, the majority of customers are concentrated in Australia. Credit risk in trade debtors is minimised as trade debtors have approved fi nance prior to sales taking place. * The maximum credit risk exposure does not take into account the value of any collateral or other security held, in the event other entities/parties fail to perform their obligations under the fi nancial instruments in question. 54

55 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 34. IMPACT OF ADOPTING INTERNATIONAL FINANCIAL REPORTING STANDARDS For reporting periods beginning on or after 1 January 2005, Australian Companies must comply with Australian Equivalents to International Financial Reporting Standards (AIFRS) as issued by the Australian Accounting Standards Board. Having a 30 June balance date, Devine Limited s (the company s) fi rst fully AIFRS compliant fi nancial reports will be for the 31 December 2005 half year and the fi nancial year ended 30 June The company has been working on transitioning its accounting policies and fi nancial reporting processes from current Australian Accounting Standards (AGAAP) to AIFRS. Over the last 12 months the company has allocated internal resources and engaged expert consultants to assist in this process under the guidance of a Project Steering Committee and support of the Board Audit Committee. The company has completed an opening balance sheet at 1 July 2004 that will be used in the calculation of comparative values when preparing the fi rst fully AIFRS compliant reports for the 2005/06 year. In addition, Devine has estimated the impact of AIFRS on the 30 June 2005 accounts and provide below a summary of the impact on specifi c balance sheet accounts, equity, and net profi t. No change is anticipated to the reporting of cashfl ows. The amounts shown represent managements best estimates of the quantitative impact of the changes as at the date of preparing the 30 June 2005 fi nancial report. It should be noted that the fi nal impact of the effect of AIFRS may differ from the estimate disclosed due to (a) ongoing work being undertaken by management to calculate and validate the effect of the changes, (b) implementation of changes to systems and processes to comply with the new requirements, (c) the potential for amendments to AIFRS s, and (d) emerging accepted practice in the interpretation and application of AIFRS and Urgent Issues Group (UIG) interpretations. Review of specific balance sheet movements not affecting net assets Mortgage Loans - Mortgage loans are originated on behalf of Devine s customers by the company s subsidiary, First Permanent Home Loans. These loans are held in trust arrangements and are now required to be recognised as both an asset and corresponding liability in the consolidated entity s balance sheet. The impact on total assets and total liabilities of this change is shown below: Notes CONSOLIDATED DEVINE LIMITED $ 000 $ 000 $ 000 $ 000 AGAAP: Total Assets 562, , , ,203 Total Liabilities 467, , , ,764 AIFRS Total Assets 732, , , ,203 Total Liabilities 638, , , ,764 Included in the AIFRS balances shown above are the following amounts: Warehouse Trust 43,022 33, Mortgage Trust - 62, Mortgage Trust 115, Maison Securitisation Trust 15,446 27,060 Consolidation Adjustment (3,529) (2,760) , , The increases shown refl ect the balance, at the reporting date, of loans held in trust both as part of a Warehouse Fund arrangement (prior to securitisation) and as part of a trust setup on securitisation of loans previously held in the warehouse phase and subsequently securitised by way of an issue of a term bond. The value of the asset and liability will reduce as loan repayments are received and loans are paid out. The value of the asset and liability will increase as new loans are written (into the warehouse trust only). When new bond issues are made a reduction will occur in the warehouse balance and a new trust will be created. Devine s risk exposure to these funds is limited to an equity contribution that has been eliminated as part of the consolidation. 55

56 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 34. IMPACT OF ADOPTING INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued) Reconciliation of equity as presented under AGAAP to that under AIFRS Opening Balance Adjustments: The effective date for recording AIFRS adjustments for comparative purposes is 1 July Provided below is a summary of the impact of AIFRS on the opening equity balance at that date. The adjustments in the main relate to the company s large property development projects that were not completed and settled at 1 July 2004, and the impact of changes to accounting policies that are required under AIFRS. Notes CONSOLIDATED DEVINE LIMITED 30-June 1-July $ 000 $ 000 $ 000 $ 000 Total equity under AGAAP 94,604 82,167 51,839 47,439 Opening equity changes required to comply with AIFRS: Profi t Recognition - Major Projects (i) - (21,136) - (5,349) Pre-commitment and Other Expenses (ii) - (7,309) - (1,137) Tax Effect of AIFRS Adjustments (iii) - 8,133-1,946 De-recognition of Brand Name (v) - - (3,316) (20,312) (7,856) Prior Year Adjusted equity under AIFRS (20,312) (7,856) Impact on full year reported profi t after tax (see details below) Net impact of complying with AIFRS (16,086) - (5,590) - Adjusted equity under AIFRS 58,206 61,855 38,393 39,583 Reconciliation of net profit as presented under AGAAP to that under AIFRS Notes CONSOLIDATED DEVINE LIMITED FY FY $ 000 $ 000 Net profit attributable to members of 16,125 8,088 Devine Limited under AGAAP Changes required to comply with AIFRS: Profi t Recognition - Major Projects (i) (21,730) (6,736) Pre-commitment and Other Expenses (ii) (1,250) (1,250) Tax Effect of AIFRS Adjustments (iii) 6,894 2,396 Net impact of complying with AIFRS (16,086) (5,590) Adjusted Net profit attributable to members of Devine Limited under AIFRS 39 2,498 Notes The following notes provide an overview of the changes required under AIFRS, the estimated fi nancial impact of which is detailed above. Due to the uncertainty that exists with respect to the fi nal details of the standards and Devine s interpretation of them, the company has not fi nalised updated Accounting Policies at this time. Any changes that are required for the preparation of the 31 December 2005 half year accounts will be reviewed and approved by the company s Audit Committee in due course, however it is anticipated that changes will occur to the following polices that are contained in note 1 to the company s 2005 annual report. 56

57 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 34. IMPACT OF ADOPTING INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued) - Income Recognition - Income Tax - Expenditure carried forward - Brand Names - Inventories (i) Profit Recognition - Major Projects: Profi t in relation to the company s large property development projects will change under AIFRS. Profi ts declared under AGAAP in relation to major projects including Casino Towers, Festival Towers and Victoria Point, have been reversed for prior years (including 2005) as a result of changes to the way revenue, marketing costs, and borrowing costs are recognised under AIFRS. As a result of the completion and settlement of Casino Towers during July 2005, profi ts reversed on this project, (and included in the adjustments above), will be recognised in the half year accounts prepared for December Further details on the changes are provided below: (a) Treatment of Revenue: Under AGAAP / UIG 53, revenue on major projects was recognised based on the percentage of completion over the construction period. Under AIFRS, revenue and cost of sales can only be recognised upon completion and settlement of the individual units. (b) Treatment of Marketing Costs: Advertising and promotional costs associated with the company s large property development projects are currently not expensed until recognition of revenue occurs. Under AIFRS, they are required to be expensed in the period in which they are incurred. The adjustments shown refl ect the marketing costs recognised for prior years (reconciliation of opening balances) and the expense incurred during the current year (reconciliation of net profi t) that would previously have been included in the balance of WIP and Cost of Sales. (c) Treatment of Borrowing Costs: Borrowing costs (including interest) associated with the company s large property development projects are currently not expensed until recognition of revenue occurs. Under AIFRS, they are required to be capitalised up to the time that settlement occurs. The adjustments show the write-back of borrowing costs expensed under AGAAP (reconciliation of opening balances) and the effect of deferring the recognition of borrowing costs incurred during 2004 and 2005 until settlement occurs (reconciliation of net profi t). (ii) Pre-commitment Costs: Costs incurred investigating the feasibility of proposed projects were previously capitalised and recognised as part of the cost of sales based on the percentage of completion method. In accordance with AIFRS these costs must be expensed when incurred and only capitalised from the point at which a project receives both board approval and development approval (DA). (iii) Tax Effect of AIFRS Adjustments: Income tax will be calculated on the Balance Sheet approach, which has resulted in additional deferred tax assets and liabilities. As tax effects follow the underlying transactions, some tax effects have been recognised in equity (opening balance reconciliations). (iv) Equity Based Remuneration: Options - Equity based remuneration in the form of shares and options issued after 7 November 2002 which had not vested as at 1 January 2005, are now recognised as expenses in the profi t and loss statement in the period during which they vest to the employee. No adjustment has been required in the 2004 or 2005 periods. (v) Valuation of Brand Name - Under AIFRS goodwill and intangible assets with indefi nite useful lives can only be carried in the accounts if they are acquired, (they cannot be internally generated), and must be tested annually for impairment in accordance with AIFRS. Management have confi rmed that the Devine brand name, for consolidation purposes, was generated externally by virtue of the business combination created on the occasion of the fl oat of Devine Limited, and have tested the current carrying value for impairment and determined that it is currently not valued in excess of its recoverable amount. As a result no adjustment to its carrying value has been required. In relation to the Devine Limited company accounts, the brand name value has been de-recognised as it was internally generated. (vi) Put and Call Contracts Revenue Recognition - Devine currently, under AGAAP, recognise revenue and profi t on land sold under put and call agreements upon signing of an unconditional option agreement and sealing of the relevant plan of subdivision. This is where it can be demonstrated that the risks and rewards of ownership of the land have passed to the purchaser. A technical interpretation is being sought as to whether this revenue recognition policy will continue under AIFRS. The directors note any changes will be of a timing nature only. (vii) Impairment Testing - Under AASB 136 Impairment of Assets, the recoverable amount of an asset is determined as being the higher of its net selling price and value in use. The Group s assets were tested for impairment on transition and will be tested at each subsequent reporting date as part of the cash generating unit to which they belong. No impairments necessitating a write down to carrying values were identifi ed on transition. 57

58 DIRECTORS DECLARATION In accordance with a resolution of the directors of Devine Limited, we state that: (1) In the opinion of the directors: (a) the fi nancial report and the additional disclosures included in the director s report designated as audited, of the company and of the consolidated entity are in accordance with the Corporations Act 2001: Including: (i) giving a true and fair view of the company s and consolidated entity s fi nancial position as at 30 June 2005 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; 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. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the fi nancial period ending 30 June (3) In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identifi ed in note 10 will be able to meet any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee. On behalf of the Board D J Ridley Chairman D H T Devine Managing Director Melbourne, 28 September

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61 SHAREHOLDINGS Information as to shareholdings on 31st August 2005 is as follows: (a) Ordinary Shares Substantial Shareholdings The names of the substantial shareholders and the number of the equity securities in which they have an interest, as shown in the Company s Register of Substantial Shareholders, are: Name No. of Shares The following companies hold a relevant interest in these shares. DEVINE INDUSTRIES PTY LTD 26,790,428 LARRAPINTA PTY LTD 8,530,495 Number of Shares Ordinary shares which have equal voting rights* 125,875,800 * Voting Rights: On a show of hands every member present in person or by proxy or attorney or duly appointed representative shall have one vote and on a poll every member present as aforesaid shall have one vote for each share of which the member is the holder. Distribution Schedule Category No. of Shareholders 1-1, ,001-5, ,001-10, , ,000 1, ,001 and over 135 3,446 There were 99 shareholders with less than a marketable parcel ($500). Twenty Largest Shareholders The percentage of the total holding of the 20 largest shareholders, as shown in the Company s Register of Members as at the 31st August 2005 is 42.64% and their names and number of shares are as follows: Name Devine Industries Pty Ltd 26,790, % Larrapinta Pty Ltd 8,530, % Wilmar Enterprises Pty Ltd 4,100, % Mr George Hampton Andrew 3,564, % Mr John Wentworth Hill 1,456, % Mentmore Pty Ltd 957, % Dr Kimbal J Trevor 837, % Westpac Custodian Nominees Limited 744, % Mrs Bernadette J Inglis 700, % J P Morgan Nominees Australia Limited 698, % Mr David Harold Thomas Devine 610, % Mr Gabriel Berger 590, % Mr David G Lethbridge & Mrs Margaret H Lethbridge 585, % Lindway Investments Pty Ltd 543, % Mr Michael C Power & Mrs Denise M Power 535, % Mrs Fairlie Marianne Andrew 517, % Mr William Woodward & Mrs Ebelina Woodward 500, % Mr Tze-Fan Chan & Mrs Kit-Sum Leung 492, % Grayson Family Pension Plan 492, % Mr Peter Howells 426, % 53,674, % 61

62 CORPORATE GOVERNANCE STATEMENT The board of directors of Devine Limited is responsible for the corporate governance of the consolidated entity. The board guides and monitors the business and affairs of Devine Limited on behalf of the shareholders and is accountable to shareholders for the conduct and performance of the company. The format of the Corporate Governance Statement was changed in the 2003/04 report to shareholders due to the introduction of the Australian Stock Exchange Corporate Governance Council s (the Council s) Principles of Good Corporate Governance and Best Practice Recommendations (the Recommendations). In accordance with the Council s recommendations, the Corporate Governance Statement now contains certain specifi c information and discloses the extent to which the company has not followed the guidelines during the period. Where a recommendation has not been followed, that fact must be disclosed, together with the reasons for the departure. Devine Limited s Corporate Governance Statement is structured with reference to the Corporate Governance Council s principles and recommendations. These principles state that a company should: 1 Lay solid foundations for management and oversight 2 Structure the board to add value 3 Promote ethical and responsible decision making 4 Safeguard integrity in fi nancial reporting 5 Make timely and balanced disclosure 6 Respect the rights of shareholders 7 Recognise and manage risk 8 Encourage enhanced performance 9 Remunerate fairly and responsibly 10 Recognise the legitimate interests of stakeholders The corporate governance practices adopted by Devine Limited have been reviewed and updated to comply with the above principles. Further review of the processes and controls surrounding risk management are planned to occur in the 2005/06 year. With the above exception, Devine Limited s corporate governance practices were in place throughout the year ended 30 June 2005 and were compliant with the Council s best practice recommendations. As required by the Best Practice Recommendations, specifi c comments and further clarifi cation follows in relation to each of the ten principles. Principle 1 - Foundations for Management and Oversight As the board acts on behalf of the company s shareholders and is accountable to them, the board seeks to identify the expectations of shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the board is responsible for identifying areas of signifi cant business risk and ensuring arrangements are in place to adequately manage those risks. The board seeks to discharge these responsibilities in a number of ways. The responsibility for the operation and administration of the consolidated entity is delegated by the board to the managing director and the executive management team. The board ensures that this team is appropriately qualifi ed and experienced to discharge their responsibilities and has in place procedures necessary to assess the performance of the managing director and the executive management team. The board is responsible for ensuring that management s objectives and activities are aligned with the expectations and risks identifi ed by the board. The board has a number of mechanisms in place to ensure this is achieved. In addition to the Audit Committee referred to below, these mechanisms include the following: 62

63 CORPORATE GOVERNANCE STATEMENT (continued) Principle 1 - Foundations for Management and Oversight (continued) * Board approval of a strategic plan designed to meet stakeholders needs and manage business risk; * The strategic plan is a dynamic document and the board is actively involved in developing and approving initiatives and strategies designed to ensure the continued growth and success of the entity; and * Implementation of budgets by management and board monitoring of progress against those budgets - this includes the establishment and monitoring of key performance indicators (both fi nancial and non-fi nancial) for all signifi cant business processes. Principle 2 - Structure of the Board to Add Value The composition of the board is determined in accordance with the following principles and guidelines: * The board should comprise at least six directors and should maintain a majority of non-executive directors; * The chairman must be a non-executive director; * The board should comprise directors of an appropriate range of qualifi cations and expertise; and * The board shall meet at least monthly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion on all agenda items. The skills, experience and expertise of each director in offi ce at the date of the annual report is included in the Directors Report. Directors of Devine Limited are considered to be independent when 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. In the context of director independence, materiality is considered from both the company and individual director perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. Qualitative factors considered include whether a relationship is strategically important, the competitive landscape, the nature of the relationship and the contractual or other arrangements governing it and other factors which point to the actual ability of the director in question to act in the company s best interest. In accordance with the defi nition of independence above, and the materiality thresholds set, the following table identifi es the independence status of each director in offi ce during the period and details of the duration of their term as at 30 June Name Company Title Term Independence Status D J Ridley (Chairman) Non-Executive Director 7 yrs Independent K P Prior AM * Non-Executive Director 11 yrs Independent D H T Devine Managing Director 12 yrs Not Independent (1) P J Ferris AM Non-Executive Director 12 yrs Independent R W Parris Non-Executive Director 12 yrs Independent K M Woodley Marketing Director 12 yrs Not Independent (1) * Former Chairman resigned 24 March 2005 (1) - These directors are not considered independent as they are both members of the management team and are substantial shareholders in the company. There are procedures in place and agreed by the board, to enable directors, in furtherance of their duties, to seek independent professional advice at the company s expense. Principle 3 - Promote Ethical and Responsible Decision Making The company has for a number of years had a detailed Ethical Conduct Policy which has been communicated to all new staff and existing staff via the Employee Handbook. The current Employee Handbook provides guidance to staff and management on their responsibilities as employees and on the conduct of the company generally. A comprehensive review of Human Resources policies and procedures was fi nalised during the 2004/05 year and the Employee Handbook updated with access to all employees now available on the company s intranet web site. 63

64 CORPORATE GOVERNANCE STATEMENT (continued) Principle 4 - Safeguard the Integrity of Financial Reporting An Audit Committee was established when the company listed on the ASX in 1993 and has been in continuous operation since that time. It operates under a charter approved by the board and meets at least quarterly. It is the board s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and effi ciency of signifi cant business processes, as well as the safeguarding of assets, maintenance of proper accounting records, and reliability of fi nancial information as well as non-fi nance considerations. The board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the consolidated entity to the audit committee. The audit committee is responsible for nomination of the external auditor and reviewing the adequacy and the scope and quality of the annual statutory audit and half year statutory review. The committee has considered the issue of independence of the statutory auditor and is satisfi ed that the appointment and conduct of the statutory auditor and the practices and procedures adopted are appropriate with respect to auditor independence. As part of the governance processes implemented during the period, Devine Limited appointed a fulltime Internal Auditor in October 2003 to support the activities of the Audit Committee. The committee also provides the board with additional assurance regarding the reliability of fi nancial information including the fi nancial statements. The members of the audit committee, (refer list below), are non-executive directors, all of whom attended the four committee meetings conducted during the year. * P J Ferris AM: is the chairman of the committee and has been a member of the Board for 12 years. He is a former senior partner of Ernst & Young having retired as a Partner in 1993, and was their National Director of Corporate Finance. He is a qualifi ed Chartered Accountant. He is also a board member of Devine s subsidiary companies First Permanent Financial Services Pty Ltd and AMM Holdings Pty Ltd. * R W Parris: is a Quantity Surveyor and former Queensland Regional Director for Civil and Civic and the Lend Lease Property Group. He also has experience as a director of the funds syndicator Investment Management Australia Limited. * D J Ridley: has signifi cant experience in the building industry including 6 years as Chief Executive Offi cer of AV Jennings. He is also a board member of Devine s subsidiary company First Permanent Financial Services Pty Ltd. Both the Internal and External auditors and the Chief Financial Offi cer attend each meeting. In accordance with the committee s charter the Internal and External auditors are provided with an opportunity to discuss matters with the committee in the absence of management at each meeting. Principle 5 - Make Timely and Balanced Disclosures The board of directors aims to ensure that the shareholders, to whom they are accountable, are informed of all information necessary to assess the performance of the directors. Information is communicated to shareholders through: * The annual report which is distributed to all shareholders; * The half-yearly report and shareholder bulletin distributed to all shareholders; * The annual general meeting and other meetings so called to obtain approval for board action as appropriate; and * Reporting to shareholders from time to time on the performance of the company. Copies of this information are generally available on the Companies web site - under Investor Relations. Principle 6 - Respect the Rights of Shareholders Key fi nancial reports including the half year shareholders bulletin and annual reports are distributed to shareholders to provide them with information relevant to the operation of the company. Additional information, including these reports, is maintained on the companies investor relations web site. Our external auditor has been invited to attend the AGM in the past and as now required by the corporations law, will continue to be in attendance at future meetings to fi eld questions from shareholders. Additional information about the company and the corporate governance processes it has in place will be added to the company s web site as it is reviewed and updated. 64

65 CORPORATE GOVERNANCE STATEMENT (continued) Principle 7 - Recognise and Manage Risk A signifi cant number of activities exist within the building industry that require active monitoring and control. Devine has undertaken a detailed review of these potential risk areas with the assistance of an external consultant in order to identify signifi cant risks that may affect the business. This information is used to assist in identifying areas where internal audit activities should focus based on the risk assessments that have been performed, and will be developed into a more comprehensive risk management system over time. Principle 8 - Encourage Enhanced Performance It is part of the responsibility of the Board to assess whether it continues to operate within established guidelines and with the appropriate skill mix. In order to ensure that the board continues to discharge its responsibilities in an appropriate manner, the Chairman reviews the performance of all directors annually and may ask directors whose performance is considered unsatisfactory to retire. The performance of the board and key executives is reviewed against both measurable and qualitative indicators and is aligned with the fi nancial and non-fi nancial objectives of Devine Limited. Devine have not established a Nomination Committee as it is considered appropriate that any new appointments to the board should be considered by the board as a whole. Where a requirement to appoint a new director occurs, an independent consultant who is not a director will be used to assist in the selection process if felt appropriate. Principle 9 - Remuneration Fairly and Responsibly It is the company s objective to provide maximum stakeholder benefi t from the retention of a high quality board and executive team by remunerating directors and key executives fairly and appropriately and with reference to relevant employment market conditions. To assist in achieving this objective, the Remuneration Committee links the nature and amount of the executive directors and senior executives emoluments to the company s fi nancial and operational performance. The expected outcomes of the remuneration structure are: * To provide satisfactory returns to shareholders * Retention and Motivation of key executives * Attraction of quality management to the company * Performance incentives which allow executives to share the rewards of success Details on the amount of remuneration and all monetary and non-monetary components for each of the fi ve highest-paid (non-director) executives, specifi ed executives and all directors during the year, are provided in the Directors Report. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the board, having regard to the overall performance of Devine Limited and the performance of the individual during the period. There is no scheme to provide retirement benefi ts, other than statutory superannuation, to non-executive directors. The board is responsible for determining and reviewing compensation arrangements for the directors as well as the two executive directors and the senior management team. It has delegated the responsibility to determine remuneration to a committee that comprises the following non-executive and executive directors: D. J. Ridley P. J. Ferris AM D. H. T. Devine The company has a board approved policy of only allowing trading in the company s shares by directors, staff and their related parties, in the period of 21 days following an announcement being made by the company to the Australian Stock Exchange. The board may on occasion relax this policy to permit share trading with specifi c board approval and only at times where the board considers that the market is well informed about the company. In all cases, directors, staff and their related parties are reminded that they must be satisfi ed that their actions comply with rules relating to insider trading. Principle 10 - Recognise the Legitimate interests of Stakeholders The current employee handbook identifi es a number of areas where staff and management need to be aware of the legal and other obligations of all stakeholders. Signifi cant areas that affect the business include the occupational health and safety of staff and contractors, environmental considerations surrounding major developments and construction activities, and the interests of shareholders, fi nance providers and customers. 65

66 Notes This page intentionally left blank 66

67 Construction of Devine Limited s 401 unit, $162M Festival Towers project is proceeding with completion forecast to occur late in the June 2006 quarter. 67

68 DEVINE LIMITED A.B.N Registered Office 3 Westmoreland Boulevard Springwood, Queensland 4127 PO Box 2181 Logan City D.C. Queensland 4114 Telephone: (07) Facsimile: (07)