Great Southern Limited ABN 54 052 046 536

Financial Statements

30 September 2008

Contents Page

Key Personnel 2

Directors’ Report 28

Remuneration Report 38

Corporate Governance Statement 50

Financial Report 55

Directors’ Declaration 138

Independent Audit Report to the Members 139

Auditor’s Independence Declaration 141

Shareholder Information 142

Corporate directory

Directors D C Griffiths Chairman

C A Rhodes Managing Director

A McCleary

P J Mansell

M L Peacock

J C Young

P C Butlin

Secretary N J Hackett

Notice of Annual General The Annual General Meeting of Great Southern Limited will be held in the Ball Meeting Room, Parmelia Hilton Hotel, Perth, WA at 10am (WDT) on Thursday, 19 February 2009.

Principal registered office 16 Parliament Place in Australia West Perth WA 6005 Telephone: (08) 9320 9700 Facsimile: (08) 9321 9288

Share and Transferable Computershare Investor Services Pty Ltd REset Exchangeable Level 2 Securities TREES series 2 45 St George’s Terrace (TREES2) registry and Perth WA 6000 TREES series 3 (TREES3) registry

Auditor Ernst and Young The Ernst and Young Building 11 Mounts Bay Road Perth WA 6000

Solicitors Freehills Level 36 QV1 Building 250 St George’s Terrace Perth WA 6000

Bankers ANZ Banking Group Limited 77 St George’s Terrace Perth WA 6000

Trustee for TREES2 and Australian Executor Trustees Limited TREES3 holders 80 Alfred Street Milsons Point NSW 2061

Stock exchange listing Great Southern Limited shares are listed on the Australian Stock Exchange under the code GTP. TREES2 are listed on the Australian Stock Exchange under the code GTPGA. TREES3 are listed on the Australian Stock Exchange under the code GTPGB.

Website address www.great-southern.com.au

- - 1 - - Key Personnel

Executive Committee The Group’s senior executive team is referred to as the Executive Committee. The Managing Director is supported by the Executive Committee and is responsible to the board for all areas of corporate strategy and operational performance of the Group. The Executive Committee currently comprises: Cameron Rhodes Managing Director

Phillip Butlin Executive Director and Deputy Managing Director

Julian Dayman Chief Operating Officer

Neil Hackett Company Secretary and General Manager – Corporate Services

Simon Martin Chief Financial Officer

- - 2 - - Chairman’s message

Dear Shareholders

I am pleased to present your company’s 2008 annual report.

The financial year ending 30 September 2008 has been a difficult one for the company with sales of managed investment scheme (MIS) products reducing by 24% from the previous year to $314 million and with revenue and income down 15.4% to $444 million. Profit before tax and after significant asset write downs and provisions was $19.2 million while allowances for doubtful debts and goodwill impairment produced a net loss after tax of $63.8 million. The write down of the carrying values of certain assets were made by the Company to reflect the more adverse economic climate in which it is currently operating.

Having regard to the loss and the future cash flow requirements of the company, the Board decided not to declare a final dividend for the first time since listing in 1999.

As announced earlier in the year the company completed a comprehensive review of its business model and the changing operating environment and a decision was made to embark upon a course of action which would seek to combine the interests of investors in the 1998 to 2003 plantation projects and the 2006 and 2007 beef cattle projects with the agricultural land bank and agricultural management skills of the company to form a substantial forestry and cattle agribusiness which we believed would prove to be attractive to investors. This exercise was named “Project Transform” to reflect the dramatically positive impact it could have upon the company.

The outcome of Project Transform will be determined by meetings of the plantation and beef cattle project investors on 19 January 2009 and a meeting of Great Southern Limited shareholders which will now be held on 22 January 2009. The company also made individual offers to acquire the members’ interests in each of the 8 projects and this offer is scheduled to close on 29 January 2009.

While the company will continue to promote the benefits of Project Transform leading up to the meetings it is also in the process of developing alternative plans to address the situation where Project Transform does not receive the required support for the schemes nor a material level of support for the individual offers.

Like most businesses throughout the world we expect 2009 will be a very challenging year. Great Southern will be required to promote MIS products which can attract support in a tough market, maintain strict costs controls, embark on a level of asset sales and maintain a very careful management of liquidity, banking covenants and banking relationships. Maintaining cash flows and operating margins will be critical.

The requirement to consider the sale of any of our existing assets will depend upon the level of success experienced by Project Transform. The sale of any existing assets and any further deterioration in the MIS agribusiness sector may lead to book losses and declines in book value in 2009.

While acknowledging the risks and challenges that lie in the year ahead it is important to not lose sight of the fact that longer term trends such as the continued economic growth of Asia, the decline in logging of native forests and the rise in the importance of carbon sequestration can be expected to benefit our very substantial land bank and agribusiness over time. The recently announced conditional sales of forestry and cattle properties by companies in our sector, which are occurring even in these times of global turmoil, demonstrate a considerable level of confidence in these industries in the years ahead. Our challenge is to weather the current global financial crisis and find the opportunities to extract value from these opportunities for our shareholders.

This year has been a disappointing one for shareholders with a declining share price and no final dividend. It has also been a very difficult and onerous one for our executives and employees as we have been forced to make a number of staff redundant and called upon other staff members to work very long hours and many weekends to implement Project Transform and deal with a myriad of other issues which present themselves in these times.

On behalf of the board I would sincerely like to thank every member of the Great Southern team for their efforts and also to thank shareholders for their continued support for the company in what has been a very difficult year.

David Griffiths

Chairman

- - 3 - - Managing Director’s message

Dear Shareholders

My first year as Managing Director of the company has certainly been a challenging one.

I commenced the role in February of this year as we began a comprehensive strategic review of the business, designed to strengthen and diversify the company and to provide a more robust and sustainable business model moving forward. This strategic review process culminated in the announcement of “Project Transform” on 26 August 2008, a strategy comprising three aspects, being a proposal to significantly restructure the business through seeking to acquire the interests in eight of our MIS projects; a reorientation of the company’s agricultural investment services business; and a rationalisation and reduction of the cost structures of the group.

Whilst I am convinced that the proposed transactions to acquire the MIS interests was the right idea and has the potential to enhance value for both shareholders and project investors alike, in hindsight we could probably have not chosen a worse time in which to undertake this exercise, as global equity and credit markets significantly worsened and the company’s share price declined substantially. These market conditions, along with project return and investor sentiment issues, have made the transaction process a far more difficult and challenging exercise than we ever could have imagined.

Notwithstanding this, the investor meetings on 19 January 2009 will determine the outcome of the proposal, and based on proxy numbers released on 30 November 2008 and the level of individual acceptances to date, we have a reasonable prospect of at least one or both of the beef cattle projects being successful, which would provide significant value and opportunities for the company. We are also expecting some degree of success with the forestry projects, either through complete projects or a level of individual offer acceptances across all projects, which will also add strength to the balance sheet and provide future earnings and cash flow.

Apart from the proposed transaction itself, the other aspects of Project Transform have also been progressing. In particular, our focus on reducing costs and increasing efficiencies has already provided tangible results, with corporate expenses for the financial year ended 30 September 2008 having reduced. This is an area which will continue to be a major focus in the coming year and one where I believe further substantial cost savings across the entire business can be achieved.

The financial results for the year were clearly disappointing, having reported a net operating loss before goodwill impairment of $33.8 million, in line with guidance provided in August 2008. The loss included an allowance for doubtful debts of $56.9 million before tax (FY07 $5.6 million), which included a specific provision of $37.2 million announced in March 2008, and further provisioning reflecting the worsening overall economic environment and the expected impact of this on the performance of the loan book.

The company also wrote off $30 million of intangible assets, being goodwill relating to its previous acquisitions of RFM and Sylvatech, reflecting current market conditions and uncertainty associated with the short term opportunities in respect of these assets, taking the total reported loss for the year to $63.8 million.

Whilst the company’s full year result was heavily impacted from provisions and write downs reflective of the prevailing economic conditions, the result was also impacted by disappointing operational results. In particular, the company’s MIS project sales were significantly below expectations at $314 million. Forestry MIS sales accounted for 67% of total sales ($211 million).

Notwithstanding the disappointing sales result, one pleasing aspect of the sales was the level of sales of the company’s high value timber project, which increased approximately 40% from the previous year to $84 million. Relative to the company’s other products, this project delivers higher returns to the company, as well as having reduced capital expenditure requirements, and is expected to represent an increasing proportion of future sales.

Whilst there is no doubt that the outlook for MIS sales in 2009 will be challenging, the company will continue to seek opportunities in this area, through both our high value timber project as well as a new pulpwood product. Whilst investor demand is likely to be reduced through a combination of economic and investor confidence issues, overall product supply is also likely to be reduced particularly with one of our major competitors having recently announced that they will not be offering MIS products in 2009.

Loan securitisation availability is also likely to be reduced within the market in the coming year which is likely to impact the amount of product offered, as well as impacting the type and size of applications that will generally be accepted. The company has recently agreed a credit approved securitisation facility with a new provider which should provide a sound base from which the company can securitise complying MIS investor loans during 2009.

- - 4 - - At the time of writing this report, the Full Federal Court has just handed down its decision with respect to the non forestry MIS test case, with a unanimous decision in favour of the industry. The ATO has announced that it does not intend to appeal the decision. The ATO’s decision to reinterpret the tax laws caused a great level of uncertainty for the industry and indeed Great Southern. Whilst Great Southern’s future strategic and business plans are no longer reliant on non-forestry MIS, the court’s decision will allow us to assess future opportunities in this area and consider future possibilities to add value to our business, including the potential to utilize existing assets not currently subject to project arrangements.

Whilst 2008 was generally a year of great challenge and disappointment, there were some important achievements, particularly in the area of forestry. These include:

¾ In February 2008 the company agreed on a new price for the sale of hardwood woodchips to Japanese pulp and paper customers. The new price of A$207.40 per bone-dry tonne represents an increase of almost 10% over the previous year’s price and was the largest price increase for Australian woodchips since the hardwood plantation industry began negotiating its own woodchip prices in 2002.

¾ The company’s production and export figures from Albany doubled this year to 600,000 green metric tonnes. Over the three years that we have been exporting woodchip from Albany, Great Southern has now put in excess of one million tonnes through the port.

¾ The company signed a five year contract for the sale of woodchip from the hardwood plantation estate it manages on behalf of its investors in the Green Triangle region. The contract will involve the export of a minimum of 400,000 tonnes of woodchip annually to Japan, commencing in 2009.

¾ The past year also saw Great Southern move into downstream processing with the acquisition of a 50% stake in a woodchip mill in Bunbury, WA. This asset provides Great Southern with increasing exposure to forestry processing infrastructure in the prime plantation forestry regions of Western Australia. The benefits of this deal were apparent in August 2008 when the mill signed a Timber Purchase Agreement for approximately 1.8 million tonnes of timber from another plantation manager over a six year period commencing in 2009.

¾ The company also entered into an exclusive biomass rights agreement with Pacific Energy Limited for a 12 month period which includes the right for Pacific Energy to conduct and complete feasibility study activities for the development of renewable energy projects utilizing biomass from plantations managed by Great Southern within the Great Southern region of WA as a renewable fuel.

¾ The company continued to focus on achieving high standards of environmental management. The company agreed to a negotiated outcome with the Department of Environment, Water and Resources regarding alleged breaches of certain environmental conditions in respect of its operations on the Tiwi Islands. Whilst this situation was disappointing we are pleased that these issues were resolved and moreover we have since recently achieved ISO14001 Certification for our forestry operations on the Tiwi Islands, demonstrating a robust system of environmental procedures and practices. The company is also on track to achieve full ISO14001 certification for all forestry operations by the third quarter of 2009.

As the company’s plantation forestry estate continues to grow and mature, we will continue to seek to capitalise upon opportunities within the forestry industry for the benefit of shareholders and project investors alike. The Government’s recent announcements with respect to its Carbon Pollution Reduction Scheme clearly highlight the importance of carbon emissions and the role forestry can play in this issue in the future. Given the company’s very large and strategic forestry assets we are hopeful this and other areas could provide value enhancing opportunities in the years ahead, whether through operational means or realising value through the sale of particular assets.

In regard to asset sales, the company recently announced that it reached conditional agreement to sell approximately 10,400 hectares of its Queensland forestry estate on an encumbered basis. This land estate is considered a non core asset as the land is not a region that is considered suitable for the company’s long term plans. This transaction demonstrates the interest in forestry assets even in the current difficult market conditions, with the agreed consideration of $23 million, representing an approximate 11% discount to recorded book value at 30 September 2008.

As we look forward to 2009 there are still many challenges to face. Whilst the outcome of the Project Transform investor meetings in mid January will provide us with certainty, we will then need to immediately implement and vigorously pursue the business plan most appropriate to that outcome. Whatever the outcome, those plans will include pursuing opportunities within the Agricultural Investment Services part of our business, to continue to significantly reduce costs, to sell selected assets and to be very focused on liquidity and cash flow management.

- - 5 - - With the major issue facing the company being to continue to meet our cash flow requirements, and with difficult global equity and debt markets likely to continue at least in the short term, impacting both MIS sales as well as asset sale opportunities, it is likely that we will continue to have earnings pressure at least in the short term and further losses are considered likely in 2009. In particular, the company continues to manage a number of existing MIS projects and must continue to meet maintenance and operational costs within the required product arrangements, which are still significant until the relevant commodities reach full production. However, through a robust pursuit of our objectives focused very much on generating cash flow, reducing costs as appropriate and reducing debt levels we hope that the company can emerge from the current climate as quickly as possible.

In closing, I would like to personally thank my executive management team and all the staff of Great Southern, who have all worked extremely hard this year, endured many challenges and difficulties and achieved little additional reward for their effort. Their loyalty, commitment and dedication is a testament to them all.

I would also like to thank shareholders who have also endured a very difficult year in which you have lost value and to provide you my assurance that I and my management team will continue to be focused and committed to working very hard to meet the needs of the business, to pursue opportunity and to create shareholder value in the shortest time frame possible.

Cameron Rhodes

Managing Director

- - 6 - - Great Southern Limited

Over the past 21 years, Great Southern Limited has grown to become Australia’s leading forestry and agricultural fund manager.

Great Southern provides a means for Australians to participate in large-scale forestry and agricultural projects focused on growing commodities that are in demand globally, particularly from expanding Asian markets.

In the Australian agricultural market, Great Southern is the leading plantation forestry management company and in the top five commodity managers of beef cattle, wine grapes, olives, almonds and poultry production.

Great Southern Limited has its corporate head office in Perth, Australia. It has seven corporate and sales offices located across Western Australia, New South Wales, Victoria, South Australia, ACT and Queensland. The company has more than 430 employees and currently manages funds on behalf of more than 47,000 investors in forestry, horticultural and cattle managed investment scheme projects.

Existing business structure

Great Southern Limited currently operates an agricultural investment services business offering two key products:

1. Agricultural managed investment schemes – the provision of MIS products in the forestry and agribusiness sector; and

2. Agricultural funds management – agricultural investment funds providing investors exposure to a portfolio of agricultural assets.

The diagram below shows the geographical location of assets managed by Great Southern either through its MIS or agricultural funds management businesses.

Figure 1 Agricultural Assets Managed by Great Southern:

Agricultural MIS

- - 7 - - Investors in an agricultural MIS project generally pay an upfront fee for the establishment services in the early stages of the project and are then entitled to receive a share of net proceeds from the sale of agricultural produce during the life of the project. In respect of forestry MIS projects this generally consists of payments following harvest. In respect of cattle and horticultural MIS projects, the proceeds from sales are paid over the course of the project. Great Southern is generally responsible for the majority of ongoing operational costs of managing the projects.

Great Southern is the Australian market leader in the sale of agribusiness MIS products. Over the past five years the company has raised $1.8 billion from investors.

Great Southern % of $1.8 billion MIS sales by product over the past 5 years

Winegrapes Almonds 8% 1% Olives 10%

Cattle 9%

Pulpwood HVT 64% 8%

In February 2007, the ATO altered its interpretation of the tax deductibility of non-forestry MIS projects and as a result ceased issuing product rulings for non-forestry MIS products. On 18 December 2008 the Full Court of the Federal Court of Australia unanimously ruled in favour of the MIS industry meaning investors would be able to continue to claim upfront deductions on non-forestry managed investment schemes (MIS) on the basis that investors are “carrying on a business”.

The ATO’s decision to reinterpret the tax laws caused a great level of uncertainty for the industry and Great Southern during 2007 and 2008. The ATO has accepted the ruling and confirmed that they do not intend to lodge an appeal against the decision to the High Court. Whilst Great Southern’s future strategic and business plans are no longer reliant on non-forestry MIS, the Court’s decision will enable the board and management to assess future opportunities in this area and consider future possibilities to add value to Great Southern. The Test Case has no effect on the Plantation Forestry MIS industry which continues to be supported by specific Federal Income Taxation legislation.

Forestry MIS

Great Southern’s forestry MIS sales over the past five years have exceeded $1.25 billion, with pulpwood MIS sales accounting for over $1.1 billion of these. Great Southern has historically been focused on the sale of its core pulpwood MIS product which has been the cornerstone of the company’s MIS business over the past 14 years.

In recent years, the price of hardwood plantation land has risen significantly increasing the capital requirements of GSL and other forestry-focussed Australian MIS companies.

In 2007, Great Southern successfully launched a new High Value Timber MIS product (HVT), which focuses on the development of teak and African mahogany plantations in Australia’s tropical north, raising $60 million in 2007 and $84 million in 2008. This product is a key component of the company’s MIS business going forward as it diversifies Great Southern’s revenue and land holdings across forestry type and location. This product has a number of attractive features for Great Southern including:

• Strong commodity pricing allowing Great Southern to create a profitable MIS product whilst maintaining attractive returns to MIS Investors;

- - 8 - - • Great Southern’s capital requirement per dollar of revenue is currently less than for hardwood plantations; and

• HVT is suited to different regions to those traditionally acceptable for pulpwood plantations.

In 2008, Great Southern launched its latest pulpwood product which allowed MIS investors to participate in the ownership of pulpwood forestry land. This product is more financially attractive and less capital intensive for Great Southern than its previous pulpwood product. While Great Southern’s 2008 pulpwood product received a product ruling, in June 2008, the ATO published a market statement that it had concerns with products involving the use of impaired land sales to a land trust. The ATO's concerns were focussed on the deductions claimed by the issuer of the product as opposed to the structure of the product in the hands of MIS investors. Great Southern is confident it will be able to offer a pulpwood product in 2009. From 2009 onwards, Great Southern’s MIS focus will continue to be on its HVT and its restructured pulpwood product. On 8 October 2008, the ATO issued a product ruling for the 2009 HVT project.

Great Southern owns the majority of forestry land on which its forestry projects are located and leases the land to project investors for the duration of the project. Great Southern owns approximately 179,000 hectares of freehold forestry land which has an unencumbered value of approximately $1.2 billion. Great Southern is responsible for maintaining the ongoing annual maintenance expenditure on its Forestry MIS projects and is entitled to 5.5% of the Net Harvest Proceeds for the Plantation projects and 15% of the Net Proceeds of Sale for the High Value Timber Projects.

Horticultural MIS

Great Southern manages three types of horticultural products on behalf of MIS investors – olives, vineyards and almonds across 12 MIS projects. Other than for Almonds Great Southern generally owns the underlying land and infrastructure related to the projects and has rights to a percentage of the annual harvest proceeds for rent and management fees. Great Southern is responsible for the ongoing operational costs of these projects.

Great Southern has established both organic and conventional olive groves totalling 2,900 hectares in Western Australia to the north, east and south of Perth as well as in the Riverina region of NSW. Great Southern sells the olives to extra virgin olive oil producers who sell both locally and into export markets.

Following the completion of five vineyard projects, Great Southern now manages 2,300 hectares of vineyards. These vineyards supply grapes under contract to one of Australia’s leading wine makers.

Through its 2007 and 2008 almond projects Great Southern currently manages 1,000 hectares of almond orchards in the Riverina region of NSW.

Beef cattle MIS

Great Southern manages beef cattle on behalf of investors in its cattle projects. Great Southern owns approximately 1.4 million hectares of freehold and pastoral leasehold land made up of 7 individual properties with a series of recent independent valuations valuing these properties at $160 million. Great Southern leases and agists a further 2.4 million hectares across a further 22 cattle properties. The combined herd is currently 230,000 cattle. Great Southern is responsible for the operating costs associated with the projects and owns a large proportion of the land on which the cattle are located. Great Southern is entitled to receive 50% of the cattle sales proceeds, and is responsible for the ongoing operational costs of these cattle projects.

MIS finance

The majority of MIS sales are made in conjunction with investors taking out loans to fund their investment. Great Southern acts, or has acted in the past, as both an originator of loans for third party financiers as well as providing loans to investors on its own account. As a result, Great Southern currently has a loan book asset with a book value of $72 million on which it earns interest revenue. The loans vary in terms but are generally repayable within one to 10 years. Great Southern is currently assessing the opportunity to sell this loan book.

Agricultural Funds Management

In August 2007, Great Southern acquired Canberra-based agricultural funds manager Rural Funds Management Ltd (RFM). At the time, RFM had $189 million assets under management in projects including diversified agriculture, chicken, viticulture and land, water and infrastructure.

- - 9 - - In the months following the acquisition, Great Southern repackaged one of RFM’s funds and launched it as the Great Southern Rural Opportunities Fund (ROF), a unitised agricultural investment fund with the objective of providing investors with exposure to a diversified portfolio of agricultural assets, with a bias towards agricultural property and infrastructure holdings. The fund is designed to deliver returns to unitholders through a combination of both growth and distributions and take advantage of Great Southern’s broad ranging agriculture asset management skills. The creation of this new investment vehicle came at a time when several factors – including global population growth and food consumption, demand for alternative fuels, dwindling land and water availability and many agricultural commodity prices trending upward – combined to create opportunities for Australian agriculture.

Great Southern derives its funds management revenue from a management and success fee arrangement based on funds under management and fund performance.

Great Southern’s revenue is derived from:

• Management fee - 1.79% p.a. of the net value of fund assets; and

• Performance fee - 20% of amount by which the performance fee return exceeds 9% p.a.

As at 30 June 2008, the ROF had $231 million assets under management. In the year ending 30 June 2008, the ROF achieved returns of +12.2% versus the ASX All Ordinaries index of negative 12.1%. On the back of this performance, the Great Southern’s sales team is targeting growth in the level of funds under management in 2009 and beyond.

ROF Sector Allocation ‐ 30 September 08 ROF Regional Allocation ‐ 30 September 08 Land & Water 59.4%

QLD 0.2%

SA Flowers 13.5% NSW 6.1% 74.4% Sugar 0.2% Cash & Other 6.9% VIC 11.9% Viticulture Poultry 15.0% Irrigated 7.7% Cropping 4.7%

Strategic Review

During its 21 year history, Great Southern has emerged as a leader in the agribusiness MIS sector, building a market leading agricultural investment services business, significant agricultural management skills and a portfolio of prime agricultural land. Over the same period, the Group’s MIS investors have collectively built a substantial portfolio of assets including rights to hardwood plantation projects extending across more than 171,000 hectares and rights to a share of sale proceeds from a 230,000 cattle herd and a share of its horticulture project returns.

Today GSL has over 47,000 tax effective agricultural MIS investors, over 430 staff and agricultural operations spread across Australia and across a variety of agricultural products. The Group’s operations are conducted on behalf of both MIS investors and the company’s shareholders. However, the regulatory uncertainty created by the ATO’s decision to change its view on non-forestry tax effective MIS, the volatility in the global credit and equity markets, the increase in land prices and operating costs and the expected introduction of legislation with regard to carbon trading has led to Great Southern conducting a full strategic review of its existing business structure. The review determined that Great Southern needed to:

• take advantage of its significant existing strategic assets including its large forestry land estate and forestry management skills;

• improve the certainty of its future cash flows;

- - 10 - - • focus on selling tax effective MIS products that meet internal return thresholds, have attractive project investor returns and which have sufficient regulatory certainty;

• reduce fixed overheads and tax effective MIS sales costs;

• reduce gearing;

• grow its existing agricultural funds management business;

• maximise value from its significant cattle land estate, and

• be less susceptible to ATO regulatory forces.

On 26 August 2008, Great Southern announced a restructure programme (“Project Transform”) designed to create Australia’s largest hardwood plantation business and provide the company with a more sustainable, transparent and valuable business that is less susceptible to regulatory uncertainty. The central component of the restructure is a series of 8 proposals whereby project investors in Great Southern’s 1998 to 2003 Plantation projects and 2006 and 2007 Beef Cattle projects will be offered shares in the company in exchange for their MIS project interests.

The proposed transactions will, if all successful, bring together the company’s key asset – high value agricultural land – with the tree and cattle assets of investors in selected forestry and cattle managed investment scheme projects. This will result in:

• Improved revenue and cash flow certainty – through the transformation to a more robust agricultural company;

• The creation of Australia’s largest hardwood plantation forestry business;

• The creation of a cattle business with significant scale, although Great Southern will review the opportunity to sell selected cattle assets in order to reduce gearing;

• Improved forestry returns through operational efficiencies;

• Increased potential to capture any benefits from the expected introduction of carbon emissions trading;

• Greater balance sheet strength and flexibility;

• Ongoing exposure to woodchip/fibre prices; and

• Better positioning of GSL to maximise the value of its significant agricultural land bank.

The Project Investor and Shareholder General Meetings to consider the Project Transform proposals are scheduled for late January 2009.

MIS sales and distribution

Great Southern currently employs 35 sales professionals located throughout Australia who are supported by a small administration team. The company’s sales professionals are experienced in working with accountants and financial planners and in many cases are degree qualified in accounting, commerce or financial planning. They work with accountants and financial planners to educate them about the financial products Great Southern distributes and to provide assistance in creating wealth creation strategies and tax planning solutions for clients.

Our working relationships with accountants and financial planners extends to over 1,100 supporters of Great Southern’s products last financial year. In addition we maintain relationships with many other accountants and financial planners throughout Australia.

Great Southern has developed a very strong relationship with the accounting profession in Australia and works closely with over 300 accountants nationally.

- - 11 - - FORESTRY

With more than 240,000 hectares of forestry land in its national estate, Great Southern is Australia’s leading plantation manager. The company’s hardwood plantations are focused on the production of woodchip for the pulp and paper industry of Japan. As Australia’s leading agribusiness investment manager Great Southern manages plantations on behalf of managed investment scheme investors, whilst acting as landlord for the estate and being entitled to 5.5% of the annual net harvest proceeds. During 2007 Great Southern expanded its forestry operations into the establishment of new African mahogany and teak plantations in northern Australia, taking advantage of expected strong global demand for these timbers for furniture, flooring, boat building and other high value uses.

Key achievements

• Completion of an infield chip receival facility in Albany

• Doubled woodchip production from 300,000 tonnes per annum to 600,000 tonnes per annum

• Acquired rights to approximately 14,700 hectares of hardwood plantations and a 50% shareholding of the Bunbury woodchip mill,

• Signed a five year contract with Hokuetsu paper Mills for sale of up to 400,000 tonnes of woodchip per annum from Portland

• One millionth tonne of woodchip exported from of Albany

• Forestry team reorganised into three divisions:

ƒ Plantations

ƒ Processing and Marketing

ƒ Land

• First plantings of Teak and African Mahogany with almost 2,400ha planted in the Tully area of Far North Queensland and the Douglas Daly region of the Northern Territory.

Number of trees planted 2007/08

Teak 900,000 Mahogany 1,600,000 Tropical Pulpwood 3,639,627 Temperate Pulpwood 17,261,380 TOTAL 23,401,007

Planting areas 2007/08 (hectares)

Douglas Daly total 1,214 FNQ total 1,174 High value timber grand total 2,388 Gippsland total 721 Green Triangle total 5,120 Kangaroo Island total 1,335 South Coast total 2,713 Tasmania total 2,395 Tiwi Islands total 2,732 West Coast total 2,631 Pulpwood grand total 17,647

Resources

• In addition to the significant forestry team based in Albany, WA, the forestry division has regional offices in Casterton and Gippsland (Vic), Bunbury (WA), Kangaroo Island (SA), Launceston (Tas) Melville Island (NT), Main Camp (NSW), Darwin and Brisbane to manage the national plantation estate

- - 12 - - • The team includes nine Tiwi Islander apprentices who are being trained in all aspects of forestry operations and the company also funds the employment of 8 Tiwi land and marine rangers

• The plantation division has a balanced mix of professions to carry out a wide range of tasks including management, administration, forestry operations, silviculture, research, planning and inventory, GIS data management and mapping, accounting and finance

• Regional and functional work teams have been consolidated, with a focus on retention of key forestry personnel

Key facts for 2007/2008

• In excess of 23 million seedlings were planted during 2007/08 bringing the total to more than 158 million seedlings planted since the company’s inception

• 21 pulpwood properties leased covering approximately 3,760 plantable hectares

• 39 pulpwood properties purchased covering approximately 9,780 plantable hectares (18,570 gross hectares)

• 28 High Value Timber properties acquired covering approximately 9,450 plantable hectares (24,350 gross hectares)

• 482,295 green metric tonnes (256,218 bone dry metric tonnes) of woodchip exported from Albany in 11 full-equivalent shipments

• 65,000 tonnes of infield chipped woodchips received through the new Albany infield chip receival facility

- - 13 - - Market outlook

Notwithstanding current global commodity turmoil there continues to be evidence of strong longer term demand for eucalypt woodchips from Japanese customers. In early 2008, the export price for hardwood plantation woodchip increased from $189.40 to $207.40 per bone dry metric tonne. The price increase reflects buyers’ preference for plantation grown eucalypt woodchip over chip traditionally sourced from native forests, and also takes into account the strong global demand for high quality wood fibre. While the company’s hardwood plantations have been focused to date solely on production of woodchip for the pulp and paper industry of Japan, new industries and opportunities are emerging across the energy and building products sectors that should only serve to increase demand for the timber we produce in the years ahead. Accordingly the fibre price outlook seems positive over the medium term to long term.

The Japanese market softened in late 2008, however Australian woodchips are very competitively priced compared to our major competitors, South Africa and Chile. Major growth in the region is expected to come from new mills being constructed in China which will become operational from 2010 onwards.

During 2007 market prices for key tropical timber species were strong with some reaching record highs. Mahogany prices from Africa into the US strengthen considerably in the later half of 2007 in light of limited supplies a mahogany from South America. Prior to the EU ban on the importation of teak of Myanmar origin, teak prices in Myanmar reached record highs in early 2008.

Fallout from the recent financial crises is starting to wash through tropical log and timber markets. Demand from key markets is starting to wane for some products, especially in the lower value structural markets (i.e., plywood). However, mahogany and teak prices have remained firm in Africa and South East Asia.

Demand for suitable plantation land across the regions in which Great Southern operates has continued to grow, placing upward pressure on land values and highlighting the strategic and valuable plantation land assets owned by the company.

Carbon trading

In July 2008, the Australian Federal Government published its Carbon Pollution Reduction Scheme (CPRS) green paper, outlining a preliminary framework for a carbon emissions trading scheme in Australia to be introduced by 2010. The green paper recognised the strong contribution made by plantation forests to Australia’s greenhouse gas accounts and provided encouraging principles for the plantation forestry industry to allow plantation forestry carbon sequestration to be valued under the trading scheme.

In December 2008 the Government reaffirmed its commitment to commence the CPRS on 1 July 2010 with the Government remaining committed to meeting its long term target of 60% reduction in emissions from 2000 levels by 2050. The Government has set a medium term national target of between 5% and 15% below 2000 levels by 2020. The 5% target represents a minimum (unconditional) commitment to reduce emissions by 2020, irrespective of the actions of other countries. The 15% target represents a commitment to reduce emissions in the context of a global agreement with all major economies committed to substantially reduce emissions and developed countries take on emission reduction targets comparable to that of Australia.

The CPRS conclude that upon harvest, all carbon sequestered by a plantation is likely to be deemed to be emitted. Therefore, there is unlikely to be any permanent carbon sequestration and therefore no permanent value accruing to project investors from a project as the purpose of the project is to harvest trees with the likely result being no net carbon sequestration.

However, a plantation manager that manages a large plantation estate of various age classes and also owns the underlying land is able to commit to being a long term plantation forestry company and therefore has the potential, under an appropriate regime, to permanently sequester carbon even though it continues to harvest plantations on a rotational cycle. The key factor for being able to do so would be the ownership of forestry land.

The inclusion of native forest management and carbon in wood products in the CPRS will be determined by the international negotiations in Copenhagen. If rules are agreed for the inclusion of native forests and carbon in wood products internationally, it will be 2015 at the earliest before these issues could be included in the scheme. Some key aspects of the CPRS are as follows:

• Participation by forestry in the CPRS is on an opt-in basis.

• Only forests established on previously cleared agricultural land (Kyoto forests) will be eligible for inclusion in the CPRS.

• The CPRS will only recognise carbon sequestered in Kyoto forests from 2010 onward.

- - 14 - - • Accounting of carbon will be on an averaged credit basis (averaged over 2 rotations of the forest – approx 70 years). Forest owners will be required to report sequestration and emissions at least on a 5 yearly basis.

• Land owners and carbon right owners will be eligible to participate in the CPRS but accreditation and security conditions will be required by the CPRS regulator.

• A percentage of the total permits from a forest will be set aside as a risk buffer, to cover unforseen temporary reductions in carbon stocks – such as, due to fire. Emissions from forestry activities cannot exceed the registered level of permits from that forest (harvest sub rule).

• Deforestation is not included in the CPRS.

• The use of wood waste for bioenergy will have a zero emissions rating.

• Agriculture will not be included in the CPRS until 2015 – with a review in 2013.

Draft legislation for the CPRS will be available in February 2009, legislation is expected to enter Parliament in the winter session of 2009.

Great Southern will continue to monitor developments with respect to the CPRS and to actively seek opportunities to derive value from any such carbon trading system.

- - 15 - - CATTLE

Great Southern manages beef cattle on behalf of managed investment scheme investors, whilst acting as landlord and lessor of the breeding herd, and charging a percentage of the annual sales proceeds for rent, management and agistment fees. With the expansion of investor and Great Southern’s cattle to over 230,000 head, Great Southern is now one of Australia’s five largest cattle operators. Operations are split between a southern herd, focused on King Island in Tasmania, and a northern herd which encompasses several of the nation’s iconic cattle stations in the Kimberley region of Western Australia, the Northern Territory and far north Queensland.

Key achievements

• Properties independently revalued as at 30 September 2008 on a vacant possession basis at $160 million which compares to the carrying value in the financial statements at 30 September 2008 of $97 million

• Total breeding herd remained intact despite severe drought conditions

• Total cattle holdings approximately 231,500 head (as at 30 September 2008)

o 150,000 head Great Southern owned cattle

o 81,500 head investor owned cattle

Resources

• 40 staff in Cattle team

• Highly qualified management team plus experienced operational staff

Key facts

• Herd size now 231,500 head

• Land holdings: 32 properties spanning 3.86 million hectares (owned or leased)

• 50,000 head of cattle sold / exported during 2007/08

Market outlook

The overall Australian cattle herd and beef supply is predicted to remain steady over the short term, with relevant factors including the fluctuating A$, the US re-entry into key North Asian markets (Japan & Korea), the continuation of drought across southern Australia and rapidly rising farm costs.

Great Southern is currently in the process of seeking to acquire the interests in its two Beef Cattle MIS Projects from Project Investors under Project Transform. If successful this will provide Great Southern with a cattle business with assets valued at over $250 million and provide improved flexibility to manage this business. This may include selling some or all of these assets to realise the significant value appreciation of the land and provide proceeds to repay debt and reduce Great Southern’s gearing.

- - 16 - - HORTICULTURE

Olives

One of Australia’s three largest producers of olives, Great Southern has established both organic and conventional olive groves in Western Australia to the north, east and south of Perth and at Hillston in NSW. Great Southern manages the olive groves on behalf of managed investment scheme investors, whilst acting as landlord for the olive groves and charging a percentage of the annual harvest proceeds for rent and management fees. The extra virgin olive oil produced from the fruit is sold both locally and into export markets, with strong demand as the world’s appetite for olive oil continues to grow. Infrastructure improvements on the olive groves and maturing of the olive trees underpin the increasing value of Great Southern’s olive assets.

Key achievements

• Developed 560 hectares of new groves

• Developed 383 hectare plantation at Hillston NSW

Resources

• Great Southern has a strong team of experts to manage its olives business both in the field and at the senior level, including an experienced agronomist

• Up to 40 contractors are used to provide a range of pruning, maintenance and other services to the groves

• Combined, this group brings a wide range of agribusiness, horticulture, farm operations, natural resource management and organic farming experience to the operation

Key facts

• Over 2,900 hectares managed

• 640 hectares harvested

Market outlook

Global demand for olive oil continues to grow, driven substantially in recent years by an increased awareness of the health benefits, particularly of extra virgin olive oil. Australia produces 1% of the world’s olive oil but 5% of the world’s extra virgin olive oil and remains a net importer of olive oil. Due to increased plantings it is likely that olive oil production will increase to some 30,000 tonnes by 2010 (compared to 4,500 tonnes in 2004 /05) although this will still represent an insignificant amount of global production.

- - 17 - - Vineyards

Great Southern is Australia’s fourth largest producer of wine grapes, with the company’s vineyards supplying grapes under contract to many of the nation’s leading wine makers. Great Southern manages the vineyards on behalf of managed investment scheme investors, whilst acting as landlord for the vineyards and charging a percentage of the annual harvest proceeds for rent and management fees.

Key achievements

• Acquired 921 hectares (FY08 Project)

• Secured 2009 water requirements

Resources

• Great Southern’s vineyards are managed by a combination of the company’s in-house viticulture team and specialist vineyard contractors in each region

• The team is highly qualified, with extensive experience in the development and management of commercial vineyards

Key facts

• 2,229 hectares of vines managed

• 921 hectares acquired

• 2,229 hectares harvested

Market outlook

The domestic wine market is static, and exports have decreased by approximately 10% over the past year. The industry is in oversupply, with a resulting pressure on grape prices. Industry estimates put the total industry wine grape requirement at approximately 1.4MT, against a supply forecast of approximately 2.0MT. Major players in the industry are all reporting difficult trading conditions.

- - 18 - - Almonds

Widely regarded as the world’s most versatile nut, almonds are increasing sought-after for their exceptional health benefits. Australia is developing a growing reputation as a quality producer of nuts, and Great Southern is at the forefront of the industry. Great Southern leases and manages the almond groves on behalf of managed investment scheme investors, charging annual fixed fees for the rent and management expenses.

Key achievements

• Development of 535 hectares

• Planted 152,500 trees

Resources

• 24 full time equivalent employees

• Specialist staff includes an almond manager and a technical consultant.

Key facts

• 2007/08 planting – 150,000 trees

• Total plantings – 513,000 trees

Market outlook

The overall Australian almond crop increased by 65% last year. Demand was affected by a record Californian crop (24% higher than the previous record), however, prices remain relatively strong at approx $6 per kilogram.

- - 19 - -

Our people

The company underwent an important senior management change during the past year, with the retirement at the end of February 2008 of founder and Managing Director John Young. Cameron Rhodes was appointed Managing Director and CEO on 29 February 2008 to replace John Young. Cameron has been with the company since 1999, and as General Manager since 2000, and his experience ensured a smooth leadership transition. Cameron is assisted by a strong and cohesive senior management team with wide-ranging depth of experience and talent.

Great Southern’s geographic spread and occupational diversity are both the key challenge and a significant opportunity in relation to our people. The company has over 430 employees in over 50 locations across Australia, working in occupations ranging from forestry, livestock management and agriculture to sales and financial services. We recognise that the future success of the company is contingent on us continuing to attract and retain talented, hard working and motivated people across every facet of our operations. We are achieving this through programs which focus on the integration of new people and businesses and improved performance management and planning processes to align employee objectives and performance to the business priorities.

The staff that run our forestry, horticulture and cattle operations are widely recognised as industry leaders, bringing in-depth expertise and experience to the management of our properties. Our sales team has been built on a culture of service and success, while our head office executives and staff have largely been drawn from investment banking, professional services and the broader finance sector and offer a level of expertise unparalleled within the industry.

In addition, the company provides employment opportunities for thousands of people via our extensive contractor network throughout regional Australia, and Great Southern is therefore a very significant employer in many rural and regional communities. In addition to the creation of jobs in rural communities, independent studies have highlighted that the MIS sector also provides greater access to technology, larger investments in research & development and innovation, more sustainable agricultural practices and skills development.

- - 20 - - Great Southern and the environment

Our philosophy and commitment

Great Southern is committed to the continual improvement of its health, safety and environmental performance whilst recognising our obligations to all stakeholders.

The company’s philosophy is to develop a safe, hazard-controlled culture, and manage agricultural projects which are sustainable, efficient and well suited to the environs in which they are established.

During the past year the company developed an integrated Health, Safety and Environment Policy with consideration of its business interests and operations. Through the key performance areas detailed in this policy, Great Southern built on its commitment to health, safety and environment through a range of new and ongoing initiatives.

A focus on building expert resources

To deliver on our health, safety and environment (HSE) obligations and the comprehensive program of work developed for this year, Great Southern employs a team from varying backgrounds including resources, heavy manufacturing, science and agriculture.

Our national HSE team has developed a comprehensive five year plan which has been endorsed by the Board of Directors and the operational general managers. The plan is based on 22 HSE standards that cover our operational risks. The team has also developed an extensive range of key performance indicators utilising both lead and lag indicators. The Board receives monthly a report that reports by exception and keeps the Board fully informed of developments in HSE.

2007 / 08 highlights:

Progress towards being industry leaders in health, safety and environment

• Great Southern has a sound health and safety record. This financial year Great Southern reduced its lost time injury rate by 68% and its medical treatment injury rate by 66%. Our target was a 15% improvement in both indicators.

• This financial year Great Southern’s Tiwi Island Forestry Project (TIFP) completed the implementation of its ISO14001 Environmental Management System pilot program. ISO14001 is considered world’s best practise in Environmental Management Systems, and in December 2008 the project was recommended for external certification. To achieve this significant milestone the TIFP has undergone rigorous external auditing by the accreditation body NCSI. The TIFP certification was pursued ahead of other Great Southern businesses in light of the sensitive environment they are operating in, and was set-up as a pilot to refine the management systems before roll-out more broadly within Great Southern. In the coming calendar year it is our intention that the majority of Great Southern operations will also achieve the ISO14001 certification for worlds best practise environmental management systems.

• Some of our Olive operations have been certified organic during 2008 and Vineyards have been food safety certified.

Water resources & development

Key achievements

• Development of WaterTrak – a database for handling of all Great Southern licensed water entitlements and work approvals across all associated entities

• Support and input to State and Regional water policy development and planning including several industry submissions as well as specific Great Southern submissions

• Set up and management of active water trading for Murray Darling assets ensuring sufficient water allocation for productive performance (chickens, vines, flowers)

Resources

• Fulltime National Water Manager with irrigation industry experience in water resource management, development and working with government policy development

- - 21 - -

Resource Outlook

• Prolonged period of drought;

• Low water inflows into major storages, that supply both urban and rural end-users;

• Over-use and over-allocation in a number of regions;

• Predicted climate change and climate variability;

• Concerns at environmental degradation in many wetlands and surface and groundwater systems; and

• Changing political dynamics, with a more active and centralist role being adopted by the Commonwealth Government.

Goals/Opportunities

• Further development of a robust policy framework for forecast Climate Change risk management.

• Assessment of existing irrigation systems for performance and efficiency

• Audit of Great Southern water storages for HS&E as well as design and operating standards.

• Continuation of sourcing and identification of future project opportunities for Great Southern based on accessible reliable and secure water sources.

Greening Australia with our plantation forestry operations

The past year has seen the company’s forestry division plant more than 23 million seedlings. Large scale hardwood plantations such as those managed by Great Southern deliver a wide range of environmental benefits including the absorption of carbon and other greenhouse gases, assist in addressing major degradation problems including salinity and erosion which have been caused by historic over-clearing of native vegetation, play a significant role in restoring the health of river catchments and contribute to the protection of old-growth native forests.

Importantly, Great Southern’s growing plantation estate will assist Australia in meeting its Kyoto greenhouse gas targets by absorbing millions of tones of CO2 from the atmosphere and making a positive contribution to the global environment.

Great Southern’s operations on Melville Island are subject to regulation under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). An approval is held by Great Southern subsidiary Sylvatech Limited under the EPBC Act in relation to the Melville Island forestry operations jointly with the Tiwi Land Council.

Auditing undertaken in relation the Melville Island operations has identified a compliance issue with the establishment of plantations around buffer zones. As a result new environmental conditions have been imposed under the relevant EPBC Act approval requiring remediation works (of up to $2 million) and funding (of up to $1.35 million over 3 years) to the Tiwi Land Council for use in the Indigenous Rangers Program. Sylvatech has acknowledged that in the period 2004 and 2006 it failed to take adequate steps to ensure compliance with condition 3 of the EPBC Act approval. However, the Minister for the Environment and Heritage has accepted that the contravention of the approval was inadvertent and did not result in significant commercial benefits to Sylvatech or evidence of harm to matters of national environmental significance. The incursions occurred as a consequence of definitional issues, limited vegetation and digital mapping used at that time as well as procedural failures in planning and ground truthing of plantation areas. These deficiencies have since been rectified.

- - 22 - - Working with communities

Great Southern is an integral part of many rural and regional communities in key areas around Australia where the company’s forestry, horticulture and cattle operations are located.

The company’s operations deliver a range of benefits including employment opportunities, the development of a sustainable industries and diversification for local economies that have in many cases been reliant historically on a single, dominant industry.

One of the core policies of the company’s operations is to source supplies and services locally wherever possible, providing economic benefits to the communities in which we operate.

Great Southern also supports community organisations, schools and local fund-raising efforts through a targeted ‘grassroots’ sponsorship program.

Rural and regional employment

Through employment, Great Southern contributes significantly to the economy of rural and regional communities. The company has a workforce of over 430 people and has operations based in every state and territory of Australia, and a large proportion of this workforce is based in rural areas.

As well as its full time, permanent workforce, Great Southern also employs hundreds of contractors each year. Because the company’s policy is to employ local contractors wherever possible, this employment is another financial benefit to the local community and its economy.

Helping communities to grow

Great Southern supports and develops rural and regional communities in a range of ways including the transformation of land that was once used for annual crops into permanent plantings that requires long-term commitment to the land.

This provides certainty to rural areas and allows communities to plan for the long-term infrastructure needs of the region based on regular future harvests.

Both our forestry and non-forestry projects have attracted investment into regional areas which has boosted employment in the regions and in turn, encouraged young families back to townships that may otherwise be struggling to grow.

The Tiwi Islands Forestry Project

Currently the only significant private sector employer on the Tiwi Islands, Great Southern’s partnership with the Tiwi community is a long-term project which is building a sustainable forestry industry in this remote community in Australia’s north.

The ultimate goal is to build a sustainable forestry operation progressively operated by a greater proportion of Tiwi people. To assist with the realisation of this goal, the company operates a comprehensive apprentice program giving islanders on-the-job training that leads to professional forestry qualifications. Great Southern also provides the salaries for 8 full-time trainee land and marine rangers to help conserve the Tiwi environment.

In addition to approximately $2 million that the company provides in lease payments, salaries & employee benefits and payments to Tiwi contractors each year, Great Southern’s contribution to the local community also includes the provision of infrastructure, grass roots sponsorships and donations to local clubs, groups and initiatives.

Training and education

Great Southern continues to provide significant financial support to the Forest Training Centre in Albany, which was set up to teach forestry harvesting and maintenance skills. Over its four year history, the centre has maintained a consistently high retention rate of graduates into the industry.

The centre is a not-for-profit, registered training organisation which provides a three month training course of combined theory and practical elements. Students largely complete their training while undertaking paid fieldwork harvesting trees.

- - 23 - - Under an agreement with the local industry, including Great Southern, students are contracted under the guidance of teachers to harvest sections of plantation land. This provides a benefit to the students as well as the industry which gains access to trained, work-ready employees.

Working with communities to manage bushfire

During the bushfire season, Great Southern employees volunteer hundreds of hours to help the community and country fire service brigades fight bushfires. In many cases, our employees are also active members of their local bushfire prevention committees.

The 2007/08 bushfire season saw our Kangaroo Island forestry team work in shifts around the clock to help fight a bushfire on the island, working alongside their neighbours and the local bushfire brigade, as well as members of our Albany forestry team who flew in to assist. The fire took nine days to contain and destroyed almost 100,000 hectares of farming land. Great Southern later donated fencing materials to the worst affected farmers to help them rebuild their properties. Damage to the company’s plantations was minimal.

In most of its operating regions, Great Southern also provides fire fighting trucks and equipment, which is made available to the community during the bushfire season. This was the case in the Kangaroo Island bushfire. The company’s forestry team also liaises with regional shires as part of an ongoing process of pre-fire season planning.

Good corporate citizens

Great Southern prides itself on being a good corporate citizen and a good neighbour to the communities its operations are located within.

The company has a formal ‘good neighbour policy’, which sees it go above and beyond any requirements to consult with neighbouring properties prior to undertaking any major operational activities. When required to undertake activities to manage weeds and pests, we seek options which will cause minimum disruption or impacts to neighbouring land holders.

In November 2008 Great Southern was a signatory to the Good Neighbour Charter in Tasmania – a commitment by the local forestry industry to engage in constructive and cooperative dialogue with their neighbours. Key issues of the charter include care of the environment and management of fire risk.

An example of the practical assistance Great Southern offers local communities came over the past year when the company provided grazing to landowners suffering from drought conditions and lack of suitable fodder for stock in several southern states.

Many Great Southern operational staff are members of regional industry groups and as such participate in a range of volunteer activities. Furthermore, our staff attend numerous community meetings to provide input on issues such as bushfires, water planning and community involvement in forestry.

Grass roots sponsorships and community support

Great Southern’s long-term commitment has allowed it to actively participate in the social development of communities by implementing a Community Sponsorship Program.

The guidelines that govern the program empower our regional offices and operations to actively support local schools, community events, sports clubs and not-for-profit organisations by providing support and assistance where required.

- - 24 - - Review of Operations

Commentary on Results

Profit before tax and significant write-downs and provisions for the year to 30 September 2008 was $19,242,000. This result was substantially impacted by the 24% reduction in MIS sales to $314,000,000 from $413,000,000 in 2007.

2008 2007 $’000 $’000

Profit before interest, tax and asset write downs 91,879 205,462 Financing costs (72,637) (51,300) Profit before tax and asset write downs 19,242 154,162 Allowance for doubtful debts (56,936) (5,632) Goodwill impairment (30,000) - Impairment of horticulture assets - (40,072) Loss from operations before tax (67,694) 108,458 Income tax benefit / (expense) 3,890 (36,950) Reported loss after tax (63,804) 71,508

In March 2008 the Group provided $37,200,000 against loans and other receivables principally relating to a distinct class of debtor that the Group had financed into a number of its MIS projects. In addition to this provision the Group has provided a further $19,700,000 against other debtors carried in the balance sheet. This increase in the provision is reflective of the worsening overall economic environment and its expected impact on the performance of the loan book.

The Group has written off $30,000,000 of goodwill relating to its previous acquisitions of RFM Limited and Sylvatech Limited, reflecting current market conditions and uncertainty associated with the short term opportunities in respect of these assets. At 30 September 2008 the Group’s balance sheet includes goodwill of $39,600,000 with $17,133,000 relating to the Sylvatech acquisition with the remainder relating mainly to the Group’s cattle business.

The Group’s investment property estate, comprising predominately land used in ongoing plantation MIS projects, has been independently assessed in accordance with Group policy. The valuation range determined for the Group’s non-current investment property is $757,400,000 to $822,800,000 with a value of $793,800,000 being adopted at 30 September 2008. The net impact of the movements in non-current investment property to the result before tax is $3,300,000 positive (see note 17 of the notes to the financial statements).

Gearing at 30 September 2008 is 53% as measured by debt/debt + equity or 99% as measured by net debt/equity which compares to 46% and 59% respectively as at 30 September 2007. Excluding the Group’s TREES (hybrid securities) the “debt/debt + equity” gearing reduces to 45%. The increase in gearing in 2008 over 2007 is mainly a result of the draw down in November 2007 of $105,000,000 in additional bank borrowings taking total bank borrowings to $350,000,000 at 30 September 2008. This increase in borrowings is reflected in the higher financing costs incurred in the current financial year.

Net operating cash inflow during 2008 totalled $86,900,000 compared to $203,600,000 in 2007 again impacted by the lower MIS sales achieved in the current year. Cash at 30 September 2008 was $91,400,000.

Shareholder Returns

The company’s share price has reduced from $2.32 per share at 30 September 2007 to $0.42 per share at 30 September 2008. As noted in the 30 September 2007 annual report, there are a number of factors that may impact the company’s share price, some of which that are outside the control of management.

Some significant factors impacting the company’s share price during the current reporting year include:

• Uncertainty surrounding the future tax deductibility of non-forestry MIS projects;

• Falling revenues (a drop in MIS sales between FY2007 and FY2008 of 24%) and rising gearing;

• A fall in profit margins due to higher capital and operating costs being experienced across the industry;

• Global equity and credit market turmoil including significant negative sentiment towards the financial services industry;

- - 25 - - • The company’s largest shareholder, the Ospraie group of funds, publicly indicating the closure of its flagship hedge fund and the realisation of its investments over 3 years; and

• Project Transform, refer below.

Great Southern has a broadly spread shareholder register with support from domestic and overseas institutions as well as approximately 11,700 retail shareholders.

Dividends

In response to the general uncertainties facing the company the directors determined not to pay a final dividend for the year ended 30 September 2008.

The company’s franking credit balance is $ 177,776,000 taking into account estimated tax payable at 30 September 2008. The company continues to look at ways to return franking credits to shareholders within the constraints of the dividend policy and the capital requirements of the Group although as previously noted to shareholders the options available to the company to do this are currently limited.

INVESTMENT FOR FUTURE PERFORMANCE

Project Transform

During the current year the Group completed a wide ranging strategic review and in August 2008 the Group announced a series of restructure proposals (Project Transform) under which shares in Great Southern Limited would be issued in exchange for investors interests in the 1998 – 2003 plantation projects and the 2006 and 2007 cattle projects.

The scheme proposals seek to bring together some of the Group’s key assets, being high quality agricultural land and agricultural management skills with the assets and rights of investors in the selected MIS projects. It is believed the successful implementation of the scheme proposals would create a company with three robust business streams, being forestry, cattle and agricultural investment services.

The scheme proposals are subject to approval by project investors on 19 January 2009 and shareholders on 22 January 2009. In addition, project investors are able to accept individual offers for their personal interests in the projects, regardless of the outcome of the scheme proposals.

The shares to be offered to Project Investors as consideration for the offers are subject to a floor price of $0.50 per share. Upon the acceptance of any or all of the scheme proposals or acceptance of the individual offers, a large number of shares are expected to be issued, subject to shareholder approval.

At the date of this report the directors believe that there is a reasonable prospect that one or more of the scheme proposals, in particular the proposals relating to 2006 and 2007 cattle projects, will be accepted and also that a number of individual offers will be accepted. Should the scheme proposals for the cattle projects be accepted, it will provide the Group with increased operating cash flows, it will enhance the balance sheet through the acquisition of cattle assets at fair value and it will provide increased flexibility and capital management opportunities from the removal of the MIS project structures. If successful the directors currently expect that one or more of the Group’s cattle properties will be sold in 2009.

Investment in Agricultural Assets

During the year ended 30 September 2008 the Group purchased a 50% interest in the Bunbury woodchip mill and the rights to approximately 14,700 hectares of hardwood plantations from entities associated with Hansol HomeDeco Company Limited for a total consideration of approximately $47,000,000. The plantations will provide timber resource for Great Southern to use in its own right as well as for use directly or indirectly in its MIS projects, whilst the 50% interest in the chip mill provides the group with exposure to forestry processing infrastructure.

The Group invests in assets, principally agricultural land, for use in its forestry and agricultural managed investment projects. The Groups owns or manages approximately 190,000 hectares of plantation forestry and owns freehold land of 179,000 hectares. The Group’s forestry land is classified as investment property and is carried at fair value. Refer note 17 for further information.

The Group has announced a conditional agreement to sell a number of properties in Queensland that are currently encumbered by ongoing MIS projects. The price agreed is $23,000,000 which represents around an 11% discount to book value. This land is considered by the directors as non-core as it has been determined

- - 26 - - that the land is not ideal for growing future pulpwood timber and it will not be used by the potential buyer for this purpose.

The Group’s cattle properties are identified as investment properties only when an insignificant portion of the cattle on the property are being managed to the Group’s account. At balance date, the majority of cattle properties are classified in property, plant and equipment. The Group’s cattle property assets are recorded in the accounts at $97,200,000 and were recently independently valued at $160,600,000 as at 30 September 2008. This uplift in value has not been booked in the financial statements.

REVIEW OF FINANCIAL POSITION

Capital Structure

There has been no change to the capital structure of the Group during the financial year.

Going Concern

The 2008 financial statements have been prepared on the going concern basis however, as detailed in note 1(b) to the financial statements, if Project Transform does not result in a successful outcome or should the 2009 MIS sales result be low or the sale of assets not proceed or, if required, should the ongoing support of the Group’s bankers not be forthcoming, then there is significant uncertainty whether the Group will continue as a going concern. Refer note 1(b) to the financial statements for further information.

Liquidity, Funding and Capital Management

In November 2008 the Group drew down $30,000,000 in corporate bank debt for cash flow management purposes bringing the total amount of club bank corporate borrowings to $380 million at the date of this report. This facility contains representations and warranties, financial covenants, undertakings and other terms and conditions customarily found in financing agreements of this kind. The main financial covenant is the ratio of senior (excludes TREES and structured finance debt) debt to specified operating cash flow (as defined) which is measured at the March half-year and the September full year. The ability of the Group to operate within this covenant is dependant upon the generation of operating cash flow, primarily achieved from MIS sales; or from the reduction in senior debt, primarily achieved from asset sales. The Group expects to operate within this covenant at the next measurement date (31 March 2009) however as detailed in note 1(b) of the financial statements there is currently some uncertainty over a number of matters that could impact this covenant calculation, including for example the level of future MIS sales.

Of the total amount outstanding, $105,000,000 is due for repayment or refinancing in October 2009. The ability of the Group to refinance this debt is uncertain at this time given the ongoing credit market volatility and the uncertain outlook for 2009 MIS sales. If refinancing is not forthcoming then the Group expects that a level of asset sales, including cattle business assets should the scheme proposals relating to the two cattle projects be successful, will be required in 2009 with the proceeds used in part or whole to repay corporate bank debt.

Treasury and Financial Risk Management

The Group’s policy is to manage its downside exposures to adverse movements in interest rates. The Group enters into hedging transactions that either fix or cap the rate of interest payable on its external borrowings. Floating interest payments relating to approximately $377,000,000 of outstanding borrowings on the structured finance facility and the Club bank debt facility are fully hedged (fixed) with an effective after tax interest cost of 5.58%.

During the year, the Group entered into a securitisation arrangement with Bendigo and Adelaide Bank Limited for the securitisation of certain loans that are not able to be securitised under the existing facilities. Under this new arrangement the company is required to deposit funds as security against loan defaults. The Group has determined that the majority of the risks and benefits of ownership have not been transferred to the purchaser, and therefore the loans cannot be derecognised from the Group’s financial statements and a corresponding liability is booked on the balance sheet. The maximum exposure of the Group to default in these loans is limited to the $7,723,000 provided as collateral (refer to notes 8 and 38 in the notes to the financial statements).

- - 27 - - Great Southern Limited Directors’ Report 30 September 2008

DIRECTORS’ REPORT

Your directors present their report on the consolidated entity (referred to hereafter as the Group), consisting of Great Southern Limited (the company) and the entities it controlled at the end of, or during, the year ended 30 September 2008.

Directors The following persons were directors of Great Southern Limited during the financial year and up to the date of this report, unless otherwise stated:

D C Griffiths C A Rhodes A McCleary P J Mansell M L Peacock J C Young P C Butlin

Information on the directors of Great Southern Limited during the financial year and up to the date of this report:

David Griffiths B Ec (Hons), M Ec FAICD Non-Executive Chairman David Griffiths has over 15 years experience in investment banking, most recently as Divisional Director of Macquarie Bank Limited and previously as Executive Chairman of Porter Western Limited. Mr Griffiths was appointed to the board as Chairman on 6th July 2005 and he is a member of the company’s Audit Committee and Chairman of the Nomination Committee. Mr Griffiths is currently a non-executive deputy chairman of Automotive Holdings Group Limited and a non-executive director of ThinkSmart Ltd and Northern Iron Limited.

Mr Griffiths served as non-executive Chairman of ARC Energy Limited until its merger with Australia Wide Exploration in August this year and a non-executive director of Antaria Limited until November 2008 and has not been a director of any other listed company, other than those noted here, as at the reporting date or in the past three years.

Mr Griffiths is also a director of the Perth International Arts Festival.

Cameron Rhodes B Com, CA, FTIA, FCIS, MAICD Managing Director Cameron Rhodes is Great Southern’s Managing Director with overall responsibility for the management of the Group. A chartered accountant, Cameron joined the company in April 1999 following 12 years with PricewaterhouseCoopers, where he was a director in the business services division. He is a fellow of the Taxation Institute of Australia, a fellow of the Chartered Secretaries Institute of Australia and a member of the Australian Institute of Company Directors. Mr Rhodes has been a director since 12 January 2002. Mr Rhodes is a director of Great Southern Managers Australia Limited, the responsible entity for the Group’s MIS projects and a member of its compliance committee. Mr Rhodes has no directorships in any other listed companies as at the reporting date or in the past three years.

Alice McCleary B Ec, FCA, FTIA, FAICD Non-Executive Director

Alice McCleary joined the board as a non-executive director in March 2003. Ms McCleary is a chartered accountant and company director, based in Adelaide. She has a long professional background in corporate taxation practice, and in 2001/2002 she was National President of the Taxation Institute of Australia. Ms McCleary is Deputy Chancellor of the University of South Australia, and a director of UraniumSA Ltd; Archer

- - 28 - - Great Southern Limited Directors’ Report 30 September 2008

Exploration Ltd and the Adelaide Community Healthcare Alliance Inc. She is a member of the Takeovers Panel and the International Ethics Standards Board for Accountants.

Ms McCleary is a Fellow of the Taxation Institute of Australia, a Fellow of the Australian Institute of Company Directors and a Fellow of the Institute of Chartered Accountants in Australia.

Ms McCleary is Chairman of the Audit Committee, and a member of the Remuneration Committee and the Nomination Committee.

Ms McCleary served as a director of TWT Group Ltd from February 2007 to March 2008 and as a director of the Child, Youth & Women’s Health Service (SA) until its disbandment in July this year. Ms McCleary has not been a director of any other listed company, other than those noted here, as at the reporting date or in the past three years.

Peter Mansell B.Com, LLB, H.Dip Tax, FAICD Non-Executive Director

Peter Mansell joined the board as a non-executive director in November 2005. Mr Mansell practiced as a business lawyer for 35 years and has a wide range of experience in corporate matters. He was at various times the Freehills’ National Chairman (1995-2000), Managing Partner of Freehills Perth office (1992-2002) and a member of the Freehills’ National Board (1989-2002). Mr Mansell is a Fellow of the Australian Institute of Company Directors, having been President of the Western Australian division and having sat on its National Board from 2001 to 2003.

Mr Mansell is currently the Chairman of ThinkSmart Limited, and a director of the following listed companies: Bunnings Property Management Limited (responsible entity for the listed Bunnings Warehouse Property Trust) and OZ Minerals Limited.

Mr Mansell is a member of the Audit Committee, the Remuneration Committee and the Nomination Committee.

In the past three years Mr Mansell was the Chairman of Zinifex Ltd until its merger with Oxiana in July this year (resulting in OZ Minerals Limited), chairman of West Australian Newspaper Holdings Limited until December 2008 and a director of Hardman Resources Ltd and Tethyan Copper Company Ltd.

Mervyn Peacock

ASA, FFin, GAICD Non-Executive Director

Mervyn Peacock joined the board of Great Southern Ltd as a non-executive director in April 2006. Mr Peacock has over 35 years of domestic and international experience in a variety of investment areas including Fund Management, Private Equity, Infrastructure and Property. Mr Peacock was Chief Investment Officer and a Director of AMP Capital Investors for five years until his retirement in January 2006. Prior to that he was the Investor Relations Manager of AMP Limited. Mr Peacock currently holds a number of directorships including Reckson Australia Management Ltd, UniSuper Ltd, Connector Motorways Group, Riverland Water Pty Ltd, The Infrastructure Fund of India and ABN Amro Investments Australia Ltd. Mr Peacock qualified as an Associate of the Australian Society of Accountants, is a Fellow of the Financial Services Institute of Australasia, and is a Graduate of the Australian Institute of Company Directors.

Mr Peacock is Chairman of the Remuneration Committee and a member of the Audit Committee, and the Nomination Committee.

In the past three years Mr Peacock has been a director of the following listed companies: Reckson New York Property Trust, DUET Trust and Equatorial Mining Ltd.

John Young B Bus MBA CPA Non-Executive Director John Young is a founding director and controls private companies that are substantial shareholders of the Group. An accountant by profession and with a Masters Degree in Business Administration, Mr Young has an extensive background in the superannuation and funds management industries in Australia and the United Kingdom. Mr Young has been the Group’s Managing Director from 27 May 1991 until 28 February 2008 and

- - 29 - - Great Southern Limited Directors’ Report 30 September 2008 continued as an executive director until his retirement on 4 July 2008 from which date he was a non-executive director.

Mr Young is a member of the Nomination Committee. Mr Young has no directorships in any other listed companies as at the reporting date or in the past three years.

Phillip Charles Butlin BA, CA Executive Director and General Manager – Corporate Development

Phillip Butlin joined the board as an Executive Director on 21 December 2006. As Deputy Managing Director, Mr Butlin has responsibility for all aspects of the Group’s business as well as specific responsibility for developing the Group’s strategic direction. Mr Butlin joined Great Southern in January 2004 after a 10 year career with Macquarie Bank’s Investment Banking Division in Sydney and Hong Kong. His previous professional experience as a chartered accountant has included 10 years’ experience in tax, audit and financial services with major accounting firms in London and Sydney. Mr Butlin is a director of Great Southern Managers Australia Limited, the responsible entity for the Group’s MIS project

Mr Butlin has no directorships in any other listed companies as at the reporting date or in the past three years.

Company Secretary

Neil Hackett B Ec GDAFI GDFP FFin MAICD

Neil Hackett joined Great Southern in January 2004 to oversee Great Southern’s compliance with investment- related regulatory requirements and manage the Group’s corporate secretarial, ASX and ASIC obligations. Mr Hackett is the General Manager of Great Southern’s Corporate Services Division and has 15 years funds management experience, including nine years regulatory experience with the ASIC, and a position as Senior Investment and Compliance Officer with one of Western Australia’s largest Master Trusts. Neil holds a Bachelor of Economics and post graduate qualifications in Applied Finance & Investment and in Financial Planning and is company secretary of all wholly owned entities within the Great Southern Group. Mr Hackett is an Affiliate of the Chartered Secretaries Institute and a Fellow of the Financial Securities Institute of Australasia.

Meetings of directors

The numbers of meetings of the company's board of directors and each board committee held during the year ended 30 September 2008, and the number of meetings attended by each director, are shown in the table below.

Full meetings Meetings of committees of directors Audit 1 Remuneration 2 Nomination 3 Number of meetings held 16 4 3 2

Number of meetings attended by:

D C Griffiths 16 4 3 2

J C Young 15 * * 2

C A Rhodes 16 * * *

P C Butlin 16 * * *

A McCleary 16 4 3 2

P J Mansell 16 4 3 2

M L Peacock 16 4 3 2 * Not a member of the relevant committee

1. J C Young, C A Rhodes and P C Butlin attended various audit committee meetings as standing invitees during the year.

2. J C Young, C A Rhodes and P C Butlin attended various remuneration committee meetings as standing invitees during the year.

3. C A Rhodes and P C Butlin attended all nomination committee meetings as standing invitees during the year.

- - 30 - - Great Southern Limited Directors’ Report 30 September 2008

4. J C Young retired as the Managing Director on 28 February 2008 and commenced as Non-Executive Director on 4 July 2008.

Retirement, election and continuation in office of directors

J C Young and M L Peacock are the directors retiring by rotation at the annual general meeting and who, being eligible, offer themselves for re-election.

Directors' interests in securities / MIS projects

Each director, and any director related parties’ interest in the share capital, TREES series, options and management performance rights of the parent entity, and of the Group’s ongoing MIS projects as at the date of this report is shown in the table below:

Ordinary TREES2 and In Substance Rights 6 MIS Project Shares TREES3 Options7 Interests 1 Number Number Number Number Number Director D Griffiths 130,000 - - - -

J C Young 49,572,142 - - - 1,784 2

C A Rhodes 1,333,333 - 1,224,515 1,775,000 96 3

P C Butlin 1,181,110 - 1,000,000 1,625,000 2345

A McCleary 19,606 - - - 7 4

P J Mansell 54,819 - - - -

M L Peacock 10,964 - - - -

1. Represents the number of investor lot interests in the Group’s ongoing MIS projects. All interests are on the same terms and conditions to those of other investors in the same project.

2. Mr Young has 1,784 investor lot interests in a total of 19 ongoing projects.

3. Mr Rhodes has 96 investor lot interests in a total of 4 ongoing projects.

4. Ms McCleary has 7 investor lot interests in a total of 2 ongoing projects.

5. Mr Butlin has 234 investor lot interests in a total of 6 ongoing projects.

6. Refer to Remuneration Report on page 38 regarding share based compensation and management performance rights.

7. Refer Key Management Personnel disclosure note 36 for details on in substance options issued to Mr Rhodes and Mr Butlin.

Principal activities

The Group’s principal activities during the year were the development, marketing and management of agribusiness based projects. The Group provides finance, directly and through third party financiers, to approved investors who wish to invest in the Group’s projects. The Group also acquires and manages farmland and other agribusiness related properties which are held for long term investment and may also be made available to investors in the Group’s projects.

Employees

The Group employed 437 employees as at 30 September 2008 (30 September 2007: 498 employees).

- - 31 - - Great Southern Limited Directors’ Report 30 September 2008

Review of operations

Refer “Commentary on Results” on page 25.

Dividends and coupons

Dividends paid or declared by the company to members and coupons paid to TREES2 and TREES3 holders since the end of the previous financial year are as follows:

Amount Total Franked / Ordinary dividends per share amount unfranked Date of payment cents $’000 Paid during the year Final for the year ended 30 September 8 25,571 Franked 17 December 2007 2007

Declared and paid during the year Interim for the year ended 30 3 9,697 Franked 16 July 2008 September 2008

The directors confirmed on 30 November 2008 that no final dividend will be paid for the year ended 30 September 2008.

Coupon per $100 Total Franked / TREES 2 / TREES 3 Coupons TREES amount unfranked Date of payment % $’000 Declared and paid during the year Six monthly coupon – TREES 2 6.4% 2,564 Franked 31 October 2007 Six monthly coupon – TREES 3 7.75% 4,845 Unfranked 31 October 2007 Six monthly coupon – TREES 2 6.4% 2,535 Franked 30 April 2008 Six monthly coupon – TREES 3 7.75% 4,729 Unfranked 30 April 2008

Earnings per share

Year to 30 Year to 30 September September 2008 2007 cents cents

Basic (loss)/earnings per share (19.89) 22.68

Diluted (loss)/ earnings per share (19.89) 20.67

- - 32 - - Great Southern Limited Directors’ Report 30 September 2008

Significant changes in the state of affairs

Significant changes in the state of affairs of the Group during the year were as follows:

(a) An increase in contributed equity from ordinary shareholders as a result of:

$’000

Issue of 100,000 fully paid ordinary shares at $1.50 each between 1 October 2007 and 30 September 2008 from the exercise of share options 150 Issue of 2,513,258 fully paid ordinary shares at $2.25 each between 1 October 2007 and 30 September 2008 for the part settlement of a liability arising from the purchase of properties 5,655 Issue of 3,561,743 fully paid ordinary shares at $1.91 each from members’ participation in the dividend reinvestment plan 6,817 Issue of 6,095,209 fully paid ordinary shares at $0.83 each from members’ participation in the dividend reinvestment plan 5,075 Less: Equity Issuance Cost (439) Total increase in contributed equity for the year ended 30 September 2008 17,258

Matters subsequent to the end of the financial year

Project Transform

On 26 August 2008 the Group announced a series of restructure proposals (the proposals), under which shares in Great Southern Limited would be issued for investors’ interests in the Group’s 1998-2003 Plantations projects and 2006 and 2007 Beef Cattle projects. Subsequent to year-end the Group announced the revised offer for the proposals.

The proposals remain subject to the approval of both relevant project investors and Great Southern shareholders. The meetings of project investors were scheduled to be held on 1 December 2008 but they have been adjourned to 19 January 2009 and a Supplementary Explanatory Memorandum was released on 16 December 2008 for each of the 8 projects subject to a proposal. Each memorandum contains a supplementary prospectus for the issue of shares.

The Great Southern Limited shareholder meeting to vote on the proposals and issue of the new shares has been adjourned to 22 January 2009.

Dividends

The Directors confirmed on 30 November 2008 that no final dividend will be declared.

Land and asset acquisition

Since 30 September 2008, the Group has entered into new contracts for the purchase of land which are now either conditional or unconditional, amounting to approximately $4,897,000. The Group will continue to identify and acquire land throughout the year for use in future projects.

Club bank corporate facility

In September 2008, the Group renegotiated the Club Bank Facility obtaining: (a) an additional $30,000,000 of funding, with an expiry date of 7 October 2009, taking the total facility limit to $380,000,000, and (b) an extension of maturity of $120,000,000 of facility borrowings from 11 September 2009 to 31 October 2010. In November 2008 the Group drew the additional $30,000,000 in club bank borrowings bringing total club bank borrowings to $380,000,000. The effective interest rate on $380,000,000 in borrowings currently outstanding will be approximately 8.9% under the renegotiated club bank facility.

Securitisation arrangements

The Group’s existing securitisation arrangement with Bendigo and Adelaide Bank Limited is due to end on 29 March 2009. The Group has a credit approved facility from the Commonwealth Bank of Australia for the funding of 2009 MIS sales and is in the process of completing the associated documentation.

Federal Court provides certainty for agricultural MIS schemes

On 19 December 2008 the Federal Court ruled in favour of the MIS industry in the test case associated with non-forestry MIS projects, effectively confirming that investments in non forestry MIS projects are tax

- - 33 - - Great Southern Limited Directors’ Report 30 September 2008 deductible. The Australian Tax Office subsequently confirmed acceptance of this decision and that this decision will not appealed.

Likely developments and expected results from operations

During the current year the Group completed a wide ranging strategic review and in August 2008 the Group announced a series of restructure proposals (Project Transform) under which shares in Great Southern Limited would be issued in exchange for investors interests in the 1998 – 2003 plantation projects and the 2006 and 2007 cattle projects.

The directors believe that there is a reasonable prospect of one or more of the scheme proposals, in particular the proposals relating to the 2006 and 2007 cattle projects, will be accepted and also that a number of individual offers will be accepted. Should the scheme proposals for the cattle projects be accepted, it will provide the Group with increased operating cash flows, it will enhance the balance sheet through the acquisition of cattle assets at fair value and it will provide increased flexibility and capital management opportunities from the removal of the MIS project structures. If successful the directors currently expect that one or more of the Group’s cattle properties will be sold in 2009.

Forestry MIS remains a core activity for the Group. The Group will continue to offer forestry MIS projects in the 2009 financial year, with its 2009 High Value Timber Project already on the market, and a newly structured pulpwood based forestry product expected to be released early in 2009. In December 2008 the Federal Court ruled in favour of the MIS industry in respect of the test case associated with non forestry MIS projects, effectively confirming that investments in non forestry MIS projects are tax deductible. It is unlikely that the Group will be in a position to offer a significant number of non forestry MIS projects for sale in 2009.

As detailed in note 1(b) to the financial statements, if Project Transform does not result in a successful outcome or should the 2009 MIS sales result be low or the sale of assets not proceed or, if required, should the ongoing support of the Group’s bankers not be forthcoming, then there is significant uncertainty whether the Group will continue as a going concern.

Environmental regulation

The Group is subject to ongoing compliance with State and Commonwealth health, safety and environmental laws and regulations, and changes to those laws and regulations. The Group’s operations on Melville Island are subject to regulation under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). An approval is held under the EPBC Act in relation to the Melville Island forestry operations jointly with the Tiwi Land Council.

Auditing undertaken in relation the Melville Island operations has identified a compliance issue with the establishment of plantations around buffer zones. As a result new environmental conditions have been imposed under the relevant EPBC Act approval requiring remediation works (of up to $2 million) and funding (of up to $1.35 million over 3 years) to the Tiwi Land Council for use in the Indigenous Rangers Program.

Other than the issue noted above, the directors are not aware of any significant issues relating to environmental regulations during the period covered by this report that are likely to result in a material impact to the Group or the environment.

- - 34 - - Great Southern Limited Directors’ Report 30 September 2008

Shares under option

Un-issued ordinary shares of Great Southern Limited under option at the date of this report are as follows:

Date Options/Rights Issue price Number under Plan granted Expiry date of shares option Management Performance Rights 17 December 2004 17 December 2009 $0.00 3,380,000 Management Performance Rights 31 March 2006 31 March 2011 $0.00 1,260,000 Management Performance Rights 30 June 2006 30 June 2011 $0.00 350,000 Management Performance Rights 20 December 2006 20 December 2011 $0.00 2,650,000 Management Performance Rights 16 May 2008 16 May 2013 $0.00 3,475,000 11,115,000

Shares issued on the exercise of options

The following ordinary shares of Great Southern Limited were issued during the year ended 30 September 2008 on the exercise of options granted. No amounts are unpaid on any of the shares.

Shares issued during Date options Issue price of the year ended Shares issued since granted shares 30 September 2008 30 September 2008

30 June 2006 $1.50 100,000 - 100,000 -

Directors’ and executives’ remuneration

Refer separate Remuneration Report at page 38 which forms part of this Directors’ Report.

Share options granted to directors and key management personnel

During the financial year, the Group granted 3,550,000 management performance rights (“Rights”) to executive directors and key management personnel (including the five most highly remunerated executives) of the company and the Group as part of their remuneration. For further details on the management performance rights refer to the Remuneration Report on page 38.

Loans to directors and other key management personnel

Information on loans to executive directors and key management personnel are set out in note 36 to the financial statements.

Other

In accordance with ASX Listing Rule 4.10.18, the company confirms that it has not initiated an on-market buy- back in respect of the company's shares.

- - 35 - - Great Southern Limited Directors’ Report 30 September 2008

Insurance of officers

During the year, the Group paid premiums to provide Directors and Officers insurance for all directors and officers of the parent entity and its controlled entities.

The officers of the parent entity covered by the insurance policy include the directors, former directors, secretaries and all executive officers. The policy also includes cover for directors and executive officers of all subsidiary entities.

The insurance contract specifically prohibits disclosure of the nature of the insured liabilities, the limit of aggregate liability and the premiums paid.

Indemnity of directors and officers

Access and indemnity deeds have been executed by the parent entity with each of the directors and former directors and certain officers of the parent entity. The deeds require the parent entity to indemnify each director or former director against any legal proceedings and any claims of any kind, to the extent and period permitted by the law, made against, suffered, paid or incurred by the officer pursuant to, arising from or in any way connected with the officer being an officer of the company, the employment of the officer by the company and any act or omission by the officer, directly or indirectly, connected therewith or a breach by the company of its obligations under the deed. The deeds stipulate that the parent entity will meet the full amount of such liabilities, including costs and expenses. Further, under the deeds, the company irrevocably and unconditionally guarantees the performance of any controlled entity of all obligations under the deeds.

No liability has arisen under these indemnities as at the date of this report.

Proceedings on behalf of the company

At the date of this report no person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings.

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

Auditor’s independence and non-audit services

The directors received the independence declaration on page 142 from Ernst & Young, the auditor of Great Southern Limited, which forms part of this report.

The following table details the non-audit services provided by Ernst & Young in the year ended 30 September 2008. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and the scope of each type of non-audit service provided means that auditor independence was not compromised for the following reasons:

ƒ all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the auditor; and

ƒ none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, which forms part of the Joint Code of Professional Conduct of the ICAA and the CPAA, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.

Ernst & Young received or is due to receive the following amounts for fees for the provision of audit and other services for the Group.

- - 36 - - Great Southern Limited Directors’ Report 30 September 2008

30 Sept 2008 $

Audit or review of financial reports of the entity or any entity of the Group 591,775 Other assurance related work 810,194 Total remuneration for assurance services 1,401,969 Other advisory services 63,225 Total remuneration 1,465,194

Rounding of amounts to the nearest thousand dollars

The company is of a kind referred to in Class Order 98/0100 issued by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in the directors' report. In accordance with that Class Order amounts in this report have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar.

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

Dated at Perth, 29 December 2008

David Griffiths Cameron Rhodes

Chairman Managing Director

- - 37 - - Great Southern Limited Remuneration Report 30 September 2008

REMUNERATION REPORT (Audited)

This Remuneration Report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, Key Management Personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the Parent Company, and includes the five executives in the Parent and the Group receiving the highest remuneration.

For the purposes of this report, the term ‘executive’ encompasses the Managing Director, senior executives, general managers and secretaries of the Company and the Group.

Details of Directors and Executives including key management personnel (KMP) and the five highest paid executives of the Company and the Group

(i) Key Management Personnel - Directors

D C Griffiths Chairman, non-executive director

A McCleary Non-executive director and Chairman of the Audit Committee

P J Mansell Non-executive director

M L Peacock Non-executive director and Chairman of the Remuneration Committee

J C Young Non-executive director. Managing Director and Chief Executive Officer to 28 February 2008 becoming a non-executive director on 4 July 2008

C A Rhodes Executive Director, appointed Managing Director on 29 February 2008

P C Butlin Executive Director, appointed Deputy Managing Director on 29 February 2008

(ii) Key Management Personnel - executives

J S Dayman Chief Operating Officer

N J Hackett Company Secretary and General Manager – Corporate Services

S C Martin Chief Financial Officer

S A Moran General Manager – Sales and Marketing (resigned 6 June 2008)

(iii) Other executives

D McLeod Deputy Chief Operating Officer

N Egan General Manager – Funds Management

There have been no changes to the Managing Director or the KMP after reporting date and to the date of this report.

Compensation principles and policies

The key underlying philosophy of Great Southern Limited’s remuneration policy is to protect and build shareholder value through the successful attraction, motivation and retention of valuable employees throughout the Company. To do so, the Company and Board are committed to remuneration practices which:

• Motivate employees to perform in the best interests of the Company and its stakeholders;

• Link corporate, team and individual performance;

• Attract and retain the talented people and skills needed for the Company to achieve both short and long term success;

• Provide remuneration which is competitive and remuneration structures which are sufficiently flexible to cope with competitive pressures; and

• Ensure equity and consistency across the Company.

- - 38 - - Great Southern Limited Remuneration Report 30 September 2008

Extensive benchmarking is used to ensure the right balance is achieved, with the total remuneration, including performance incentives, of Great Southern employees positioned having regard to the relevant remuneration market, commensurate with Great Southern’s market position, growth profile and complexity.

Executive Committee members’ compensation and other terms of employment are reviewed annually by the Remuneration Committee having regard to overall company performance and personal performance. The Board’s Remuneration Committee obtains independent advice on the appropriateness of remuneration packages and has access to relevant comparative information including benchmarking.

Other executives’ remuneration and other terms of employment are reviewed annually by the Executive Committee having regard to personal performance and overall corporate performance. The Executive Committee may obtain independent advice where necessary on the appropriateness of remuneration packages, including benchmarking and access to relevant comparative information.

Remuneration Committee

The Board’s Remuneration Committee advises the Board on compensation policies and practices generally and makes specific recommendations on compensation packages and other terms of employment for executive directors and Executive Committee members.

Refer to the Corporate Governance Statement for further information regarding the Remuneration Committee.

Non-executive Directors

Fees and payments to non-executive directors reflect the demands and the responsibilities of the directors. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by the shareholders. Non-executive directors do not receive performance or equity based remuneration. The maximum total remuneration limit for non-executive directors was set at $750,000 for the year ended 30 June 2006 and beyond and non-executive director fees currently total $491,000 per annum. The annual individual non-executive director fee is currently set at $97,000 per annum and the annual non-executive chairman’s fee is currently set at $200,000 per annum. The current fees for non-executive directors have been set with reference to guidance provided in 2006 by an independent benchmarking study on director remuneration and the fees have not increased since that date.

Each non-executive director receives a base fee which is inclusive of superannuation and committee fees. No retirement benefits are paid to non-executive directors.

Non-executive director fees are reviewed annually by the Board.

Executive Committee

The Company’s senior executive team is referred to as the Executive Committee and at the start of the financial year ended 30 September 2008 comprised executive directors J C Young, C A Rhodes and P C Butlin and executives J S Dayman, N J Hackett, S C Martin and S A Moran. During the year JC Young retired as an executive director and SA Moran resigned and neither executive was replaced on the Executive Committee. JC Young became a non-executive director of the company on 4 July 2008.

Compensation Components

For the executive directors and key management personnel and senior management staff, compensation packages generally comprise a mix of:

• Fixed Compensation - Base compensation, superannuation and benefits;

• Variable Compensation

o Short-term incentive (STI) based on performance to annual corporate and individual goals; and

o Long-term incentives (LTI) in the form of performance rights issued under the Management Performance Rights Plan (as previously approved by shareholders) based on corporate performance and employee position.

The objective of this mix of fixed and variable (or at risk) compensation is designed to attract, motivate and retain valuable employees throughout the Company through the provision of competitive remuneration, whilst ensuring shareholder value creation by rewarding achievement of the Company’s short, medium and long term strategic plans.

- - 39 - - Great Southern Limited Remuneration Report 30 September 2008

Retirement benefits are not paid as part of the pay and remuneration framework, other than to J C Young who retired during the 2008 year and received a payment pursuant to his employment contract which was entered into on 14 September 2004.

Fixed Compensation

Fixed compensation consists of base compensation and employer contributions to superannuation funds. Base compensation is structured as a total employment cost package which can be delivered as a mixture of cash and prescribed non-cash benefits at the executive’s discretion.

Executives are offered a competitive base compensation that is set following extensive benchmarking, to reflect the market for a comparable role having regard to the responsibilities and accountabilities of the role.

Base compensation for executives is reviewed annually to ensure the remuneration remains competitive with the market. This financial year, the base compensation for two executive directors J C Young and P C Butlin did not increase. C A Rhodes’ remuneration increased in March 2008 following his promotion to Managing Director after the retirement of J C Young.

There are no guaranteed base remuneration increases fixed in any executive contract.

Variable Compensation

Variable compensation includes both short term and long term incentives and is “at risk” as the payment of this remuneration component is contingent on the achievement of individual and Company targets. The short term incentive (STI) is a bonus provided in the form of cash or cash and shares, and is designed to reward employees for meeting or exceeding annual performance objectives or to provide a retention incentive for key employees when circumstances require. The long term incentive (LTI) is provided as performance rights pursuant to the Company’s Management Performance Rights. The Board exercises discretion in the payment of bonuses and allocations of shares or performance rights to employees.

Short-Term Incentive

Grants of STI are made on an annual basis at the end of the financial year, in conjunction with the performance appraisal process and the assessment of individual employee’s achievement to their annual performance objectives. These may be cash or a combination of cash and shares.

The Remuneration Committee determines STI grants for the Executive Committee having regard to the performance of the Company and the performance of the individual executive during the year, and sets target performance level STI percentages for the rest of the executive. The Remuneration Committee also sets the bonus pool for the remainder of the Company. The base target STI level for Executive Committee members for 2007/08 was set at the beginning of the financial year at 60% of base remuneration (refer to tables on pages 43 and 44 for base remuneration details) however the Remuneration Committee had the discretion to provide an STI in excess of this target for exceptional performance.

Each employee job band has, pursuant to the Remuneration Policy, threshold and target STI quantum set in consideration of the accountabilities of the roles in the band and impact on the performance of the Company.

The major key performance measure used by the Remuneration Committee to determine the level of STI bonuses for executives was the net profit result, excluding one off items as determined by the Committee, and the performance against budget for the full financial year. These measures were selected as the most suitable performance measures in the Company’s current circumstances, rather than the previous measure of headline revenue, as it is indicative of maximising shareholder wealth over this period. For the financial year 2007/08, in consideration of the performance of the Company and economic and market factors no STI allocation was approved. This was despite continuing strong competition for employees in most of the Company’s employment markets, and in the context of an extraordinarily demanding year for many employees. No executive bonuses were awarded.

Bonuses are not payable to non-executive directors.

Long-term equity based incentives

The current LTI plan

Long term incentives in the form of performance rights (“Rights”) are issued under the Company’s Management Performance Rights Plan (MPR Plan). The maximum number of Rights that may be on issue is set at 10% of - - 40 - - Great Southern Limited Remuneration Report 30 September 2008 the number of ordinary shares on issue, in accordance with the management performance rights plan ratified by shareholders in February 2008. All managers are eligible to participate in the MPR Plan. The former Managing Director, JC Young, was not eligible to participate in the MPR Plan.

The Remuneration Committee determines in its discretion the number of Rights to allocate to Executive Committee members having regard to the business goals of the company and the other elements of remuneration provided to the executives. The Committee also determines the pool of Rights to make available to other employees.

The Company reviewed its LTI strategy for executives and key management in late 2007 and shareholders approved the revised plan in February 2008. The purpose of the review was to ensure that the Company had a LTI plan that would facilitate the achievement of the five year strategic plan and was consistent with market practice. Key to achievement of the five year strategic plan is the retention of key executives. As a consequence, the goals of the LTI plan were refined to:

• align the interests of the executives and senior managers with shareholder interests; and

• retain, motivate and lock in senior executives through a LTI plan with time and share price performance based vesting hurdles.

The new performance Rights are split equally between two tranches. As with the prior plan, if a Right has vested it can be exercised into one ordinary share prior to the Right’s expiry date. The Rights are issued for no consideration.

The first tranche is dependant upon the Group achieving certain performance hurdles. The performance measure is relative Total Shareholder Return (TSR), being broadly the change in the share price over the performance period plus dividends notionally re-invested in the Company’s shares. The TSR growth for the company at the measurement point at the sole vesting period is ranked against the equivalent TSR growth of all companies in the S&P/ASX 300 Small Industrials Accumulation Index (excluding mining companies). There is no retesting of the performance measure. This performance measure was selected as it is the industry standard and, by aligning employee and shareholder interests, is the measure indicative of increasing shareholder value

The level of the company’s performance at or above the 51st percentile ranking dictates the number of Rights that vest and may be exercised, as follows:

TSR Ranking in S&P ASX 300 Small Industrials Accumulation Index Number of Rights Exercisable

Below 50.1st percentile Nil

50.1st percentile 50% of Rights exercisable

75th percentile 100% of Rights exercisable

Greater than 51st percentile and less than 75th Calculated on a pro rata basis between 52% and percentile 100% depending on the company’s percentile performance ranking (rounded down to the nearest whole number)

The performance condition for the second tranche is specifically designed to retain and lock in key executives and ensure shareholder value creation. It is dependant on the Group achieving certain performance hurdles. The performance measure is TSR growth ranked against CPI plus a growth target. Vesting is achieved if the employee remains in employment with the Company and TSR in relation to the reference price is better than CPI plus 2% p.a. in year 3, CPI plus 2.5% p.a. in year 4, and CPI plus 3% p.a. in year 5. These are modest targets as the main purpose of this tranche is retention.

On 16 May 2008, the Company issued 3,550,000 Rights to 23 employees under the revised MPR Plan.

The prior LTI plan

As with the revised plan, the ability to exercise management performance rights is dependant upon the Group achieving certain performance hurdles. If a Right has vested it can be exercised into one ordinary share prior to

- - 41 - - Great Southern Limited Remuneration Report 30 September 2008 the Right’s expiry date. The Rights are issued for no consideration and no consideration is paid to exercise the Right.

The performance measure is relative Total Shareholder Return (TSR). The TSR growth for the company at each measurement point in the vesting period is ranked against the equivalent TSR growth of all companies in the S&P/ASX 200 Industrials Accumulation Index.

As with the revised plan, the level of the company’s performance at or above the 51st percentile ranking dictates the number of Rights that vest and may be exercised.

The vesting period for each Right ranges from a period of 3 to 5 years from the initial Right’s grant date. The start of a Right’s vesting period is referred to as the “first performance measurement date”.

The performance measure is retested each three months throughout the vesting period until either 100% of the Rights vest or, if earlier, the expiry date. As at the date of this report no Rights have met the performance hurdle and no Rights have vested. In addition, for those Rights for which performance testing is not yet applicable, the number of Rights that meet the performance hurdle at the date of this report is nil. As with the new LTI plan, the performance condition was selected as the industry standard and that measure most likely to grow shareholder value through the alignment of employee and shareholder interests.

Other Benefits

Executives receive benefits such as allocated car parking spaces and payment of relevant professional subscriptions. The Remuneration Committee has the discretion to provide other benefits to executives in determining an appropriate and competitive compensation package.

Retirement benefits

Retirement benefits are not paid as part of key management personnel service agreements, other than to J C Young. Under the terms of his service agreement, which was entered into on 14 September 2004, J C Young was paid a retirement benefit totalling $2,013,742 in July of 2008, of which $1,812,368 had previously been provided for, following his retirement.

Termination benefits

Termination benefits are paid on early termination by the employer other than for gross misconduct and are linked to remuneration, reduced by the amount of any payment made in lieu of notice (further details on termination benefits can be found on page 45).

Shareholder Wealth

The graph below shows the performance of the Group as measured by earnings per share and share price for the current year and the previous 4 financial years.

50 4.50 40 4.00 30 3.50 20 3.00 2.50 10 2.00 0 1.50 -10

1.00 Share price($) Cents perCents share -20 0.50 -30 0.00 June 2005 June 2006 Sept 2006* Sept 2007 Sept 2008

EPS Share price

* In 2006 the Company changed its year end to 30 September and as part of this change the company was required to prepare an annual report for the 3 months ended 30 September 2006.

- - 42 - - Great Southern Limited Remuneration Report 30 September 2008

Details of remuneration

Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of the company and Group are set out in the following tables.

Share-based Proportion of Short-term benefits Post Employment benefits payment remuneration Non- that is Compensation Salary & Cash monetary Super- Retirement performance consisting of fees bonus benefits annuation benefits Rights 1 Total related Rights

Directors $ $ $ $ $ $ $ $ %

Non-executive

D C Griffiths Year to 30 Sept 2008 158,121 - - 41,879 - - 200,000 0.0% 0.0% Year to 30 Sept 2007 114,827 - - 85,173 - - 200,000 0.0% 0.0% A McCleary Year to 30 Sept 2008 88,991 - - 8,009 - - 97,000 0.0% 0.0% Year to 30 Sept 2007 61,609 - - 35,391 - - 97,000 0.0% 0.0% P J Mansell Year to 30 Sept 2008 88,991 - - 8,009 - - 97,000 0.0% 0.0% Year to 30 Sept 2007 88,991 - - 8,009 - - 97,000 0.0% 0.0% M L Peacock Year to 30 Sept 2008 88,991 - - 8,009 - - 97,000 0.0% 0.0% Year to 30 Sept 2007 - - - 97,000 - - 97,000 0.0% 0.0%

Executive J C Young 2 Year to 30 Sept 2008 839,950 - 2,567 75,199 201,374 - 1,119,089 0.0% 0.0% Year to 30 Sept 2007 803,030 - 26,091 96,970 90,813 - 1,016,904 0.0% 0.0% C A Rhodes 3 Year to 30 Sept 2008 760,308 - 42,729 39,692 - 382,794 1,225,523 31.2% 31.2% Year to 30 Sept 2007 510,308 225,000 51,091 39,692 - 505,446 1,331,537 54.9% 38.0% P C Butlin Year to 30 Sept 2008 650,308 - 28,908 39,692 - 375,959 1,094,867 34.3% 34.3% Year to 30 Sept 2007 510,308 225,000 51,091 39,692 - 505,446 1,331,537 54.9% 38.0% Sub-total Year to 30 Sept 2008 2,675,660 - 74,204 220,489 201,374 758,753 3,930,480 Year to 30 Sept 2007 2,089,073 450,000 128,273 401,927 90,813 1,010,892 4,170,978

1. The fair value of the Rights granted to each of the above directors and executives is allocated on a straight line basis over the Rights’ expected vesting period.

2. J C Young was Managing Director until his retirement on 28 February 2008 and was an Executive Director until 4 July 2008 when he became a Non-executive Director.

3. CA Rhodes was appointed Managing Director on 29 February 2008.

- - 43 - -

Share- Short-term benefits Post Employment benefits based Proportion of payment remuneration Non- that is Compensation Salary & Cash monetary Super- Retirement performance consisting of fees bonus benefits annuation benefits Rights 1 Total related Rights

Other key management personnel and $ $ $ $ $ $ $ % % executives

J S Dayman Year to 30 Sept 2008 325,000 - 1,176 50,000 - 126,429 502,605 25.2% 25.2% Year to 30 Sept 2007 306,871 160,000 1,091 13,129 - 145,579 626,670 48.8% 23.3% S C Martin Year to 30 Sept 2008 361,871 - 1,176 13,129 - 126,429 502,605 25.2% 25.2% Year to 30 Sept 2007 306,871 160,000 1,091 13,129 - 145,579 626,670 48.8% 23.3% N J Hackett Year to 30 Sept 2008 296,871 - 1,176 13,129 - 90,190 401,366 22.5% 22.5% Year to 30 Sept 2007 251,871 120,000 1,091 13,129 - 99,407 485,498 45.2% 20.5% S A Moran 2 Year to 30 Sept 2008 247,183 - 1,176 9,847 - (379,116) (120,910) N/A N/A Year to 30 Sept 2007 306,871 145,000 1,091 13,129 - 262,780 728,871 55.9% 36.1% D McLeod Year to 30 Sept 2008 279,272 - - 48,228 - 93,099 420,599 22.1% 22.1% Year to 30 Sept 2007 266,772 100,000 - 48,228 - 82,492 497,492 36.7% 16.6% N Egan Year to 30 Sept 2008 276,345 - 22,819 38,655 - 151,204 489,023 30.9% 30.9% Year to 30 Sept 2007 286,871 150,000 38,472 13,129 - 326,266 814,738 58.5% 44.8% Sub-total 1,786,542 - 27,523 172,988 - 208,235 2,195,288 1,726,127 835,000 42,836 113,873 - 1,062,103 3,779,939 TOTAL – Key Management Personnel and executives Year to 30 Sept 2008 4,462,202 - 101,727 393,477 201,374 966,988 6,125,768 Year to 30 Sept 2007 3,815,200 1,285,000 171,109 515,800 90,813 2,072,995 7,950,917

1. The fair value of the Rights granted to each of the above directors and executives is allocated on a straight line basis over the Rights’ expected vesting period.

2. S A Moran resigned from the company on 6 June 2008. The value of Rights previously expensed and recognised by the company for S A Moran prior to his resignation have been reversed as his Rights have been forfeited.

- - 44 - - Great Southern Limited Remuneration Report 30 September 2008

Service agreements

Remuneration and other terms of employment for the executive directors and key management personnel are formalised in service or employment contracts. Each of these contracts provide for the provision of performance related cash bonuses, other benefits such as car parking and for Executive Committee members interest free loans, and participation in, when available, an equity linked performance incentive plan. Other major provisions of the agreements relating to remuneration are set out below:

Term of Base remuneration Termination Retirement benefit contract Sept 2008 1 benefit 3

$

C A Rhodes 2,3 Ongoing 800,000 12 months + STI n/a P C Butlin 2,3, Ongoing 690,000 12 months + STI n/a

J S Dayman Ongoing 375,000 6 months + STI n/a

S C Martin Ongoing 375,000 6 months + STI n/a N J Hackett Ongoing 310,000 3 months + STI n/a

D McLeod 4 Ongoing 327,500 n/a n/a N Egan 4 Ongoing 315,000 n/a n/a

1. Annual base remuneration is inclusive of superannuation and is reviewed annually. Superannuation payments for all executives were set at the statutory maximum superannuation contribution ($13,129 p.a for the 2007 to 2008 tax year), exclusive of any superannuation which is salary sacrificed.

2. In addition to superannuation payments detailed in note 1 above the base remuneration package for C A Rhodes and P C Butlin includes allowance for a motor vehicle (with an assessed benefit of $41,553 p.a and $27,732 p.a. respectively).

3. If there is a substantial diminution in the role and responsibilities of any of C A Rhodes, P C Butlin, J S Dayman, S C Martin or N J Hackett then either the company or the particular executive may elect to terminate the executive’s employment and in such circumstances the company will pay the executive a severance payment equivalent to the nominated number of months annual base salary plus pro rata short term incentive (STI) payment. The STI is calculated as a pro rata of the average STI payout from the immediate prior three years, (less any amount paid in lieu of notice under their employment contract).

4. In addition to superannuation payments detailed in note 1 above the base remuneration package for N Egan includes allowance for a motor vehicle (with an assessed benefit of $22,819 p.a). D McLeod's base remuneration includes the payment of $15,000 vehicle allowance.

Share based compensation

Management Performance Rights Plan

The terms and conditions of each grant of Rights affecting remuneration for all employees including key management personnel and the top five paid executives in this or future reporting periods are as follows.

As at the date of this report no Rights have met the performance hurdle and no Rights have vested. In addition, for those Rights for which performance testing is not yet applicable, the number of Rights that meet the performance hurdle at the date of this report is nil:

- - 45 - - Great Southern Limited Remuneration Report 30 September 2008

Fair value Expiry per Right at Exercise Vesting period/date Grant date date grant date price exercisable1

17/12/04 17/12/09 $2.07 $0.00 17/12/06 to 17/12/09

31/03/06 31/03/11 $2.00 $0.00 17/12/06 to 31/03/11

31/03/06 31/03/11 $2.13 $0.00 31/03/08 to 31/03/11

30/06/06 30/06/11 $1.63 $0.00 31/03/09 to 31/03/11

20/12/06 20/12/11 $1.44 $0.00 20/12/09 to 20/12/11

16/05/08 16/05/13 $0.58 $0.00 16/05/11 to 16/05/13

1. Dependant upon achieving the required performance measure during the vesting period.

2. On 16 May 2008, the company issued 3,550,000 Rights to 23 employees. Each Right has an exercise price of $nil and expires on 16 May 2013. Rights were issued to employees in two tranches with the first performance measurement date for tranche 1 and tranche 2 being 16 May 2011.

An employee who holds shares in the company as a result of the exercise of a vested Right may not deal with those shares before the earlier of: (a) the end of a ten year period commencing at the grant date of the Rights; (b) the date the employee ceases to be employed by the company; and (c) a time determined by the board (“the Restriction Period”).

An employee issued with Rights who ceases to be an employee (for reasons other than for termination) during the period from the grant date to the expiry date is entitled to exercise any vested Rights. For an employee whose employment with the company is terminated all Rights grants remaining unexercised at the date of termination lapse.

Rights issued to employees are not transferable except with the approval of the Board or by operation of law on death or legal incapacity.

The amounts disclosed for emoluments relating to management performance rights above are assessed at the fair values at grant date of the Rights granted to the Executive Committee member and the manager, allocated equally over the period from the grant date to the expected vesting period end date.

Fair values at grant date and the average vesting period end date are independently valued using a Monte Carlo simulation to model the potential TSR ranking of the company and other companies in the ASX/S&P 200 Accumulation Index (for the grants under the prior LTI plan) and in the ASX/S&P 300 Accumulation Index (for the grants under the revised LTI plan) over 10,000 iterations. The model used takes into account the share price at grant date, the market related performance measurement hurdles to vesting, the expected price volatility of the company’s ordinary shares, the expected dividend yield, the risk-free interest rate, the exercise price of the Rights and the average restriction period for dealing in shares after exercise.

- - 46 - - Great Southern Limited Remuneration Report 30 September 2008

The model inputs for the Rights included in key management compensation for the year ended 30 September 2008 included:

Grant date 17/12/04 31/03/06 31/03/06 30/06/06 20/12/06 16/05/08

Share price at grant date $3.93 $4.05 $4.05 $3.40 $2.84 $1.56

First performance measurement date – tranche 1 17/12/06 17/12/06 31/03/08 31/03/09 20/12/09 16/05/11

First performance measurement date – tranche 2 17/12/07 17/12/07 31/03/09 31/03/10 20/12/10 16/05/11

First performance measurement date – tranche 3 - - 31/03/10 - - -

Last performance measurement date – all tranches 17/12/09 17/12/09 31/03/11 31/03/11 20/12/11 16/05/13

Re-testing of performance measure if 100% not Each 3 Each 3 Each 3 Each 3 Each 3 Each 3 vesting months months months months months months

Expected price volatility of the company’s shares 35.0% 35.0% 35.0% 35.0% 35.0% 41.5%

Expected dividend yield 3.6% 4.1% 4.1% 4.2% 4.41% 5.66%

Risk-free interest rate 5.0% 5.4% 5.4% 5.8% 5.96% 6.2%

Average share dealing restriction period 7 years 7 years 7 years 7 years 7 years 10 years

Rights granted and vested during the year

Details of Rights over ordinary shares in the company provided as remuneration to each executive director of Great Southern Limited and each of the key management personnel, including the 5 most highly remunerated personnel, of the Group are set out below. When exercisable, each Right is converted into one ordinary share of Great Southern Limited.

Number of Rights granted Number of Rights vested during the year during the year

Year ended 30 Year ended 30 Year ended 30 Year ended 30 September September September September 2008 2007 2008 2007

C A Rhodes 650,000 450,000 - -

P C Butlin 500,000 450,000 - -

J S Dayman 250,000 120,000 - -

S C Martin 250,000 120,000 - -

N J Hackett 150,000 100,000 - -

S A Moran - 100,000 - -

D McLeod 100,000 175,000 - -

N Egan 125,000 75,000 - -

- - 47 - - Great Southern Limited Remuneration Report 30 September 2008

Shares provided on exercise of remuneration rights

No remuneration options or performance rights have been exercised during the financial year by any director of Great Southern Limited and other key management personnel of the Group (2007: nil).

Share-based compensation: Rights

The value of Rights granted during the year to executive directors and key management personnel are set out below:

Right value at Right value at Right value at Name Grant Date 1 Exercise Date 2 Lapse Date

$ $ $

C A Rhodes 250,792 - -

P C Butlin 192,917 - -

J S Dayman 96,458 - -

S C Martin 96,458 - -

N J Hackett 57,875 - -

D McLeod 48,229 - -

N Egan 48,229 - -

S.Moran 3 - - -

1. The value of remuneration consisting of Rights, based on the value at grant date, calculated in accordance with AASB 2 Share-based Payment of Rights granted during the year as part of remuneration.

2. The value at exercise date of Rights that were granted as part of remuneration and were exercised during the year.

3. The value at lapse date of Rights that were granted as part of remuneration and that lapsed during the year was determined to have no value.

Additional information

Details of Remuneration: Rights

For the year to 30 September 2008 executives were entitled to an STI cash bonus with the amount of the STI determined by the Remuneration Committee or the Executive Committee. For Executive Committee members the base STI level was set at 60% of base remuneration although the Remuneration Committee had the discretion to provide an STI in excess of this target. For general managers the base target STI level was set at 50% of base remuneration although the Executive Committee had the discretion to provide an STI in excess of this target.

For the year ended 30 September 2008 no executive received a STI payment and so 100% of their base target STI was not achieved.

For each grant of Rights and options included in remuneration, the percentage of the available grant that vested in the financial year and the percentage that was forfeited, due to the highest performance criteria not being achieved, are set out below:

- - 48 - - Great Southern Limited Remuneration Report 30 September 2008

Management Performance Rights Minimum Maximum total value of total value of Year Financial years in grant yet to grant yet to Number Granted Vested Forfeited which Rights vest 1, 2 vest 3 vest 4 % % % $ $ C A Rhodes 500,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

175,000 30/06/06 - - 30/09/08 to 30/09/11 nil 98,579

450,000 30/09/07 - - 30/09/10 to 30/09/12 nil 329,084

650,000 30/09/08 30/09/11 to 30/09/13 nil 222,790

P C Butlin 500,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

175,000 30/06/06 - - 30/09/08 to 30/09/11 nil 98,579

450,000 30/09/07 - - 30/09/10 to 30/09/12 nil 329,084

500,000 30/09/08 - - 30/09/11 to 30/09/13 nil 171,377

J S Dayman 100,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

75,000 30/06/06 - - 30/09/08 to 30/09/11 nil 32,892

120,000 30/09/07 - - 30/09/10 to 30/09/12 nil 87,756

250,000 30/09/08 - - 30/09/11 to 30/09/13 nil 85,689

S C Martin 100,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

75,000 30/06/06 - - 30/09/08 to 30/09/11 nil 32,892

120,000 30/09/07 - - 30/09/10 to 30/09/12 nil 87,756

250,000 30/09/08 30/09/11 to 30/09/13 nil 85,689

N J Hackett 60,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

50,000 30/06/06 - - 30/09/08 to 30/09/11 nil 21,928

100,000 30/09/07 - - 30/09/10 to 30/09/12 nil 73,130

150,000 30/09/08 30/09/11 to 30/09/13 nil 51,413

S Moran 225,000 30/06/06 - 100% 30/09/08 to 30/09/11 n/a n/a

100,000 30/09/07 100% 30/09/10 to 30/09/12 n/a n/a

D McLeod 75,000 30/06/06 - - 30/09/08 to 30/09/11 nil 32,892

100,000 30/09/07 - - 30/09/10 to 30/09/12 nil 73,130

100,000 30/09/08 - - 30/09/11 to 30/09/13 nil 34,275

N Egan 125,000 30/06/05 - - 30/09/07 to 30/09/10 nil -

225,000 30/06/06 - - 30/09/08 to 30/09/11 nil 10,964

75,000 30/09/07 - - 30/09/10 to 30/09/12 nil 54,847

125,000 30/09/08 30/09/11 to 30/09/13 nil 42,844

1. In 2006 the Group’s financial year end changed from a 30 June year end to a 30 September year end.

2. Vesting period is inclusive of financial years shown in the table.

3. The minimum value of Rights yet to vest is $nil as the performance criteria may not be met and consequently no Rights may vest.

4. The maximum value of Rights yet to vest is not determinable as it depends on the market price of shares of the company on the Australian Stock Exchange at the date the Right is exercised. The maximum values presented above are based on the fair value of Rights determined on the respective Right grant dates that remain to be amortised in the accounts.

- - 49 - - Great Southern Limited

30 September 2008

CORPORATE GOVERNANCE STATEMENT

Overview

Since the introduction of the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations ("ASX Principles and Recommendations"), the Board of Great Southern Limited ("the company") has made it a priority to adopt systems of control and accountability as the basis for the administration of corporate governance. Great Southern’s Board of Directors and management strongly support the principles of corporate governance, and are committed to building on the Group’s reputation for integrity. This is particularly important given the highly regulated industry in which the Great Southern Group operates, and is essential for increasing our opportunities within the funds management and financial services sectors, as well as for the long term sustainability of our business. The Group’s corporate governance practices are reviewed regularly and will continue to be developed and refined to meet the needs of the Group and appropriate practices.

For the financial year, the Great Southern Group adopted the ASX Principles and Recommendations which were published in March 2003. The company's corporate governance practices are fully compliant with these ASX Principles and Recommendations and have been for the year to 30 September 2008.

On 2 August 2007, the ASX CGC published revised principles and recommendations (“Revised Principles”), which will apply to the Great Southern Group for the financial year 1 October 2008 to 30 September 2009. The Great Southern Group has recently reviewed its existing practices and updated its Corporate Governance Polices and Charters to ensure compliance with the Revised Principles. The revised Corporate Governance statements were adopted by the board of directors on 12 August 2008.

The Revised Principles will be in place for the 2008/2009 financial year and will be reported upon in the 2009 Annual Report.

The Board of Directors of the company are ultimately responsible for governance. This corporate governance statement outlines the key principles and practices of the company which form the system of governance. The company has followed each of the ASX Principles and Recommendations, taking into account factors such as the size of the company and the Board, resources available and activities of the company.

The company includes information about its corporate governance practices on the company's website at www.great-southern.com.au including charters (for the board and its sub-committees), the company's code of conduct and other policies and procedures relating to the board and its responsibilities.

The company and its directors are committed to high standards of corporate governance. Set out below is a description of the company’s main corporate governance practices which have been in place for the full financial year unless otherwise stated.

Board of Directors and its Committees

The Board has responsibility for approving the strategy and monitoring the implementation of the strategy and the performance of Great Southern Limited and its subsidiaries (the group of companies is referred to as “the Group” in this report), protecting the rights and interests of shareholders and is responsible for overall corporate governance. The Managing Director and Executive Committee are responsible for day to day management of the Group and implementing the strategies adopted by the Board.

The Board’s responsibilities include:

• Approving and monitoring the strategic planning process of the Group and reviewing and approving the long term goals and annual budgets to ensure that these strategic objectives are met;

• Monitoring the performance of management against these goals and objectives;

• Ensuring that there are adequate internal controls and ethical standards of behaviour adopted and met within the Group;

• Ensuring the integrity of the Group’s financial reporting;

• Ensuring that the business risks facing the Group are identified and that appropriate monitoring and reporting controls are in place to manage these risks;

• Appointing the Managing Director, evaluating performance and determining the remuneration of senior executives and ensuring that appropriate policies and procedures are in place for recruitment, training, remuneration and succession planning; and - - 50 - - Great Southern Limited

30 September 2008

• Delegating to the Managing Director and Executive Committee the authority to manage and supervise the business of the Group, including the making of all decisions regarding the Group’s operations that are not specifically reserved to the Board.

Composition of the Board

The Board comprises seven directors who are appointed to ensure that the company is run in the best interest of all shareholders. Other than John Young, Cameron Rhodes and Phillip Butlin all the directors, including the Chairman, David Griffiths, are independent non-executives. During the financial year, John Young retired as Managing Director of the Group, effective from the Company’s AGM on 28 February 2008. Cameron Rhodes stepped into the vacated position as Managing Director and Chief Executive Officer, while Mr Young continues on the board as a non-executive director. Subject to the Corporations Act requirements in relation to the retirement of directors, the current directors have not been appointed for a specified term.

Skills, experience, expertise and term of office of each director

A profile of each director containing the skills, experience, expertise and term of office of each director is set out in the Directors' Report.

Identification of independent directors

The Board is to be comprised of both executive and non-executive directors with a majority of non–executive directors. Non-executive directors bring a fresh perspective to the Board’s consideration of strategic, risk and performance matters and are well placed to exercise independent judgement and review and constructively challenge the performance of management.

The Board Charter states that “a director will be considered independent if they have no relationship to the Company that may interfere with the exercise of their independence from management and the Company”. For the purposes of determining independence the Board has determined that a material professional adviser is one where the adviser’s revenues derived from the Group exceeds 5% of the adviser’s total revenues from all sources.

Applying the independence criteria, the Board considers that D C Griffiths, A McCleary, P J Mansell and M L Peacock are all independent.

Committees

The Board has three committees to assist in the implementation of its corporate governance practices and fiduciary and financial reporting and audit responsibilities. These are an Audit Committee, a Remuneration Committee and a Nomination Committee.

Each of these committees has its own charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. Details of these charters are available on the company website.

Audit Committee

The responsibility of the Audit Committee is to assist the Board in fulfilling its audit duties through review and supervision of the Group’s financial reporting process and internal control system. The members of the committee comprise all of the independent non-executive directors and the composition of the committee meets the requirements of the ASX Listing Rules. The Audit Committee has appropriate financial expertise and knowledge of the funds management and financial services industries.

The Audit Committee considers the annual and interim financial statements of the company and its subsidiaries and any other major financial statements prior to approval by the Board, and reviews standards of internal control and financial reporting within the Group. The Audit Committee is also responsible for overview of the relationship between the Group and its external auditors, including periodic review of performance and the terms of appointment of the auditors. This committee considers any matters relating to the financial affairs of the Group and its subsidiaries and any other matter referred to it by the Board.

Remuneration Committee

The responsibility of the Remuneration Committee is to assist the Board in ensuring that the company:

• has coherent remuneration policies and practices which are observed and which enable it to attract and retain executives and directors who will create value for shareholders; - - 51 - - Great Southern Limited

30 September 2008

• fairly and responsibly rewards executives having regard to the performance of the company, the performance of the executive and the general pay environment; and

• complies with the provisions of the ASX Listing Rules and the Corporations Act.

The Primary purpose of the Remuneration Committee is to support and advise the Board in fulfilling these responsibilities to shareholders by:

• determining the overall remuneration policy of the Group;

• determining the remuneration of executive directors;

• reviewing and approving the remuneration of direct reports to the Managing Director, and as appropriate other senior executives;

• agreeing benchmarks for employee salary reviews; and

• reviewing and approving all equity-based plans and executive director allocations.

Nomination Committee

The primary purpose of the Nomination Committee is to support and advise the Board in fulfilling their responsibilities to shareholders in ensuring that the Board is comprised of individuals who are best able to discharge the responsibilities of directors having regard to the law and the highest standards of governance by:

• assessing the skills required on the Board;

• from time to time assessing the extent to which the required skills are represented on the Board;

• make recommendations to the Board regarding succession planning for the Board;

• establishing processes for the review of the performance of individual directors and the Board as a whole; and

• establishing processes for the identification of suitable candidates for appointment to the Board.

Business risk

The Board acknowledges its responsibility for risk oversight and ensuring that significant business risks are appropriately managed, whilst acknowledging that such risks may not be wholly eliminated. The Great Southern Group has in place a Risk Management Framework, policies and procedures, which set out the roles, responsibilities and guidelines for managing financial and operational risks associated with the Group’s businesses. The Executive Risk Management Committee has been delegated responsibility as the primary body for risk oversight and for ensuring that appropriate risk management policies, systems and resources are in place. During the financial year Great Southern’s Executive Risk Management Committee updated and monitored the risk profiles for each of the Group’s key operating divisions and all major projects. These profiles identify the:

• nature and likelihood of occurrence for specific material risks;

• key controls that are in place to mitigate and manage the risk;

• sources and levels of assurance provided on the effective operation of key controls; and

• responsibilities for managing these risks.

The risk profiles for each key operating division and major project are reported to the full Board as a standing agenda item. Details of the company’s risk management policy and internal compliance and control system are available on the company’s website.

External auditors

The performance of the external auditors is reviewed annually. Ernst and Young were appointed as the external auditors in 2007. It is Ernst and Young’s policy to rotate audit engagement partners on listed companies every 5 years.

- - 52 - - Great Southern Limited

30 September 2008

The external auditors will be attending the Annual General Meeting and will be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.

Ethical standards

The company places a strong emphasis on compliance with policies to ensure that all directors, managers and employees act with the utmost integrity and objectivity in their dealings with all people that they come in contact with during their Great Southern working life. A Code of Conduct has been introduced to assist in maintaining this culture. This code applies to all directors and employees and compliance with the code forms part of the performance appraisal of all employees. Details of this code are available on the company’s website.

Directors’, senior executives’ and staff dealings in shares

The company requires that:

• Directors discuss any proposed trade in Great Southern Limited shares with the Chairman prior to any trade and the Chairman discusses any proposed trade in shares with the Board.

• Senior executives and all staff discuss any proposed trade in shares with the Managing Director, Executive Director or Company Secretary prior to any trade.

Unless otherwise approved, trades in Great Southern Limited shares by directors and senior executives are limited to the period of two weeks after the release of the company’s half year and annual results to the Australian Securities Exchange and from the lodgement of the company’s annual report with the Australian Securities Exchange.

Directors, senior executives and all staff are prohibited from trading in Great Southern Limited shares if the director or officer is in possession of inside or price sensitive information or would be trading for a short term gain. All employees within the Group have also been advised of their obligations in regard to inside or price sensitive information and these obligations are replicated in employment contracts and the Code of Conduct.

The company’s existing practices are documented in a code, details of which are available on the company’s website.

Continuous disclosure and shareholder communication

The Board strongly believes that the company’s shareholders should be fully informed of all material matters that affect the company in accordance with its continuous disclosure obligations. Following release to the ASX all financial reports and other significant information are available on the company’s website for access by its shareholders and the broader community. Procedures are in place to review all information and to ensure all relevant information is immediately released to the market.

The Company Secretary has been appointed as the person responsible for communications with the Australian Securities Exchange.

The company seeks to enhance its communication with shareholders through the introduction of new types of communication through cost effective electronic means, and the provision of significant information in addition to the reporting required by legislation.

Statement concerning availability of independent professional advice

If a director considers it necessary to obtain independent professional advice to properly discharge the responsibility of his/her office as a director, then, provided the director first obtains approval for incurring such expense from the chairman, the company will pay the reasonable expenses associated with obtaining such advice.

- - 53 - - Great Southern Limited

30 September 2008

Performance evaluation of the Board

During the reporting year an internal review of the performance and composition of the Board was carried out during the time of the retirement of John Young from his position as Managing Director on 28 February 2008.

The Board had previously planned to engage an external consultant to carry out a review of the Board during 2008, however due to the informal discussions of Board performance that took place during the transition between Managing Directors the Board did not consider an external review was warranted. Engagement of an external consultant will be considered during 2009.

Existence and terms of any schemes for retirement benefits for non-executive directors

There are no termination or retirement benefits for non-executive directors.

Group strategic planning

Great Southern Group has a formal strategic planning process whereby a strategic plan is recommended by executive management and approved by the Board each year. The intent of the annual review is to consider a wide range of strategies and provide management with guidance on those strategies that, in the Board’s opinion, will enhance shareholder value.

- - 54 - - Great Southern Limited

30 September 2008

FINANCIAL REPORT

Page

Income Statement 56

Balance Sheet 57

Statement of Changes in Equity 59

Cash Flow Statement 60

Notes to the Financial Statements 61

Directors’ Declaration 139

Independent Audit Report to the Members 140

Auditor’s Independence Declaration 142

Shareholder Information 143

This financial report covers both Great Southern Limited as an individual entity and the Group consisting of Great Southern Limited and its controlled entities. The financial report is presented in Australian currency.

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

Great Southern Limited 16 Parliament Place West Perth WA 6005

A description of the nature of the Group’s operations and its principal activities is included in the review of operations and activities in the directors’ report.

The financial report was authorised for issue by the directors on 29 December 2008. The company has the power to amend and reissue the financial report.

- - 55 - - Great Southern Limited

30 September 2008

Income Statement For the year ended 30 September 2008

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007

Notes $’000 $’000 $’000 $’000

Revenue 3(i) 424,404 466,081 163,146 265,801

Other income 3(ii) 19,964 59,103 433 883

Total revenue and other income 444,368 525,184 163,579 266,684

Commissions, marketing and promotion of product and industry (62,356) (74,540) (19,716) (21,033)

Agriculture and MIS related expenses (223,833) (198,209) (82,725) (82,612)

Cost of agricultural produce sold 4 (24,258) (8,980) (7) (14)

Non-MIS managed funds (14,045) - (2,238) -

Corporate and other expenses (27,997) (37,993) (22,248) (31,149)

Financing costs 4 (72,637) (51,300) (44,117) (32,801)

Allowance for doubtful debts 4 (56,936) (5,632) - (193)

Allowance for related party loans 4 - - (213,732) -

Impairment of horticultural assets 4 - (40,072) - -

Impairment of goodwill 4 (30,000) - - -

(Loss)/profit before income tax (67,694) 108,458 (221,204) 98,882

Income tax benefit/(expense) 5 3,890 (36,950) 2,165 (34,375)

(Loss)/profit for the year (63,804) 71,508 (219,039) 64,507

Attributable to:

Minority interest 515 - - -

Members of Great Southern Limited 32 (64,319) 71,508 (219,039) 64,507

(63,804) 71,508 (219,039) 64,507

Basic (loss)/earnings per share - cents 45 (19.89) 22.68

Diluted (loss)/earnings per share - cents 45 (19.89) 20.67

The above Income Statements should be read in conjunction with the accompanying notes.

- - 56 - - Great Southern Limited

30 September 2008

Balance Sheet As at 30 September 2008

Consolidated Parent Entity Notes 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current Assets Cash and cash equivalents 6 91,395 207,640 3,254 40,562 Trade and other receivables 7 77,268 121,468 9,096 318,903 Trade receivables – securitised loans 8 7,767 - - - Biological assets 15 26,659 21,158 - - Inventories 9 3,231 6,788 1,662 2,971 Available-for-sale financial assets 11 14,086 36,361 - - Other financial assets 10 13,533 9,932 3,086 - Investment properties 12 10,422 - - - Total Current Assets 244,361 403,347 17,098 362,436

Non-Current Assets Trade and other receivables 13 88,885 99,339 1,318,854 843,397 Trade receivables – securitised loans 8 33,039 - - - Other financial assets 10 51,234 55,560 129,454 114,502 Equity accounted investments 19 13,289 - 3,122 - Biological assets 15 168,366 112,399 - - Property, plant and equipment 16 253,187 187,156 15,660 14,982 Investment properties 17 793,780 722,310 170 298 Derivative financial instruments 14 - 3,136 - 1,526 Goodwill and other intangible assets 18 79,810 81,196 3,982 3,597 Deferred tax assets 20 60,059 54,925 18,047 16,677 Other 21 4,111 983 3,605 16 Total Non-Current Assets 1,545,760 1,317,004 1,492,894 994,995 Total Assets 1,790,121 1,720,351 1,509,992 1,357,431

Current Liabilities Trade and other payables 22 71,383 88,364 615,575 342,473 Interest-bearing loans and borrowings 23 3,350 930 256 336 Borrowings – securitised loans 8 7,767 - - - Provisions 24 5,279 16,842 4,383 2,971 Deferred revenue 25 89,243 146,202 - - Total Current Liabilities 177,022 252,338 620,214 345,780

Non-Current Liabilities Interest-bearing loans and borrowings 26 785,196 660,819 551,762 445,726 Borrowings – securitised loans 8 33,039 - - - Derivative financial instruments 14 1,609 - 1,039 - Provisions 28 49,037 32,916 39,783 32,049 Deferred revenue 29 37,843 8,316 - - Total non-current liabilities 906,724 702,051 592,584 477,775 Total Liabilities 1,083,746 954,389 1,212,798 823,555 Net Assets 706,375 765,962 297,194 533,876

- - 57 - - Great Southern Limited

30 September 2008

Balance Sheet (continued) As at 30 September 2008

Consolidated Parent Entity Notes 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Equity Contributed equity 31 465,192 447,859 465,192 447,859 Reserves 32 12,111 13,342 12,969 12,677 Retained earnings 32 205,186 304,761 (180,967) 73,340 Parent interests 682,489 765,962 297,194 533,876 Minority interests 23,886 - - - Total Equity 706,375 765,962 297,194 533,876

The above Balance Sheets should be read in conjunction with the accompanying notes.

- - 58 - - Great Southern Limited

30 September 2008

Statement of Changes in Equity For the year ended 30 September 2008

Consolidated Parent Entity 30 Sept 2008 30 Sept 2007 30 Sept 2008 30 Sept 2007 Notes $’000 $’000 $’000 $’000

Total equity at the beginning of the financial year 765,962 682,826 533,876 460,557 (219,039) 64,507 Profit/(loss) for the year (63,804) 71,508 Cash flow hedging reserve 32 (3,693) 4,474 (2,170) 1,658

Total recognised income and expense for the year (a) (67,497) 75,982 (221,209) 66,165

Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of issue costs 17,183 14,506 17,183 14,506 Conversions of TREES Series, net of issue costs - 15 - 15 Exercise of options 150 630 150 630 Management Performance Rights 2,462 4,611 2,462 4,611 Dividends declared and paid 33 (35,268) (12,608) (35,268) (12,608) Distributions to unit holders (503) - - - Issue of units to minority interest holders 473 - - - Minority interest arising on acquisition of controlled entity 21,711 - - - Minority interest in options issued by a controlled entity 1,890 - - - Capital return to minority interest holders (188) - - - Total equity at the end of the financial year 706,375 765,962 297,194 533,876

(a) Total recognised income and expense for the period attributable to:

Equity holders of the parent (68,012) 75,982 (221,209) 66,165 Minority interest 515 - - - (67,497) 75,982 (221,209) 66,165

The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.

- - 59 - - Great Southern Limited

30 September 2008

Cash Flow Statement For the year ended 30 September 2008 Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept Notes 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Cash flows from operating activities Receipts from growers/customers 191,270 124,173 2,736 5,411 Securitisation of loan receivables 316,627 469,844 - - Payments to suppliers and employees (387,198) (342,309) (130,281) (136,708) 120,699 251,708 (127,545) (131,297) Interest received 11,359 15,209 218 293

Income taxes paid (3,177) (37,779) (3,177) (37,779) Finance costs paid (42,022) (25,566) (26,705) (16,408) Net cash inflow / (outflow) from operating activities 43 86,859 203,572 (157,209) (185,191)

Cash flows from investing activities Payments for property, plant and equipment (54,821) (49,310) (3,623) (5,134) Payments for investment property and land classified as held for sale (120,234) (148,225) - - Proceeds from sale of investment property 6,231 3,647 - - Proceeds from sale of property, plant and equipment 5,104 1,977 - 1,102 Payments for biological assets (60,990) (42,560) - - Payments for intangible assets (16,307) - - - Payments for business acquisitions 46 (18,668) (4,505) - (4,505) Acquisition of subsidiary 46 780 - - - Payments for equity accounted investments (8,151) - (1,800) - Payments for financial instruments (4,500) - (4,500) - Net cash outflow from investing activities (271,556) (238,976) (9,923) (8,537)

Cash flows from financing activities Loans from/(to) related parties - - 65,042 167,526 Dividends paid (23,798) (31,463) (23,376) (31,463) Payment of TREES series coupons (14,737) (14,826) (14,737) (14,826) Options exercised 150 630 150 630 Receipts from borrowings 111,589 45,000 105,000 45,000 Repayment of borrowings (4,647) (3,029) (533) (3,029) Proceeds from issue of options 963 - - - Cost of issue of ordinary shares (1,722) - (1,722) - Proceeds from issue of units 744 - - - Unit redemption payment (90) - - - Net cash inflow from financing activities 68,452 (3,688) 129,824 163,838

Net (decrease)/increase in cash held (116,245) (39,092) (37,308) (29,890) Cash at the beginning of the year 207,640 246,732 40,562 70,452 Cash at the end of the year 6 91,395 207,640 3,254 40,562

The above Cash Flow Statements should be read in conjunction with the accompanying notes.

- - 60 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 1. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Great Southern Limited as an individual entity and the Group consisting of Great Southern Limited and its subsidiaries.

The financial report was authorised for issue in accordance with a resolution of the directors on 29 December 2008.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001, Australian accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board.

The financial report is presented in Australian dollars.

Historical cost convention

The financial report has been prepared under the historical cost convention, except for investment property, available-for- sale financial assets and derivative financial instruments, which have been measured at fair value, and biological assets recorded at fair value less point of sale costs.

Statement of compliance

The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Refer to note 1(gg) for the assessment of Australian Accounting Standards that have been recently issued but are not yet effective.

Critical accounting estimates

The preparation of financial statements in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

(b) Going Concern

The directors have prepared the financial report of the Group on a going concern basis.

The Group has reported a loss of $63,804,000 for the year ended 30 September 2008 and at 30 September 2008 has net tangible assets per share of $1.90.

During the current year the Group completed a wide ranging strategic review and in August 2008 the Group announced a series of restructure proposals (Project Transform) under which shares in Great Southern Limited would be issued in exchange for investors interests in the 1998 – 2003 plantation projects and the 2006 and 2007 cattle projects.

Prior to the announcement of Project Transform, the Group extended the repayment of $120 million of corporate bank debt by 13 months to 31 October 2010. The Group has total club bank corporate borrowings of $380 million at the date of this report with $105 million of debt expiring in October 2009.

In arriving at their belief that the Group is a going concern and therefore is able to realise its assets and extinguish its liabilities in the normal course of business at the amounts stated in this financial report, the directors have considered the following:

• Project Transform. The directors believe that there is a reasonable prospect of one or more of the scheme proposals, in particular the proposals relating to 2006 and 2007 cattle projects, will be accepted and also that a number of individual offers will be accepted. Should the scheme proposals for the cattle projects be accepted, it will provide the Group with increased operating cash flows, it will enhance the balance sheet through the acquisition of cattle assets at fair value and it will provide increased flexibility and capital management opportunities from the removal of the MIS project structures. If successful the directors currently expect that one or more of the Group’s cattle properties will be sold in 2009.

- - 61 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(b) Going Concern (continued)

• Unprecedented financial and economic uncertainty impacting global and Australian markets and the potential impact of this uncertainty to future MIS sales. The directors believe that the Group’s 2009 MIS sales will be impacted by a number of factors including the ongoing global financial crisis and poor general economic conditions, a heightened focus on project returns relating to the Scheme Proposals (notwithstanding that the Group’s current projects have been restructured to address these concerns), and investor confidence and sentiment. Currently the Group has on offer an ATO approved High Value Timber forestry project that is being sold. A pulpwood project is expected to be available in early 2009. However, given the circumstances already noted, it is difficult to accurately predict the level of MIS sales in 2009.

• Alternative strategies available to the Group to generate cash flow include the sale of assets. The Group has announced a conditional agreement to sell a number of properties in Queensland that are currently encumbered by ongoing MIS projects. The price agreed is $23 million which represents around an 11% discount to book value. This land is considered by the directors as non-core as it has been determined that the land is not ideal for growing future pulpwood timber and it will not be used by the potential buyer for this purpose. In addition, the loan book held by the Group that has not been securitised is carried in receivables in the Group’s balance sheet at a book value of $67,100,000 after provisions. The directors expect to sell part of this loan book in 2009 and may decide to sell, the total loan book, which in the current economic climate and with scarcity of securitisation funding, could be expected, if fully sold, to realise between 50% and 70% of book value.

• The Group’s balance sheet contains a number of high quality assets, including forestry land and forestry assets and properties used in horticulture operations. Much of this land is encumbered by leases to MIS project investors. The Group does not currently have an active sales program in respect of these assets, but will monitor and reconsider this position in light of the factors noted above, in particular the outcome of Project Transform. If the Group is required to market and sell these assets in the short term then the value received may be significantly impacted by the ongoing market conditions.

• The Group’s debt facilities and the ability of the Group to meet the debt facilities covenants and refinance or pay debt as they fall due. The 30 September 2008 bank covenant measuring the ratio of senior debt to operating cash flow was amended to reflect the lower level of sales and operating income received in 2008. The ability of the Group to continue to operate within its financial covenants is dependant upon the generation of sufficient operating cash flows, through the sale of MIS projects and cost reductions and / or the repayment of senior debt which would be achieved through asset sales. The Group is required to refinance or repay $105 million in senior debt in October 2009. The directors and management continue to believe they will have the ongoing support of the Group’s bankers based upon the support they have provided to date and the opportunities available to the Group to manage cash flow and corporate debt.

Having regard to the factors and the uncertainties discussed above, the directors believe the Group will continue as a going concern.

If Project Transform does not result in a successful outcome or should the 2009 MIS sales result be low or the sale of assets not proceed or, if required, should the ongoing support of the Group’s bankers not be forthcoming, then there is significant uncertainty whether the Group will continue as a going concern. The financial report does not include any adjustments relating to the recoverability or classification of recorded asset amounts, or the amounts or classification of liabilities, which might be necessary should the Group not be able to continue as a going concern.

(c) Principles of consolidation

The consolidated financial statements comprise the financial statements of Great Southern Limited and its subsidiaries (“the Group”).

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. The effects of all transactions between entities in the Group are eliminated in full.

Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Where there is a loss of control of a subsidiary the consolidated financial statements include the results for the part of the reporting year during which Great Southern Limited has control.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(g)).

- - 62 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Inter-company transactions, balances, income, expenses and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Investments in subsidiaries are accounted for at cost in the individual financial statements of Great Southern Limited.

Minority interests

Minority interests not held by the Group are allocated their share of net profit after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from the parent shareholders’ equity.

(d) Revenue recognition

Revenue is recognised and measured at the fair value of consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Amounts disclosed as revenue are net of returns, trade allowances, interest free loan discounting and duties and taxes paid. Revenue is recognised for the major business activities as follows:

(i) Project upfront revenues – MIS Plantation and High Value Timber Projects Sales

Revenue earned from contracts to perform services under project land and management agreements is recognised based upon the proportion of the cost of work performed at balance date relative to the estimate of the total cost of work to be performed for the project’s initial services. The Group has 12 months from the date of execution of the project Lease and Management Agreement to complete the services in order to fully complete the obligations under each agreement.

In determining the total cost of work to be performed estimates are made of the cost of future work required. Total cost includes a number of activities including direct selling costs from securing the contract, land acquisition, packaging land for MIS sale, preparation and entering into land and management and lease agreements, land preparation and establishment of the plantation and, for the current plantation project, the cost of encumbering land to be used in the project.

(ii) Project upfront revenues – MIS Vineyard, Olive, Almond and Beef Cattle Projects Sales

Revenue earned from management agreements entered into is recognised over the period that the services, for which the fees charged, are completed as required under each agreement.

(iii) Revenue deferral – All MIS Projects

Income received from land and management and lease agreements entered into that is not recognised as revenue in the current year is deferred until the year in which the work is performed.

(iv) Project ongoing fees – MIS Plantation Projects

Income for plantation management and property rental fees earned during the life of the project are payable out of the projects’ net harvest proceeds. These fees earned are not recognised as revenue until the value of the project’s net harvest proceeds can be measured reliably, which can be made after approximately 4 years of timber growth. Costs are expensed as incurred.

(v) Project ongoing fees - MIS Vineyard, Olive, Almond and Beef Cattle Projects

Annual revenue due to the Group from the operation of Vineyard, Olive, Almond and Beef Cattle projects is recognised on an as-earned basis. Costs are expensed as incurred.

(vi) Sale of produce from biological assets

Revenue from the sale of woodchip and timber, wine grapes, olives, almonds and cattle is recognised when risks and rewards of ownership passes to the customer.

(vii) Finance interest and other interest income

Finance interest, relating to interest from loans, and other interest revenue are recognised on the effective interest method.

(viii) Distributions and dividends

Revenue is recognised when the Group's right to receive payment is established.

- - 63 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(e) Segment reporting

A business segment is a distinguishable component of the Group engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

(f) Income tax and other taxes

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their net carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all temporary differences, except:

ƒ When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

ƒ When the taxable temporary difference is associated with investments in subsidiaries, in associates and in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

ƒ When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

ƒ When the deductible temporary difference is associated with investments in subsidiaries, in associates and in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference will be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.

Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

Great Southern Limited and its wholly-owned controlled entities have implemented the tax consolidation legislation as of 1 July 2003.

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

- - 64 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

In addition to its own current and deferred tax amounts, Great Southern Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

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

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

Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

ƒ When the GST incurred on a purchase of goods or 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

ƒ Receivables and payables, which 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 balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis unless otherwise stated, and the GST component of the cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified as part of operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(g) Business combinations

The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition.

Except for non-current assets classified as held for sale, identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(v)). If the cost of acquisition is less than the Group's share of the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

When settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the Group’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(h) Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For Cash Flow Statement presentation purposes, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(i) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less an allowance for doubtful debts.

Collectability of trade receivables is reviewed on an ongoing basis. Individual impairment is identified at a counterparty specific level following objective evidence that a financial asset is impaired. This may be after an interest or principal payment is missed or when information comes to hand that would indicate an inability to meet repayments. An allowance

- - 65 - - Great Southern Limited Notes to the Financial Statements 30 September 2008 for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the originally assessed effective interest rate and taking into account the amount of security held. The amount of the allowance is recognised in the income statement.

Debts which are known to be uncollectible are written off when identified. Write-offs are charged against previously established for impairment allowance accounts or directly to the income statement.

In circumstances where an asset has been individually assessed for impairment and no objective evidence of impairment exists, then it will be subject to a collective assessment. Collective impairment is identified for groups of assets that share similar risk characteristics. Collective impairment is assessed using a methodology based on existing risk conditions or events that have a strong correlation with a tendency to default.

It is not the Group’s intention to dispose of any of the collateral that may be possessed from impaired loans and as such value ascribed to this collateral is the value to the Group.

(j) Securitisation of loan receivables

When the Group enters into a securitisation arrangement for the sale of finance receivables, an assessment is made of the risk profile of those receivables to be securitised. Where it is considered that substantially all risks and benefits of ownership are transferred to the purchaser, the receivables securitised are no longer recognised in the Group’s financial statements.

Where it is considered that the Group retains substantially all the risks and benefits of ownership or has maintained control, the receivables securitised remain in the Group’s financial statements and together with the funds received from the securitisation of the receivables, a liability is recognised equal to the value of the receivables securitised.

(k) Biological assets and agricultural produce

Biological assets include eucalypt and pine trees, grape vines, olive trees, almond trees and cattle owned by the Group.

Timber and horticulture biological assets

Biological assets are measured on initial recognition and each reporting date at fair value less estimated point of sale costs except when the fair value cannot be measured reliably. In this instance the biological asset is measured at its cost less any accumulated depreciation and any accumulated impairment losses until such time as its fair value can be reliably measured.

Cattle biological assets

Cattle are carried at fair value less point of sale costs which is determined after assessing a number of key market indicators to ensure the values determined are representative of the herd. Trading cattle prices reflect the shorter term spot prices available in the market place. Fair value for the breeding herd reflects a longer term view of the cattle market relevant to the breeding cattle held.

Agricultural produce

Agricultural produce is the harvested product of a biological asset and includes logs, grapes, almonds and olives. Agricultural produce is measured at its fair value less point of sale costs at the point of harvest.

Net movements in fair value less estimated point of sale costs of biological assets are included in the income statement for the year they arise.

(l) Inventories

(i) Raw materials and stores

Raw materials and stores are stated at the lower of cost and net realisable value. Cost is determined on the first in, first out basis. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(ii) Processed agricultural produce

Agricultural produce processed after harvesting is stated within inventories at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

- - 66 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(m) Derivative financial instruments and hedging

The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rate fluctuations. Such derivative instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either fair value hedges or cash flow hedges.

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

(i) Fair value hedge

Fair value hedges are hedges of the Group’s exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment that is attributable to a particular risk and could affect profit or loss. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the income statement within other income or other expense together with the gain or loss relating to the ineffective portion and changes in the fair value of the hedge fixed rate borrowings attributable to interest rate risk.

(ii) Cash flow hedge

Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expense.

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

(iii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement and are included in other income or other expenses.

(n) Investments in associates

The Group's investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. The associates are entities over which the Group has significant influence and that are neither subsidiaries nor joint ventures.

The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, investments in the associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group's net investment in associates.

The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity's income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

The associates' accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

- - 67 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(o) Investments in jointly controlled entities

The Group has interests in joint ventures that are jointly controlled entities. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The Group recognises its interest in the jointly controlled entities using the equity method of accounting, whereby the initial investment is recognised at cost and the carrying amount is increased or decreased to recognise the Group’s share of the post acquisition changes in net assets of the jointly controlled entities. The Group’s share of the profit or loss of the joint venture entity is recognised in the Group’s profit or loss. Distributions received from a joint venture entity reduce the carrying amount of the investment.

(p) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

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

The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows with reference to dealer or broker price quotations.

For the MIS loan book the fair value is calculated by discounting expected cash flows by an appropriate discount rate that includes an allowance for market risk and the Group’s credit risk as well as allowing for credit adjustments that allow for the credit risk of the MIS loan book.

The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

The Group’s AFS securities are held at fair value through equity. This has been calculated with reference to the expected price achievable through securitisation.

Fair value for the Group’s Held To Maturity investment was calculated with reference to dealer or broker price quotations.

(q) Investments and other financial assets

The Group classifies its investments and other financial assets into the following categories: loans and receivables, held- to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re- evaluates this designation at each reporting date. When financial assets are recognised initially, they are measured at fair value.

All regular purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset.

(i) Loans and receivables

Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor. Such assets are carried at amortised cost using the effective interest rate method less any impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired. Loans and receivables are included in trade and other receivables in the balance sheet.

(ii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Investments that are intended to be held to maturity are subsequently measured at amortised cost using the effective interest rate method less any impairment, where gains and losses are recognised in profit or loss when the investments are derecognised or impaired.

(iii) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally receivables that the Group is holding out for possible sale under its securitisation program, are non-derivatives that are either designated as available-for-sale or not classified in any of

- - 68 - - Great Southern Limited Notes to the Financial Statements 30 September 2008 the other categories. After initial recognition available-for-sale investments are measured at fair value, with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. They are included in current assets unless management considers the potential disposal of the investment will be more than 12 months after the balance sheet date.

(iv) Allowance for impairment

Allowance for impairment of financial assets is raised where there is objective evidence of impairment and at an amount adequate to cover assessed credit related losses.

(r) Impairment of non-financial assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually as at 30 September for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

(s) Property, plant and equipment

All property, plant and equipment (except for investment properties - refer to note 1(u)) is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Pre-establishment activities on Melville Island are one-off activities that benefit the Group for the term of the lease as these activities improve land that is unsuitable to carry on a forestry or agricultural business into land that is suitable for ongoing commercial agricultural activities. The cost of pre-establishment activities is capitalised within leasehold improvements and amortised over the remaining life of the lease.

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

The Group’s land and pastoral leases are not depreciated. Depreciation on other assets is calculated consistently within each class of assets either using the straight line or diminishing value basis method to allocate their cost, net of their residual values, over their estimated useful lives, as follows:

Plant and equipment 3 - 13 years

Motor vehicles 7 years

Equipment under finance lease 5 - 7 years

Leasehold improvements 26 years

The assets’ residual values, useful lives and depreciation methods are reviewed at each balance sheet date, with the effect of any changes recognised on a prospective basis.

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

Sale of property, plant and equipment

The net profit or loss arising on the sale of assets is recognised as other income or expense at the date that control of the asset passes to the buyer. Gains or losses on disposal are calculated as the difference between the carrying amount of the asset and the net proceeds at disposal.

- - 69 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(t) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Leases of property, plant and equipment are classified as finance leases where the Group has substantially all the risks and rewards of ownership. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other non-current liabilities. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. Pastoral property leases have been included in property, plant and equipment.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the year of the lease.

Lease income from operating leases is recognised in income on a straight-line basis over the lease term.

(u) Investment properties

Investment properties, principally comprising land used in the Group’s MIS plantation and also including some of the properties used in the Group’s cattle projects, are held for capital appreciation and long-term rental yields. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value, which reflects market conditions at the balance sheet date. Gains and losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise.

Due to the large number of properties owned, the Group aims to independently value approximately one third of its plantation properties as at 30 September each year with the intention of independently valuing each property at least once over a three year period. This valuation is performed by a registered property valuer on an unencumbered (excluding the impact of the MIS lease) and best available use basis. The valuation movements are then applied to those properties that have not been independently valued in the current year that are in similar localities in order to estimate their unencumbered value.

For properties unencumbered by leases to project investors, fair value represents the open market value as determined by external valuation expert.

For properties encumbered by leases issued to project investors there is not a readily available open market on which to determine fair value. Fair value is determined using a discounted cash flow (DCF) valuation model. The DCF valuation model inflates the market value of property to the expiry of the MIS lease based on predicted regional value growth rates and then discounts the resultant value to the present day based on a risk adjusted rate. This model and the valuation assumptions are reviewed by an independent expert who also provides specific advice on the discount rate.

Investment properties are derecognised when they have been disposed of. Any gains or losses on the disposal of an investment property are recognised in profit or loss in the year of disposal.

(v) Intangible assets

(i) Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities.

Following initial recognition goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value has been impaired.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating units and then to the other assets of the cash-generating units pro-rata on the basis of the carrying amount of each asset in the cash-generating units. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Impairment losses recognised for goodwill are not subsequently reversed.

- - 70 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(ii) Land access rights

Land access rights represent the value to the Group of the various lease agreements in place with the Tiwi Aboriginal Land Trust for the long term lease of plantation land on Melville Island in the Northern Territory. This amount has been independently valued as part of the acquisition of Sylvatech Limited in April 2005.

Land access rights are amortised on a straight line basis over the remaining lease term.

(iii) Water licences and sales contracts

Water licences and sales contracts represent the value to the Group of the right to water reserves and existing sales agreements acquired with the purchase of properties. The sales contracts are amortised on a straight line basis over the life of the contracts, which varies from approximately 3 to 10 years. The water licences with an indefinite useful life are not amortised. Water licences are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value has been impaired.

(iv) Software

Software licences purchased and costs incurred in the development of internal projects are recorded at cost and amortised on a straight line basis over their remaining useful lives, which vary from 3 to 4 years.

(w) Trade and other payables

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

(x) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursements.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs.

(y) Employee benefits

(i) Wages and salaries and annual leave

Liabilities for wages and salaries and annual leave are recognised and are measured at the amounts expected to be paid when the liabilities are settled.

(ii) Long service leave

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

(iii) Bonus plans

A liability for bonus plans is recognised in other creditors when there is no realistic alternative but to settle the liability and at least one of the following conditions is met:

• there are formal terms in the plan for determining the amount of the benefit;

• the amount to be paid is determined before the time of completion of the financial reports; or

• best practice gives clear evidence of the amount of the obligations.

- - 71 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled.

(iv) Share-based payments

Share-based compensation benefits are provided to employees via the Management Performance Rights Plan. The fair value of management performance rights is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the rights are expected to vest.

The fair value at grant date is independently determined using a Monte Carlo simulation model that takes into account the term of the right, the vesting and performance criteria, the expected dividend yield, the share price at grant date and expected price volatility of the underlying security, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of rights that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of rights that are expected to become exercisable. The employee benefit expense recognised each year takes into account the most recent estimate.

(v) Employee benefit on-costs

Employee benefit on-costs, including payroll tax, are recognised and included in accruals and costs when the employee benefits to which they relate are recognised as liabilities.

(vi) Superannuation

Contributions to defined contribution superannuation plans are charged to the Income Statement when due.

(z) Interest bearing loans and borrowings

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

Transferable REset Exchangeable Securities Series 2 and 3 (TREES2, and TREES3) are perpetual, subordinated reset convertible notes with no fixed maturity and are redeemable at the option of the Group. TREES2 has no cumulative coupon obligations and TREES3 has a cumulative coupon obligation. All notes are classified in interest bearing loans and borrowings. The distributions on TREES2 and TREES3 are recognised in the income statement as interest expense.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(aa) Borrowing costs

Ongoing borrowing costs are recognised as expenses in the year in which they are incurred except where they are included in the costs of any qualifying assets. The amount capitalised to the qualifying asset are those borrowing costs directly associated with the asset.

(bb) Convertible instruments

The component of the convertible instruments that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs.

On issuance of the convertible instrument the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost.

The remainder of the proceeds is included in shareholder’s equity, net of transaction costs. This is not re-measured in subsequent years.

- - 72 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(cc) Contributed equity

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Transferable REset Exchangeable Securities (TREES) are converted to ordinary shares on conversion, net of conversion costs.

(dd) Earnings per share

(i) Basic earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to members of the parent, excluding any costs of servicing equity (other than dividends), by the weighted average number of ordinary shares outstanding during the financial year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share by taking into account the after-tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(ee) Dividends

Provision is made for the amount of any dividend declared, determined or publicly recommended by the directors on or before the end of the financial year but not distributed at balance date.

(ff) Rounding of amounts

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

(gg) New accounting standards and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for the reporting year ended 30 September 2008. Standards and interpretations issued but not mandatory have not been adopted by the Group. The company’s assessment of the impact of these new standards and interpretations is set out below:

AASB Application Application Amendment/ Title Impact on the Group financial report date of date for Standard Standard the Group

2007-3 Amendments to AASB 8 is a disclosure standard so it will have 1 January 1 October Australian Accounting no direct impact on the amounts included in 2009 2009 Standards arising from the Group’s financial report. However the new AASB 8 [AASB 5, standard may have an impact on the segment AASB 6, AASB 102, disclosures included in the Group’s financial AASB 107, AASB 119, report. AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038]

2007-4 Determining whether The amendment is not expected to have a 1 January 1 October an arrangement direct impact on the Group’s financial report. 2008 2008 contains a lease

AASB 8 Operating Segments Refer to AASB 2007-3 above. 1 January 1 October 2009 2009

AASB 101 Presentation of AASB 101 is a disclosure standard so it will 1 January 1 October Financial Statements have no direct impact on the amounts 2009 2009 (revised September included in the Group’s financial report.

- - 73 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

AASB Application Application Amendment/ Title Impact on the Group financial report date of date for Standard Standard the Group

2007) However the new standard may have an impact on the disclosures included in the Group’s financial report.

AASB 2007-8 Amendments to The amendment may have an impact on the 1 January 1 October Australian Accounting disclosures included in the Group’s financial 2009 2009 Standards arising from report. AASB 101

AASB 3 Business Combinations Changes to disclosure requirements will not 1 July 2009 1 October (revised) have a direct impact on amounts included in 2009 the Group's financial statements. However, the new standard may have an impact on the disclosures included in the Group's financial report.

AASB 127 Consolidated and The amendment may have an impact on the 1 July 2009 1 October Separate Financial disclosures included in the Group's financial 2009 Statements report.

AASB Amendments to The Group has share-based payment 1 January 1 October Australian Accounting arrangements that may be affected by these 2008-1 2009 2009 Standard – Share- amendments. However, the Group has not yet based Payments: determined the extent of the impact, if any. Vesting Conditions and Cancellations

AASB Amendments to These amendments are not expected to have 1 January 1 October Australian Accounting any impact on the Group’s financial report as 2008-2 2009 2009 Standards – Puttable the Group does not have on issue or expect to Financial Instruments issue any puttable financial instruments as and Obligations arising defined by the amendments. on Liquidation

AASB 2008-3 Amendments to Refer to AASB 3 and AASB 127 above. 1 July 2009 1 October Australian Accounting 2009 Standards arising from AASB 3 and AASB 127 [AASB 1, AASB 2, AASB 4, AASB 5, AASB 7, AASB 101, AASB 107, AASB 112, AASB 114, AASB 116, AASB 121, ASSB 128, AASB 131, AASB 132, AASB 133, AASB 134, AASB 136, AASB 137, AASB 138 & AASB 139 and Interpretation 9 & Interpretation 107]

AASB Amendments to The improvements project is an annual project 1 January 1 October Australian Accounting that provides a mechanism for making non- 2008-5 2009 2009 Standards arising from urgent, but necessary, amendments to IFRSs. the Annual The IASB has separated the amendments into Improvements Project. two parts: Part 1 deals with changes the IASB identified resulting in accounting changes;

Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.

- - 74 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

AASB Application Application Amendment/ Title Impact on the Group financial report date of date for Standard Standard the Group

The Group has not yet determined the extent of the impact of the amendments, if any.

AASB Further Amendments The Group has not yet determined the extent 1 January 1 October to Australian of the impact of the amendments, if any. 2008-6 2009 2009 Accounting Standards

arising from the Annual Improvements Project

AASB Amendments to Recognising all dividends received from 1 January 1 October Australian Accounting subsidiaries, jointly controlled entities and 2008-7 2009 2009 Standards – Cost of an associates as income will likely give rise to Investment in a greater income being recognised by the Subsidiary, Jointly parent entity after adoption of these Controlled Entity or amendments. Associate

In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a ‘carry-over basis’ rather than at fair value.

AASB Amendments to The amendment to AASB 139 clarifies how the 1 July 1 October Australian Accounting principles underlying hedge accounting should 2008-8 2009 2009 Standards – Eligible be applied when (i) a one-sided risk in a Hedged Items hedged item and (ii) inflation in a financial hedged item existed or was likely to exist.

The Group has not yet determined the extent of the impact of the amendments, if any.

Amendments Reclassification of The IASB issued the amendment as a result of 1 July 1 October to Financial Assets the deterioration of the world’s financial 2008 2008 International (amendments to IAS markets during the third quarter of 2008. This Financial 39 Financial will reduce differences between IFRSs and US Reporting Instruments: GAAP by permitting reclassification of some Standards Recognition and financial instruments. (note(a)) Measurement and IFRS The Group has not yet determined the extent 7 Financial of the impact of the amendments, if any. Instruments Disclosures)

- - 75 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 2. Critical accounting estimates and judgements

In applying the Group’s accounting policies, estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Goodwill

The Group determines whether goodwill and intangible assets with indefinite useful lives are impaired on an annual basis. This requires the estimation of the recoverable amount of the cash generating unit to which the goodwill and the intangible assets with indefinite useful lives are allocated. The assumptions used in the estimation of the carrying amount of goodwill and intangible assets with indefinite useful lives are disclosed in note 18.

(ii) Revenue recognition – MIS plantation and high value timber project sales

The Group determines revenue for plantation project sales based upon the proportion of the cost of work performed at balance date relative to the estimate of the total cost of work to be performed for the project’s initial services. The Group has 12 months from the date of execution of the project Lease and Management Agreement to complete the services. In determining the total cost of work to be performed, estimates are made of the cost of future work required, including the level of direct selling costs, the cost of preparing the land and establishing the trees and, for the current plantation project, the cost of encumbering land to be used in the project.

Further, should the Group not be able to complete the initial services in the prescribed time, for example by not acquiring all the necessary land, then the Group may be required to return application monies to some investors which will then reduce the amount of revenue and deferred revenue (see notes 3 and 25) that can be recognised in the future financial statements of the Group.

(iii) Revenue recognition – MIS plantation ongoing project fees

The Group determines revenue from ongoing services for plantation projects earned during the life of the project when the value of the projects net harvest proceeds can be measured reliably. The Group has determined that reliable measurement of the net proceeds from the harvest of plantation projects can be made after approximately 4 years of timber growth. As with Biological Assets below estimates of the revenue earned that can be recognised is determined using a discounted cash flow model that requires the use of assumptions. Refer to note 3 for details of these assumptions.

(iv) Investment property

The Group classifies land used in its forestry MIS projects as investment property as it is currently the Group’s intention to hold these assets for the long term for capital appreciation and / or rental purposes. In accordance with its accounting policy, investment property is recorded at fair value in the financial statements. The fair value of investment properties that are leased to project investors has been determined using property valuations from an independent qualified land valuer which covers around one third of the investment property estate and using a discounted cash flow valuation model that requires the use of assumptions. Refer to note 17 for details of these assumptions and the potential impact of changes to the assumptions.

(v) Provision for land assessment

The Group is required to provide additional resource for its 2004 to its 2007 MIS plantation projects. There are a number of ways that the Group can fulfil this obligation including planting new trees, purchasing existing standing timber and using coppiced (second rotation) timber following the harvest of existing trees. The cost of these options will vary depending upon the specific circumstances of each option, for example the use of owned or leased land. The choice of the strategies available to the Group to fulfil this obligation is a trade off between value and cash flow. The Group currently expects to fulfil this additional resource requirement through a combination of using some of the Group’s owned standing timber and using some of the coppice timber that will become available following the harvest of ongoing MIS project timber. The associated cost to the Group of providing this additional resource is included in the financial statements as a specific liability (refer Note 28) and through an additional encumbrance booked for the specific investment properties (note 17) to be used to grow the additional resource. If alternative strategies to provide this additional resource are used then the cost to the Group may be significantly higher. Refer to note 28(a) for more details.

(vi) Biological assets – standing timber

The fair value less point of sale costs of standing timber, where the tree has at least 4 years of growth, has been determined using a discounted cash flow valuation model that requires the use of assumptions. Refer to note 15 for details of these assumptions.

- - 76 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

(a) Critical accounting estimates and assumptions (continued)

(vi) Biological assets - Horticulture

The fair value less point of sale costs of horticulture biological assets has been determined using a discounted cash flow valuation model that requires the use of assumptions. Refer to note 15 for details of these assumptions.

(vii) Biological assets - Cattle

Cattle are carried at fair value less point of sale costs which is determined after assessing a number of key market indicators to ensure the values determined are representative of the herd. The fair value of breeder cattle and trading cattle reflect the market price for both classifications’ spot prices available in the market place.

(viii) Doubtful debt assessment – loan security value

In determining the level of allowance required against loans provided to investors in the Group’s MIS projects for which the Group has exposure, an estimate is made of the value of the investor’s interest in the relevant MIS project which is secured against the loan. Security value is calculated as the biological asset value of the underlying agricultural produce in accordance with the Group policy, being cost for trees less than 4 years old and fair value as determined by a discounted cash flow model for trees at least 4 years old and for all other projects. The assumptions used in the estimation of the security value are disclosed in note 7.

(b) Critical judgements in applying the entity’s accounting policies

(i) Securitised loan receivables

The Group has a loan securitisation arrangement in place with Bendigo and Adelaide Bank Limited (BAB), previously Adelaide Bank Limited, under which there is no credit recourse to the Group on any loan securitised (the “Off Balance Sheet facility”).

The Group has made a judgement that substantially all of the risks and rewards associated with the securitisation of loans to BAB under the Off Balance Sheet facility have been transferred to BAB and in accordance with the Group’s policy the loans securitised are de-recognised from the Groups balance sheet.

The Group has entered into an additional securitisation arrangement with BAB for the securitisation of certain loans that are not able to be securitised under the Off Balance Sheet facility. As the risks and rewards of ownership of these loans remain substantially with the Group, the securitised receivables, and a liability to BAB of an equal amount, remain on the Group’s balance sheet, along with a non-current asset for the amount of the bond held as collateral. The Group assesses and recognises an allowance for credit loss on these loans up to the maximum level of credit support provided for the Group on these loans (refer note 8).

(ii) Income taxes

The Group is subject to income taxes in Australia and significant judgement is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the year in which such determination is made. Deferred tax assets are recognised for deductible temporary differences when management considers it probable that those future taxable profits will be available to utilise those temporary differences.

- - 77 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 3. Revenue

(i) Revenue Consolidated Parent Entity

30 Sept 2008 30 Sept 2007 30 Sept 2008 30 Sept 2007 $’000 $’000 $’000 $’000

Revenue

Project revenues: - Revenue from current financial year sales (note (a)) 210,613 252,969 - - - Revenue from previous financial year sales 104,137 149,774 - -

Sale of agricultural produce (note (b)) 36,576 19,183 2,903 745

Management fee income (note (c)) 44,257 4,557 159,784 264,761

Interest income:

- MIS loans (note (a)) 12,490 21,211 - -

- Held to maturity investment 4,904 4,595

- Cash and cash equivalents 11,427 13,792 459 295

424,404 466,081 163,146 265,801

(ii) Other income

Fair value increment to investment property (note 17) 3,333 37,592 - 34

Release of project maintenance provision - 6,944 - - Release of grower return provision (note (d)) 4,880 - - -

Other income 11,751 14,567 433 849

19,964 59,103 433 883

(a) Impact of interest free receivables

In accordance with AASB 139, interest free loans extended to investors in the Group’s managed investment schemes that are payable in equal monthly instalments, predominantly over a twelve month term, are included in current trade receivables and are discounted to present value. The difference between the face value and present value of the interest free loan is initially recognised as a reduction of current year project revenue on the date that the loan originated. The entire amount of the initial discount is then recognised over the term of the loan as interest income. At 30 September 2008, the Group does not hold any significant interest free receivables.

For the year ended 30 September 2008, $6,663,000 (year ended 30 September 2007: $9,860,000) was recognised as a reduction of current year project revenue for the initial discounting of interest free receivables and the Group recognised $1,161,000 (year ended 30 September 2007: $2,719,000) of interest income that resulted from the unwinding of the discount of interest free receivables. This amount is included in Interest Income - MIS loans.

As at 30 September 2008, the current trade receivables balance includes an $85,000 (30 September 2007: $1,161,000) discount to face value that will be recognised as interest income over the subsequent 12 months.

(b) Included in the sale of agricultural produce is a net increment to the fair value of biological assets of $7,106,000 (30 September 2007: $5,165,000 increment).

(c) Includes management fee income of $17,430,000 for the ongoing services performed for the groups 1998 to 2003 plantation projects. This management fee revenue is recognised after approximately 4 years of timber growth, which is the date The Group has determined a reliable estimate of net harvest proceeds can be made. The level of management fee income able to be recognised for the 1998 to 2003 plantation projects inclusive is determined from a discounted cash flow model. The major assumptions used in the estimate of the management fee income are as follows:

- - 78 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 3. Revenue (continued)

Management fee 5.5% of net harvest proceeds Current woodchip price (FOB) $207.40 per bdmt Woodchip price growth real 3% p.a. to 2013, 0% post 2013 CPI 3% p.a Discount rate (pre-tax nominal) 11% - 14%

(d) The Board has determined that no further contributions to existing plantations projects will be made and the unused portion of $4,880,000 has been released.

Note 4. Expenses

Consolidated Parent Entity 30 Sept 30 Sept 2008 30 Sept 2007 2008 30 Sept 2007

$’000 $’000 $’000 $’000 Profit/(loss) before income tax includes the following specific expenses:

Finance costs : - Interest and finance charges incurred 56,286 35,186 27,766 16,687 - TREES series interest expense 16,351 16,114 16,351 16,114 Total finance costs 72,637 51,300 44,117 32,801

Employee benefits expense: - Wages and salaries 42,770 32,360 39,189 31,767 - Defined contribution superannuation expense 3,345 2,602 3,041 2,558 - Expense of share based payments 2,462 4,611 2,462 4,611 - Employee benefits provisions 1,191 2,094 1,061 1,970 Total employee benefits expense 49,768 41,667 45,753 40,906

Cost of agricultural produce sold 24,258 8,980 7 14 Amortisation of intangible assets (note 18) 1,343 2,830 1,267 1,520 Depreciation: - Plant and equipment (note 16) 9,191 6,689 1,397 1,536 Other charges against assets: - Allowance for related party loans (note (13)) - - 213,732 - - Bad and doubtful debts expense 56,936 5,632 - 193 Rental expense relating to operating leases: - Minimum lease payments 36,293 25,283 4,057 3,296 Loss on disposal - Property plant and equipment 285 224 64 163 Property acquisition fees - 7,154 - - Fair value decrement to current investment 19,356 - - - properties (note 12) Impairment of goodwill 30,000 - - - Impairment of horticultural assets - 40,072 - -

- - 79 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 5. Income tax expense

Consolidated Parent Entity 30 Sept 2008 30 Sept 2007 30 Sept 2008 30 Sept 2007 $’000 $’000 $’000 $’000 (a) Income tax expense/(benefit) Current tax Current income tax charge 351 25,703 (411) 34,861 Adjustments in respect of previous years (198) 2,318 (198) 2,318 Deferred tax relating to originating and reversing temporary differences (4,043) 8,929 (1,556) (2,804) (3,890) 36,950 (2,165) 34,375

(b) Numerical reconciliation of income tax expense to prima facie tax payable Profit/(loss) before income tax expense (67,694) 108,458 (221,204) 98,882

Tax at the Australian tax rate of 30% (30 September 2007: 30%) (20,308) 32,537 (66,361) 29,665 Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Allowance for related party loans - - 64,119 - TREES2 interest expense 1,530 1,536 1,530 1,536 Under-provision of tax in prior year (198) 2,318 (198) 2,318 Impairment of goodwill 9,000 - - - Penalty interest accrued for tax on doubtful debts 1,786 - - - Management performance rights 739 1,383 739 1,383 Sundry items 3,561 (824) (1,994) (527) Income tax expense/(benefit) (3,890) 36,950 (2,165) 34,375

(c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting year and not recognised in net profit or loss but directly debited or credited to equity Net deferred tax – (credited)/debited directly to equity (1,090) 2,644 (186) 988 (1,090) 2,644 (186) 988

(d) Tax consolidation legislation

Great Southern Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is set out in note 1(f).

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

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

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

- - 80 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 6. Current assets – cash and cash equivalents

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Cash at bank and on hand 87,761 51,162 3,254 40,511 Deposits at call 3,634 156,478 - 51

91,395 207,640 3,254 40,562

Cash at bank and on hand is at floating interest rates between 6.00% and 6.75% pa (30 September 2007: between 6.00% and 6.50% pa). Deposits at call are at fixed interest rates between 6.37% and 8.00% pa (30 September 2007: 6.20% and 6.75%). These deposits have an average maturity of 30 days.

Note 7. Current assets – trade and other receivables

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Trade receivables 25,667 62,082 1,591 41

Allowances for doubtful debts (c) (7,598) (2,255) - -

18,069 59,827 1,591 41

Loans to related parties (note 40) - - - 309,824

Prepayments 17,314 11,012 3,183 3,431

Other receivables 41,885 50,629 4,322 5,607

77,268 121,468 9,096 318,903

Trade receivables

Trade receivables include the current portion of MIS loans receivable, a portion of which are interest-bearing. The remaining trade receivables are non-interest bearing and are generally on 30-90 day terms. All receivables are in Australian dollars.

(a) MIS loans

MIS loans offered to investors to fund their investment in a project are either 12 month interest free (repayable in 12 equal payments) or longer term principal and interest loans.

The majority of finance provided to investors to fund their investments in the Group’s MIS projects is through funding arrangements in place with Bendigo and Adelaide Bank Limited (“BAB”). The majority of these loans are funded through the “off balance sheet” facility and under this facility there is no recourse to the Group for default or losses incurred by BAB on any of the loans. The Group also has an “on balance sheet” facility with BAB for which the Group does retain some exposure to the loan funded through this facility (refer note 8) qualification for which is at the discretion of BAB.

MIS loans are available only to finance the applicant’s interest in Great Southern MIS projects. MIS loan applications are assessed on an individual basis according to certain credit criteria. In order for loans to be funded through the funding arrangements with BAB, loan applicants must have clear credit references, and, for larger loan applications, serviceability and asset tests must be met.

Notwithstanding the funding arrangement in place with BAB the Group will provide funding for selected MIS loan applicants that do not meet the eligibility criteria for BAB funding. In this instance the finance application is reviewed by senior credit analysts and if considered credit-worthy are referred to management for funding approval through the Group. These loans are retained on the Group balance sheet. Finance approval by the Group is based on consideration of the following conditions:

(i) Current or previous investor with good repayment history;

(ii) The application is of sufficient quality to expect that BAB will purchase the loan via the ”off balance sheet” facility or of sufficient quality to expect another external financier to fund the loan; or

- - 81 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 7. Current assets – trade and other receivables (continued)

(iii) The applicant has provided other information to prove that they are creditworthy.

(b) Credit risk

The carrying amount of trade receivables recorded in the financial statements, net of any allowances for impairment losses and allowable offsets represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained for those receivables for which a doubtful debt allowance has not been made (refer below).

The Group’s exposure to interest rate risks related to current trade and other receivables are disclosed in note 34.

(c) Allowance for doubtful debts

A reconciliation of the movement in the allowance account for doubtful debts can be found below for current receivables and in note 13 for non-current receivables.

Other receivables

Other receivables include GST receivables and MIS insurance receivables due from project investors. Due to the nature of these receivables and their relatively small size compared to the investment in project, the Group’s believes these receivables are able to be recouped from project income streams to the extent there are no other receivables outstanding to the Group. Refer to note 34 for details of loans past due but not impaired.

Movement in the allowance for doubtful debts

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Balance at the beginning of the year 2,255 4,874 - - - Impairment losses recognised on receivables 5,343 5,270 - Amounts written off as uncollectible - (7,880) - - - Amounts recovered during the year - (9) -

Transferred to non-current doubtful debts - - - - - Balance at the end of the year 7,598 2,255 -

The Group assesses the integrity and ability of trade debtors to meet their contracted financial obligations for repayment. While the Group applies policies, standards and procedures in governing the credit process, the management of credit risk also relies on the application of judgment and the exercise of good faith and due care of relevant staff within their delegated authority. These trade debtors are managed on an individual basis for any large receivable and on a delinquency band approach for other receivables (for instance, actions taken when loan payments are greater than 30 days past due differ from actions when payments are greater than 60 days past due) and are reviewed by the relevant staff.

An allowance for doubtful debts is raised where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. In general terms, an allowance for doubtful debts is recognised where:

(i) a borrower cannot be contacted or located

(ii) a borrowers is bankrupt, in liquidation / administration or is deceased

(iii) legal action has been pursued to conclusion and the borrower has no capacity to pay; or

(iv) the borrower does not adhere to an agreed arrangement

An allowance for doubtful debts will not be recognised where the borrower shows a genuine intention to repay the loan and payments continue to be made, notwithstanding that the loan may be in arrears, or where the security value of the underlying investment in the MIS project is estimated to exceed the loan amount outstanding.

For borrowers where recovery of all or part of their outstanding debt is doubtful, the amount of the allowance for doubtful debts is calculated as the excess of any outstanding loan balance over the amount expected to be recovered by the Group, with the recovery amount including an estimate of the value of loan’s underlying security. Each loan provided to fund an

- - 82 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 7. Current assets – trade and other receivables (continued)

MIS project investment is secured by the relevant MIS project interest. The Group estimates the value of an MIS project interest by reference to the underlying agricultural commodity of the project and by applying the Group’s policy for the valuation of relevant biological assets (refer note 15). For example, the security value for interests in MIS plantation projects is either: (a) the cost of establishing the tree for trees less than 4 years old; or (b) a value determined using a discounted cash flow model. As at 30 September 2008 the value of security held was estimated to be $23,100,000 for impaired debtors. Allowances for doubtful debts are reviewed and approved by senior management.

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The Group’s MIS loan receivables comprise loans that have not been sold or securitised to an external financier and accordingly the credit risk of these receivables would be considered higher than for the majority of loans taken out to fund the investment in the project that qualify for securitisation. This profile has been taken into account in determining the level of credit provision and accordingly the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

Note 8. Receivables and Borrowings – securitised loans

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Current assets Receivables – securitised loans 7,767 - - -

Non-current assets Receivables – securitised loans 33,039 - - -

Current liabilities Borrowings – securitised loans 7,767 - - -

Non-current liabilities Borrowings – securitised loans 33,039 - - -

Securitised loans During the year, the Group entered into an additional securitisation arrangement with Bendigo and Adelaide Bank Limited for the securitisation of certain loans that are not able to be securitised under the Off Balance Sheet facility. Under this new arrangement, the “on balance sheet” facility, the company is exposed to losses experienced from this pool of loans up to a maximum exposure of $7,723,000. The Group has set aside this amount on deposit to be held as collateral for this potential commitment (refer note 13 and note 38). The Group has no other commitment to BAB other than this guarantee.

The Group has determined that substantially all of the risks and benefits of ownership have not been transferred to the purchaser, so the loans cannot be derecognised from the Group’s financial statements and a corresponding liability is booked in interest bearing liabilities.

Group assesses the credit quality and the credit risk associated with all loans securitised by on balance sheet facility in the same as it assessed the credit quality and credit risk of its own trade receivables. Refer note 34 for a detailed discussion.

- - 83 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 9. Current assets – inventories

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Woodchip and timber – at cost - 824 - - Fertiliser and chemicals – at cost 2,169 3,976 1,259 1,766

Other inventory – at cost 1,062 1,988 403 1,205 3,231 6,788 1,662 2,971

Inventories recognised as an expense during the year ended 30 September 2008 for the Group amounted to $32,617,000 (year ended 30 September 2007: $31,164,000). Inventories recognised as an expense for the parent entity amounted to $20,878,000 (year ended 30 September 2007: $18,009,000)

Note 10. Other financial assets

Consolidated Parent entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Current assets Held-to-maturity investment (note (a)) 10,447 9,932 - - Available-for-sale investments (note (b)) 3,086 - 3,086 - Total current other financial assets 13,533 9,932 3,086 -

Non-current assets Held-to-maturity investment (note (a)) 44,817 55,560 - - Available-for-sale investments (note (b)) 6,417 - - -

Shares in controlled entities – at cost (note (40)) - - 130,415 115,463 Less: Impairment loss - - (961) (961)

Total non-current other financial assets 51,234 55,560 129,454 114,502 Total other financial assets 64,767 65,492 132,540 114,502

(a) The held-to-maturity investment was purchased in August 2006 as part of a structured finance transaction in which the Group received $211,691,000 net of issue costs through the issue of debentures (refer note 30). The counterparty to this investment is ANZ Bank Ltd with a Standard & Poors credit rating of AA (2007: AA). This held-to- maturity investment is structured so as to fully amortise over the 6 years to August 2012 to meet the interest payments due on tranche A of the structured finance facility over the same period. The held-to-maturity investment is pledged as security for the structured finance facility (refer note 30 for further information).

(b) The Group’s investments in available for sale investments comprise an investment in the GSFM All Caps Australian Share fund and the GSFM Blended Domestic and Global Property Securities Fund (current) and an investment by a subsidiary in the Ultra Premium Vineyard Income Fund (UPVIF) (non-current). The current investments were sold subsequent to 30 September 2008 for an amount approximating the carrying value at the balance date.

- - 84 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 11. Available-for-sale financial assets

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Current Receivables available-for-sale 14,086 36,361 - -

Available-for-sale financial assets, comprise principally receivables that qualify for securitisation and which management has the option to dispose of within 12 months of the balance sheet date. Refer to Note 7 for details on credit risk arising from trade receivables.

The Group’s exposure to interest rate risk related to available-for-sale financial assets is disclosed in note 34.

Note 12. Current assets – investment properties

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Current Transferred from non-current investment properties 29,778 - - - Fair value adjustment (19,356) - - - Closing balance at end of year 10,422 - - -

As part of the Group’s 2008 Renewable Fibre Project the Group is required to source land that will be leased to investors in the project and sell this land into the Great southern 2008 Land Trust, whose unit holders will be investors in the project. At the date of this report the Group has identified investment properties with a fair value, after taking into account the MIS lease encumbrance of $10,422,000, that it expects to sell to the land trust.

Refer note 17 for details regarding the valuation of investment properties.

Note 13. Non-current assets – trade and other receivables

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Term trade receivables (note (a)) 120,780 96,210 - - Allowance for doubtful debts (note (b)) (55,609) (358) - - 65,171 95,852 - - Loans to related parties (note 40) - - 1,532,586 843,397 Other receivables (note (c)) 23,714 3,487 - 193 Allowance for doubtful debts and on related party loans (note (b) ) - - (213,732) (193)

88,885 99,339 1,318,854 843,397

(a) Term trade receivables

To secure these receivables, a charge is held over the underlying property, being the land and management agreement to which the loan relates. Where collection of the receivable is doubtful and the assessed value of the property is less than the amount outstanding, an allowance for doubtful receivables is recognised for the shortfall. Refer to note 7 for details on the credit review process and collateral held. The receivables have a maximum maturity of 10 years. Interest rates are fixed at the time of entering into the contract and range between 9.5% pa and 12.0% pa (year ended 30 September 2007: 9.5% pa and 11.5% pa). Refer to note 34 for an ageing analysis of loans past due but not impaired.

- - 85 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 13. Non-current assets – trade and other receivables (continued)

(b) Movement in the allowance for doubtful debts

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Balance at the beginning of the year 358 106 - -

Impairment losses recognised on receivables 55,609 362 (213,732) -

Transferred from current doubtful debts - - - - Amounts written off as uncollectible (358) (110) - -

Amounts recovered during the year - - - -

Balance at the end of the year 55,609 358 (213,732) -

Determination of the recoverability of term trade receivables is discussed in Note 7.

The parent entity lends money to subsidiaries primarily to purchase buy land and property assets for use in the subsidiary’s MIS projects. The structure of the MIS projects is such that fair value of investment properties will reduce on initially leasing the property to investors (refer note 17). In addition the parent entity does not charge interest on receivables due from wholly owned subsidiaries. The impact of these issues is that an allowance for doubtful debts of $213,732,000 has been recognised at 30 September 2008.

(c) Other receivables

A receivable for plantation management fees of $17,430,000 has been booked in the current financial year, refer note 3(c). Of this amount $15,991,000 is classified as non-current with the remainder as current.

During the year ended 30 September 2008, the Group entered into an additional securitisation arrangement with Bendigo and Adelaide Bank Limited for the securitisation of certain loans that are not able to be securitised under the off balance sheet facility. The maximum exposure of the Group to default in any of the loans securitised to date under this facility is limited to the $7,723,000 held as collateral. The amount held as collateral is recorded as a non-current financial asset as at 30 September 2008. The investment is of a similar nature to a high interest cash deposit but there are restrictions as to its use. The Group values this instrument at principal plus accrued interest. Bendigo and Adelaide Bank has a Standard and Poor’s credit rating of BBB+ (2007: BBB+).

In June 2001 the Group entered into an arrangement with NM Rothschild & Sons (Australia) Limited for the partial securitisation of the Company’s loan book. The Group has acquired bonds in the loan acquiring entity that at 30 September 2008 has a face value of $nil (30 September 2007: $2,997,000). During the year bonds totaling $2,997,000 were redeemed by the loan acquiring entity.

The Group’s exposure to credit and interest rate risks related to non-current trade and other receivables are disclosed in note 34.

- - 86 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 14. Derivative financial instruments

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Non-current assets Interest rate swap contracts – cash flow hedges - 3,136 - 1,526 Total derivative financial instrument assets - 3,136 - 1,526

Non-current liabilities Interest rate swap contracts – cash flow hedges 1,609 - 1,039 - Total derivative financial instrument liabilities 1,609 - 1,039 -

Instruments used by the Group

The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Group’ s financial risk management policies.

The number and size of the Group’s derivative contracts make it impracticable to diversify beyond the use of two counterparties and the counterparties have a minimum credit rating of AA.

Interest rate swap contracts – cash flow hedges

Swaps currently in place cover $300,000,000 of the total Club Bank corporate borrowings (30 September 2007: $200,000,000), being approximately 86% (30 September 2007: 82%) of the loan principal outstanding, and are generally timed to expire as each loan repayment falls due. The fixed interest rates range between approximately 0.07% below and 2.40% above (30 September 2007: 0.38% above) the 90 day bank bill rate which at balance date was 7.3% (30 September 2007: 6.9%).

The variable rates on the remaining loan principal outstanding are between 0.85% and 1.80% (30 September 2007: 0.76% and 1.81%) above the 90 day bank bill rate at the balance date.

A swap currently in place covers $77,646,000 of the total borrowings on the structured finance facility (30 September 2007: $69,170,000), being approximately 35% (30 September 2007: 32%) of the loan principal outstanding, and are generally timed to expire as the loan payment falls due. The fixed interest rate is 0.95% above the 90 day bank bill rate (30 September 2007: 1.38%) which at the balance date was 7.3% (30 September 2007: 6.9%)

The variable rate on the remaining loan principal outstanding is 1.5% above the 90 day bank bill rate at the balance date.

Refer to note 34 for details on the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date.

Most of the contracts require the settlement of net interest receivable or payable each 90 days. The settlement dates generally coincide with the dates on which interest is payable on the underlying borrowings.

The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and re-classified into profit and loss when the hedged interest expense is recognised. Hedge ineffectiveness for the cash flow hedges totalled approximately $3,000 and was recognised in the income statement immediately.

- - 87 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 15. Biological assets

Consolidated 30 September 2008 30 September 2007 Standing Hortic- Standing Hortic- Beef Timber ulture Beef Cattle Total Timber ulture Cattle Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Opening balance at beginning of the year 2,648 17,835 113,074 133,557 3,578 15,240 96,983 115,801 Additions 39,978 12,651 4,161 56,790 - 13,776 38,915 52,691 Additions from business combinations - 17,524 - 17,524 - - - -

Harvested/sold (4,779) - (15,173) (19,952) (1,076) - (27,843) (28,919)

Written down - - - - - (11,181) - (11,181) Fair value increment / (decrement) 11,159 (7,114) 3,061 7,106 146 - 5,019 5,165 Closing balance as at end of the year 49,006 40,896 105,123 195,025 2,648 17,835 113,074 133,557

Current 14,364 1,446 10,849 26,659 1,390 1 19,767 21,158

Non-current 34,642 39,450 94,274 168,366 1,258 17,834 93,307 112,399

Total Biological Assets 49,006 40,896 105,123 195,025 2,648 17,835 113,074 133,557

Number of Cattle

Opening balance - - 176,544 176,544 - - 154,595 154,595 Closing balance as at end of the year - - 149,935 149,935 - - 176,544 176,544

Number of Green Metric Tonnes of Standing Timber

Opening balance 80,175 - - 80,175 106,064 - - 106,064 Closing balance as at end of the year 2,070,300 - - 2,070,300 80,175 - - 80,175

Number of Hectares of horticulture biological assets

Opening balance - 4,537 - 4,537 - 2,133 - 2,133 Closing balance as at end of the year - 5,093 - 5,093 - 4,537 - 4,537

The parent entity held no biological assets as at 30 September 2008 and 30 September 2007.

The biological assets comprise pine and eucalypt trees situated in the south west of Western Australia, New South Wales and the Green Triangle region in South Eastern Australia, wine grape vines, almond trees and olive trees situated in South Eastern Australia and Western Australia and cattle situated in northern Western Australia, Tasmania, New South Wales and Queensland.

Standing timber

For mature eucalypt and pine trees, the fair value less point of sale costs is based upon the current arms length market price less point-of sale costs. During the year ended 30 September 2008, approximately 178,000 green metric tons of timber was harvested (2007: 26,000) with a fair value less point of sale costs of $14,802,000.

The Group purchased the rights to approximately 14,700 hectares of hardwood plantations from entities associated with Hansol HomeDeco Company Limited during the year ended 30 September 2008.

The major assumptions used in the valuation model to determine the fair value less point of sale costs of the standing timber are as follows:

(a) The eucalypt trees are harvested in year 10-11 (b) Inflation rate of 3% (c) A nominal pre-tax discount rate of 15% (d) Current woodchip FOB price $207.40 per bdmt

- - 88 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 15. Biological Assets (continued)

Horticulture

The majority of the Group’s horticulture assets are leased to investors in the Group’s ongoing MIS projects and accordingly the ability of the Group to deal with these biological assets is restricted until the completion of the relevant project. The fair value less point of sale costs of established vineyard and olive grove biological assets has been assessed by the company as the difference between the net present value of the cash flows expected to be generated by the vineyard/almond/olive grove taking into account the lease of the asset to an MIS project and the fair value of integral property, plant and equipment associated with the vineyard/almond/olive grove.

The major assumptions used in the valuation model to determine the fair value less point of sale costs of the vineyards and olive groves are as follows:

(a) Newly established vineyards reach maturity in 6 years but start producing in year 3 (b) Newly established olive groves reach maturity in 7 years but start producing in year 3 (c) Nominal pre-tax discount rate 12.0% – 12.3% (d) Inflation rate 3.0% (e) Estimated trading prices and harvest yields are based upon management expectations with regard to current market information.

In accordance with the Group’s accounting policy a vineyard, almond or olive grove is not considered fully established until one year from the date of planting, and until such time the fair value less point of sale costs of these biological assets is determined to be equivalent to its cost of establishment.

During the year ended 30 September 2008 the Group harvested 17,677 tonnes of wine grapes (2007: 4,132 tonnes) with a fair value less point of sale costs of $15,352,000 and 1,273 tonnes of olives (2007: 1,055 tonnes) with a fair value less point of sale costs of $1,004,000.

As at 30 September 2008, approximately $30,755,000 (2007: $13,729,000) of the horticulture biological assets were leased to investors in the Group’s managed investment schemes. The existing leases have remaining terms ranging from 12 to 20 years.

Beef cattle

The majority of the Group’s beef cattle are breeder cattle that are leased to investors in the Group’s ongoing cattle projects and accordingly the ability of the Group to deal with these biological assets is restricted until the completion of the relevant project. As at 30 September 2008, approximately $84,700,000 (30 September 2007: $89,202,000) of the beef cattle biological assets were leased to investors in the Group’s managed investment schemes. The existing leases have remaining terms ranging from 4 to 5 years.

Cattle are carried at fair value less point of sale costs which is determined after assessing a number of key market indicators to ensure the values determined are representative of the herd. The fair value of breeder cattle and trading cattle reflect the market price for both classification’s in the market place.

During the year ended 30 September 2008, approximately 29,500 (30 September 2007: 41,000) head of beef cattle were sold for $12,839,000.

Financial risk management strategies

The Group has exposure to financial risks arising from changes in the price of beef cattle and from changes to prices in woodchip, wine grape and olives principally as the Group’s ongoing management fees for its cattle and horticulture MIS projects are calculated as a share of net sale / harvest proceeds. The Group is also exposed to risks from changes in the price of beef cattle and from changes to prices in woodchip arising from cattle and timber assets held on its own account. The Group considers the need for active financial risk management strategies on a regular basis and at the date of this report, the Group has entered into supply contracts for wine grape and olive produce, with no minimum volume requirement. The Group has not entered into derivative or other contract to manage the risk of a decline in prices.

- - 89 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 16. Non-current assets – property, plant and equipment

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Land and buildings Freehold land - at cost 70,534 58,560 1,042 1,042

Pastoral leases – at cost 56,548 53,048 - -

Plant and Equipment Plant and equipment – at cost 173,467 114,395 19,747 17,776 Less: Accumulated depreciation/impairment (47,362) (38,847) (5,129) (3,836) Total plant and equipment 126,105 75,548 14,618 13,940 Total property, plant and equipment 253,187 187,156 15,660 14,982

Reconciliations

Reconciliations of the carrying amount of each class of property, plant and equipment at the beginning and end of the current financial year are set out below:

Freehold Pastoral Plant and Leased land leases equipment equipment Total $’000 $’000 $’000 $’000 $’000 Consolidated – 30 September 2008 Carrying amount at beginning of year 58,560 53,048 71,690 3,858 187,156 Additions 5,782 3,500 46,987 42 56,311 Additions from business combinations 6,192 - 22,230 - 28,422 Disposals - - (8,882) (629) (9,511) Depreciation - - (8,616) (575) (9,191) Carrying amount at end of year 70,534 56,548 123,409 2,696 253,187

Parent Entity – 30 September 2008 Carrying amount at beginning of year 1,042 - 13,220 720 14,982 Additions - - 539 1,770 2,309 Disposals - - (68) (166) (234) Depreciation - - (1,088) (309) (1,397) Carrying amount at end of year 1,042 - 12,603 2,015 15,660

- - 90 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 16. Non-current assets – property, plant and equipment (continued)

Freehold Pastoral Plant and Leased land leases equipment equipment Total $’000 $’000 $’000 $’000 $’000 Consolidated – 30 September 2007 Carrying amount at beginning of year 34,635 53,041 58,345 5,008 151,029 Additions 23,925 7 45,464 375 69,771 Disposals - - (1,194) (737) (1,931) Depreciation - - (5,901) (788) (6,689) Impairment - - (25,024) - (25,024) Carrying amount at end of year 58,560 53,048 71,690 3,858 187,156

Parent Entity – 30 September 2007 Carrying amount at beginning of year - - 11,557 929 12,486 Additions 1,042 - 4,092 - 5,134 Disposals - - (1,102) - (1,102) Depreciation - - (1,327) (209) (1,536) Carrying amount at end of year 1,042 - 13,220 720 14,982

(a) The Group’s cattle stations that are held under leasehold agreement with the Crown are classified in property, plant and equipment as pastoral leases. These properties in Queensland and Western Australia are mainly pastoral holdings which are term leases with maximum terms of 53 years and 50 years respectively.

While there is no obligation for leases to be renewed by either the Queensland or Western Australian State Governments at expiry, the directors are not presently aware of any reason why leases would not be renewed in substantially the same terms based upon practice by both State Governments.

(b) Leased equipment is pledged as security for the related finance lease liabilities. Refer notes 17, 23, 26 and 30 for details on encumbrances on Group assets.

Note 17. Non-current assets – investment properties

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

At fair value Opening balance at beginning of the year 722,310 522,569 298 264 Additions – cost 107,157 166,758 - - Transferred to current investment properties (note 12) (29,778) - - Disposals (9,242) (4,609) - -

Fair value adjustment 3,333 37,592 (128) 34 Closing balance at end of the year 793,780 722,310 170 298

Plantation properties 720,631 702,116 170 298 High value timber properties 47,879 6,833 - - Cattle properties (note (d)) 25,270 13,361 - - 793,780 722,310 170 298

- - 91 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 17. Non-current assets – investment properties (continued)

(a) The fair values of investment properties reflect the nature and characteristics of the property and are held by the Group for the long term. As detailed in Note 1(b) Going Concern, the Group may be required to market and sell some of these properties in the short term, which may, given the current market conditions, result in a different value. The Group has announced a conditional agreement to sell a number of properties in Queensland that are currently encumbered by ongoing MIS projects. The price agreed is approximately $23,000,000 which represents around an 11% discount to book value. This land is considered by the directors as non-core as it has been determined that the land is not ideal for growing future pulpwood timber and it will not be used by the potential buyer for this purpose. The directors do not believe that this discounted value is representative of the fair value of the remainder of the Group’s forestry land recorded in investment property as at the reporting date.

(b) The valuation of the Group’s non-current investment properties recorded in the 30 September 2008 financial statements is $793,780,000. The valuation range for the Group’s non-current investment property estate is $754,500,000 to $822,800,000 with the valuation of $793,780,000 being derived using the mid-point assumption for the discount rate for the forestry property valuations.

The fair value methodology for forestry land investment properties is detailed in note 1(u). For the 2008 valuation the independent registered property valuer valued approximately 55% of the forestry estate on an unencumbered (no MIS lease or other encumbrances taken into account) and best available use basis. In determining the fair value of each property the independent valuer visited each property and used recent market evidence of sales of similar properties in the same or similar regions.

The fair value for cattle properties has been determined from an independent valuation of the properties performed by a registered property valuer on a vacant possession basis as at 30 September 2008. The independent valuation was conducted in accordance with the Australian Property Institutes practice standards and guidance notes and each property was inspected and market research of value and/or costs of other properties was performed.

Forestry Land DCF Valuation Assumptions Assumption range Valuation assumption Present value land valuation basis Unencumbered best available use Unencumbered best available use Project lease length – plantation projects 10 – 13 years 10 – 13 years Project lease length – HVT projects 20 years 20 years Average real price growth of land 1% to 3% p.a. 2.0% p.a. (2007: 2.0%) CPI 2.5% to 3.5% p.a. 3.0% p.a. (2007: 2.75%) Lease rental fees – plantation projects Nil Nil (2007:2.5%) Lease rental fees – HVT projects 2.5% of net harvest proceeds 2.5% (2007: 2.5%) Post harvest – remediation costs $550 - $1,000 Average of $765 per hectare (2007: $750) Post-tax nominal discount rate 9.5% - 10.5% p.a. 10.0% (2007: 10.5%)

(c) The increase in the unencumbered market value of the forestry properties at 30 September 2008 from that at the beginning of the financial year determined from the independent property valuations was $17,314,000 (2007: $88,295,000). The increase in market value of cattle investment properties at 30 September 2008 from that at the beginning of the financial year determined from the independent property valuations was $11,909,000 (2007: $1,546,000).

The nature of the Group’s plantation projects is such that the fair value of a property will reduce when it is leased to growers (encumbered) in the project. This reduction is recorded in the income statement as an investment property fair value adjustment. During the year to 30 September 2008 the Group recorded a fair value adjustment of $35,500,000 (2007: $98,596,700).

Each subsequent year the fair value of existing investment property is expected to increase as the lease period reduces (known as the “unwinding of the discount”) and this gain is also recorded in the income statement as an investment property fair value adjustment. The increases in fair value from the discount unwind of properties encumbered at the beginning of the year totalled $75,700,000 (2007: $61,823,200).

Other factors that have negatively impacted the investment property valuation at 30 September 2008 include the removal of the back-ended project lease fee of 2.5% with an $18,000,000 adjustment (this fee is used in the calculation of management fees earned by the Group refer note 3(i)(c)) and increases to the allocation of land for the land assessment provision (Note 28(a)) and changes to land harvest dates of $47,600,000. Offsetting these impacts is a $23,400,000 benefit from adjusting the discount rate to the 10.0% mid-point of the calculated discount rate range consistent with the advice received from the independent expert(2007: $45,800,000 from reducing the discount rate to 10.5% from 11.5%).

- - 92 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 17. Non-current assets – investment properties (continued)

(d) In accordance with the Group policy, cattle properties are identified as investment properties only when an insignificant portion of the cattle on the property are being managed to the Group’s account. At balance date the majority of cattle properties are classified in property, plant and equipment.

(e) A sensitivity analysis of major assumptions in the investment properties valuation is shown below:

Impact Fair Value $’000 $’000 Base case 793,780 Discount rate + 0.50% (25,958) 767,822 Discount rate - 0.50% 27,762 821,542 CPI + 0.25% 15,431 809,211 CPI – 0.25% (15,039) 778,741 Long term growth rate + 0.50% 31,081 824,861 Long term growth rate - 0.50% (29,877) 763,903

(f) Since August 2006 a number of the Group’s plantation properties, with a fair value of $341,150,000 at 30 September 2008 (2007: $347,650,000), are held as security for the structured finance facility (refer note 26).

(g) Subsequent to 30 September 2008 the remainder of the Group’s plantation properties classified in non-current investment properties, with a fair value of $379,481,000 at 30 September 2008 (2007: $354,466,000) and the Group’s cattle investment properties with a fair value of $25,270,000 (2007: $13,361,000), were pledged as security to the Group’s club banks.

Note 18. Non-current assets – goodwill and other intangible assets

(a) Reconciliation of the carrying amount at the beginning and the end of the period

Consolidated Parent Wine Land grape Consoli- Access Water sales dated Goodwill Rights Software licences contracts Total Software $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 30 September 2008 Carrying amount at beginning of the year 68,241 1,943 3,597 7,415 - 81,196 3,597 Additions - - 1,652 22,141 215 24,008 1,652 Additions – business combinations 1,347 - - 4,602 - 5,949 - Impairment (note (c)) (30,000) - - - - (30,000) - Amortisation - (76) (1,267) - - (1,343) (1,267) Carrying amount at end of the year 39,588 1,867 3,982 34,158 215 79,810 3,982

At 30 September 2008 Cost 69,702 2,130 7,497 34,158 215 113,702 7,497 Accumulated amortisation and impairment (30,114) (263) (3,515) - - (33,892) (3,515) Carrying amount 39,588 1,867 3,982 34,158 215 79,810 3,982

- - 93 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 18. Non-current assets – goodwill and other intangible assets (continued)

At 30 September 2007 Carrying amount at beginning of the year 60,852 2,019 2,540 3,022 5,101 73,534 2,540 Additions 7,503 - 2,577 4,393 - 14,473 2,577 Impairment (note(c)) (114) - - - (3,867) (3,981) - Amortisation - (76) (1,520) - (1,234) (2,830) (1,520) Carrying amount at end of the year 68,241 1,943 3,597 7,415 - 81,196 3,597

At 30 September 2007 Cost 68,355 2,130 5,845 7,415 5,873 89,618 5,845 Accumulated amortisation and impairment (114) (187) (2,248) - (5,873) (8,422) (2,248) Carrying amount 68,241 1,943 3,597 7,415 - 81,196 3,597

(b) Description of the Group’s intangible assets and goodwill

Goodwill

After initial recognition, goodwill acquired in a business combination is measured at cost less any accumulated impairment losses. Goodwill is not amortised and is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value has been impaired (refer to section (c) of this note).

Land Access Rights

Land access rights represent the value to the Group of the various lease agreements in place with the Tiwi Aboriginal Land Trust for the long term lease of plantation land on Melville Island in the Northern Territory. This amount was independently valued as part of the acquisition of Sylvatech Limited in April 2005. Land access rights are amortised on a straight line basis over the remaining lease term.

Software

Software is comprised of software licences purchased and costs incurred in the development of internal projects. These are recorded at cost and amortised on a straight line basis over their remaining useful lives, which vary from 3 to 4 years.

Water Licences

Water licences represent the value to the Group of the right to water reserves acquired with the purchase of properties. The water licences have an indefinite useful life and are not amortised. Water licences are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value has been impaired.

Wine Grape Sales Contracts

Wine grape sales contracts represent the value to the Group of existing sales agreements acquired with the purchase of properties. The sales contracts are amortised over the life of the contracts, which vary from approximately 3 to 10 years.

(c) Impairment losses recognised

An impairment loss of $30,000,000 on goodwill was recognised for continuing operations in the 2008 financial year. This impairment loss relates to: (a) Sylvatech Limited purchase in 2005, $22,500,000; and (b) Rural Funds Management Limited purchase in 2007, $7,500,000. Goodwill from the purchase of Sylvatech Limited is part of the Tiwi Forestry CGU. Goodwill from the purchase of Rural Funds Management Limited and the consolidation of the Rural Opportunity Fund is part of the Managed funds CGU. The recoverable amount for both is based upon value in use.

(d) Impairment tests for goodwill and intangibles assets with indefinite useful lives

(i) Description of the cash generating units and other relevant information

Goodwill acquired through business combination and water licenses have been allocated to the following cash generating units for impairment testing as follows;

• Tiwi forestry CGU

• Cattle CGU

- - 94 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 18. Non-current assets – goodwill and other intangible assets (continued)

• Olives processing GCU

• Olives groves GCU

• Vineyards CGU

• Non MIS Managed Funds CGU

(ii) Carrying amounts of goodwill and water licenses allocated to each of the cash generating units

Goodwill Water licenses Total 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated Tiwi Forestry 17,133 39,637 - - 17,133 39,637 Cattle 21,104 21,104 - - 21,104 21,104 Olives Processing 888 - - - 888 - Olive Groves - - 6,141 1,955 6,141 1,955 Vineyards - - 13,073 5,460 13,073 5,460 Non MIS Managed Funds CGU 463 7,500 14,944 - 15,407 7,500

Total 39,588 68,241 34,158 7,415 73,746 75,656

Parent: nil (2007: nil)

(iii) Tiwi Forestry CGU

The recoverable amount of the Tiwi Forestry CGU has been determined based on a value-in-use calculation using cash flow projections approved by senior management that cover a period of 1 plantation rotation, a period of 9 years, as this period encompasses the full cycle of the timber to harvest. Using senior managements estimate of the expected future price movements in its MIS plantation projects. Project pricing is assessed by management annually as it is based on a number of factors including anticipated market demand, project economics including the Group’s sources of funding.

Management has determined an impairment of $22,500,000 in the current year for the Tiwi Forestry CGU which has primarily arisen from an expectation by management of a price reduction for future plantation MIS projects. Management currently expects to be able to utilise Tiwi land in its future MIS plantation projects when it becomes available.

The nominal pre tax discount rate is 14.0% (2007: 14.5%) and cash outflows are increased by a 3.0% inflation rate (2007: 2.75%) and future MIS pulpwood project application fees are grown by 3.0% (2007: 2.75%).

The impact of adjusting each of the three key assumptions in isolation is shown in the table below:

Impact Fair Value $’000 $’000 Base case 30,675 Discount rate + 0.50% (1,908) 28,767 Discount rate - 0.50% 2,087 32,762 CPI + 0.25% 1,010 31,685 CPI – 0.25% (967) 29,708 2009 MIS pulpwood project application fee + 10.0% 17,058 47,733 2009 MIS pulpwood project application fee - 10.0% (17,364) 13,311

- - 95 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 18. Non-current assets – goodwill and other intangible assets (continued)

(iv) Cattle CGU

The Cattle CGU was assessed for impairment based on fair value less costs to sell. Key assumptions in management’s determination of the fair value less costs to sell include:

- The market values of the cattle properties (being land and pastoral leases classified in Property, Plant and Equipment and in Investment Properties), which were based on independent valuations by accredited valuers on a vacant possession basis as at 30 September 2008, totalled $160,600,000 against a carrying value of approximately $97,200,000 in the financial statements.

- The fair value less point of sale costs of the CGU cattle assets, being predominately breeder cattle leased to investors in the Group cattle projects (refer note 15)

(v) Olive Processing CGU

The Olive processing CGU consists of Great Southern Olive Processing Pty Ltd, which was acquired during the current financial year. The assessment of the recoverable amount of the CGU was performed as part of the acquisition process. Refer to note 46 for details of the acquisition.

(vi) Olive Groves CGU

The recoverable amount of the Olive Groves CGU has been determined based on a value-in-use calculation using cash flow projections approved by senior management that cover the 20 year project life.

The nominal pre tax discount rate is 12.3% (2007: 14.5%) and cash outflows are increased by a 3.0% inflation rate (2007: 2.5%)and olive prices are increased by a real growth rate of 0.5% after 2013 (2007: 0.0%). The 30 September 2008 pre-tax discount rate is equivalent to an 11.0% post-tax discount rate (2007: 11.0%).

The impact of adjusting each of the three key assumptions in isolation is shown in the table below:

Impact Fair Value $’000 $’000 Base case 70,239 Discount rate + 0.50% (5,892) 64,347 Discount rate - 0.50% 6,414 76,653 CPI + 0.25% 3,274 73,513 CPI – 0.25% (3,109) 67,130 Real price growth post 2013 + 0.5% 12,416 82,655 Real price growth post 2013 - 0.5% (10,014) 60,255

(vii) Vineyards CGU

The recoverable amount of the Vineyards CGU has been determined based on a value-in-use calculation using cash flow projections approved by senior management that covers the 20 year project life.

The nominal pre tax discount rate is 12.0% (2007: 12.5%) and cash outflows are increased by a 3.0% inflation rate (2007: 2.5%)and wine grape prices are increased by a real growth rate of 0.5% after 2013 (2007: 0%). The 30 September 2008 pre-tax discount rate is equivalent to an 11% post-tax discount rate (2007:11%).

The impact of adjusting each of the three key assumptions in isolation is shown in the table below:

Impact Fair Value $’000 $’000 Base case 64,989 Discount rate + 0.50% (3,977) 61,102 Discount rate - 0.50% 4,298 69,287 CPI + 0.25% 1,867 66,856 CPI – 0.25% (1,777) 63,212 Real price growth post 2013 + 0.5% 5,471 70,460 Real price growth post 2013 - 0.5% (4,774) 60,215

- - 96 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 18. Non-current assets – goodwill and other intangible assets (continued)

(viii) Non MIS Managed funds CGU

The recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projections approved by senior management that cover a period of 5 years. As a result of the low level of fund in-flows from external parties into the Rural Opportunity Fund in 2008 of $2,616,000, and the ongoing uncertainty in financial markets senior management has revised its fund flow targets for 2009/10 which has resulted in the impairment of goodwill of $7,500,000 for this cash generating unit.

The nominal pre-tax discount rate is 15.0% (2007: not applicable) and the Group earns a management fee of 1.75% on the net value of fund assets.

The impact of adjusting each of the two key assumptions in isolation is shown in the table below:

Impact Fair Value $’000 $’000 Base case $nil Discount rate + 0.50% (88) $nil Discount rate - 0.50% 86 86 Management fee + 0.25% 1,025 1,025 Management fee – 0.25% (1,025) $nil

(ix) Basis for Key assumptions used in the above assessments

Discount rates

Discount rates reflect management’s estimate of the time value of money and the risks specific to each unit that are not already reflected in the cash flows. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates for each unit, regard has been given to the weighted average cost of capital of the entity as a whole and adjusted for business risks specific to the unit and gearing applicable to the industry.

Inflation and growth rate assumptions

Inflation assumptions are based upon the Reserve Bank’s targeted range with regard to the market conditions for the underlying commodity. Future commodity price growth is based upon management’s best estimate with regard to both current industry expectations and historical price movements.

- - 97 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 19. Equity accounted investments

(a) Interests in Associates and Joint Ventures

Interests are held in the following entities:

Name Principal Activities Ownership Interest Carrying Amount of Investment 2008 2007 2008 2007 Unlisted: % % $’000 $’000 RFM Ultra Premium Leasing of vineyard assets including land, 40.0 - 5,145 - Vineyard Fund water rights and vines to tax effective investment schemes Hansol PL Pty Ltd Timber processing 50.0 - 5,022 - Kailis Olive Olive oil processing 50.0 - 3,122 - Processing Pty Ltd 13,289 -

(b) Movements during the year in Equity Accounted Investments.

Consolidated Parent

2008 2007 2008 2007

$’000 $’000 $’000 $’000 Balance at the beginning of the financial year - - - - New Investments during the year 13,422 - 3,122 - Share of associated entity’s profit after income tax (133) - - - Balance at the end of the financial year 13,289 - 3,122 -

(c) Summarised presentation of Aggregate Assets, Liabilities and Financial Performance of Equity Accounted Investments

Consolidated

2008 2007 $’000 $’000 Current Assets 12,056 - Total Assets 41,808 - Current liabilities 8,019 - Total liabilities 25,454 - Net Assets 16,354 -

Share of net assets 6,882 -

Revenues 28,823 - Profit after Income Tax 1,342 -

- - 98 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 20. Non-current assets – deferred tax assets

Consolidated Parent Entity 30 Sept 2008 30 Sept 2007 30 Sept 2008 30 Sept 2007 $’000 $’000 $’000 $’000

The balance comprises: Deferred tax assets (note (a)) 76,871 73,387 18,736 18,036 Deferred tax liabilities (note 27) (16,812) (18,462) (689) (1,359) Net deferred tax assets 60,059 54,925 18,047 16,677

The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Receivables and doubtful debts 13,702 1,132 - 57 Employee benefits 1,426 1,673 1,423 1,504 Accruals and provisions 14,879 18,709 13,184 12,335 Deferred revenue 31,224 34,973 - - Property, plant and equipment 12,142 11,192 156 - Tax losses * 2,262 1,903 2,262 1,903 Sundry items 372 3,091 1,330 1,523 76,007 72,673 18,355 17,322 Amounts recognised directly in equity Share issue expenses and derivative assets 864 714 381 714 Net deferred tax assets 76,871 73,387 18,736 18,036

Movements: Opening balance at the beginning of the year 73,387 69,577 18,036 15,081 Credited/(charged) to the income statement 3,334 5,513 1,033 3,485 Credited/(charged) to equity 150 (1,703) (333) (530) Closing balance at the end of the year 76,871 73,387 18,736 18,036

*The deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of existing assessable temporary differences.

(a) The Group’s forecasts support the recognition of the deferred tax asset based upon sufficient future taxable profits.

- - 99 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 21. Non-current assets – other

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Maintenance deposits 494 622 - - Capitalised project costs (note (a)) 3,595 - 3,595 - Other assets 22 361 10 16 4,111 983 3,605 16

(a) Transaction costs in respect of Project Transform (refer note 41) have been capitalised at 30 September 2008.

Note 22. Trade and other payables

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current liabilities Trade payables 15,583 10,458 4,543 4,063 Other payables 15,167 4,751 6,520 435 Accruals 40,633 73,155 9,537 30,473 Payables to related parties (note 40) - - 594,975 307,502 71,383 88,364 615,575 342,473

The Group’s exposure to liquidity risk related to trade and other payables is disclosed in note 34. Trade and other payables are non-interest bearing and normally settled on 30-day terms.

Note 23. Current liabilities – Interest-bearing loans and borrowings

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Current liabilities Secured – at amortised cost Hire purchase liability (note 39) 1,106 635 256 336

Short term borrowings (note (a)) 2,244 295 - - 3,350 930 256 336

(a) Vendor Finance The RFM Riverbank Fund (Riverbank) has a vendor finance arrangement with Lachlan Farming Ltd (LFL) that is secured by a mortgage over a property in NSW that LFL has sold to Riverbank. The interest rate is fixed at 9.63% and interest is payable annually. The loan is subject to repayments equalling 1/3 of the principal plus accrued interest each October until 2010.

The Group’s exposure to interest rate and liquidity risk related to interest-bearing loans and borrowings are disclosed in note 34.

- - 100 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 24. Current liabilities – provisions

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Employee benefits (note 28) 4,053 3,416 4,045 2,971 Project timber (a) - 9,600 - - Other provisions 1,226 3,826 338 - 5,279 16,842 4,383 2,971

(a) This provision related to the maximum contribution that the Group would make to existing plantation project investors. Whilst the Group is under no legal obligation to make any such contribution the Group had made a contribution payment to investors in the Group’s first 3 plantation projects, being the 1994 plantation project,1995 plantation project and 1996 plantation project. During the year the directors determined that no further contributions would be made and therefore the outstanding provision of $4, 880,000 was released to the income statement (refer to note 3(d)).

Movements in provisions

Movements in provisions during the current financial year, other than employee benefits, are set out below:

Year ended 30 September 2008 Project Other Timber provisions Total $’000 $’000 $’000 Consolidated Carrying amount at beginning of the year 9,600 3,826 13,426 Additional provisions recognised - 707 707 Provisions used/released during the year (9,600) - (9,600) Reclassified as non-current - (3,307) (3,307) Carrying amount at the end of the year - 1,226 1,226

Year ended 30 September 2008 Other provisions Total $’000 $’000 Parent entity Carrying amount at beginning of the year - - Additional provisions recognised 338 338 Provisions used during the year - - Carrying amount at the end of the year 338 338

Note 25. Current liabilities – deferred revenue Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Deferred revenue 89,243 146,202 - -

Sales on MIS projects for the year ended 30 September 2008 totalled approximately $314,000,000 of which $231,204,000 has been recognised as revenue during the same period. The remaining $82,796,000 will be recognised in future periods as the required services are performed.

- - 101 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 26. Non-current liabilities – Interest-bearing loans and borrowings

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Secured – at amortised cost Hire purchase liability (note 39) 2,412 2,140 301 754 Debentures, net of issue costs (note (b)) 217,793 213,707 - - Club bank corporate borrowings, net of issue costs (note (c)) 349,875 349,875 Other long term borrowings, net of issue costs 13,530 - - - 583,610 215,847 350,176 754 Unsecured – at amortised cost TREES2 (note (a)) 78,970 78,281 78,970 78,281 TREES3(note (a)) 122,616 121,691 122,616 121,691 Other long term borrowings, net of issue costs - 245,000 - 245,000 201,586 444,972 201,586 444,972 785,196 660,819 551,762 445,726

(a) TREES series

In October 2004 the company issued 800,000 Transferable REset Exchangeable Securities series 2 (TREES2), each with a face value of $100 raising $80,000,000 before issue costs. At the discretion of the directors each TREES2 pays a preferential non-cumulative franked coupon payable semi-annually in arrears.

In October 2005 the company issued a third hybrid security series, Transferable REset Exchangeable Securities series 3, or TREES3. A total of 1,247,000 TREES3 with a face value of $100 each were issued raising a total of $124,700,000 before issue costs. TREES3 pays a preferential cumulative unfranked coupon payable semi-annually in arrears.

TREES2 and TREES3 are perpetual, subordinated reset convertible notes with no fixed maturity and are redeemable at the option of the Group. TREES2 has no cumulative coupon obligations and TREES3 has a cumulative coupon obligation. The distributions on TREES2 and TREES3 are recognised in the income statement as interest expense. The coupon rates for TREES2 and TREES3 are 6.4% and 7.75% respectively.

TREES2 and TREES3 give holders the right to convert their TREES2 or TREES3 into the company’s ordinary shares in certain circumstances up to 6 months prior to a reset date. The first reset date is 31 October 2009 in respect of TREES2 and 31 October 2010 in respect of TREES3. The number of shares which a TREES will convert into is based upon the VWAP of the company’s shares for the period of 20 business days immediately preceding the conversion date and applying a conversion discount of 5%. Under the terms of the TREES3, the company may at any time purchase TREES3 with the agreement of the holder.

The conversion of TREES can occur at either a reset date or on the occurrence of events defined by the terms of TREES (Trigger Events). Trigger Events include if the coupon is not paid, a takeover bid occurs for the Group, a scheme of arrangement for the Group is approved by the courts, or the Group enters an agreement to sell all or substantially all of its assets.

The conversion of TREES into a debt that is due and payable can occur on the occurrence of certain events defined by the terms of the TREES (Acceleration Events). Acceleration Events include if the Group is wound up (or an administrator or liquidator is appointed), the company executes a deed of company arrangement, the company’s shares are suspended from trading for more than 20 trading days, any financial indebtedness of more than $1 million that is not paid within 30 business days, the financial covenants contained within the TREES are breached (being company liabilities to exceed 65% of total assets or net assets falling below $350 million), or the Group enters any debt moratorium arrangement or other arrangement for the benefit of creditors in excess of $500,000.

If TREES were to convert into a debt, due to an Acceleration Event occurring, then GSL would be required to pay TREES holders the face value of TREES grossed up by 5%, which at 30 September 2008 would have amounted to $215,000,000.

(b) Debentures (structured finance facility)

On 17 August 2006, the Group entered into a structured finance transaction with ANZ Investment Bank that provides the Group with approximately $211,691,000, net of issue costs, through the issue of debentures by a Group subsidiary. The transaction is structured such that the cash flows the Group receives from the held-to-maturity investment are expected to be sufficient to meet the obligations of the transaction through to 2012, being the interest payment when the principal of $251,929,000 is due for repayment, including the payment of interest not capitalised.

- - 102 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 26. Non-current liabilities – interest bearing loans and borrowings (continued)

The borrowings are limited in recourse to the held-to-maturity investment and specified investment property land within Great Southern Property Trust, a wholly owned entity of the Group (refer note 17). The financial covenant is measured quarterly and is a loan to value ratio being the ratio of the debt to the value of the properties held as security to the facility plus the fair value of the held to maturity investment, which must not be more than 60%. The Group is in compliance with this financial covenant.

The borrowings are split into two tranches, one with floating interest payments (Tranche A, $143,759,000 excluding issue costs) and another with interest capitalising (Tranche B, $77,646,000 excluding issue costs). The floating interest rate on Tranche A is effectively managed via the held-to maturity investment (refer note 10). The interest on Tranche B is hedged for the term of the loan at 8.3% via an interest rate swap.

(c) Club bank corporate borrowings

This facility contains representations and warranties, financial covenants, undertakings and other terms and conditions customarily found in financing agreements of this kind. The financial covenants include a gearing ratio covenant and a debt serviceability covenant. There are no covenants or undertakings relating to the ASX share price or share market capitalisation of GSL. The main financial covenant is the ratio of senior debt (excludes TREES and Debentures) to specified operating cash flow (as defined) which is measured at the March half-year and the September full year. The ability of the Group to operate within this covenant is dependant upon the generation of operating cash flow, primarily achieved from MIS sales; or from the reduction in senior debt, primarily achieved from asset sales. The Group expects to operate within this covenant at the next measurement date (31 March 2009) however as detailed in Note 1(b) of the financial report there is currently some uncertainty over a number of matters that could impact this covenant calculation, including for example the level of future MIS sales.

The weighted average floating interest rate on the facility at 30 September 2008 was 8.3% (2007: 7.9%). Refer to note 14 for details of interest rate swaps used for this facility. Refer note 30 for additional information.

The Group’s exposure to interest rate and liquidity risk related to interest-bearing loans and borrowings are disclosed in note 34.

Note 27. Non-current liabilities – deferred tax liabilities

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 The balance comprises temporary differences attributable to:

Amounts recognised in profit or loss Biological assets 13,078 8,219 - - Investment property 3,083 8,119 - 10 Inventories 651 1,183 378 891 Net deferred tax liabilities 16,812 17,521 378 901

Amounts recognised directly in equity Derivative assets - 941 311 458 Net deferred tax liabilities 16,812 18,462 689 1,359

Movements:

Opening balance at beginning of the year 18,462 3,079 1,359 220 Charged/(credited) to the income statement (709) 14,442 (523) 681 Charged/(credited) to directly to equity (941) 941 (147) 458 Closing balance at end of the year (note 20) 16,812 18,462 689 1,359

- - 103 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 28. Non-current liabilities – provisions

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Employee benefits 701 2,160 699 2,044 Provision for land assessment (a) 37,961 25,515 37,961 25,515 Other provisions 10,375 5,241 1,123 4,490 49,037 32,916 39,783 32,049

Aggregate employee benefits 4,754 5,576 4,744 5,014

Average number of employees during the financial year 485 375 418 358

(a) Land to be used in each of the 2004, 2005, 2006 and 2007 Great Southern Plantation Projects is assessed, on a project by project basis, as to whether it is expected to be capable of being managed as a whole to produce an average of at least 250m3 (or 220m3 on the Tiwi Islands) gross of timber produce per hectare of Woodlots after approximately 10 years of growth. This assessment is made following completion of planting and where necessary additional resource is established or acquired to ensure the initial productivity targets are met.

The Group currently intends to fulfil this requirement using a combination of standing timber already acquired by the Group and future coppice (second rotation) timber from trees that will be harvested in the future. A provision for $37,961,000 has been made that comprises the current value of this allocated standing timber and the expected future operating costs of managing this standing timber and coppice timber for the benefit of the 2004 to the 2007 projects. In addition the cost to the Group of encumbering some its land for a second rotation for this purpose is estimated at $32,410,000 and is taken into account in the valuation of the Group’s investment property (refer note 17). It may be necessary for the Group to adopt alternative strategies to fulfil this requirement, specifically should the Group require short term cash flow from the sale of properties or other assets (refer note 1(b) Going Concern), in which case the cost to the Group could increase significantly from that currently provided.

Movements in provisions

Movements in provisions during the financial year, other than employee benefits, are set out below:

Year ended 30 September 2008 Land Other assessment provisions Total $’000 $’000 $’000 Consolidated Carrying amount at beginning of the year 25,515 5,241 30,756 Additional provisions recognised 12,446 6,317 18,763

Provisions utilised/released during the year - (4,490) (4,490) Transferred from current provisions - 3,307 3,307 Carrying amount at end of the year 37,961 10,375 48,336

Year ended 30 September 2008 Land Other assessment provisions Total $’000 $’000 $’000 Parent entity Carrying amount at beginning of the year 25,515 4,490 30,005 Additional provisions recognised 12,446 1,123 13,569 Provisions utilised/released during the year - (4,490) (4,490) Carrying amount at end of the year 37,961 1,123 39,084

- - 104 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 29. Non-current liabilities – deferred revenue

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Deferred revenue 37,843 8,316 - -

Refer note 25 for more information on deferred revenue

Note 30. Financing arrangements

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Unrestricted access was available at balance date to the following facilities (excluding issue costs):

Structured finance facility (Debentures) Total facility 251,929 251,929 - - Used at balance date 221,405 217,853 - - Unused at balance date (tranche B capitalising interest) 30,524 34,076 - -

Club bank debt facility Total facility 350,000 245,000 350,000 245,000 Used at balance date 350,000 245,000 350,000 245,000 Unused at balance date - - - -

Bank guarantee facility Total facility 13,446 13,446 - - Used at balance date 7,370 6,874 - - Unused at balance date 6,076 6,572 - -

(a) Structured finance facility

The structured finance facility comprises 2 tranches: tranche A, interest only $143,759,000; and tranche B, interest capitalising $77,646,000. The structured finance facility matures on 17 August 2012 when $251,929,000 requires repayment or refinancing. The unused facility at balance date represents the expected amount of future tranche B capitalising interest from balance date to maturity on 17 Auguts 2012.

(b) Club bank debt facility

At 30 September 2008 the club bank debt facility was guaranteed by companies in the Group containing at least 85% of Group assets and secured by a fixed and floating charge over the majority of the assets in group.

In August 2008 the Group renegotiated the Club Bank Facility and has secured an additional $30,000,000 of available funding (which was drawn in November 2008), with an expiry date of 7 October 2009, taking the total facility limit to $380,000,000, and the extension of maturity of $120,000,000 of facility borrowings from 11 September 2009 to 31 October 2010. Subsequent to 30 September 2008 specific mortgages over the Groups cattle properties and over all of the non-current plantation forestry investment properties excluding those held as security for the corporate finance facility, have been granted to the club banks as security for the club bank debt facility.

- - 105 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 30. Financing arrangements (continued)

The maturity profile for the club bank corporate borrowings as at 30 September 2008 is as follows:

Maturity date Amount $’000 31 October 2009 75,000 26 October 2010 85,000 31 October 2010 120,000 26 October 2012 70,000 350,000

GSL has entered into hedging arrangements to either fix or cap the interest payable in respect of $300,000,000 of the outstanding borrowings. The effective interest rate on this facility is 8.1%. The hedging facilities expire: $200,000,000 on 11 September 2009, $50,000,000 on 11 March 2009 and $50,000,000 on 10 March 2010.

(c) Bank guarantee facility

Great Southern Managers Australia Limited (GSMAL) holds an unsecured guarantee facility with ANZ for $13,446,000 (30 September 2007: $13,446,000) in respect of plantation maintenance reserve funds which are required to be held by Great Southern Managers Australia Limited, the Responsible Entity, for its 2003 and prior plantation projects. This facility guarantees the funds required, as determined by the independent forester on an annual basis, for the maintenance of plantations being managed for specific projects. At 30 September 2008, guarantees in place are $7,370,000 (30 September 2007: $6,874,000).

Note 31. Contributed equity

Consolidated Parent Entity Notes 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Share capital Ordinary shares fully paid (a) 467,651 450,393 467,651 450,393 Employee reserved shares (b) (2,459) (2,534) (2,459) (2,534) 465,192 447,859 465,192 447,859

(a) Movement in ordinary share capital over the last two financial reporting periods ending 30 September 2008 and 30 September 2007:

30 September 2008 30 September 2007 Number of Number of

shares $’000 shares $’000

Balance at the beginning of the year 317,019,919 450,393 310,098,599 435,498 Option conversions during the year: Issue price $1.00 - - 600,000 600 Issue price $1.50 100,000 150 20,000 30

Dividend reinvestment plan issues:

Issue price $1.91 3,561,743 6,817 5,093,799 12,022 Issue price $0.83 6,095,209 5,075 1,201,021 3,046 TREES2 converted into ordinary shares, net of issue costs - - 6,500 15 Shares issued at $2.25 in part settlement of a liability arising from the purchase of properties 2,513,258 5,655 - - Equity issuance cost - (439) - (818)

Balance at the end of the year 329,290,129 467,651 317,019,919 450,393

- - 106 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 31. Contributed equity (continued)

(b) Movement in employee reserved shares over the last two financial reporting periods ending 30 September 2008 and 30 September 2007:

30 September 2008 30 September 2007 Number of Number of

Notes shares $’000 shares $’000

Balance at the beginning of the year 2,224,515 (2,534) 2,224,515 (2,790) Dividend applied - 75 - 256 Balance at the end of the year 36(e) 2,224,515 (2,459) 2,224,515 (2,534)

Ordinary shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

Effective 1 July 1998, the Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly the company does not have authorised capital or par value in respect of its issued capital.

Employee reserved shares

A loan of $1,500,000 was provided to both C A Rhodes and to P C Butlin for the sole purpose of acquiring ordinary shares (“employee reserved shares”) in Great Southern Limited. As Managing Director and Deputy Managing Director they are considered by the board to be key executives in the company. Aligning the long term interests of these key executives with those of the company is considered by the board to be in the best interests of the company and its shareholders.

Proceeds, net of applicable taxation, from dividends received by the director or executive in respect of the loan shares are used to repay outstanding principal. In addition, net proceeds received by the director or executive from the disposal of loan shares up to a maximum of the original cost of acquisition of the loan shares disposed of are used to repay outstanding principal.

Each loan is interest free and is for a period of 10 years commencing 30 July 2003 ($1,000,000 loan) and 16 January 2004 ($500,000 loan) for C A Rhodes and 16 January 2004 ($1,500,000 loan) for P C Butlin. Each loan is secured by a first mortgage over the loan shares acquired. Recourse for each loan is limited in certain circumstances to the proceeds from sale, net of applicable taxation, of the relevant loan shares.

These loans have been accounted for as “in substance” options, refer note 36.

Dividend reinvestment plan

The company has a dividend reinvestment plan under which holders of ordinary shares may elect to have all or part of their share dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares are issued under the plan at a discount of 5% (30 September 2007: 5%) to market price.

Options

Information relating to options issued to employees, including details of options issued, exercised and lapsed during the financial year and options outstanding at 30 September 2008 are set out in note 35.

Management performance rights

The company has a Management Performance Rights Plan under which eligible persons are granted rights subject to certain performance hurdles being met. No payment is required for the grant of a right unless the board determines otherwise. Refer to note 35(b) and the Remuneration Report on page 38.

- - 107 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 32. Reserves and Retained Profits

(a) Reserves

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Share based payment reserve 14,068 11,606 14,068 11,606 Cash flow hedging reserve (1,957) 1,736 (1,099) 1,071 12,111 13,342 12,969 12,677

Movements: Share based payment reserve Balance at the beginning of the year 11,606 6,995 11,606 6,995 Management performance rights 2,462 4,611 2,462 4,611 Balance at the end of the year 14,068 11,606 14,068 11,606

Cash flow hedging reserve Balance at the beginning of the year 1,736 (2,738) 1,071 (587) Movements in fair value (8,479) 997 (5,300) 997 Tax effected fair value adjustment 1,583 (299) 930 (299) Transfer to income statement 3,203 3,776 2,200 960 Balance at the end of the year (1,957) 1,736 (1,099) 1,071

(b) Retained profits

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Retained profits at the beginning of the financial year 304,761 245,861 73,340 21,441

Net profit/(loss) attributable to members of Great Southern Limited (63,804) 71,508 (219,039) 64,507

Dividends provided for or paid (note 33) (35,268) (12,608) (35,268) (12,608)

Distributions paid to unit holders (503) - - -

Retained profits at the end of the financial year 205,186 304,761 (180,967) 73,340

(c) Nature and purpose of reserves

Share based payments reserve

The share based payments reserve is used to recognise the fair value of management performance rights issued.

Cash flow hedging reserve

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

- - 108 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 33. Dividends

Parent Entity 30 Sept 30 Sept 2008 2007 $’000 $’000 Ordinary shares

Final dividend declared on 30 August 2006 and paid on 27 October 2006 for the year ended 30 June 2006 of 11 cents per fully paid ordinary share, fully franked, based on tax paid at 30% - 34,111

Interim dividend for the year ended 30 September 2007 of 4 cents per fully paid ordinary share paid on 22 June 2007, fully franked, based on tax paid at 30% - 12,608

Final dividend declared on 25 November 2007 and paid on 17 December 2007 for the year ended 30 September 2007 of 8 cents per fully paid ordinary share, fully franked, based on tax paid at 30% 25,571 -

Interim dividend for the year ended 30 September 2008 of 3 cents per fully paid ordinary share paid on 16 July 2008, fully franked, based on tax paid at 30% 9,697 -

Total dividends provided for or paid 35,268 46,719

Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the year ended 30 September 2008 and the period ended 30 September 2007 were as follows:

Parent Entity 30 Sept 30 Sept 2008 2007 $’000 $’000 Paid in cash 23,573 31,651 Satisfied by issue of shares 11,695 15,068 35,268 46,719

Franked dividends Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Franking credits available for subsequent financial years at 30% (30 September 2007: 30%) 177,776 194,942 177,776 194,942

The above amounts represent the balance of the franking accounts as at the end of the financial year, adjusted for:

(a) franking credits that will arise from the payment of the current tax liability;

(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date;

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

(d) franking credits that may be prevented from being distributed in subsequent financial years.

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

- - 109 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management

(a) Financial risk management objectives and policies

The Group’s Corporate Treasury function provides treasury services to the business, co-ordinates access to domestic financial markets and manages the financial risks relating to the operations of the Group. These financial risks include interest rate risk, credit risk, liquidity risk and price risk.

The Group’s activities expose it primarily to the financial risks of changes in interest rates. The Group may enter into a variety of derivative financial instruments to manage its exposure to interest rate risk, including interest rate swaps to mitigate the risk of rising interest rates.

The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The use of financial derivatives is governed by the Group’s policies, which provide written principles on the use of financial derivatives. Reviews are undertaken to ensure compliance with policies and exposure limits.

The responsibility for financial risk management rests with the CFO who reports to the Board. External consultants are used to advise on the Group’s hedging programme.

(b) Capital risk management

The Group's objectives when managing capital are to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group's overall strategy remains unchanged from 2007.

The capital structure of the Group consists of debt, which includes the current and non-current interest-bearing loans and borrowings disclosed in notes 23 and 26 respectively, net of cash and cash equivalents and the equity attributable to equity holders of the parent, comprising contributed equity, reserves and retained earnings as disclosed in notes 31 and 32 respectively. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group operates through subsidiary companies established in the markets in which the Group trades. Some of the Group’s entities are subject to externally imposed capital requirements as they are Australian Financial Services Licencees. These requirements include minimum levels of net tangible assets. The Group is in compliance with these requirements.

Operating cash flows are used to maintain and expand the Group’s assets as well as make the routine outflows of tax, dividends and repayment of maturing debt.

In light of the unprecedented financial and economic uncertainty impacting global and Australian markets and the potential impact of this uncertainty on future MIS sales the Group is constantly investigating alternative strategies to generate cash flows including Project Transform and the possible sale of selected assets as previously mentioned in this report.

Gearing ratio

The Group monitors capital on the basis of the gearing ratio determined as the proportion of net debt to equity and senior corporate debt / senior corporate debt plus equity. During the years ended 30 September 2008 and 30 September 2007, the gearing ratios were as follows:

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Senior corporate debt (i) 350,000 245,000 350,000 245,000 Debt (ii) 788,546 661,749 552,018 446,062 Cash and cash equivalents (91,395) (207,640) (3,254) (40,562) Net debt 697,151 454,109 548,764 405,500

Equity (iii) 706,375 765,962 297,194 533,876 Net debt to equity ratio 98.7% 59.3% 184.6% 76.0% Senior corporate debt to (senior debt + equity) ratio 33.1% 24.2% 54.1% 31.5%

(i) Senior corporate debt is the Club bank borrowings.

- - 110 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

(ii) Debt is defined as current and non-current interest-bearing loans and borrowings as detailed in notes 23 and 26 and includes senior corporate debt.

(iii) Equity includes all contributed equity, reserves, retained earnings and minority interest.

(c) Accounting policies

Details of the accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in Note 1 to the financial statements.

(d) Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, available-for-sale financial assets, other financial assets and derivative instruments. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and policies that limit the amount of credit exposure to any one financial institution or counterparty. Refer to Note 7 and Note 13 for details on credit risk arising from trade and other receivables.

Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with Group practice, investment of surplus funds is made only with approved counterparties and within credit limits assigned to each counterparty.

Counterparty credit limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. Other than with trade receivables, no material exposure is considered to exist by virtue of the possible non performance of the counterparties to financial instruments.

The Group does not hold any credit derivatives or credit enhancements.

Financial Assets subject to credit risk are detailed in the table below:

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Financial Assets Cash and cash equivalents 91,395 207,640 3,254 40,562 Trade and other receivables (excluding prepayments) 189,645 209,795 1,324,767 1,158,869 Held to maturity assets 55,264 65,492 - - Available-for-sale financial assets 14,086 36,361 - - Derivative financial instruments - 3,136 - 1,526

Credit Risk Concentration

Cash and Cash Equivalents

All cash at bank and deposits are held with National Australia Bank and ANZ. Both banks are rated AA by Standard & Poors.

- - 111 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

Trade and Other Receivables

The Group manages an MIS loan book of $187,072,063 (2007:$176,081,691) with the majority of customers resident in Australia. The loan book contains a small number of high value loans comprising a large portion of the total value of the book. The MIS loan book concentration is as follows:

Number Aggregate % of Aggregate Amount Loan Book $’000 2008 Loans > $1 m 47 84,912 45.3% Loans $400K - $1m 50 31,451 16.8% Loans < $400K 2,257 70,709 37.9% 2,354 187,072 100.0% 2007 Loans > $1 m 43 78,082 44.3% Loans $400K - $1m 40 24,791 14.1% Loans < $400K 2,481 73,208 41.6% 2,564 176,081 100.0%

The MIS loan book is further analysed as follows:

Group 2008 2007 $’000 $’000

Not impaired: 120,688 175,479 Represented by: Neither past due nor impaired 106,759 111,576 Past due but not impaired: Past due 0 to 3 months 12,796 36,145 Past due 3 to 6 months 801 2,476 Past due 6 to 12 months 256 4,109 Past due over 12 months 76 21,173 Taken possession of security - - Collateral held against possession cases (note (i)) - -

Loans that would have been impaired had their terms not been renegotiated 9,460 8,919

Impaired loans 66,384 1,001

(i) The Group holds collateral against MIS loans in the form of the project interests acquired by the investor. Estimates of fair value are based on the value of the collateral assessed at the time of borrowing and generally are not updated except when a loan is individually assessed as impaired. At this point, the specific provision raised is net of expected recoveries including the value of the collateral.

(e) Interest rate risk management

The parent entity and the Group are exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed and floating rate interest- bearing loans and borrowings and by the use of interest rate swap contracts. The Group has converted floating interest rates to fixed interest rates on one tranche of its structured finance borrowings and for the majority of the corporate debt borrowings (refer note 30). Other than this and cash and cash equivalents, the Group’s significant interest-bearing assets

- - 112 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued) and liabilities have a fixed interest rate and the Group’s income and operating cash flows are not materially exposed to changes in market interest rates. The Group has policy to fix interest rates on borrowings whenever practical.

The parent entity and the Group’s unhedged exposures to Australian variable interest rates on financial assets and financial liabilities are detailed in the table below:

Weighted average Consolidated Parent Entity effective interest rate 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 % % Financial Assets Cash and cash equivalents 91,395 207,640 3,254 40,562 7.11 6.25 Held to maturity assets 55,264 65,492 - - 9.89 9.46

Financial Liabilities Interest-bearing loans and borrowings at amortised cost 193,759 193,762 50,000 45,000 8.7 8.3 Net Exposure (47,100) 79,370 (46,746) (4,438)

Interest rate sensitivity analysis

The following table summarises the sensitivity of both derivative and non-derivative financial instruments at the reporting date to movement in the interest rate, with all other variables held constant. The 0.5% sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 year period.

A positive number indicates an increase in post tax profit and loss and other equity and a negative number indicates a decrease in post tax profit and other equity.

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

50bps increase in rate Profit or loss (i) 803 1,243 7 138 Other equity (ii) 1,522 2,243 279 1,115

50bps decrease in rate Profit or loss (803) (1,243) (7) (138) Other equity (1,429) (2,289) (161) (1,128) (i) This is mainly attributable to the parent entity's and Group's exposure to interest rates on its variable rate borrowings.

(ii) This is mainly on account of the change in valuation of the interest rate swaps held by the Group.

Interest rate swap contracts

The Group uses interest rate swap contracts in managing interest rate exposure. Under the interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of rising interest rates on loans and borrowings held. The fair value of interest rate swaps are based on market values of equivalent instruments at the reporting date and are disclosed below. The average interest rate is based on the outstanding balance at the start of the financial year.

Of the total interest-bearing loans and borrowings, approximately $193,759,000 (30 September 2007: $193,762,000) is unhedged at the end of the financial year.

- - 113 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date:

Average contracted fixed BBSY interest rate Notional principal amount Fair value

Outstanding floating for fixed 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept contracts 2008 2007 2008 2007 2008 2007 % % $'000 $'000 $'000 $'000 Consolidated Less than 1 year 8.35 - 250,000 - (54) - 1 to 2 years 8.35 7.93 50,000 200,000 (984) 1,526 2 to 5 years 8.56 8.19 77,646 69,170 (571) 1,610 377,646 269,170 (1,609) 3,136 Parent Entity Less than 1 year 8.35 - 250,000 - (54) - 1 to 2 years 8.35 7.93 50,000 200,000 (984) 1,526 300,000 200,000 (1,038) 1,526 The above interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated and effective as cash flow hedges.

The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the Australian BBSY. The Group will settle the difference between the fixed and floating interest rate on a net basis. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the period that the floating interest payments on debt impact profit or loss.

(f) Liquidity risk management

Liquidity risk arises from the possibility that the company and the consolidated entity are unable to settle a transaction on the due date. Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group’s ongoing capital requirements, arising mainly from developing and offering new MIS projects to investors, requires prudent liquidity risk management which implies maintaining sufficient cash and marketable securities and the availability of funding through an adequate amount of committed credit facilities.

In addition, the Group provides finance to selected investors and sources finance from a third party financier for the majority of investors in its MIS products, and the ability of the Group to securitise these finance receivables is an important part of its liquidity risk management program.

Prior to the announcement of Project Transform in July 2008 the Group extended the repayment of $120 million of corporate bank debt by 13 months to 31 October 2010. The Group has total club bank corporate borrowings of $380 million at the date of this report with $105 million of debt expiring in October 2009.

Included in note 30 is a listing of undrawn facilities that the parent entity/Group has at its disposal to further reduce liquidity risk.

Liquidity risk tables

The following table detail the parent entity's and the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the parent entity or the Group can be required to pay. The tables include both interest and principal cash flows.

- - 114 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

Less than 1 to 2 2 to 3 3 to 4 4 to 5 More than 1 year years years years years 5 years $'000 $'000 $'000 $'000 $'000 $'000 Consolidated 30 September 2008 Trade and other payables 71,383 - - - - - Hire purchase liability 1,471 1,236 805 281 174 - Other borrowings(4) 32,585 101,222 214,837 6,508 71,200 16,402 TREES 2 5,114 5,114 5,114 5,114 5,114 (1)79,900 TREES 3 9,664 9,664 9,664 9,664 9,664 (1)124,700 Debentures(3) 11,529 11,271 11,256 259,539 - - Borrowings – securitised loans 11,604 10,953 8,024 7,225 5,729 - 143,350 139,460 249,700 288,331 91,881 221,002 30 September 2007 Trade and other payables 88,364 - - - - - Hire purchase liability 927 931 719 211 95 - Other borrowings (2) 19,659 264,610 - - - - TREES 2 5,114 5,114 5,114 5,114 5,114 (1)79,900 TREES 3 9,664 9,664 9,664 9,664 9,664 (1)124,700 Debentures(3) 12,486 12,457 12,427 12,471 265,198 - Borrowings – securitised loans ------136,214 292,776 27,924 27,460 280,071 204,600 Parent entity 30 September 2008 Trade and other payables 615,575 - - - - - Hire purchase liability 300 373 - - - - Other borrowings 29,643 98,623 212,238 5,789 70,481 - TREES 2 5,114 5,114 5,114 5,114 5,114 (1)79,900 TREES 3 9,664 9,664 9,664 9,664 9,664 (1)124,700 660,296 113,774 227,016 20,567 85,259 204,600

30 September 2007 Trade and other payables 342,473 - - - - - Hire purchase liability 380 338 305 - - - Other borrowings(2) 19,659 264,610 - - - - TREES 2 5,114 5,114 5,114 5,114 5,114 (1)79,900 TREES 3 9,664 9,664 9,664 9,664 9,664 (1)124,700 377,290 279,726 15,083 14,778 14,778 204,600

(1) TREES 2 and TREES 3 are perpetual, subordinated reset convertible notes with no fixed maturity. The first reset date for TREES 2 and TREES 3 is 31 October 2009 and 31 October 2010 respectively. They are repayable in the event of trigger event stated in the prospectus for the offer of TREES. Only TREES 2 and TREES 3 principals are included in the more than 5 years category with no additional interest included.

(2) All other borrowings as at 30 September 2007 expire on 11 September 2009.

(3) Both Tranche A and Tranche B expire on 17 August 2012.

(4) Other borrowings as at 30 September 2008 expire: $75,000,000 on 31 October 2009, $85,000,000 on 26 October 2010, $120,000,000 on 31 October 2010 and $70,000,000 on 26 October 2012.

The gross interest included in the cash flows is based on yield curve rate at end of the financial year.

The following table details the Group's liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows / (outflows) on the derivative instruments that settle on a net basis.

- - 115 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

Less than 1 More than Consolidated year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years 5 years $'000 $'000 $'000 $'000 $'000 $'000 30 September 2008 Net settled: Interest rate swaps (7)(730) (7)(355) - (6)(523) -

30 September 2007 Net settled: Interest rate swaps (5)1,160 (5)1,120 - - (6)1,591 -

Parent 30 September 2008 Net settled: Interest rate swaps (7)(730) (7)(355) - - - -

30 September 2007 Net settled: Interest rate swaps (5)1,160 (5)1,120 - - - -

(5) These are related to hedging facilities in respect of $200,000,000 of the outstanding borrowings expiring on 11 September 2009.

(6) This is related to interest rate swap for interest on Tranche B of the structured finance facility. Tranche B has interest capitalising and is hedged for the term of the loan which expires on 17 August 2012.

(7) These are related to hedging facilities in respect of $300,000,000 of the outstanding borrowings with the hedging facilities expiring on: $200,000,000 (11 September 2009), $50,000,000 (11 March 2009) and $50,000,000 (10 March 2010).

The interest rate is based on the yield curve rates at end of the financial year.

(h) Other price risks

The Group’s exposure to price risk on equity securities is minimal, being investments referred to in note 10.

Equity securities price risk arises from investments in equity securities. The Group takes a risk adverse position on listed equity investment and as such has very few such investments. The price risk for unlisted equity investments is immaterial in terms of a possible impact on profit and loss or total equity and as such a sensitivity analysis has not been completed.

(i) Foreign currency Risk

The Group does not have any foreign operations and does not sell any of its products in foreign currencies. All payables are in Australian dollars.

- - 116 - - Great Southern Limited Notes to the Financial Statements 30 September 2008

Note 34. Financial risk management (continued)

Fair value of financial instruments

As at 30 September 2008, the carrying amounts and fair values of financial assets and financial liabilities are:

Consolidated Parent Entity

Carrying Carrying Carrying Carrying amount Fair value amount Fair value amount Fair value amount Fair value Financial assets 2008 2008 2007 2007 2008 2008 2007 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Cash and cash equivalents 91,395 91,395 207,604 207,604 3,254 3,254 40,562 40,562 Trade and other receivables 189,645 163,085 209,795 198,734 1,324,767 1,324,767 1,158,869 1,158,869

Available-for-sale financial assets 14,086 14,086 36,361 36,361 - - - - Held-to-maturity assets 55,264 54,166 65,492 67,024 - - - -

Derivative financial instruments - - 3,136 3,136 - - 1,526 1,526 Total financial assets 350,390 322,732 522,388 512,859 1,328,021 1,328,021 1,200,957 1,200,957

Financial liabilities Trade and other payables 71,383 71,383 88,364 88,364 615,575 615,575 342,473 615,575 Interest-bearing loans and borrowings 829,352 713,843 661,749 664,276 552,018 439,747 446,062 448,589 Derivative financial instruments 1,609 1,609 - - 1,039 1,039 - -

Total financial liabilities 902,344 786,835 750,113 752,640 1,168,632 1,056,361 788,535 1,064,164

- - 117 - -

Note 34. Financial risk management (continued)

Fair values for MIS loans within trade receivables have been determined using expert advice on the expected sale price in the current market conditions. The fair value of other non current receivables is based on cash flows discounted at a rate reflecting current market rates adjusted for counterparty credit risk, where applicable. Given the current market dislocation, finding market value reference points is challenging.

The fair value of interest-bearing loans and borrowings have been calculating by discounting the expected future cash flows at prevailing market interest rates varying from 9.32% to 9.57% (30 September 2007: 7.20% to 8.20%).

The Group’s corporate debt facility was repriced on 26 September 2008 and as such fair value has been determined to equal carrying value.

The Group’s TREES securities are actively traded on market and fair value has been determined with reference to the prevailing price at market close on 30 September 2008.

The carrying value of all other financial assets and liabilities approximate their fair values due to their short term nature.

Note 35. Share-based payment plans

(a) Executive Options Issued

The directors have at their discretion issued options to key executives. Options are granted for no consideration and vest over a period of up to five years at the discretion of the directors.

Options granted under the plan carry no dividend or voting rights.

When exercised, each option is converted into one ordinary share within 14 days of exercise. Amounts received on exercise of options are recognised as share capital.

Set out below are summaries of options granted to employees under the plan:

Balance at Issued Exercised Lapsed Balance at Exercisable Grant Expiry Exercise beginning during the during the during the end of the at the end date date price of year year year year year of the year Company and Consolidated –

30 September 2008 31/07/03 31/07/08 $1.00 200,000 - - (200,000) - - Weighted average exercise price $1.00 - - - -

Company and Consolidated –

30 September 2007 31/07/03 31/07/08 $1.00 200,000 - - - 200,000 200,000 Weighted average exercise price $1.00 - - - $1.00 $1.00

No options were exercised in the prior financial year.

No options were forfeited during the years covered by the above table.

The weighted average remaining contractual life of share options outstanding at the end of the year was zero years (30 September 2007: 1 year).

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $ $ $ $

Aggregate proceeds received from employees on the exercise of options and recognised as issued share capital - - - -

- - 118 - -

Note 35. Share based payments (continued)

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Fair value of shares issued to employees on their exercise of options as at their issue date - - - -

(b) Management Performance Rights Plan The company issues management performance rights (Rights) to key executives in the Group pursuant to the Management Performance Rights Plan. The Rights were granted for no consideration and vest over a period of up to five years subject to the attainment of pre-set shareholder value based performance hurdles.

When exercised each Right converts into one ordinary share within 14 days of exercise. No amounts are received on the exercise of Rights.

Set out below is a summary of the Rights granted under the Management Performance Rights Plan up to 30 September 2008:

Balance at Issued Exercised Lapsed Balance at Exercisable Grant Expiry Exercise beginning during during the during the end of the at the end date date price of year the year year year year of the year

Company and consolidated –

30 September 2008 17/12/04 17/12/09 $0.00 3,920,000 - - (540,000) 3,380,000 - 31/03/06 17/12/09 $0.00 400,000 - - (200,000) 200,000 - 31/03/06 31/03/11 $0.00 1,335,000 - - (275,000) 1,060,000 - 30/06/06 30/03/11 $0.00 350,000 - - - 350,000 - 20/12/06 20/12/11 $0.00 3,080,000 - - (430,000) 2,650,000 - 16/05/08 16/05/13 $0.00 - 3,550,000 - (75,000) 3,475,000 - 9,085,000 3,550,000 - (1,520,000) 11,115,000 - The weighted average exercise price $nil. The weighted average remaining contractual life is 2.9 years.

Company and consolidated –

30 September 2007 17/12/04 17/12/09 $0.00 4,235,000 - - (315,000) 3,920,000 - 31/03/06 17/12/09 $0.00 400,000 - - - 400,000 - 31/03/06 31/03/11 $0.00 1,492,500 - - (157,500) 1,335,000 - 30/06/06 30/03/11 $0.00 350,000 - - - 350,000 - 20/12/06 20/12/11 $0.00 - 3,245,000 - (165,000) 3,080,000 - 6,477,500 3,245,000 - (637,500) 9,085,000 -

The weighted average exercise price $nil. The weighted average remaining contractual life is 1.70 years. Further information on the Management Performance Rights Plan can be found in the Remuneration Report on page 38.

- - 119 - -

Note 35. Share based payments (continued)

The terms and conditions of each grant of Rights are as follows:

Fair value Expiry per Right at Exercise Vesting period/date Grant date date grant date price exercisable1

17/12/04 17/12/09 $2.07 $0.00 17/12/06 to 17/12/09

31/03/06 31/03/11 $2.00 $0.00 17/12/06 to 31/03/11

31/03/06 31/03/11 $2.13 $0.00 31/03/08 to 31/03/11

30/06/06 30/06/11 $1.63 $0.00 31/03/09 to 31/03/11

20/12/06 20/12/11 $1.44 $0.00 20/12/09 to 20/12/11

16/05/08 2 16/05/13 $0.58 $0.00 16/05/11 to 16/05/13

1. Dependant upon achieving the required performance measure during the vesting period.

2. On 16 May 2008, the company issued 3,550,000 Rights to 23 employees. Each Right has an exercise price of $nil and expires on 16 May 2013. Rights were issued to employees in two tranches with the first performance measurement date for tranche 1 and tranche 2 being 16 May 2011.

An employee who holds shares in the company as a result of the exercise of a vested Right may not deal with those shares before the earlier of: (a) the end of a ten year period commencing at the grant date of the Rights; (b) the date the employee ceases to be employed by the company; and (c) a time determined by the board (“the Restriction Period”).

An employee issued with Rights who ceases to be an employee (for reasons other than for termination) during the period from the grant date to the expiry date is entitled to exercise any vested Rights. For an employee whose employment with the company is terminated all Rights grants remaining unexercised at the date of termination lapse.

Rights issued to employees are not transferable except with the approval of the board or by operation of law on death or legal incapacity.

The amounts disclosed for emoluments relating to management performance rights above are assessed at the fair values at grant date of the Rights granted to the Executive Committee member and the manager, allocated equally over the period from the grant date to the expected vesting period end date.

Fair values at grant date and the expected vesting period end date are independently valued using a Monte Carlo simulation to model the potential TSR ranking of the company and other companies in the ASX/S&P 300 Accumulation Index (ASX/S&P 200 Accumulation Index for Rights issued prior to the current financial year) over 10,000 iterations. The model used takes into account the share price at grant date, the market related performance measurement hurdles to vesting, the expected price volatility of the company’s ordinary shares, the expected dividend yield, the risk-free interest rate, the exercise price of the Rights and the average restriction period for dealing in shares after exercise.

The model inputs for the Rights included in key management compensation for the year ended 30 September 2008 included:

Grant date 17/12/04 31/03/06 31/03/06 30/06/06 20/12/06 16/05/08

Share price at grant date $3.93 $4.05 $4.05 $3.40 $2.84 $1.56

First performance measurement date – tranche 1 17/12/06 17/12/06 31/03/08 31/03/09 20/12/09 16/05/11

First performance measurement date – tranche 2 17/12/07 17/12/07 31/03/09 31/03/10 20/12/10 16/05/11

First performance measurement date – tranche 3 - - 31/03/10 - - -

Last performance measurement date – all tranches 17/12/09 17/12/09 31/03/11 31/03/11 20/12/11 16/05/13

Re-testing of performance measure if 100% not Each 3 Each 3 Each 3 Each 3 Each 3 Each 3 vesting months months months months months months

Expected price volatility of the company’s shares 35.0% 35.0% 35.0% 35.0% 35.0% 41.5%

Expected dividend yield 3.6% 4.1% 4.1% 4.2% 4.41% 5.66%

Risk-free interest rate 5.0% 5.4% 5.4% 5.8% 5.96% 6.2%

Average share dealing restriction period 7 years 7 years 7 years 7 years 7 years 10 years

- - 120 - -

Note 35. Share based payments (continued)

(c) In substance options As detailed in notes 31 and 36, two employees were provided with interest free loans to acquire ordinary shares. Recourse for each loan is limited and these loans are accounted for as in substance options. The expiry date of the loans is July 2013 and January 2014 and the average exercise price at year end is $1.11.

Note 36. Key management personnel disclosures

(a) Directors The following persons were directors of Great Southern Limited during the financial year: Name Position

D C Griffiths Chairman, non-executive director

A McCleary Non-executive director and Chairman of the Audit Committee

P J Mansell Non-executive director

M L Peacock Non-executive director and Chairman of the Remuneration Committee

J C Young Non-executive director, previously Chief Executive Officer up to 28 February 2008 and becoming a non- executive director on 4 July 2008

C A Rhodes Executive Director, appointed Managing Director on 29 February 2008

P C Butlin Executive Director, appointed Deputy Managing Director on 29 February 2008

(b) Executive committee

The Group’s senior executive team is referred to as the Executive Committee and at the start of the financial year ended 30 September 2008 comprised executive directors, J C Young , C A Rhodes, P C Butlin and executives J S Dayman, N J Hackett, S C Martin and S A Moran. During the year JC Young retired as an executive director and SA Moran resigned and neither executive was replaced on the Executive Committee. JC Young became a non-executive director of the company on 4 July 2008). The Managing Director, assisted by the other members of the Executive Committee, is responsible for all areas of corporate strategy and operational performance of the Group reporting to the Board.

(c) Other key management personnel

The following persons also had authority for the strategic direction and management of the Group during the financial year:

Name Position J S Dayman Chief Operating Officer S C Martin Chief Financial Officer N J Hackett Company Secretary S A Moran General Manager – Sales and Marketing (resigned 6 June 2008)

All of the above persons are employed by Great Southern Limited and were also key management persons during the period ended 30 September 2007.

(d) Key management personnel compensation

Key management personnel compensation

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $ $ $ $

Short-term employee benefits 3,985,492 4,429,194 3,985,492 4,429,194 Post-employment benefits 507,968 545,256 507,968 545,256 Share-based payments 722,685 1,664,237 722,685 1,664,237 Total 5,216,145 6,638,687 5,216,145 6,638,687

- - 121 - -

Note 36. Key management personnel disclosures (continued)

(e) Equity instrument disclosures relating to key management personnel

Management Performance Rights

Information regarding the Management Performance Rights Plan issued during the year ended 30 September 2008 including the terms and conditions of management performance rights (Rights) issued to the directors and the key management personnel can be found in the Remuneration Report on page 38. All Rights issued during the year were subject to the same terms and conditions.

Details of Rights over ordinary shares in the company provided as remuneration to each director and key management personnel of the company and each of the key management personnel of the Group are set out below. When exercisable each Right converts into one ordinary share of Great Southern Limited:

Vested and Balance at Granted during Exercised Forfeited Balance at exercisable at the beginning the year as during the during the the end of the end of the of the year compensation year year the year year Directors C A Rhodes 1,125,000 650,000 - - 1,775,000 - P C Butlin 1,125,000 500,000 - - 1,625,000 - Other key management personnel J S Dayman 295,000 250,000 - - 545,000 - S C Martin 295,000 250,000 - - 545,000 - N J Hackett 210,000 150,000 - - 360,000 - S A Moran 325,000 - - (325,000) - -

No Rights are vested and unexercisable at the end of the year.

Mr S A Moran forfeited his management performance rights on his resignation.

On 16 May 2008, the Group issued 3,550,000 management performance rights to 23 employees under the Group’s Management Performance Rights Plan (Plan). For further details of the Plan, refer to the Remuneration Report on page 38.

Shares provided on exercise of remuneration options or Rights

Options or Rights that had previously been provided as remuneration to any of the directors or key management personnel and that were exercised during the financial year are disclosed in note 35.

In Substance Option holdings

In-substance options of directors and key management personnel of Great Southern Limited relating to employee reserved shares:

Other Vested and Balance at Granted during Exercised Balance at changes exercisable at the start of the year as during the the end of during the the end of the the year compensation year the year year year Directors C A Rhodes 1,224,515 - - - 1,224,515 1,224,515 P C Butlin 1,000,000 - - - 1,000,000 1,000,000 2,224,515 - - - 2,224,515 2,224,515

The weighted average exercise price of the above options at the end of the financial year is $1.11 (2007: $1.14).

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Note 36. Key management personnel disclosures (continued)

Shareholdings

The numbers of shares in the company held during the financial year by each director of Great Southern Limited and each of the key management personnel of the Group, including their personally related entities, are set out below:

Balance at Received during Other changes Balance at the beginning of the the year on during the end of the year exercise of rights year financial year

Ordinary shares: Directors D C Griffiths 130,000 - - 130,000 J C Young 47,872,204 - 1,699,938 49,572,142 A McCleary 19,606 - - 19,606 P J Mansell 50,789 - 4,030 54,819 M Peacock 10,158 - 806 10,964 C A Rhodes 1,333,333 - - 1,333,333 P C Butlin 1,037,580 - 143,530 1,181,110

Other key management personnel S C Martin 35,179 - 1,562 36,741 N J Hackett 2,423 - 357 2,780

Transferable REset Exchangeable

Securities series 2: N J Hackett 25 - - 25

(f) Loans to directors and executives Details of loans made to directors of Great Southern Limited and the key management personnel of the Group, including their personally related entities, are set out below:

Aggregate for directors and other key management personnel

Balance at the Interest paid Balance at Number in group Name beginning of and payable for the end of at end of year the year the year the year $ $ $

2008 Directors 869,795 16,203 179,127 2 Key management personnel 11,752 740 6,437 1

2007 Directors 1,757,014 28,984 869,795 2 Key management personnel 12,159 922 11,752 2

Individuals with loans above $100,000 during the financial year Balance at the Interest paid Balance at the Highest Name beginning of and payable end of the indebtedness the year for the year year 3 during the year $ $ $ $ 2008 Directors J C Young 811,494 11,630 123,017 1,044,568

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Note 36. Key management personnel disclosures (continued)

2007 Directors J C Young 1,537,244 16,453 811,494 2,185,874 P C Butlin 159,433 7,803 - 159,433 1. Loans advanced in order to finance the purchase of investments in Great Southern’s plantation or olive projects. These loans are provided on normal commercial terms and conditions. Loans are for a term of 10 years and secured by way of a secured interest over the lease, forest right or land and management agreements. Interest rates vary from between 8% pa to 10% pa.

2. Loans sold (securitised) to Bendigo and Adelaide Bank Limited are excluded from the above table.

(g) Other transactions with directors and other key management personnel

There have been no other transactions with directors and other key management personnel other than as mentioned above.

Note 37. Remuneration of auditors

During the year ended 30 September 2007, the Group changed its auditor from PricewaterhouseCoopers to Ernst and Young.

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $ $ $ $ During the year the auditor of the parent entity and its related practices earned the following remuneration:

Ernst and Young – Australian firm Assurance Services Audit or review of financial reports of the entity or any entity of the Group 591,775 311,800 315,794 267,111 Other assurance related work 810,194 - 605,990 - Total remuneration for assurance services 1,401,969 311,800 921,784 267,111 Other Advisory Services Other advisory services 63,225 49,955 63,225 49,955 Total remuneration for advisory services 63,225 49,955 63,225 49,955 Total remuneration 1,465,194 361,755 985,009 317,066

The previous auditor of the parent entity and its related practices earned the following remuneration:

PricewaterhouseCoopers – Australian firm Assurance Services Audit or review of financial reports of the entity or any entity of the Group - 30,000 - 30,000 Total remuneration for assurance services - 30,000 - 30,000

Taxation services Taxation Compliance and Product Services - - - - Taxation Advisory Services - 226,042 - 163,992 Total remuneration for taxation services 226,042 - 163,992 Other advisory services Other Advisory Services - 40,019 - - Total remuneration for advisory services - 40,019 - - Total remuneration - 296,061 - 193,992

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Note 38. Contingent liabilities

Details and estimates of maximum amounts of contingent liabilities are as follows:

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000 Guarantees 1. Pursuant to the previous arrangements with Rothschild Australia (refer note 13) a contingent liability exists for up to 10% of the book value of the term debtors sold (comprising a guarantee of 5% and potential loss of value of bond of 5%). This liability will only be recognised in the event that the debtors sold default. In the event that this occurs the Group has a secured interest over the Land & Management and Lease Agreement (the subject of the loan). The maximum potential liability is: - 6,508 - -

2. Unsecured guarantees provided by the company and certain controlled entities for the provision of banking facilities (refer note 30). 7,370 6,874 - -

3. Bendigo and Adelaide Bank securitisation arrangements 7,723 - - -

The Group has a loan securitisation arrangement in place with Bendigo and Adelaide Bank Limited (previously Adelaide Bank Limited) under which there is no credit recourse to the Group on any loan securitised (the “Off Balance Sheet facility”). During the year, the Group entered into an additional securitisation arrangement with Bendigo and Adelaide Bank Limited for the securitisation of certain loans that are not able to be securitised under the Off Balance Sheet facility. Under this new arrangement the company is required to deposit funds as security against loan default. During the year, the Group securitised $44,000,000 of principal and interest loans under this new arrangement and received $36,400,000 in funding with $7,723,000 deposited as collateral.

The Group has determined that substantially all of the risks and benefits of ownership have not been transferred to the purchaser, so the loans cannot be derecognised from the Group’s financial statements and a corresponding liability is booked in interest bearing liabilities. The net impact to the net assets of the Group at balance sheet date is zero. The maximum exposure of the Group to default in these loans is limited to the $7,723,000 held as collateral.

4. In the course of its normal business the Group occasionally receives claims and writs for damages and other matters arising from its operations. Where, in the opinion of the directors, it is deemed appropriate, a specific provision is made in relation to such matters, otherwise the directors deem such matters to be either without merit or of such kind or involve such amounts that would not have a material adverse effect on the operating results or financial position of the Group if disposed of unfavourably. As at the date of this annual report, no specific provisions have been made in relation to such matters. The directors are aware of a potential class action against the company and its directors and officers however no formal notification of any such claims have been received. The directors believe any such action if it eventuated would be without merit and would be vigorously defended.

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Note 39. Commitments for expenditure Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Operating lease commitments

Commitments in relation to operating leases contracted for at the reporting date but not recognised as liabilities, payable: Within one year 26,783 15,264 2,636 2,625 Later than one year but not later than 5 years 82,910 50,384 5,615 8,602 Later than 5 years 65,777 24,519 1,644 1,213 175,470 90,167 9,895 12,440

Representing: Non-cancellable operating leases 167,115 90,167 9,895 12,440

The Group’s operating leases mainly pertain to plantation and cattle land, office buildings and motor vehicles. The original terms of these leases range from 3 to 24 years.

Present value of Minimum future lease payments minimum future lease payments Consolidated Parent Entity Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 2008 2007 2008 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Hire purchase lease commitments No later than 1 year 1,295 667 268 368 1,106 635 256 336 Later than 1 year and not later than 5 years 2,593 2,152 302 766 2,412 2,140 301 754 Later than five years ------

Minimum future lease payments 3,888 2,819 570 1,134 3,518 2,775 557 1,090 Less future finance charges (370) (44) (13) (44) - - - - Present value of minimum lease payments 3,518 2,775 557 1,090 3,518 2,775 557 1,090

Included in the financial statements as: (notes 23 and 26) Current borrowings 1,106 635 256 336 Non-current borrowings 2,412 2,140 301 754 3,518 2,775 557 1,090

The Group’s hire purchase liabilities mainly pertain to equipment. The original terms of these leases range from 2 to 5 years.

Maintenance funds

Pursuant to the Compliance Plans of each of the Managed Investment Schemes the responsible entity, Great Southern Managers Australia Limited, is required to maintain the plantations up until harvest. Maintenance reserve funds have been established by way of a combination of cash and bank backed securities for all of the Group’s plantation projects, up to and including the 2003 project (note 38). At harvest the responsible entity is entitled to 5.5% of the net harvest proceeds, of which 3% of the net harvest proceeds is to recoup maintenance expenditure.

Asset acquisition

In the course of its normal activities, Great Southern identifies and acquires land for use in its MIS Projects. As at 30 September 2008, Great Southern has entered into conditional contracts to acquire land at a cost of approximately $17,243,000 of which $8,791,000 have settled or become unconditional as at the date of this report.

Since 30 September 2008, the Group has entered into new contracts for the purchase of land which are now either conditional or unconditional, amounting to approximately $4,897,000. The Group will continue to identify and acquire land throughout the year for use in future projects.

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Note 39. Commitments for expenditure (continued)

Project establishment

As a result of the plantation projects sales of $115,713,000 in the year ended 30 June 2008, the Group is required, under the terms of the Land and Management Agreements it enters into with the growers, to establish approximately 40,400 woodlots for the growers by no later than 30 June 2009.

At 30 September 2008 the Group has recorded in its balance sheet deferred revenue of approximately $59,803,000 in respect of performance of the outstanding plantation establishment services at that date.

As at 30 September 2008 the Group had acquired land, including leased land located on Melville Island, sufficient to satisfy approximately 30,400 woodlots. The remaining land required to meet the 2008 sales requirements are to be purchased or leased in the period to 31 March 2009.

Project Management

The Group manages 38 forestry, cattle and horticulture related MIS projects on behalf of project investors and in accordance with the various management contracts in place for each project the Group is committed to performing the ongoing management services as required by the contracts through to project completion.

Note 40. Related parties

Directors and key management personnel

Disclosures relating to directors and key management personnel are set out in note 36.

Group companies

The consolidated financial statements include the financial statements of Great Southern Limited (ultimate parent entity) and the subsidiaries listed in the table below:

Name of Entity Country of Class of shares/ Equity holding incorporation units 30 Sept 30 Sept 2008 2007 % %

Great Southern Managers Australia Limited Australia Ordinary 100 100 Great Southern Land Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Vineyard Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Olive Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Olives Company Limited Australia Ordinary 100 100 Great Southern Cattle Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Almond Holdings Pty Ltd Australia Ordinary 100 100 Great Southern HVT Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Managers Pty Ltd Australia Ordinary 100 100 Great Southern Blue Gum Trust Australia Ordinary 100 100 Great Southern Finance Pty Ltd Australia Ordinary 100 100 Great Southern Timber Pty Ltd Australia Ordinary 100 100 Great Southern Property Managers Limited Australia Ordinary 100 100 Great Southern Property Trust Australia A units 100 100 Great Southern Export Company Pty Ltd Australia Ordinary 100 100 Great Southern Property Holdings Limited Australia Ordinary 100 100 GSPT Debenture Holdings Pty Ltd Australia Ordinary 100 100 Great Southern Cattle Managers Pty Ltd Australia Ordinary 100 100 BM Pty Ltd Australia Ordinary 100 100 Beagle Holdings Pty Ltd Australia Ordinary 100 100 Beagle Management Pty Ltd Australia Ordinary 100 100 Great Southern Pine Pty Ltd Australia Ordinary 100 100 Great Southern Securities Pty Limited Australia Ordinary 100 100 Hampton Securities Australia Pty Limited Australia Ordinary 100 100 COT Trust No.1 Australia A units 100 100 Sylvatech Limited Australia Ordinary 100 100 Sylvatech Securities Limited Australia Ordinary 100 100 Great Southern Forestry Pty Ltd Australia Ordinary 100 100

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Note 40. Related parties (continued)

Sylvatech Finance Pty Ltd Australia Ordinary 100 100 Pensyl Pty Ltd Australia Ordinary 100 100 Pensyl Constructions Pty Ltd Australia Ordinary 100 100 Great Southern Property Trust No. 2 Australia A units 100 100 Great Southern Infrastructure Pty Ltd Australia Ordinary 100 100 Great Southern Funds Management Ltd Australia Ordinary 100 100 Great Southern Farming Pty Ltd Australia Ordinary 100 100 Great Southern Plantations Trust Australia Ordinary 100 100 Great Southern Olive Processing Pty Ltd Australia Ordinary 100 - Great Southern Timber Holdings Pty Ltd Australia Ordinary 100 - Great Southern Plantations Holdings Pty Ltd Australia Ordinary 100 - Rural Opportunities Fund Australia A units 46 - RFM Riverbank* Australia A units 71 - Great Southern Flower Holding Trust* Australia A units 100 - Great Southern Sugar Holding Trust* Australia A units 100 -

*Entities controlled by the Rural Opportunities Fund.

Transactions between Great Southern Limited and other entities in the Group during the years ended 30 September 2008 and 30 September 2007 consisted of:

• the payment of management fees to Great Southern Limited;

• loans advanced by Great Southern Limited;

• loans repaid to Great Southern Limited;

• loans advanced to Great Southern Limited;

• loans repaid by Great Southern Limited; and

• transactions between Great Southern Limited and its wholly owned entities under the accounting tax sharing agreement discussed in note 1(f).

Loans between Great Southern Limited and entities in the wholly owned Group are repayable at call. Interest is not charged on at call inter-company loans. At call related party receivables are classified as non-current in the financial statements based upon current expectations of loan repayment whereas at call related party payables are classified as current.

Aggregate amounts included in the determination of profit from ordinary activities before income tax that resulted from transactions with entities in the wholly-owned group:

Parent Entity 30 Sept 30 Sept 2008 2007 $’000 $’000

Forestry management fee revenue 128,437 234,761 Management services fee revenue 31,347 30,000 Allowance for related party loans * (213,732) -

* Provision for non-recovery of related party loans relates to loans to wholly-owned subsidiaries.

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Note 40. Related parties (continued)

Transactions with related parties

The following transactions occurred with related parties: Parent Entity 30 Sept 30 Sept 2008 2007 $’000 $’000 Superannuation contributions Contributions to superannuation funds on behalf of employees 3,041 2,558

Aggregate amounts receivable from and payable to subsidiaries in the wholly- owned group at balance date: Current receivables Loans to related parties, net of allowances - 309,824

Non-current receivables Loans to related parties, net of allowances 1,318,854 843,397 Total receivables 1,318,854 1,153,221

Current payables Loans from related parties 594,975 307,502 Total payables 594,975 307,502

Note 41. Events occurring after the balance sheet date

(i) Dividends

The Directors confirmed on 30 November 2008 that no final dividend will be declared.

(ii) Land and asset acquisition

Since 30 September 2008, the Group has entered into new contracts for the purchase of land which are now either conditional or unconditional, amounting to approximately $4,897,000. The Group will continue to identify and acquire land throughout the year for use in future projects.

(iii) Club bank corporate facility

In September 2008, the Group renegotiated the Club Bank Facility obtaining: (a) an additional $30,000,000 of funding, with an expiry date of 7 October 2009, taking the total facility limit to $380,000,000, and (b) an extension of maturity of $120,000,000 of facility borrowings from 11 September 2009 to 31 October 2010.

In November 2008 the Group withdrew the additional $30,000,000 in club bank borrowings bringing total club bank borrowings to $380,000,000. The effective interest rate on $380,000,000 in borrowings currently outstanding will be approximately 8.9% under the renegotiated club bank facility.

(iv) Project Transform

On 26 August 2008 the Group announced a series of restructure proposals (the proposals), under which shares in Great Southern Limited would be issued for investors’ interests in the Group’s 1998-2003 Plantations projects and 2006 and 2007 Beef Cattle projects. Subsequent to year-end the Group announced the revised offer for the proposals.

The proposals remain subject to the approval of both relevant project investors and Great Southern shareholders. The meeting of project investors was scheduled to be held on 1 December 2008 but has been adjourned to 19 January 2009 following the release of a Supplementary Explanatory Memorandums for each of the 8 projects subject to a proposal. Each memorandum contains a supplementary prospectus prepared by the company.

The Great Southern Limited shareholder meeting to vote on the proposals, and issue of the new shares, has been adjourned to 22 January 2009.

(v) Securitisation arrangements

The Group’s existing securitisation arrangement with Bendigo and Adelaide Bank is due to end on 29 March 2009. The Group has a credit approved facility from the Commonwealth Bank of Australia for the funding of 2009 MIS sales and is in the process of completing the documentation.

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Note 41. Events occurring after the balance sheet date (continued)

(vi) Federal Court provides certainty for agricultural MIS schemes

On 19 December 2008 the Federal Court ruled in favour of the MIS industry in the test case associated with non-forestry MIS projects, effectively confirming that investments in non forestry MIS projects are tax deductible. The Australian Tax Office subsequently confirmed that they have accepted this decision and will not appeal.

Note 42. Segment information

(a) Description of Segments

Business segments

The Group is organised into the following divisions by product and service type:

(i) MIS Forestry

The promotion, packaging and management of forestry based managed investment schemes.

(ii) MIS Horticulture

The promotion, packaging and management of olive, vine and almond managed investment schemes.

(iii) MIS Cattle The promotion, packaging and management of cattle managed investment schemes.

(iv) Lending Services

The provision of finance for investors in the managed investment schemes.

(v) Non-MIS Managed Funds

The promotion, packaging and management of non-tax effective managed funds.

(vi) Other

Incorporates other activities including the sale of agricultural produce to the Group’s account.

(b) Primary reporting - business segments

The following tables’ present revenue, profit and certain asset and liability information regarding business segments for the years ending 30 September 2008 and the year ending 30 September 2007.

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30 September 2008 Non-MIS Inter- MIS MIS Lending Managed segment Forestry Horticulture MIS Cattle Services Funds Other eliminations Consolidated $’000 $’000 $’000 $'000 $'000 $'000 $’000 $’000 Revenue Sales to external customers 191,138 102,026 21,586 - - 32,531 - 347,281 Other revenue and income 32,898 10,068 7,373 17,394 5,627 8,967 - 82,327 Total segment revenue and income 224,036 112,094 28,959 17,394 5,627 41,498 - 429,608 Interest revenue on cash 11,427 Increment on investment property 3,333 Total consolidated revenue and income 444,368

Result Segment results 39,962 35,891 (3,115) (46,412) (15,921) 22,535 - 32,940 Corporate and other expenses (27,997) Profit/(loss) before tax and finance costs 4,943 Finance costs (72,637) Profit/(loss) from operations before income tax (67,694) Income tax expense 3,890 Net profit after tax (63,804)

Assets and liabilities

Segment assets 1,267,369 363,109 237,559 142,798 79,264 22,501 (330,132) 1,782,468 Unallocated assets 7,653 Total assets 1,790,121

Segment liabilities 845,356 148,388 9,422 51,155 49,484 8,061 (37,353) 1,074,513 Unallocated liabilities 9,233 Total liabilities 1,083,746

Other segment information Acquisitions of property, plant and equipment and investment properties 124,637 52,489 9,606 - 377 4,440 - 191,549 Depreciation and amortisation expense 4,033 4,740 750 - 168 843 - 10,534 Non-cash expenses other than depreciation, amortisation and fair value adjustments 2,938 7 24 54,196 56 2,462 - 59,683 Impairment of goodwill 22,500 - - - 7,500 - - 30,000 Other fair value write-downs 19,356 7,113 - - - - - 26,469

- - 131 - -

Non-MIS Inter- MIS MIS Lending Managed segment 30 September 2007 Forestry Horticulture MIS Cattle Services Funds Other eliminations Consolidated $’000 $’000 $’000 $'000 $'000 $'000 $’000 $’000 Revenue Sales to external customers 252,329 101,391 49,022 - - 19,183 - 421,925 Other revenue and income 2,590 1,793 9,851 25,806 2,790 10,345 (1,300) 51,875 Total segment revenue and income 254,919 103,184 58,873 25,806 2,790 29,528 (1,300) 473,800 Interest revenue on cash 13,792 Increment on investment property 37,592 Total consolidated revenue and income 525,184

Result Segment results 117,475 23,440 2,455 22,398 (236) 32,219 - 197,751 Corporate and other expenses (37,993) Profit/(loss) before tax and finance costs 159,758 Finance costs (51,300) Profit/(loss) from operations before income tax 108,458 Income tax expense (36,950) Net profit after tax 71,508

Assets and liabilities Segment assets 1,230,764 408,423 231,925 174,804 14,388 5,029 (351,973) 1,713,360 Unallocated assets 6,991 Total assets 1,720,351

Segment liabilities 735,000 205,667 9,397 6,734 8,848 1,097 (33,058) 933,685 Unallocated liabilities 20,704 Total liabilities 954,389

Other segment information Acquisitions of property, plant and equipment and investment properties 194,540 25,949 3,405 - 683 11,952 - 236,529 Depreciation and amortisation expense 5,363 2,070 1,961 - 17 108 - 9,519 Non-cash expenses other than depreciation, amortisation and impairment 11,829 13 153 2,618 - - - 14,613 Impairment - 40,072 - - - - - 40,072

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Note 42. Segment information (continued)

(c) Secondary reporting - geographical segments

Great Southern Limited and its controlled entities operate solely within one geographical segment, being Australia.

(d) Notes to and forming part of the segment information

Accounting policies

Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1 and accounting standard AASB 114 Segment Reporting.

Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other creditors, employee benefits and provision for service warranties. Segment assets and liabilities do not include income taxes.

Inter-segment transfers

Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an ''arm’s-length'' basis and are eliminated on consolidation.

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Note 43. Reconciliation of profit/(loss) after income tax to net cash inflow/(outflow) from operating activities

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Profit/(loss) for the year (63,804) 71,508 (219,039) 64,507 Depreciation and amortisation 10,534 9,519 2,664 3,057 (Increase)/decrease in fair value of non-current investment property (3,333) (37,592) 128 (34) Net (gain)/loss on disposal of property, plant and equipment 285 (425) 64 120 Change in fair value of biological assets (7,106) 9,472 - - Non-cash employee benefits expense – share based payments 2,462 4,611 2,462 4,611 Amortisation of TREES series issue costs 1,614 1,289 1,614 1,289 Amortisation of debenture issue costs 714 511 - - Doubtful debts expense 56,936 5,731 - 193 Discounting of interest free receivables 6,664 9,860 - - Goodwill Impairment 30,000 - - - Decrease in fair value of current investment property 19,356 - - - Allowance for related party loans - - 213,732 - Interest income recognised on interest free receivables (1,161) (2,719) - - Impairment of horticulture assets - 40,072 - -

Change in operating assets and liabilities Decrease/(increase) in trade receivables 72,439 (13,571) (1,550) (36) Decrease/(increase) in other financial assets 10,228 6,047 - (13,091) Decrease/(increase) in available-for-sale financial assets 22,275 95,258 - - (Increase)/decrease in inventories 3,557 (2,957) 1,309 (2,211) Decrease/(increase) in deferred tax assets (3,484) (3,810) (700) (2,955) (Increase)/decrease in derivative financial instruments 4,745 (3,975) 2,565 (2,364) Decrease/(increase) in other operating assets (17,785) (15,901) 1,533 (5,040) (Increase)/decrease in related party loans - - (158,231) (227,671) (Decrease)/increase in trade creditors 5,125 (19,368) 480 12,521 (Decrease)/increase in other operating liabilities (31,854) 67,508 (11,256) - (Decrease)/increase in current tax liabilities - (2,238) - (2,715) (Decrease)/increase in provisions (2,466) (28,213) 7,686 (16,511) Increase in deferred tax liabilities (1,650) 15,383 (670) 1,139 (Decrease)/increase in deferred revenue (27,432) (2,428) - -

Net cash inflow / (outflow) from operating activities 86,859 203,572 (157,209) (185,191)

Note 44. Non-cash investing and financing activities

Consolidated Parent Entity 30 Sept 30 Sept 30 Sept 30 Sept 2008 2007 2008 2007 $’000 $’000 $’000 $’000

Acquisition of non-current assets by means of finance leases 42 305 - -

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Note 45. Earnings per share

Consolidated

30 Sept 2008 30 Sept 2007

Basic earnings/(loss) per share – cents (19.89) 22.68

Diluted earnings/(loss) per share – cents (19.89) 20.67

Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings/(loss) per share 323,368,973 315,232,619

Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted earnings/(loss) per share (note (ii) ) 323,368,973 403,616,032

(i) Reconciliation of earnings used in calculating earnings per share $’000 $’000 Basic earnings per share Net profit/(loss) after tax (64,319) 71,508 Earnings used in calculating basic earnings/(loss) per share (64,319) 71,508

Diluted earnings per share Net profit/(loss) after tax (64,319) 71,508 Add: TREES coupons as interest expense (after tax) 11,846 11,914 Earnings used in calculating diluted earnings/(loss) per share (52,473) 83,422

(ii) Information concerning the classification of securities

TREES2, TREES3, Options and Management Performance Rights

Transferable REset Exchangeable Securities series 2 and 3 (TREES2 and TREES3) and Options and Rights granted are considered to be potential ordinary shares. For the year ended 30 September 2008 they have not been included in the determination of diluted earnings per share as they are not considered dilutive to the loss after tax. The potential number of ordinary shares not considered dilutive at 30 September 2008 is 499,062,683. They have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 35.

There has been no movement in ordinary or potential ordinary shares since September 2008 to the date of this report. If the restructure proposals under Project Transform (refer note 41) are accepted then there is the potential that up to 816,030,360 ordinary shares will be issued subject to shareholder approval.

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Note 46. Business combinations

(a) Dandaragan Olive Estate

On 7 January 2008, the Group acquired land, olive groves and plant and equipment from Olea Australis Limited’s Dandaragan olive estate. The transaction has been accounted for as a business combination as the assets acquired constitute a business under AASB 3 Business Combinations.

The total cost of the combination was $18,668,000 which comprised cash and deferred cash consideration.

Factors giving rise to goodwill include efficiencies gained through the olive processing plant, and the experience and skills that the employees bring to the Group.

The fair values of the identifiable assets at the date of acquisition were:

Recognised on acquisition

$’000

Land 2,125 Plant and Equipment 4,663 Biological Assets 8,222 Water Licences 2,542 Other 228 17,780

Fair value of identifiable net assets acquired 17,780

Cost of the business combination: Cash paid 18,668 Total cost 18,668

Goodwill: Total cost of the business combination 18,668 Fair value of identifiable net assets acquired (17,780) Goodwill on acquisition 888

Cash flow: The cash outflow on acquisition is as follows: Net cash acquired with the subsidiary - Cash paid 18,668 Net consolidated cash outflow 18,668

It is not practicable to determine the carrying values of the assets immediately preceding the acquisition or determine the profit and revenue that would have been attributable to the Group had the acquisition taken place at the beginning of the year as the Group does not have access to Olea Australis Limited’s financial information.

From the date of acquisition, the assets have contributed $201,000 to the net loss of the Group.

(b) Rural Opportunities Fund

On 15 May 2008, the Group increased its ownership in the Rural Opportunities Fund (“the Fund”) to approximately 48% (reduced to 46% at 30 September 2008) and was deemed to have control of the Fund as Great Southern Fund Management Limited, a wholly owned subsidiary of Great Southern Limited, is the responsible entity for the Fund.

The transaction has been accounted for as a business combination under AASB 3 Business Combinations.

The total cost of the combination was $12,981,000 which comprised non-cash contributions of biological assets and plant and equipment.

Factors giving rise to goodwill include the experience and skills that the employees bring to the Group.

- - 136 - -

Note 46. Business combinations (continued)

The fair values of the identifiable assets and liabilities at the date of acquisition were:

Recognised on Carrying acquisition Value $’000 $’000

Cash and cash equivalents 780 780 Trade and other receivables 6,467 6,467 Other financial assets 7,110 7,110 Biological assets 9,302 9,302 Land 4,067 4,067 Plant and equipment 17,567 17,567 Water licences 2,060 2,060 Other 25 25 Total assets 47,378 47,378

Trade and other payables (3,051) (3,051) Interest bearing liabilities (9,863) (9,863) Other (235) (235) Total liabilities (13,149) (13,149)

Fair value of identifiable net assets acquired 34,229

Cost of units acquired 12,981 Minority interest 21,711 Less: Fair value of identifiable net assets acquired (34,229) Goodwill on acquisition 463

Cash flow: The cash outflow on acquisition is as follows: Net cash acquired with the subsidiary 780 Cash paid - Net consolidated cash outflow 780

From the date of acquisition, the assets have contributed $820,000 of net profit to the Group. If the acquisition had taken place at the beginning of the year, the assets would have contributed $1,023,000 in net profit. The carrying values of the assets immediately preceding the acquisition were equivalent to those recognised on acquisition.

- - 137 - - Directors’ Declaration 30 September 2008

DIRECTORS’ DECLARATION

In the directors’ opinion:

(a) the financial statements and notes set out on pages 55 to 137 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

(ii) give a true and fair view of the company’s and Group’s financial position as at 30 September 2008 and of their performance, as represented by the results of their operations, changes in equity and their cash flows, for the financial year ended on that date; and

(b) subject to the matters disclosed in note 1(b) to the financial statements there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and

(c) the audited remuneration disclosures set out on pages 38 to 49 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001.

The directors have been given the declarations by the managing director and chief financial officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001.

On behalf of the Board

D Griffiths C Rhodes

Chairman Managing Director

Perth

29 December 2008

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Independent auditor’s report to the members of Great Southern Ltd and its controlled entities

Report on the Financial Report

We have audited the accompanying financial report of Great Southern Ltd and its controlled entities, which comprises the balance sheet as at 30 September 2008, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1(a), the directors also state that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Auditor’s Responsibility

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

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit we have met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report and the remuneration disclosures, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence.

Liability limited by a scheme approved under Professional Standards Legislation RK:MJ:GSL:388 - - 139 -

Auditor’s Opinion

In our opinion: 1. the financial report of Great Southern Ltd is in accordance with the Corporations Act 2001, including: i giving a true and fair view of the financial position of Great Southern Ltd and the consolidated entity at 30 September 2008 and of their performance for the year ended on that date; and ii complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. 2. the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 38 to 49 of the directors’ report for the year ended 30 September 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Great Southern Ltd for the year ended 30 September 2008, complies with section 300A of the Corporations Act 2001.

Inherent Uncertainty Regarding Continuation as a Going Concern

Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1(b) to the financial report, there is significant uncertainty whether the company and the consolidated entity will be able to continue as going concerns and therefore whether they will be able to pay their debts as and when they become due and payable and realise their assets and extinguish their liabilities in the normal course of operations and at the amounts stated in the financial report. The financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the company and the consolidated entity not continue as going concerns.

Ernst & Young

R A Kirkby Partner Perth 29 December 2008

- - 140 -

Auditor’s Independence Declaration to the Directors of Great Southern Limited

In relation to our audit of the financial report of Great Southern Limited for the year ended 30 September 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young

R A Kirkby Partner Perth 29 December 2008

Liability limited by a scheme approved under Professional Standards Legislation RK\MJ\GSL\389 - - 141- -

SHAREHOLDER INFORMATION

The shareholder information set out below was applicable as at 23 December 2008.

A. Distribution of Equity Securities

Analysis of numbers of equity security holders by size of holding:

Class of Equity Security Ordinary Shares Shares Options 1 – 1,000 1,956 - 1,001 – 5,000 4,828 - 5,001 – 10,000 2,204 - 10,001 – 100,000 2,559 - 100,001 and over 197 1 11,744 1

There were 2,858 holders of less than a marketable parcel of ordinary shares.

B. Equity Security Holders

(i) Twenty Largest Quoted Equity Security Holders

Ordinary Shares

The names of the twenty largest holders of quoted ordinary shares are listed below:

Ordinary Shares Name Number Held Percentage of Issued Shares

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 3 65,449,188 19.88 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 28,688,255 8.71 JSJA HOLDINGS PTY LTD 27,356,049 8.31 WEST STAR HOLDINGS PTY LTD 13,231,650 4.02 LATITUDE HOLDINGS PTY LTD 8,291,196 2.52 CITICORP NOMINEES PTY LIMITED 7,641,022 2.32 ANZ NOMINEES LIMITED 6,432,456 1.95 NATIONAL NOMINEES LIMITED 6,333,566 1.92 FETA NOMINEES PTY LIMITED 4,640,467 1.41 J P MORGAN NOMINEES AUSTRALIA LIMITED 4,634,172 1.41 BALDY BAY PTY LTD 2,336,629 0.71 ACE PROPERTY HOLDINGS PTY LTD 2,300,000 0.7 ECAPITAL NOMINEES PTY LIMITED 1,342,177 0.41 MR CAMERON ARTHUR RHODES + MRS BELINDA CHRISTINE RHODES + MR CAMERON ARTHUR RHODES 1,233,333 0.37 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 1,183,378 0.36 JINESPRI PTY LTD 1,150,000 0.35 MR DAVID GRAHAM LETHBRIDGE + MRS MARGARET HILDA LETHBRIDGE 1,127,584 0.34 LATSOD PTY LTD 1,110,280 0.34 ZAZU HOLDINGS PTY LTD 1,100,000 0.33 QUEENSLAND INVESTMENT CORPORATION 1,074,686 0.33

186,656,088 56.69

- - 142 - -

Transferable Reset Exchangeable Securities series 2 (TREES2)

The names of the twenty largest holders of quoted TREES2 are listed below:

TREES2 Percentage of Name Number Held Issued TREES2 J P MORGAN NOMINEES AUSTRALIA LIMITED 86,755 10.86 RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 71,063 8.89 GOLDMAN SACHS JBWERE CAPITAL MARKETS LTD 46,725 5.85 ANZ NOMINEES LIMITED 40,767 5.1 NATIONAL NOMINEES LIMITED 27,890 3.49 M F CUSTODIANS LTD 17,893 2.24 MR GABRIEL BERGER 15,202 1.9 MR LIONEL CEDRIC JULIAN LEES + MRS COLLEEN KERRY LEES 14,980 1.87 ARGO INVESTMENTS LIMITED 10,000 1.25 FORTIS CLEARING NOMINEES P/L 8,961 1.12 MR MALCOLM ERIC GORDON 8,136 1.02 RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED 4,819 0.6 MR PAUL DOUGLAS FINCH 4,685 0.59 MS PHYLLIS MEI CHU WONG 4,395 0.55 MR JOHN LESLIE THOMPSON 4,000 0.5 MS KERRYN MINTER 3,750 0.47 BALCARA ENTERPRISES PTY LTD 3,465 0.43 MANICITI PTE LTD 3,269 0.41 PREMISE PTY LTD 3,009 0.38 JAWP PTY LTD 3,000 0.38 382,764 47.9

Transferable Reset Exchangeable Securities series 3 (TREES3)

The names of the twenty largest holders of quoted TREES3 are listed below:

TREES3 Percentage of Name Number Held Issued TREES3 J P MORGAN NOMINEES AUSTRALIA LIMITED 208,389 16.71 ANZ NOMINEES LIMITED 192,339 15.42 CITICORP NOMINEES PTY LIMITED 174,120 13.96 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 139,121 11.16 NATIONAL NOMINEES LIMITED 100,485 8.06 COGENT NOMINEES PTY LIMITED 79,904 6.41 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 3 63,560 5.1 UBS NOMINEES PTY LTD 45,000 3.61 MANICITI PTE LTD 41,125 3.3 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA 20,397 1.64 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 13,668 1.1 MR LIONEL CEDRIC JULIAN LEES + MRS COLLEEN KERRY LEES 9,500 0.76 TAVERNER NO 11 PTY LTD 4,500 0.36 HUONCAN SUPER PTY LTD 3,955 0.32 MANICITI PTE LTD 3,800 0.3 MR SIMON ROBERT EVANS 3,603 0.29 PREMISE PTY LTD 3,426 0.27 WOOD FAMILY FOUNDATION PTY LTD 3,000 0.24 CAMBOOYA PTY LIMITED 2,875 0.23

- - 143 - -

TREES3 Percentage of Name Number Held Issued TREES3 LEWIS SECURITIES LTD 2,789 0.22 1,114,016 89.34

(ii) Unquoted Equity Securities

Number on Number of Issue Holders Rights issued under the Management Performance Rights Plan 12,882,500 87

C. Substantial Shareholders

Substantial shareholders in the company are set out below:

Number Held Percentage of Issued Shares Ordinary Shares

HSBC Custody Nominees (Australia) Limited - A/c 3 65,449,188 19.88 HSBC Custody Nominees (Australia) Limited 28,688,255 8.71 JSJA Holdings Pty Ltd 27,356,049 8.31

D. Voting Rights

The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary Shares

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

(b) Options and Rights

Options and Rights holders do not have any voting rights.

(c) Transferable REset Exchangeable Securities series 2 (TREES2) and TREES series 3 (TREES3)

TREES2 and TREES3 holders do not have any voting rights.

- - 144 - -