More annual reports from Healthscope Ltd:
2017 ReportPeers and competitors of Healthscope Ltd:
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Annual Report 2017
Healthscope is a leading
private healthcare provider
in Australia with 45 hospitals.
We also have market leading
pathology operations across
New Zealand, Malaysia and
Singapore.
Contents
FY17 highlights
Year in review
Divisional overview
Chairman’s message
MD & CEO's message
Board of Directors
Senior leadership team
Directors’ report
Auditor's independence declaration
Remuneration report
Financial report
1
2
4
6
8
10
12
16
28
29
50
Consolidated statement of profit
or loss and other comprehensive
income
51
Consolidated statement of
financial position
Consolidated statement of
cash flows
Consolidated statement of
changes in equity
Notes to the consolidated
financial statements
Directors’ declaration
Independent Auditor’s report
Securityholder information
Company directory
52
53
54
56
95
96
101
103
Healthscope’s 2017 Corporate Governance Statement
is available in the Investor Centre on our website
(www.healthscope.com.au).
Healthscope’s 2017 Sustainability Report will also be
available in the Investor Centre on our website when it
is released in September 2017.
FY17 highlights
Continuing operations1
In FY17, Healthscope delivered another year of revenue growth and continued its significant
capital investment to expand its hospital portfolio to accommodate future demand.
Revenue
From continuing operations
Operating EBITDA
From continuing operations
Operating EBIT
From continuing operations
$M
2,500
2,000
1,500
1,000
500
0
2,096
2,233
2,318
FY15
FY16
FY17
$M
500
400
300
200
100
0
366
397
411
FY15
FY16
FY17
$M
400
300
200
100
0
282
305
303
FY15
FY16
FY17
Significant capital
investment
Exceptional
patient care
Diversity
and inclusion
In excess of $485m was invested
in hospital expansion projects.
A focus on quality clinical outcomes,
transparency of reporting and elevating
the overall patient experience.
Employer that promotes diversity and
inclusion, develops its people and
delivers quality healthcare services.
1 Healthscope’s continuing operations consist of the hospital and international pathology businesses.
2 “Operating” results represent statutory results from continuing operations adjusted for items of other income and expense of $17.4m (net of tax) – refer to Note 2 of the consolidated financial report on page 58.
3 FY16 and FY15 results restated to represent continuing operations.
HEALTHSCOPE ANNUAL REPORT 2017 | 1
Year in review
Healthscope’s aim is to provide a healthcare offering
synonymous with quality clinical outcomes and an
excellent patient experience. We are committed to delivering
industry leading quality of care for patients and exceptional
services for doctors through our hospitals and international
pathology laboratories.
17.5k
Over 17,500
Accredited Medical
Practitioners
9.6m
Serviced over 9.6 million
pathology episodes in
New Zealand, Malaysia,
Singapore and Vietnam
45
45 hospitals offering
inpatient and
outpatient services 1,2
18.6k
Over 18,600
employees delivered
exceptional care
to patients
#1
MyHealthscope
ranked the most
comprehensive health
quality indicator
website available to
the public3
1 In July 2016, the businesses of Frankston Private Day Surgery and Peninsula Oncology Centre were consolidated and rebranded as Frankston Private Hospital.
2 In February 2017, Como Private Hospital was relocated to Holmesglen Private Hospital.
3 As determined by the Australian Centre for Health and Research when compared with both private and public hospitals.
2 | HEALTHSCOPE ANNUAL REPORT 2017
Year in review
Healthscope’s aim is to provide a healthcare offering
synonymous with quality clinical outcomes and an
excellent patient experience. We are committed to delivering
industry leading quality of care for patients and exceptional
services for doctors through our hospitals and international
pathology laboratories.
17.5k
Over 17,500
Accredited Medical
Practitioners
9.6m
Serviced over 9.6 million
pathology episodes in
New Zealand, Malaysia,
Singapore and Vietnam
45
45 hospitals offering
inpatient and
outpatient services 1,2
18.6k
Over 18,600
employees delivered
exceptional care
to patients
#1
MyHealthscope
ranked the most
comprehensive health
quality indicator
website available to
the public3
HEALTHSCOPE ANNUAL REPORT 2017 | 3
Divisional overview
Continuing operations
Healthscope’s footprint extends across Australia as well as
New Zealand, Malaysia, Singapore and Vietnam.
45
Private hospitals1,2,3
63
International
laboratories
Victoria
New South Wales
ACT
Queensland
17 Private hospitals
11 Private hospitals
1 Private hospital
7 Private hospitals
South Australia
Western Australia
Tasmania
Northern Territory
5 Private hospitals1
1 Private hospital
2 Private hospitals
1 Private hospital
New Zealand
Malaysia
Singapore
Vietnam
24 Pathology laboratories
34 Pathology laboratories
3 Pathology laboratories
2 Pathology laboratories
1 Includes three hospitals under management for the Adelaide Community Healthcare Alliance (ACHA).
2 In July 2016, the businesses of Frankston Private Day Surgery and Peninsula Oncology Centre were consolidated and rebranded as Frankston Private Hospital.
3 In February 2017, Como Private Hospital was relocated to Holmesglen Private Hospital.
4 Map (and related data) as at 15 July 2017.
4 | HEALTHSCOPE ANNUAL REPORT 2017
Divisional overview
Continuing operations
Healthscope’s footprint extends across Australia as well as
New Zealand, Malaysia, Singapore and Vietnam.
Hospitals
New Zealand
Pathology
Other
82%
14%
4%
% of Operating EBITDA
% of Operating EBITDA
% of Operating EBITDA
• Significant private hospital operator in
Australia with a presence in all Australian
• Largest provider of human pathology
services to New Zealand’s District Health
states and territories
• 45 hospitals concentrated in large
metropolitan centres
- 32 acute hospitals
- Seven mental health hospitals
- Six rehabilitation hospitals
• Market leading reputation for quality
clinical outcomes and transparency
• Delivering on hospital expansion projects
to meet growing demand
Boards (DHBs), operating under the
Labtests, Southern Community
Laboratories and Northland Pathology
brands
• Veterinary and analytical pathology
services provided through Gribbles brand
• One of the largest community pathology
providers in both Malaysia and Singapore
• Operating in Singapore, Malaysia and
Vietnam under the Gribbles Pathology
and Quest Laboratories brands
$2,014m
FY17 Revenue
$359m
FY17 Operating EBITDA
15,775
Employees
$243m
FY17 Revenue
$60m
FY17 Operating EBITDA
1,915
Employees
$62m
FY17 Revenue
$18m
FY17 Operating EBITDA
961
Employees
1 Divisional overview as at 30 June 2017.
2 As a result of the divestment of Medical Centres, the ‘Other’ segment was revised to reflect the continuing business comprising Pathology operations in Singapore, Malaysia and Vietnam.
HEALTHSCOPE ANNUAL REPORT 2017 | 5
Chairman’s message
A further seven projects are underway in New South
Wales, Queensland and Victoria which will deliver an
additional 566 beds and 38 operating theatres by the
end of FY19. At the same time, we continue to focus on
driving performance across our portfolio of 45 hospitals.
Construction of the new Northern Beaches Hospital
in Sydney is progressing on time and on budget with
the facility due to open in mid FY19. This is the first
major investment in public health infrastructure on the
Northern Beaches for decades. It is also a pioneering
public private partnership under which Healthscope
has partnered with the New South Wales government
to design, build operate and maintain a 450 bed facility,
supported by a large integrated emergency department,
state-of-the-art intensive care and critical care units
and a modern inpatient mental health facility. The new
hospital will provide health services for both public and
private patients, replacing two existing public hospitals
in the area. The Northern Beaches catchment has one
of the highest private health insurance concentrations in
Australia and is an area where many doctors choose
to live.
We have welcomed the opportunity to partner with the
New South Wales government and will continue to explore
opportunities to increase our participation in the delivery of
important public health services across Australia.
In March 2016 Gold Coast Private Hospital opened its
doors to communities from Brisbane to Tweed Heads.
This modern and advanced facility is a major employer
of nursing and support staff on the Gold Coast, and is
helping to improve access for local residents to quality
medical care from cardiology to obstetrics. Gold Coast
Private Hospital is a good example of our criteria for
brownfields and relocate and grow projects – it is
co-located near Gold Coast University Public Hospital
in one of Queensland’s population growth corridors,
with a high proportion of privately insured patients in
its catchment.
In New Zealand, our pathology business has enjoyed
strong organic growth. Our focus has been on delivering
a high quality and cost effective community pathology
service, focused in the major cities of Auckland,
Wellington and Christchurch. Our Asian operations, while
small, are performing to plan and allow us to leverage our
expertise and gain strategic insight into the region.
Following a strategic review of our standalone Medical
Centre portfolio, we decided to divest these assets.
This follows a period of underperformance in the context
of difficult trading conditions across the industry. On 17
August 2017 we entered into an agreement with Fullerton
Primary Care Pty Limited to sell the operations for
$55 million, subject to standard completion adjustments.
The sale will allow our management team to focus on
our core private hospitals and pathology businesses.
Dear Shareholders,
I am pleased to present the 2017 Annual Report for
Healthscope Limited (the Company).
During the year Healthscope delivered growth in revenue
and Operating EBITDA in the face of challenging
conditions for private hospitals. We continued to invest
for the future and managed a smooth transition to new
leadership.
Following an extensive CEO succession planning process,
the Board was pleased to announce the appointment of
Gordon Ballantyne to succeed Robert Cooke as Managing
Director and Chief Executive Officer. Gordon commenced
the role on 15 May 2017 and brings rich experience
working in complex, highly regulated industries, with
large workforces. Gordon’s passion and commitment for
the customer is aligned to our commitment to provide
exceptional support for our doctors and high quality
patient care, and will bring a fresh perspective to new
medium to long term opportunities going forward.
Our strategy in action
In FY17 we invested $485 million in growth projects. This
included the completion of five hospital expansion projects
which added 214 beds, 13 operating theatres and two
new emergency departments to the portfolio through the
completion of projects in Victoria - Holmesglen Private,
Frankston Private and Northpark Private, in New South
Wales - Norwest Private and at Darwin Private in the
Northern Territory.
6 | HEALTHSCOPE ANNUAL REPORT 2017
Chairman’s message
Our performance and dividends
Statutory Net Profit After Tax (NPAT) for FY17 of $110.9
million was down 38.8% on the prior year, adversely
impacted by non-operating expenses after tax of
$72.1 million, including Medical Centre impairment loss
of $54.7 million.
The Group’s operating results reflect two key forces at
play. In the short term the Australian private hospitals
market continues to face challenging conditions with
private health insurance participation rates having
contracted slightly over the last 24 months and public
hospitals actively competing for private patients. At the
same time we continue to make significant investments
in our hospital portfolio reflecting the projected future
demand curve of a growing and ageing population in the
catchments in which we have invested. In the near term,
as these projects complete we incur higher depreciation
and interest charges, but our investments provide a
platform for stronger growth over the medium to longer
term.
Pleasingly, we began to see a meaningful contribution
to revenue from major brownfields expansion projects
completed in FY16 and FY17. This is expected to
continue in FY18 and beyond as volumes in these new
facilities build.
The financial position of the Group remains strong, with
$195.9 million of cash and $300 million of available debt
facilities at year end.
Healthscope announced a final unfranked dividend of
3.5 cents per share, bringing the full year dividend to 7.0
cents per share, a decrease of 5.4% on the prior year.
Shareholders now have the opportunity to reinvest their
dividends in Healthscope shares through the Dividend
Reinvestment Plan introduced in December 2016.
Strong industry fundamentals
Notwithstanding recent volatility, the medium to long term
fundamentals of the Australian private hospitals industry
remain robust.
Australia, like many other developed nations, is facing
increasing demand for health services and hospital
admissions fuelled by a growing and ageing population.
This is compounded by advancements in medicine and
an increasing incidence of lifestyle and degenerative
diseases.
The private sector, and Healthscope as a leading,
Australian private healthcare provider, has an important
role to play in the Australian healthcare system providing
efficient delivery of high quality and cost-effective services
to complement our public health services.
We note a growing appetite in the industry for healthcare
reform and we welcome positive and active engagement
with policy makers and our industry partners to transform
healthcare for the benefit of all Australians.
In particular we look forward to action on the issue of
public hospitals more actively competing with private
hospitals for private patients, rather than focusing on
public patients. In May 2017, The Australian Institute of
Health and Welfare published data that illustrated a trend
we have observed over the last decade of some public
hospitals actively pursuing private patients. As a result
public patients without private health insurance face
lengthy waiting lists for elective surgeries. This activity is
placing unnecessary pressure on public services and is
clearly unsustainable. We look forward to resolution of this
important issue which is undermining the effectiveness of
Australia's healthcare system.
Rising health care costs are a clear concern for individuals
and governments. Healthscope has led the industry
on transparent reporting of clinical outcomes and we
continue to look for ways to work with our private health
insurance partners to enhance efficiency in the system
and to ensure that private health insurance products
deliver consumers compelling value.
Our people
Every year across our network of 45 hospitals and
pathology operations, our workforce of over 18,000 staff
and our 17,500 Accredited Medical Practitioners deliver
quality clinical outcomes and exceptional patient care. On
behalf of the Board and shareholders, I would like to thank
our team for their ongoing dedication and commitment to
our patients and to Healthscope.
I would also like to acknowledge Robert Cooke, who
stepped down as Managing Director and Chief Executive
Officer in May 2017, after more than six years in the role.
We wish him well in retirement.
Finally I would like to acknowledge the ongoing support of
our shareholders and invite you to join the Board and the
senior leadership team for our Annual General Meeting in
Melbourne on 19 October 2017.
Paula J. Dwyer
Chairman
HEALTHSCOPE ANNUAL REPORT 2017 | 7
MD & CEO's message
Our business performance
Our results for FY17 reflect softer private hospital market
conditions and variability in patient case mix combined
with margin pressure, where costs have increased greater
than health fund price increases in some areas of the
business.
Group Operating NPAT for continuing operations,
after excluding non-operating expenses, was $180.0
million, down 5.6%, primarily driven by increases in both
depreciation and interest associated with our capital
investment program.
Operating EBITDA for continuing operations of $411.4
million was up 3.5% on the prior year.
The Hospitals division, our largest business, grew revenue
by 3.4% and delivered a 1.3% increase in Operating
EBITDA to $359.4 million.
The Company’s medium to long term growth expectations
for the Hospitals division continue to be supported by
strong industry fundamentals. However, Healthscope
expects ongoing market volatility and cost pressures in
the Australian private hospital market to continue and has
established four key areas of “must win” imperatives to
drive performance improvement across the portfolio going
forward. These are:
• Accelerating profitable topline growth
• Driving greater operational efficiency
• Optimising the portfolio; and
• Continuing to successfully execute on our hospital
expansion program
Balancing some of the short term challenges, the early
results from our major brownfield and ‘relocate and grow’
hospital expansions are pleasing and have delivered
stronger revenue growth than our broader portfolio, and
the Australian private hospital market.
Our international operations performed well, with New
Zealand pathology achieving revenue growth of 8.9% to
$242.5 million, driven by organic growth and expansion
of the scope of our commercial, veterinary and analytical
pathology businesses. We also continued to drive
operational efficiencies, including increased automation,
supporting strong earnings growth. Results for our Asian
operations generated revenue and earnings growth on a
local currency basis but their reported performance was
impacted by currency headwinds during the period. We
have also made the decision to divest our Medical Centre
network, enabling us to focus on our core Australian
hospitals and international pathology businesses.
Dear Shareholders,
I am delighted to be writing to you for the first time as
Healthscope’s Managing Director and Chief Executive
Officer. I am three months into the role and my focus
during this time has been on getting to know the
business and its people, spending time in all our major
operational sites and engaging with key partners and
industry stakeholders. My early observations are of a
great company, with good assets, a strong financial
position and above all, a great team of passionate people
dedicated to delivering quality clinical outcomes and
exceptional patient care.
It is indeed a privilege to be part of a business, and an
industry, that so directly and powerfully affects the lives of
so many.
Through a significant capital works program, we are
building capacity to care for communities across
the country to further expand on the strength of our
existing hospital network. We are also investing in new
technologies to enable our doctors and teams to deliver
innovative treatments, and improve the patient experience
in our hospitals. We have continued to lead the industry
in clinical quality underpinned by transparent reporting,
giving patients the information they need to make
decisions about their care by publishing our performance
against a range of clinical and safety measures.
8 | HEALTHSCOPE ANNUAL REPORT 2017
MD & CEO's message
The increase in Group gearing to 3.92 times Net Debt
to EBITDA remains comfortable, and reflects continued
investment in the Northern Beaches development, the
capital requirements of which are secured by project
finance debt facilities. Gearing excluding the Northern
Beaches project finance facility remains similar to last year
at 2.66 times Net Debt to EBITDA.
Our priorities
Demand for healthcare services is expected to grow
across each of the markets and countries in which
Healthscope operates.
I am looking forward to working with the team and our
stakeholders as we focus, in the short term, on our core
business.
Executing well on our major hospital expansion projects
and establishing a track record of success has been
a clear focus for the business in FY17, and will remain
a focus for FY18 and beyond. At the same time, in
the context of ongoing challenges in our operating
environment, we will continue to manage the business for
ongoing volatility.
Delivering efficient, high quality care and clinical outcomes
for patients in each of the 45 hospitals we operate
across the country and our pathology operations in
New Zealand, Singapore, Malaysia and Vietnam is a key
priority. Moreover, we will work to be the trusted provider
of choice for doctors, a positive contributor to the industry
and a strong partner to governments as they seek to
reform and deliver critical healthcare services.
If we execute on these priorities well, I am confident we
will deliver strong returns for shareholders. I look forward
to meeting many more of our shareholders at the Annual
General Meeting in October. Thank you for your ongoing
support.
Gordon Ballantyne
Managing Director and Chief Executive Officer
HEALTHSCOPE ANNUAL REPORT 2017 | 9
Board of Directors
The details of each current Director’s qualifications, special responsibilities and
experience are set out below.
Paula J. Dwyer
BComm, FCA, SF Fin, FAICD
Non Executive Chairman and Chair of the Nomination
Committee from June 2014. Paula is a member of the
Audit, Risk & Compliance Committee and the People
and Remuneration Committee.
Skills, experience and expertise
Paula is an established Non Executive Director who had
an executive career in finance, holding senior positions
in investment management, investment banking and
chartered accounting with Ord Minnett (now JP Morgan)
and PricewaterhouseCoopers.
Current Directorships
Chairman: Tabcorp Holdings Limited (from 2011,
Director from 2005).
Director: Australia & New Zealand Banking Group
Limited (from 2012) and Lion Pty Limited (from 2012).
Member: International Advisory Board of Kirin Holdings
of Japan, Business and Economics Board of the
University of Melbourne the ASIC External Advisory
Panel and the Takeovers Panel.
Former Directorships include
Deputy Chairman: Leighton Holdings Limited (2013
- 2014, Director 2012), Baker IDI Heart and Diabetes
Research Institute (2003 - 2013).
Director: Suncorp Group Limited (2007 - 2012),
Astro Japan Property Group Limited (2005 - 2011),
Fosters Group Limited (2011), Healthscope Limited
(2010), Promina Limited (2002 - 2007), CCI Investment
Management Ltd (1999 - 2011).
Gordon Ballantyne
BSc (Hons), MAICD
Managing Director & Chief Executive Officer from
May 2017.
Skills, experience and expertise
Gordon has extensive operating experience within
public and private companies both in Australia and
internationally.
He is recognised for his strong leadership, passion for
putting customers first and for his ‘challenger mindset’.
Most recently Gordon was Group Executive of Telstra’s
domestic retail business, which he helped to grow into
an $18 billion business with successive years of double
digit revenue growth.
Tony Cipa
BBus, Grad Dip Accounting
Non Executive Director since June 2014. Chair of the
Audit, Risk & Compliance Committee and member
of the People and Remuneration and Nomination
Committees.
Skills, experience and expertise
Tony previously spent 20 years with CSL Limited in
various senior finance roles. Tony was Chief Financial
Officer, CSL (1994 - 2010) and was appointed to the
Board of CSL Limited as Finance Director in 2000 until
his retirement in 2010.
While at Telstra he also founded innovative new growth
businesses, including Telstra Health, a disruptive health
services business focused on e-health solutions and
health analytics.
Prior to Telstra, Gordon spent 20 years in senior
leadership roles in leading global corporations, including
Hewlett Packard, T-Mobile, Dell.com and Dell Ventures.
Current Directorships
Managing Director: Healthscope Limited (from May
2017).
Current Directorships
Director: Navitas Limited (from May 2014)
Former Directorships include
Executive Director: CSL Limited (2000 - 2010).
Director: SKILLED Group Limited
(from 2011 - 2015) and Mansfield District Hospital
(from 2011 - 2015).
Paula J.
Dwyer
Independent
Non Executive
Chairman
Gordon
Ballantyne
Managing
Director and Chief
Executive Officer
Tony
Cipa
Independent
Non Executive
Director
10 | HEALTHSCOPE ANNUAL REPORT 2017
Board of Directors
The details of each current Director’s qualifications, special responsibilities and
experience are set out below.
Rupert
Myer AO
Independent
Non Executive
Director
Jane McAloon
Independent
Non Executive
Director
Paul
O’Sullivan
Independent
Non Executive
Director
Ziggy
Switkowski AO
Independent
Non Executive
Director
Rupert Myer AO
BComm, MA, FAICD
Non Executive Director since June 2014. Chair of
the People and Remuneration Committee and member
of the Audit, Risk & Compliance and Nomination
Committees.
Skills, experience and expertise
Rupert’s background includes roles in the retail and
property sector, healthcare, e-commerce, investment,
family office, wealth management, philanthropy services,
and the community sector. He previously worked as a
Manager at Citibank Limited in London and Melbourne.
Current Directorships
Director: Amcil Limited (from 2000), and eCargo
Holdings Limited (from 2014).
Chairman: Australia Council for the Arts.
Member: Business and Economics Advisory Board of
the University of Melbourne.
Board member: Jawun – Indigenous Corporate
Partnerships, the Yulgilbar group of companies and the
Australian International Cultural Foundation.
Former Directorships include
Deputy Chairman: Myer Holdings Limited (from 2012,
Director from 2006).
Chairman: The Myer Family Group.
Director: Diversified United Investments Limited (2002
- 2012).
Jane McAloon
BEc (Hons), LLB, GDipGov, FAICD, FCIS
Non Executive Director since March 2016.
Member of the Audit, Risk & Compliance and
Nomination Committees.
Skills, experience and expertise
Jane brings a wealth of commercial experience from her
work in highly regulated industries including rail, energy,
infrastructure and resources sectors. In her executive
career, Jane held senior executive positions at BHP
Billiton and AGL, as well as in NSW State Government.
Current Directorships
Director: Energy Australia Holdings Limited (from
2012), Australian Defence Force Assistance Trust (from
2015) and Cogstate Ltd (from 2017).
Member: Monash University Industry Council of
Advisers (from 2014), National Chair: Defence Reserves
Support Council (from 2017) and Referendum Council
(from 2015).
Former Directorships include
Member: Australian War Memorial Council (2011
- 2014) and Australian Corporations and Markets
Advisory Committee (2011 - 2013).
Paul O’Sullivan
BA (Mod) Economics, Advanced Management Program
of Harvard
Current Directorships
Chairman: SingTel Optus Pty Limited (from 2014,
Director from 2004).
Non Executive Director since January 2016.
Member of the Audit, Risk & Compliance and
Nomination Committees.
Skills, experience and expertise
Paul has extensive experience from his work in the
telecommunications, banking and oil & gas sectors
both in Australia and overseas. In his executive career,
Paul held senior executive roles with Singapore
Telecommunications (Singtel). He was previously
the CEO of Optus and has also held international
management roles with the Colonial Group and the
Royal Dutch Shell Group.
Director: Coca-Cola Amatil Limited (from 2017)
and National Disability Insurance Agency NDIA
(from 2017).
Member: Board of Commissioners Telkomsel
(Indonesia) (from 2010), St George & Sutherland
Medical Research Foundation (from 2015), UNSW
Bright Alliance Advisory Board (fundraising arm of the
Prince of Wales Hospital) and HOOQ Pte Ltd (from
2016).
Former Directorships include
Member: Board Bharti Airtel (India) (2003 - 2010) and
Board Australia Business and Community Network
(ABCN) (2005 - 2013).
Current Directorships
Chairman: Suncorp Group Ltd (from 2011, Director
from 2005) and NBN Co Limited (from 2013).
Director: Tabcorp Holdings Limited (from 2006).
Chancellor: RMIT (from 2011).
Former Directorships include
Chairman: Opera Australia (2005 - 2013) and
Oil Search Limited (2011 - 2017).
Ziggy Switkowski AO
BSc (Hons), Phd, FAICD, FAA, FTSE
Non Executive Director since April 2016. Member of the
Audit, Risk & Compliance, People and Remuneration
and Nomination Committees.
Skills, experience and expertise
Ziggy brings a wealth of senior business experience
gained over many years working in large international
corporations. He is a former Chairman of the Australian
Nuclear Science and Technology Organisation and
Opera Australia. He has previously held positions as
Chief Executive Officer of Telstra Corporation Limited
and Optus Communications Ltd, and is a former
Chairman and Managing Director of Kodak Australasia
Pty Ltd.
HEALTHSCOPE ANNUAL REPORT 2017 | 11
Senior leadership team
Our senior leadership team brings outcomes focused leadership and passion for delivering
high quality healthcare.
1
2
3
4
5
6
6
Anita Healy
General Manager
Business Development
& Investor Relations
Anita is responsible for business
development and investor relations.
Prior to joining Healthscope in 2014,
Anita spent 15 years working as an
investment banker with Macquarie
Group. She has extensive experience
in mergers and acquisitions, equity
and debt capital markets and principal
investing and has advised companies
across a range of sectors including
healthcare, infrastructure, property,
telecommunications and industrials.
Anita has worked on transactions and
with investors in Australia, the United
States, the United Kingdom and Asia.
1
2
Gordon Ballantyne
Managing Director &
Chief Executive Officer
Michael Sammells
Chief Financial Officer
Michael has over 18 years experience
in the healthcare industry, having held
a number of operational and finance
senior executive roles in private
hospitals, in the public health and
health insurance sectors, at companies
including Mayne Group, Southern
Health and Medibank. Prior to joining
Healthscope Michael was Chief
Financial Officer for Medibank.
Michael joined the Healthscope Group
as Chief Financial Officer in January
2012.
3
Mark Briscoe
General Manager Operations
Prior to joining Healthscope in 2011,
Mark was Director of Operations and
Developments at Spire Healthcare
Limited in the UK.
In Australia, Mark has worked in
various healthcare corporate roles
at Mayne Group, Affinity Health and
Symbion Health.
At Healthscope, Mark is responsible for
health insurance funding, the medical
centre division and the Victorian and
Tasmanian hospital portfolio as well
as working with the Hospital State
Managers and General Managers
to deliver efficiencies across the
Healthscope network.
4
Dr Michael Coglin
Chief Medical Officer
Michael joined Healthscope in 1999.
His current role involves executive
responsibility for clinical governance,
clinical risk management, patient
safety, quality and compliance, claims
and litigation, medical affairs, public
affairs/media relations and indigenous
health.
Michael serves on a number of
Government and industry bodies,
including the Private Hospital
Sector Committee of the Australian
Commission on Safety and Quality in
Health Care.
For the 20 years prior to taking up his
current appointment, he held senior
posts in medical management in a
variety of public hospitals in both
metropolitan and regional settings in
Victoria and the Northern Territory.
5
Stephen Gameren
Hospitals State Manager
NSW & ACT
Stephen has worked with Healthscope
since 2004. He has over 20 years
experience in healthcare management,
spanning three countries - New Zealand,
the United Kingdom and Australia.
Stephen worked as CEO at the Hills
Private Hospital and was Project Director
and CEO for the Norwest Private Hospital
Project, successfully commissioning this
new hospital in September 2009.
He commenced in the role of NSW/ACT
State Manager in February 2010.
12 | HEALTHSCOPE ANNUAL REPORT 2017
Senior leadership team
Our senior leadership team brings outcomes focused leadership and passion for delivering
high quality healthcare.
7
8
9
10
11
12
9
Richard Lizzio
Hospitals State Manager
QLD, NT & WA
11
Anoop Singh
General Manager
International Pathology
7
Richard Herman
Head of Assurance
Richard joined Healthscope in 2015 and
is responsible for the risk management
framework and internal audit function.
Richard has over 20 years’ experience
in risk management, internal audit,
compliance and governance. Prior
to joining Healthscope, Richard was
the General Manager Internal Audit at
Medibank for eight years.
Richard has an extensive commercial
background, including roles in the not-
for-profit sector in health, aged care and
education.
Prior to joining Healthscope in 2011,
Richard spent eight years working with
Ramsay Healthcare in various hospital
GM positions in Queensland.
Previously Richard spent 12 years as a
Director for Deloitte in South Africa, UK
and Australia providing risk, internal audit
and compliance services.
Richard started his working life as a
chartered accountant with KPMG and
later moved into retail stockbroking and
financial services.
8
Alan Lane
Hospitals State Manager
SA & ACHA CEO
Alan has worked for 30 years in
healthcare, and was appointed by
Healthscope in 2004.
Alan's extensive involvement in healthcare
spans the market sectors of hospitals,
pharmacy, pathology, manufacturing,
business development and logistics.
As part of his responsibility for South
Australia, Alan is the CEO of the Adelaide
Community Healthcare Alliance (ACHA)
group.
10
Ingrid Player
General Counsel &
Company Secretary
Ingrid has more than 15 years commercial
experience and was appointed General
Counsel and Company Secretary in 2005.
Ingrid has extensive corporate,
commercial litigation and governance
experience.
Prior to joining Healthscope, Ingrid spent
five years working for a Dutch law firm
in the Netherlands, working primarily in
the mergers and acquisitions space, as
well as in capital markets. Previously, she
worked in private practice in Melbourne.
Anoop joined Healthscope in 2011. He
has held a number of senior leadership
roles in the healthcare industry in the
Asia-Pacific region over the past 26
years. His breadth of experience includes
a strong understanding of pathology
operations, strategic health policy matters
and Government relations.
Prior to joining Healthscope, Anoop held
commercial and general management
roles in large diversified companies such
as Mayne Group and Symbion Health.
12
Jenny Williams
General Manager
Human Resources
Jenny joined Healthscope in 2011, and
was appointed as General Manager,
Human Resources, in 2012.
Jenny is a proven HR professional with
diverse experience across the healthcare
and education sectors.
Prior to joining Healthscope, Jenny held
senior HR positions at the University of
Melbourne, Symbion Health and Mayne
Group.
HEALTHSCOPE ANNUAL REPORT 2017 | 13
14 | HEALTHSCOPE ANNUAL REPORT 2017
HEALTHSCOPE ANNUAL REPORT 2017 | 15
Directors’ report
This report provides information on the structure and progress of our business, our FY17 financial performance, our strategies
and prospects for the future, as well as the key risks Healthscope faces. It covers Healthscope Limited and the entities it
controlled during the year ended 30 June 2017 (referred to as "Healthscope" and "the Group").
Board of Directors
The directors of Healthscope Ltd during the year ended 30 June 2017 and up to the date of this report are listed below.
Directors were in office for this entire period, except where otherwise stated.
Paula J. Dwyer
Gordon Ballantyne (appointed 16 May 2017)
Antoni (Tony) M. Cipa
Jane McAloon
Rupert Myer AO
Paul O’Sullivan
Dr Zygmunt (Ziggy) Switkowski AO
Robert Cooke (ceased as Managing Director and CEO on 14 May 2017)
Details of each of the current director’s qualifications, special responsibilities and experience are set out in the Board of Directors
section of this Annual Report on pages 10 to 11.
Attendance at Board and Committe meetings
The number of meetings of the Board of Directors and of each Board Committee held during the year, and each Director’s
attendance at those meetings, are set out below:
(i) Board of Directors meetings
SCHEDULED
UNSCHEDULED
Number eligible
to attend
Number
attended
Number eligible
to attend
Number
attended
Paula J. Dwyer (Chair)
Gordon Ballantyne2
Tony Cipa
Jane McAloon
Rupert Myer AO
Paul O’Sullivan
Dr Ziggy Switkowski AO
Robert Cooke1
1 Ceased as Managing Director and CEO on 14 May 2017.
2 Commenced as Managing Director and CEO on 15 May 2017.
10
2
10
10
10
10
10
8
10
2
10
10
10
10
10
8
2
0
2
2
2
2
2
1
2
0
1
2
1
2
1
1
16 | HEALTHSCOPE ANNUAL REPORT 2017
Directors’ report
(ii) Board Committee meetings
AUDIT, RISK & COMPLIANCE
COMMITTEE
REMUNERATION
COMMITTEE1
NOMINATIONS
COMMITTEE
Number
eligible
to attend
Number
attended
Number
eligible
to attend
Number
attended
Number
eligible
to attend
Number
attended
4
4
4
4
4
4
4
42
4
4
4
3
6
6
-
6
-
6
6
6
-
62
-
6
3
3
3
3
3
3
32
3
3
3
3
3
Paula J. Dwyer (Chair)
Tony Cipa
Jane McAloon
Rupert Myer AO
Paul O’Sullivan
Dr Ziggy Switkowski AO
1 Effective 22 August 2017, the People and Remuneration Committee.
2 Chair.
The table above records attendance of members of Healthscope’s permanent standing Committees of the Board. Any Director
is entitled to attend these meetings and from time to time Directors attend meetings of Committees of which they are not a
member.
The Board also forms and delegates authority to ad hoc Committees of the Board as and when needed to carry out specific
tasks.
Company Secretary details
The Company Secretary is Ingrid Player. Ms Player was appointed to the position of Company Secretary on 8 November 2010.
Ms Player is responsible for the legal affairs of the Healthscope Group and for all company secretarial matters. Prior to joining the
Healthscope Group in 2005, Ms Player had over 10 years of experience working as a lawyer in Australia and overseas.
HEALTHSCOPE ANNUAL REPORT 2017 | 17
Directors’ report
Review of operations
Principal activities
Healthscope is a leading private healthcare provider
in Australia with 45 private hospitals. Internationally,
Healthscope has leading pathology operations across
New Zealand, Malaysia and Singapore and a small presence
in Vietnam.
During FY17, Healthscope also operated 48 standalone
medical centres including skin clinics and a specialist breast
clinic. An agreement was entered into to divest those assets
on 17 August 2017, following a strategic review.
Hospitals
Healthscope’s hospital division operates facilities across
every state and territory in Australia, with 45 private hospitals
and more than 5,000 inpatient beds. Of these facilities, 29
facilities are owned by Healthscope, 13 are leased and three
are managed on behalf of Adelaide Community Healthcare
Alliance (ACHA).
Within its hospitals, Healthscope is focused on providing a
range of specialist orientated, multi-disciplinary healthcare
services from acute care through to rehabilitation and mental
health services. The Company also has a significant hospital
expansion and development program underway which will
enable the Group to deliver an expanded range of services to
the communities it supports over the next few years.
Across the portfolio, 32 hospitals provide acute care services
to patients ranging from medical treatment to complex
surgery and associated care. In addition, Healthscope
provides industry leading care for patients with mental health
conditions in seven dedicated hospitals. A further six facilities
are dedicated to rehabilitation.
Over 17,500 Accredited Medical Practitioners are
credentialed to work within Healthscope hospitals and these
specialists are supported by a workforce of over 15,700
nursing and support staff who seek to provide the highest
quality of care to patients, and support to doctors, at all
times.
All of Healthscope’s hospitals are accredited under the
National Safety and Quality Health Services Standards
and Healthscope prides itself on providing market leading
quality outcomes and in promoting transparency across
the industry. Leading by example, Healthscope reports 25
quality outcomes publicly on the MyHealthscope website, and
outperforms the industry benchmark and its peers on the vast
majority of indicators.
International Pathology
Healthscope’s International Pathology operations span a
number of Asia Pacific countries, with a presence in New
Zealand, Malaysia, Singapore and Vietnam. In FY17, the
Group managed over 60 laboratories across the region and
serviced over 9.6 million patient episodes.
18 | HEALTHSCOPE ANNUAL REPORT 2017
New Zealand
Healthscope is a leading provider of community pathology
services in New Zealand.
The New Zealand community pathology market consists
of 20 government funded District Health Boards (DHBs)
who each enter into exclusive contracts with providers to
service their local population. During FY17, Healthscope
held contracts for a majority of the DHB regions, including
the major cities of Auckland, Wellington and Christchurch.
These services are delivered under three Healthscope brands,
Labtests, Southern Community Laboratories and Northland
Pathology.
Veterinary and analytical pathology services are also offered
by Healthscope in New Zealand under the Gribbles brand.
Across the country, the Group operates 24 laboratories and
145 collection centres.
Malaysia
In Malaysia, Healthscope operates as Gribbles Pathology
and has the largest community pathology network across
the Malaysian peninsula, Borneo and Brunei. Its main source
of revenue is to provide comprehensive services to hospitals
and the community.
In Malaysia, Healthscope has 34 laboratories which serviced
over 1.3 million patient episodes in FY17.
Singapore and Vietnam
In Singapore and Vietnam, Healthscope operates as Quest
Laboratories.
In Singapore, Quest has a well-established market position
and operates three laboratories which processed over
1.5 million patient episodes in FY17. During FY17 Quest
Laboratories also became the first full-service private medical
laboratory in Singapore to achieve dual quality accreditation
from ISO15189 and the College of American Pathologists.
In Vietnam, Healthscope operates two laboratories with its
main operation located in a women’s and children’s private
hospital in Ho Chi Minh City. Given its size, these laboratories
are managed as part of the Singapore business.
Medical Centres
Healthscope operated 43 standalone medical centres, four
specialist skin clinics and one specialist breast diagnostic
clinic during FY17. On 17 August 2017 Healthscope entered
into an agreement to divest these operations for $55 million,
subject to standard purchase price adjustments, with
completion of the sale scheduled to occur by the end of
September 2017. This business had been underperforming
for a number of years due to difficult market conditions.
The divestment will enable senior management attention to
be redirected to the Group’s core hospital and pathology
operations.
Directors’ report
Operating results
The consolidated net profit after tax (NPAT) of the Healthscope Group for the year ended 30 June 2017 (FY17) was $110.9 million
(FY16: $181.1m). The result was adversely impacted by an impairment loss of $54.7 million in relation to the sale of the Group’s
standalone medical centre operations and non-operating expenses after tax of $17.4 million.
Summary of FY17 financial performance - continuing operations1
Revenue
Operating EBITDA2
Operating EBIT2
Operating NPAT2
Statutory NPAT
Earnings per share (EPS)
Diluted EPS
Dividend per share (DPS)
FY17
$'m
2,318.2
411.4
302.5
180.0
162.6
9.4 cps
9.3 cps
7.0 cps
FY16
$'m
2,232.9
397.4
304.6
190.8
179.0
10.3 cps
10.3 cps
7.4 cps
MOVEMENT
%
3.8
3.5
(0.7)
(5.6)
(9.2)
(9.2)
(9.7)
(5.4)
1 Continuing operations exclude the medical centre operations which were held for sale as at 30 June 2017 and the Australian pathology operations which were divested on 6 July 2015.
2 Operating results represent statutory results before other income and expense items (“non-operating items”). Total non-operating items from continuing operations represented an expense of
$24.7m (pre-tax) and $17.3m (tax-effected) in FY17 and $14.9m (pre-tax) and $11.8m (tax-effected) in FY16.
Operating EBITDA from continuing operations of $411.4 million, increased 3.5% from FY16. This increase reflected softer growth
in our Hospitals division and continued strong growth in the New Zealand pathology operations.
Operating EBIT from continuing operations of $302.5 million saw a marginal decline due to the increase in depreciation and
amortisation associated with the completion of several hospital expansion projects over the last 18 months.
Operating NPAT from continuing operations of $180.0 million was down 5.6%, primarily as a result of the increase in net interest
expense from the full year effect of Gold Coast project finance debt being converted to senior debt post-completion of the
project in March 2016.
Statutory NPAT from continuing operations of $162.6 million was adversely impacted by a number of non-operating items
including an impairment of plant and equipment held at Geelong Private Hospital, a loss relating to the appointment of a
liquidator for a supplier group and corporate restructuring and commissioning costs.
Earnings per share (EPS) from continuing operations of 9.4 cents per share declined 9.2%. A final unfranked dividend of 3.5
cents per share will be paid on 28 September 2017. The full year dividend for the year ended 30 June 2017 is 7.0 cents per
share, a decrease of 5.4% from the prior year. The full year dividend per share represents a payout ratio of 70.0% of Statutory
NPAT adjusted for non-cash impairment items.
HEALTHSCOPE ANNUAL REPORT 2017 | 19
Directors’ report
Operating results (continued)
Divisional FY17 financial performance
Hospitals
Revenue
Operating EBITDA
Operating EBIT
Operating EBITDA margin (including ACHA fee)1
Operating EBIT margin (including ACHA fee)1
1 Operating EBITDA and EBIT margins include prosthetics revenue and costs.
FY17
$'m
2,014.0
359.4
272.6
17.8%
13.5%
FY16
$'m
1947.7
354.9
281.4
18.2%
14.4%
MOVEMENT
%
3.4
1.3
(3.1)
(40bp)
(90bp)
The Hospitals division recorded an increase in revenue of 3.4% to $2,014.0 million and an increase in Operating EBITDA of 1.3%
to $359.4 million. The result reflects softer private hospital market conditions and variability in patient case mix, combined with
margin pressure, where costs have increased greater than health fund price increases, in some areas of the business. Some sites
were also impacted by competitor actions and planned brownfield disruption where internal works are in progress.
Despite these challenges, most States delivered good Operating EBITDA growth as a result of strong performances at a number
of hospital expansion sites. However, Operating EBITDA for the Victoria and Tasmania portfolio, which is the second largest
contributor to divisional earnings, declined by 8.7%. The primary drivers of the underperformance were wage inflation, partially
offset by health fund price increases and operating efficiencies, increased competition in the Geelong Private and Victorian
Rehabilitation Centre catchments and a slower than expected ramp up of volumes within the Holmesglen Private and Frankston
Private "relocate and grow" projects.
New Zealand Pathology
Revenue
Operating EBITDA
Operating EBIT
Operating EBITDA margin
Operating EBIT margin
FY17
$'m
242.5
59.7
46.6
24.6%
19.2%
FY16
$'m
222.7
50.7
40.1
22.8%
18.0%
MOVEMENT
%
8.9
17.7
16.2
+180bp
+120bp
The New Zealand Pathology division recorded revenue growth of 8.9% to $242.5 million with the performance driven by
a combination of the full year impact of the Wellington contract and the expanded scope of non-government commercial,
veterinary and analytical businesses. Operating EBITDA increased by 17.7% to $59.7 million reflecting the continued economies
of scale being achieved through investment in new technology.
20 | HEALTHSCOPE ANNUAL REPORT 2017
Directors’ report
Other
Revenue
Operating EBITDA
Operating EBIT
Operating EBITDA margin
Operating EBIT margin
FY17
$'m
61.7
18.2
14.0
29.5%
22.7%
FY16
MOVEMENT
$'m
62.5
18.3
14.2
29.2%
22.8%
%
(1.3)
(0.4)
(1.5)
+30bp
(10bp)
The Other division includes Healthscope’s pathology operations in Singapore, Malaysia and Vietnam.
Each of these businesses generated revenue and earnings growth on a constant currency basis. However, the reported results
were impacted by the strength of the Malaysian Ringgit and Singapore Dollar against the Australian Dollar during FY17.
Malaysia
On a local currency basis, revenue grew by 6.2% and Operating EBITDA increased by 4.2% during FY17 with performance
representing improved operating conditions following a subdued period in FY16 as a result of the introduction of a GST in April
2015. The business also expanded through the establishment of three new laboratories in private hospitals, in line with the
strategic priority of increasing penetration of hospital and specialist markets.
Singapore
On a local currency basis, revenue grew 2.3% and Operating EBITDA increased by 2.9% as the business continued to grow in a
competitive market, invested in technology and strengthened its relationships with two large international dialysis groups.
Medical Centres – discontinued operations
Healthscope entered into an agreement to divest its standalone Medical Centre operations on 17 August 2017 for $55 million,
subject to standard purchase price adjustments, with completion of the sale scheduled to occur by the end of September 2017.
The Medical Centres operations were held as an asset for sale as at 30 June 2017.
Financial position
The financial position of the Group remains strong, with $4.7 billion in assets, underpinned by $2.4 billion in shareholder
funds. This position is further supported by a strong cash position of $196 million in cash and $300 million available in debt
facilities. The Medical Centres operations were held as an asset for sale as at 30 June 2017 which positively impacted working
capital. The Group gearing ratio of 41% (net debt / net debt + equity) increased by 590 basis points from 30 June 2016 with
the continued development of the Northern Beaches Hospital. The capital requirements of the Northern Beaches Hospital are
secured via project finance debt facilities.
Healthscope continues to generate strong operating cash flows and has ample capacity to fund continued investment in the
hospital expansion program.
Cash flow
Cash flow from operations of $418 million represents an increase of 6.8% from FY16 with cash conversion (cash flow from
operations / Operating EBITDA) remaining strong at 101.6% (FY16: 98.6%).
Capital expenditure
Total capital expenditure for continuing operations of $566.5 million increased from $518.4 million in FY16 as a result of
continued investment in a number of major hospital expansion projects, including the development of the Northern Beaches
Hospital.
HEALTHSCOPE ANNUAL REPORT 2017 | 21
Directors’ report
Operating results (continued)
Dividends
Final dividend 2017
A final unfranked dividend of 3.5 cents per share will be paid on 28 September 2017. The record date is 7 September 2017.
The final dividend has not been included as a liability in these financial statements as the decision to pay the dividend occurred
in FY18.
Dividends paid during the financial year
Interim dividend 2017
Final dividend 2016
DIVIDEND PER SHARE
DIVIDEND AMOUNT
DATE OF PAYMENT
CENT
3.5
3.9
$'m
60.7
67.7
23 March 2017
28 September 2016
The 2017 interim dividend of 3.5 cents per share, together with the 2017 final dividend of 3.5 cents per share, brings the total
dividends for the year ended 30 June 2017 to 7.0 cents per share.
Further details regarding dividends for the year ended 30 June 2017 are set out in Note 6 to the financial statements.
Business strategies and prospects for future years
Healthscope has been pursuing a range of operational and growth strategies for each of the Group’s businesses, and these,
together with the favourable long term fundamentals of increasing demand for healthcare services across each market in which
the Company operates, continues to provide a strong platform for growth in the medium to long-term.
Key strategies employed across Healthscope’s businesses are outlined below.
Organic
Brownfields
Relocate
and Grow
PPPs /
Government
Outsourcing
International
Growth
Hospitals
Organic growth
Healthscope operates in an industry with attractive medium to long-term demand characteristics for private hospital services.
However, the industry and Healthscope’s own business are currently facing a number of short term challenges which have
impacted the division’s performance in FY17 and are expected to continue into FY18. As a result, management have established
four key “must win” imperatives to drive performance improvement across the portfolio:
1. Accelerating profitable topline growth
2. Driving greater operational efficiency
3. Optimising the portfolio; and
4. Continuing to successfully execute on the Group's hospital expansion program.
22 | HEALTHSCOPE ANNUAL REPORT 2017
Directors’ report
Brownfields and “relocate and grow” projects
Healthscope has significant experience and knowledge in designing and building private hospital facilities. Deep knowledge of the
industry means the Group is well positioned to forecast and meet additional patient demand by expanding its hospital facilities
through brownfield and “relocate and grow” projects. Healthscope has focused on expansion in strategic locations where there is
unmet demand or in population growth corridors where the potential for future demand is high.
Brownfield projects are those where an existing hospital is expanded through the addition of new beds and theatres, and in
some cases other additional infrastructure such as consulting suites and car parking. “Relocate and grow” projects involve the
construction of a new hospital close to an existing hospital and the transfer of services from the existing hospital to the new
facility which typically has increased capacity, expanded services and higher quality amenities.
In FY17, Healthscope completed five construction projects which increased capacity by 214 beds and added 13 operating
theatres and two new emergency departments1. These projects included the opening of Holmesglen Private (VIC) in early
February 2017, ‘a relocate and grow’ development delivering 147 beds and eight operating theatres, a 60 bed expansion at
Norwest Private (NSW), a 60 bed expansion of Frankston Private (VIC), two new operating theatres at Darwin Private (NT) and
an emergency department at Northpark Private (VIC).
Healthscope has seven brownfield and “relocate and grow” projects currently under construction with a total estimated project
cost of $1,079 million. A further three projects have been approved and are scheduled to start construction in FY18 with a total
estimated project cost of $52 million.
PROJECTS UNDER CONSTRUCTION
BEDS
OPERATING THEATRES
Newcastle Private (NSW)
Gold Coast Private – Stage 2 (QLD)
Sydney Southwest Private (NSW)
Sunnybank Private (QLD)
Northern Beaches (NSW)
Brisbane Private (QLD)
John Fawkner (VIC)
Total
16
30
-
-
450
29
41
566
2
8
2
2
20
2
2
38
Healthscope also has a number of other projects in the planning stages where fundamental long-term demand has been
identified and supports the addition of capacity to the existing portfolio.
Government partnership and outsourcing
In response to growing demand for healthcare services and a public system under increasing pressure, it is expected that State
and Territory Governments will increasingly seek to partner with private hospital operators for the construction and operation
of public hospitals, such as the Northern Beaches Hospital. In addition, outsourcing of some aspects of public patient service
delivery to the private hospital sector is expected to continue to increase. As one of Australia’s leading private hospital operators,
with demonstrated leadership in quality outcomes and proven design and construction expertise, Healthscope is well positioned
to capitalise on these opportunities.
In December 2014, Healthscope entered into a contract with the New South Wales Government to design, build, operate and
maintain the new Northern Beaches Hospital in Sydney. The hospital will have 450 overnight beds, of which approximately 60%
will be utilised by public patients. Construction of the hospital commenced in March 2015 and continues to progress according
to plan with the facility expected to open in mid FY19.
Healthscope will continue to assess other new development opportunities from State Governments as they arise.
1 Net of 53 beds and two operating theatres that were relocated from Como Private Hospital to Holmesglen Private Hospital.
HEALTHSCOPE ANNUAL REPORT 2017 | 23
Directors’ report
Operating results (continued)
International Pathology
New Zealand
The priority for Healthscope in New Zealand remains in
maintaining strong relationships with the DHBs by delivering
high quality services and superior operational efficiencies.
Healthscope is focused on extracting further economies
of scale, including cost synergies, through the operational
integration made in its expanded laboratory network. As part
of this process, Healthscope shares some of the long-term
efficiencies generated with its DHB partners to strengthen
existing relationships. Healthscope will seek to secure
additional DHB contracts when opportunities arise and
continue to expand its range of commercial
non-government revenue streams.
Malaysia
In Malaysia, Healthscope has identified a number of
growth opportunities including pursuing additional hospital
outsourcing contracts and new screening packages for
community patients.
Healthscope operates 34 laboratories across Malaysia and
there are opportunities to improve workflow and efficiency
through automation, as well as more centralised testing at
the main laboratory.
Singapore
In Singapore, Healthscope has been investing resources to
achieve greater penetration in the hospitals and specialists
segments and increased labour efficiencies through
automation. During the year, Healthscope renewed two key
contracts in an increasingly competitive market.
Material business risks
Healthscope has a risk management framework in place to
help in the identification, assessment and reporting of material
business risks at a business and Group level. Healthscope’s
risk management framework is reviewed annually by the
Audit, Risk and Compliance Committee, and the Committee
reports to the Board in relation to its effectiveness.
A review of the key strategic and operational risks is
performed with senior management twice annually and
considered by the Audit, Risk and Compliance Committee.
The material business risks that have the potential to impact
achievement of the Group’s strategic priorities and business
objectives, with relevant mitigation strategies, are outlined
below.
These risks should not be taken to be a complete or
exhaustive list of the risks and uncertainties associated with
Healthscope. Many of the risks are outside the control of
the Directors. There can be no guarantee that Healthscope
will achieve its stated objectives, that it will meet trading
performance or financial results guidance that it may provide
24 | HEALTHSCOPE ANNUAL REPORT 2017
to the market, or that any forward looking statements
contained in this report will be realised or otherwise
eventuate.
The more generic risk areas that affect most companies or
general economic factors that may impact Healthscope have
not been included below. The Company does not consider
it has any material environmental risks (as defined by the
Corporate Governance Principles and Recommendations
(3rd Edition) published by the ASX Corporate Governance
Council).
Government policy and regulation
Healthscope operates in the healthcare industry which can be
subject to extensive laws and regulations relating to, among
other things, the conduct of operations, the licencing and
accreditation of facilities and the addition and development
of facilities and services. There are a number of government
policies and regulations that, if changed, may have a material
adverse impact on Healthscope’s financial and operational
performance. To manage this risk, Healthscope monitors
legislative and regulatory developments and engages
appropriately with the relevant stakeholders.
Private health insurance funds
The majority of Healthscope’s revenue is derived from private
health insurance funds. The profitability of Healthscope’s
business is influenced by its ability to reach ongoing
commercial agreements with private health insurance funds.
A failure to reach a satisfactory commercial agreement with
a key private health insurance fund has the potential to
negatively impact Healthscope’s financial and operational
performance. Healthscope maintains a regular dialogue with
each of the private health insurance funds and continues to
work closely with them on various strategies, including pay-
for-quality initiatives, to deliver mutually beneficial outcomes
to both parties as part of the on-going contract negotiations.
Private health insurance fund membership
and level of cover
A deterioration in the economic climate, changes to economic
incentives, annual increases in private health insurance
premiums and other factors may affect the participation rate
or the level of private health insurance coverage of members
in private health insurance funds. This has the potential
to reduce demand for Healthscope’s services, resulting in
decreased revenues.
In addition if the profitability of private health insurance funds
deteriorates, there is a risk of increased pricing pressures on
private hospital operators such as Healthscope. Healthscope
monitors private health insurance participation rates and
engages with the private health insurers on a regular basis.
Relationships with Accredited Medical Practitioners
Accredited Medical Practitioners prefer to work at hospitals
which, amongst other things, provide high quality facilities,
equipment and nursing staff; exceptional clinical safety
Directors’ report
outcomes and which are conveniently located. Accredited
Medical Practitioners could cease to practice or stop referring
patients to Healthscope facilities if the hospitals become a
less attractive place to work. This, would adversely impact
Healthscope’s financial and operational performance.
Healthscope seeks to maintain a strong relationship with its
Accredited Medical Practitioners through regular engagement
to understand their preferences and requirements. Its hospital
portfolio operates within a strict quality and clinical framework
to mitigate the risk of poor quality outcomes.
Licences and accreditation
If Healthscope is unable to secure or retain licences or
accreditations for the operation of its hospitals and pathology
laboratories (where required) in the future, or any of its
existing licences or accreditations are adversely amended or
revoked, this may adversely impact Healthscope’s ability to
operate its businesses. This risk is mitigated by Healthscope’s
comprehensive quality and clinical framework which seeks
to ensure that facilities are maintained and operations are
conducted to the standards required to retain licences and
accreditation.
Competition
There is a risk that the actions of Healthscope’s current
or potential future competitors will negatively affect
Healthscope’s ability to:
• attract and retain Accredited Medical Practitioners to
practice in Healthscope hospitals;
• successfully tender for DHB contracts in New Zealand; and
• attract community pathology work in Singapore or
Malaysia.
Healthscope is focused on providing high quality healthcare
services and maintaining facilities to a high standard to
effectively compete in its each of its markets.
Nursing labour
The most significant cost in Healthscope’s hospital operations
is nursing labour, with any increase in cost or tightening
of supply likely to have a material impact on financial and
operational performance.
Healthscope has a comprehensive recruitment program for
both graduate and experienced nurses. Healthscope employs
nurses with different levels of experience and qualifications,
with nursing labour matched to clinical needs.
Medical indemnity claims and associated costs
Current or former patients may, in the normal course of
business, commence or threaten litigation for medical
negligence against Healthscope. Subject to indemnity
insurance arrangements, future medical malpractice litigation,
or threatened litigation, could have an adverse impact on
Healthscope’s financial performance and position and future
prospects. Healthscope actively monitors and manages
potential and actual claims and disputes.
Insurance
Insurance coverage is maintained by Healthscope consistent
with industry practice, including workers compensation,
business interruption, property damage, public liability
and medical malpractice. However, no assurance can be
given that such insurance will be available in the future on
commercially reasonable terms or that any cover will be
adequate and available to cover all or any future claims.
Healthscope’s insurance coverage is managed by an
experienced team who works closely with respective insurers,
and also ensures that any claims are appropriately handled.
Development projects
Healthscope enters into development projects in its regular
course of business such as brownfield and “relocate and
grow” hospital developments. There are a number of risks
associated with development projects, including business
disruption during construction, cost overruns, and delays in
anticipated revenues flowing from proposed developments.
Healthscope has project specific risk management and
reporting systems in place and the progress and performance
of material projects is regularly reviewed by senior
management and the Board.
New Zealand pathology contracts
Healthscope currently has contracts in place with a large
number of DHBs for the provision of pathology services in
New Zealand. There is a risk that each time a contract is set
to expire, the relevant DHB selects another party or renews
the contract on less favourable terms with Healthscope.
The majority of these contracts are multi-year contracts and
Healthscope seeks to maintain strong relationships with each
DHB to mitigate the risk that a contract is not renewed or
renewed on unfavourable terms.
International expansion
From time to time, Healthscope explores potential
international expansion opportunities. There is no certainty
that any of these opportunities will result in new revenue
streams. New business ventures may not be successful
which could negatively impact Healthscope’s financial results
and reputation. Healthscope undertakes comprehensive
due diligence in relation to any prospective acquisition or
partnership and takes a disciplined approach to investment of
capital to mitigate these risks.
Information Security and Cyber-Attacks
Healthscope may be affected by cyber-attacks or failure in
critical data, processes or systems. Information technology
controls are continually under review and are protected
through the use of detective, preventative and response tools.
Healthscope employs robust Disaster Recovery planning, as
well as Business Continuity planning to mitigate operational
disruptions.
HEALTHSCOPE ANNUAL REPORT 2017 | 25
Directors’ report
Operating results (continued)
Operating EBITDA
The following table reconciles, for continuing operations, statutory net profit to Operating EBITDA, which is the key performance
metric used by management to assess financial performance of the Group and its operating segments:
Continuing operations
Statutory net profit for the year
Add back:
Income tax expense
Net finance costs
Depreciation and amortisation
Earnings before finance costs, income tax, depreciation and
amortisation (EBITDA)
Add back:
Other income and expense items
Operating earnings before finance costs, income tax depreciation and
amortisation (Operating EBITDA) from continuing operations
YEAR ENDED
30 JUNE 2017
YEAR ENDED
30 JUNE 2016
$'m
$'m
162.6
179.0
62.5
52.7
108.9
66.9
43.8
92.8
386.7
382.5
24.7
411.4
14.9
397.4
The following table outlines the Operating EBITDA achieved by each reportable segment in the Group including both continuing
and discontinued operations:
Operating EBITDA from continuing operations
Hospitals Australia
Pathology New Zealand
Other1
Total continuing operations before corporate costs
Corporate
Total continuing operations
Operating EBITDA from discontinued operations2
Medical Centres
Pathology Australia
Total discontinued operations
Total all segments
1 The ‘Other’ segment comprises Pathology operations in Singapore, Malaysia and Vietnam.
2 Further details regarding discontinued operations are disclosed in Note 20.
YEAR ENDED
30 JUNE 2017
YEAR ENDED
30 JUNE 2016
$'m
359.4
59.7
18.2
437.3
(25.9)
411.4
8.8
-
8.8
$'m
354.9
50.7
18.3
423.9
(26.5)
397.4
10.5
(1.8)
8.7
420.2
406.1
Operating EBITDA represents profit before income tax expense, net finance costs, depreciation and amortisation adjusted for
certain income and expense items that are unrelated to the underlying performance of the business. The Company believes that
presenting Operating EBITDA provides a better understanding of its financial performance by facilitating a more representative
comparison of financial performance between financial periods.
Operating EBITDA is presented with reference to the Australian Securities and Investment Commission Regulatory Guide 230
“Disclosing non-IFRS financial information”.
26 | HEALTHSCOPE ANNUAL REPORT 2017
Directors’ report
Subsequent events
Divestment of Medical Centres
On 17 August 2017, Healthscope entered into an agreement
with Fullerton Primary Care Pty Limited to divest its
standalone Medical Centres business for $55.0 million,
subject to standard completion adjustments. An impairment
loss of $54.7 million was recognised in the Statement of Profit
or Loss and Other Comprehensive Income for the year ended
30 June 2017 as the sale clarified the recoverable amount
of the business which is classified as ‘held for sale’ in the
Statement of Financial Position as at 30 June 2017.
outlined in Note 22 to the financial statements.
The directors are satisfied that the provision of non-audit
services, during the year, by the auditor is compatible with the
general standard of independence for auditors imposed by
the Corporations Act 2001.
The directors are of the opinion that the services as disclosed
in Note 22 to the financial statements do not compromise the
external auditor’s independence, based on advice received
from the Audit, Risk and Compliance Committee, for the
following reasons:
As set out in Note 20, the Medical Centres business
contributed revenue of $54.3 million and Operating EBITDA of
$8.8 million for the year ended 30 June 2017.
• all non-audit services have been reviewed and approved to
ensure that they do not impact the integrity and objectivity
of the auditor; and
Other than the above, there has not been any matter or
circumstance occurring subsequent to the end of the financial
year that has significantly affected, or may significantly affect,
the operations of the consolidated entity, the results of those
operations, or the state of affairs of the consolidated entity in
future financial years.
Environmental regulations
Healthscope’s environmental obligations are regulated
under both state and federal laws. Healthscope monitors
its environmental legal obligations and has to the best of
its knowledge, having made reasonable inquiries, received
no notice of breach from a government agency during the
reporting period.
Indemnification and insurance of officers
and auditors
During the financial year, the Healthscope Group paid a
premium in respect of a contract insuring the Directors of
Healthscope Limited, the Company Secretary and Executives
of the Healthscope Group against liability to the extent
incurred as such a director, secretary or executive officer to
the extent permitted by the Corporations Act 2001. It is a
condition of the insurance contract that its limits of indemnity,
the nature of the liability indemnified and the amount of the
premium are not to be disclosed. The Healthscope Group has
not otherwise, during or since the end of the financial year,
except to the extent permitted by law, indemnified or agreed
to indemnify an officer or auditor of the Healthscope Group or
of any related body corporate against liability incurred as such
an officer or auditor.
Rounding off of amounts
The Company is an entity to which the ASIC Class Order
2016 / 191 applies, and in accordance with the class order
the Directors’ report and financial statements are rounded off
to the nearest hundred thousand dollars, unless otherwise
stated.
Non-audit services
Details of amounts paid or payable to the auditor for non-
audit services provided during the year by the auditor are
• none of the services undermine the general principles
relating to auditor independence as set out in APES 110
‘Code of Ethics for Professional Accountants’ issued by the
Accounting Professional & Ethical Standards Board,
including reviewing or auditing the auditor’s own work,
acting in a management or decision-making capacity for
the company, acting as advocate for the company or jointly
sharing economic risks and rewards.
Auditor independence
The auditor’s independence declaration is included on page
28 for the financial year ended 30 June 2017.
Paula J. Dwyer
Chairman
Melbourne, 23 August 2017
HEALTHSCOPE ANNUAL REPORT 2017 | 27
Auditor's independence declaration
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
The Board of Directors
Healthscope Limited
Level 1, 312 St Kilda Road
Melbourne VIC 3004
23 August 2017
Dear Board Members,
Healthscope Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide
the following declaration of independence to the directors of Healthscope Limited.
As lead audit partner for the audit of the financial statements of Healthscope Limited for
the financial year ended 30 June 2017, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Andrew Reid
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
28 | HEALTHSCOPE ANNUAL REPORT 2017
Auditor's independence declaration
Remuneration report
TABLE OF CONTENTS
1 Overview
2 Who does this report cover?
3 Remuneration governance framework
3.1
3.2
Role of the Board and Remuneration Committee
Remuneration consultants and other advisors
4 FY17 remuneration policy
4.1
4.2
Non Executive Director (NEDs)
Senior Executives
5 FY17 company performance
6 Senior Executive remuneration in detail
6.1
6.2
6.3
Received remuneration (unaudited)
Fixed Remuneration
Short Term Incentive
6.3.1 STI Policy
6.3.2 STI awards for FY17
6.4
Long Term Incentive
6.4.1 FY17 LTI Policy
6.4.2 LTI Performance Rights granted in FY17
6.4.3 LTI Performance Rights vesting in FY17 (FY15 LTI)
7 Executive service agreements
7.1
7.2
7.3
Key terms of executive service agreement for Mr G Ballantyne
Key terms of executive service agreement for Mr R Cooke
Key terms of executive service agreement for other Senior Executives
8 Statutory remuneration disclosures
8.1
Senior Executive remuneration – statutory disclosures
8.2 Movements in Performance Rights held by Senior Executives
8.3
8.4
Non Executive Director remuneration – statutory disclosures
KMP shareholdings
8.5
Transactions and loans with KMP
30
32
32
32
32
33
33
34
35
36
36
36
37
37
39
40
40
42
42
43
43
43
44
45
45
46
47
48
48
HEALTHSCOPE ANNUAL REPORT 2017 | 29
Remuneration report
Healthscope’s remuneration structure is performance-based
and aims to encourage and recognise high performance in
a manner which is aligned with the long term interests of
Healthscope and its shareholders. This means that when
financial and non-financial targets are achieved or exceeded,
remuneration outcomes will reflect that performance.
Where targets are not achieved, such as in the year under
review, outcomes may be adjusted to ensure remuneration
appropriately reflects overall Company performance.
FY18 remuneration framework
During FY17, a comprehensive review of Healthscope’s
remuneration framework was conducted, including the short
and long-term incentive plans.
As part of this review, the Board considered whether the
dual performance hurdles (EPS and RTSR) for the long-term
incentive plan, which have been in place since the IPO in
2014, continue to appropriately align Senior Executives with
shareholders.
As part of the assessment, consideration was given to:
• the potential introduction of different performance
conditions, including return measures, as well as the
weighting of performance conditions; and
• whether the current practice of annual EPS target setting
based on projected performance for each year results in
setting an appropriately challenging EPS performance
hurdle over the three year performance period.
It has been decided that the current dual performance
hurdles continue to provide an appropriate focus on internal
and external performance. The weighting of the measures in
FY18 will however be adjusted, so that EPS and RTSR are
equally weighted. The Company believes this re-weighting
will increase alignment with shareholder interests. The EPS
target setting practice for future grants under the LTI Plan
will also be revised, with 3 year targets to replace the current
cumulative annual target setting approach. Healthscope
remains committed to providing retrospective disclosure of
performance against the EPS metrics following the end of the
performance period of each LTI grant.
The Board recognises the importance of ensuring continued
alignment between Senior Executives and shareholders.
As such, a minimum shareholding policy for Senior
Executives and other direct reports to the MD & CEO has
been introduced from 1 July 2017, encouraging the Senior
Leadership Team to accumulate and maintain Healthscope
shares equivalent in value to at least 50% of the relevant
executive’s fixed remuneration (or 100% in the case of the MD
& CEO) over a five year period.
1. Overview
Introduction
Healthscope delivered a Statutory Net Profit in FY17 of
$110.9m (FY16 $181.1m) with the result being impacted
by an impairment loss of $54.7m in relation to the sale of
the Group’s standalone Medical Centre assets and further
non-operating expenses after tax of $17.4m for continuing
operations. These non-operating items are excluded from the
statutory results to provide the market with better visibility
of the Company’s underlying performance. Healthscope’s
Operating NPAT and Operating EBIT are the financial metrics
used in the Company’s short and long term incentive plans.
The Operating EBIT from continuing operations of $302.5m
was slightly down on FY16 ($304.6m) while Operating
EBITDA from continuing operations grew by 3.5% to
$411.4m. These results reflect a slower rate of Operating
EBITDA growth than prior periods due to softer Australian
private hospital market conditions, coupled with an increase
in depreciation and amortisation from the continued delivery
of the hospital expansion program. Throughout the year, the
Company completed five hospital expansion developments
on time and budget, while the strategic Northern Beaches
development continues to be progressed in accordance with
the plan.
Revenue from completed expansion projects grew in excess
of market revenue growth during the period and continues
to support the Company’s confidence that capital is being
deployed in the right hospital catchments. Furthermore, these
projects are expected to generate strong revenue growth
and a meaningful contribution to earnings as volumes and
case mix from these projects ramp up and are optimised over
the medium to long term. During FY17, the New Zealand
pathology business also performed strongly.
This report details the remuneration arrangements for
Healthscope’s Key Management Personnel and, for Senior
Executives, includes the outcomes of both the annual short
term incentive (STI) plan, as well as the long-term incentive
(LTI) plan, with the performance period for the FY15 LTI grant
having ended on 30 June 2017.
Healthscope’s financial performance in FY17 was below
target and awards against these plans were affected
accordingly:
• STI: The Board exercised its discretion to reduce the STI
outcome for participants in corporate roles to a maximum
of 40% of the individual’s target STI opportunity. This
decision was taken after considering a range of factors
including Healthscope’s lower than anticipated financial
performance in FY17.
• LTI: Following testing of performance against the two
performance conditions for the FY15 LTI performance
rights (EPS and RTSR), 50% of the FY15 LTI Performance
Rights vested.
30 | HEALTHSCOPE ANNUAL REPORT 2017
Remuneration report
The FY17 disclosures within this remuneration report for
Mr Cooke reflect the period 1 July 2016 to 14 May
2017, being the date he ceased to be a member of Key
Management Personnel.
To ensure continuity of knowledge and health sector expertise
across the senior executive team, Healthscope has also
granted 355,872 performance rights to the CFO, subject to
a three year service condition and the terms of the EIP.
CEO transition
During FY17, the Board announced the appointment of
Gordon Ballantyne as Managing Director and CEO of
the Company, succeeding Robert Cooke. Mr Ballantyne
commenced employment on 15 May 2017, and accordingly
was not granted any STI or LTI awards for FY17.
For FY18, Mr Ballantyne’s remuneration arrangements reflect
a similar structure to Mr Cooke’s arrangements in FY17 and
will comprise of the following three components:
• Fixed remuneration (FR): $1.6 million
• Short term incentive (STI): A maximum opportunity of 150%
of FR, including a 30% deferral into equity
• Long term incentive (LTI): A maximum opportunity of
120% of FR (subject to the achievement of dual
performance hurdles (RTSR, with an absolute TSR gateway
and EPS), the terms of Healthscope’s Equity Incentive
Plan (EIP) which governs any equity award and shareholder
approval at the 2017 Healthscope AGM).
In addition, in accordance with the terms of his employment,
prior to commencing employment, Mr Ballantyne acquired, on
market, a beneficial interest in 444,836 Healthscope shares
equivalent in value to $1 million at the time of purchase.
Healthscope granted the equivalent number of Performance
Rights to Mr Ballantyne, subject to a two year service
condition and the terms of the EIP.
In setting Mr Ballantyne’s remuneration package the Board
complied with its remuneration philosophy for senior
executives, including to encourage and recognise high
performance while being aligned with the long-term interests
of Healthscope and its shareholders. Mr Ballantyne did
not receive a sign-on bonus. However, the acquisition of
shares by Mr Ballantyne, and the subsequent grant of an
equivalent number of Performance Rights, was intended to
ensure that Mr Ballantyne’s interests are aligned with those of
shareholders.
Mr Cooke ceased as Managing Director and CEO of the
Company on 14 May 2017. He remains available to assist
the Company with a smooth transition to new leadership until
April 2018. He has and will receive benefits in accordance
with his employment contract and the terms of the STI and
LTI Plans. In particular, Mr Cooke is entitled to receive an
FY17 STI award based on performance against agreed key
performance indicators over the FY17 performance period,
and all unvested Performance Rights he holds remain on foot
in accordance with and subject to the relevant terms of offer
and the EIP rules, to be tested against the relevant conditions
in the ordinary course. This Remuneration Report discloses
the vesting outcomes in relation to the FY15 LTI Performance
Rights, including the FY15 Performance Rights held by Mr
Cooke.
HEALTHSCOPE ANNUAL REPORT 2017 | 31
Remuneration report
2. Who does this report cover?
This Remuneration Report sets out the remuneration arrangements for the Healthscope Group’s Key Management Personnel
(KMP) who are listed in the table below. For the remainder of this Report, the KMP are referred to as either Senior Executives or
Non Executive Directors. All Non Executive Directors and Senior Executives held their positions for the duration of FY17, unless
noted otherwise.
NAME
POSITION
Non Executive Directors
Paula J. Dwyer
Chairman (Non Executive)
Tony Cipa
Non Executive Director
Jane McAloon
Non Executive Director
Rupert Myer AO
Non Executive Director
Paul O’Sullivan
Non Executive Director
Ziggy Switkowski AO
Non Executive Director
Senior Executives
Robert Cooke
Managing Director and CEO (until 14 May 2017)
Gordon Ballantyne
Managing Director and CEO (from 15 May 2017)
Michael Sammells
CFO
Mark Briscoe
Anoop Singh
General Manager Operations
General Manager International Pathology
3. Remuneration governance framework
3.1 Role of the Board and Remuneration Committee
The Board is responsible for ensuring that Healthscope’s remuneration structures are equitable and aligned with the
long-term interests of Healthscope and its stakeholders. The Remuneration Committee, established by the Board, is made up of
a majority of independent directors, with responsibility for reviewing key aspects of Healthscope’s remuneration structure
and arrangements.
The Remuneration Committee reviews and recommends to the Board:
•
fixed remuneration and incentive arrangements for the Senior Executives and other executives reporting to the CEO;
• major changes and developments to employee incentive plans; and
•
remuneration arrangements for Non Executive Directors.
3.2 Remuneration consultants and other advisors
The Remuneration Committee consulted with various external advisers during the process of developing Healthscope’s
remuneration framework. The Committee intends to continue to obtain external independent advice when required, and will use
it to guide and inform their considered decision-making.
Healthscope did not receive any ‘remuneration recommendations’ as defined under the Corporations Act 2001 (Cth)
(Corporations Act) in FY17.
32 | HEALTHSCOPE ANNUAL REPORT 2017
Remuneration report
4. FY17 remuneration policy
4.1 Non Executive Directors (NEDs)
Healthscope’s remuneration policy for NEDs aims to ensure that Healthscope can attract and retain suitably qualified and
experienced NEDs having regard to:
•
•
•
the level of fees paid to NEDs of other major Australian companies;
the size and complexity of Healthscope’s operations; and
the responsibilities and work requirements of Board members.
NEDs receive a base fee for being a Board Director and additional fees for being a Chairman or Member of a Board Committee
(except Nomination Committee). The Board Chairman does not receive any additional fees for serving on a Board Committee.
A review of the fee structure for NED remuneration was undertaken during FY16. To remain competitive with companies of similar
size and to reflect the services required of the NEDs, the fee structure was revised for FY17 and is set out below. Fees include
superannuation contributions in accordance with the current Superannuation Guarantee legislation.
POSITION
Board Chairman
Board NED
Committee Chairman
Committee Member
Base fee
$485,0001
$155,000
-
-
BOARD FEES
Audit, Risk and
Compliance Committee
Remuneration Committee
-
-
$40,000
$25,000
-
-
$35,000
$20,000
1 The Board Chairman is a member of all Board Committees and does not receive any additional fees for serving on a Board Committee.
The current NED fee pool is $2,000,000 per annum (set by Healthscope at a general meeting on 28 June 2014) and the total
fees for FY17 including superannuation contributions was within this agreed limit.
NEDs may also receive other payments for additional services outside the scope of Board and Board Committee duties.
NEDs are also entitled to be reimbursed for all travel and other expenses reasonably incurred in attending to Healthscope’s
affairs. In order to maintain independence, NEDs are not eligible for any performance-based payments.
NED shareholding policy
The Board recognises the importance of aligning NED interests with the long term interests of shareholders and considers that
a meaningful investment in Healthscope shares demonstrates this alignment. Healthscope operates a NED shareholding policy
which encourages NEDs to accumulate and maintain a holding in Healthscope shares that is equivalent to at least 100% of the
NED base fee which is currently $155,000 (or 200% of this fee in the case of the Chairman) within three years of appointment.
HEALTHSCOPE ANNUAL REPORT 2017 | 33
Remuneration report
4. FY17 remuneration policy (continued)
4.2 Senior Executives
Healthscope’s remuneration philosophy is to attract and retain talented employees through an engaging and equitable reward
framework. It aims to encourage and recognise high performance in a manner which is aligned with the long-term interests of
Healthscope and its shareholders.
This philosophy resulted in a Senior Executive remuneration framework for FY17 consisting of both fixed and variable
remuneration components. The objectives and key elements of each component are presented below:
REMUNERATION FRAMEWORK FY17
Fixed
Variable 'At-Risk'
Objective
The fixed component
is in place to attract
and retain key talent
The variable component is performance-based and aligned
with Healthscope’s strategic direction to deliver both short and
long term value creation to shareholders
Component
Fixed remuneration
STI
LTI
Basis of Quantum
Fixed remuneration
reflects seniority,
complexity, nature and
size of the role and is
reviewed annually
Awards based on achievement
of annual financial and
non-financial targets with a
portion deferred as equity for
two years
Awards based on long-term
value creation though the
achievement of relative TSR
and absolute EPS targets
over three years
Vehicle
Cash
Cash
Performance
Rights
Performance Rights
The FY17 remuneration framework for all Senior Executives was weighted more towards ‘at risk’ remuneration. The applied
remuneration mix for target performance is shown in the diagrams below. The diagrams below do not include the two FY17
Equity Incentive Plan grants made as a result of the CEO transition.
CEO & CFO
CEO & CFO
Other Senior Executives
Other Senior Executives
11%
11%
38%
38%
31%
31%
29%
29%
47%
47%
7%
7%
88%
88%
9%
9%
22%
22%
17%
17%
Fixed Remuneration
Fixed Remuneration
STI (Cash)
STI (Cash)
Fixed Remuneration
Fixed Remuneration
STI (Cash)
STI (Cash)
STI (Deferred)
STI (Deferred)
LTI
LTI
STI (Deferred)
STI (Deferred)
LTI
LTI
34 | HEALTHSCOPE ANNUAL REPORT 2017
Remuneration report
5. FY17 company performance
Healthscope listed on the ASX in July 2014. As a result, it is not possible to address the statutory requirement that Healthscope
provides a five-year discussion of the link between performance and reward in this Remuneration Report as Healthscope has not
been listed for a sufficient time.
The link between the Company’s performance and STI and LTI outcomes is considered at sections 6.3.2 and 6.4.3.
SHARE PERFORMANCE
EARNINGS PERFORMANCE
Closing
share
price (A$)
Dividend
p/share
(cents)
FY17
FY16
FY15
2.21
2.86
2.722
7.4
7.2
3.3
TSR1
(%)
(20)
8
31
Basic
EPS3
(cents)
Operating
EBITDA
($M)
Operating
EBIT
($M)
Operating
NPAT
($M)
Statutory
NPAT
($M)
9.4
10.3
10.0
411.4
397.4
380.8
302.5
304.6
291.0
180.0
190.8
155.6
110.9
181.1
140.8
1 Dividends include only those amounts declared and paid up to 30 June of the relevant financial year, hence FY17 includes the interim dividend from FY17 and the final dividend from FY16.
2 The opening share price on 28 July 2014 was $2.10.
3 Based on statutory NPAT for continuing operations.
4 FY15 earnings performance includes Medical Centres business as it was included at that time as part of the performance assessment.
HEALTHSCOPE ANNUAL REPORT 2017 | 35
Remuneration report
6. Senior Executive remuneration in detail
6.1 Received remuneration (unaudited)
The table below provides a non-statutory disclosure for the total remuneration received during FY17 and FY16 by Senior
Executives. For the former CEO, the table presents pro rated total remuneration awarded until 14 May 2017 (the date from which
Mr Cooke ceased to be KMP). This information is supplementary to the remuneration disclosure prepared in accordance with the
statutory requirements and Accounting Standards as detailed in section 8 of this Report.
FIXED
VARIABLE
TOTAL RECEIVED REMUNERATION
Senior
Executive
Fixed
remuneration1
Non-monetary
benefits2
STI Cash3
Vested STI
Performance
Rights4
Vested LTI
Performance
Rights4
Total
Current Senior Executives
Gordon Ballantyne (CEO from 15 May 2017)
FY17
FY16
213,336
-
Michael Sammells (CFO)
FY17
FY16
775,317
754,552
Mark Briscoe (GM Operations)
FY17
FY16
460,937
448,592
-
-
7,024
6,890
5,789
5,664
Anoop Singh (GM International Pathology)
FY17
FY16
381,478
371,261
5,750
5,664
Former Senior Executives
Robert Cooke (CEO)
-
-
650,799
685,956
141,306
398,748
129,942
108,397
FY17
FY16
1,375,400
1,541,250
5,028
5,664
1,329,324
1,500,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
213,336
-
1,433,140
1,447,398
608,032
853,004
517,170
485,322
2,709,752
3,046,914
1 Fixed Remuneration is made up of cash salary, superannuation and other approved benefits.
2 The amounts disclosed as non-monetary benefits relate to car spaces, professional memberships and other similar items.
3 Cash paid during year relating to the previous year’s STI performance (i.e., cash paid in FY17 relates to FY16 STI performance; cash paid in FY16 relates to FY15 STI performance).
4 No performance rights vested during the year.
6.2 Fixed Remuneration
Fixed Remuneration is made up of cash salary, superannuation and other approved benefits and is reviewed annually to assess
its alignment to individual performance and market practice.
A benchmarking exercise was conducted in FY16 to assist in determining the Senior Executives’ fixed remuneration for FY17.
The applied fixed remuneration increases were in line with general market movements and the subsequent fixed remuneration
was generally positioned at the median when compared to peer companies.
36 | HEALTHSCOPE ANNUAL REPORT 2017
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6.3 Short Term Incentive
6.3.1 STI Policy
PURPOSE
The STI Plan (including its performance conditions) is designed to provide increased focus on and reward
for performance against those areas that most significantly drive the delivery of Healthscope’s strategic
initiatives.
PERFORMANCE
PERIOD
Targets were set at the commencement of FY17 and assessed after the end of the financial year, based
on the Company’s audited annual results and individual performance against non-financial targets.
PERFORMANCE
CONDITIONS
A gateway is in place for all Senior Executives which means a minimum of 90% of the Group Operating
EBIT target must be achieved before any incentives can be paid.
For FY17, all STI targets for Senior Executives were aligned with the balanced scorecard approach in place
across the group. The composition of these targets is set out below for eligible STI participants in FY17.
Targets and Weightings (as a percentage of STI opportunity for target performance)
Senior
Executive1
Position
Group
Operating
NPAT
Group
Operating
EBIT
Divisional
Financial
Measure(s)
Non-Financial
Measures
Robert Cooke
Former CEO
Michael Sammells CFO
70%
70%
Mark Briscoe
GM Operations
Anoop Singh
GM International
Pathology
1 Mr Ballantyne did not participate in the FY17 STI Plan .
40%
10%
30%2
60%3
30%
30%
30%
30%
2 For GM Operations these targets are based on Hospital Division EBIT (20%) and Medical Centres EBIT (10%).
3 For GM International Pathology this target is based on Pathology Division EBIT.
As the CEO and CFO have responsibility for the whole business, including capital management, their STI
financial measure is based on Operating Net Profit After Tax (Operating NPAT). Operating NPAT is statutory
NPAT, excluding non-operating items unrelated to business as usual operations.
Financial targets for other Senior Executives are based on the ‘Operating EBIT’ measure at a Group or
Divisional level. Operating EBIT is statutory EBIT excluding non-operating items unrelated to
business as usual operations. This hurdle has been in place for several years and takes into account that
there are certain matters of a non-recurring nature which may not accurately reflect underlying performance.
For FY17, the non-operating items excluded from statutory results reflect the impairment resulting from the
decision to divest Medical Centres, adjustment to the carrying value of the impairment of plant and
equipment held by Geelong Private Hospital, appointment of liquidators for a supplier group, corporate
restructuring and commissioning costs.
For the purposes of measuring FY17 STI the Operating EBIT and Operating NPAT targets include
Continuing and Discontinued Operations being consistent with the way targets were set at the
commencement of FY17.
Non-financial measures comprise specific targets and goals in relation to ‘Quality’ (e.g., patient and
doctor satisfaction; accreditation of laboratory and hospital quality assurance), ‘Growth and Innovation’
(e.g., achievement of project milestones in key strategic initiatives); and ‘People, Safety and Culture’
(e.g., employee engagement outcomes), all areas which are key to positive outcomes for Healthscope and
its stakeholders. A gate also applies to the ‘People, Safety and Culture’ category, with an internal metric
related to safety reporting culture required to be achieved before assessment can be made against other
objectives.
Performance against targets is assessed by the Board based on the Company’s annual audited results
and financial statements. The methods adopted to assess performance have been chosen as the Board
believes they are the most appropriate way to assess the true financial performance of the company and
determine remuneration outcomes.
HEALTHSCOPE ANNUAL REPORT 2017 | 37
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6. Senior Executive remuneration in detail (continued)
6.3.1 STI Policy (continued)
STI
OPPORTUNITY
AND VESTING
OUTCOMES
Potential awards are expressed as a percentage of fixed remuneration with target and stretch STI
opportunities based on the schedule set out below.
Senior Executive
STI payout -
Target performance
STI payout -
Stretch performance
CEO & CFO
GM Operations
GM International Pathology
100%
50%
50%
150%
100%1
75%
1 Effective 1 July 2017, the GM Operations’ STI payout for stretch performance reduced to 75% to be in line with other Senior Executives below the CEO and CFO
For FY17, the determination of any stretch STI payouts was based on over performance of the relevant
group financial metric for each Senior Executive as follows:
Performance -
Achievement of target group financial metric1
Payout -
Percentage of total STI target1
≤ 90% of Target
Nil payout
> 90% to less than 100% of Target
Straight-line between 1% and 99.9% of Target STI
100% to less than 102% of Target
100% of Target STI
102% to less than 110% of Target
Straight-line between 110% and 150% of Target
≥ 110% of Target
150% of Target STI
1 For FY17, the GM Operations’ maximum STI payout for above target performance was 200% of target. Effective 1 July 2017, this transitioned to a reduced
maximum opportunity of 150% of Target STI in line with all Senior Executives.
STI DEFERRAL
In relation to FY17, 30% of any STI award to Senior Executives will be made as STI Performance Rights,
which are rights to receive ordinary Healthscope shares on vesting. Once the STI Performance Rights have
been issued, there are no further performance measures, however vesting will be subject to continued
service during a two year deferral period and to the terms of the EIP. Any STI Performance Rights that do
not vest will automatically lapse.
STI Performance Rights are granted at no cost and no payment is required to be made in order for the
STI Performance Rights to vest and convert to shares. STI Performance Rights do not carry any voting or
dividend entitlements.
The number of STI Performance Rights to be issued to Senior Executives is calculated by dividing the
deferred portion of the STI reward by the Volume Weighted Average Price (VWAP) of Healthscope shares
in the five days following the announcement of the Company’s full year financial results. Accordingly, as at
the date of this Report, the actual number of STI Performance Rights related to FY17 cannot be calculated
and have not yet been issued. For the purposes of calculating diluted earnings per share in Note 5 to the
financial statements, the Company has used the share price as at 30 June 2017 ($2.21) and, based on this
share price, 153,470 STI Performance Rights would be issued.
The actual number of STI Performance Rights issued to Senior Executives in relation to FY17 will be
reported in the FY18 Remuneration Report.
TREATMENT
ON CESSATION
On cessation of employment, Senior Executives are not entitled to any unpaid STI, other than where the
Senior Executive resigns for illness or other approved reasons, or where employment is terminated due to
redundancy. In such cases, the Senior Executive, subject to Board discretion, may receive a pro-rata STI
award based on performance over the period of the year that they were employed.
For unvested STI Performance Rights that are held as a deferred STI award, where a participant ceases
employment for cause or due to resignation (other than due to death, ill health or disability) all unvested STI
Performance Rights will automatically lapse.
However, pursuant to the EIP Rules, the Board retains absolute discretion to determine to vest or lapse
some or all STI Performance Rights in all circumstances.
38 | HEALTHSCOPE ANNUAL REPORT 2017
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CHANGE OF
CONTROL
AFFECTING STI
PERFORMANCE
RIGHTS
CLAWBACK
In the event of a takeover bid or other transaction, event or state of affairs that in the Board’s opinion is
likely to result in a change in control of the Company, the STI Performance Rights will vest in part or full,
unless the Board determines otherwise.
The Board has broad “clawback” powers to determine that any Performance Rights granted under the
STI Plan may lapse or be forfeited, or be repaid in certain circumstances (e.g. in the case of serious
misconduct). This protects Healthscope against the payment of benefits where participants have acted
inappropriately.
6.3.2 STI awards for FY17
Details of FY17 STI outcomes for Senior Executives
STI awards for Senior Executives ranged between threshold and target opportunity, reflecting relative achievement of financial
and non-financial metrics. Both STI gateways (Group EBIT and People, Safety and Culture) were met. The table below
summarises the STI outcomes for each scorecard measure for eligible FY17 participants including the adjusted STI outcomes
for the CEO and CFO. This follows the Board’s decision to exercise its discretion to reduce the STI outcome for participants in
corporate roles to a maximum of 40% of the individual's target STI opportunity.
Senior
Executives
Group
Operating
NPAT
Group
Operating
EBIT
Divisional
Financial
Measure
(s)
Non-
Financial
Measures
Overall
Performance
Relative to
Objectives
Achievement
of Target
Opportunity1
Adjusted
STI
Outcome
Percentage of
Maximum STI
%
Awarded
%
Lapsed
Robert Cooke
Former CEO
Michael
Sammells
CFO
Mark Briscoe
GM Operations
Anoop Singh
GM International
Pathology
n/a
n/a
n/a
n/a
62%
40%
27
n/a
n/a
62%
40%
27
40%
40%
20
94%
94%
62
73
73
80
38
Key
At target
Between threshold & target
HEALTHSCOPE ANNUAL REPORT 2017 | 39
Remuneration report
6. Senior Executive remuneration in detail (continued)
6.4 Long Term Incentive
6.4.1 FY17 LTI Policy
PURPOSE
The LTI is designed to align the interests of Senior Executives with the interests of shareholders by
providing the opportunity for participants to receive an equity interest in Healthscope through the granting
of Performance Rights and subject to the achievement of dual performance conditions and the terms of
the EIP.
Growth remains a key aspect of Healthscope’s strategic plan and it is appropriate that Senior Executives
be incentivised to achieve targets which demonstrate sustainable growth. The LTI also acts to retain key
executives who have the capacity to influence Company strategy and direction and therefore supports
Company performance and aligns with the interests of shareholders over the longer term.
PARTICIPATION
All Senior Executives participated in the LTI in FY171.
VEHICLE AND
ALLOCATION
METHODOLOGY
The FY17 LTI delivered awards in the form of Performance Rights. The number of LTI Performance Rights
granted were determined by use of a face value methodology. The LTI award was divided by the VWAP of
Healthscope shares traded on the ASX over the five trading days following the announcement of the FY17
full year financial results. Each LTI Performance Right, as is the case with all Performance Rights issued by
the Company, entitles the holder to one ordinary share in Healthscope following a satisfactory achievement
of performance conditions. LTI Performance Rights are granted at no cost and no payment is required to be
made in order for the Performance Rights to vest and for participants to receive their share allocation. LTI
Performance Rights do not carry any voting or dividend entitlements.
PERFORMANCE
PERIOD
LTI vesting is based on the achievement of performance conditions that are assessed following a three year
performance period commencing at the beginning of FY17 and concluding at the end of FY19, based on
the Company’s audited annual results at the end of this period.
PERFORMANCE
CONDITIONS
The LTI had dual performance hurdles – Earnings Per Share (EPS) and Relative Total Shareholder Return
(RTSR) (with an absolute TSR gateway of 7.5% to be achieved before RTSR can be assessed for vesting).
The mix of measures means that both lead indicators (indicative of Healthscope business operations) and
lag indicators (reflecting the market’s reaction to the Company’s past performance) are utilised.
The EPS measure was selected because of its correlation with long term shareholder return and its lower
susceptibility to short term share price volatility. This measure also provides a greater ‘line of sight’
between Senior Executives’ actions and the way in which their performance is measured. Consequently,
this component was more heavily weighted in order to drive performance and provide an appropriate
retention incentive.
RTSR measures the performance of an ordinary Healthscope share (including the value of any dividend
and any other shareholder benefits paid during the period) against total shareholder return performance of
a comparator group of companies, comprising the S&P ASX100 Index, over the same period. The Board
believes RTSR is an appropriate hurdle, as it links Senior Executive reward to Healthscope’s relative share
performance which is consistent with creating shareholder value relative to Healthscope’s peer group.
The S&P ASX100 is considered an appropriate peer group as a comparator group for RTSR performance,
as it represents a meaningful statistical sample and an appropriate group of alternative potential investments
for shareholders with which to compare Healthscope’s performance.
EPS Performance
Relative TSR Performance
Portion of LTI award that will
vest against relevant target
(75% weighting)
(25% weighting)
Less than the threshold target
Less than the 50th percentile
Equal to the threshold target
At 50th percentile
Nil
50%
Greater than the threshold target,
up to maximum target
Between 50th and 75th percentile
Straight line vesting between
50% and 100%
At or above maximum target
At or above the 75th percentile
100%
1 All LTI grants made in FY17 are subject to the performance conditions outlined in section 6.4.1 with the exception of Mr Ballantyne’s Performance Rights and 355,872 of Mr Sammells’ Performance
Rights. Refer to footnote 1 under 6.4.2 for details of performance conditions related to these Performance Rights.
40 | HEALTHSCOPE ANNUAL REPORT 2017
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LTI
ASSESSMENT
AND VESTING
The performance period for the FY17 LTI runs from 1 July 2016 to 30 June 2019.
RTSR performance is independently assessed over the performance period against the constituents of the
S&P ASX 100 index as at 1 July 2016.
EPS is calculated using Operating NPAT, divided by the weighted average number of shares on issue during
the year. As historical EPS data is limited due to Healthscope’s listing in 2014, it has not been practical to
set three year EPS targets for the relevant performance period. For the FY17 LTI, the EPS target therefore
consists of three annual EPS targets set by the Board based on projected performance for each year. The
EPS vesting outcome for each of the three years will be averaged to provide an overall outcome for the
performance period. In assessing performance against EPS targets, the Board retains discretion to review
outcomes to ensure that any aberrant results of testing are avoided.
The Board considers the disclosure of the EPS targets set for each LTI grant to be commercially sensitive
information and that disclosure of these targets would not be in the Company’s and shareholders’ best
interests. Consistent with the practice of not giving numerical guidance on forecasted financial performance,
these targets will not be disclosed at the time of a grant. The Board will disclose the EPS targets used in the
calculation of executive reward after the conclusion of each performance period.
An average threshold of 50% of target over the performance period must be reached before any LTI
Performance Rights measured against the EPS target can vest.
Testing of the FY17 LTI is expected to occur in FY20, shortly after the end of the performance period.
These methods of assessing RTSR performance and EPS have been chosen as the Board believes they
are the most appropriate way to assess the true financial performance of the company and determine
remuneration outcomes.
RE-TESTING
No retesting is permitted in relation to either performance condition. Any Performance Rights that do not
satisfy the performance conditions automatically lapse.
TREATMENT
ON CESSATION
Where a participant ceases employment for cause or due to resignation (other than due to death, ill health
or disability) all unvested Performance Rights will automatically lapse. In all other circumstances, the
Performance Rights will remain on foot and subject to the original performance conditions, as if the
participant had not ceased employment.
However, pursuant to the EIP Rules, the Board retains absolute discretion to determine to vest or lapse
some or all Performance Rights in all circumstances.
CHANGE OF
CONTROL
Where there is likely to be a change of control, the Board has the discretion to accelerate vesting of some
or all of the Performance Rights. Where only some of the Performance Rights are vested on a change of
control, the remainder of the Performance Rights will immediately lapse.
If a change of control occurs before the Board exercises its discretion, a pro-rata portion of the Performance
Rights (equal to the portion of the relevant Performance Period that has elapsed up to the change of control)
will immediately and automatically vest.
CLAWBACK
The Board has broad “clawback” powers to determine that any Performance Rights granted under the
LTI or STI Plan may lapse or be forfeited, or be repaid in certain circumstances (e.g. in the case of serious
misconduct). This protects Healthscope against the payment of benefits where participants have acted
inappropriately.
HEALTHSCOPE ANNUAL REPORT 2017 | 41
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6. Senior Executive remuneration in detail (continued)
6.4.2 LTI Performance Rights granted in FY17
Senior Executive
Position
Number of Performance
Rights Granted3
Grant Date
Fair Value on
Grant Date ($)
Gordon Ballantyne
CEO (from 15 May 2017)
Robert Cooke
CEO (until 14 May 2017)
Michael Sammells
CFO
Mark Briscoe
GM Operations
Anoop Singh
GM International Pathology
444,8361
625,1192
306,0412
355,8721
90,9732
75,2912
15 May 2017
21 October 2016
21 October 2016
15 May 2017
21 October 2016
21 October 2016
2.02
1.84
1.84
1.95
1.84
1.84
1 Vesting of the FY17 EIP grant of Performance Rights is subject to meeting service conditions (two years from grant date for Mr Ballantyne and three years from grant date for Mr Sammells).
The number of Performance Rights granted to Mr Ballantyne under the FY17 EIP grant was equivalent to the number of shares he purchased prior to commencing employment. The number of
Performance Rights granted to Mr Sammells under the FY17 EIP grant was determined by dividing $800,000 by the average share price at which Mr Ballantyne purchased his shares ($2.25).
2 Vesting of LTI Performance Rights is subject to the meeting of performance hurdles as set out in section 6.4.1. Figures therefore represent the maximum possible shares that could be granted
following the end of the performance period, should all conditions be met. The number of LTI Performance Rights granted was determined by dividing the KMP’s LTI opportunity by the VWAP of
Healthscope shares in the five days following the announcement of the Company’s FY16 financial results ($3.04 per share).
3 The estimated maximum possible total value of the grants for each KMP is as follows: G Ballantyne ($898,569); R Cooke ($1,150,269); M Sammells ($563,115 for 21 October 2016 grant) and
($693,950 for 15 May 2017 grant); M Briscoe ($167,390); A Singh ($138,535). This is based on the fair value as at the grant date. The minimum possible total value of the grant is nil.
6.4.3 LTI Performance Rights vesting in FY17 (FY15 LTI)
The performance period for the FY15 LTI Performance Rights ended on 30 June 2017. The FY15 LTI Performance Rights were
subject to two performance conditions – EPS and RTSR.
Following testing of performance against the two performance conditions, 50% of the FY15 LTI Performance Rights vested and
50% lapsed. The overall vesting outcomes for the Performance Rights granted to Senior Executives as part of the FY15 LTI are
summarised in the table below.
Hurdle
EPS
RTSR1
Overall outcome
Weighting
75%
25%
FY15 LTI
Vested %
67%
0%
50%
Lapsed %
33%
100%
50%
1 The associated RTSR performance conditions are set out in section 6.4.1 are as per the FY17 LTI grant with the exception of the peer group. FY15’s peer group was based on the S&P ASX 100
excluding companies classified as bank, energy, metals and mining, trusts and overseas domiciled companies.
The detail of the targets and performance outcomes for each condition are disclosed below in accordance with the Board’s
commitment to disclose the performance conditions, which applied to the FY15 LTI Performance Rights, after the conclusion of
the performance period.
• The RTSR performance condition had an absolute TSR gateway of 7.5% which had to be achieved before RTSR could be
assessed for vesting. The absolute TSR outcome achieved was 8.3% however as RTSR was less than the 50th percentile,
this condition was not met and, accordingly, the performance rights subject to this performance condition lapsed.
• The EPS target consisted of three annual EPS targets set by the Board based on projected performance for each year
of the performance period1. The aggregate threshold growth target for the performance period was 1.23c (15% growth) and
the maximum EPS target for the performance period was 2.78c (33% growth). Actual EPS growth (calculated using
Operating NPAT) for over the performance period was 2.11c (25% growth). Given performance exceeded targets in Years 1
and 2 of the performance period but was below target in year 3, this resulted in 67% of the EPS Performance Rights vesting.
The Board believes this outcome is reflective of the achievements made over the performance period. Over the performance
period, three key brownfield developments at Knox Private, Gold Coast Private and National Capital Private were opened,
with projects being delivered on time and within budget. In addition, the NSW government awarded Healthscope the Northern
Beaches project. The construction of this project is well progressed and 2.5 years into the construction phase, the project
remains on budget and due to open on time in late 2018. These key strategic major projects set up a platform to deliver
accelerated growth for Healthscope over the medium to long term.
1 The baseline EPS (8.46c) for EPS performance measurement was derived by taking the FY14 company performance pro-forma to reflect the capital structure put in place at IPO divided by the
number of shares issued at IPO on 28 July 2014.
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7. Executive service agreements
All Senior Executives are party to a written executive service agreement with Healthscope Operations Pty Ltd (ACN 006 405 152)
(a wholly owned subsidiary of Healthscope Limited).
7.1 Key terms of executive service agreement for Mr G Ballantyne (MD & CEO from 15 May 2017)
DURATION
ONGOING
Periods of notice
required to
terminate
12 months’ notice by either party in writing is required to terminate the contract other than
where employment is terminated for serious negligence, breach of the service agreement, fraud
or misconduct (in which case no notice is required).
Payment in lieu of all or a portion of the notice period may be made at the Company’s discretion.
Executive may terminate immediately in the case of a fundamental change in his role and
responsibilities and is entitled to 12 months’ TFR.
Termination
payments
May not exceed the maximum amount which the Company is permitted to pay the CEO under
the Corporations Act.
Unvested securities will be treated in accordance with the relevant Plan Rules.
Restraint of trade
The CEO is restrained from competing with Healthscope or other members of the Healthscope
Group during his employment and for up to 12 months post termination of his employment.
7.2 Key terms of executive service agreement for Mr R Cooke (MD & CEO until 14 May 2017)
Mr Cooke ceased as MD & CEO on 14 May 2017. Set out below are the key terms of his executive service agreement as
applied to that date. Further details regarding the CEO transition are set out in section 1.
DURATION
ONGOING
Periods of notice
required to
terminate
12 months’ notice by either party in writing is required to terminate the contract other than where
employment is terminated for, amongst other things, dishonesty, fraud, wilful disobedience or
misconduct (in which case no notice is required).
Payment in lieu of all or a portion of the notice period may be made at the Company’s discretion.
Termination
payments
May not exceed the maximum amount which the Company is permitted to pay the CEO under the
Corporations Act.
STI is not payable where the CEO has resigned and terminates before the payment becomes
payable (as determined at the sole discretion of the Board). STI is payable if the STI becomes
due and employment is terminated by the Company.
Average base salary is payable during any restraint period.
Unvested securities will be treated in accordance with the relevant Plan Rules.
Restraint of trade
The CEO is restrained from competing with Healthscope or other members of the Healthscope
Group during his employment and for up to 12 months post termination of his employment.
HEALTHSCOPE ANNUAL REPORT 2017 | 43
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7. Executive service agreements (continued)
7.3 Key terms of executive service agreement for other Senior Executives
DURATION
ONGOING
Periods of notice
required to
terminate
CFO – 12 months’ notice by either party in writing is required to terminate the contract other than
where employment is terminated for dishonesty, fraud, wilful disobedience or misconduct (in which
case no notice is required).
Other Senior Executives have 6 month notice periods (other than where employment is terminated
for serious misconduct, in which case no notice is required).
Payment in lieu of all or a portion of the notice period may be made at the Company’s discretion.
Termination
payments
May not exceed the maximum amount which the Company is permitted to pay the Senior Executive
under the Corporations Act.
STI is not payable where the Senior Executive has resigned and terminates before the payment
becomes payable (as determined at the sole discretion of the Board). STI is payable if the STI
becomes due and employment is terminated by the Company, other than for cause.
Average base salary is payable during any restraint period.
Unvested securities will be treated in accordance with the relevant Plan Rules.
Restraint of trade
The CFO is restrained from competing with Healthscope or other members of the Healthscope
Group during his employment and for up to 12 months post termination of his employment.
For other Senior Executives, non-solicitation provisions (relating to employees, contractors and
medical officers) of between 6 and 12 months are in place.
The Corporations Act restricts the termination benefits that can be provided to KMP on cessation of their employment, unless
shareholder approval is obtained. The shareholders of the Company and Healthscope Operations Pty Ltd approved the
termination arrangements of Robert Cooke and Michael Sammells at a general meeting on 28 June 2014.
44 | HEALTHSCOPE ANNUAL REPORT 2017
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8. Statutory remuneration disclosures
8.1 Senior Executive remuneration – statutory disclosures
The following table sets out the statutory disclosures required under the Corporations Act and in accordance with the Accounting
Standards.
SHORT-TERM EMPLOYEE
BENEFITS
POST-
EMPLOYMENT
BENEFITS
OTHER
LONG TERM
BENEFITS
SHARE-BASED
PAYMENTS
TOTAL
Cash
Salary
Bonuses1
Non-
Monetary
Benefits2
Superannuation
Benefits
Long
Service
Leave3
Value
of STI –
Performance
Rights4 5
Value
of LTI –
Performance
Rights6
Value of LTI
Performance
Rights7 -
Prior
periods
expense
write-back
Current Senior Executives
Gordon Ballantyne (from 15 May 2017)
FY17
208,668
-
-
4,668
688
-
56,622
0
270,646
Michael Sammells
FY17
FY16
740,317
217,104
7,024
719,552
650,799
6,890
Mark Briscoe
FY17
FY16
430,937
64,051
5,789
418,592
141,306
5,664
Anoop Singh (GM International Pathology)
FY17
FY16
361,862
125,101
5,750
352,478
129,942
5,664
Former Senior Executives
Robert Cooke (until 14 May 2017)
35,000
35,000
30,000
30,000
19,616
18,783
15,651
16,228
9,509
10,394
9,634
8,977
121,402
670,421
(318,572)
1,488,346
85,224
404,733
0
1,918,425
28,574
18,504
34,945
17,016
190,866
(95,055)
664,671
120,555
0
745,016
153,255
(71,779)
638,384
95,051
0
627,911
FY17
1,345,002
385,139
5,028
FY16
1,506,250
1,329,324
5,664
30,397
35,000
36,662
39,349
215,365
1,208,938
(665,557)
2,560,975
174,078
851,391
0
3,941,056
Total-
FY17
Total-
FY16
3,086,787
791,395
23,591
119,681
72,145
400,286
2,280,101
(1,150,962)
5,623,023
2,996,872
2,251,371
23,882
118,783
74,948
294,822
1,471,730
0
7,232,409
1 Bonus payments relate to the cash component of the FY17 STI and will be paid in FY18.
2 The amounts disclosed as non-monetary benefits relate to car spaces, professional fees and other similar items.
3 Reflects the value of the movement in long service leave entitlement and was not actually paid to the employee.
4 For accounting purposes, deferred STI is treated as an equity settled share-based payment which is expensed over the relevant vesting period. The total value of the deferred STI granted to Senior
Executives in the current year was $339,169. The amount disclosed for each Senior Executive represents the current year vesting period expense only. The residual amount will be expensed on a
straight line over the remaining vesting period. These Performance Rights were granted at no cost and no payment is required to be made in order for the Performance Rights to vest.
5 The estimated maximum possible total value of the STI Performance Rights for each KMP is as follows: R Cooke ($165,060); M Sammells ($93,045); M Briscoe ($27,450); A Singh ($53,615). This is
based on the face value of the deferred STI. The minimum possible total value of the grant is nil.
6 Mr Ballantyne’s Performance Rights and 355,872 of Mr Sammells’ Performance Rights were issued as EIP Performance Rights (which are subject to service conditions). The value is calculated at
grant date, based on the fair value, measured using a Black Scholes valuation model. The remaining Performance Rights (issued as LTI Performance Rights) granted to the Senior Executives is
based on the fair value at grant date, measured using a Monte Carlo simulation for the RTSR Performance Rights and a Black Scholes valuation model for the EPS Performance Rights. The factors
and assumptions used in determining the fair value on grant date are set out in Note 19 of the financial statements. These Performance Rights were granted at no cost and no payment is required to
be made in order for the Performance Rights to vest.
7 Represents the accounting value of performance rights that have lapsed or are expected to lapse as a result of actual or expected performance against performance conditions. The amount
presented for Robert Cooke represents the write back of the fair value on Performance Rights which have lapsed for the period up to 14 May 2017 when he ceased to be a member of KMP.
HEALTHSCOPE ANNUAL REPORT 2017 | 45
Remuneration report
8. Statutory remuneration disclosures (continued)
8.2 Movements in Performance Rights held by Senior Executives
The following table sets out the movement during FY17, by number and value, of Performance Rights held by each Senior
Executive and their personally related entities. This includes Performance Rights issued under the STI, LTI and EIP rules.
UNVESTED
BALANCE
1 JULY
2016
Current Executive Director
GRANTED
VESTED
LAPSED
Number
Value1
Number
Value2
Percentage Number3
Value
Percentage
UNVESTED
BALANCE
30 JUNE
2017
Gordon Ballantyne
(commenced as
Managing Director
and CEO on 15
May 2017)
-
444,836
898,569
-
-
-
-
-
-
444,836
Former Executive Director
Robert Cooke
(Managing Director
and CEO until
14 May 2017)
1,531,259
625,119 1,151,782 416,667 696,876
50%
416,667
696,876
50%
1,323,044
Other Executive Director
Michael Sammells
722,637
661,913 1,257,831 190,477 318,572
Mark Briscoe
215,236
90,973
167,618
56,834
95,055
Anoop Singh
169,894
75,291
138,724
42,917
71,779
50%
50%
50%
190,477
318,572
56,834
95,055
42,917
71,779
50%
50%
50%
1,003,597
192,541
159,351
1 The value of LTI Rights granted in the year is the fair value of the Rights calculated at grant date using the Monte Carlo simulation model for the RTSR Performance Rights and a Black Scholes
valuation model for the EPS Performance Rights. For EIP Performance Rights (which are only subject to service conditions), the value of Rights granted in the year is calculated at grant date based
on the fair value, measured using a Black Scholes valuation model. For STI Performance Rights (which are only subject to service conditions), the value of Rights granted in the year is calculated
based on the face value of the deferred STI. The factors and assumptions used in determining the fair value on grant date are set out in Note 19 of the financial statements.
2 The value of vested Performance Rights is calculated based on the fair value at the time of grant.
3 This column represents Performance Rights that were granted as part of the FY15 LTI grant that have lapsed during FY17. This column does not include any Performance Rights granted under the
STI Plan as the FY15 STI grant did not contain a deferral element.
46 | HEALTHSCOPE ANNUAL REPORT 2017
Remuneration report
8.3 Non Executive Director remuneration – statutory disclosures
The following table sets out the statutory disclosures required under the Corporations Act and in accordance with the Accounting
Standards.
SHORT -TERM
EMPLOYEE BENEFITS
POST-EMPLOYMENT BENEFITS
TOTAL
Board &
Committee Fees
Non-Monetary
Benefits
Other Benefits
(non-cash)
Termination
Benefits
Superannuation
Benefits
Remuneration for
Services as
Non Executive Director
Paula J. Dwyer (Chairman)
FY17
FY16
Tony Cipa
FY17
FY16
Jane McAloon
FY17
FY161
Rupert Myer AO
FY17
FY16
Paul O’Sullivan
FY17
FY161
465,384
456,217
196,347
182,648
164,384
51,750
196,347
182,648
164,384
77,626
Ziggy Switkowski AO
FY17
FY161
182,648
43,379
Total - FY17
1,369,494
Total - FY16
994,268
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,616
18,783
18,653
17,352
15,616
4,916
18,653
17,352
15,616
7,374
17,352
4,121
105,506
69,898
485,000
475,000
215,000
200,000
180,000
56,666
215,000
200,000
180,000
85,000
200,000
47,500
1,475,000
1,064,166
1 Three directors were appointed during FY16 (Jane McAloon (1 March 2016), Paul O’Sullivan (1 January 2016) and Ziggy Switkowski (4 April 2016)). As such, FY16 remuneration was accordingly
pro-rated.
HEALTHSCOPE ANNUAL REPORT 2017 | 47
Remuneration report
8. Statutory remuneration disclosures (continued)
8.4 KMP shareholdings
The following table summarises the movements in the shareholdings of KMP (including relevant interests) for FY17.
NO. OF
SHARES HELD
AT 1 JULY 2016
ON VESTING OF
PERFORMANCE
RIGHTS
OTHER NET
CHANGE1
NO. OF SHARES
UPON CEASING
TO BE KMP
NO. OF
SHARES HELD AT
30 JUNE 2017
Directors
Paula J. Dwyer
Tony Cipa
Jane McAloon
Rupert Myer AO
Paul O’Sullivan
Ziggy Switkowski AO
Gordon Ballantyne
160,000
95,238
19,380
238,095
81,000
-
-
Robert Cooke
1,799,314
Senior Executives
Michael Sammells
Mark Briscoe
Anoop Singh
1,122,154
399,717
267,880
-
-
-
-
-
-
-
-
-
-
-
65,000
1,126
20,620
3,753
-
70,000
444,836
n/a
n/a
n/a
n/a
n/a
n/a
n/a
(1,400,000)
399,3142
(872,154)
(399,717)
(200,000)
n/a
n/a
n/a
225,000
96,364
40,000
241,848
81,000
70,000
444,836
n/a
250,000
-
67,880
1 Reflects shares sold or on market share purchases made by KMP over the course of FY17.
2 Reflects shareholding as at 14 May 2017.
8.5 Transactions and loans with KMP
There were no transactions or loans between KMP and the Company or any of its subsidiaries during FY17.
48 | HEALTHSCOPE ANNUAL REPORT 2017
Remuneration report
HEALTHSCOPE ANNUAL REPORT 2017 | 49
Financial report
for the year ended 30 June 2017
Contents
Main Statements
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated financial statements
General information and basis of preparation
Financial performance
1
2
3
4
Segment information
Revenue and expenses
Income taxes
Trade and other assets and liabilities
Shareholders returns
5
6 Dividends
Earnings per share
Issued capital
Borrowings and other financial liabilities
Capital restructure
7
8
9 Derivative financial instruments
10 Notes to the consolidated statement of cash flows
Capital investment
11 Property, plant and equipment
12
13 Assets classified as held for sale
14 Commitments
Intangibles
Risk Management
15 Contingent liabilities
16 Provisions
17 Financial instruments
18 Fair value measurement
Other
19 Share based payments
20 Changes in the composition of the Healthscope Group
21 Key Management Personnel compensation and related parties
22 Auditor's remuneration
23 Events subsequent to reporting date
24 Entities within the Consolidated Group
25 Parent entity information
Directors' declaration
Independent Auditor's report
50 | HEALTHSCOPE ANNUAL REPORT 2017
51
52
53
54
56
56
57
58
61
64
66
67
67
68
70
72
74
76
78
79
79
80
81
84
85
87
88
88
89
90
94
95
96
Financial report
for the year ended 30 June 2017
Consolidated statement of profit or loss and other comprehensive income
for the year ended 30 June 2017
Note
2017
$'m
2016
$'m
Continuing operations
Revenue
Employee benefits expense
Medical and consumable supplies
Prosthetics expenses
Occupancy costs
Service costs
Other income and expense items
Profit before finance costs, income tax, depreciation and amortisation
Depreciation and amortisation
Profit before finance costs and income tax
Net finance costs
Profit before income tax
Income tax expense
Profit for the year from continuing operations
Discontinued operations
Net (loss) / profit for the year from discontinued operations
NET PROFIT FOR THE YEAR
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Exchanges differences arising on translation of foreign operations
Gain / (Loss) on cash flow hedges taken directly to equity
Income tax (expense) / benefit relating to other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Earnings per share
From continuing and discontinued operations
Basic (cents per share)
Diluted (cents per share)
From continuing operations
Basic (cents per share)
Diluted (cents per share)
The above statement should be read in conjunction with the accompanying notes.
11, 12
(108.9)
2
2
2
2
3
20
5
5
5
5
2,318.2
2,232.9
(1,036.7)
(288.7)
(290.8)
(64.0)
(991.5)
(289.6)
(285.3)
(68.2)
(226.6)
(200.9)
(24.7)
386.7
277.8
(52.7)
225.1
(62.5)
162.6
(14.9)
382.5
(92.8)
289.7
(43.8)
245.9
(66.9)
179.0
(51.7)
110.9
2.1
181.1
(1.0)
11.6
(3.3)
7.3
14.7
(23.0)
7.4
(0.9)
118.2
180.2
6.4
6.3
9.4
9.3
10.4
10.4
10.3
10.3
HEALTHSCOPE ANNUAL REPORT 2017 | 51
Consolidated statement of financial position
for the year ended 30 June 2017
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Consumables supplies at cost
Prepayments
Derivative financial instruments
Assets classified as held for sale
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Other financial assets
Derivative financial instruments
Other receivable
Investments in joint ventures
Property, plant and equipment
Intangibles
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Other financial liabilities
Provisions
Liabilities directly associated with assets classified as held for sale
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
Derivative financial instruments
Other financial liabilities
Other payables
Deferred tax liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Reserves
Accumulated losses
TOTAL EQUITY
The above statement should be read in conjunction with the accompanying notes.
52 | HEALTHSCOPE ANNUAL REPORT 2017
Note
10(a)
4
9
13
9
4
11
12
3
4
3
8
9
16
13
8
9
4
3
16
2017
$'m
195.9
165.8
54.6
16.4
-
58.8
491.5
8.1
-
298.3
0.9
2016
$'m
278.8
145.7
57.4
16.6
1.8
-
500.3
8.6
16.5
123.0
0.9
2,077.0
1,800.3
1,739.1
1,843.6
86.1
151.9
4,209.5
3,944.8
4,701.0
4,445.1
251.6
246.2
3.6
3.8
10.7
3.6
123.5
6.3
403.1
2.3
4.9
8.8
4.8
121.9
-
388.9
1,802.4
1,557.0
23.8
-
23.8
49.2
31.0
13.0
0.1
18.4
63.5
31.5
1,930.2
1,683.5
2,333.3
2,072.4
2,367.7
2,372.7
7
2,708.2
2,706.1
(247.2)
(93.3)
(257.7)
(75.7)
2,367.7
2,372.7
Consolidated statement of financial position
Consolidated statement of cash flows
for the year ended 30 June 2017
for the year ended 30 June 2017
Note
2017
$'m
2016
$'m
Continuing and Discontinued Operations
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Cash generated from operations
Interest received
Interest and costs of finance paid
Income tax paid
Other income and expense items
Net cash provided by operating activities
10(b)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of operations
Payments for property, plant and equipment
Brownfield developments
Northern Beaches facility development
Payments for operating rights
Net payments for business combinations
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings
Repayments of bank borrowings
Proceeds from issue of US Private Placement
Dividend reinvested though Dividend Reinvestment Plan
Proceeds from project finance (Northern Beaches)
Net repayment of receivables securitisation
Finance leasing
Dividends paid
Facility fees paid
Net cash provided by financing activities
2,410.7
2,269.2
(1,992.5)
(1,877.5)
418.2
391.7
3.7
(54.1)
(13.7)
(23.1)
331.0
4.0
-
(75.8)
(179.7)
(309.5)
(1.1)
(0.1)
4.5
(47.9)
(13.4)
(10.5)
324.4
0.8
92.3
(86.2)
(300.5)
(134.5)
(1.2)
(63.6)
(562.2)
(492.9)
-
-
-
2.1
155.0
(384.1)
395.1
-
280.9
200.1
0.8
(6.5)
(2.1)
(3.4)
(128.5)
(124.9)
(0.1)
148.7
(6.3)
229.4
Net (decrease) / increase in cash and cash equivalents
(82.5)
60.9
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents transferred to assets classified as held for sale
10(a)
Effects of exchange rate changes on the balance of cash held in foreign currencies
278.8
217.7
(0.2)
(0.2)
-
0.2
Cash and cash equivalents at the end of the year
10(a)
195.9
278.8
The above statement should be read in conjunction with the accompanying notes.
HEALTHSCOPE ANNUAL REPORT 2017 | 53
GROUP
$'m
(282.2)
-
-
-
-
-
-
-
-
-
-
-
-
-
(282.2)
(282.2)
41.3
(20.6)
$'m
26.6
14.7
14.7
41.3
(1.0)
(1.0)
-
-
-
-
-
-
-
-
-
$'m
(5.0)
(15.6)
(15.6)
-
-
-
-
-
(20.6)
-
8.3
8.3
-
-
-
(282.2)
40.3
(12.3)
TOTAL
EQUITY
$'m
2,305.7
181.1
(0.9)
180.2
8.2
0.7
2.8
(124.9)
2,372.7
2,372.7
110.9
7.3
118.2
2.1
3.2
(128.5)
2,367.7
$'m
1.0
-
-
-
-
-
-
2.8
3.8
3.8
-
-
-
-
-
3.2
7.0
Consolidated statement of changes in equity
for the year ended 30 June 2017
ISSUED
CAPITAL
ACCUMULATED
LOSSES
REORGANISATION
TRANSLATION
RESERVE
RESERVE
HEDGE RESERVE
FOREIGN
CURRENCY
EQUITY SETTLED
EMPLOYEE
BENEFITS
RESERVE
2016
Opening balance at 1 July 2015
Profit for the year
Other comprehensive income / (loss) for the year net of tax
Total comprehensive income / (loss) for the year
New shares issued
Equity raising costs - refund net of tax
Recognition of share based payments
Dividends paid
Balance at 30 June 2016
2017
Opening balance at 1 July 2016
Profit for the year
Other comprehensive income / (loss) for the year net of tax
Total comprehensive income / (loss) for the year
New shares issued
Recognition of share based payments
Dividends paid
Closing balance at 30 June 2017
$'m
2,697.2
-
-
-
8.2
0.7
-
-
2,706.1
2,706.1
-
-
-
2.1
-
-
2,708.2
$'m
(131.9)
181.1
-
181.1
-
-
-
(124.9)
(75.7)
(75.7)
110.9
-
110.9
-
-
(128.5)
(93.3)
The above statement should be read in conjunction with the accompanying notes.
Group reorganisation reserve
The Group reorganisation reserve arose through a series of “common control” transactions related to a Group reorganisation
following the acquisition of the Healthscope business by funds advised and managed by TPG (TPG FOF VI SPV, LP.) and Carlyle
(Carlyle HSP Partners, LP.) on 12 October 2010.
The balance in the reserve is not expected to be transferred and will remain in the reserve for the foreseeable future.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity, as
well as from the translation of liabilities that hedge the Group’s net investment in a foreign subsidiary.
Hedge reserve (cash flow hedging)
This reserve comprises the cumulative net change in the fair value of the effective portion of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
54 | HEALTHSCOPE ANNUAL REPORT 2017
Consolidated statement of changes in equity
for the year ended 30 June 2017
2016
Opening balance at 1 July 2015
Profit for the year
Other comprehensive income / (loss) for the year net of tax
Total comprehensive income / (loss) for the year
New shares issued
Equity raising costs - refund net of tax
Recognition of share based payments
Dividends paid
Balance at 30 June 2016
2017
Opening balance at 1 July 2016
Profit for the year
New shares issued
Recognition of share based payments
Dividends paid
Closing balance at 30 June 2017
Other comprehensive income / (loss) for the year net of tax
Total comprehensive income / (loss) for the year
ISSUED
ACCUMULATED
CAPITAL
$'m
2,697.2
-
-
-
8.2
0.7
-
-
-
-
-
-
-
2.1
2,706.1
2,706.1
LOSSES
$'m
(131.9)
181.1
181.1
-
-
-
-
(124.9)
(75.7)
(75.7)
110.9
110.9
-
-
-
(128.5)
(93.3)
The above statement should be read in conjunction with the accompanying notes.
2,708.2
(282.2)
40.3
(12.3)
(282.2)
41.3
(20.6)
(282.2)
-
-
-
-
-
-
41.3
-
(1.0)
(1.0)
-
-
-
(20.6)
-
8.3
8.3
-
-
-
FOREIGN
CURRENCY
TRANSLATION
RESERVE
HEDGE RESERVE
EQUITY SETTLED
EMPLOYEE
BENEFITS
RESERVE
GROUP
REORGANISATION
RESERVE
$'m
(282.2)
-
-
-
-
-
-
-
$'m
26.6
-
14.7
14.7
-
-
-
-
$'m
(5.0)
-
(15.6)
(15.6)
-
-
-
-
TOTAL
EQUITY
$'m
2,305.7
181.1
(0.9)
180.2
8.2
0.7
2.8
(124.9)
2,372.7
2,372.7
110.9
7.3
118.2
2.1
3.2
(128.5)
2,367.7
$'m
1.0
-
-
-
-
-
2.8
-
3.8
3.8
-
-
-
-
3.2
-
7.0
Share based payment reserve
The share based payment reserve relates to performance rights granted by the Group to its employees. Further information about
share based payments is set out in Note 19.
Key accounting policies
Foreign operations
The assets and liabilities of the Group’s foreign operations are translated at applicable exchange rates at 30 June. Income
and expense items are translated at the average exchange rates for the period. Foreign exchange gains and losses arising on
translation are recognised in the foreign currency translation reserve (FCTR).
Foreign currency transactions
All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of
transaction. Foreign currency monetary items at 30 June are translated at the exchange rate existing at reporting date. Exchange
differences are recognised in profit or loss in the period in which they arise.
HEALTHSCOPE ANNUAL REPORT 2017 | 55
General information and basis of preparation
General Information
Healthscope Limited is a public company listed on the Australian Securities Exchange (trading under the code ‘HSO’),
incorporated and domiciled in Australia with trading operations in Australia, New Zealand and South East Asia.
The principal place of business of the Group is:
Level 1
312 St Kilda Road
Melbourne VIC 3004
Tel: (03) 9926 7500
The principal activities of the Healthscope Group during the financial year ended 30 June 2017 were the provision of healthcare
services through the ownership and management of hospitals, medical centres and the provision of pathology diagnostic
services.
Basis of preparation and consolidation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments
and assets held for sale that are measured at revalued amounts or fair values.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The financial results and financial position of the Group are expressed in Australian dollars, which is the presentation currency for
the consolidated financial statements.
The consolidated financial statements were authorised for issue by the Directors on 23 August 2017.
Subsidiaries
Subsidiaries are those entities that are controlled by the Group. The financial results and financial position of the subsidiaries are
included in the consolidated financial statements from the date control commences until the date control ceases.
A list of the Group’s subsidiaries in included in Note 24.
Joint ventures
A joint venture is an arrangement where the parties have right to the net assets of the venture.
Investments in joint ventures are accounted for using the equity method. They are initially recognised at cost, and subsequent
to initial recognition, the consolidated financial statements include Group’s share of the profit or loss and other comprehensive
income of the investees.
The Group has a 50% ownership interest in the following joint venture entities:
• Mount Hospital Cath Labs Pty. Ltd.; and
• Mount Hospitals Cardiology Services Pty. Ltd.
Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the
Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. Accounting
Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial
statements and notes of the Group comply with International Financial Reporting Standards (IFRS) and interpretations. The
company is a for-profit entity.
Rounding of amounts
The Company is an entity to which the ASIC Class Order 2016 / 191 applies, and in accordance with that the Director’s report
and financial statements are rounded off to the nearest hundred thousand dollars, unless otherwise stated.
56 | HEALTHSCOPE ANNUAL REPORT 2017
General information and basis of preparation
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 1: Segment information
As a result of the agreement entered into on 17 August 2017 to divest Healthscope's standalone medical centres business,
the reportable segments were revised to reflect the continuing business.
The comparative period has been restated in order to reflect this change.
AASB 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components
of Healthscope Limited that are regularly reviewed by the chief operating decision maker in order to allocate resources to the
segment and to assess its performance. Under AASB 8, the reportable segments of Healthscope Limited are as follows:
• Hospitals Australia - the management and provision of surgical and non-surgical private hospitals;
• Pathology New Zealand - the provision of pathology services in New Zealand; and
• Other - the provision of pathology services in Malaysia, Singapore and Vietnam.
CONTINUING OPERATIONS
SEGMENT REVENUE
SEGMENT
OPERATING EBITDA1
SEGMENT
OPERATING EBIT2
Hospitals Australia
Pathology New Zealand
Other
Total all segments
Corporate
Total all segments after Corporate
Other income and expense items (Note 2)
Finance costs (Note 2)
Profit before income tax
Income tax expense (Note 3)
Net profit from continuing operations
2017
$'m
2016
$'m
2,014.0
1,947.7
242.5
61.7
222.7
62.5
2,318.2
2,232.9
2017
$'m
359.4
59.7
18.2
437.3
(25.9)
411.4
2016
$'m
354.9
50.7
18.3
423.9
(26.5)
397.4
2017
$'m
272.6
46.6
14.0
333.2
(30.7)
302.5
(24.7)
(52.7)
225.1
(62.5)
162.6
2016
$'m
281.4
40.1
14.2
335.7
(31.1)
304.6
(14.9)
(43.8)
245.9
(66.9)
179.0
DISCONTINUED OPERATIONS
SEGMENT REVENUE
SEGMENT
OPERATING EBITDA1
SEGMENT
OPERATING EBIT2
Medical Centres
Pathology Australia
Total all segments
Other income and expense items
Finance costs
(Loss) / Profit before income tax
Income tax expense
Net (loss) / profit from discontinued
operations
Net profit from continuing &
discontinued operations
2017
$'m
54.3
-
54.3
2016
$'m
58.0
3.0
61.0
2017
$'m
8.8
-
8.8
2016
$'m
10.5
(1.8)
8.7
2017
2016
$'m
4.6
-
4.6
(55.2)
-
(50.6)
(1.1)
$'m
5.8
(2.4)
3.4
(0.2)
-
3.2
(1.1)
(51.7)
2.1
110.9
181.1
1 Segment Operating EBITDA represents the profit earned by each segment without the allocation of central administrative costs, depreciation, amortisation, investment revenue, finance costs,
income tax expense and other items of income and expense.
2 Segment Operating EBIT represents the profit earned by each segment without the allocation of central administrative costs, investment revenue, finance costs, income tax expense and other items
of income and expenses.
HEALTHSCOPE ANNUAL REPORT 2017 | 57
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 1: Segment information (continued)
Other segment information
HOSPITALS
AUSTRALIA
PATHOLOGY
NEW ZEALAND
OTHER
CORPORATE
TOTAL
CONTINUING
OPERATIONS
DISCONTINUED
OPERATIONS
2017
Total assets
Total liabilities
2016
Total assets
Total liabilities
$'m
4,239.7
(2,272.2)
3,929.7
(1,995.0)
$'m
$'m
270.5
116.0
(27.6)
(27.2)
$'m
16.0
$'m
4,642.2
-
(2,327.0)
$'m
58.8
(6.3)
TOTAL
$'m
4,701.0
(2,333.3)
267.2
116.0
15.8
4,328.7
(53.5)
(17.0)
-
(2,065.5)
116.4
(6.9)
4,445.1
(2,072.4)
Note 2: Revenue and expenses
An analysis of revenue and expenses from continuing operations is presented below:
REVENUE
Continuing operations
Revenue from rendering services
Rental revenue
Management fees
Other revenue
Total revenue
EXPENSES
Continuing operations
Finance Income
Bank deposits
Finance Expenses
Interest on bank overdrafts and loans
Interest capitalised on qualifying assets1
Amortisation of facility fees
Interest on obligations under finance leases
Unwinding of discount on provisions
Net finance costs
Employee benefits expense
Superannuation contributions
Termination benefits
Other employee benefits
Share based payments expense
Total employment benefits expense
Note
2017
$'m
2016
$'m
2,250.0
2,169.4
28.3
32.7
7.2
27.8
27.1
8.6
2,318.2
2,232.9
3.7
4.5
(74.8)
(63.3)
21.9
(1.9)
(1.3)
(0.3)
(56.4)
(52.7)
18.6
(1.6)
(0.9)
(1.1)
(48.3)
(43.8)
(72.6)
(1.2)
(69.6)
(2.0)
(959.7)
(917.1)
19
(3.2)
(2.8)
(1,036.7)
(991.5)
Minimum lease payments for operating leases
(42.0)
(45.0)
1 The weighted average capitalisation rate on funds borrowed is 5.01% p.a. (2016: 4.37% p.a.).
58 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
EXPENSES (continued)
Continuing operations
Other income and expense items
Restructure and other costs1
Loss relating to appointment of liquidators for a supplier group2
Hospital commissioning costs3
Allamanda Private Hospital closure costs4
Acquisitions and tender costs5
Impairment of Geelong Private Hospital assets6
Onerous leases and related costs7
Total other income and expense items
Note
2017
$'m
2016
$'m
(2.4)
(5.7)
(2.7)
-
(0.2)
(11.5)
(2.2)
(24.7)
(2.2)
-
(1.8)
(7.4)
(3.5)
-
-
(14.9)
1 Restructure and other costs primarily relate to redundancies as a result of a restructure within the Hospitals Division and Corporate.
2 During the financial year, liquidators were appointed for a supplier group. These costs represent write-offs in relation to stock in transit and deposits paid for the purchase of theatre equipment which
are unlikely to be recovered.
3 Hospital commissioning costs primarily relate to the commissioning of Holmesglen Private Hospital.
4 The prior year expense relates to the closure of Allamanda Private Hospital.
5 The current year expense relates to professional costs incurred in relation to the Maitland Hospital tender. The prior year expense relates to professional and transaction costs incurred in relation to
the acquisition of Hunter Valley Private Hospital.
6 Impairment of plant and equipment held by the Geelong Private Hospital.
7 The Group has recognised certain property lease contracts as having contractual obligations greater than the economic benefits expected to be received under the contracts. This charge primarily
relates to the lease obligations of the Geelong Private Hospital.
Key accounting policies
Revenue
Revenue is measured at the fair value of the consideration received or receivable by the Group.
Rendering of services: Revenue from patients is recognised on the date the services are provided to the patient.
Rental income: Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.
Initial direct costs incurred in negotiating and arranging an operating lease is added to the carrying amount of the leased asset
and recognised on a straight-line basis over the lease term.
Management fees: Revenue received from managing hospitals on behalf of Adelaide Community Healthcare Alliance (“ACHA”)
is recognised in accordance with the relevant agreement.
Operating lease rental expense
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
Under the terms of an operating lease, the Group does not assume the risks and benefits associated with ownership of the
leased asset.
HEALTHSCOPE ANNUAL REPORT 2017 | 59
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 2: Revenue and expenses (continued)
Standards in issue but not yet effective
AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. The core principle of the new revenue model is that revenue should be recognised to depict the transfer of promised
goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
The Directors have undertaken a preliminary assessment of the impact of applying the requirements of AASB 15, the effect of
which has been assessed as follows:
Hospital services
Each surgical and non-surgical service provided to a patient represents a performance obligation. Accordingly, revenue will be
recognised for each of these performance obligations over the period from admission of the patient to discharge. The timing of
revenue recognition for each performance obligation is expected to be broadly in line with current practice.
Pathology services
In relation to the provision of pathology services in New Zealand, each pathology service contract represents a single
performance obligation which is satisfied over time. The obligation is to provide pathology testing to eligible patients during
the contract term. The timing of revenue recognition for each performance obligation is expected to be broadly in line with
current practice.
In respect of pathology operations in Malaysia and Singapore, each pathology service provided to a patient represents a
performance obligation. Accordingly, revenue will be recognised for each of these performance obligations upon the provision
of results to the doctor or patient. The timing of revenue recognition for each performance obligation is expected to be broadly in
line with current practice.
Hospital management services
The recognition of management fee income will occur over time in accordance with the relevant agreement. The timing of
revenue recognition is expected to be in line with current practice.
The Directors are continuing to assess the potential impact on system and disclosure requirements ahead of the initial application
of AASB 15 on 1 July 2018 (year ending 30 June 2019).
AASB 16 Leases
Lessee accounting
AASB 16 eliminates the classification of leases either as operating leases or finance leases, which is currently required by AASB
117 and instead, introduces a single comprehensive accounting model. Applying that model, a lessee is required to recognise:
• Right-of-use assets and lease liabilities for all leases with a term of more than 12 months
(unless the underlying asset is of low value); and
• Amortisation of lease assets separately from interest on lease liability in the income statement.
For Healthscope, operating leases with terms of more than 12 months primarily relate to leased facilities.
The right-of-use asset will initially be measured at cost and subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability.
The lease liability will initially be measured at the present value of lease payments that are not paid at that date. Subsequently,
the lease liability will be adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.
The requirement to recognise a right-of-use asset and a related lease liability is expected to have a significant impact on the
amounts recognised in the Group’s consolidated financial statements, in particular the level of gearing in the statement of
financial position and the classification of amounts in the statement of profit or loss and other comprehensive income.
The Directors are in the process of assessing the financial impact of adopting AASB 16 as well as the system changes necessary
to capture and report the information required. It is not practicable at this time to provide a reasonable estimate of the financial
effect expected to arise upon initial application of AASB 16 on 1 July 2019 (year ending 30 June 2020).
60 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 3: Income taxes
Income tax recognised in the profit or loss
Income tax expense from continuing and discontinued operations
Current tax expense
Deferred tax benefit expense relating to the origination and reversal of temporary differences
Other adjustments recognised in the current year
Total income tax expense
Income tax expense from continuing and discontinued operations
Tax expense from continuing operations
Tax expense from discontinued operations
Total income tax expense
2017
$'m
(15.1)
(48.3)
(0.2)
(63.6)
(62.5)
(1.1)
(63.6)
2016
$'m
(13.5)
(60.0)
5.5
(68.0)
(66.9)
(1.1)
(68.0)
The income tax expense for the year from continuing and discontinued operations can be reconciled to the accounting profit
before tax as follows:
Income tax recognised in the income statement
Profit before income tax for continuing and discontinued operations
Continuing operations
Discontinued operations
Income tax calculated at 30%
Increase in income tax expense due to:
2017
$'m
225.1
(50.6)
174.5
2016
$'m
245.9
3.2
249.1
(52.4)
(74.7)
Effect of expenses that are not deductible in determining taxable profit
(17.6)
(1.5)
Decrease in income tax expense due to:
Effect of tax rate in foreign jurisdictions
Effect of non-assessable income
Adjustments recognised in the current year in relation to the current tax of prior years
Adjustments recognised in the current year in relation to the deferred tax of prior years
Other adjustments recognised in the current year
Income tax expense
Deferred tax
2.3
0.7
0.2
2.4
0.8
2.0
0.5
2.9
2.3
0.5
(63.6)
(68.0)
Arising from income and expenses recognised in other comprehensive income:
Fair value re-measurement of cash flow hedges
(3.3)
7.4
Current tax liabilities
Income tax payable
Income tax recognised directly to Equity
Equity raising costs
3.6
2.3
-
(0.2)
HEALTHSCOPE ANNUAL REPORT 2017 | 61
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 3: Income taxes (continued)
DEFERRED
TAX BALANCES
OPENING
BALANCE
CHARGED
TO INCOME
CHARGED TO OTHER
COMPREHENSIVE
INCOME
CHARGED
TO EQUITY
TRANSFERRED TO
ASSETS CLASSIFIED
AS HELD FOR SALE
CLOSING
BALANCE
$'m
$'m
$'m
$'m
$'m
$'m
2017
Gross Deferred Tax Liabilities
Property, plant and equipment
Intangibles
Inventories
Other
Derivative financial instruments
2017
Gross Deferred Tax Assets
Provisions
Accruals
Borrowing costs
Transaction costs
Borrowings (arising from hedge accounting)
Tax losses
Derivative financial instruments
Other
2016
Gross Deferred Tax Liabilities
Property, plant and equipment
Intangibles
Inventories
Other
Derivative financial instruments
2016
Gross Deferred Tax Assets
Provisions
Accruals
Borrowing costs
Transaction costs
Borrowings (arising from hedge accounting)
29.0
13.2
15.5
0.3
5.5
63.5
43.6
7.4
0.3
12.4
8.5
71.6
6.5
1.6
1.0
(1.0)
(0.8)
(0.1)
(9.0)
(9.9)
0.5
(1.0)
(0.2)
(4.1)
(9.4)
(44.1)
(0.5)
0.6
151.9
(58.2)
20.4
14.4
14.4
3.4
-
52.6
46.5
7.6
-
17.4
-
8.6
(1.2)
1.1
(3.1)
-
5.4
(2.9)
(0.2)
0.3
(4.8)
-
Tax losses
117.3
(45.7)
Derivative financial instruments
Other
2.1
2.9
193.8
-
(1.3)
(54.6)
-
-
-
-
(3.5)
(3.5)
-
-
-
-
(4.1)
-
(2.7)
-
(6.8)
-
-
-
-
5.5
5.5
-
-
-
-
8.5
-
4.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.2)
-
-
-
-
12.9
(0.2)
-
(0.7)
(0.2)
-
-
(0.9)
(0.7)
(0.1)
-
-
-
-
-
-
(0.8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2017
$'m
30.0
11.5
14.5
0.2
(7.0)
49.2
43.4
6.3
0.1
8.3
(5.0)
27.5
3.3
2.2
86.1
29.0
13.2
15.5
0.3
5.5
63.5
43.6
7.4
0.3
12.4
8.5
71.6
6.5
1.6
151.9
2016
$'m
The following deferred tax assets have not been brought to account as assets:
Tax losses - capital
33.2
33.6
62 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Key accounting policies
Income tax expense
Income tax expense comprises current tax (amounts payable within 12 months) and deferred tax (amounts payable or receivable
after 12 months). Tax expense is recognised in the profit or loss, unless it relates to items that have been recognised in equity
(as part of comprehensive income). In this instance, the related tax expense is also recognised in equity.
Current tax
Current tax is the expected tax payable on the taxable income for the year. It is calculated using tax rates applicable at the
reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax
Deferred tax is recognised for all taxable temporary differences and is calculated based on the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates
that are expected to be applied when the asset is realised or the liability is settled, based on the laws that have been enacted or
substantively enacted at the reporting date.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which
the assets can be utilised.
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group. As a result it is taxed as
a single entity. The head entity of the tax consolidated group is Healthscope Limited.
Accounting judgements
Recovery of deferred tax assets
In determining whether the future taxable losses are recoverable, the Group’s assumptions regarding future realisation may
change due to future operating performance and other factors. The Group performed an assessment of the impact of the
divestment of the Medical Centres business on the recoverability of deferred tax assets. In the Directors’ opinion, the divestment
of the Medical Centres business has not had an impact on the recoverability of deferred tax assets.
HEALTHSCOPE ANNUAL REPORT 2017 | 63
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 4: Trade and other assets and liabilities
Trade and other receivables
CURRENT
Trade receivables
Provision for doubtful debts
Goods and services tax recoverable
Other
NON-CURRENT
Receivable from NSW State Government1
2017
$'m
2016
$'m
161.2
(1.2)
160.0
4.6
1.2
141.5
(1.5)
140.0
4.3
1.4
165.8
145.7
298.3
123.0
1 The receivable is due upon completion of the NSW government review process following the commissioning of Northern Beaches Hospital which is currently scheduled to open in December 2018.
Age of trade receivables that are past due but not impaired
30 - 60 days
60 - 90 days
90 - 120 days
120 - 150 days
150 - 180 days +
Total
2017
$'m
2016
$'m
4.5
6.1
1.2
0.6
3.2
4.2
2.5
1.1
0.8
1.8
15.6
10.4
The average credit period for the provision of services is 28 days (2016: 28 days).
As at 30 June 2017 $112.1 million (2016: $111.3 million) of trade receivables were sold under the Receivables Securitisation
Program. The proceeds from the sale were used for working capital purposes.
64 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Trade and other payables
CURRENT
Trade creditors
Sundry creditors and accruals
Labour accruals
Capital accruals
NON-CURRENT
Rent received in advance1
2017
$'m
2016
$'m
107.8
107.0
67.2
43.7
32.9
74.0
39.5
25.7
251.6
246.2
23.8
18.4
1 Rent primarily represents rent received in advance in relation to the operating leases of certain hospital car parks and consulting suites.
The average credit period on purchases of goods is 30 days (2016: 30 days). No interest is charged on trade payables. The
Group has financial risk management policies in place to ensure that all payables are paid within the credit time-frame.
Key accounting policies
Trade and other receivables
Trade and other receivables are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to
initial measurement they are measured at amortised cost less any provisions for expected impairment losses or actual impairment
losses. Credit losses and recoveries of items previously written off are recognised in the profit or loss.
Trade and other payables
Trade and other payables are stated at cost and represent liabilities for goods and services provided to the Group prior to the
end of the financial year, which are unpaid at the reporting date.
Goods and services tax
Revenues, expenses, assets and liabilities (other than receivables and payables) are recognised net of the amount of goods
and services tax (GST). The only exception is where the amount of GST incurred is not recoverable from the relevant taxation
authorities. In these circumstances, the GST is recognised as part of the cost of asset or as part of the item of expenditure.
HEALTHSCOPE ANNUAL REPORT 2017 | 65
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 5: Earnings per share
Basic earnings per share (cents per share)
From continuing operations
From discontinued operations
Total basic earnings per share
Diluted earnings per share (cents per share)
From continuing operations
From discontinued operations
Total diluted earnings per share
(a) Reconciliation of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit / (Loss) for the year attributable to owners of the Company
- from continuing operations
- from discontinuing operations
Refer to below for further information on calculation of earnings per share:
(b) Weighted average number of shares used in calculating earnings per share
2017
2016
9.4
(3.0)
6.4
9.3
(3.0)
6.3
10.3
0.1
10.4
10.3
0.1
10.4
2017
$'m
2016
$'m
162.6
(51.7)
110.9
179.0
2.1
181.1
2017
2016
Number
'm
Number
'm
Weighted average number of ordinary shares used in calculating basic earnings per share
1,735.4
1,733.9
Adjustments for calculation of diluted earnings per share:
- LTI Performance rights
- STI Performance rights
3.9
1.6
2.9
0.9
Weighted average number of ordinary shares and potential ordinary shares used as denominator
in calculating diluted earnings per share
1,740.9
1,737.7
(c) Information concerning the classification of securities
Performance rights and share rights granted to participants are considered to be potential ordinary shares and have been
included in the determination of diluted earnings per share to the extent to which they are dilutive. The performance rights
and share rights have not been included in the determination of basic earnings per share.
66 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 6: Dividends
Fully paid ordinary shares
Interim dividend
Final dividend
Cents
per share
3.5
3.5
2017
$'m
60.7
60.9
Cents
per share
3.5
3.9
2016
$'m
60.7
67.7
On 23 August 2017, the Directors resolved to pay an unfranked dividend of 3.5 cents per share to the holders of fully paid
ordinary share in respect of the financial year ended 30 June 2017, to be paid to shareholders 28 September 2017. This dividend
has not been included as a liability in these consolidated financial statements. The total estimated dividend to be paid
is $60.9 million.
Key accounting policies
Dividends
The financial effect of the dividend is recognised in the reporting period in which the dividends are declared.
Note 7: Issued Capital
Balance at 1 July 2015
New shares issued
NUMBER OF
SHARES
SHARE CAPITAL
$'m
1,732,094,838
2,697.2
2,998,634
8.2
0.7
Adjustment to equity raising costs related to the IPO of Healthscope Limited net of tax
-
Balance at 30 June 2016 and 1 July 2017
1,735,093,472
2,706.1
New shares issued
946,442
2.1
Balance at 30 June 2017
1,736,039,914
2,708.2
Ordinary shares
Ordinary shares issued are classified as equity and are fully paid, have no par value and carry one vote per share and the right to
dividends. Incremental costs directly attributable to the issue of new shares are recognised as a deduction from equity, net of any
related income tax benefit.
Key accounting policies
Transaction costs on the issue of equity instruments
Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of
the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the
issue of those equity instruments and which would not have been incurred had those instruments not been issued.
HEALTHSCOPE ANNUAL REPORT 2017 | 67
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 8: Borrowings and other financial liabilities
CURRENT
Secured - at amortised cost
Finance lease liabilities
NON-CURRENT
Unsecured - at amortised cost
Bank loans
Capitalised facility costs
US Private Placement1
Capitalised facility costs
Secured - at amortised cost
Finance lease liabilities
Project finance
Capitalised facility costs
2017
$'m
2016
$'m
3.8
3.8
4.9
4.9
850.0
(3.6)
846.4
378.4
(2.7)
375.7
850.0
(5.1)
844.9
422.2
(3.1)
419.1
8.7
6.0
576.9
(5.3)
571.6
296.0
(9.0)
287.0
1,802.4
1,557.0
1 During the current financial year, there were no repayments of the principal. The movement relates to foreign exchange translation difference and fair value adjustments arising from the application
of hedge accounting.
Key accounting policies
Borrowing costs
Borrowings
Borrowings are initially measured at fair value, net of
transaction costs and are subsequently measured at
amortised cost using the effective interest method, with
interest recognised on an effective yield basis. However,
where an effective fair value hedge is in place, borrowings are
carried at amortised cost adjusted for the change in fair value
of the related interest rate hedge, which is recognised in profit
or loss.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant year. Refer to Note 18 for further
details of measuring fair value of interest-bearing loans and
borrowings.
Borrowing costs include interest on borrowings and the
amortisation of premiums relating to borrowings. Borrowing
costs are expensed as incurred, unless they relate to
qualifying assets. Where such costs relate to qualifying
assets, the borrowing costs are capitalised and depreciated
over the asset’s expected useful life.
Finance leases
Under the terms of a finance lease, the Group assumes most
of the risks and benefits associated with ownership of the
leased asset. Assets subject to finance leases are measured
at the present value of the minimum lease payments. The
leased asset is amortised on a straight-line basis over the
period that benefits are expected to flow from its use. A
corresponding liability is established for the lease payments.
Each lease payment is allocated between finance charges
and reduction of the liability.
Interest income
Interest income from a financial asset is recognised when it
is probable that the economic benefits will flow to the Group
and the amount of income can be measured reliably.
68 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
2017
2016
Drawn Unused
Total
Drawn Unused
Notes
$'m
$'m
$'m
$'m
$'m
Total
$'m
FINANCE FACILITIES
DENOMINATED IN AUD
Bank loans - Syndicated debt facility
(i)
850.0
300.0
1,150.0
850.0
300.0
1,150.0
- Facility A1
- Facility A2
- Facility A3
- Facility B
155.0
195.0
500.0
-
-
-
-
300.0
155.0
195.0
500.0
300.0
Project finance
Bank overdraft credit facility
(ii)
576.8
113.2
690.0
-
5.0
5.0
155.0
195.0
500.0
-
-
-
-
-
-
300.0
155.0
195.0
500.0
300.0
690.0
690.0
5.0
5.0
Receivables securitisation facility
(iii)
112.1
27.9
140.0
111.3
28.7
140.0
DENOMINATED IN USD
US Private Placement (USD)
Summary of borrowing arrangements
(i) Syndicated debt facility
Facility
Maturity date
- Facility A1
October 2019
- Facility A2
October 2019
- Facility A3
October 2020
- Facility B
October 2019
The unsecured syndicated facility was put in place on 1 July
2014 for an initial 3-year term. The facility was amended
on 30 October 2015 to increase the limit by $155.0 million
to $1,450.0 million through additional tranches of varying
maturities of up to 5 years. Subsequently, the proceeds from
the USPP debt were partially used to repay $300.0 million of
syndicated debt (Facility A4) which reduced the syndicated
facility to $1,150.0 million. This resulted in additional capacity
and extended tenor over a range of years to reduce the
financial risk at any point of refinance.
The syndicated facility is subject to financial undertakings as
to gearing and interest cover.
As at 30 June 2017 the Group has complied with the above
financial covenants and forecast to be able to continually
comply with these financial covenants during the course of
the 2018 financial year.
(ii) Project finance
Project finance relates to:
- Northern Beaches Private Hospital development: 5-year
limited recourse syndicated construction facility totalling
(iv)
300.0
-
300.0
300.0
-
300.0
$690.0 million, maturing 28 January 2020. This facility is
secured against entities of the Group which are not
obligors of the syndicated facility. Interest has been fixed
via the use of a designated Interest Rate Swap (further
details of which are set out in Note 9).
(iii) Receivables securitisation
Under the terms of the receivables securitisation facility,
the Group has de-recognised $112.1 million (2016: $111.3
million) of eligible receivables and used the proceeds for
working capital purposes. This facility was renewed during
the financial year. The facility now has a maturity date of 28
July 2019.
(iv) US Private Placement
On 23 March 2016, Healthscope entered into a commitment
to issue US$300 million of US Private Placement notes, which
were settled on 24 May 2016. The US Private Placement
comprises a single tranche of notes with a 10 year tenor,
maturing on 26 May 2026. The notes were issued in US
dollars at a fixed coupon. The notes were converted back to
Australian dollar principal and floating interest rate via a Cross
Currency Interest Rate Swap (further details of which are set
out in Note 9).
The US Private Placement is carried at amortised cost
translated at spot rate as at 30 June 2017, adjusted for
changes in the fair value of the related interest rate hedge.
The principal drawn is US$300.0 million which translates
to AU$390.1 million at spot rate as at 30 June 2017 (2016:
$404.0 million). The difference to the carrying amount of
$375.7 million (2016: $419.1 million) represents the fair value
adjustment arising from the application of hedge accounting.
HEALTHSCOPE ANNUAL REPORT 2017 | 69
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 9: Derivative financial instruments
DERIVATIVE FINANCIAL ASSETS
CURRENT ASSETS
Cross currency interest rate swaps
NON-CURRENT ASSETS
Cross currency interest rate swaps
DERIVATIVE FINANCIAL LIABILITIES
CURRENT LIABILITIES
Interest rate swaps
Cross currency interest rate swaps
NON-CURRENT LIABILITIES
Interest rate swaps
Cross currency interest rate swaps
2017
$'m
2016
$'m
-
-
8.1
2.6
10.7
3.0
20.8
23.8
1.8
16.5
8.8
-
8.8
13.0
-
13.0
Cross currency interest rate swaps
The cross currency interest rate swap has been used to convert the US Private Placement from US dollars at a fixed coupon,
to Australian dollars at floating rate. In effect, Healthscope will pay floating rate on AUD$395.1 million of principal over the term
of the arrangement.
The cross currency interest rate swap is stated at fair value and has been designated into a series of hedge relationships with
the US Private Placement (refer to Note 8).
Changes in the fair value of the US Private Placement and Cross Currency Interest Rate Swap attributable to:
- Interest rate movements: Are recognised in profit or loss (fair value hedge relationship).
- Currency and credit margin movements: Are recognised in equity (cash flow hedge relationship).
Interest rate swap contracts
The interest rate swaps have been used to fix the interest exposure associated with the project finance facility for the Northern
Beaches Private Hospital development which has a floating interest rate. In effect, Healthscope will pay fixed rate on amounts
drawn under the Project Finance facility in accordance with a stepped draw down profile.
The interest rate swaps are stated at fair value and have been designated into a hedge relationship with the project finance facility
(refer to Note 8).
To the extent the hedge relationship is “highly effective”, changes in the fair value of the interest rate swap are recognised in
equity. Amounts recognised in equity are reclassified into the statement of profit or loss when interest on the project finance
facility is recognised in the statement of profit or loss. Ineffectiveness is immediately recognised in the statement of profit or loss.
70 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Key accounting policies
Derivative financial instruments and hedge accounting
Derivative financial instruments are recognised initially at cost, and subsequently are stated at fair value. The method of
recognising any remeasurement gain or loss depends on the nature of the item being hedged.
For the purposes of hedge accounting, hedges are classified as either cash flow or fair value hedges. On entering into a hedging
relationship, the Group formally designates and documents details of the hedge, risk management objective and strategy for
entering into the arrangement. The Group applies hedge accounting to hedge relationships that are “highly effective”.
• Cash flow hedges are used to hedge exposure to variability in cash flows attributable to a particular risk associated with a
recognised asset or liability, or a highly probable forecast transaction.
Hedge effectiveness is measured by comparing the change in the fair value of the hedged item and the hedging instrument.
Any difference represents ineffectiveness. The effective portion of any gain or loss on the hedging instrument is recognised
directly in equity, with any ineffective portion recognised in the statement of profit or loss. For hedged items relating to financial
assets or liabilities, amounts recognised in equity are reclassified into the statement of profit or loss when the hedged
transaction affects the statement of profit or loss (i.e. when interest income or expense is recognised).
When a hedging instrument expires or is sold, terminated or exercised, or the designation of the hedge relationship is revoked
but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is
recognised in accordance with the above when the transaction occurs.
If the hedged transaction is no longer expected to take place, then the cumulative unrealised gain or loss recognised in equity
is recognised immediately in the statement of profit or loss.
• Fair value hedges are used to hedge the variability of changes in the fair value of a recognised asset or liability or an
unrecognised firm commitment. Any gain or loss on the derivative is recognised directly in the statement of profit or loss.
Issued accounting standards not early adopted
AASB 9 Financial Instruments is applicable to the Group from 1 July 2018. It includes revised guidance on classification and
measurement of financial instruments and new hedge accounting requirements including changes to hedge effectiveness testing,
treatment of hedging costs, risk components that can be hedged and disclosures. The Group did not early adopt this standard
when it was issued and the Group has not yet determined the extent of the impact of the amendments.
HEALTHSCOPE ANNUAL REPORT 2017 | 71
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 10: Notes to the consolidated statement of cash flows
(a) Reconciliation of cash and cash equivalents
For the purposes of the consolidated statement of cash flows, cash and cash equivalents includes cash on hand and in banks
and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of
the financial year as shown in the statement of cash flows are reconciled to the related items in the consolidated statement of
financial position as follows:
Cash and cash equivalents
Restricted cash1
Transferred to assets held for sale
Total cash and cash equivalents
1 Restricted cash can only be applied towards the development of Northern Beaches Hospital which is subject to separate funding arrangements.
2017
$'m
145.8
50.3
196.1
(0.2)
195.9
2016
$'m
200.6
78.2
278.8
-
278.8
72 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
(b) Reconciliation of net profit for the year to net cash flows from operating activities
Continuing and Discontinued Operations
Profit for the year
Non-cash flows in operating profit
- Depreciation and amortisation
- Income tax expense recognised in profit or loss
- Impairment of goodwill associated to the Medical Centres business
- Finance costs recognised in profit or loss
- Share of profit of associates and joint ventures
- Equity settled share based payments
- Other income and expense items
- Change in fair value of derivative financial instruments
- Gain on sale of assets
Changes in assets and liabilities
- Increase in receivables and other assets
- Increase in prepayments
- Decrease / (Increase) in consumable supplies at cost
- Increase to trade and other payables
- Increase to provisions
Cash generated by operating activities
Interest received
Interest paid
Other income and expense items
Income taxes paid
Net cash generated by operating activities
2017
$'m
2016
$'m
110.9
181.1
113.3
63.6
54.7
52.8
(2.1)
3.2
25.2
2.8
(0.8)
98.7
68.0
-
43.8
(2.0)
2.8
13.2
-
-
423.6
405.6
(16.6)
(0.2)
2.6
7.9
0.9
(38.5)
(1.4)
(4.7)
26.1
2.7
418.2
389.8
3.7
(54.1)
(23.1)
(13.7)
331.0
4.5
(47.9)
(8.6)
(13.4)
324.4
HEALTHSCOPE ANNUAL REPORT 2017 | 73
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 11: Property, plant and equipment
Movements in carrying amounts
Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the
current and previous financial year:
FREEHOLD LAND
BUILDINGS
LEASEHOLD
PLANT &
LEASED PLANT &
IMPROVEMENTS
EQUIPMENT
EQUIPMENT
CAPITAL WORK
IN PROGRESS
2017
Balance at 1 July 2016
Additions
Transfers
Depreciation - Continuing operations
Depreciation - Discontinued operations
Impairment of assets
Net disposals
Reclassified to assets held for sale
Effect of foreign currency exchange differences
Balance at 30 June 2017
2016
Balance at 1 July 2015
Acquisitions through business combinations
Additions
Transfers
Depreciation - Continuing operations
Depreciation - Discontinued operations
Net disposals
Effect of foreign currency exchange differences
Balance at 30 June 2016
$'m
257.2
-
-
-
-
-
-
-
-
$'m
899.2
71.4
3.4
(27.0)
-
-
-
-
-
257.2
947.0
224.9
3.2
-
31.3
-
-
(2.2)
-
257.2
603.8
32.9
13.3
271.9
(22.3)
-
(0.5)
0.1
899.2
The Directors believe that the carrying value of property, plant and equipment will be fully recovered through future use and
subsequent disposal.
Key accounting policies
Property, plant and equipment are measured at cost, less accumulated depreciation and any impairment losses. Subsequent
costs are included in the asset’s carrying amount, or recognised as a separate asset, 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.
The carrying amounts of assets are reviewed to determine if there is any indication of impairment. If any such indication exists,
these assets’ recoverable amounts are estimated and, if required, an impairment is recognised in the income statement. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
Borrowing costs in relation to the funding of qualifying assets are capitalised and included in the cost of asset. Qualifying assets
are assets that take more than 12 months to get ready for their intended use or sale. Where funds are borrowed generally, a
weighted average interest rate is used for the capitalisation of the interest.
74 | HEALTHSCOPE ANNUAL REPORT 2017
$'m
88.1
72.1
7.1
(8.0)
(0.9)
-
(0.1)
(6.6)
(0.1)
151.6
53.0
-
4.5
41.0
(7.4)
(1.0)
(2.9)
0.9
88.1
$'m
319.3
81.1
17.3
(62.0)
(1.5)
(11.5)
(1.7)
(4.7)
(2.8)
333.5
249.4
6.0
73.2
49.0
(52.7)
(2.2)
(4.6)
1.2
319.3
$'m
9.5
7.2
1.8
(5.4)
-
-
-
(0.8)
(0.6)
11.7
11.9
-
1.6
0.2
(4.3)
-
-
0.1
9.5
$'m
227.0
175.6
(29.6)
0.6
2.4
376.0
-
-
-
-
-
-
-
-
348.6
(393.4)
0.1
227.0
TOTAL
$'m
1,800.3
407.4
-
(102.4)
(2.4)
(11.5)
(2.0)
(11.3)
(1.1)
2,077.0
42.1
441.2
-
(86.7)
(3.2)
(10.2)
2.4
1,800.3
271.7
1,414.7
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 11: Property, plant and equipment
Movements in carrying amounts
current and previous financial year:
Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the
Balance at 1 July 2016
2017
Additions
Transfers
Depreciation - Continuing operations
Depreciation - Discontinued operations
Impairment of assets
Net disposals
Reclassified to assets held for sale
Effect of foreign currency exchange differences
Balance at 30 June 2017
2016
Balance at 1 July 2015
Acquisitions through business combinations
Additions
Transfers
Depreciation - Continuing operations
Depreciation - Discontinued operations
Net disposals
Effect of foreign currency exchange differences
Balance at 30 June 2016
257.2
947.0
$'m
257.2
-
-
-
-
-
-
-
-
-
-
-
-
224.9
3.2
31.3
(2.2)
257.2
$'m
899.2
71.4
3.4
(27.0)
-
-
-
-
-
603.8
32.9
13.3
271.9
(22.3)
-
(0.5)
0.1
899.2
FREEHOLD LAND
BUILDINGS
LEASEHOLD
IMPROVEMENTS
PLANT &
EQUIPMENT
LEASED PLANT &
EQUIPMENT
CAPITAL WORK
IN PROGRESS
$'m
88.1
72.1
7.1
(8.0)
(0.9)
-
(0.1)
(6.6)
(0.1)
151.6
53.0
-
4.5
41.0
(7.4)
(1.0)
(2.9)
0.9
88.1
$'m
319.3
81.1
17.3
(62.0)
(1.5)
(11.5)
(1.7)
(4.7)
(2.8)
333.5
249.4
6.0
73.2
49.0
(52.7)
(2.2)
(4.6)
1.2
319.3
$'m
9.5
7.2
1.8
(5.4)
-
-
(0.8)
-
(0.6)
11.7
11.9
-
1.6
0.2
(4.3)
-
-
0.1
9.5
$'m
227.0
175.6
(29.6)
-
-
-
0.6
-
2.4
TOTAL
$'m
1,800.3
407.4
-
(102.4)
(2.4)
(11.5)
(2.0)
(11.3)
(1.1)
376.0
2,077.0
271.7
-
348.6
(393.4)
-
-
-
0.1
227.0
1,414.7
42.1
441.2
-
(86.7)
(3.2)
(10.2)
2.4
1,800.3
Capital work in progress
Assets in the course of construction are carried at cost, less any recognised impairment loss. Cost includes professional fees
and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy.
Depreciation
Property, plant and equipment, other than freehold land, are depreciated on a straight-line basis. Freehold land is not
depreciated. Depreciation rates are calculated to spread the cost of asset (less any residual value), over its estimated useful life.
Residual value is the estimated value of the asset at the end of its useful life.
The ranges of depreciation rates used for each class of depreciable assets are:
Buildings
2% to 5%
Leasehold improvements
2% to 100%
Plant & equipment
5% to 50%
Leased assets
4% to 20%
HEALTHSCOPE ANNUAL REPORT 2017 | 75
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 12: Intangibles
2017
Balance at 1 July 2016
Additions
Disposals
Amortisation - Continuing operations
Amortisation - Discontinued operations
Reclassified to held for sale
Effect of foreign currency exchange differences
Balance as 30 June 2017
2016
Balance at 1 July 2015
Acquisitions through business combinations
Additions
Amortisation - Continuing operations
Amortisation - Discontinued operations
Fair value adjustment
Effect of foreign currency exchange differences
Balance as 30 June 2016
Allocation of goodwill
GOODWILL
$'m
1,784.2
-
-
-
-
(94.9)
-
1,689.3
1,736.6
34.9
-
-
-
-
12.7
1,784.2
CONTRACT
MANAGEMENT
RIGHTS
OPERATING
RIGHTS
CONTRACT
DEVELOPMENT
COSTS
$'m
42.4
-
-
(4.2)
-
-
0.2
38.4
47.3
-
-
(3.8)
-
(1.3)
0.2
42.4
$'m
3.3
1.3
(0.2)
-
(1.8)
(2.6)
-
-
4.7
-
0.7
-
(2.1)
-
-
3.3
TOTAL
$'m
$'m
13.7
1,843.6
-
-
(2.3)
-
-
-
1.3
(0.2)
(6.5)
(1.8)
(97.5)
0.2
11.4
1,739.1
14.4
1,803.0
-
0.5
(2.3)
-
-
1.1
34.9
1.2
(6.1)
(2.1)
(1.3)
14.0
13.7
1,843.6
For impairment testing purposes, the Group identifies its cash generating units (CGUs), which are the smallest identifiable group
of assets that generate cash inflows largely independent of the cash inflows of other assets or other groups of assets.
The gross carrying amount of goodwill allocated to the Group’s CGUs or group of CGUs are provided below:
Goodwill
2017
2016
HOSPITALS
AUSTRALIA
PATHOLOGY
NEW ZEALAND
OTHER1
DISCONTINUED
OPERATIONS2
$'m
1,427.2
1,427.2
$'m
177.6
177.6
$'m
84.5
84.5
$'m
-
94.9
TOTAL
$'m
1,689.3
1,784.2
1 Other comprises the cash generating units relating to the pathology businesses in Malaysia, Singapore and Vietnam.
2 Reflects goodwill attributable to the Medical Centres business which has been classified as part of assets held for sale. Refer to Note 13 for further details.
Key accounting policies
Contract management rights
Goodwill
Goodwill on acquisition is measured at cost less any
accumulated impairment losses. Goodwill is tested for
impairment annually, or more frequently if events or
circumstances indicate that they might be impaired.
Contract management rights acquired by the Group have
finite lives. They are stated at cost less accumulated
amortisation.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised
only when it increases the future economic benefits of the
asset to which it relates. All other expenditure is expensed as
incurred.
76 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Amortisation
For intangible assets with finite lives, amortisation is recognised in the profit or loss on a straight-line basis over their estimated
useful life. The estimated useful lives of intangible assets in this category are as follows:
Contract management rights
3 to 30 years
Operating rights
3 to 6 years
Contract development costs
5 to 12 years
Impairment of goodwill
The Healthscope Group performs an impairment assessment when there is an indication or trigger of a possible impairment
of its non-current assets. In addition, at least annually, the Healthscope Group performs an impairment review of goodwill and
indefinite life intangible assets, regardless of whether an impairment indicator has been identified. The annual review of goodwill
and indefinite life intangible assets was performed at 30 June 2017.
Impairment indicators
The results of the annual impairment test performed by management concluded that all continuing CGU’s had sufficient head
room as at 30 June 2017 and that no impairment was required.
Assets held for sale are measured at the lower of carrying value and fair value less costs to sell hence they have been excluded
from the annual impairment assessment.
Refer to note 13 for further details.
Impairment testing approach
Impairment testing compares the carrying value of a CGU with its recoverable amount based on the higher of its value in use
(present value of future cash flows) or fair value less costs to sell (net selling price).
The Group has prepared value-in-use models for the purpose of impairment testing of continuing CGUs as at 30 June 2017,
using five year discounted cash flow models. Cash flows beyond the five year period are extrapolated using a terminal value
growth rate. The Group’s impairment testing resulted in no impairment at 30 June 2017.
Assumptions
The assumptions used for determining the recoverable amount of each CGU are based on past experience and expectations
for the future. Cash flow projections are based on management’s forecasts. These forecasts require management estimates to
determine income, expenses, working capital movements, capital expenditure, and cash flows for each CGU. The projected cash
flows for each individual CGU are discounted using an appropriate discount rate and terminal growth rate unique to each CGU.
The following assumptions were used in determining the recoverable amount of each cash generation unit based on value in
use as at 30 June 2017.
• 2017/2018 Board approved profit and loss and cash flow budgets for each cash-generating unit;
• Inherent growth factors consistent with current performance for each CGU;
2017
2016
HOSPITALS
AUSTRALIA
PATHOLOGY NEW
ZEALAND
2.5 – 3.5%
4.0 – 5.0%
3.0 – 4.0%
2.5 – 3.5%
PATHOLOGY
SINGAPORE
2.5 – 3.5%
2.5 – 3.5%
PATHOLOGY
MALAYSIA
2.5 – 3.5%
1.5 – 2.5%
• Prevailing market based pre-tax discount rates for the Group’s CGUs are as follows:
Hospitals 10.1% (2016: 8.7%), Pathology New Zealand 11.5% (2016: 9.3%), Pathology Singapore 10.4% (2016: 10.6%),
and Pathology Malaysia 12.7% (2016: 10.6%);
• Cash flow projections covering a five-year period and terminal value; and
• Terminal growth factors have been set at:
Hospitals 2.5% (2016: 3.0%), Pathology New Zealand 2.5% (2016: 2.5%), Pathology Singapore 2.0% (2016: 2.0%),
and Pathology Malaysia 2.0% (2016: 2.0%).
HEALTHSCOPE ANNUAL REPORT 2017 | 77
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 12: Intangibles (continued)
Accounting judgements
The Group is required to make significant estimates and judgements in determining whether the carrying amount of its assets
and / or CGUs has any indication of impairment, in particular in relation to:
• key assumptions used in forecasting future cash flows;
• discount rates applied to those cash flows; and
• the expected long term growth in cash flows.
Such estimates and judgements are subject to change as a result of changing economic and operational conditions. Actual cash
flows may therefore differ from forecasts and could result in changes in the recognition of impairment charges in future periods.
Note 13: Assets classified as held for sale
As at 30 June 2017, Healthscope was in the process of disposing its interests in Healthscope Medical Centres Pty Limited and
Sydney Breast Clinic Pty Limited, otherwise referred to as the standalone Medical Centres business. As a result, the Medical
Centres business has been classified as ‘held for sale’ and presented as a ‘discontinued operation’. On 17 August 2017,
Healthscope entered into an agreement with Fullerton Primary Care Pty Limited to sell the operations for $55 million, subject to
standard completion adjustments.
The fair value less costs to sell of the business unit was lower than the aggregate carrying amount of the related assets and
liabilities. Therefore an impairment charge of $54.7 million was recognised on reclassification of the asset and liabilities as held
for sale as at 30 June 2017.
The major classes of assets and liabilities of the intended disposal are:
Carrying value of net assets classified as held for sale
Impairment loss on re-measurement to fair value less costs to sell
Fair value of net assets classified as held for sale
Receivables
Inventories
Property, plant and equipment
Intangibles (net of impairment)
Cash and bank balances
Deferred tax assets
Other assets
Assets held for sale
Payables
Deferred tax liabilities
Other liabilities
Liabilities associated with assets held for sale
2017
$'m
107.2
(54.7)
52.5
2.4
0.7
11.3
42.8
0.2
0.8
0.6
58.8
(3.0)
(0.9)
(2.4)
(6.3)
The fair value of net assets classified as held for sale have been disclosed in the statement of financial position as follows:
Current assets
Current liabilities
78 | HEALTHSCOPE ANNUAL REPORT 2017
58.8
(6.3)
52.5
Notes to the consolidated financial statements
for the year ended 30 June 2017
The impairment loss of $54.7 million has been recognised against the intangible assets held by the standalone Medical Centres
business.
Before the application of the impairment loss, Medical Centres held intangible assets of $97.5 million, comprising goodwill of
$94.9 million and operating rights of $2.6 million. The reclassification of these amounts from ‘intangibles’ to ‘assets held for sale’
is reflected in Note 12.
Note 14: Commitments
(a) Capital expenditure commitments
Capital expenditure committed but not provided for and payable:
- Not longer than 1 year
- Longer than 1 year but no longer than 5 years
- Longer than 5 years
2017
$'m
380.2
313.0
-
2016
$'m
593.6
600.3
-
693.2
1,193.9
The capital commitments relate to the development of the Northern Beaches Hospital and various Brownfield developments.
(b) Operating lease commitments
Non-cancellable operating leases contracted for but not capitalised:
Payable:
- Not later than 1 year1
- Later than 1 year but no later than 5 years1
- Later than 5 years1
2017
$'m
2016
$'m
32.0
119.4
324.3
475.7
42.8
99.4
86.5
228.7
1 The operating lease commitments for the current year include long term leases for the Frankston Private Hospital and Holmesglen Private Hospital. The comparatives include the Medical Centres
business, however the current year figures exclude them due to the sale process of the Medical Centres business.
Operating leases relate to properties leased by the Group with lease terms between 1 and 30 years. (2016: 1 and 30 years). All
operating leases contain market review clauses in the event that the lessee exercises its option to renew.
Note 15: Contingent liabilities
Estimates of material amounts of contingent liabilities not provided for:
Bank guarantees to various Workcover authorities
Bank guarantee in respect of Northern Beaches development
Bank guarantees in respect of property leases
2017
$'m
2016
$'m
12.3
8.5
161.8
161.8
11.8
12.0
The Directors are of the opinion that no additional provisions are required in respect of these matters, as it is either not probable
that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
HEALTHSCOPE ANNUAL REPORT 2017 | 79
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 16: Provisions
CURRENT
Employee benefits1
Medical malpractice insurance2
Onerous lease contracts and related costs3
Other
NON-CURRENT
Employee benefits
Onerous lease contracts3
Summary of provisions
2017
$'m
2016
$'m
110.7
105.9
6.8
2.3
3.7
6.8
5.8
3.4
123.5
121.9
21.8
9.2
31.0
23.1
8.4
31.5
1 The current provision for employee entitlements is calculated using probability models of employees reaching vesting dates. The calculations are based on pattern of leave taken and are grossed up
for future pay rates, discounted to present value at appropriate discount rates.
2 The provision for medical malpractice insurance represents the present value of the estimated future outflow of economic benefits that may be required to be made to meet malpractice claims made
against the Group.
3 The provision for onerous lease contracts represents the present value of the future lease payments that the Group is presently obligated to make under non-cancellable onerous operating lease
contracts, less revenue expected to be earned on the lease including estimated future sub-lease revenue, where applicable.
Key accounting policies
Accounting judgements
Provisions
Employee entitlements
Provisions are measured at management’s estimate of the
expenditure required to settle the obligation. This estimate
is based on “present value” calculation, which involves the
application of a discount rate to the expected future cash
flows associated with settlement.
Employee entitlements
Provisions are made for liabilities to employees for annual
leave, long service leave and other employee entitlements.
Where the payment to employees is expected to take place
in 12 months’ time or later, a present value calculation is
performed. In this instance, the corporate bond rate is used
to discount the liability to its present value.
Onerous lease contracts
An onerous contract is considered to exist where the Group
has a contract under which the unavoidable costs of meeting
the obligations under the contract exceed the economic
benefits expected to be received under it.
Management judgement is applied in determining the
following key assumptions used in the calculation of long
service leave at balance date:
• Future increases in wages and salaries;
• Future on-cost rates;
• Experience of employee departures and year of service;
and
• Appropriate discount rate to reflect long term liabilities at
present value.
Medical Malpractice Insurance
During the year, management performed the regular review
of the medical malpractice insurance claims provision across
the Group, which is included in the consolidated statement
of financial position as at 30 June 2017 at $6.8 million (2016:
$6.8 million).The provision represents the present value of
the estimated future outflow of economic benefits that may
be required to be made to meet malpractice claims made
against the Group. The following key assumptions are used in
determining the provision:
• Appropriate discount rate; and
• Forecast and review of plaintiff’s claim.
80 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
The following key assumptions are used in determining the
provision related to onerous lease contracts:
• Appropriate discount rate to reflect the long term liabilities
at present value; and
• Ability to sub-lease the premises subject to onerous lease
contract.
Onerous lease contracts
The onerous lease contract provision has been derived
on the basis of the most recent assessment of the likely
net unavoidable cost to the end of the contract term.
Management have considered the future costs of the contract
which can be determined with a high degree of accuracy.
However, the future economic benefits expected to be
received are based on forecasts. Management consider the
liability to be the best estimate of the net unavoidable costs
as at 30 June 2017.
Note 17: Financial instruments
Capital management
The Group’s objectives when managing capital are to ensure the Group continues as a going concern while providing optimal
returns to shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of
capital. 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.
Management reviews the capital structure of the Group on a regular basis. As part of this review, the cost of capital and the risks
associated with each class of capital is considered. The Group is not subject to any regulatory capital requirements.
The gearing ratio at year-end was as follows:
Borrowings - current
Borrowings - non-current
Add back:
USPP - Fair value adjustment associated with hedge accounting
Capitalised facility costs
Debt1
Cash and cash equivalents
Net debt
Equity2
Net debt + equity
Net debt / (Net debt + equity)
2017
$'m
3.8
2016
$'m
4.9
1,802.4
1,557.0
1,806.2
1,561.9
11.7
11.6
(18.2)
17.2
1,829.5
1,560.9
(195.9)
(278.8)
1,633.6
1,282.1
2,367.7
2,372.7
4,001.3
3,654.8
41%
35%
1 Debt is defined as long and short-term borrowings (excluding derivatives, fair value adjustments associated with hedge accounting and capitalised facility costs), as detailed in Note 8.
2 Equity includes all capital and reserves of the Group that are managed as capital.
HEALTHSCOPE ANNUAL REPORT 2017 | 81
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 17: Financial
instruments (continued)
Risk management
(c) Credit risk
The Group’s credit risk arises in relation to cash and cash
equivalents, receivables, financial liabilities and liabilities under
financial guarantees.
The Group’s principal financial instruments, other than
derivatives, comprise cash, short term deposits, and interest
bearing liabilities. The main purpose of these financial
instruments is to raise finance for the Group’s operations. The
Group also has various other financial assets and liabilities
which arise directly from its operations.
Credit risk on financial assets which have been recognised on
the balance sheet, is the carrying amount less any allowance
for non-recovery. The Group actively manages this exposure
by dealing only with counterparties with good credit standing
and not having any significant credit risk with any single
counterparty.
Credit risk associated with financial liabilities arises from the
potential failure of counterparties to meet their obligations
under the contract or arrangement. The Group’s maximum
credit risk exposure in respect of derivative contracts is
detailed in the liquidity risk table below.
Credit risk includes liabilities under financial guarantees.
For financial guarantee contract liabilities the fair value at
initial recognition is determined using a probability weighted
discounted cash flow approach. The fair value of financial
guarantee contract liabilities has been assessed as nil (2016:
nil), as the possibility of an outflow occurring is considered
remote. Details of the financial guarantee contracts at balance
date are outlined below:
Deed of cross guarantee
The Company has entered into a deed of cross guarantee as
outlined in Note 24.
Guarantees and indemnities
Entities in the Group are called upon to give in the ordinary
course of business, guarantees and indemnities in respect of
the performance of their contractual and financial obligations.
(d) Liquidity risk
Liquidity risk arises from the financial liabilities of the Group
and the Group’s subsequent ability to meet its obligations to
repay its financial liabilities as and when they fall due.
The contractual undiscounted cash flows, including principal
and estimated interest payments, of non-derivative financial
instruments and derivative financial instruments in existence
at year end are as follows:
The Group uses derivative financial instruments to hedge
its exposure to foreign exchange and interest rate risks
arising from operational, financing and investment activities,
principally interest rate swaps and cross currency swaps. The
Group does not hold or issue derivative financial instruments
for trading purposes.
The main risks arising from the Group’s financial instruments
are interest rate risk, foreign currency risk, credit risk and
liquidity risk, these are discussed below.
(a) Interest rate risk
The Group has a policy of managing exposure to interest rate
fluctuations by the use of fixed rate debt and interest rate
swaps. Further details regarding the Group’s approach to
managing interest rate risk are discussed in Note 9.
The Group’s exposures to interest rates on financial assets
and financial liabilities are detailed in the liquidity risk
management section of this note.
Interest rate sensitivity analysis
With all other variables held constant, a 1% increase in
interest rates would reduce profit after tax by $8.8 million
(2016: $7.8 million) reflecting the impact of higher interest
rates on variable rate debt. A 1% decrease in interest rates
would result in a corresponding $8.8 million increase in profit
after tax (2016: $7.8 million).
(b) Foreign currency risk
The Group’s primary currency exposure is to US dollars as a
result of issuing US Private Placement debt. In order to hedge
this exposure, the Group has entered into cross currency
swaps to fix the exchange rate on the USD debt until maturity.
The Group agrees to pay a fixed USD amount in exchange for
an agreed AUD amount with swap counterparties, and to re-
exchange this again at maturity. These swaps are designated
to hedge the principal and interest obligations of the US
private placement debt.
82 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
2017
Non-derivative financial instruments
Trade creditors and accrued expenses
Variable interest rate instruments
Fixed interest rate instruments
Finance lease liability
Financial guarantees
Derivative financial instruments
Interest rate swaps
Cross currency swaps
2016
Non-derivative financial instruments
Trade creditors and accrued expenses
Variable interest rate instruments
Fixed interest rate instruments
Finance lease liability
Financial guarantees
Derivative financial instruments
Interest rate swaps
Cross currency swaps
WEIGHTED AVERAGE
EFFECTIVE INTEREST
RATE
LESS THAN
1 YEAR
1-5 YEARS
5+ YEARS
TOTAL
$'m
$'m
$'m
$'m
$'m
3.80%
4.43%
4.18%
251.6
60.2
16.4
3.8
1.1
-
1,315.2
81.8
8.0
179.6
-
-
251.6
1,375.4
453.1
0.7
5.2
551.3
12.5
185.9
8.2
1.3
3.0
6.4
-
3.8
11.2
11.5
342.6
1,594.0
462.8
2,399.4
4.36%
4.70%
6.25%
236.5
36.5
16.4
4.9
0.7
-
1,094.1
65.5
5.9
113.6
-
-
236.5
1,130.6
485.8
0.1
5.6
567.7
10.9
119.9
5.4
2.0
9.2
8.2
-
10.2
14.6
20.4
302.4
1,296.5
501.7
2,100.6
For variable interest rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing
date. For foreign currency receipts and payments, the amount disclosed is determined by reference to the USD/AUD rate at
balance date.
HEALTHSCOPE ANNUAL REPORT 2017 | 83
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 18: Fair value measurement
The financial instruments included on the Consolidated Statement of Financial Position are measured at either fair value or
amortised cost. The measurement of this fair value may in some cases be subjective and may depend on the inputs used in the
calculations.
The Group generally uses external valuations based on market inputs or market values. The different valuation methods are
called ‘hierarchies’ and are described below.
• Level 1: calculated using quoted prices in active markets.
• Level 2: estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices).
• Level 3: estimated using inputs for the asset or liability that are not based on observable market data.
All financial instruments are recognised at amounts that represent a reasonable approximation of fair value, with the exception
of the following borrowings:
Borrowings
US Private Placement (AUD)
2017
2016
CARRYING
AMOUNT
FAIR VALUE
CARRYING
AMOUNT
FAIR VALUE
$'m
375.7
$'m
414.1
$'m
419.1
$'m
410.8
The fair value of the Group’s financial instruments are estimated as follows:
Borrowings
Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates
are based on market data at balance date, in combination with restatement to foreign exchange rates at balance date (level 2 in
fair value hierarchy).
Derivative financial instruments
Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates
are based on market data at balance date (level 2 in fair value hierarchy). Refer to Note 9 for further details.
Promissory note
Healthscope is a party to a promissory note receivable in connection with the sale of the Australian Pathology business. The
balance is presented as non-current other financial assets in the Consolidated Statement of Financial Position.
The fair value of promissory note is determined using option pricing models where the main assumptions are the probability
of default by the specified counterparty from market based information (level 3 in fair value hierarchy).
There were no transfers between Level 1 and Level 2 during the year.
84 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 19: Share based payments
The Group has an ownership based remuneration strategy which provides certain senior management (including Senior
Executives) with the opportunity to receive equity instruments as a component of their short and / or long term remuneration.
Long Term Incentive Plan (LTI Plan) – LTI Performance Rights
Healthscope has a Long Term Incentive Plan (LTI Plan) which is available to senior executives. In accordance with the provisions
of the LTI Plan, senior executives may become entitled to LTI Performance Rights, which entitle the holder to acquire one ordinary
share in Healthscope on satisfaction of LTI performance conditions.
The LTI Performance Rights are granted at no cost to the participants as they form part of their remuneration.
The dilutive effect, if any, of outstanding LTI Performance Rights is reflected in the computation of diluted earnings per share.
Further explanation of the LTI Plan is disclosed in the Remuneration Report, including details of performance conditions relevant
to the LTI Performance Rights.
Deferred Short Term Incentives (Deferred STI) – STI Performance Rights
In 2016, Healthscope introduced a deferred equity component for senior management (including Senior Executives) entitled to
STI reward. This new component results in between 30-50% of any relevant STI award being granted as STI Performance Rights.
The STI Performance Rights entitle the holder to acquire one ordinary share in Healthscope at the completion of a two year
deferral period, subject to continued employment. There are no further performance measures.
STI Performance Rights are granted at no cost and no payment is required to be made in order for the STI Performance Rights to
vest and for participants to receive shares. Any STI Performance Rights that do not vest will automatically lapse.
At the date of this Report, the actual number of STI Performance Rights related to 2017 cannot be calculated and have not yet
been issued. Based on the share price of the Company as at 30 June 2017 ($2.21), 887,718 STI Performance Rights would be
issued. This number has been used for the purposes of calculating diluted earnings per share in Note 5.
The actual number of STI Performance Rights issued to senior management in relation to FY17 will be reported to shareholders
in the Company’s 2018 Financial Report.
Further explanation of the STI Plan is disclosed in the Remuneration Report.
Performance Rights held at the end of the year:
PERFORMANCE
RIGHT SERIES
NUMBER OF
RIGHTS
GRANT
DATE
VESTING
DATE
EXPIRY
DATE
EXERCISE
PRICE
FAIR VALUE AT
GRANT DATE
LTI July 2014
1,706,433
28/07/2014
30/06/2017
30/06/2017
LTI October 2015
1,175,597
30/10/2015
30/06/2018
30/06/2018
LTI November 2015
697,925
24/11/2015
30/06/2018
30/06/2018
LTI October 2016
1,619,198
21/10/2016
30/06/2019
30/06/2019
STI October 2016
STI October 2016
LTI May 2017
LTI May 2017
443,063
27/10/2016
30/06/2018
30/06/2018
443,253
27/10/2016
30/06/2018
30/06/2018
444,836
15/05/2017
15/05/2019
15/05/2019
355,872
15/05/2017
15/05/2020
15/05/2020
-
-
-
-
-
-
-
-
$1.67
$2.18
$2.31
$1.84
$3.04
$3.04
$2.02
$1.95
Movement in Performance Rights held during the year:
Balance at the beginning of the year
- Number issued during the financial year
Balance at the end of the year
Exercisable at 30 June 2017
2017
NUMBER
3,579,955
3,306,222
6,886,177
-
2016
NUMBER
1,706,433
1,873,522
3,579,955
-
There were no other transactions affecting Performance Rights held during the current or prior financial year.
HEALTHSCOPE ANNUAL REPORT 2017 | 85
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 19: Share based payments (continued)
Fair value of LTI Performance Rights
The fair value of LTI Performance Rights is measured at grant date and is recognised as an employee expense (with a
corresponding increase in equity) over the relevent vesting period, being the period between grant date and vesting date. A
reversal of the expense is only recognised in the event the instruments lapse due to cessation of employment within the three
year period.
The fair value of the LTI Performance Rights is determined by an external valuer and takes into account the terms and conditions
upon which they were granted. The valuation was conducted using a Monte Carlo simulation for the TSR performance hurdle
and a Black Scholes valuation model for the EPS performance hurdle.
The assumptions underlying the valuation of the LTI Performance Rights are:
INPUTS INTO THE 2017 PERFORMANCE RIGHT PRICING MODEL
Grant date
Grant date share price
Exercise price
Estimated Volatility
Expected life
Risk free interest rate
Dividend yield
21 October 2016
15 May 2017
15 May 2017
$2.38
$0.00
$2.17
$0.00
$2.17
$0.00
30% Not applicable
Not applicable
2.7 years
2.0 years
3.0 years
1.68%
3.0%
1.66%
3.5%
1.80%
3.5%
The weighted average fair value of the LTI Performance Rights granted during the financial year is $1.89 (2016: $2.23).
Expenses arising from share-based payment transactions
LTI Performance Rights - Current period expense
LTI Performance Rights - Prior period expense write back
STI Performance Rights
Total
Key accounting policies
2017
$'m
3.4
(1.5)
1.3
3.2
2016
$'m
2.0
-
0.8
2.8
The rights to share granted to employees under the terms of the incentive plans in operation are measured at fair value. The fair
value is recognised as an employee expense over the period that employees become unconditionally entitled to the rights. There
is a corresponding increase in equity, which is reflected in the share based payments reserve.
The amount recognised as an expense is adjusted to reflect the actual number of rights taken up, once related service and other
non-market conditions are met.
86 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 20: Changes in the composition of the Healthscope Group
Acquisitions during the year
There were no acquisitions during the financial year ended 30 June 2017.
Discontinued operations
Discontinued operations for the year ended 30 June 2017
On 17 August 2017 Healthscope entered into an agreement with Fullerton Primary Care Pty Limited to sell its standalone medical
centres for $55 million, subject to standard completion adjustments. The divestment is scheduled to complete by the end of
September 2017.
An impairment loss of $54.7 million has been recognised in order to reduce the carrying value of the assets and liabilities held by
the Medical Centres business to their fair value less costs to sell. See Note 13 for further details.
As Healthscope were in the process of disposing the standalone Medical Centres business as at 30 June 2017, the assets and
liabilities of the Medical Centres business have been classified as 'held for sale’ whilst the financial results of the business have
been presented as a ‘discontinued operation’ as set out below.
Discontinued operations for the year ended 30 June 2016
On 6 July 2015, Healthscope completed the sale of its Australian Pathology operations and six skin clinics (“Pathology Australia”)
to Crescent Capital Partners. As Healthscope sold the business during the year ended 30 June 2016, the trading results of the
business for the period 1 July 2015 to 6 July 2015 have been reflected in the financial report as a discontinued operation.
Analysis of results for the year from discontinued operations
Revenue
Expenses
Impairment of Medical Centres business
(Loss) / Profit before finance costs and income tax
Net finance costs
(Loss) / Profit before income tax
Income tax expense
Net (loss) / profit for the year from discontinued operations
2017
$'m
54.3
(50.2)
(54.7)
(50.6)
-
(50.6)
(1.1)
(51.7)
2016
$'m
61.0
(57.8)
-
3.2
-
3.2
(1.1)
2.1
Reconciliation of statutory net profit from discontinued operations to operating earnings before finance costs, income tax,
depreciation and amortisation (Operating EBITDA)
Net (loss) / profit for the year from discontinued operations
(51.7)
2.1
Add back:
Income tax expense
Net finance costs
Depreciation and amortisation
Other income and expense items:
- Impairment of Medical Centres business
- Other
Operating EBITDA from discontinued operations
Medical Centres
Pathology Australia
Operating EBITDA from discontinued operations
1.1
-
4.2
54.7
0.5
8.8
8.8
-
8.8
1.1
-
5.3
-
0.2
8.7
10.5
(1.8)
8.7
HEALTHSCOPE ANNUAL REPORT 2017 | 87
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 21: Key management personnel compensation and related parties
The compensation provided to key management personnel of the Group is set out below:
Short term employment benefits
Share based payments - Current period expense
Share based payments - Prior period expense write back
Post-employment benefits
2017
$'m
3.9
2.7
(1.2)
0.2
5.6
2016
$'m
5.3
1.8
-
0.2
7.3
Determination of key management personnel and detailed remuneration disclosures are provided in the Remuneration Report.
Loans to key management personnel and their related parties
In the year ended 30 June 2017, there were no loans to key management personnel and their related parties (2016: nil).
Transactions with related parties
Details of all entities within the consolidated group are disclosed in Note 24. There were no transactions between the
related parties that require disclosure.
Note 22: Auditor's remuneration
Auditor of the parent entity
Audit or review of the financial report
Agreed upon procedures and other assurance services
Corporate governance advisory services
Network firm of the parent entity auditor
Audit or review of the financial statements
Other assurance services
2017
$
2016
$
615,000
610,200
102,000
35,000
52,500
50,000
752,000
712,700
227,080
218,000
-
-
979,080
930,700
All amounts were paid to Deloitte or Deloitte affiliated firms.
The auditor of the Group is Deloitte Touche Tohmatsu. From time to time, the auditors provide other services to the Group.
These services are subject to strict corporate governance procedures which encompass the selection of service providers and
the setting of their remuneration.
88 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 23: Events subsequent to reporting date
On 17 August 2017, Healthscope entered into a binding agreement to divest its standalone Medical Centres business to
Fullerton Primary Care Pty Limited for cash consideration of $55 million. An impairment of $54.7 million was recognised in
the Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2017 as the sale clarified
the recoverable amount of the business which is classified as ‘held for sale’ in the Statement of Financial Position as at 30
June 2017.
Other than the above, there has not been any matter or circumstance occurring subsequent to the end of the financial year that
has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of
affairs of the Group in subsequent financial periods other than the dividend declared in Note 6.
HEALTHSCOPE ANNUAL REPORT 2017 | 89
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 24: Entites within the consolidated group
The parent entity of the Group is Healthscope Limited.
As at the end of the year, the following wholly owned subsidiaries of the Group were incorporated in Australia:
Advanced Medical
Technology Pty. Ltd.
Allamanda Private
Hospital Pty. Ltd.
APHG No. 2
Holdings 3 Pty. Ltd.
APHG No. 2
Pty. Ltd.
Asia Pacific Healthcare
Group Pty. Ltd.
Australian Hospital Care
(Como) Pty. Ltd.
Australian Hospital Care
(Dorset) Pty. Ltd.
Australian Hospital Care
(Knox) Pty. Ltd.
Australian Hospital
Care Davidson)
Pty. Ltd.
Australian Hospital Care
(Ringwood) Pty. Ltd.
Brisbane Private
Hospital Pty. Ltd.
Darwin Private
Hospital Pty. Ltd.
E-Clinic Pty. Ltd.
FHIC Pty. Ltd.
FPH Operations
Pty. Ltd.
GCPH HoldCo
Pty. Ltd.
Healthscope (Tasmania
Finance) Pty. Ltd.
Healthscope (Tasmania)
Pty. Ltd.
Healthscope Diagnostic
Imaging Pty. Ltd.
Healthscope
Finance Pty. Ltd.
Healthscope Hospitals
Holdings No. 2
Pty. Ltd.
Healthscope Hospitals
International Pty Ltd
Healthscope Medical
Centres Pty. Ltd.
Healthscope
Operations Pty Ltd
Healthscope Pathology
Holdings No. 2 Pty. Ltd.
Healthscope Pathology
Holdings Pty. Ltd.
Healthscope South
Australia Pty. Ltd.
Holmesglen Private
Hospital Pty. Ltd.
La Trobe Private
Hospital Pty. Ltd.
Maybury Craft
Pty. Ltd.
Mazlin Investments
Pty. Ltd.
Melbourne Hospital
Pty. Limited
NBH Borrower
Pty Ltd
NBH Car Park
Operator Pty Ltd
NBH HoldCo 1
Pty Ltd
NBH HoldCo 2
Pty Ltd
NBH Operator B
Pty Ltd
NBH Operator Co
Pty Ltd
Newcastle Private
Hospital Pty. Ltd.
P.O.W Hospital
Pty. Ltd.
Pacific Private
Hospital Pty. Ltd.
QPH Wickham
Pty. Ltd.
Sydney Breast Clinic
Pty. Ltd.
The Gribbles
Group Pty. Ltd.
The Victorian
Rehabilitation Centre
Pty. Ltd.
Tweed Surgicentre
Pty. Ltd.
ABN 154 902 913
Pty. Ltd.3
Nova Health Pty. Ltd.3
The Hunter Valley
Private Hospital
Pty. Ltd.
HCA Holdings
(Southport) Pty. Ltd.3
HCA Management
Company Pty. Ltd.3
Allamanda
Surgicentre Pty. Ltd.3
Healthcare of Australia
Holdings Pty. Ltd.3
Molescan Australia
Pty. Ltd.3
Skin Alert
Pty. Ltd.3
The Australian entities listed above formed part of the tax consolidation group1 and Deed of Cross Guarantee2.
1 Except for NBH Borrower Pty Ltd, NBH Carpark Operator Pty Ltd, NBH Holdco 1 Pty Ltd, NBH Operator B Pty Ltd and NBH Operator Co Pty Ltd.
2 Except for ABN 154 902 913 Pty. Ltd., NBH Borrower Pty Ltd, NBH Carpark Operator Pty Ltd, NBH Holdco 1 Pty Ltd, NBH Holdco 2 Pty Ltd, NBH Operator B Pty Ltd, NBH Operator Co Pty Ltd.,
Nova Health Pty. Ltd., HCA Holdings (Southport) Pty. Ltd., HCA Management Company Pty. Ltd., Allamanda Private Hospital Pty. Ltd., Allamanda Surgicentre Pty. Ltd., Healthcare of Australia
Holdings Pty. Ltd., Molescan Australia Pty. Ltd. and Skin Alert Pty. Ltd.
3 Applications have been made to ASIC to voluntarily deregister these dormant entities. ASIC published deregistration notices for these entities on 2 June 2017.
90 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
As at the end of the year, the following wholly owned subsidiaries of the Group were incorporated overseas:
NAME OF ENTITY
COUNTRY OF
INCORPORATION
Canterbury SCL Limited
New Zealand
NAME OF ENTITY
Gribbles Veterinary
Pathology Limited
COUNTRY OF
INCORPORATION
New Zealand
Labtests Limited
New Zealand
Labtests Auckland Ltd
New Zealand
New Zealand Diagnostic
Group Limited
New Zealand
Medlab South Limited
New Zealand
SCL Hawkes Bay Limited
New Zealand
SCL Otago
Southland Limited
Southern Community
Laboratories Limited
APHG NZ
Investments Limited1
Gribbles Cytology
Services SDN. BHD.
New Zealand
New Zealand
Malaysia
Quest Laboratories Pte Ltd
Singapore
Northland Pathology
Laboratory Limited
SCL Otago Southland
Code Services Limited
SCL Otago Southland
Services Limited
New Zealand
New Zealand
New Zealand
New Zealand
Wellington SCL Limited1
New Zealand
Gribbles Pathology
(Malaysia) SDN. BHD.
Quest Laboratories
Vietnam Co., Ltd
Malaysia
Vietnam
1 Effective 12 May 2017, the following New Zealand companies were amalgamated pursuant to section 222(1) of the NZ Companies Act 1993:
• Healthscope New Zealand Ltd into APHG NZ Investments Limited; and
• Aotea Pathology Ltd into Wellington SCL Limited.
HEALTHSCOPE ANNUAL REPORT 2017 | 91
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 24: Entites within the consolidated group (continued)
Deed of Cross Guarantee
The consolidated statement of financial position and income statements of the entities part to the deed of cross guarantee are:
2017
$'m
2016
$'m
136.4
123.9
48.5
14.5
4.1
212.8
108.6
51.7
14.4
-
327.4
387.5
241.4
8.1
115.9
24.7
1,779.3
1,648.9
1,465.5
1,566.2
77.6
145.4
3,571.9
3,501.1
3,899.3
3,888.6
196.3
185.5
118.6
6.3
506.7
197.5
168.0
121.2
-
486.7
1,222.2
1,264.3
0.6
23.8
43.5
29.3
5.3
18.4
57.7
29.9
1,319.4
1,375.6
1,826.1
1,862.3
2,073.2
2,026.3
Consolidated Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Assets classified as held for sale
Total Current Assets
Non-current assets
Other financial assets
Other receivable
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Provisions
Liabilities associated to assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Other payables
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net Assets
92 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
for the year ended 30 June 2017
Consolidated Statement of Financial Position (continued)
Equity
Issued capital
Reserves
Accumulated losses
Total Equity
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Net profit for the year
Other comprehensive income, net of income tax
Total comprehensive income for the year
2017
$'m
2016
$'m
2,708.2
2,709.2
(281.8)
(353.2)
(290.1)
(392.8)
2,073.2
2,026.3
11.5
9.8
21.3
46.5
7.2
53.7
HEALTHSCOPE ANNUAL REPORT 2017 | 93
Notes to the consolidated financial statements
for the year ended 30 June 2017
Note 25: Parent entity information
During the financial year ended 30 June 2017, the parent company of the Group was Healthscope Limited.
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Dividends
Accumulated profit
Total equity
Financial performance
Profit for the year
Total comprehensive income for the year
2017
$'m
2016
$'m
181.3
84.9
2,747.4
2,675.3
2,928.7
2,760.2
0.8
2.2
3.0
0.4
1.7
2.1
2,925.7
2,758.1
2,708.2
2,706.1
-
-
(128.5)
(124.9)
346.0
176.9
2,925.7
2,758.1
294.0
294.0
113.0
113.0
Healthscope Limited has entered into a deed of cross guarantee with its wholly owned subsidiaries. Details of which are included
in Note 24. No liabilities have been assumed by Healthscope Limited in relation to this guarantee as it is expected the parties to
the deed of cross guarantee will continue to generate positive cash flows
The accounting policies of the parent are the same as the Group’s policies.
94 | HEALTHSCOPE ANNUAL REPORT 2017
Notes to the consolidated financial statements
Directors' declaration
for the year ended 30 June 2017
The directors declare that:
(a)
in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when
they become due and payable;
(b) in the directors’ opinion, the attached financial statements are in compliance with International Financial Reporting
Standards, and
(c)
in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act
2001, including compliance with accounting standards and giving a true and fair view of the financial position and
performance of the consolidated entity.
At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418. The nature
of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full
of any debt in accordance with the deed of cross guarantee.
In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which the ASIC Class
Order applies, as detailed in Note 24 to the financial statements will, as a group, be able to meet any obligations or liabilities to
which they are, or may become, subject by virtue of the deed of cross guarantee.
Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.
On behalf of the Directors
Paula J. Dwyer
Chairman
Gordon Ballantyne
Managing Director and Chief Executive Officer
Melbourne, 23 August 2017
HEALTHSCOPE ANNUAL REPORT 2017 | 95
Independent Auditor's report
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of Healthscope Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Healthscope Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 30 June 2017, the
consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies, and
the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
96 | HEALTHSCOPE ANNUAL REPORT 2017
Independent Auditor's report
Independent Auditor's report
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Divestment of the Medical Centres
business
Our audit procedures included, amongst
others:
reviewing the terms of the binding offer;
assessing the accuracy and completeness
of the assets and liabilities classified as
held for sale for the business;
recalculating the impairment loss by
comparing the carrying value of the assets
and liabilities for the business to their
recoverable amount; and
evaluating the disclosures included in the
financial report:
o associated with the business being
classified as ‘held for sale’ and
presented as a ‘discontinued
operation’; and
o the subsequent event disclosures on
the receipt of the offer.
Refer to Note 20 ‘Changes in the composition
of the Healthscope Group’ and Note 13 ‘Assets
classified as held for sale’ in the financial
report
As at 30 June 2017, the Group was in the
process of divesting its Medical Centres
business. The Group has presented the trading
results of the business as a ‘discontinued
operation’ and classified its net assets as ‘held
for sale’.
Subsequent to balance date, the Group
received a binding offer to acquire 100% of the
business for consideration of $55.0 million. The
receipt of the offer clarified the outcome of the
sale process and provided market evidence for
the recoverable amount of the business.
Management has recognised an impairment
loss of $54.7 million as the carrying value of
the business was in excess of its recoverable
amount (binding offer less costs to sell).
We focused on this area as a key audit matter
due to the risk of impairment arising from the
sale process and the complexity of disclosures
arising from the business being held for sale
and presented as a discontinued operation.
HEALTHSCOPE ANNUAL REPORT 2017 | 97
Independent Auditor's report
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Carrying value of the Geelong Private
Hospital
Our audit procedures included, amongst
others:
Refer to Note 2 ‘Revenue and expenses’ and
Note 11 ‘Property, Plant and Equipment’ in the
financial report
The financial performance of the Geelong
Private Hospital has declined as a result of
competitive pressures in the local area.
Management identified the decline in financial
performance as an indicator of impairment and
undertook an impairment assessment for the
site. As a result of this assessment, an
impairment loss of $11.5 million was
recognised in relation to plant and equipment
not otherwise transferrable to other sites.
We focused on this area as a key audit matter
due to the judgement required to determine
the recoverable amount and the identification
of assets not otherwise transferrable to other
sites.
obtaining an understanding of
management’s process to assess
recoverable amount and identify assets not
otherwise transferrable to other sites;
evaluating management’s assessment by:
o agreeing expected future cash flows
to the latest Board approved budget;
o obtaining an understanding from
management about market conditions
and future expectations;
o assessing future cash flows against
historical performance and our
understanding of future expectations;
o
challenging the identification of assets
deemed transferrable; and
evaluating the disclosures included in Note
2 and Note 11 to the financial report.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2017, but does not include the
financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ Responsibilities for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of
the financial report that gives a true and fair view and is free from material misstatement, whether
due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
98 | HEALTHSCOPE ANNUAL REPORT 2017
Independent Auditor's report
Independent Auditor's report
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.
forgery,
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the financial report.
We are responsible for the direction, supervision and performance of the Group’s audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
HEALTHSCOPE ANNUAL REPORT 2017 | 99
Independent Auditor's report
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 29 to 48 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the Remuneration Report of Healthscope Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
DELOITTE TOUCHE TOHMATSU
Andrew Reid
Partner
Chartered Accountants
Melbourne, 23 August 2017
100 | HEALTHSCOPE ANNUAL REPORT 2017
Independent Auditor's report
Securityholder information
Class of securities
As at 15 July 2017 the only class of security on issue by Healthscope Limited is fully paid ordinary shares.
Distribution of securities
The following table summarises the distribution of securities as at 15 July 2017.
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
Total holders
4,706
14,692
9,329
10,394
335
39,456
Units
2,871,357
45,798,192
72,913,803
246,141,465
1,368,315,097
1,736,039,914
The number of shareholdings in less than marketable parcels is 526, based on the closing market price on 15 July 2017.
Voting rights
At a general meeting every ordinary shareholder, present in person or by proxy, attorney or representative has one vote on a
show of hands (unless a shareholder has appointed more than one proxy) and one vote on a poll for each Share held (with
adjusted voting rights for partly paid shares). If the votes are equal on a proposed resolution, the chairperson of the meeting
has a casting vote, in addition to any deliberative vote.
Performance Rights do not carry dividends or voting rights prior to vesting.
Substantial shareholders
As at 15 July 2017, the names of substantial holders in Healthscope Ltd and the number of shares to which each substantial
holder and the substantial holder’s associates have a relevant interest, as disclosed in substantial holding notices given to the
Company are as follows:
Name
AustralianSuper
Ellerston Capital
Hyperion Asset Mgt
No. of shares held
% of issued shares
194,877,708
139,234,535
102,545,543
11.23
8.02
5.91
HEALTHSCOPE ANNUAL REPORT 2017 | 101
Securityholder information
The names of the 20 largest shareholders
The following table sets out the 20 largest shareholders as at 15 July 2017.
Rank
Name
Units
% of Units
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
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