Invacare
Annual Report 2003

Plain-text annual report

I n v o C a r e i L m i t e d A n n u a l R e p o r t 2 0 0 3 Annual Report 2003 Contents Financial Summary 6 Letter from the Chairman 7 CEO’s Review of Operations 8 InvoCare Across Australia 14 Board of Directors 16 Corporate Governance 18 Directors’ Report 22 Financial Report 29 Statements of Financial Performance 30 Statements of Financial Position 31 Statements of Cash Flows 32 Notes to the Financial Statements 33 Directors’ Declaration 65 Independent Audit Report 66 Shareholder Information 67 Corporate Information 69 D E T M L I I I Y T P S E T A C O S S A & R R A B S S O R Y B D E C U D O R P D N A D E N G S E D I Corporate Information ABN 42 096 437 393 InvoCare Limited (formerly SCIA Holdings Pty Limited) Directors Ian D Ferrier (Chairman) Richard H Davis (Managing Director and Chief Executive Officer) Mike J Grehan (Chief Operating Officer) John W Murphy (Non-Executive Director) Christine L Clifton (Non-Executive Director) Richard H Fisher (Non-Executive Director) Company Secretary Kenneth R Mealey (Chief Financial Officer) Annual General Meeting The Annual General Meeting of InvoCare Limited will be held at The Westin Sydney, 1 Martin Place, Sydney on Monday 31 May 2004. Registered Office Share Register Level 4, 153 Walker Street North Sydney NSW 2060 Telephone: 02 9978 5200 Facsimile: 02 9978 5299 Website: www.invocare.com.au ASX Perpetual Registrars Limited Level 8, 580 George Street Sydney NSW 2000 Toll free: 1300 854 911 Facsimile: 02 9287 0303 Website: www.asxperpetual.com.au Stock Exchange Listing InvoCare Limited is a company limited by shares that is incorporated and domiciled in Australia. InvoCare Limited’s shares are listed on the Australian Stock Exchange only. ASX code is IVC. Auditor Solicitors Bankers PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 Coudert Brothers Level 8 Gateway 1 Macquarie Place Sydney NSW 2000 Australia and New Zealand Banking Group Limited 20 Martin Place Sydney NSW 2000 . i g n h c a e b l r o f e n i r o h c l l a t n e m e e l o n s e s u d n a l a i r e t a m d e c y c e r l % 0 5 m o r f l d e c y c e r r e p a p n o d e t n i r p s i t r o p e r i s h T 69 working together InvoCare is Australia’s leading private provider of funerals, burials and cremations. While our brands are varied and our locations widespread, our people are all dedicated to working towards the long-term success of the group. At InvoCare, we provide excellent service and care to the families we serve. This is the cornerstone of our approach. We maximise synergies within our different businesses and improve efficiencies by promoting our major brands. This coordinated focus drives our growth and delivers solid results for our shareholders. “ My father was also a professional funeral director, and while I’ve followed in his footsteps so much has changed. It’s refreshing to be part of a national brand like Simplicity, which is innovative yet simple and respectful. ” Rob James, Simplicity Funerals, Area Manager “ We provide an important function in administering prepaid funerals. People like the reassurance of knowing everything will be taken care of as planned. For some, those funds have been in place for many years. Having been with the group for more than 15 years, I still find one of the most satisfying aspects of my role is helping people. ” Gael Ellis, National Fund Administration Manager 2 INVOCARE ANNUAL REPORT 2003 3 “ Being a White Lady means we are recognised everywhere for the distinctive style we have brought to the industry. I love being a part of something that can be so special to those families who need us at such a distressing time. ” Lauren Hardgrove, White Lady Community Relations Manager “ What I do can affect families forever. I am responsible for presenting someone’s family member or friend for a final viewing. InvoCare’s facilities give me the chance to constantly raise the bar in performing this role. ” Craig Kokernoot, Embalmer “ I work behind the scenes, so for me, being a part of InvoCare is being part of an organisation that recognises the chance for every employee to advance and expand their role. It’s a company with strong management and leadership, and great people. ” Ruth Hilton-Bell, Corporate Accountant “ I’m privileged to have been one of the select few in Australia to be awarded a Master Funeral Director certificate. My expertise allows me to deliver a higher level of professionalism to the new Guardian Funerals brand. It’s why I’m part of a company that understands the importance of putting the families we serve first. ” Barry Steward, Regional Manager 4 INVOCARE ANNUAL REPORT 2003 5 “ I take pride in attending to the gardens at Pinegrove. I treat them as though they are my own. We’re not like old-fashioned cemeteries. We’re a Park, with beautiful plants, wildlife, streams and a lake. ” Frank Nanninga, Pinegrove Memorial Park, General Hand “ Each day I have the chance to guide families in choosing a fitting memorial. We are constantly adding to our list of memorial products so families can choose something more personal. It’s why InvoCare is the industry leader and it’s why I love working for a company in which I can also have a real share. ” Rosanna Kleckin, Rookwood Memorial Gardens and Crematorium, Family Service Manager Financial Summary The key financial targets we forecast in our IPO Prospectus were exceeded. We are pleased with these solid results notwithstanding a decline in the number of deaths in 2003 compared to the previous year. $140.3 million Total sales revenue (Prospectus forecast: $138.3 million) 12.0 cents Earnings per share (Prospectus forecast: 10.6 cents) $11.7 million Profit after tax (Prospectus forecast: $10.3 million) $41.0 million EBITDA (Prospectus forecast: $39.6 million) $24.6 million Free cash flow (Prospectus forecast: $20.8 million) 6 Letter from the Chairman INVOCARE ANNUAL REPORT 2003 In our industry, quality of service determines success. This is why we work so diligently on our service ability. We are leaders in our industry because we offer the best care. Ian Ferrier Dear Shareholder, Of course, quality service is not possible without quality staff. With more than 1,000 people in 136 locations, we can claim wide coverage. But where we are is not as important as what we do. Our people are courteous, they know our service offerings and they understand the unique circumstances in which we operate every day. As an Australian company that invests in Australia – with a strong financial base, established brands, experienced management, growth opportunities and solid business processes – we can look forward to a bright future. Yours faithfully OUR PAST YEAR has been one of transition. We changed our name to InvoCare, became a public company and welcomed Tina Clifton, Richard Fisher and Mike Grehan to our Board. Listing InvoCare on the Australian Stock Exchange (ASX) is the most important step in the history of our company. It allowed us to broaden our shareholder base and build on the services we provide. It also meant we could offer our own people some real ownership in the business. Our name is what we are: a company of innovation, vocation and care. Innovation – how we operate our business, train our staff and market our services; vocation – the attitude and professionalism of our staff; and care – because we are dedicated to the families we serve. Ian Ferrier Chairman 7 CEO’s Review of Operations Richard Davis “ Our transition to a public company has been a success. We see the 2003 achievements as the benchmarks on which we plan to improve and expand. We have much we want to achieve and I am convinced we will continue to lead our industry because InvoCare people view their role as more than just a job. ” Richard Davis, CHIEF EXECUTIVE OFFICER 8 INVOCARE ANNUAL REPORT 2003 TO MAINTAIN OUR STANDING as the industry leader carries expectations in enhancing performance, setting new benchmarks and continuously improving our level of service. We take these responsibilities seriously at InvoCare. It is one of the reasons that in the 2003 year we have not only met the benchmarks set in our Prospectus, but also surpassed them. Our successful float on ASX on 4 December 2003 was a landmark day for our company. FUNERAL, CEMETERY AND CREMATORIUM OPERATIONS Our market share for funerals remains stable, with InvoCare performing about one in five funerals in Australia. Our revenue from funerals of $91.9 million eclipsed our forecast of $90.5 million We enjoy solid support from institutions and retail by 1.6% in 2003. investors, having more than 5,000 shareholders. However, the listing is only the beginning of the next chapter in our evolution. FINANCIAL FORECAST EXCEEDED We have exceeded the forecasts in our Prospectus. Total sales revenues from operating activities Prepaid funerals are important to us because they represent a significant part of our future business. In this area, we need to know how we are performing in terms of both the number of contracts we write and the return on investment we are achieving. for 2003 were $140.3 million. This surpassed our forecast of $138.3 million by 1.5% and our 2002 revenue of $137 million. Our EBITDA of $41 million exceeded our forecast of $39.6 million by 3.5%. InvoCare made a net profit after tax of $11.7 million for the year to the end of December 2003. This compares to Prospectus expectations of $10.3 million, and a profit in 2002 of $10.11 million. Our free cash flow of $24.6 million exceeded our forecast of $20.8 million by 18.2%. Capital expenditure was lower than anticipated due to delays in getting development approvals from local councils. We have reduced our debt of $160 million just prior to listing to $155 million today. 9 Review of Operations (continued) In NSW and Queensland, we operate 12 cemeteries and crematoria of which we own 11. The use of these facilities is not exclusive to our funeral homes, nor are our funeral homes restricted to using them. In other states, regulation prevents or inhibits private ownership. The revenues for these operations of $48.4 million in 2003 exceeded our forecast of $47.8 million by 1.2%. Key focus areas ACQUISITIONS AND ORGANIC GROWTH Our industry remains somewhat fragmented, leaving opportunities in most markets for growth. We believe we can expand our business by acquisition, which is the quickest way to grow, and through organic growth. Acquisition has the potential to yield further economies of scale for InvoCare. For organic growth, we have a long-term strategy to capitalise on the recognition that our leading brands enjoy, particularly White Lady, Simplicity and our major metropolitan brands in capital cities. This will include opening new locations. FUNERAL, CEMETERY AND CREMATORIUM OPERATIONS (continued) About 13% of our funerals performed in 2003 were prepaid and new prepaid contracts sold were in line with redemptions. As at 31 December 2003, $169.5 million was held in trust for prepaid funerals and related services compared to the $157.4 million held the year prior. The gross return before administration fees for funds held in trust was 7.5% for the 12 months to 31 December 2003 and 5% per annum over the past five years. The asset allocation of these trust funds continued to have a growth bias with 47% invested in Australian equities, 3% in international equities, 46% in cash and fixed interest, 4% in Australian property. If the return on the trust funds is greater than the increase in costs of providing services then we will improve our margins, when the prepaid contracts are performed. 10 INVOCARE ANNUAL REPORT 2003 BRANDING InvoCare enjoys high brand awareness in all our markets. We are proud of this achievement but we want to continue to enhance their standing. SERVICE LEVELS We believe we can grow our business by The three biggest drivers in selecting a funeral extending the reach of White Lady, Simplicity and services provider are previous experience, our major traditional style brands. Their widespread recommendation and location. I believe our staff and distinct brand awareness means we can launch them in new locations relatively easily. In Sydney, we currently have many traditional style branded funeral homes. We have embarked on a strategy to create an umbrella brand called Guardian Funerals. This will allow many of the traditional funeral brands to capitalise on Guardian’s provide the best service in Australia, but since referrals are so important to InvoCare, we take the approach that service improvement never ends. This is why we distribute a survey to all our client families after they have used our service to gauge what they thought of our performance. ability to promote them on a larger scale in the marketplace, while maintaining the goodwill, heritage and reputation held in their individual brands. Our traditional style funeral homes in other states, which include brands that have been around for more than 100 years, are already positioned similarly to Guardian Funerals. These brands are household names in the markets they serve – for example, Blackwell Funerals in Adelaide, George Hartnett Funerals in Brisbane, Le Pine Funerals in Melbourne and Purslowe Funerals in Perth. MEMORIALS We believe InvoCare is well positioned to increase our memorial revenue from our crematoria and cemeteries through promoting the benefits of having a memorial as well as offering new products. About one-third of the families who have a cremation at our facilities also purchase a memorial, so there is a definite opportunity to grow our business in this area. The customer survey also provides us with valuable feedback on our products, services and staff performance, and gives us direction for future products, services and staff training. 11 Review of Operations (continued) It is not just the funeral arrangers or the family service staff at our cemeteries and crematoria who have an important role. There are many people behind the scenes who ensure each family’s needs are catered for in the utmost detail. We have a training network in place that focuses on important areas such as grief awareness, communicating with grieving families, arranging funerals and other services. We have reached a stage where – from a response rate of more than one in three clients – 97% would “definitely” or “probably” recommend our services. To me, that is one of the most important things about our business because it reveals we are doing the right thing. We know because our clients Staff are actively involved in their local communities. tell us. We never lose sight of the fact that what Many are members of organisations such as we do today has enormous impact on what will Rotary, the RSL and local Chambers of Commerce. happen tomorrow. They support local charities, nursing homes and OUR STAFF AND COMMUNITY Our staff are InvoCare’s most important asset. They are the people dealing with families on a day to day basis, offering guidance, care and compassion in a distressing time. Our people are the public face of InvoCare. They are also the driving force behind our success. sporting teams through sponsorship or by volunteering their time. Staff in each location recognise the importance of being an active member of their local community. The people who work for InvoCare come from a variety of backgrounds, from those whose families have been involved in the industry for generations to those from unrelated areas such as teaching and nursing. We seek to attract the best people and make every effort to ensure they stay with the company long term. OCCUPATIONAL HEALTH AND SAFETY We take Occupational Health and Safety (OH&S) issues very seriously and we already have policies and procedures in place concerning these issues. We recently appointed a National OH&S Manager to continue to implement systems that improve the safety of staff, contractors and the public. The objective is to continue to train managers, supervisors and other staff and ensure they are provided with the skills needed to understand the principles of consultation and involvement in risk management. 12 INVOCARE ANNUAL REPORT 2003 ASSET MANAGEMENT We closely monitor the contribution and return on investment of our owned locations. We will maintain our focus on asset returns based on their existing and alternative uses. We will divest assets that are not performing, depending on their strategic importance to the company. The proceeds from these sales are likely to be applied against debt reduction. The company is well advanced in developing a new computer system, the implementation of which is scheduled to commence later this year. The system will replace and update our existing financial and operational systems whilst providing additional valuable information on the utilisation of We are conscious of the fact that as we grow our business we should never lose sight of the reason people come to us in the first place – to help them say farewell with dignity and meaning. our resources, including labour and vehicles. Into every one of the thousands of services we LOOKING AHEAD As a public company, InvoCare is well positioned to grow both organically and by acquisition. The company’s strong brands, its network of locations, its commitment to customer service and the projected increase in the number of deaths will enable the company to continue to grow. InvoCare’s ability to leverage its operational capacity will provide for further margin improvement over time. InvoCare’s strong cash flows enable the company to reduce its debt resulting in improved earnings per share growth, whilst being able to pay dividends and allow for necessary capital expenditure. perform each year goes our personal attention, our experience, our focus on service and, of course our compassion. This is what InvoCare is all about. Richard Davis Chief Executive Officer 13 InvoCare Across Australia a total of 124 city and regional funeral and 12 cemeteries and crematoria locations conducting approximately 20% of the nation’s funerals average 70% brand awareness for Simplicity Funerals (in the state capital cities in which it operates) average 75% brand awareness for White Lady Funerals (in the state capital cities in which it operates) employs over 1,000 people conducts more than 26,000 funerals a year average 80% brand awareness for Le Pine, Purslowe, George Hartnett and Blackwell Funerals (in the state capital cities in which these operate) 12 Perth WA 14 INVOCARE ANNUAL REPORT 2003 Brisbane QLD 3 16 9 Newcastle Sydney Wollongong NSW 57 3 ACT Canberra Melbourne SA 11 Adelaide VIC 25 Number of Funeral Homes in each State or Territory Number of Cemeteries and Crematoria in NSW and QLD 15 Board of Directors MR IAN FERRIER CA Chairman of the Board Chairman of Remuneration Committee Member of Risk Committee MR RICHARD DAVIS B.Ec Chief Executive Officer MR MIKE GREHAN B.Acc, MBA Chief Operating Officer Ian Ferrier has held the position of Chairman of InvoCare Limited since 2001. Ian is a Senior Founding Partner of Ferrier Hodgson Accountants, Australia’s largest firm of reconstruction accountants. Ian is the Chairman of Port Douglas Reef Resorts and a Non-Executive Director of McGuigan Simeon Wines Limited, Macquarie Goodman Management Limited and MIA Group Limited. As senior partner of Ferrier Hodgson, Ian has gained vast experience in numerous commercial fields. Ian is a Fellow of the Institute of Chartered Accountants in Australia and a Member of the Hong Kong Society of Accountants. Richard Davis has held the position of Chief Executive Officer of InvoCare Limited since 1995. Richard is a Director of The Over 50s Guardian Friendly Society Limited and Chairman of the Singapore Casket Co Pte Limited, Singapore’s leading funeral provider. Richard was recruited to the position of Chief Financial Officer of Chase Corporation’s funeral business in 1989 and stayed on in this position when the business was acquired by Industrial Equity Limited, following which he became Chief Executive Officer. Prior to joining the funeral industry, Richard worked in venture capital and as an accounting partner of Bird Cameron. Richard holds a Bachelor of Economics from the University of Sydney. Mike Grehan has held the position of Chief Operating Officer of InvoCare Limited since March 2000. Prior to joining InvoCare, Mike held senior management positions across a number of different industries. These included Managing Director of National Jet Systems, Group Financial Controller overseeing all financial and commercial activities of Qantas’ subsidiary businesses, including Regional Airlines, Flight Catering, Resorts, Freight and Property, and a long-term secondment as General Manager Purchasing, Distribution with Carrier Airconditioning. Prior to moving into management, Mike was a chartered accountant specialising in insolvency with KPMG, including two years spent in the United States with the firm. Mike holds a Bachelor of Business Accountancy and a Master of Business Administration from the Queensland University of Technology. 16 INVOCARE ANNUAL REPORT 2003 MR JOHN MURPHY B.Comm, M.Comm, CA, FCPA Non-Executive Director Chairman of Audit Committee Member of Remuneration Committee DR CHRISTINE (TINA) CLIFTON MB BS (Hons), BHA, FRACMA Non-Executive Director Chairman of Risk Committee Member of Audit Committee MR RICHARD FISHER M.Ec, LLB Non-Executive Director Member of Risk Committee Member of Audit Committee Richard Fisher is a partner at Blake Dawson Waldron, specialising in corporate law, and also holds the position of Chairman of Partners. Richard is a former part-time Commissioner at the Australian Law Reform Commission and is a current International Consultant for the Asian Development Bank. Richard holds a Master of Economics from the University of New England and a Bachelor of Laws from the University of Sydney. Tina Clifton is a registered medical practitioner. Tina’s current Directorships include HCF, Ambri Limited and IWPE Nominees Pty Limited. Tina was formerly a Director of the Garvan Institute of Medical Research, the Victor Chang Cardiac Research Institute and St Vincents Hospitals. Prior to 2001 Tina held various positions in the public and private healthcare sectors including Chief Executive Officer of the Sisters of Charity Health Service in New South Wales and deputy Chief Executive Officer of the Northern Sydney Area Health Service. From 1980 to 1988 Tina was a general practitioner. Tina holds degrees in medicine and health administration, and also has a specialist qualification in medical administration. John Murphy is Managing Director of Investec Wentworth Private Equity Pty Limited, a leading Australian private equity firm, and sits on the Board of each of the fund’s seven investments. John is also a Director of Investec Bank (Australia) Limited, Southcorp Limited and the First Wine Fund Limited. Before founding the private equity business, five years ago, John spent 25 years with an international accounting firm including 14 years as a global partner. In that time John held a number of Australian and Asia Pacific management roles and has extensive experience in the areas of Corporate Recovery, Corporate Finance and Mergers and Acquisitions. John holds a Bachelor and Master of Commerce from the University of New South Wales. John is a member of the Institute of Chartered Accountants in Australia and a Fellow of CPA Australia. 17 Corporate Governance INVOCARE LIMITED (the company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. Prior to the company’s listing on ASX, an initial review of the company’s corporate governance framework was performed, in light of the best practice recommendations released by the ASX Corporate Governance Council in March 2003. A number of changes have been made and are still to be made as a result of this review or other recent governance developments. It is the company’s intention to comply with the recommendations. The relationship between the Board and Senior Management is important to InvoCare’s longterm success. Day to day management of InvoCare’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the Board to the Chief Executive Officer (CEO) and Senior Executives as set out in InvoCare’s delegations policy. These delegations are reviewed on an annual basis. A description of InvoCare’s main corporate governance practices is set out below. All these practices, unless otherwise stated, were in place for the entire year. THE BOARD OF DIRECTORS Board Composition The Board currently comprises six Directors, being four Non-Executive Directors (including the Chairman) and two Executive Directors. The roles of Chairman and CEO are separate. The skills, experience and expertise of each Director is set out in the Directors’ Report under the heading “Information on Directors”. The Board has assessed the independence of Non-Executive Directors in light of their interests and relationships and considers them all to be independent. The Board has considered establishing a Nomination Committee and decided in view of the relatively small number of Directors that such a Committee would not be a more efficient mechanism than the full Board for detailed selection and appointment practices. There is and will at all times be a Non-Executive Chairman of the Board and a majority of Non-Executive Directors. Responsibilities The Board of Directors is responsible for reviewing and approving the strategic direction of InvoCare and for overseeing and monitoring its business and affairs including maintenance of sound corporate governance. The Board reviews and approves InvoCare’s strategic and business plans and guiding policies. Day to day management of InvoCare’s affairs is delegated to the CEO and Senior Executives. The responsibilities of the Board include: – contributing to the development of and approving the corporate strategy – reviewing and approving business plans, the annual budget and financial plans including available resources and major capital expenditure initiatives – overseeing and monitoring: • organisational performance and the achievement of InvoCare’s strategic goals and objectives • compliance with InvoCare’s code of conduct • progress of major capital expenditures and other significant corporate projects including any acquisitions or divestments – monitoring financial performance including approval of the annual and half-year Financial Reports and liaison with InvoCare’s auditor – appointment, performance assessment and, if necessary, removal of the CEO – ratifying the appointment and/or removal and contributing to the performance assessment for the members of the Senior Management team including the Chief Operating Officer (COO), Chief Financial Officer (CFO) and the Company Secretary – ensuring there are effective management processes in place and approving major corporate initiatives The Chairman is elected by the full Board. – enhancing and protecting the reputation of InvoCare InvoCare’s Constitution requires one-third of the Directors (excluding the Managing Director) to retire from office at the Annual General Meeting (AGM) each year. – ensuring the significant risks facing InvoCare, including those associated with its legal compliance obligations, have been identified and appropriate and adequate control, monitoring, accountability and reporting mechanisms are in place – reporting to shareholders. 18 In fulfilling these functions, the Directors seek to enhance shareholder value and protect the interests of stakeholders. Non-Executive Directors The four Non-Executive Directors meet twice during the year, in scheduled sessions without the presence of management, to discuss the operation of the Board and a range of other matters. Relevant matters arising from these meetings are shared with the full Board. Chairman and Chief Executive Officer (CEO) The Chairman is responsible for leading the Board, ensuring that Board activities are organised and efficiently conducted and for ensuring Directors are properly briefed for meetings. The CEO is responsible for implementing InvoCare’s strategies and policies. The Board charter specifies that these are separate roles to be undertaken by separate people. Commitments The Board meets regularly 12 months of the year. There may be additional meetings to deal with particular matters, for example, strategic planning direction and corporate strategies. At least two of the meetings include visits to operations and meeting employees. The Chairman and the CEO meet regularly to discuss key issues and performance trends of InvoCare. Other Directors maintain contact with relevant Senior Managers arising from dealings on Committees. Each month the Directors receive a detailed operating review from the CEO regardless of whether or not a Board meeting is being held. Conflict of Interest Potential conflicts of interest by Directors will be reported to the Board and if necessary Directors will be excluded from discussion of the relevant matter and will not vote on that matter. Independent Professional Advice Directors and Board Committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at InvoCare’s expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld. INVOCARE ANNUAL REPORT 2003 Performance Assessment The intention is for the Chairman to annually assess the performance of individual Directors and meet privately with each Director to discuss this assessment. The Chairman’s performance is reviewed by the Board. Directors will conform to the Board’s agreed performance criteria for Directors. Board Committees The Board has established a number of Committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current Committees of the Board are the Audit Committee, Risk Committee and Remuneration Committee. Each is comprised entirely of Non-Executive Directors. The Committee structure and membership are reviewed on an annual basis. Each of these Committees is developing its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the Committee is to operate. All of these charters will be reviewed on an annual basis. All matters determined by Committees are submitted to the full Board as recommendations for Board decision. Minutes of Committee meetings are tabled at the immediately subsequent Board meeting. Additional requirements for specific reporting by the Committees to the Board are addressed in the charter of the individual Committees. Remuneration Committee The Remuneration Committee is chaired by Ian Ferrier with the other member being John Murphy. The Committee, when deemed necessary, obtains independent advice on the appropriateness of remuneration packages. The Remuneration Committee advises the Board on remuneration policies and practices generally, and makes specific recommendations on remuneration packages and other terms of employment for Executive Directors, other Senior Executives and Non-Executive Directors. Executive remuneration and other terms of employment are reviewed annually by the Committee having regard to personal and corporate performance, contribution to long-term growth, relevant comparative information and independent expert advice. As well as a base salary, remuneration packages include superannuation, performance-related bonuses and fringe benefits. 19 Corporate Governance (continued) – review and monitor related party transactions and assess their propriety – report to the Board on matters relevant to the Committee’s role and responsibilities. In fulfilling its responsibilities, the Audit Committee: – receives regular reports from management and the external auditor – meets with the external auditor at least twice a year or more frequently if necessary – requires the CEO and CFO to state in writing to the Board that InvoCare’s Financial Reports present a true and fair view, in all material respects, of InvoCare’s financial condition, operational results and are in accordance with relevant accounting standards – reviews any significant disagreements between the auditor and management, irrespective of whether they have been resolved – meets separately with the external auditor at least twice a year without the presence of management – provides the external auditor with a clear line of direct communication at any time to either the Chairman of the Audit Committee or the Chairman of the Board. The Audit Committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. External Auditor The policy of InvoCare and the Audit Committee is to appoint an external auditor which clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually taking into consideration assessment of performance. PricewaterhouseCoopers was appointed as the external auditor in 1994. It is PricewaterhouseCoopers’ policy to rotate audit engagement partners on listed companies at least every seven years, and in accordance with that policy a new audit engagement partner was introduced for the year ended 31 December 2000. This policy will be amended to comply with the requirements of CLERP 9. The Remuneration Committee’s terms of reference include responsibility for reviewing any transactions between InvoCare and the Directors, or any interest associated with the Directors, to ensure the structure and the terms of the transaction are in compliance with the Corporations Act 2001 and are appropriately disclosed. The Committee also assumes responsibility for management succession planning, including the implementation of appropriate Executive development programs and ensuring adequate arrangements are in place, so that appropriate candidates are recruited for later promotion to senior positions. Audit Committee The Audit Committee is chaired by John Murphy with the other members being Christine Clifton and Richard Fisher. The members possess sufficient technical expertise and knowledge of the industry to fulfil the functions of the Committee. The Committee meets at least four times each year. The Audit Committee operates in accordance with a charter which is being reviewed. The main responsibilities of the Committee are to: – review, assess and approve the Annual Reports, the half-year Financial Report and all other financial information published by InvoCare or released to the market – review and monitor InvoCare’s compliance with law and ASX Listing Rules – assist the Board in reviewing the effectiveness of InvoCare’s internal control environment covering: • reliability of financial reporting • compliance with applicable laws and regulations – determine the scope of the internal audit function and ensure that its resources are adequate and used effectively, and assess its performance, including independence – recommend to the Board the appointment, removal and remuneration of the external auditor, and review the terms of its engagement, the scope and quality of the audit and assess performance – consider the independence and competence of the external auditor on an ongoing basis – review and approve the level of non-audit services provided by the external auditor and ensure it does not adversely impact on auditor independence 20 An analysis of fees paid to the external auditor, including a breakdown of fees for non-audit services, is provided in Note 36 – Remuneration of auditor. It is the policy of the external auditor to provide an annual declaration of its independence to the Audit Committee. Risk Committee The Risk Committee, which was previously incorporated in the Audit Committee, is chaired by Christine Clifton and the other member is Richard Fisher. The members possess sufficient technical expertise and industry knowledge to fulfil the functions of the Committee. The Committee meets at least twice each year. The Risk Committee operates in accordance with a charter which is currently under review. The main responsibilities of the Committee are: – to establish a sound system of risk oversight and management and internal control under which InvoCare can identify, assess, monitor and manage risk – to inform investors of material changes to the risk profile of InvoCare and maintain appropriate risk management practices and systems throughout the operations of InvoCare – the management of operational and compliance risks, including but not limited to: • InvoCare’s insurance program • environmental policy and issues • occupational health and safety • disaster recovery strategy • litigation against InvoCare • industry related regulatory compliance • compliance with the policy framework in place from time to time • internal controls over operational risks • InvoCare’s overall operational risk management program. The Risk Committee does not have responsibility in relation to strategic or financial (including information technology) risk management, which is the focus of InvoCare’s Audit Committee. Code of Conduct InvoCare has developed a code of conduct (the code) which applies to all Directors and employees. The code is updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in InvoCare’s integrity. INVOCARE ANNUAL REPORT 2003 In summary, the code requires that at all times all InvoCare personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and InvoCare policies. The purchase and sale of InvoCare Limited securities by Directors and employees is only permitted during the 30 day period following the release of the half-yearly and annual financial results to the market and the AGM of InvoCare. Any transactions undertaken must be notified to the Company Secretary in advance. Continuous Disclosure and Shareholder Communication The CEO and Company Secretary have been nominated as the people responsible for communications with ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements in ASX listing rules and overseeing and coordinating information disclosure to ASX, analysts, brokers, shareholders, the media and the public. All information disclosed to ASX is posted on InvoCare’s website as soon as it is disclosed to ASX. When analysts are briefed on aspects of InvoCare’s operations, the material used in the presentation is released to ASX and posted on InvoCare’s website. Procedures have also been established for reviewing whether any price sensitive information has been inadvertently disclosed, and if so, this information is also immediately released to the market. All shareholders will receive a copy of InvoCare’s Annual Report (unless a shareholder has specifically requested not to receive the document). In addition, InvoCare seeks to provide opportunities for shareholders to participate through electronic means. All recent InvoCare announcements, media briefings, details of InvoCare meetings, press releases and Financial Reports are available on InvoCare’s website www.invocare.com.au. 21 Directors’ Report THE DIRECTORS submit their report on the consolidated entity consisting of InvoCare Limited (the company) and the entities it controlled for the year ended 31 December 2003. This is the first report submitted after the successful listing of InvoCare Limited on ASX on 4 December 2003. InvoCare Limited and its controlled entities together are referred to as InvoCare or the consolidated entity in this Financial Report. DIRECTORS The names of the Directors of InvoCare Limited in office during the financial year and until the date of this report were: Ian D Ferrier Richard H Davis Mike J Grehan (Appointed 24 October 2003) John W Murphy Christine L Clifton (Appointed 24 October 2003) Richard H Fisher (Appointed 24 October 2003) Patrick F Elliott (Resigned 24 October 2003) MacDonell Roehm Jr (Resigned 24 October 2003) Michael R Webb (Resigned 24 October 2003) All Directors were in office from the beginning of the financial year until the date of this report, unless otherwise stated. PRINCIPAL ACTIVITIES InvoCare is Australia’s leading private provider of services to the funeral industry. There were no significant changes in the nature of these activities during the year. BACKGROUND INFORMATION This is InvoCare Limited’s first Annual Report provided to the market following the Initial Public Offering (IPO) and listing on ASX on 4 December 2003. The Prospectus, dated 31 October 2003, contained information about InvoCare and the IPO, including details of the share buy-back and dividend paid in March 2003 and the proposed restructuring of InvoCare Limited’s share capital and debt financing arrangements just prior to listing. These capital and debt changes were effected and 93,142,105 ordinary shares, representing 99.3% of InvoCare Limited’s undiluted issued shares, were offered and sold by the former owners, the majority of whom were private equity investors. Financial information in this report, including information about dividends and earnings per share, should be read in the context of the public listing in December 2003 and the substantial change in InvoCare Limited’s capital structure, debt arrangements and shareholdings. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Significant changes in the state of affairs of InvoCare during the year ended 31 December 2003 are listed below. – Dividend payment to ordinary and preference shareholders on 28 March 2003 amounting to $15,000,000 (representing 20 cents per share fully franked). – Buy-back of 3,125,000 ordinary shares and 12,500,000 preference shares on 28 March 2003 for the total consideration of $25,000,000 (representing $1.60 per share). – Increased borrowings by $40,000,000 on 28 March 2003 to fund the dividend and share buy-back. – SCIA Holdings Pty Limited changed its name to InvoCare Pty Limited on 9 September 2003 and converted from a proprietary company to a public company on 30 October 2003 at which date its name became InvoCare Limited. 22 INVOCARE ANNUAL REPORT 2003 – Operating cash flow for the year was $23.5 million compared to the Prospectus forecast of $20.9 million, mainly due to the impact of higher than forecast revenues. – Earnings per share (basic) were 12.0 cents per share compared to the Prospectus forecast of 10.6 cents per share. – Market share has been maintained at approximately 20% of the Australian market. – The Directors have determined that no further dividend will be payable in respect of the 2003 year as forecast in the Prospectus. There was a dividend of $15 million paid to the previous shareholders in March 2003. – The company has commenced implementation of its new Guardian branding and marketing strategy which will be rolled out in the Sydney market during 2004 to complement the strong branding position already in place of its national brands, White Lady and Simplicity. – Marketing of prepaid funerals continued during the year and at December 2003 the company had $169.5 million of funds in trust for prepaid funerals and prepaid cemetery and crematoria services. This is an increase of 7.7% compared to December 2002. During 2003, 13% of funerals performed were previously prepaid with the company. – Significant progress was made in the development of new IT systems for the financial and operational aspects of the business and these are on track to be implemented in the second and third quarters of 2004. – InvoCare Limited lodged a Prospectus on 31 October 2003 under which 93,142,105 ordinary shares, representing 99.3% of the company’s undiluted ordinary shares, were offered for sale by the owners of those shares. As part of this IPO, the company’s share capital and financing facilities were restructured. – InvoCare Limited listed on ASX on 4 December 2003. The proceeds of the IPO, net of applicable costs, were received by the vendors of the shares. The company did not raise any capital from the IPO. REVIEW OF OPERATIONS The key highlights for the year include: – On 4 December 2003, the company listed on ASX as a result of an IPO where existing shareholders, except the Managing Director Richard Davis, sold all of their shares. The Directors believe this is a major step in the development of the company in offering opportunities for improved capital management, flexibility and growth as well as enabling employees to participate in the ownership of the company. – The consolidated net profit for the year after tax attributable to members of InvoCare Limited was $11.6 million compared to the Prospectus forecast of $10.3 million and $10.1 million in 2002. This profit includes gain on sale of assets of $2.7 million (before tax) and refinancing and restructuring costs during the year of $2.1 million (before tax). Also costs associated with being a public company are included due to the company listing on ASX in December 2003. – Revenues from operating activities were $140.3 million, an increase of 2.4% over the previous year and 1.5% higher than the Prospectus forecast. This was achieved despite a decline in the number of deaths compared to the previous year, in the markets in which InvoCare operates. Preliminary Australian Bureau of Statistics data indicates a decline compared to the corresponding period in 2002, which adversely affected revenues and profit. 23 Directors’ Report (continued) ENVIRONMENTAL REGULATION AND PERFORMANCE InvoCare is committed to the protection of the environment, the health and safety of its employees, customers and the general public, as well as compliance with all applicable environmental laws, rules and regulations in the jurisdictions in which the consolidated entity operates its business. The consolidated entity is subject to environmental regulation in respect of its operations, including some regulations covering the disposal of mortuary and pathological waste and the storage of hazardous materials. InvoCare has Environmental Risk Management Systems in place at its appropriate locations. There have been no claims during the year and the Directors believe InvoCare has complied with all relevant environmental regulations and holds all relevant licences. INFORMATION ON DIRECTORS Details of the Directors’ qualifications and experience are set out on pages 16 and 17. COMPANY SECRETARY Mr Kenneth Mealey B.Comm, CPA, Chief Financial Officer Kenneth Mealey has held the position of Company Secretary and Chief Financial Officer since joining the consolidated entity in 1994. Prior to joining the consolidated entity, Kenneth had considerable senior management and financial experience across several industries, including five years as Finance Director and Company Secretary of previously listed company Hunter Douglas Limited, two years as Technology Division Finance Director for Lend Lease Corporation and 10 years as Director of Finance and Administration at Otis Elevator Company Pty Limited. Kenneth holds a Bachelor of Commerce from the University of New South Wales and is a member of CPA Australia. DIVIDENDS The interim dividend of 20 cents per share (franked amount 20 cents per share) was paid on 28 March 2003 to the former owners of InvoCare Limited. At that time InvoCare Limited was not publicly listed and its share capital comprised both ordinary and preference shares. InvoCare Limited’s share capital was restructured immediately before the allocation of ordinary shares pursuant to the Prospectus dated 31 October 2003 and InvoCare Limited’s listing on ASX on 4 December 2003. Due to the capital restructure and listing, the 2003 interim dividend is not indicative of any future dividends per share. As stated in InvoCare Limited’s Prospectus dated 31 October 2003, no final dividend will be paid in respect of the 2003 financial year. Further, as stated in the Prospectus, an interim dividend is expected to be paid each year in October and a final dividend is expected to be paid annually in April of the following year. The payment of dividends by InvoCare Limited in the future will be at the complete discretion of the Directors and will depend upon InvoCare Limited’s available distributable earnings, franking credit balance, operating results, available cash flow, financial condition, outlook, terms of the debt financing facility, taxation position and future capital requirements, as well as general business and financial conditions and any other factors the Directors may consider relevant. SIGNIFICANT EVENTS AFTER THE BALANCE DATE There have been no significant events occurring after balance date which have significantly affected or may significantly affect either InvoCare’s operations or results of those operations or InvoCare’s state of affairs in future financial years. FUTURE DEVELOPMENTS AND RESULTS Likely developments and results have been discussed above in the review of operations. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. 24 INVOCARE ANNUAL REPORT 2003 MEETINGS OF DIRECTORS During the year ended 31 December 2003, the number of meetings of the Board of Directors and of each Board Committee and the number of meetings attended by each of the Directors is as follows: Ian Ferrier Richard Davis John Murphy Mike Grehan (appointed 24 October 2003) Christine Clifton (appointed 24 October 2003) Richard Fisher (appointed 24 October 2003) Michael Webb (resigned 24 October 2003) Patrick Elliott (resigned 24 October 2003) MacDonell Roehm Jr (resigned 24 October 2003) Full Board Meetings Audit Meetings of Committees Remuneration Risk No. eligible to attend No. No. eligible to attend attended No. No. eligible to attend attended No. No. eligible to attend attended No. attended 17 17 17 5 5 5 13 13 13 17 17 16 5 5 5 11 12 8 – 2 2 – – – – 2 – – 2 2 – – – – 2 – 1 – 1 – – – – 1 – 1 – 1 – – – – 1 – 1 1 1 – – – – 1 – 1 1 1 – – – – 1 – Richard Davis was a member of the Board Committees operating up to the changes to the composition of the Board in October 2003. In accordance with ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations, the Board has reconstituted the Committees to be consistent with InvoCare Limited’s status as a listed public company and consequently neither Richard Davis nor Mike Grehan, as Executive Directors, are members of the Committees. RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS In accordance with the Constitution of InvoCare Limited, at each Annual General Meeting one-third of the Directors (or a number nearest one-third) and any other Director (except the Managing Director) who has held office for three years or more since last being elected must retire from office. Ian Ferrier and John Murphy will retire as Directors at the Annual General Meeting and, being eligible, offer themselves for re-election. DIRECTORS’ AND EXECUTIVES’ EMOLUMENTS A Remuneration Committee has been established from Non-Executive members of the Board to make recommendations to the Board on remuneration packages and policies related to Non-Executive Directors, Executive Directors and Senior Executives and to ensure that the remuneration policies and practices are consistent with InvoCare’s strategic goals and human resource objectives. Remuneration of Non-Executive Directors is determined by the Board within a maximum approved by shareholders from time to time. The maximum is currently $250,000 per annum, in aggregate, being the amount set out in the Constitution of InvoCare Limited as at the date of listing. This excludes any remuneration determined by the Directors where a Director performs additional or special duties for the company. 25 Directors’ Report (continued) DIRECTORS’ AND EXECUTIVES’ EMOLUMENTS (continued) responsibilities and are competitive to attract, retain and motivate people of the highest calibre. If a Director performs additional or special duties for the company they may be remunerated as determined by the Directors and that remuneration can be in addition to the limit mentioned above. Senior Executives may receive a performance- based incentive related to achievement of specific objectives. Non-Executive Directors do not receive any performance-based remuneration. Executive remuneration and other terms of employment are reviewed annually having regard to performance during the year, relevant comparative information and independent survey information. The broad policy is to ensure that remuneration packages properly reflect the individual’s Details of the nature and amount of each element of the emolument of each Director of InvoCare Limited and each of the five other Executive Officers of the company and the consolidated entity receiving the highest emoluments are set out in the following tables. Non-Executive Directors of InvoCare Limited Name Ian Ferrier John Murphy Christine Clifton Richard Fisher Patrick Elliott MacDonell Roehm Jr Michael Webb Director’s base fee $ Committee fees $ Superannuation $ 75,375 30,805 14,906 16,247 20,558 20,558 20,558 – – – – – – – – – 1,341 – – – – Total $ 75,375 30,805 16,247 16,247 20,558 20,558 20,558 26 INVOCARE ANNUAL REPORT 2003 Executive Directors of InvoCare Limited Base salary $ Motor vehicle $ Bonus $ Super- annuation $ Options(2) $ Other benefits $ Total $ 400,000 20,640 150,000 36,000 276,411 1,123 884,174 55,890 2,094 19,673 5,038 180,397 – 263,092 Name Richard Davis Chief Executive Officer Mike Grehan (1) Chief Operating Officer (Director from 24 Oct 2003) Other Executives InvoCare Limited InvoCare Limited has no employees. All Executives and employees are employed by a controlled entity, Service Corporation International Australia Pty Limited. Consolidated Entity Name Base salary $ Motor vehicle $ Bonus $ Super- annuation $ Options(2) $ Other benefits $ Total $ Mike Grehan (1) Chief Operating Officer (From 1 Jan 2003 – 24 Oct 2003) 197,084 9,148 85,927 17,737 256,798 – 566,694 Kenneth Mealey Chief Financial Officer Phillip Friery Group Finance Manager Colin Purslowe General Manager WA John Fowler General Manager VIC 180,000 15,525 150,000 16,200 321,185 – 682,910 127,000 10,566 102,500 11,430 45,453 – 296,949 143,000 34,719 7,865 16,911 70,037 7,442 279,974 135,000 10,368 8,438 18,811 70,037 19,465 262,119 (1) Mike Grehan was appointed a Director on 24 October 2003, in addition to continuing his position as the company’s Chief Operating Officer (COO). Amounts shown above in Directors’ emoluments only include Mike’s emoluments during the period that he was a Director. Amounts received in his position as COO, prior to being appointed as a Director, are excluded from Directors’ emoluments and are included above in Executives’ emoluments. (2) The amount disclosed for emoluments relating to options above is the assessed fair value at grant date of options granted to Executive Directors and other Executives, allocated equally over the period from grant date to vesting date. Fair values at grant date are independently determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the current price and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. Information on transactions with Directors is set out in Note 37 – Related party disclosures. The Corporate Governance Council has made recommendations in relation to Directors’ remuneration disclosures, including disclosures about the expected outcomes of remuneration structures and the basis for the exercise of the Directors’ discretion in relation to the payment of bonuses. The Remuneration Committee will consider these recommendations and will make appropriate disclosures in future Directors’ Reports. 27 Directors’ Report (continued) PARTICULARS OF DIRECTORS’ INTERESTS IN SHARES AND OPTIONS Details of the Directors’ relevant interests in shares and options held in InvoCare Limited are listed below: Director Ian Ferrier Richard Davis Mike Grehan John Murphy Christine Clifton Richard Fisher Particulars of Directors’ interests in shares and options of InvoCare Limited Options Ordinary shares Nil 302,401 611,168 Nil (1) Nil 1,222,336 56,417 110,000 Nil Nil Nil Nil (1) Under the terms of a Service Agreement dated 8 May 2001, Richard Davis is entitled to 988,565 options with an issue date of 8 May 2004, subject to ongoing employment. The exercise price is calculated on a per share basis being the equivalent of 6.71 times EBITDA for the financial year ending 31 December 2003 less debt at 30 April 2004. These options will vest when issued and have an expiry date of 8 May 2009. Further information regarding share options of Directors and Executives is set out in Note 24 – Share options. INDEMNIFICATION AND INSURANCE OF DIRECTORS During the financial year, InvoCare paid a premium to insure Directors and officers of the consolidated entity. The insurance policy specifically prohibits disclosure of the nature and liability covered and the amount of the premium paid. ROUNDING The company is of a kind referred to in Class Order 98/0100 issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report and Financial Report. Amounts in the Directors’ Report and Financial Report have been rounded off to the nearest thousand dollars (where rounding is applicable) in accordance with that Class Order. This report is made in accordance with a resolution of the Directors. Ian D Ferrier Director Sydney 29 March 2004 Richard H Davis Director 28 INVOCARE ANNUAL REPORT 2003 Financial Report Statements of Financial Performance 30 Statements of Financial Position 31 Statements of Cash Flows 32 Notes to the Financial Statements 33 Directors’ Declaration 65 Independent Audit Report 66 Shareholder Information 67 29 Statements of Financial Performance For the year ended 31 December 2003 Revenues from ordinary activities Finished goods and consumables used Salaries and employee benefits expenses Depreciation and amortisation expenses Interest expenses Refinancing costs Advertising and public relations expenses Occupancy and facilities expenses Motor vehicle expenses Written down value of assets sold or disposed and costs incurred Other expenses from ordinary activities Profit from ordinary activities before income tax expense Income tax expense relating to ordinary activities Profit from ordinary activities after income tax expense Net profit Net profit attributable to outside equity interest Net profit attributable to members of InvoCare Limited Total changes in equity attributable to members of InvoCare Limited other than those resulting from transactions with owners as owners Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2 3 3 3 3 150,758 144,292 25,590 21,404 (21,183) (50,536) (9,931) (14,115) (2,148) (5,722) (9,794) (3,204) (5,083) (11,442) (21,116) (50,149) (10,068) (14,754) – (5,294) (9,018) (3,130) (4,057) (10,781) – – – (13,337) (2,148) – – – – – – (14,023) – – – – – (722) – (395) 17,600 15,925 9,383 6,986 4 (5,917) (5,771) (710) (2,131) 11,683 10,154 8,673 4,855 11,683 10,154 8,673 4,855 (45) (49) – – 11,638 10,105 8,673 4,855 26 25 11,638 10,105 8,673 4,855 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 31 31 Cents 12.0 11.7 Cents n/a n/a The above Statements of Financial Performance should be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 64. 30 Statements of Financial Position As at 31 December 2003 INVOCARE ANNUAL REPORT 2003 Current assets Cash assets Receivables Inventories Property Other assets Total current assets Non-current assets Receivables Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Other assets Total non-current assets Total assets Current liabilities Payables Interest-bearing liabilities Current tax liabilities Provisions Deferred revenue Total current liabilities Non-current liabilities Payables Interest-bearing liabilities Deferred tax liabilities Provisions Deferred revenue Total non-current liabilities Total liabilities Net assets Equity Parent entity interest Contributed equity Retained profits Total parent entity interest in equity Total outside equity interest Total equity Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 27 6 7 8 9 10 11 12 4 13 14 15 16 4 17 18 19 20 4 21 22 23 25 26 7,143 14,567 9,962 4,816 2,718 39,206 7,306 – 206,036 6,022 26,302 6,195 251,861 291,067 18,380 2,515 3,962 4,563 2,619 32,039 365 152,549 2,328 3,008 36,664 194,914 226,953 64,114 5,196 14,920 9,341 3,254 2,143 34,854 7,432 – 214,385 4,798 28,798 5,668 261,081 295,935 17,283 9,877 1,432 4,610 2,417 35,619 882 129,740 2,078 3,305 33,839 169,844 205,463 90,472 2,437 2,542 – – 92 5,071 189,782 15,641 – 637 – – 206,060 211,131 2,363 2,500 42 – – 4,905 – 152,500 – – – 152,500 157,405 53,726 47 11,581 – – 33 11,661 197,046 15,641 – – – – 212,687 224,348 944 9,840 797 – – 11,581 – 129,740 – – – 129,740 141,321 83,027 52,026 11,033 63,059 1,055 64,114 75,000 14,395 89,395 1,077 90,472 52,026 1,700 53,726 – 53,726 75,000 8,027 83,027 – 83,027 The above Statements of Financial Position should be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 64. 31 Statements of Cash Flows For the year ended 31 December 2003 Notes Consolidated InvoCare Limited 2003 $’000 2002 $'000 2003 $’000 2002 $’000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Other revenue Dividend received Interest paid Refinancing costs paid Income tax paid Net cash flows from operating activities 161,413 (119,266) 683 2,054 – (14,841) (2,148) (4,361) 23,534 160,639 (115,046) 664 2,095 – (15,055) – (778) 32,519 27 Cash flows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Refund of purchase consideration for controlled entity Net cash flows from investing activities Cash flows from financing activities Proceeds from issues of ordinary shares Payment for share buy-back Proceeds from borrowings Repayment of borrowings Repayment of convertible notes Payment of dividends – InvoCare Limited shareholders Payment of dividends – Outside Equity Interest Repayment of finance lease principal Proceeds from repayment of loan by controlled entity Net cash flows (used in) financing activities Net increase/(decrease) in cash held Cash at the beginning of the financial year Cash at the end of the financial year 27 7,129 (6,054) – 1,075 2,026 (25,000) 65,000 (19,580) (30,000) (15,000) (67) (41) – (22,662) 1,947 5,196 7,143 4,560 (4,081) 643 1,122 – – – (34,835) – – – (17) – (34,852) (1,211) 6,407 5,196 480 (778) 18,110 – 7,000 (14,062) (2,148) (2,102) 6,500 – – – – 2,026 (25,000) 65,000 (19,580) (30,000) (15,000) – – 18,444 (4,110) 2,390 47 2,437 440 (377) 21,004 – – (14,124) – (2,693) 4,250 – – 643 643 – – – (34,835) – – – – 29,653 (5,182) (289) 336 47 The above Statements of Cash Flows should be read in conjunction with the accompanying notes to the financial statements set out on pages 33 to 64. 32 Notes to the Financial Statements For the year ended 31 December 2003 INVOCARE ANNUAL REPORT 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of accounting This general purpose financial report has been prepared in accordance with the requirements of the Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. It is prepared in accordance with the historical cost convention. Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures. Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year except that InvoCare no longer records in the Statements of Financial Position monies held in trust for prepaid funeral contracts and prepaid burial and cremation services on the basis these monies are not controlled by InvoCare. Prior to this change an asset and corresponding deferred revenue were included in the Statements of Financial Position. As at 31 December 2003, the monies held in trust amounted to $169.5 million (2002: $157.4 million). This change in accounting policy has had no impact on revenues and expenses reported in the Statements of Financial Performance. Consistent with the previous year, the monies held in trust are only recognised as revenue when the services are performed (refer Revenue recognition below). Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all entities controlled by InvoCare Limited (the company) and the results of all controlled entities. InvoCare Limited and its controlled entities together are referred to as the consolidated entity or InvoCare. The effects of all transactions between entities in the consolidated entity are fully eliminated. Outside equity interests in the results and equity of controlled entities are shown separately in the consolidated Statements of Financial Performance and Statements of Financial Position respectively. Where control of an entity is obtained during a financial year, its results are included in the consolidated Statements of Financial Performance from the date on which control commences. Where control of an entity ceases during a financial year its results are included for that part of the year during which control existed. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Revenue is recognised as set out below: Funeral operations Revenue is recognised when the funeral service is performed. InvoCare enters into prepaid funeral contracts providing for future funeral services at prices prevailing when agreements are signed. Payments under these contracts are placed in trust (pursuant to InvoCare’s policy and, where relevant, state laws). The monies held in trust for individual prepaid funeral contracts are not controlled by InvoCare and are not recognised in the financial statements (refer Changes in accounting policy above). Cemeteries and crematoria operations Sales of at-need and pre-need interment or inurnment rights are recognised immediately as revenue. Sales of associated memorials and other merchandise and burial and cremation services are recognised when the memorial or merchandise is delivered or service is performed. Revenues relating to undelivered memorials and merchandise and unperformed services are deferred. Cash relating to recognised and deferred revenue on sale of rights, memorials and merchandise is recorded in the financial statements upon receipt. However, similarly to prepaid funeral services, monies for prepaid burial and cremation services are placed in trust until the service is performed (refer above Changes in accounting policies). Deferred selling costs Selling costs applicable to prepaid funeral service contracts, net of any administrative fees recovered, are expensed as incurred. Direct selling costs applicable to deferred revenue on undelivered memorials and merchandise and unperformed burial and cremation services are deferred until the revenue is recognised. 33 Notes to the Financial Statements For the year ended 31 December 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income tax Tax effect accounting procedures are followed whereby the income tax expense in the Statements of Financial Performance is matched with the accounting profit after allowing for permanent differences. The future tax benefit relating to tax losses is not carried forward as an asset unless the benefit is virtually certain of realisation. Income tax on cumulative timing differences is set aside to the deferred income tax or the future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse. Maintenance and repairs Maintenance, repair costs and minor renewals are charged as expenses as incurred, except where they relate to the replacement of a component of an asset, in which case the costs are capitalised and depreciated in accordance with Note 1 – Depreciation of property, plant and equipment, below. Goods and Services Tax (GST) Cash flows are included in the Statements of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Cash For the purposes of the Statements of Cash Flows, cash includes deposits at call with financial institutions and other highly liquid investments with short periods to maturity which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of any outstanding bank overdrafts. When in use, bank overdrafts are carried at the principal amount. Interest is charged as an expense as it accrues. Receivables All trade receivables are recognised at the amounts receivable from the date of recognition. Collectibility of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful debts is raised when some doubt as to collection exists. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where appropriate, a proportion of variable and fixed overhead. Costs are assigned to individual items of inventory mainly on the basis of weighted average cost. Acquisition of assets The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is determined as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of the acquisition. The discount rate used is the incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Recoverable amount of non-current assets Non-current assets are valued at cost except where this exceeds the recoverable amount. The recoverable amount of an asset is the net amount expected to be recovered through the net cash inflows arising from its continued use and subsequent disposal. Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is written down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is recognised as an expense in net profit or loss in the reporting period in which the recoverable amount write-down occurs. The expected net cash flows included in determining recoverable amounts of non-current assets are not discounted. 34 INVOCARE ANNUAL REPORT 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Depreciation of property, plant and equipment Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and equipment (excluding freehold land) over its expected useful life to the consolidated entity. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives are as follows: Buildings Plant and equipment 40 years 3 – 10 years Cemetery land Cemetery land is carried at cost less accumulated amortisation. Cost includes the cost of acquisitions and improvements. The consolidated entity sells interment and inurnment rights in perpetuity, while retaining title to the property. Cemetery land is amortised, as the right to each plot is sold, to write off the net cost of the land over the period in which it is utilised and an economic benefit has been received. Leasehold improvements The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the consolidated entity, whichever is the shorter. Leased non-current assets A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incident to ownership of leased non-current assets, and operating leases under which the lessor effectively retains substantially all such risks and benefits. Finance leases are capitalised. A lease asset and liability are established at the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the interest expense. The leased asset is amortised on a straight line basis over the term of the lease, or where it is likely that the consolidated entity will obtain ownership of the asset, the life of the asset. The leased asset held at the reporting date is being amortised over three years (2002: three years). Operating lease payments are charged to the Statements of Financial Performance in the period in which they are incurred, as this represents the pattern of benefits derived from the leased assets. Intangible assets – goodwill Where an entity or operation is acquired, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired, including any liability for restructuring costs, is brought to account as goodwill and amortised on a straight line basis over 20 years, being the period during which the benefits are expected to arise. The cost of acquisition is discounted where settlement of any part of cash consideration is deferred. Interest-bearing liabilities Interest-bearing liabilities are carried at their principal amounts which represent the present value of future cash flows associated with servicing the debt. Interest is accrued over the period it becomes due and is recorded as part of other creditors. Employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, annual leave and accumulating sick leave are recognised in respect of employees’ services up to the reporting date, and are measured at the amounts expected to be paid when the liabilities are settled, plus appropriate on-costs. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. 35 Notes to the Financial Statements For the year ended 31 December 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Long service leave A liability for long service leave is recognised, and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, including appropriate on-costs. Consideration is given to expected future wage and salary levels, experience of employee departures and period of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency to match, as closely as possible, the estimated future cash outflows. Bonus plans A liability for employee benefits in the form of bonus plans is recognised in other creditors when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: – there are formal terms in the plan for determining the amount of the benefit – the amounts to be paid are determined before the time of completion of the financial report, or – best practice gives clear evidence of the amount of the obligation. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. Employee Share Option Plan Information relating to the Employee Share Option Plan is set out in Note 24 – Share options. No accounting entries are made in relation to the Employee Share Option Plan until options are exercised, at which time the amounts receivable from participants are recognised in the Statements of Financial Position as share capital. The amounts disclosed for remuneration of Directors and Executives in Note 34 – Remuneration of Directors and Note 35 – Remuneration of Executives include the assessed fair values of options at the date they were granted, allocated equally over the period from grant date to vesting date. Derivative financial instruments The consolidated entity enters into interest rate swap agreements. The net amount receivable or payable under interest rate swap agreements is progressively brought to account over the period to settlement. The amount recognised is accounted for as an adjustment to interest and finance charges during the period and included in other debtors or other creditors at each reporting date. When an interest rate swap is terminated early and the underlying hedged transactions are still expected to occur as designated, the gains or losses arising on the swap upon its early termination continue to be deferred and are progressively brought to account over the period during which the hedged transactions are recognised. When an interest rate swap is terminated early and the underlying hedged transactions are no longer expected to occur as designated, the gains or losses arising on the swap upon its early termination are recognised in the Statements of Financial Performance as at the date of the termination. Borrowing costs Borrowing costs are recognised as expenses in the period in which they are incurred. Earnings per share (EPS) Basic EPS is calculated as net profit after tax attributable to members, divided by the weighted average number of ordinary shares outstanding during the financial year. The weighted average number of ordinary shares has been adjusted for the effects of the share split. Diluted EPS is calculated as net profit after tax attributable to members divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for the effects of the share split. Dividends When necessary, provision is made for the amount of any dividend declared, determined or publicly recommended by the Directors on or before the end of the financial year but not distributed at balance date. 36 INVOCARE ANNUAL REPORT 2003 Note Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2. REVENUES FROM ORDINARY ACTIVITIES Revenues from operating activities Revenues from sale of goods Revenues from services Management fees Total revenues from operating activities Revenues from outside the operating activities Rent Administration fees Sundry income Dividends and distributions 74,027 66,260 – 140,287 71,036 65,937 – 136,973 37 164 1,385 505 143 1,432 520 – – 480 480 – – – Wholly owned group – controlled entities – – 7,000 Interest revenues – – 400 400 – – – – Other persons/corporations Wholly owned group – controlled entities Proceeds on the sale of non-current assets Total revenues from outside the operating activities Total revenues from ordinary activities 37 683 – 7,734 10,471 150,758 664 – 4,560 7,319 144,292 – 18,110 – 25,110 25,590 – 21,004 – 21,004 21,404 3. EXPENSES AND GAINS Expenses Cost of goods sold Depreciation of non-current assets Buildings Operating plant and equipment Total depreciation of non-current assets Amortisation of non-current assets Goodwill Cemetery land Leasehold land and buildings Leasehold improvements Plant and equipment under lease Total amortisation of non-current assets Total depreciation and amortisation expenses 21,183 21,116 2,124 4,651 6,775 2,497 380 129 137 13 3,156 9,931 2,159 4,741 6,900 2,529 365 128 135 11 3,168 10,068 – – – – – – – – – – – – – – – – – – – – – – 37 Notes to the Financial Statements For the year ended 31 December 2003 3. EXPENSES AND GAINS (continued) Borrowing costs Interest expenses Finance lease Debentures Convertible notes Other interest Total interest expenses Refinancing costs Total borrowing costs Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 4 9,941 3,394 776 14,115 2,148 16,263 8 10,423 3,600 723 14,754 – 14,754 – 9,941 3,394 2 13,337 2,148 15,485 – 10,423 3,600 – 14,023 – 14,023 Bad and doubtful debts – trade debtors 407 301 Operating lease rental – minimum lease payments 3,310 3,108 Gains Net gain on disposal of non-current assets 2,651 503 – – – – – – 4. INCOME TAX The income tax expense for the financial year differs from the amount calculated on profit. The differences are reconciled as follows: Prima facie tax on profit from ordinary activities Tax effect of permanent differences Amortisation of cemetery land Depreciation and amortisation of buildings Amortisation of goodwill Non-assessable capital gain Tax credit for intercorporate dividend Other items (net) Income tax expense attributable to ordinary activities Tax assets/(liabilities) Current tax payable Provision for deferred income tax – non-current Future income tax benefit – non-current 5,280 4,778 2,815 2,096 113 344 749 (273) – (296) 5,917 (3,962) (2,328) 6,022 109 389 759 – – (264) 5,771 (1,432) (2,078) 4,798 – – – – (2,100) (5) 710 (42) – 637 – – – – – 35 2,131 (797) – – Income tax losses No part of the future income tax benefit shown above is attributable to operating tax losses nor capital tax losses. The consolidated entity had no operating tax losses as at 31 December 2003. 38 INVOCARE ANNUAL REPORT 2003 Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 4. INCOME TAX (continued) Potential future income tax benefit as at 31 December 2003 in respect of capital tax losses not brought to account, as realisation of the benefit is not regarded as virtually certain, is: 60 73 – – This future income tax benefit will only be obtained if: (a) future assessable income is derived of a nature and of an amount sufficient to enable the benefit of the capital losses to be realised, or (b) the losses are transferred to an eligible entity in the consolidated entity, (c) the conditions for deductibility imposed by tax legislation continue to be complied with, and (d) no changes in tax legislation adversely affect the consolidated entity in realising the benefit. Tax consolidation InvoCare Limited and its wholly owned subsidiaries have the option of implementing the tax consolidation legislation. At the date of this report no decision has been taken although it is anticipated the legislation will be adopted from 1 January 2004. This is not expected to have any significant impact on the consolidated assets, liabilities and results. 5. DIVIDENDS PAID OR PROVIDED FOR Dividends proposed As stated in the Prospectus dated 31 October 2003 no final dividend will be paid in respect of the 2003 financial year. Accordingly, no dividend was proposed at year end, nor has a dividend been declared since year end. Dividends paid during the year Dividend paid to InvoCare Limited shareholders Interim dividend of 20 cents paid 27 March 2003 Fully franked based on tax paid @ 30% Dividend paid to Outside Equity Interest Interim dividend of 8.43 cents paid 11 September 2003 Fully franked based on tax paid @ 30% Franking credit balance The amount of franking credits available for subsequent financial years are: – franking account balance as at the end of the financial year at 30% (2002: 30%) – franking credits that will arise from the payment of income tax payable as at the end of the financial year 15,000 67 15,067 – – – 15,000 – 15,000 – – – 4,854 6,757 1,366 2,693 3,962 8,816 1,432 8,189 42 1,408 797 3,490 39 Notes to the Financial Statements For the year ended 31 December 2003 6. RECEIVABLES (CURRENT) Trade debtors Provision for doubtful debts Other debtors Loan to controlled entity Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 39 39 (i), 10 15,759 (1,536) 14,223 344 – 14,567 16,231 (1,668) 14,563 357 – 14,920 – – – – 2,542 2,542 – – – – 11,581 11,581 Terms and conditions (i) Details of the terms and conditions relating to the above financial instrument are set out in Note 10 – Receivables (non-current). 7. INVENTORIES (CURRENT) Finished goods – at cost 9,962 9,341 8. PROPERTY (CURRENT) Land and Buildings Cemetery land – at cost Freehold land – at cost Buildings – at cost Accumulated depreciation Total written down amount 503 1,921 2,845 (453) 2,392 4,816 380 1,890 1,120 (136) 984 3,254 – – – – – – – – – – – – – – Cemetery land Cemetery land expected to be amortised within 12 months of year end is classified as current. InvoCare will retain ownership of this land and the amortisation represents the expected sale of the rights to use the cemetery land. Freehold land and buildings Land and buildings held for sale are classified as current assets as they are expected to be sold within 12 months of year end. 9. OTHER ASSETS (CURRENT) Prepayments Deferred selling costs 2,276 442 2,718 1,739 404 2,143 92 – 92 33 – 33 40 INVOCARE ANNUAL REPORT 2003 Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 10. RECEIVABLES (NON-CURRENT) Trade debtors Provision for doubtful debts Security deposits Other debtor Loan to controlled entity (i) (ii) 7,732 (887) 6,845 61 400 – 7,306 7,824 (848) 6,976 56 400 – 7,432 – – – – – 189,782 189,782 – – – – – 197,046 197,046 Terms and conditions (i) Trade debtors are non-interest-bearing and are receivable through regular instalments within a maximum period of 60 months from the original invoice date. (ii) The loan to a controlled entity bears interest at 9% (2002: 9%) and has no fixed term. 11. OTHER FINANCIAL ASSETS (NON-CURRENT) Shares in controlled entity – unlisted (i) – – 15,641 15,641 (i) The unlisted shares at cost relate to InvoCare Limited’s 100% (2002: 100%) ownership interest in Service Corporation International Australia Pty Limited. All the shares held are classified as ordinary shares. Refer Note 38 – Investment in controlled entities for details of controlled entities. 12. PROPERTY, PLANT AND EQUIPMENT (NON-CURRENT) Land and buildings Cemetery land – at cost Accumulated amortisation Freehold land – at cost Buildings – at cost Accumulated depreciation Leasehold land and buildings – at cost Accumulated amortisation Leasehold improvements – at cost Accumulated amortisation Total land and buildings 105,514 (3,036) 102,478 33,393 66,412 (14,725) 51,687 4,470 (1,326) 3,144 1,438 (747) 691 191,393 105,610 (2,656) 102,954 35,944 70,275 (13,290) 56,985 4,470 (1,197) 3,273 1,462 (615) 847 200,003 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 41 Notes to the Financial Statements For the year ended 31 December 2003 12. PROPERTY, PLANT AND EQUIPMENT (NON-CURRENT) (continued) Plant and equipment Operating plant and equipment – at cost Accumulated depreciation Plant and equipment under lease – at cost Accumulated amortisation Total plant and equipment Assets under construction Assets under construction – at cost Total property, plant and equipment At cost Accumulated depreciation and amortisation Total written down amount Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 48,280 (35,961) 12,319 73 (6) 67 12,386 47,119 (33,323) 13,796 71 (23) 48 13,844 2,257 538 261,837 (55,801) 206,036 265,489 (51,104) 214,385 – – – – – – – – – – – – – – – – – – – – – – Valuations of land and buildings The most recent Directors’ valuation of land and buildings was as at 31 December 2001 which at that date amounted to $208,085,000. Since this time there have been acquisitions, disposals and depreciation which have resulted in a movement in this amount. The next valuation of land and buildings will be performed for the year ended 31 December 2004. The basis of the valuation of land and buildings was fair value being the amounts for which the assets could be exchanged between willing parties in an arm’s length transaction, based on an active market for similar properties in the same location and condition. Assets pledged as security Details of the non-current assets pledged as security are set out in Note 20 – Interest-bearing liabilities (non-current). 42 INVOCARE ANNUAL REPORT 2003 12. PROPERTY, PLANT AND EQUIPMENT (NON-CURRENT) (continued) Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below for the consolidated entity. The parent entity does not hold any property, plant and equipment. Cemetery land $’000 Freehold land $’000 Buildings $’000 Leasehold Leasehold improve- ments $’000 land and buildings $’000 Plant and Plant and equipment Assets under leased construction $’000 $’000 equipment $’000 Total $’000 Carrying amount 1 January 2003 Current Non-current Total opening amount Additions Disposals Depreciation/ amortisation expense Reclassifications/ Adjustments Total closing amount 380 102,954 103,334 135 (108) 1,890 35,944 984 56,985 – 3,273 37,834 – (2,520) 57,969 93 (1,946) 3,273 – – – 847 847 11 (30) – 13,796 13,796 3,273 (177) – 48 48 73 (41) – 3,254 538 214,385 538 217,639 5,469 (4,822) 1,884 – (380) – – – (2,124) (129) (137) (4,651) (13) – (7,434) 87 – – 78 – (165) – 102,981 35,314 54,079 3,144 691 12,319 67 2,257 210,852 Representing closing amount Current Non-current 503 102,478 102,981 1,921 33,393 35,314 2,392 51,687 54,079 – 3,144 3,144 – 691 691 – 12,319 12,319 – 67 67 – 4,816 2,257 206,036 2,257 210,852 Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 13. INTANGIBLES Goodwill Accumulated amortisation 49,976 (23,674) 26,302 49,976 (21,178) 28,798 14. OTHER ASSETS (NON-CURRENT) Deferred selling costs 6,195 5,668 – – – – 15. PAYABLES (CURRENT) Trade creditors Other creditors and accruals Deferred cash settlement for business interests acquired 39 39 39 4,375 13,447 558 18,380 4,844 11,810 629 17,283 – 2,363 – 2,363 – – – – – 944 – 944 43 Notes to the Financial Statements For the year ended 31 December 2003 Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 16. INTEREST-BEARING LIABILITIES (CURRENT) Secured Borrowings secured by fixed and floating charges – debentures – cash advance facility Lease liability secured by charge over leased assets 39 39 28, 39 – 2,500 15 2,515 9,840 – 37 9,877 – 2,500 – 2,500 9,840 – – 9,840 Terms and conditions Details of the terms and conditions of the above financial instruments are set out in Note 20 – Interest-bearing liabilities (non-current). 17. PROVISIONS (CURRENT) Employee entitlements Sundry provisions 29 4,563 – 4,563 4,303 307 4,610 18. DEFERRED REVENUE (CURRENT) Prepaid crematorium and cemetery deferred revenue 2,619 2,417 19. PAYABLES (NON-CURRENT) Deferred cash settlement for business interests acquired (i) 365 882 – – – – – – – – – – Terms and conditions (i) At balance date, InvoCare had a deferred cash settlement representing the present value of the remaining consideration payable for the acquisition of business interests, discounted at the prevailing commercial borrowing rate of 9% at the time the business interests were acquired. These are expected to be repaid by August 2007. 20. INTEREST-BEARING LIABILITIES (NON-CURRENT) Secured Borrowings secured by fixed and floating charges – debentures – cash advance facility Lease liability secured by charge over leased assets 39 39 130,000 22,500 99,740 – 130,000 22,500 99,740 – 28, 39 49 – – – Unsecured – convertible notes 39 – 152,549 30,000 129,740 – 152,500 30,000 129,740 44 INVOCARE ANNUAL REPORT 2003 20. INTEREST-BEARING LIABILITIES (NON-CURRENT) (continued) Debt refinancing InvoCare executed revised financing agreements with a syndicate of bankers in December 2003 providing total borrowing facilities of $165 million, including a working capital facility of $5 million. As at 31 December 2003 $155 million had been drawn down on these facilities, which is consistent with Prospectus forecasts. Terms and conditions (i) Debentures Debentures held at balance date bear interest at a variable rate (based on BBR) plus a margin of 2.05%. The interest rate at 31 December 2003 was 7.6% (2002: 6.8%) paid quarterly in arrears with a maturity date of 30 September 2006. Separate interest rate swap contracts apply to no less than 75% of the debentures. The debentures are secured by fixed and floating charges over all the assets and undertakings of the consolidated entity, except those of Oakwood Funerals Pty Limited and Macquarie Memorial Park Pty Limited. The debentures require compliance with a number of covenants which were met as at 31 December 2003 (and 31 December 2002). Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 The repayment terms of the debentures are as follows: Within 1 year 1 – 2 years 2 – 3 years 3 – 4 years * Representing Current Non-current * – – 130,000 – 130,000 – 130,000 130,000 9,840 11,670 12,850 75,220 109,580 9,840 99,740 109,580 – – 130,000 – 130,000 9,840 11,670 12,850 75,220 109,580 – 130,000 130,000 9,840 99,740 109,580 * The debentures have no set repayment terms, apart from the repayment of the loan at its maturity date, 30 September 2006. (ii) Cash advance facility The cash advance facility held at balance date bears interest at a variable rate (based on BBR) plus a margin of 2.05%. The interest rate at 31 December 2003 was 7.7% (2002: n/a) paid quarterly in arrears with a maturity date of 30 September 2006. Separate interest rate swap contracts apply to no less than 75% of the closing balance. The repayment terms of the cash advance facility are fixed as follows: 2,500 Within 1 year 10,000 1 – 2 years 12,500 2 – 3 years 25,000 2,500 10,000 12,500 25,000 – – – – ** Representing Current Non-current ** 2,500 22,500 25,000 – – – 2,500 22,500 25,000 ** Included in the cash advance facility is a $5 million component of the bullet finance facility which is not payable until the maturity date. Details of the bullet finance facility are set out below in Financing facilities available. – – – – – – – 45 Notes to the Financial Statements For the year ended 31 December 2003 20. INTEREST-BEARING LIABILITIES (NON-CURRENT) (continued) (iii) Convertible notes The convertible notes were payable to Service Corporation International, the former ultimate holding company incorporated in the United States of America. The notes were repaid in full by InvoCare Limited on 10 December 2003. They bore an interest rate of 12% (2002: 12%). (iv) Finance leases Finance leases have an average lease term of three years with the option to purchase the asset at the completion of the lease term for the asset’s market value. The average discount rate implicit in the leases is 9.1% (2002: 12.5%). Lease liabilities are secured by a charge over the leased assets. Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 Financing facilities available Unrestricted access was available at balance date to the following lines of credit: Total facilities – bank overdraft – bullet finance facility Used at balance date – bank overdraft – bullet finance facility Unused at balance date – bank overdraft – bullet finance facility 5,000 10,000 15,000 – 5,000 5,000 5,000 5,000 10,000 5,000 – 5,000 129 – 129 4,871 – 4,871 5,000 10,000 15,000 – 5,000 5,000 5,000 5,000 10,000 5,000 – 5,000 129 – 129 4,871 – 4,871 The bullet finance facility bears the same interest rate and maturity date as the cash advance facility. It may be drawn at any time. The bank overdraft may be drawn at any time. The interest rate on this facility is variable. 21. PROVISIONS (NON-CURRENT) Employee entitlements 29 3,008 3,305 – – – – 39 36,664 33,839 52,026 – 52,026 15,000 60,000 75,000 52,026 – 52,026 15,000 60,000 75,000 22. DEFERRED REVENUE (NON-CURRENT) Prepaid crematorium and cemetery deferred revenue 23. CONTRIBUTED EQUITY Issued and paid up capital Ordinary shares fully paid Preference shares fully paid 46 INVOCARE ANNUAL REPORT 2003 23. CONTRIBUTED EQUITY (continued) Movements in ordinary shares on issue Beginning of the financial year Movement prior to listing – bought back during the year prior to listing – issued prior to listing – conversion of preference shares to ordinary shares Total before share split Total after share split and at date of listing Movement after listing – issued after listing End of the financial year Movements in preference shares on issue Beginning of the financial year Movement prior to listing – bought back during the year prior to listing – conversion to ordinary shares prior to listing End of the financial year Notes Number of shares $’000 Number of shares $’000 2003 2002 15,000,000 15,000 15,000,000 15,000 (i) (3,125,000) 1,985,000 (ii) 47,500,000 61,360,000 (ii) 93,753,273 (5,000) 1,943 40,000 51,943 51,943 – – – – – – – – – – 165,460 93,918,733 83 – 52,026 15,000,000 – 15,000 60,000,000 60,000 60,000,000 60,000 (i) (ii) (12,500,000) (47,500,000) – (20,000) (40,000) – – – 60,000,000 – – 60,000 (i) After 31 December 2002 the Directors reviewed InvoCare’s financial position and capital structure and noted the significant reduction in bank loans achieved by accelerated repayments since the loans were originally advanced in May 2001. The Directors concluded that additional debt finance to pay a fully franked dividend and share buy-back would not materially prejudice InvoCare’s creditors. On 28 March 2003, 3,125,000 ordinary shares fully paid to $1 (representing 21% of ordinary shares) and 12,500,000 preference shares fully paid to $1 (representing 21% of preference shares) were bought back. The ordinary and preference shares were repurchased for $1.60 per share for a total cost of $25,000,000. (ii) Immediately prior to the IPO pursuant to a Prospectus dated 31 October 2003 all the preference shares were converted to ordinary share status on 2 December 2003. All ordinary shares were then subject to a share split of approximately 1.528 new ordinary shares for each existing ordinary share resulting in a total of 93,753,273 ordinary shares at a total paid up value of $51,942,900. The holders of 93,142,105 ordinary shares offered a 100% sell down of their respective interests in InvoCare Limited and received all the sale proceeds, less applicable costs. InvoCare Limited did not raise any capital from the IPO. Terms and conditions Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Preference shares entitled the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. Rights on winding up ranked higher than those for ordinary shares. On a show of hands every holder of preference shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Preference shares were converted to ordinary shares on 2 December 2003. Share options Information relating to the share options is included in Note 24 – Share options. 47 Notes to the Financial Statements For the year ended 31 December 2003 Issued to a Director, Richard Davis, under a Service Agreement dated 8 May 2001 24. SHARE OPTIONS InvoCare Limited has shares under option issued under the following agreements: (i) (ii) Issued to a Director, Ian Ferrier, under a letter dated 1 May 2001, and (iii) Issued under the Employee Share Option Plan approved in a meeting of the Board of Directors. Each option granted over unissued shares of InvoCare Limited entitles the holder to subscribe for one fully paid ordinary share in the capital of the company. No option holder has any rights under the options to participate in any other share issue of the company or any other entity. Set out below is a summary of the movement in options during the year: Grant date Vesting date Exercise date Expiry date Exercise Outstanding 1 January price pre 2003 share split Movement pre share split Options issued pre share split Exercised pre share split Total pre share split Movement post share split Total post share split Exercise price post share split Exercised Total post share outstanding split at year end 8 May 2001 8 May 2002 8 May 2003 8 May 2001 22 Sept 2003** 22 Sept 2003** 22 Sept 2003** 8 May 2002* 8 May 2003* 8 May 2004* 8 May 2002 24 Oct 2003 24 Oct 2003 24 Oct 2003 n/a 29 Dec 2003 n/a n/a 8 May 2006 8 May 2007 8 May 2008 1 May 2006 1 May 2006 1 May 2007 1 May 2008 Representing the movement in options (1) Options issued to a Director, Richard Davis, (2) Options issued to a Director, Ian Ferrier, under a letter dated 8 May 2001 (3) Options issued to a Director, Mike Grehan, under the Employee Share Option Plan on 22 September 2003 when he was an Executive (3) Options issued to Executives (excluding Mike Grehan) under the Employee Share Option Plan (3) Options issued to Non-Director and Non-Executive employees under the Employee Share Option Plan $0.76 1,125,000 – (1,125,000) $0.90 430,000 – (430,000) $1.63 – 430,000 (430,000) – – – n/a n/a n/a – – – $0.76 197,917 – 197,917 $0.50 302,401 – – – – –(1) –(1) –(1) 302,401(2) – – – 700,000 $0.50 1,069,544 (165,460) 904,084(3) 460,000 $0.59 702,843 – 702,843(3) $0.76 $0.90 $1.63 – – – 700,000 460,000 735,000 – 735,000 $1.07 1,123,019 1,752,917 2,325,000 (1,985,000) 2,092,917 3,197,807 – 1,123,019(3) (165,460) 3,032,347*** – – – 302,401 197,917 – – 800,000 – – 197,917 302,401 800,000 1,222,336 – 1,222,336 – 1,070,000 – 1,070,000 1,634,872 (165,460) 1,469,412 – 25,000 – 25,000 38,198 – 38,198 1,752,917 2,325,000 (1,985,000) 2,092,917 3,197,807 (165,460) 3,032,347 under a Service Agreement dated 8 May 2001 1,555,000 430,000 (1,985,000) – – These options vested immediately following the IPO. * ** These options vest in varying quantities and at various dates from the issue date. *** There were no options issued between year end and the date of this report. 48 INVOCARE ANNUAL REPORT 2003 24. SHARE OPTIONS (continued) Options granted, during the year, to Directors and the most highly remunerated officers Options over unissued ordinary shares of InvoCare Limited granted during or since the end of the financial year to any of the Directors or the five most highly remunerated officers of the company and consolidated entities as part of their remuneration were as follows: Directors Richard Davis, Managing Director and Chief Executive Officer Options granted * 657,006 Other Executives of InvoCare Limited As indicated in the Directors’ Report, InvoCare Limited has no employees. All Executives and employees are employed by a controlled entity, Service Corporation International Australia Pty Limited. Other Executives of the Consolidated Entity Mike Grehan, Chief Operating Officer** Ken Mealey, Chief Financial Officer Phillip Friery, Group Finance Manager Colin Purslowe, General Manager WA John Fowler, General Manager VIC 1,222,336 611,168 152,792 152,792 152,792 * Number of options is post share split equivalent. ** Options were issued to Mike Grehan on 22 September 2003 before he was appointed as a Director on 24 October 2003. All the options, except those issued to Richard Davis, were granted under the Employee Share Option Plan on 22 September 2003. Shares issued on the exercise of options The options originally issued to Richard Davis, exercised prior to the capital restructure and public float of InvoCare Limited, were not all exercised by Richard Davis. Richard Davis exercised 400,000 (611,168 post share split) options at $0.76 per share which increased net assets by $304,000. By agreement Macquarie Direct Investment A Limited (MDIA) a former shareholder of InvoCare Limited, purchased and exercised 1,585,000 (2,421,755 post share split) options at $0.76 per share for 725,000 options, $0.90 per share for 430,000 options and $1.63 per share for 430,000 options which increased net assets by $1,638,900. The 165,460 options exercised by participants pursuant to the Employee Share Option Plan at $0.50 per share on 29 December 2003 increased net assets by $82,730. The aggregate proceeds received from employees on the conversion of options to shares during the financial year was $386,730. Options vested at the reporting date Issued to employees (including Executive Directors) Issued to Non-Executive directors 2003 Number 2002 Number 191,055 1,718,912 302,401 302,401 493,456 2,021,313 49 Notes to the Financial Statements For the year ended 31 December 2003 24. SHARE OPTIONS (continued) Employee Share Option Plan InvoCare Limited currently has 2,729,946 options (post share split) issued to senior employees and management of the company under the Employee Share Option Plan. The Employee Share Option Plan under which options may be issued by the company to employees for no cash consideration was approved in a meeting of the Board of Directors. Option issue The Board of Directors may determine from time to time to grant options upon such terms and to such participants (as described below) and at such exercise prices as they see fit. Each option is to subscribe for one fully paid ordinary share in InvoCare Limited of a class to be determined by the Board. When issued, the share will rank equally with other ordinary shares of the same class in InvoCare Limited. Options will not be quoted on ASX. Participants Participants of the Employee Share Option Plan include eligible employees, eligible associates and eligible persons. Eligible employees may also be eligible associates. Eligible associates include any Director, officer or any person or entity holding any share for the benefit of any Director or officer of InvoCare Limited or a controlled entity previously approved by the Directors. Eligible persons means eligible employees and eligible associates. Vesting of options Unless otherwise determined by the Directors, a grant of options made to a participant will vest over a period of three years as follows: (a) one third of the number of options granted will vest on the second anniversary of the issue date of those options (b) a further one third of the number of options granted will vest on the third anniversary of the issue date of those options, and (c) the final one third of the number of options granted will vest on the fourth anniversary of the issue date of those options. No option can be exercised until it has vested. Once options have reached their vesting dates options may be exercised in parcels of no less than 10,000 (or if the vested entitlement is less than 10,000 the full amount of that vested entitlement must be exercised) until the earlier of the fifth anniversary of the issue date, the date of sale of all the shares in InvoCare Limited and the occurrence of one of the events listed below that causes the lapse of options. Lapse of options Unless otherwise determined, vested options of employees may be exercised at any time prior to the first to occur of: – the expiry of five years from the date of issue – expiry of three months after the date upon which the option holder dies or voluntarily or without cause ceases to be employed by InvoCare, and – immediately upon the option holder’s employment by InvoCare being terminated with cause. In the case of options issued to Directors who are not an employee of InvoCare, once vested, vested options may be exercised by that participant at any time prior to the first to occur of: – the expiry of five years from the date of issue, – expiry of three months after the date upon which the option holder ceases to be a Director, and – determination by the Directors that the participant has acted fraudulently, dishonestly or in breach of the Director’s obligations to InvoCare. 50 INVOCARE ANNUAL REPORT 2003 24. SHARE OPTIONS (continued) Assignment of options Options may not be transferred other than to an associate or related body corporate (as those terms are defined in the Corporations Act) and providing the transferee enters into a deed of accession. Bonus issues If InvoCare Limited makes a bonus issue of shares or other securities pro rata to holders of shares (other than an issue in lieu, or in satisfaction, of dividends or by way of dividend reinvestment) and no shares have been allotted in respect of an option before the record date for determining entitlements to the bonus issue, then that option, when exercised in accordance with the Plan, will entitle the option holder to receive the number of shares that the option holder would have been entitled to under the bonus issue as if the option had been exercised and the shares allotted before that record date. Rights issues If InvoCare Limited makes a rights offer to all or most of the shareholders of the company (other than in lieu of dividends or by way of dividend reinvestment) then the exercise price of the options will be reduced by the values of the theoretical rights of entitlement received in relation to each share (as determined by the formula expressed in the terms of the Plan). Overriding restrictions All rights and entitlements attaching to an option or of an option holder under the Plan have been changed to the extent necessary to comply with the Listing Rules that apply to a reorganisation of the capital of InvoCare Limited, at the time that that reorganisation becomes effective. Maximum number of shares issued pursuant to the Plan The total number of shares issued upon exercise of the options under the Plan must not exceed 10% of the total number of shares on issue in the capital of InvoCare Limited (or shares capable of being issued under an equity security). However, if an applicable law at any time imposes a lower limit, then that lower limit will apply instead. Options exercised by employees during the financial year Details of the number of shares issued to employees and the fair values of those shares as at their issue date and the distribution date are listed below: Exercise date 24 October 2003 29 December 2003 Fair value of shares at option exercise date * ** $1.89 $2.09 Number (post share split) 611,168 165,460 776,628 * The fair value of shares issued on the exercise of options is estimated as the average of InvoCare Limited’s shares high and low trades on ASX on the first day InvoCare Limited’s shares were traded, being 4 December 2003. There was no public trading of the company’s shares prior to this date. ** The fair value of shares issued on the exercise of options is the average of InvoCare Limited’s shares high and low traded on ASX on the day the options were exercised. 51 Notes to the Financial Statements For the year ended 31 December 2003 25. RETAINED PROFITS Retained profits Retained profits Balance at the beginning of the year Net profit attributable to members of InvoCare Limited Total available for appropriation Dividends paid Balance at the end of the year 26. OUTSIDE EQUITY INTEREST Reconciliation of outside equity interest in controlled entities: Share capital Opening balance of retained earnings Add share of operating profit Less dividends paid Closing balance of retained earnings Reserves Closing balance 27. STATEMENTS OF CASH FLOWS Reconciliation of the net profit after income tax to the net cash flows from operations Net profit after tax Non-cash or non-operating items Notes Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 11,033 14,395 1,700 8,027 14,395 4,290 8,027 3,172 11,638 26,033 (15,000) 11,033 10,105 14,395 – 14,395 8,673 16,700 (15,000) 1,700 4,855 8,027 – 8,027 800 178 45 (67) 156 99 1,055 800 129 49 – 178 99 1,077 11,683 10,154 8,673 4,855 Depreciation of non-current assets Amortisation of non-current assets Net (profit) on disposal of property, plant and equipment 3 3 3 6,775 3,156 6,900 3,168 (2,651) (503) Changes in operating assets and liabilities (Increase)/decrease in trade and other receivables (Increase)/decrease in inventory (Increase)/decrease in future income tax benefit (Increase)/decrease in other operating assets (Decrease)/increase in trade and other creditors (Decrease)/increase in deferred revenue (Decrease)/increase in tax provision (Decrease)/increase in deferred income tax liability (Decrease)/increase in provisions Net cash flow from operating activities 479 (621) (1,224) (1,102) 1,576 3,027 2,530 250 (344) 23,534 4,713 735 4,180 (429) 1,113 2,186 1,423 (612) (509) 32,519 – – – – – (637) (59) (722) – (755) – – 6,500 – – – 2 – – – (45) – (562) – – 4,250 52 INVOCARE ANNUAL REPORT 2003 Note Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 27. STATEMENTS OF CASH FLOWS (continued) Reconciliation of cash Cash balance comprises: Cash on hand Cash at bank Closing cash balance 28. EXPENDITURE COMMITMENTS Capital expenditure commitments Commitments for the acquisition of property, plant and equipment contracted for at the reporting date but not recognised as liabilities payable: – within one year 47 7,096 7,143 46 5,150 5,196 – 2,437 2,437 – 47 47 260 680 – – In addition to the above commitments, the Directors have approved expenditure on the replacement of InvoCare’s computer systems. The amount approved but not contracted for at balance date amounted to $1,480,000. Other expenditure commitments Commitments for the construction of crypts, contracted for at the reporting date but not recognised as liabilities payable: – within one year (i) 2,286 – (i) The construction of crypt inventory is performed periodically, approximately every three years. Lease expenditure commitments Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: – within one year – later than one year and not later than five years – later than five years Aggregate lease expenditure contracted for at balance date 2,534 5,144 13,244 2,557 5,176 14,126 20,922 21,859 – – – – – – – – – – Assets that are the subject of operating leases include property, motor vehicles and office equipment. 53 Notes to the Financial Statements For the year ended 31 December 2003 Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 28. EXPENDITURE COMMITMENTS (continued) Lease expenditure commitments (continued) Finance leases Commitments in relation to finance leases are payable as follows: – within one year – later than one year and not later than five years Minimum lease payments Future finance charges Total lease liability Representing lease liabilities – current liability – non-current liability 21 54 75 (11) 64 15 49 64 40 – 40 (3) 37 37 – 37 – – – – – – – – The weighted average interest rate implicit in the lease is 9.1% (2002: 12.5%). InvoCare has the option to acquire the leased asset for its agreed residual value on expiry of the lease. 29. EMPLOYEE BENEFITS Employee benefit and related on-costs liabilities Included in other creditors and accruals – current (Note 15) Provisions for employee entitlements – current (Note 17) Provisions for employee entitlements – non-current (Note 21) Aggregate employee benefit and related on-costs liabilities Employee numbers Number of full-time equivalent employees at the reporting date 2,693 2,456 4,563 4,303 3,008 3,305 10,264 10,064 806 803 – – – – – Information regarding share options issued to employees is set out in Note 24 – Share options. – – – – – – – – – – – – – 54 INVOCARE ANNUAL REPORT 2003 30. CONTINGENT LIABILITIES The parent entity and consolidated entity had contingent liabilities at 31 December 2003 in respect of bank guarantees given in respect of leased premises of controlled entities to a maximum amount of: Consolidated InvoCare Limited 2003 $’000 2002 $’000 2003 $’000 2002 $’000 225 233 225 129 No material losses are anticipated in respect of the above contingent liabilities. 31. EARNINGS PER SHARE Reconciliation of earnings used in calculating basic and diluted earnings per share Net profit Adjustments: Net profit attributable to outside equity interest Earnings used in calculating basic and diluted earnings per share 11,683 (45) 11,638 n/a Number of shares Number of shares Weighted average number of shares used as the denominator Weighted average number of ordinary shares used in calculating basic earnings per share: Weighted average number of ordinary shares and potential ordinary shares used in calculating diluted earnings per share: 96,920,114 99,228,347 n/a n/a The average market price utilised in calculating the weighted average number of shares used in calculating diluted earnings per share was $2.02, being the average of the daily market prices of InvoCare Limited’s ordinary shares traded in the period from initial listing on 4 December 2003 until 31 December 2003. Adjustment for share split The weighted average number of ordinary shares used to calculate the basic and diluted earnings per share has been adjusted for the change in the number of ordinary shares which occurred as a result of the share split in December 2003. The number of ordinary shares outstanding before the share split has been adjusted for the proportionate change in the number of ordinary shares outstanding as if the share split had occurred at the beginning of the year. 55 Notes to the Financial Statements For the year ended 31 December 2003 31. EARNINGS PER SHARE (continued) Comparative information Due to the change in status of InvoCare Limited from a private to a publicly listed company and the substantial changes to its capital structure during the year, comparative information has not been disclosed as it is considered there is no relevant basis of comparison. Information concerning the classification of securities Ordinary shares In determining the weighted average number of shares for basic and diluted earnings per share the preference shares on issue (up to the listing in 2003) have been treated as ordinary shares as they fall within the definition of ordinary shares. Options Options granted are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in Note 24 – Share options. Subsequent movements in contributed equity Since the end of the financial year, no ordinary shares have been issued pursuant to the Employee Share Option Plan. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report. 32. SUBSEQUENT EVENTS There have been no significant events that have occurred subsequent to 31 December 2003. 33. SEGMENT INFORMATION InvoCare operates in one industry, being the funeral industry, and in one geographical location, being Australia. 56 INVOCARE ANNUAL REPORT 2003 34. REMUNERATION OF DIRECTORS Directors’ remuneration Income paid or payable, or otherwise made available, in respect of the financial year, to Directors by entities in the consolidated entity and related parties in connection with the management of affairs of the parent entity or its controlled entities Consolidated InvoCare Limited 2003 $ 2002 $ 2003 $ 2002 $ 1,859,449 1,148,290 1,347,614 692,003 Options are granted to Executive Directors, details of which are set out in Note 24 – Share options. Details of options granted to and exercised by Directors during the year ended 31 December 2003 are set out in Note 24 – Share options. The amounts disclosed for remuneration of Directors include the assessed fair values of options granted to Directors during the year ended 31 December 2003 at the date they were granted. Fair values have been independently determined using an appropriate option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the current price and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The number of Directors of InvoCare Limited whose total income falls within the following bands is: – $19,999 $10,000 – $29,999 $20,000 – $39,999 $30,000 $70,000 – $79,999 $260,000 – $269,999 $520,000 – $529,999 $880,000 – $889,999 Number Number 2 3 1 1 1 – 1 – 4 – 1 – 1 – Non-Executive Directors’ fees The Constitution provides that the Non-Executive Directors are entitled to be paid Directors’ fees in aggregate up to a maximum of $250,000 per annum or such other maximum amount determined from time to time by InvoCare in general meeting. This excludes any remuneration determined by the Directors where a Director performs additional or special duties for the company. This remuneration is to be divided among the Non-Executive Directors in such proportion as the Board determines. Directors are entitled to be reimbursed for all reasonable costs and expenses including time charges incurred by them in the performance of their duties as Directors. 57 Notes to the Financial Statements For the year ended 31 December 2003 Consolidated InvoCare Limited 2003 $ 2002 $ 2003 $ 2002 $ 35. REMUNERATION OF EXECUTIVES Remuneration received, or due and receivable, from entities in the consolidated entity and related parties by Australian-based Executive Officers (including Directors) whose remuneration was at least $100,000: Executive officers of the parent entity* Executive officers of the other entities in the consolidated entity 1,128,308 2,396,871 2,396,871 1,128,308 1,953,209 4,350,080 1,470,224 2,598,532 – – 2,396,871 1,128,308 The number of Executive Officers (including Directors) whose remuneration from entities in the consolidated entity and related parties was within the specified bands are as follows: $100,000 – $109,999 $120,000 – $129,999 $140,000 – $149,999 $160,000 – $169,999 $170,000 – $179,999 $180,000 – $189,999 $190,000 – $199,999 $200,000 – $209,999 $210,000 – $219,999 $220,000 – $229,999 $230,000 – $239,999 $250,000 – $259,999 $260,000 – $269,999 $270,000 – $279,999 $290,000 – $299,999 $340,000 – $349,999 $520,000 – $529,999 $680,000 – $689,999 $820,000 – $829,999 $890,000 – $899,999 Number Number Number Number 2 1 – 1 – 1 – 1 – – 1 – 1 1 1 – – 1 1 1 1 2 1 1 1 – 1 – 1 1 – 1 – – – 1 1 – – – – – – – – – – – – – – – – – – – – 1 1 1 – – – – – – – – – – – 1 – – – 1 1 – – – Options are granted to Executive Officers under the Employee Share Option Plan, details of which are set out in Note 24 – Share options. * As mentioned in the Directors’ report, InvoCare Limited has no employees, all Executives and officers are employed by a controlled entity, Service Corporation International Australia Pty Limited. Amounts disclosed are paid by the controlled entity, but are in relation to the work performed as Executives of InvoCare Limited. The amounts disclosed for remuneration of Executive Officers in this note include the assessed fair values at the date they were granted of options granted to Executive Officers during the year ended 31 December 2003. Fair values have been independently determined using an appropriate option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the current price and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. 58 INVOCARE ANNUAL REPORT 2003 36. REMUNERATION OF AUDITOR During the year the auditor of the parent entity and its related practices earned the following remuneration: PricewaterhouseCoopers – Australian firm Audit of financial reports of the entity or any entity in the consolidated entity Review of financial report of the consolidated entity Other audit-related work Total audit and other assurance services Advisory services Taxation Total other services Total remuneration of PricewaterhouseCoopers Related practices of PricewaterhouseCoopers Australian firm PricewaterhouseCoopers Legal PricewaterhouseCoopers Securities Total remuneration of related practices Total remuneration of auditors and related practices Representing Amount paid by InvoCare Amount paid by former shareholders Total remuneration of auditor and related practices Consolidated InvoCare Limited 2003 $ 2002 $ 2003 $ 2002 $ 110,000 40,000 66,650 216,650 56,593 157,082 213,675 430,325 78,000 – 55,085 133,085 89,298 163,205 252,503 385,588 159,039 207,800 366,839 41,848 – 41,848 797,164 427,436 564,964 232,200 427,436 – 797,164 427,436 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – There was a significant increase in the remuneration paid to the auditor of InvoCare. This increase is primarily due to the additional work performed in relation to the listing of InvoCare Limited’s shares on ASX. It is InvoCare’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the consolidated entity are important. These assignments are principally tax advice and advisory services, or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is InvoCare’s policy to seek competitive tenders for any major consulting projects. 59 Notes to the Financial Statements For the year ended 31 December 2003 37. RELATED PARTY DISCLOSURES Directors The Directors of InvoCare Limited during the financial year were: Ian D Ferrier Richard H Davis Mike J Grehan (appointed 24 October 2003) John W Murphy Christine L Clifton (appointed 24 October 2003) Richard H Fisher (appointed 24 October 2003) Patrick F Elliott (resigned 24 October 2003) MacDonell Roehm Jr (resigned 24 October 2003) Michael R Webb (resigned 24 October 2003). Remuneration and retirement benefits Information on remuneration of Directors is disclosed in Note 34 – Remuneration of Directors. Transactions of Directors concerning share options Details of transactions of Directors concerning share options are set out in Note 24 – Share options. Equity instruments of Directors and Director-related entities Interests at balance date Interests in the equity instruments of InvoCare Limited held by Directors of the reporting entity and their Director-related entities: Ian Ferrier Richard Davis Mike Grehan John Murphy Christine Clifton Ordinary shares fully paid Options over ordinary shares 2003 Number 2002 Number 2003 Number 2002 Number – 611,168 – 56,417 110,000 – – – – – 302,401 – 1,222,336 – – 302,401 – – – – Notes (i) (i), (ii) (i) (iii) (iv) (i) Equity instruments are held by Directors only, no equity instruments are held by Director-related entities of these Directors. (ii) Under a Service Agreement dated 8 May 2001, Richard Davis will be issued with 988,565 options on 8 May 2004, subject to continuing employment. These options may be exercised at a price determined by the share equivalent of 6.71 times EBITDA for the financial year ended 31 December 2003 less debt at 30 April 2004. These share options expire 8 May 2009. (iii) Equity instruments are held by a Director-related entity only, no equity instruments are held directly by John Murphy. (iv) Equity instruments are held by the Director and a Director-related entity. Amount shown is the aggregate number held. Interests after balance date After 31 December 2003 a Director-related entity of Richard Fisher acquired 5,000 ordinary shares in InvoCare Limited. 60 INVOCARE ANNUAL REPORT 2003 37. RELATED PARTY DISCLOSURES (continued) Escrow agreement Richard Davis and Mike Grehan have entered separate voluntary escrow arrangements relating to shares and options in InvoCare whereby sale of the shares and options is not allowed until InvoCare has reported its audited financial results for the year ending 31 December 2004. In the event of death, permanent disability or ceasing to be a Director or employee of InvoCare, earlier sale is permitted. Transactions with Director-related entities A Director of InvoCare Limited, John Murphy, is a Director of Investec Wentworth Pty Limited and Investec Wentworth Private Equity Pty Limited who provided professional services to a controlled entity during the year ended 31 December 2003 on normal commercial terms and conditions. A Director of InvoCare Limited, Richard Fisher, is a partner at Blake Dawson Waldron. Blake Dawson Waldron provided legal services to a controlled entity during the year ended 31 December 2003 on normal commercial terms and conditions. Aggregate amounts of each of the above types of transactions with Director-related entities: Professional services Legal services Consolidated InvoCare Limited 2003 $ 15,950 951 2002 $ – * 2003 $ – – 2002 $ – * * Richard Fisher was appointed 24 October 2003, therefore comparative figures are not applicable. Wholly owned group transactions The ultimate parent entity in the wholly owned group is InvoCare Limited, a company listed on ASX. The wholly owned group consists of InvoCare Limited and its wholly owned controlled entities. Ownership interest of these are set out in Note 38 – Investments in controlled entities. Transactions between InvoCare Limited and its controlled entities consist of: (a) loan advanced by InvoCare Limited (b) loan repaid to InvoCare Limited (c) the payment of interest on the above loan (d) the payment of dividends to InvoCare Limited, and (e) the payment of a management fee to InvoCare Limited. Loan The loan made by InvoCare Limited to a controlled entity has no fixed terms of repayment. The aggregate amount receivable included in Note 6 – Receivables (current) and Note 10 – Receivables (non-current) totalled $192,324,000 (2002: $208,627,000). Interest on the loan is charged at 9% (2002: 9%). Repayments totalling $16,303,000 (2002: $29,653,000) were made during the year. In addition, interest revenue included in the determination of operating profit before income tax that resulted from transactions with the entity in the wholly owned group totalled $18,110,000 (2002: $21,004,000). Dividends A fully franked dividend of $7,000,000 was received by InvoCare Limited from a controlled entity. This amount has been included in the determination of operating profit before income tax. Management fee A management fee was charged by InvoCare Limited to a controlled entity during the year totalling $480,000 (2002: $400,000). This amount is included in the determination of operating profit before income tax. 61 Notes to the Financial Statements For the year ended 31 December 2003 37. RELATED PARTY DISCLOSURES (continued) Former shareholder transactions Service Corporation International, a company incorporated in the United States of America, held 20% of the issued ordinary share capital until 8 December 2003. Service Corporation International provided a loan of $30,000,000 in the form of convertible notes to InvoCare Limited until 10 December 2003 when the convertible notes were repaid in full. The interest expense on the convertible notes totalled $3,394,000 (2002: $3,600,000) and is included in the determination of operating profit before income tax. 38. INVESTMENTS IN CONTROLLED ENTITIES The consolidated entity comprises the parent entity and the entities it controlled at the end of, or during, the financial year. Parent Entity InvoCare Limited Name of entity Service Corporation International Australia Pty Limited New South Wales Cremation Company Pty Limited Cremations (Newcastle) Holdings Pty Limited Cremations (Newcastle) Pty Limited Macquarie Memorial Park Pty Limited Macquarie Funeral Service Pty Limited Novocastrian Funerals Pty Limited Novocastrian Funerals Unit Trust Catholic Funerals Newcastle Pty Limited Mead & Purslowe Pty Limited Mead & Purslowe Trading Trust Oakwood Funerals Pty Limited^^ Dignity Pre-Arranged Funerals Pty Limited Memorial Guardian Plan Pty Limited Pine Grove Forest Lawn Funeral Benefit Company Pty Limited Kitleaf Pty Limited The Australian Cremation Society Pty Limited Metropolitan Burial and Cremation Society Funeral Contribution Fund Pty Limited Labor Funerals Contribution Fund Pty Limited Purslowe Custodians Pty Limited Beresfield Funerals Pty Limited Equity holding 2003 % 100 100 100 100 83.14 83.14 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 2002 % 100 100 100 100 83.14 83.14 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 Cost of parent entity’s investment 2002 $’000 2003 $’000 15,641 – – – – – – – – – – – – – – – – 15,641 – – – – – – – – – – – – – – – – – – – – 15,641 – – – – 15,641 All entities are incorporated and domiciled in Australia. ^^ Service Corporation International Australia Pty Limited holds 50% of the shares in Oakwood Funerals Pty Limited, which is a controlling interest as it has the capacity to dominate decision making and operations of the company’s business activities. 62 INVOCARE ANNUAL REPORT 2003 39. FINANCIAL INSTRUMENTS (a) Interest rate risk exposures The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the reporting date, are as follows: Floating interest rate Fixed interest rate maturing in: Over 1 to 1 year 5 years or less Non-interest- bearing Total Notes 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2003 $’000 2002 $’000 2003 $’000 Weighted average interest rate 2003 % 2002 % 2002 $’000 Financial assets Cash Cash Trade and other debtors Security deposit 27 27 6, 10 10 5,002 5,196 – – 19 – – 18 – 2,141 – – Total financial assets 5,021 5,214 2,141 – – – – – – – – – – – – – – – – – – – 5,002 2,141 5,196 – 21,812 22,296 21,812 22,296 42 38 61 56 21,854 22,334 29,016 27,548 Financial liabilities Trade and other creditors Deferred revenue 15, 19 18, 22 – – – – Debentures 16, 20 130,000 109,580 Cash advance facility 16, 20 25,000 Convertible notes Lease liability Interest rate swap* 20 16, 20 – – 524 529 307 794 17,914 16,842 18,745 18,165 – 39,283 36,256 39,283 36,256 – – – – – – – – – – – – – – 30,000 15 37 49 – – – – – – – – – – – – – – 130,000 109,580 25,000 – – 64 – 30,000 12.0 37 9.1 – # (136,000) (130,394) 20,994 12,024 115,006 118,370 Total financial liabilities 19,000 (20,814) 21,533 12,590 115,362 149,164 57,197 53,098 213,092 194,038 Net financial assets/(liabilities) (13,979) 26,028 (19,392) (12,590) (115,362) (149,164) (35,343) (30,764) (184,076) (166,490) n/a Not applicable for non-interest-bearing financial instruments. ^ Account is the aggregate of nine bank accounts. Where the aggregate balance is greater than $5,000,000 a premium interest rate is received. When the aggregate balance is overdrawn a rate of 8.6% is charged. * Notional principal amounts. Not recognised in financial statements. # The disclosure of effective interest rates is not applicable to derivative financial instruments. For information on interest rates see below. 3.7 4.5 n/a 3.8 9.0 n/a 7.6 7.7 4.0^ 0.0 n/a 3.9 9.0 n/a 6.8 0.0 12.0 12.5 # 63 Notes to the Financial Statements For the year ended 31 December 2003 39. FINANCIAL INSTRUMENTS (continued) (b) Net fair value of financial assets and liabilities On-balance sheet The carrying amount of financial assets and liabilities approximates their fair value. (c) Off-balance sheet derivative instruments InvoCare Limited is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates. Financial liabilities Interest rate swaps, net liability Carrying amount Net fair value 2003 $’000 2002 $’000 2003 $’000 2002 $’000 – – 780 2,287 Interest rate swap contracts The debentures and cash advance facility currently bear an average variable interest rate of 7.64% (2002: 6.84%). It is policy to protect the majority of the loan agreement from exposure to increasing interest rates. In addition, the loan agreement requires at least 75% of the principal be covered by interest rate swaps. Accordingly, InvoCare has entered into interest rate swap contracts to reduce its exposure to adverse fluctuations in interest rates on debentures and cash advance facility. Swaps currently in place cover 85% (2002: 117%) of the debenture and cash advance facility principal outstanding. Under the contracts, interest is paid at fixed rates and received at variable rates. The fixed weighted average interest rate is 5.639% (2002: 5.585%) and the variable rate is based on the BBSW which at the balance date was 5.515% (2002: 4.808%). The contract has notional principal amounts with a similar maturity profile to the debentures and cash advance facility and requires settlement of net interest receivable or payable each quarter coinciding with the dates on which interest is payable on the debentures and cash advance facility. There was no net amount receivable or payable on the swap contract at the reporting date. (d) Credit risk exposures The credit risk on financial assets of the consolidated entity which have been recognised on the statement of financial position, other than investment in shares, is generally the carrying amount, net of any provision for doubtful debts. 64 Directors’ Declaration As at 31 December 2003 INVOCARE ANNUAL REPORT 2003 The Directors declare that the financial statements and notes to the financial statements: (a) comply with the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (b) give a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2003 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date. In the Directors’ opinion: (a) the financial statements and notes are in accordance with the Corporations Act 2001, and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Directors. Ian D Ferrier Director Sydney 29 March 2004 Richard H Davis Director 65 Independent Audit Report Independent audit report to the members of InvoCare Limited Audit opinion In our opinion, the financial report of InvoCare Limited: • gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of InvoCare Limited and the InvoCare Group (defined below) as at 31 December 2003, and of their performance for the year ended on that date, and • is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001. This opinion must be read in conjunction with the rest of our audit report. Scope The financial report and Directors’ responsibility The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the Directors’ declaration for both InvoCare Limited (the company) and InvoCare Group (the consolidated entity), for the year ended 31 December 2003. The consolidated entity comprises both the company and the entities it controlled during that year. The Directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: • examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and • assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the Directors. When this audit report is included in an Annual Report, our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. Our audit did not involve an analysis of the prudence of business decisions made by Directors or management. Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. PricewaterhouseCoopers John Gordon Partner Liability is limited by the Accountant’s Scheme under the Professional Standards Act 1994 (NSW) Sydney 29 March 2004 66 Shareholder Information As at 31 December 2003 INVOCARE ANNUAL REPORT 2003 The shareholder information set out below was applicable as at 17 March 2004. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Class of equity securities Options over ordinary shares Ordinary shares 776 2,468 1,018 746 52 5,060 – – – 3 9 12 There were 3 holders of less than a marketable parcel of ordinary shares (being 219 at a market price of $2.29 on 17 March 2004) who hold a total of 465 ordinary shares. Equity security holders 20 largest quoted equity security holders The names of the 20 largest holders of quoted equity securities are listed below: Name National Nominees Limited RBC Global Services Australia Nominees Pty Limited Westpac Custodian Nominees Limited JP Morgan Nominees Australia Limited Bond Street Custodians Limited Tasman Asset Management Limited UBS Private Clients Australia Nominees Pty Limited Permanent Trustee Australia Limited (SYD) ANZ Nominees Limited Queensland Investment Corporation PSS Board CSS Board IOOF Investment Management Limited MF Custodians Limited Mr Richard H Davis Cogent Nominees Pty Limited Government Superannuation Office AMP Life Limited Victorian Workcover Authority Huntley Investment Co Limited Ordinary shares Number Percentage of issued shares held 10,745,998 9,682,941 8,264,730 7,785,642 3,823,180 2,845,931 2,445,657 2,330,204 2,035,835 1,637,487 1,421,811 1,188,078 1,011,665 711,000 611,168 603,566 599,488 564,745 559,856 500,000 59,368,982 11.44% 10.31% 8.80% 8.29% 4.07% 3.03% 2.60% 2.48% 2.17% 1.74% 1.51% 1.27% 1.08% 0.76% 0.65% 0.64% 0.64% 0.60% 0.60% 0.53% 63.21% 67 Shareholder Information As at 31 December 2003 Unquoted equity securities Options issued under the Employee Share Option Plan to take up ordinary shares Options issued under a letter to a Director to take up ordinary shares Substantial holders Substantial holders in the company are set out below: National Nominees Limited RBC Global Services Australia Nominees Pty Limited Westpac Custodian Nominees Limited JP Morgan Nominees Australia Limited Voting rights The voting rights attaching to each class of security are set out below: Number on issue Number of holders 2,729,946 302,401 11 1 Number of shares held Percentage 10,745,998 9,682,941 8,264,730 7,785,642 11.44% 10.31% 8.80% 8.29% Ordinary shares On a show of hands, each member present in person and each other person present as a proxy of a member, has one vote. On a poll each member present in person has one vote for each fully paid share held by the member and each person present as a proxy of a member has one vote for each fully paid share held by the member that the proxy represents. Options Options have no voting rights. Shares subject to voluntary escrow The number of ordinary shares subject to voluntary escrow that are on issue are listed below: Ordinary shares subject to voluntary escrow Number Escrow period end date on issue 611,168 * * The escrow period end date is the earlier of 28 February 2005 or when the shareholder ceases to be an employee. 68 Contents Financial Summary 6 Letter from the Chairman 7 CEO’s Review of Operations 8 InvoCare Across Australia 14 Board of Directors 16 Corporate Governance 18 Directors’ Report 22 Financial Report 29 Statements of Financial Performance 30 Statements of Financial Position 31 Statements of Cash Flows 32 Notes to the Financial Statements 33 Directors’ Declaration 65 Independent Audit Report 66 Shareholder Information 67 Corporate Information 69 D E T M L I I I Y T P S E T A C O S S A & R R A B S S O R Y B D E C U D O R P D N A D E N G S E D I Corporate Information ABN 42 096 437 393 InvoCare Limited (formerly SCIA Holdings Pty Limited) Directors Ian D Ferrier (Chairman) Richard H Davis (Managing Director and Chief Executive Officer) Mike J Grehan (Chief Operating Officer) John W Murphy (Non-Executive Director) Christine L Clifton (Non-Executive Director) Richard H Fisher (Non-Executive Director) Company Secretary Kenneth R Mealey (Chief Financial Officer) Annual General Meeting The Annual General Meeting of InvoCare Limited will be held at The Westin Sydney, 1 Martin Place, Sydney on Monday 31 May 2004. Registered Office Share Register Level 4, 153 Walker Street North Sydney NSW 2060 Telephone: 02 9978 5200 Facsimile: 02 9978 5299 Website: www.invocare.com.au ASX Perpetual Registrars Limited Level 8, 580 George Street Sydney NSW 2000 Toll free: 1300 854 911 Facsimile: 02 9287 0303 Website: www.asxperpetual.com.au Stock Exchange Listing InvoCare Limited is a company limited by shares that is incorporated and domiciled in Australia. InvoCare Limited’s shares are listed on the Australian Stock Exchange only. ASX code is IVC. Auditor Solicitors Bankers PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street Sydney NSW 1171 Coudert Brothers Level 8 Gateway 1 Macquarie Place Sydney NSW 2000 Australia and New Zealand Banking Group Limited 20 Martin Place Sydney NSW 2000 . i g n h c a e b l r o f e n i r o h c l l a t n e m e e l o n s e s u d n a l a i r e t a m d e c y c e r l % 0 5 m o r f l d e c y c e r r e p a p n o d e t n i r p s i t r o p e r i s h T 69 I n v o C a r e i L m i t e d A n n u a l R e p o r t 2 0 0 3 Annual Report 2003 

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