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Remembrance
ANNUAL REPORT 2014
Contents
01 Performance highlights
02 Chairman’s message
04 Chief Executive
Officer’s review
08 Key strategies
10 Our digital business
strategy
14 The InvoCare Way
16 Management team
17 Financial Report
18 Directors’ Report
33 Corporate Governance
Statement
38 Remuneration Report
51 Auditor’s Independence
Declaration
102 Directors’ Declaration
103 Independent Auditor’s
Report
105 Shareholder Information
106 InvoCare Locations
108 Glossary
IBC Corporate Information
A “Personal Details” guide
has been included in the back
of this document to assist
our stakeholders.
Our key objective is to provide families
with excellent service to enable them to
remember their loved ones in the way they
wish to celebrate the life of the individual,
by providing caring and compassionate
service to the highest standard.
2014 was the 100th anniversary of the beginning
of World War I, and shortly most people across
Australia and New Zealand will pause to
remember the initial Gallipoli landings. It is
fitting that InvoCare pay tribute to those who
have been lost in war, regardless of nationality.
A major focus in 2015 will be the inculcation of
our core values of Collaboration, Accountability,
Responsiveness and Excellence into all our
teams – no matter where they are based.
3
Singapore
Funeral locations
Memorial parks
19
Western Australia
44
5
Queensland
16 South Australia
81
9
New South Wales
and Australian
Capital Territory
47 Victoria
1
Tasmania
Our network across Australia,
New Zealand, Singapore and
USA is committed to enabling
communities to remember their
loved ones while providing a
personalised touch.
0E
InvoCare’s more than 60 contemporary-style brands of funeral homes maintain the
service approach respected by families over many generations. The service is personal
and professional, gently guiding families through the arrangement process.
USA
2
With at least one major brand in each Australian state and a number of smaller heritage
brands serving local communities, there are 158 InvoCare contemporary-style and
heritage funeral homes in Australia and New Zealand.
Key Funeral Brands
New South Wales
and Australian
Capital Territory
25
5
New Zealand
White Lady Funerals is a
dedicated team of women
offering a unique service for our
client families with a woman’s
understanding. The life of the
loved one is honoured with
special nurturing, sensitivity,
warmth and care. There are
56 White Lady locations
throughout Australia.
Flexible and less traditional,
Simplicity Funerals offers
practical, dignified, respectful
and affordable funeral services.
Steadily expanding, there
are 58 Simplicity Funerals
locations throughout Australia,
New Zealand and Singapore,
and a growing number of
mobile arrangers servicing
areas lacking Simplicity
representation.
Singapore Casket Company
has been offering caring and
professional services to client
families, of all denominations,
since 1920. Its current facilities
include nine air-conditioned
parlours offering a bright, clean
and tranquil environment for the
comfort of families.
Cemeteries and Crematoria
North America
InvoCare operates 14 cemeteries
and crematoria in Australia. The
multicultural nature of Australia is
recognised with burial, cremation
and memorial options, including
Asian sections designed by Feng
Shui advisers, and the availability
of architecturally designed crypts,
vaults and family mausoleums
preferred by many European
communities.
InvoCares received its licence
to operate in February 2015
and has seven Memorial
Concierges operating in five
major zones (north and south
Los Angeles, Orange County
and north and south San
Diego) in southern California.
It is supported by a crematoria
operation, Macera Crematory,
acquired in November 2014.
Contemporary and Heritage Funerals
Our network across Australia,
New Zealand, Singapore and
USA is committed to enabling
communities to remember their
loved ones while providing a
personalised touch.
We’ll know what to do.
A full list of brands and locations is set out on pages 106-107.
0F
we listen, we care, we serveChinese Memorial GardenLung Po Shan 0
100
200
300
400
500
0
20
40
60
80
100
120
Revenue from external
Operating EBITDA
0
0
100
100
200
200
300
300
400
400
500
500
0
0
20
20
40
40
60
60
80
80
100
100
120
120
Performance highlights
Revenue from external
Revenue from external
Operating EBITDA
Operating EBITDA
12
12
368.6
368.6
12
12
93.0
93.0
385.3
385.3
The continued focus on key strategies in 2014 has seen
13
13
95.1
95.1
14
14
an 11.5% increase in net profit after tax, following an
estimated increase in the number of deaths of 3.2% in
InvoCare’s key markets.
413.0
413.0
13
13
14
14
500
500
400
400
300
300
200
200
100
100
40
40
20
20
60
60
80
80
0
0
0
0
101.1
101.1
100
100
120
120
12
13
14
12
13
14
368.6
385.3
413.0
42.5
42.5
46.2
12
13
14
12
13
14
93.0
95.1
101.1
Revenue from external
Revenue from external
Revenue from external
customers ($ million)
Operating EBITDA
Operating EBITDA
Operating EBITDA
($ million)
12
12
13
13
0
0
14
14
368.6
368.6
385.3
385.3
10
10
20
20
30
30
40
40
413.0
413.0
50
50
12
12
13
13
0
0
14
14
93.0
93.0
95.1
95.1
5
5
10
10
15
15
20
20
25
25
35
35
30
30
101.1
101.1
40
40
0
0
10
10
20
20
30
30
40
40
50
50
60
60
0
10
20
30
40
50
0
5
10
15
20
25
30
35
40
Operating earnings
Operating earnings
Operating earnings
after tax ($ million)
Ordinary dividends
Ordinary dividends
Ordinary dividends
per share (cents per share)
Profit after tax
Profit after tax
12
12
13
13
0
14
14
42.5
42.5
42.5
42.5
10
20
30
40
50
46.2
46.2
60
12
12
13
13
14
14
34.0
34.0
34.5
34.5
36.5
36.5
12
12
13
13
14
14
44.5
44.5
48.9
48.9
54.5
54.5
Operating earnings
Ordinary dividends
Profit after tax attributable
Profit after tax
to members ($ million)
0
0
10
10
20
20
30
30
40
40
50
50
0
0
5
5
10
10
15
15
20
20
25
25
30
30
35
35
40
40
0
0
10
10
20
20
30
30
40
40
50
50
60
60
34.0
34.5
36.5
Operating earnings
Operating earnings
12
44.5
Ordinary dividends
Ordinary dividends
Profit after tax
Profit after tax
13
12
12
14
13
13
14
14
48.9
42.5
42.5
54.5
42.5
42.5
46.2
46.2
12
12
13
13
14
14
Standing Tall
John Rhind Funeral Directors
recently acquired two fibreglass
giraffes as part of its support
for the Christchurch Stands
Tall event, which was part
fundraising for some worthwhile
charities and also a community
event to celebrate the resilience
of Christchurch’s residents who
have withstood two massive
earthquakes and multiple
aftershocks in recent years
(killing 181 people).
Left: Giraffe by Christchurch
street artist Pops Art.
34.0
34.0
34.5
34.5
36.5
36.5
12
12
13
13
14
14
44.5
44.5
48.9
48.9
54.5
54.5
The Flanders Poppy
Papaver rhoeas, commonly
known as the Common
Poppy or Flanders Poppy,
has become a symbol of
remembrance for those who
lost their lives in war. Given the
significant anniversaries that
occur about this time, it has
been represented as a symbol
of remembrance.
InvoCare Annual Report 2014 01
Chairman’s message
A robust financial
result for 2014
Following growth in the number of deaths
in its markets, plus contributions from
acquired businesses, InvoCare has delivered
a robust financial result for 2014.
The continued focus on the core
strategic growth pillars embodied
in InvoCare’s operational strategy
enabled the Company to continue
to grow in 2014.
Operating earnings after tax grew
by 8.7% to $46.2 million for the
year due to an estimated 3.2%
growth in the number of deaths
in InvoCare’s key markets. The
Company also benefited from the
strong performance of recently
acquired businesses. Statutory profit
after tax, which includes asset sale
gains and the non-cash impact of
movements in prepaid contracts
funds under management and
associated liabilities, increased 11.5%
to $54.5 million. A significant reason
for this was a substantial improvement
in the net gain from prepaid contracts.
Pleasingly, all geographic regions
contributed positively and in line
with expectations.
In light of strong operating EBITDA
to cash conversion ratio at 106%, the
Board declared a fully franked final
dividend of 20.75 cents per share.
Total dividends for the year amounted
to 36.5 cents per share, an increase
of 5.8% on 2013. The 2014 dividends
represent a payout ratio of 87%
(2012: 89%) of operating earnings
after tax. Total shareholder returns
(price movement plus cash dividends)
since the initial public offering in late
2003 now stands at more than 21%
compound annual growth.
A presence in the US has been
established in southern California built
around a low cost model focusing on
service excellence delivered by mobile
arrangers and partnerships with key
suppliers. This initiative is led by an
experienced senior funeral executive
and has operations in Los Angeles,
Orange County and San Diego.
The attention to staff development
and training was a major achievement
in 2014 along with the articulation of
vision and value statements which all
InvoCare employees can embrace
in the continued quest to deliver
outstanding services to client families.
These values focus on collaboration,
accountability, responsiveness and
excellence built around innovation,
vocation and care.
On behalf of the Board and all
shareholders I would like to thank
Andrew Smith for his contributions
over the last nine years and welcome
Martin Earp who will assume the
role of CEO on 1 May 2015. All the
management and staff of InvoCare
deserve a special thank you for
delivering solid financial results during
2014. The Board, during its visits
to various operational locations,
continues to be impressed by the
professionalism, dedication and sense
of vocation of InvoCare’s personnel.
I look forward to InvoCare’s continued
successful growth and the ongoing
success of its core business
operations in Australia, New Zealand
and Singapore as well as the
growth of its recently established
US operations as this market is
entered for the first time.
Richard Fisher
Chairman
02
A robust financial
result for 2014
Operating earnings
Ó
$46.2m 5.8%
Operating earnings
after tax grew by 8.7% to
$46.2 million for the year.
Increase of total
dividends for the year
to 36.5 cents per share.
Cash conversion ratio
106%
Strong operating EBITDA
to cash conversion ratio.
Five year Financials
$’000
2014
2013
2012
2011
2010
Revenue from external customers
413,011
385,352
368,652
321,113
267,449
Operating EBITDA
101,082
95,072
93,026
81,802
Operating EBITDA margin
24.5%
24.7%
25.2%
25.5%
70,411
26.3%
Operating earnings after tax*
46,192
42,498
42,479
36,406
32,928
Operating earnings per share (cents)
42.2
38.9
38.8
34.5
32.4
Profit after tax attributable to members
54,515
48,869
44,479
27,012
27,366
Earnings per share (cents)
Dividend paid in respect of the financial year (cents)
49.8
36.5
44.7
34.5
40.6
34.0
25.6
29.75
26.9
28.25
Ungeared, tax free operating cash flow
106,784
104,311
88,542
75,411
69,059
Proportion of EBITDA converted to cash
106%
110%
95%
92%
98%
Actual capital expenditure
26,665
19,264
18,412
16,723
14,266
Net debt
218,862
215,057
217,136
209,114
147,538
Operating EBITDA/Net interest (times)
Net debt/EBITDA (times)
Funeral homes (number)
Cemeteries and crematoria (number)
Employees (full-time equivalents)
Prepaid contract sales/prepaid redemptions
8.0
2.2
243
14
1,532
8%
6.8
2.3
237
14
1,470
15%
6.7
2.3
232
14
1,470
16%
6.7
2.5
226
14
1,430
22%
7.1
2.1
177
12
1,112
20%
* Operating earnings after tax excludes the net gain/(loss) on undelivered prepaid contracts, gain/(loss) on sale, disposal or impairment of non-current
assets and non-controlling interests.
InvoCare Annual Report 2014 03
Chief Executive Officer’s review
A continued focus
brings results
InvoCare has delivered another solid
result with net profit after tax attributable
to members up 11.5% to $54.5 million.
The number of deaths across all markets
is estimated to have grown by 3.2%.
Market share has remained relatively stable,
arresting the declines experienced in 2013.
Andrew Smith
Chief Executive Officer
04
A continued focus
brings results
Ó
3.2%
Growth in number of
deaths across all markets.
Net profit
Net gains
Sales revenue
$54.5m
Net profit after tax
attributable to members
up by 11.5%.
$7.6m
Net gains from undelivered
prepaid contracts up by
$6.5 million to $7.6 million
after tax
7.2%
Growth in sales revenue
to $413 million.
Sales revenue rose 7.2% to $413 million
assisted in part by the full year impacts of
the acquisitions made in 2013. Comparable
sales revenues grew by 6.3% due to
volume increases and increases in average
case values.
The result includes:
• Operating earnings after tax up by
8.7% to $46.2 million;
• Sales of $5.4 million from acquired
businesses up by $3.4 million;
• Group EBITDA up by 6.3% to
$101.1 million;
• Net gains from undelivered prepaid
contracts up by $6.5 million to
$7.6 million after tax;
• Continued strong cash generation
at 106% of EBITDA; and
• Final dividend increased by 1.25 cents
per share to 20.75 cents per share.
The year has seen a significant focus on
efforts to maintain and improve market
share with investments in community
support programmes and sponsorships
on levels never before seen. In addition,
there was a significant focus on enhancing
service excellence through improved staff
training and engagement. This training had
a particular focus on enhancing the quality
of the initial contact with client families.
Marketing expenditure was increased to
enhance brand name recognition, and
the ongoing investment in modernising
our digital facilities continued. These
initiatives were most effective in our major
metropolitan markets. In regional markets
the skills and reputations of individual
operators are vital elements of success.
However, in some key areas changes
to personnel over the last couple of
years, and under-investment in marketing,
has meant that market share growth in
regional markets requires management
attention in 2015.
In another important development a total
of six Australian and two New Zealand
mobile arrangers are operating under the
Simplicity brand, delivering personalised
service to client families in convenient
locations of the families’ choosing.
Acquisitions
The acquisitions completed in the Auckland
market were integrated into InvoCare’s
Auckland operations during the year and
continued to produce very credible results
for the New Zealand operation.
Late in the year a small acquisition was
completed in Melton, Victoria which added
an outer western suburbs location to
the network in Victoria. In a full year this
operation is expected to add approximately
$1.2 million in sales revenue.
Overview of the year
Comparable Australian funerals case
volumes were up by 2.9% during the
year with a very solid increase of 5.7% in
the second half as the number of deaths
rose to a more normalised level. Average
revenue per funeral before disbursements
and prepaid funerals rose by 3.4%. Despite
favourable customer survey results InvoCare
estimates that its market share has
remained relatively static since December
2013. Customer survey responses
showed that 98% of client families would
recommend an InvoCare location; and the
number saying pricing was in line with,
or better than, expected has improved.
Brand recognition, particularly for our key
national brands, continues to be very strong
– with unprompted brand recognition for
White Lady remaining well above 50%.
Case volumes in the Australian Cemeteries
and Crematoria division were up by 3.8%
for the year with a strong second half
performance (up 7% on the prior period).
Market share increased, driven in particular
by a strong performance by New South
Wales. Gross sales (i.e. prior to accounting
for undelivered merchandise) rose by
5.1% to $85.2 million. Disappointingly,
following an ACCC investigation into two
client complaints, InvoCare was fined and
entered into an enforceable undertaking
with the ACCC. Considerable effort has
been expended in both staff training
and enhanced procedures to ensure no
repetition of these unfortunate incidents.
InvoCare Annual Report 2014 05
Capital expenditure
$26.7m
Capital expenditure
totalled $26.7 million
Ó
0.4%
Increase in Australian
funeral case numbers
delivered from previously
prepaid contracts
Customer survey
98%
of client families
would recommend
an InvoCare location
Chief Executive Officer’s review continued
During the year an electronic funeral
arrangement solution using iPads was
successfully rolled out across New South
Wales, the Australian Capital Territory
and Queensland, with the balance of the
Australian states to be completed during
2015. A similar application has been rolled
out for prepaid contracts and is also in the
final stages of development in New Zealand.
To date, over 10,000 funeral arrangements
have been completed using this solution.
During the year capital expenditure
totalled $26.7 million with more than 50%
of the expenditure directed towards the
enhancement and improvement of the
facilities available for client families. One
major project underway is the installation
of new audio visual technologies in major
chapels to allow client families to live stream
services for those family members unable
to attend in person. No major property
divestments occurred during the course
of 2014.
New Zealand funeral sales revenue rose
16.5% to $48.8 million with comparable
locations rising by 8.3%. Case volumes
rose 6.4% on a comparable basis and
14.7% in total. Case averages (excluding
disbursements) rose 1.1% in line with
expectations. A major focus of the
New Zealand management team was
the development of the first national
brand in New Zealand, under the
Simplicity brand name which is positioned
in the affordable and practical segment.
Singapore funeral sales rose 0.5% on
an increase in case volumes of 1.3%
compared to the prior period. Case
averages declined slightly driven by mix,
with a strong growth in the lower case
average Simplicity Casket business and
lower package sales mix in the Singapore
Casket business. EBITDA to sales raised to
48.5% – an overall improvement of 0.6%.
Prepaid contract investment earnings,
which benefitted from the sale of an
investment property, exceeded the
growth in service delivery obligations.
The number of new contract sales
exceeded redemptions by 8.3% meaning
the pool of future revenue streams has
continued to increase during 2014.
A total of 14.6% of Australian funeral
case numbers are delivered from previously
prepaid contracts, which is an increase
of 0.4% on the previous year.
06
Left: The new water feature at
Northern Suburbs Memorial Gardens
and Crematorium provides a tranquil
place for quiet contemplation very
close to the centre of Sydney.
Below left: A Simplicity mobile arranger
with her liveried vehicle.
Below: Built in 1879, the Simplicity
Funerals Morphett Vale location
has been used as a police station,
community centre and school before
becoming a funeral home in 1992.
During 2014 the venue was proud to
host a school reunion for former pupils
and staff of the Morphett Vale Primary
School which closed at this location
in 1979.
Outlook
The ongoing investment in digital initiatives
will continue into 2015 with the aim of
improving the service offerings for our client
families and enhancing the professionalism
of our staff to ensure the highest level of
care is delivered to families at a most difficult
time. Further major property improvements
are planned for 2015 including the last
of the rectification works of earthquake
damage sustained by InvoCare facilities in
Christchurch, New Zealand.
In New Zealand we remain on track to
complete the acquisition of two memorial
parks in the Christchurch region during the
second quarter. This will be InvoCare’s first
investment in Cemeteries and Crematoria
in that country.
InvoCare USA, Inc. began operations in
February 2015 from a base in southern
California servicing the San Diego, Orange
County and Los Angeles regions. The
operation, led by a seasoned executive from
one of the major US funeral companies,
is a low cost and low risk business model
based around mobile arrangers providing
a range of services typically provided in
Australia, New Zealand and Singapore but
generally not offered by funeral homes in
the US market. In addition, a business to
business cremation operation was acquired
in November 2014 to facilitate the provision
of cremation services in the relevant market.
Commitment to the community
InvoCare continues to support a wide
variety of community and service
organisations. One highlight during the
year was the sacrifice of hair by many staff
members in support of the Leukaemia
Foundation’s World’s Greatest Shave
and another major event hosted by many
locations was the Biggest Morning Tea
which supports Cancer Australia.
Support was provided to The Salvation
Army, Legacy, the Jane McGrath
Foundation and Lions, among many others;
and many of InvoCare’s staff were heavily
involved in their local community service
clubs such as Rotary. Following a long
tradition of assisting families affected by
international disasters, InvoCare provided
support to the families affected by the
Malaysian Airlines MH17 disaster.
Team InvoCare
Training programmes continue to be
delivered to InvoCare’s staff to ensure they
are equipped to provide the best possible
service. Following the completion of a major
staff survey in the previous year a major
revamp of the recognition and rewards
programme was completed and rolled out
through the year. InvoCare, recognising
that its people are the key to the consistent
delivery of superior service to its client
families, made the delivery of training to
enhance the first contact experience for
client families a key priority during the year.
The implementation of iPad-based systems
was underpinned by significant investment
in training to ensure the workforce were
ready and able to take the digital journey.
Members of our staff also continue to
be shareholders, with more than 25% of
InvoCare employees participating in the
Company’s Deferred Employee Share Plan,
Exempt Employee Share Plan, or through
direct ownership of shares in the Company.
The future
As many of you know, my term as CEO
finishes at the end of April 2015. I would
like to particularly thank my fellow directors,
direct reports and all of the people at
InvoCare for the support, guidance and
friendships I have received and made over
the last nine years with InvoCare. Without
this collaboration the Company would not
have seen its successful growth profile.
Martin Earp (who becomes CEO on
1 May 2015) will, I am sure, be very
successful in building on the excellent
foundations that have been put in place
since InvoCare’s listing in 2003 – and I
take this opportunity to welcome Martin
and wish him every success.
InvoCare Annual Report 2014 07
Key strategies lead
to positive growth
In 2014 InvoCare maintained its focus on the core
strategies to drive growth and profitability.
Actual and projected calendar and fiscal year deaths – Australia
325
300
275
250
225
200
175
150
125
100
)
0
0
0
’
(
r
e
b
m
u
N
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Actual national rolling annual deaths per ABS
Trend plus/minus 5%
ABS projected deaths 2012 Series B
Estimated national rolling annual deaths per ABS
Demographics
The aging baby boomer generation will
see a gradual increase in the number
of deaths in InvoCare’s key markets
creating possibilities for the business.
As experienced in 2013 factors beyond
InvoCare’s control, such as weather
conditions and the severity of the flu
season, will impact the number of deaths
within specific periods. Changing attitudes
to funerals, with more people wanting an
involved and celebratory experience, will
ensure InvoCare key brands such as White
Lady Funerals will continue to prosper.
Brand Awareness
InvoCare aims to sustain and improve brand
awareness by running integrated TV, radio,
press and billboard campaigns. White Lady
Funerals once again achieved aided brand
awareness scores above 90% in InvoCare’s
research. All other brands researched,
including Guardian, Chipper, Purslowe,
George Hartnett, Le Pine and Metropolitan,
achieved aided brand awareness scores
better than or around the same levels as
the previous years. Marketing expenditure
was increased significantly in 2014 which
aided brand awareness based on the brand
recognition research.
Community Engagement
Investments in community support
programmes and sponsorship, often
supplemented by the many hours our
people devote to community and social
organisations, were at the highest
levels ever. Support was provided to
The Salvation Army, Legacy, the Jane
McGrath Foundation and Lions among
many others. Following a long tradition of
assisting families affected by international
disasters InvoCare provided support to the
families affected by the Malaysian Airlines
MH17 disaster.
Facilities
Building on InvoCare’s robust business
model we continue to seek new locations
and acquisitions within the footprint of
established shared service functions. During
2014 a total of four additional physical
locations and a total of six Simplicity mobile
arrangers were added to the network. After
the end of the year InvoCare USA gained
its licence to operate and now has seven
Memorial Concierge locations operating
in southern California. As InvoCare has
continued to grow, more geographically
dispersed locations have been acquired
or examined. New or replacement sites
are selected in high visibility locations as
a cost effective means to promote brand
awareness. We also continue to expend
substantial sums maintaining our many
heritage listed assets, especially in our
locations where many generations of
individual families are memorialised.
08
Left: A White Lady Approaching the
West Chapel at Northern Suburbs
Memorial Gardens and Crematorium.
0
0
50
100
150
200
250
300
500
1000
1500
2000
50
100
150
200
250
300
Total locations
Total
Total locations
12
locations
13
246
251
0
50
100
150
200
250
300
500
1000
0
12
14
13
0
Total locations
100
50
150
200
250
300
14
0
500
Employees
1000
257
1500
2000
1500
257
251
246
500
1000
1500
2000
Employees
Employees
12
2000
0
0
13
12
14
13
14
1,470
1,470
1,470
1,532
1,470
1,532
15
15
16
16
15
15
104.3
106.7
88.5
104.3
106.7
13
0
12
14
13
20
20
20
60
80
100
120
40
8
14
0
Ungeared, tax free operating
20
60
80
40
8
100
120
Ungeared, tax free operating
88.5
12
13
14
12
13
14
20
20
0
0
13
12
14
13
14
104.3
88.5
106.7
104.3
106.7
12
Employees
Employees
(full-time equivalents)
13
1,470
1,470
14
12
13
0
14
0
5
5
1,532
1,470
1,470
25
1,532
10
15
20
30
0
5
10
20
40
60
80
100
120
10
15
20
25
30
Capital expenditure
Actual expenditures
($ million)
0
Prepaid contract sales
10
5
20
40
60
80
100
120
Ungeared, tax free operating
Actual expenditures
12
18.4
Prepaid contract sales
12
Ungeared, tax free operating
88.5
12
13
0
12
14
13
5
19.3
18.4
10
19.3
14
Prepaid contract sales/
Prepaid contract sales
5
0
prepaid redemptions (%)
10
12
Prepaid contract sales
13
0
14
12
13
20
40
8
60
80
26.7
15
26.7
15
16
15
100
16
15
120
Ungeared, tax free operating
Ungeared, tax free operating
14
8
cash flow ($ million)
12
13
14
88.5
104.3
106.7
InvoCare Annual Report 2014 09
0
50
100
150
Total locations
0
5
10
15
Actual expenditures
12
Total locations
0
300
250
200
Our people the key to
customer service
The professionalism of our staff is constantly
13
being enhanced by investment in training
and other learning opportunities presented
14
12
by InvoCare’s learning and development
team. Our business is underpinned by the
13
personal service from our people supported
14
by highly efficient back end processes
to ensure client families receive the most
professional service possible. Core training
modules continued to be delivered during
12
2014. Following the major staff survey
undertaken in 2013 we have focused on
13
recognition and rewards. Unlike most of
14
our competitors, who are often family
owned, we are able to offer our staff career
advancement in the industry, as well as an
opportunity to own shares in the Company.
246
251
257
Employees
2000
1000
246
251
1500
257
246
Future Income Streams
The number and value of prepaid
contracts continues to grow, providing
our clients with the peace of knowing
500
that when the time comes their families
are protected from unexpected burdens.
We work with our investment managers
to ensure that investment strategies are
put in place that will continue to ensure
good returns are delivered from our pre-
need contracts. InvoCare also continues
to expand the range of memorialisation
options available to our client families
ensuring valuable future revenue streams
as these products are delivered.
1,470
1,470
251
257
1,532
0
5
5
0
15
10
25
10
15
Actual expenditures
Digital
We aim to use digital solutions to enhance
the client families’ experience of InvoCare
and to ensure we deliver these services
in a cost effective way. During 2014 iPad
applications were implemented for funeral
12
18.4
arrangements and prepaid contract
Actual expenditures
processes, following significant investments
in this technology. This process was
augmented by a substantial investment
in training to ensure that our workforce
is empowered to take the digital journey.
13
We aim to ensure that the ambience of
our locations continues to meet client
expectations and that the most modern
facilities, such as audio visual systems and
web casting, are available for those who
choose them.
Capital Management
InvoCare’s capital management initiatives
are designed to ensure that an appropriate
30
20
mix of debt and equity is maintained to
maximise returns to shareholders while
ensuring adequate funds are available
to support growth and expansion. The
30
20
Company is in a healthy financial position
and its strong operating cash flows provide
necessary funds to pay at least 75% of
operating earnings after tax to shareholders
as dividends, meet debt servicing
19.3
obligations, invest in property, plant and
equipment, as well as fund smaller, new
20
business acquisitions. The Company’s
Dividend Reinvestment Plan has been
supported by up to approximately 25% of
shareholders. In the event opportunities
become limited for investing in the growth
of the business, the Company will consider
making alternative returns to shareholders.
Prepaid contract sales
10
18.4
26.7
15
19.3
26.7
14
12
16
12
14
13
30
25
20
25
0
5
18.4
19.3
26.7
13
14
8
15
12
13
14
12
13
14
Our digital
business strategy
InvoCare’s Digital Business Strategy is about delivering a
digitally-enabled customer, employee and partner experience
to create value. For our customers our strategy is about
delivering a ‘Digital Celebration of Life’ experience.
Customer Journey
End of Life
Considerations
Building Relationships
and Trust
Servicing Customers
and Arranging the
Service
Celebrating and
Memorialising
Lives
Ongoing
Customer Care
and Engagement
Research (Increasingly
online/Digital Channel-
supported)
Initial Contact/
Conversation and
Quoting
At/Pre-Need
Arrangement including
Contract Acceptance
Preparing for and
Delivering the Service
Post-Service Support,
Follow-Up and
Continuous Engagement
Online (Websites including
Search) and Social Media
Electronic Business and Customer Relationship Management
Digital Business Strategy
Front and Back Office
The ‘Digital Celebration of Life’ accompanies our customers
throughout their journey interacting with our business,
from contacting us and arranging a funeral, to celebrating
and memorialising the lives of their loved ones, all the way
through to after-service care and engagement.
10
Our key
achievements 2014
Customer Journey and Digital Celebration of Life
InvoApp
InvoAV
HeavenAddress
InvoCare has launched ‘InvoApp’, a
customer service App that empowers
frontline staff to digitally-arrange funerals
(from customer contact management to
contract acceptance) with less time spent
on administration. This awards more quality
time to better prepare for the funeral, and
to celebrate and memorialise lives in ways
that are more in tune with our customers’
needs. Over 10,000 funeral services have
been arranged with InvoApp thus far.
InvoCare has started to introduce a
new Internet-enabled digital audio
visual system that features an industry-
first innovation: ‘InvoCloud’. Using
InvoCloud, digital content to celebrate
lives is easier to produce, prepare and
share before, during and after a funeral
service (including funeral recordings
and web streaming). Supported with
InvoCloud, funeral services benefit
from life celebrations that are digitally-
memorialised for future generations.
InvoCare has completed the rollout
of HeavenAddress Resting Place at
its Castlebrook, Northern Suburbs,
Pinegrove and Mount Thompson
Memorial Parks. Resting Place enables
customers to search for the physical
memorials of their loved ones online,
with digital (Google-powered) maps to
locate the memorial – with the ability
to link it with a digital HeavenAddress
memorial (www.heavenaddress.com).
The benefits for our business
• Grow and protect our market share in
an increasingly more digital marketplace.
• Better service the digitally-savvy
customers of the present and
importantly the future.
• Strategically leverage digital to expand
our business (enable greater scale,
faster growth).
• Build a more efficient, productive and
competitive business.
• Harness digital to empower our people
and foster a culture of innovation.
InvoCare Annual Report 2014 11
Every year InvoCare locations provide
support to various organisations to enable
them to commemorate those that served in
all theatres of war. Each of our cemetery
and crematoria locations set aside dedicated
areas for the interment of those who have
served their country.
12
Opposite: A Remembrance Day ceremony at Lake Macquarie
Memorial Park organised in conjunction with the Toronto RSL
sub-branch involving cadets from the Newcastle region.
Above: Dignitaries at the opening of the RSL Memorial Area at
Forest Lawn Memorial Park on ANZAC Day in 2014.
Right: The tranquil setting of the RSL Memorial Area at Forest
Lawn Memorial Park.
Below Right: Cadets in front of the RSL Memorial at Lake
Macquarie Memorial Park.
InvoCare Annual Report 2014 13
The InvoCare Way
With the growth of the InvoCare business in Australia, and its
expansion into New Zealand, Asia and most recently into the
US, it has become increasingly important that everyone who
works within the InvoCare group has a consistent and shared
understanding of the Company’s vision, mission, philosophy and,
most importantly, the Values, which underpin the way that every
employee behaves.
Shared, consistent values will significantly impact business
performance, and will help InvoCare reach its potential.
‘Let’s do Tea’ – ‘The InvoCare Way’
launched across the InvoCare business
In mid 2014 work started on the development
of The InvoCare Way, which is the umbrella
term used in the Company for Vision, Mission,
Philosophy and Values.
Built from within the InvoCare name, the
key components of ‘The InvoCare Way’
were developed:
Innovation
Can be found within our Vision:
Our Vision: To be known around the world
as the people who excel at honouring,
celebrating and memorialising a loved one.
The
InvoCare
Way
To be known around the world as the people who excel
at honouring, celebrating and memorialising a loved one.
OurO MWe’re here to support our clients, their families and friends, at
Missi n
a pivotal time in their lives. We do this by being compassionate,
exceeding expectations and delivering outstanding service.
OurV
Values
Innovation
We continuously look to innovate.
To take new approaches, to fi nd
new opportunities, to use new
technologies. But always to
help client families to farewell
a loved one.
Vocation
Our people are passionate
about the service they provide
to client families and the local
community – their work is
their vocation.
Care
We take great pride in what
we do but caring is at our heart.
We are a team of compassionate
people. By always being genuine
in this care, we build trust with
our customers, suppliers and
our communities.
Vocation
Can be found within our Mission and Philosophy:
Our Mission: We’re here to support our clients,
their families and friends, at a pivotal time in their
lives. We do this by being compassionate, exceeding
expectations and delivering outstanding service.
Care
Is at the foundation of our Values:
Our Values: Collaboration, Accountability
Responsibility, Excellence.
14
CARE is at the core of InvoCare. It brings together our four key values.
Collaboration
CARE is at the core of InvoCare. It brings together our four key values.
The
Theeeeeeeee
We respect one another and achieve more by working together as a team
across the InvoCare group
Collaboration
We respect one another and achieve more by working together as a team
across the InvoCare group
InvoCare
Invooooooooo
The
Theeeeeeeee
Wayyyyyyyyy
Way
InvoCare
Invooooooooo
Wayyyyyyyyy
Way
Accountability
We always act with integrity, through honesty, fairness and accountability
Accountability
We always act with integrity, through honesty, fairness and accountability
Responsiveness
Responsiveness
We put our clients and community (cid:240)(cid:85)(cid:86)(cid:87), by listening, anticipating, supporting
and actioning, to exceed their expectations
We put our clients and community (cid:240)(cid:85)(cid:86)(cid:87), by listening, anticipating, supporting
and actioning, to exceed their expectations
TTTTTToTooo
To be known around the world as the people who excel
at honouring, celebrating and memorialising a loved one.
aaaatttt
To be known around the world as the people who excel
TTTTTToTooo
aaaatttt
at honouring, celebrating and memorialising a loved one.
urMWe’re here to support our clients, their families and friends, at
Missi n
urMWe’re here to support our clients, their families and friends, at
Missi n
a pivotal time in their lives. We do this by being compassionate,
exceeding expectations and delivering outstanding service.
aaaa p
WWWWWWWWWe
WWWWWWWWWe
eeeexxxx
a pivotal time in their lives. We do this by being compassionate,
aaaa p
exceeding expectations and delivering outstanding service.
eeeexxxx
Excellence
Excellence
We continuously improve the way we do business
We continuously improve the way we do business
(cid:91)(cid:79)(cid:89)(cid:86)(cid:92)(cid:78)(cid:79)(cid:3)(cid:80)(cid:85)(cid:85)(cid:86)(cid:93)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:19)(cid:3)(cid:74)(cid:89)(cid:76)(cid:72)(cid:91)(cid:80)(cid:93)(cid:80)(cid:91)(cid:96)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:197)(cid:76)(cid:95)(cid:80)(cid:73)(cid:80)(cid:83)(cid:80)(cid:91)(cid:96)
(cid:91)(cid:79)(cid:89)(cid:86)(cid:92)(cid:78)(cid:79)(cid:3)(cid:80)(cid:85)(cid:85)(cid:86)(cid:93)(cid:72)(cid:91)(cid:80)(cid:86)(cid:85)(cid:19)(cid:3)(cid:74)(cid:89)(cid:76)(cid:72)(cid:91)(cid:80)(cid:93)(cid:80)(cid:91)(cid:96)(cid:3)(cid:72)(cid:85)(cid:75)(cid:3)(cid:197)(cid:76)(cid:95)(cid:80)(cid:73)(cid:80)(cid:83)(cid:80)(cid:91)(cid:96)
Innovation
Innovatioooooooo
Vocation
Innovatioooooooo
Innovation
We continuously look to innovate.
We continuously lookkkkk ttto
(cid:59)(cid:86)(cid:3)(cid:91)(cid:72)(cid:82)(cid:76)(cid:3)(cid:85)(cid:76)(cid:94)(cid:3)(cid:72)(cid:87)(cid:87)(cid:89)(cid:86)(cid:72)(cid:74)(cid:74)(cid:74)(cid:74)(cid:74)(cid:79)(cid:79)(cid:79)(cid:79)
(cid:59)(cid:86)(cid:3)(cid:91)(cid:72)(cid:82)(cid:76)(cid:3)(cid:85)(cid:76)(cid:94)(cid:3)(cid:72)(cid:87)(cid:87)(cid:89)(cid:86)(cid:72)(cid:74)(cid:79)(cid:76)(cid:90)(cid:19)(cid:3)(cid:91)(cid:86)(cid:3)(cid:196)(cid:85)(cid:75)(cid:3)
Vocation
Our people are passionate
about the service they provide
Care
We continuously look to innovate.
We continuously lookkkkk ttto
new opportunities, tttooooo
new opportunities, to use new
Our people are passionate
to client families and the local
(cid:59)(cid:86)(cid:3)(cid:91)(cid:72)(cid:82)(cid:76)(cid:3)(cid:85)(cid:76)(cid:94)(cid:3)(cid:72)(cid:87)(cid:87)(cid:89)(cid:86)(cid:72)(cid:74)(cid:74)(cid:74)(cid:74)(cid:74)(cid:79)(cid:79)(cid:79)(cid:79)
(cid:59)(cid:86)(cid:3)(cid:91)(cid:72)(cid:82)(cid:76)(cid:3)(cid:85)(cid:76)(cid:94)(cid:3)(cid:72)(cid:87)(cid:87)(cid:89)(cid:86)(cid:72)(cid:74)(cid:79)(cid:76)(cid:90)(cid:19)(cid:3)(cid:91)(cid:86)(cid:3)(cid:196)(cid:85)(cid:75)(cid:3)
technologies. But aalwwwwww
technologies. But always to
new opportunities, tttooooo
new opportunities, to use new
help client families ttttoooooo
help client families to farewell
technologies. But aalwwwwww
technologies. But always to
help client families ttttoooooo
help client families to farewell
a loved one.
a loved one.
their vocation.
about the service they provide
to client families and the local
community – their work is
community – their work is
their vocation.
a loved one.
a loved one.
Care
We take great pride in what
we do but caring is at our heart.
We are a team of compassionate
people. By always being genuine
in this care, we build trust with
our customers, suppliers and
We take great pride in what
we do but caring is at our heart.
We are a team of compassionate
people. By always being genuine
in this care, we build trust with
our customers, suppliers and
our communities.
our communities.
CARE is at the core of InvoCare. It brings together our four key values.
Collaboration
We respect one another and achieve more by working together as a team
across the InvoCare group
Accountability
We always act with integrity, through honesty, fairness and accountability
Responsiveness
We put our clients and community fi rst, by listening, anticipating, supporting
and actioning, to exceed their expectations
Excellence
We continuously improve the way we do business
through innovation, creativity and fl exibility
more stories which illustrate the values, and
sharing and rewarding the values in action.
To support the launch, every employee
will receive a mug with the CARE values
on it, and will be invited to have a ‘cup of
tea’ from the tea box in each location, using
tea bags with the particular values detailed
on them.
Throughout 2015, ‘The InvoCare
Way’ will be cascaded throughout the
business, and will be integrated into a
number of key people development and
management tools.
InvoCare Annual Report 2014 15
Collaboration
Responsiveness
Collaboration
The key to a successful implementation
is to make sure that the values are used
in everyday life by employees, and define
how they behave. The values are infused
into every aspect of life at InvoCare. So it is
this theme of Infusing Values that is used to
engage everyone at InvoCare throughout
2015. It is centred around an activity which
is at the heart of what happens within the
InvoCare business. Having a conversation
over a cup of tea.
Responsiveness
Accountability
Accountability
Excellence
Excellence
This image is very relevant to the InvoCare
business, as it can be shared between
work colleagues, it is enjoyable – and it
is a normal part of conducting a funeral
arrangement or funeral. It is a simple idea
that will hold ‘The InvoCare Way’ together.
Videos have been developed, using the
image of sharing a cup of tea – interwoven
with real stories from the InvoCare business
which illustrate how CARE values are
already evident within the business. A key
part of the launch process will be gathering
Graeme Rhind
Chief Operating
Officer, New Zealand
Experience 38 years
Phillip Friery
Chief Financial
Officer and
Company Secretary
Experience 20 years
Wee Leng Goh
Chief Executive
Officer Singapore
Experience 7 years
Greg Bisset
Chief Operating
Officer, Australia
Experience 7 years
Andrew Smith
Chief Executive
Officer
Experience 9 years
Andi Luiskandl
Chief Information
Officer
Experience 3 years
Management team
The management team at
InvoCare has more than 80 years’
combined relevant industry
experience and many team
members have held senior
executive roles in other industries.
Each operational area is supported
by a network of general and regional
managers and other specialist staff.
All operations are supported by
specialist back office management in the
areas of Marketing & Communications,
Prepaid Funeral Administration, Human
Resources, Digital Business, Property
& Facilities, Finance, Internal Audit,
and Risk Management.
We welcome Martin Earp
Martin Earp joined InvoCare on 30 March
2015 and will assume the role of CEO
and Managing Director on 1 May 2015,
replacing Andrew Smith.
Martin was most recently responsible for
the strategic direction and leadership of
Campus Living Villages. He has extensive
experience in both providing leadership
to operational businesses and working in
project development teams. He has worked
for Transfield Holdings for over twelve years
in a number of operational roles including
CEO of the Australian Biodiesel Group
(ASX listed company), General Manager
Airtrain (where he also served as a Director
for eight years) and Business Development
Manager for Airport Rail Link. Prior to this
he spent almost 10 years with a London
based consultancy advising on large
infrastructure and investment deals.
Martin holds an MBA from the Australian
Graduate School of Management and an
MSc and BSc (Hons) in Traffic Engineering
and Transport Planning.
16
Financial
Report
InvoCare Limited and
Controlled Entities Annual
Financial Report for the
financial year ended
31 December 2014
The financial report covers the consolidated financial
statements for the consolidated entity consisting of
InvoCare Limited and its subsidiaries. The financial
report is presented in Australian currency.
InvoCare Limited (ABN 42 096 437 393) is a company
limited by shares, incorporated and domiciled in
Australia. Its registered office and principal place
of business is:
Level 4, 153 Walker Street
North Sydney NSW 2060
A description of the nature of the consolidated entity’s
operations and its principal activities is included in the
Directors’ Report.
The financial report was authorised for issue by the
directors on 17 February 2015. The Company has
power to amend and reissue the financial report.
Through the use of the internet, InvoCare ensures
corporate reporting is timely, complete, and available
globally at minimum cost to the Company. All press
releases, financial reports and other information are
available on the Company’s website:
www. invocare.com.au
Income Tax
Contents
Directors’ Report
Corporate Governance Statement
Remuneration Report
Auditor’s Independence Declaration
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Note 1 Summary of Significant Accounting Policies
Note 2 Financial Risk Management
Note 3 Segment Information
Note 4 Revenue from Continuing Operations
Note 5 Expenses
Note 6
Note 7 Key Management Personnel Disclosures
Note 8 Share-based Payments
Note 9 Remuneration of Auditors
Note 10 Dividends
Note 11 Earnings per Share
Note 12 Cash and Cash Equivalents
Note 13 Trade and Other Receivables
Note 14 Inventories
Note 15 Prepaid Contracts
Note 16 Interests in Other Entities: Subsidiaries
Note 17 Interests in Other Entities: Associates
Note 18 Property, Plant and Equipment
Note 19 Intangible Assets
Note 20 Derivative Financial Instruments
Note 21 Trade and Other Payables
Note 22 Borrowings
Note 23 Provisions for Employee Benefits
Note 24 Current Liabilities expected to be
settled in twelve months
Note 25 Contributed Equity
Note 26 Reserves and Retained Profits
Note 27 Non-controlling Interests
Note 28 Capital and Leasing Commitments
Note 29 Business Combinations
Note 30 Contingent Liabilities and Contingent Assets
Note 31 Cash Flow Information
Note 32 Deed of Cross Guarantee
Note 33 Events after the Balance Sheet Date
Note 34 Related Party Transactions
Note 35 Parent Entity Financial Information
Note 36 Economic Dependence
Note 37 Critical Accounting Estimates and Judgements
Note 38 Company Details
Note 39 Authorisation of the Financial Report
Directors’ Declaration
Independent Auditor’s Report
18
33
38
51
52
53
54
55
56
57
57
63
70
71
72
73
75
76
79
80
80
81
81
81
82
83
85
86
88
89
89
89
90
90
91
92
93
94
94
96
96
97
99
99
99
100
101
101
101
102
103
InvoCare Annual Report 2014 17
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 2014. InvoCare Limited
and its controlled entities together are referred to as “InvoCare”, the
“Group” or the “consolidated entity” in this Directors’ Report.
Directors
The following persons were directors of InvoCare Limited during the
whole of the financial year and until the date of this report:
Richard Fisher (Chairman)
Andrew Smith (Chief Executive Officer)
Christine Clifton
Roger Penman
Aliza Knox
Richard Davis
Gary Stead was appointed as an independent Non-executive
Director on 1 September 2014 and is a Director at the date
of this report.
Following a sudden and serious health issue suffered by Roger
Penman on 1 January 2015, he has been granted leave of absence
until 30 June 2015 or such earlier date as the Board is advised that
he is fit to return to normal duties.
On 17 December 2014, it was announced that Martin Earp will
replace Andrew Smith as Managing Director and Chief Executive
Officer with effect from 1 May 2015.
Principal activities
The Group is the leading provider of services in the funeral industry
in Australia, New Zealand and Singapore with smaller operations
in Hong Kong and most recently the USA. Other than disclosed in
this report there were no significant changes in the nature of these
activities during the year.
Significant changes in the state of affairs
There have been no significant changes in the state of the Group’s
affairs during the financial year.
Operating results
The operating earnings after tax for the year was $46,192,000
(2013: $42,498,000) as reconciled on page 19. The consolidated
after tax profit of the Group attributable to shareholders was
$54,515,000 (2013: $48,869,000). More detailed information is
included in the operating and financial review set out in the report.
Dividends
The Directors have recommended a final, fully franked dividend
of 20.75 cents per share payable on 2 April 2015. Total full year
dividends are 36.5 cents, being 2 cents or 5.8% higher than 2013.
The full year dividend payout ratio is 87% (2013: 89%) of operating
earnings after tax.
Dividends to ordinary shareholders of the Company have been paid
or recommended as follows:
2014
$’000
2013
$’000
Interim ordinary dividend of 15.75 cents (2013: 15 cents) per fully paid share paid on 3 October 2014
17,329
16,505
Final ordinary dividend of 20.75 cents (2013: 19.5 cents) per fully paid share has been recommended by
directors on 17 February 2015 to be paid on 2 April 2015
Total ordinary dividends of 36.5 cents (2013: 34.5 cents)
22,831
40,160
21,456
37,961
All dividends are fully franked at the company tax rate of 30%.
The Dividend Reinvestment Plan (“DRP”) was available for the 2014 interim dividend and $15,881,000 (2013: $13,305,000) was paid
in cash and $1,448,000 (2013: $3,200,000) through the issue of 131,414 (2013: 288,312) shares purchased on market at $11.02
(2013: $11.09) per share via the DRP. The shortfall in the DRP take-up was not underwritten in 2014 and shares were not issued at a
discount. The DRP will apply to the final 2014 dividend which is not being underwritten and no discount to the market price will apply.
18
Operating and Financial Review
Result highlights:
Total sales to external customers
Other revenue
Operating expenses(i)
Operating EBITDA(i)
Operating margin
Depreciation and amortisation
Finance costs
Interest income
Business acquisitions costs
Share of loss of associates
Operating earnings before tax(i)
Income tax on operating earnings(i)
Effective tax rate
Operating earnings after tax(i)
Operating earnings per share(i)
Net gain on undelivered prepaid contracts after tax(i)
Asset sales gain or (loss) after tax(i)
Impairment gain after tax(i)
Non-controlling interest
Net profit after tax attributable to ordinary equity holders of InvoCare
Basic earnings per share
Interim ordinary dividend per share
Final ordinary dividend per share
Total ordinary dividend per share
(i) Non-IFRS financial information.
Change
$’m
%
2014
$’m
413.0
7.2
(319.1)
101.1
24.5%
(19.2)
(15.5)
0.7
(1.2)
(0.5)
65.4
(19.2)
29.4%
46.2
2013
$’m
385.4
6.8
(297.1)
95.1
24.7%
(17.8)
(16.8)
0.7
(0.5)
(0.3)
60.3
(17.8)
29.5%
42.5
27.6
0.4
(22.0)
6.0
(1.4)
1.3
–
(0.7)
(0.2)
5.1
(1.4)
3.7
42.2 cents
38.9 cents
3.3 cents
7.6
0.3
0.4
(0.1)
54.5
1.1
3.2
2.2
(0.1)
48.9
6.5
(2.9)
(1.8)
–
5.6
49.8 cents
44.7 cents
5.1 cents
15.75 cents
15.00 cents
0.75 cents
20.75 cents
19.50 cents
1.25 cents
36.50 cents
34.50 cents
2.00 cents
7.2%
5.9%
7.4%
6.3%
(0.2%)
7.9%
(7.7%)
–
140.0%
66.7%
8.5%
7.9%
(0.2%)
8.7%
8.5%
11.5%
11.4%
5.0%
6.4%
5.8%
Operating EBITDA and operating earnings are financial measures which are not prescribed by Australian equivalents to International
Financial Reporting Standards (“AIFRS”) and represent the earnings under AIFRS adjusted for specific non-cash and significant items. The
table above summarises the key reconciling items between net profit after tax attributable to InvoCare shareholders and operating EBITDA
and operating earnings before and after tax. The operating EBITDA and operating earnings before and after tax information included in the
table below has not been subject to any specific audit or review procedures by our auditor but has been extracted from the accompanying
financial report.
InvoCare Annual Report 2014 19
Business model
InvoCare’s business model is based upon earnings growth from the
following pillars:
– Annual sales revenue growth from:
– Ageing population trends with an approximate 1% annual
increase in deaths;
– Consistent annual 3-4% pricing increments;
– Market share improvements, including new funeral locations,
generating 1% revenue growth;
– Prepaid contracts providing families emotional and
financial peace of mind as well as securing future market
share for InvoCare;
– Business acquisitions, which have contributed more than half
of InvoCare’s compound annual sales growth since listing; and
– Operating leverage improvement, through delivery of revenue
growth pillars and cost control so that annual EBITDA growth
is greater than annual sales growth.
Not all the pillars contributed positively to 2014 results as depicted
in the following table. More detail is provided throughout this report.
Favourable demographics
Pricing/average contract values
Market share improvements
Prepaid contracts
New locations
Business acquisitions
Operating leverage
✓
✓
↔
✓
✓
✓
✗
Results overview
2014 was a solid year for InvoCare with operating earnings after tax
up by 8.7% or $3.7 million to $46.2 million (2013: $42.5 million).
Reported profit after tax also had a large improvement, up 11.6% or
$5.6 million to $54.5 million (2013: $48.9 million).
The results were underpinned by an increase in the number
of deaths which appears to have recovered from the declines
experienced in 2013. Overall death numbers in InvoCare’s markets
have been estimated to have increased by 3.2% over the year.
Most of this improvement came in the second half with comparable
funeral case volumes growing 6.1% compared to the near flat
growth experienced in the first half.
InvoCare believes from its market intelligence that the declines in
comparable business funeral market share experienced in 2013
have been arrested with market share at the end of 2014 similar
to that at the end of 2013. Although not achieving comparable
funeral business market share growth in the year, share growth
was achieved in cemeteries and crematoria operations.
Sales revenues were up 7.2% or $27.7 million to $413.0 million
(2013: $385.3 million) supported by improved volumes and
average funeral contract values, which were up 4.2% on the prior
corresponding period (“PCP”). The higher average contract values
reflect the impact of price increases applied in December 2013
and favourable foreign currency movements due to the weakening
Australian dollar.
The sales result also included the full year impact of New Zealand
acquisitions completed during 2013 and a small contribution
from an acquisition in Australia completed in December 2014.
Together these new businesses contributed $5.4 million to sales,
or $3.4 million of the sales increase, as well as a small growth in the
Group’s overall funeral market share.
Group EBITDA was up $6.0 million or 6.3% to $101.1 million
(2013: $95.1 million).
As a percentage of sales, EBITDA margins declined from 24.7%
in 2013 to 24.5% in 2014. Most of this decline occurred in the
second half where margins fell from 26.7% in 2013 to 26.0%. By
comparison, first half margins improved 0.3% from 22.5% in 2013
to 22.8%. The 2013 second half margins were positively impacted
by an interim price increase not repeated in 2014. In addition the
unsustainable cost constraints put in place in the second half of
2013 to combat the low volume environment were eased in 2014
following a recovery in case volumes.
Statutory reported profit benefited from a $6.5 million after tax
improvement in the net gains on undelivered prepaid contracts to
$7.6 million after tax. This was partially offset by declines in after
tax asset sale gains, to $0.4 million (2013: $3.2 million), and net
impairment reversals of $0.4 million (2013: $2.2 million).
Cash flows remained strong for the year. Ungeared, tax free
operating cash flow was 106% of EBITDA (2013: 110%),
underpinning the ability to pay a fully franked final dividend of
20.75 cents per share, which is 1.25 cents up on last year.
This is in addition to the 15.75 cent interim dividend paid in
October, taking total dividends declared for the year to 36.5 cents
(2013: 34.5 cents).
20
Directors’ Report continued Sales, EBITDA, margins and major profit & loss line items
The following table summarises sales revenue, EBITDA and margins by country segments.
1H14
$’m
1H13
$’m
Var
%
2H14
$’m
2H13
$’m
Var
%
FY14
$’m
FY13
$’m
Var
%
Sales Revenue
Australia
New Zealand
Singapore
Comparable business
Acquisitions
Total
EBITDA
Australia
New Zealand
Singapore
Comparable business
Acquisitions
Total
Margin on sales
Australia
New Zealand
Singapore
Comparable business
Acquisitions
Total
169.4
17.5
6.7
193.6
2.4
196.1
37.8
3.4
3.2
44.4
0.4
44.7
22.3%
19.5%
47.5%
22.9%
14.9%
22.8%
161.8
14.8
6.5
183.1
0.5
183.6
35.9
2.2
3.1
41.2
0.1
41.3
22.2%
15.0%
47.4%
22.5%
16.9%
22.5%
4.7%
18.4%
2.4%
5.7%
6.8%
5.3%
53.4%
2.6%
7.7%
8.3%
0.1%
4.5%
0.1%
0.4%
0.3%
186.7
176.4
20.1
7.1
214.0
3.0
217.0
47.9
4.3
3.5
55.7
0.7
56.3
25.6%
21.2%
49.5%
26.0%
23.0%
26.0%
17.3
6.4
200.2
1.5
201.7
46.4
4.0
3.1
53.5
0.3
53.8
26.3%
22.9%
48.6%
26.7%
17.2%
26.7%
5.8%
16.0%
10.6%
6.9%
7.6%
3.1%
7.4%
12.7%
4.0%
4.8%
(0.7%)
(1.7%)
0.9%
(0.7%)
(0.7%)
356.1
338.2
37.6
13.8
407.6
5.4
413.0
85.7
7.7
6.7
100.0
1.1
101.1
24.1%
20.4%
48.5%
24.5%
19.3%
24.5%
32.1
13.0
383.3
2.0
385.3
82.3
6.2
6.2
94.7
0.3
95.1
24.3%
19.3%
48.0%
24.7%
17.1%
24.7%
5.3%
17.1%
6.5%
6.3%
7.2%
4.1%
23.9%
7.6%
5.6%
6.3%
(0.2%)
1.1%
0.5%
(0.2%)
(0.2%)
The following table shows the EBITDA performance of the business by halves, discussed in the following sections of the report.
1H14
$’m
1H13
$’m
Var
%
2H14
$’m
2H13
$’m
Var
%
FY14
$’m
FY13
$’m
Var
%
Total – all lines of business
Sales Revenue
Other revenue
Expenses:
Cost of goods sold
Personnel
Advertising & promotions
Occupancy &
facility expenses
Motor vehicle expenses
Other expenses
Operating expenses
Operating EBITDA
Operating margin %
196.1
183.6
3.5
3.4
6.8%
2.9%
217.0
201.7
3.7
3.4
7.6%
8.8%
413.0
385.3
7.2
6.9
7.2%
4.3%
(57.2)
(63.6)
(7.6)
(53.9)
(60.0)
(6.1%)
(6.0%)
(6.8)
(11.8%)
(64.4)
(65.7)
(7.3)
(59.3)
(59.5)
(6.4)
(8.6%)
(10.4%)
(14.1%)
(13.1)
(12.7)
(4.1)
(9.1)
(4.0)
(8.4)
(154.8)
(145.8)
44.7
41.3
22.8%
22.5%
(3.1%)
(2.5%)
(8.3%)
(6.2%)
8.2%
0.3%
(14.0)
(13.3)
(4.7)
(8.1)
(4.3)
(8.5)
(164.3)
(151.3)
56.3
53.8
26.0%
26.7%
(5.3%)
(9.3%)
4.7%
(8.6%)
4.6%
(0.7%)
(121.6)
(129.4)
(14.9)
(27.1)
(8.8)
(17.2)
(319.1)
101.1
24.5%
(113.2)
(119.4)
(7.4%)
(8.4%)
(13.2)
(12.9%)
(26.0)
(8.3)
(16.8)
(297.1)
95.1
24.7%
(4.2%)
(6.0%)
(2.4%)
(7.4%)
6.3%
(0.2%)
Note: The data in the tables above has been calculated in thousands and presented in millions and as a consequence some additions
cannot be computed from the above tables as presented.
InvoCare Annual Report 2014 21
Number of deaths
The number of deaths continues to be a very significant driver of InvoCare’s performance. The ageing of the population in InvoCare’s
markets and the long-term trend of increasing numbers of deaths are major pillars of growth for the Group. However, short-term fluctuations
in the numbers of deaths do occur such that in any year the number can be up to 5% above or below the trend line, as shown in the
following graphs for both Australia and New Zealand.
The Australian graph incorporates the most recent long-term death projections released in November 2013 by the Australian
Bureau of Statistics.
Actual and projected calendar and fiscal year deaths – Australia
325
300
275
250
225
200
175
150
125
100
)
0
0
0
’
(
r
e
b
m
u
N
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Actual national rolling annual deaths per ABS
Trend plus/minus 5%
ABS projected deaths 2012 Series B
Estimated national rolling annual deaths per ABS
Projections for New Zealand have been sourced from the latest data supplied by Statistics New Zealand and have a similar profile to that
expected in Australia in future years.
22
Directors’ Report continuedNumber (’000)22.527.532.537.542.547.552.557.52050204520402035203020252020201520102005200019951990Actual rolling annual deaths per Statistics NZNZ projected deaths 2011 (base)-2061Trend plus/minus 5%Actual and projected calendar and fiscal year deaths – New Zealand
The table below1 illustrates the trends in InvoCare’s funeral case volumes over the last 24 months.
Australia
New Zealand
Singapore
Total comparable business
Total Group (incl. acqns)
2014 Vs 2013
2013 Vs 2012
Half 1
Half 2
Full Year
Half 1
Half 2
Full Year
(0.1%)
1.8%
1.3%
0.1%
1.4%
5.7%
10.6%
1.3%
6.1%
6.8%
2.9%
6.4%
1.3%
3.2%
4.2%
(0.3%)
(2.7%)
(2.9%)
(0.7%)
2.0%
(5.1%)
(7.4%)
2.6%
(5.1%)
(2.0%)
(2.8%)
(5.2%)
(0.3%)
(3.0%)
(0.1%)
During 2014, funeral case volumes in comparable businesses increased by 3.2% against the prior year. Most of this improvement occurred
in the second half where year on year volumes improved 6.1% compared to 0.1% in the first half. The strong growth in the second half
more than recovered the 5.1% decline experienced in the PCP.
InvoCare’s market intelligence indicates that the comparable business volume growth in 2014 was driven by an increase in the number
of deaths which showed an estimated 3.2% increase across all InvoCare’s geographical markets, reversing the cyclical downturns
experienced in 2013.
InvoCare estimates it has maintained its funeral market share since December 2013 in its comparable business. The New Zealand
acquisitions have contributed to a small growth in the Group’s overall funeral market share.
The Australian cemeteries and crematoria businesses operating in New South Wales and Queensland experienced a 3.8% increase in
cremation and burial service volumes. The number of deaths in those markets was less than this increase. Accordingly, cemeteries and
crematoria market share has grown, partly attributable to service initiatives which attracted more case volumes.
Commentary on the period since 31 December 2014 is set out in the Outlook section on page 29.
Sales
Key components of the comparable sales movements are summarised below:
– Australian funeral sales increased 5.3% or $14.4 million to $285.9 million (2013: $271.5 million).
–
–
– Average revenue per funeral contract, excluding disbursements and delivered prepaid impacts, increased 3.4% (2013: 5.1%) and
contributed an estimated $7.4 million to sales growth. This increase included both price and mix impacts. The price component
included normal price increases applied in December 2013. The increase in 2014 was less than 2013 due to additional price
increases taken in the second half of 2013 which were not repeated in 2014.
The number of funeral services performed was up on the previous year by 2.9%. Most of this growth came in the second half with
the number of services up 5.7% compared to a 0.1% decline in the first half.
InvoCare’s market intelligence indicates that market share initiatives introduced from mid-2013 have been successful with the
Australian funeral market share being maintained at the end of 2014 against the PCP. These initiatives included:
• Reinforcing customer service excellence;
• Enhancing employee engagement;
• Additional targeted investment in advertising and promotion;
• Continued investment in digital facilities and omni-channel;
• Community involvement;
• The roll out of mobile arrangers in six localities in Australia; and
• Co-branding some key locations.
–
The number of new prepaid funeral contracts sold for comparable Australian business declined by 1.1% on the previous year and
exceeded the number of prepaid services performed by 8.3% (2013: 15.3%). Prepaid funerals performed in the year remained
consistent at 14.6% (2013: 14.5%) of comparable at need funerals.
– Australian cemeteries and crematoria sales were up 6.1% or $4.7 million to $81.3 million (2013: $76.6 million). This included deferred
revenue adjustments of $4.0 million which were $0.6 million lower than the prior year (2013: $4.6 million). List prices were raised by an
average of 4.9% during the first quarter, which along with case volume increases of 3.8%, contributed to the sales result.
1 Comparable businesses in the table comprise a different mix in 2014 from 2013. The 2013 percentages are as presented in the FY2013
results presentation.
InvoCare Annual Report 2014 23
– Comparable New Zealand sales (in NZD) were up 8.3% or $3.1 million to $40.9 million (2013: $37.8 million). This comprised
increased case volumes which were up 6.4% on PCP and higher funeral case averages which increased 1.1% following planned price
increases. In AUD New Zealand sales were up 17.1% to $37.6 million (2013: $32.1 million) which included favourable FX movements
of $2.8 million.
Including acquisitions, New Zealand sales (in NZD) were up 16.5% or $6.6 million to $46.8 million.
–
– Singapore funeral sales (in SGD) increased by 0.5% to $15.8 million (2013: $15.7 million). Case volumes improved 1.3% on PCP
but were offset by average contract values which were down 0.6% due to a shift in product mix towards lower value packages and
increased competition. In AUD Singapore sales increased 6.5% to $13.8 million (2013: $13.0 million) which included favourable FX
movements of $0.8 million.
Intra-group elimination of cemeteries and crematoria sales to InvoCare owned funeral homes amounted to $11.1 million (2013:
$10.0 million).
–
Other revenue
Other revenue increased by 4.9% to $7.2 million (2013: $6.9 million). Other revenue mainly comprises administration fees upon initial sale
of prepaid funeral contracts and trailing commissions on prepaid funds.
Operating expenses and EBITDA
Operating EBITDA2 increased by 6.3% or $6.0 million to $101.1 million (2013: $95.1 million). The margin on sales dropped 0.2% to 24.5%.
On a comparable basis, Operating EBITDA increased by $5.3 million or 5.6% to $100.0 million (2013: $94.7 million) with margins also
dropping 0.2% to 24.5%.
Favourable FX movements benefited Operating EBITDA by $1.0 million, as the NZD and SGD strengthened against the AUD, particularly
in the first half.
Operating expenses (excluding depreciation, amortisation, acquisition related and finance costs) increased $22.0 million or 7.4% to
$319.1 million. On a comparable basis excluding the impact of acquisitions, the increase was 6.5% or $19.3 million.
Backing out foreign exchange movement impacts ($3.0 million) to reflect constant exchange rates, total operating expenses
increased by 6.3%.
A summary of the comparable business operating EBITDA by major income statement line item by halves is presented in the following table.
1H14
$’m
1H13
$’m
Var
%
2H14
$’m
2H13
$’m
Var
%
FY14
$’m
FY13
$’m
Var
%
Total – all lines of business
Sales Revenue
Other revenue
Expenses:
Cost of goods sold
Personnel
Advertising & promotions
Occupancy &
facility expenses
Motor vehicle expenses
Other expenses
Operating expenses
Operating EBITDA
Operating margin %
193.6
183.1
3.5
3.4
5.7%
2.9%
214.0
200.2
3.7
3.4
6.9%
8.8%
407.6
383.3
7.2
6.8
6.3%
5.9%
(56.2)
(63.0)
(7.5)
(53.7)
(59.8)
(4.7%)
(5.4%)
(6.8)
(10.3%)
(63.4)
(65.0)
(7.2)
(58.7)
(59.1)
(6.4)
(8.0%)
(10.0%)
(12.5%)
(13.0)
(12.6)
(4.1)
(9.0)
(4.0)
(8.4)
(152.7)
(145.3)
44.4
41.2
22.9%
22.5%
(3.2%)
(2.5%)
(7.1%)
(5.1%)
7.8%
0.4%
(13.8)
(13.2)
(4.7)
(7.9)
(4.3)
(8.4)
(162.0)
(150.1)
55.7
53.5
26.0%
26.7%
(4.5%)
(9.3%)
6.0%
(7.9%)
4.1%
(0.7%)
(112.5)
(118.9)
(6.3%)
(7.7%)
(13.2)
(11.4%)
(119.6)
(128.0)
(14.7)
(26.8)
(8.7)
(16.9)
(25.9)
(8.3)
(16.7)
(314.7)
(295.4)
100.0
24.5%
94.7
24.7%
(3.5%)
(4.8%)
(1.2%)
(6.5%)
5.6%
(0.2%)
Note: The data in the tables above has been calculated in thousands and presented in millions and as a consequence some additions
cannot be computed from the tables as presented.
Cost of goods sold increased as a % of sales from 29.4% in 2013 to 29.3% in 2014 due to a shift in sales mix of cemeteries and
crematoria products.
The ratio of personnel costs to sales revenue was 31.4% which was up from 31.0% in 2013. Base labour rates have generally been
contained to 3.5% increases, consistent with the awards and enterprise agreements in place for the majority of the workforce. Personnel
costs were also impacted by one-off costs of approximately $0.9 million accrued in 2014 associated with the end of Mr Andrew Smith’s
contract, as well as the recruitment costs of the new CEO, Mr Martin Earp and higher short-term incentives following improved 2014
performance. These higher costs were in part mitigated by the reversal of long-term incentive costs for the forfeiture of 2010 grants which
will not vest.
2
Operating EBITDA is non-IFRS financial information.
24
Directors’ Report continued The ratio of personnel cost to sales in the second half of 2014 was 30.4% which was up on the 29.5% recorded in PCP. The lower ratio
achieved in PCP reflects the initiatives taken at the time to realign the workforce with the lower volume environment. This included critically
assessing fixed and casual staffing levels and reviewing vacancies created by departing employees. With improved volumes in 2014
personnel costs were allowed to settle at more sustainable levels and in line with historical trends. By comparison the first half personnel
ratio was flat at 32.5% of sales (2013: 32.6%).
Advertising and marketing expenditure increased by $1.5 million or 11.6% to $14.7 million (2013: $13.2 million). This included additional
expenditure on main media and digital channels in both Australia and New Zealand to address the 2013 market share declines. The
increase also brought spending back in line with more sustainable levels which had been curtailed in 2013 due to case volume pressures.
In terms of digital business initiatives, work is continuing on various fronts. These include:
–
continued roll out of electronic processing capabilities across states, including at need and preneed funeral arrangements using
tablet technologies;
rollout of enhanced websites and social media, including mobile devices;
rollout of enhanced digital audio visual solutions across InvoCare’s chapels;
continued focus on obtaining greater leverage from the HeavenAddress online memorial and tribute solution;
development of a new digital print solution to allow staff and clients to produce high quality online order of service and life
presentations; and
upgrade of the ageing back office system and review of related processes to support the expanding business.
–
–
–
–
–
Comparable Australian operating EBITDA margin on sales declined marginally from 24.3% in 2013 to 24.1% in 2014. The decline was
driven by the cemeteries and crematoria which were impacted by a shift in sales mix towards lower margin memorial sales. Additional costs
associated with digital projects and an easing of headcount and marketing cost restrictions put in place in 2013 also impacted margins in
the second half.
New Zealand comparative EBITDA margins (in local currency) increased from 19.2% in 2013 to 20.4% in 2014. The improvement reflected
the impact of higher case volumes which were up 6.4% on 2013. Year on year margin improvement was more pronounced in the first
half when costs remained tightly controlled pending an improvement in case volumes which corrected in the second half. Despite higher
volumes, second half margins of 21.3% were down on 2013 of 22.9% as the tight controls that had been held on marketing and labour
costs were eased to more sustainable levels.
Singapore EBITDA margins (in local currency) improved from 47.9% to 48.5%. The improvement was driven by a combination of case
volumes which were up 1.3% and tight control of operating costs.
Depreciation and amortisation expenses
Depreciation and amortisation expenses were up $1.4 million in 2014 to $19.2 million (2013: $17.8 million). This increase included
$0.1 million associated with a full year of the 2013 New Zealand acquisitions. The remainder of the increase was associated with increased
capital spend on property refurbishments, new locations and continued investment in digital technologies.
Finance costs
Finance costs declined by $1.3 million to $15.5 million (2013: $16.8 million). The decrease relates mainly to the refinancing of the Group’s
borrowings at the end of 2013 and the rollover of some fixed rate swap contracts in September 2014. These combined initiatives
delivered a lower effective interest rate for the year. More information about the Group’s debt facilities is set out under the Capital
Management section.
Acquisition related costs
Acquisition costs of $1.2 million were up $0.7 million on the prior year (2013: $0.5 million). This included start-up expenses of $0.8 million
associated with InvoCare USA, Inc. details of which are summarised later in this report. Other expenses included costs associated with
the acquisition of Crawford & Sons funeral business in Melbourne, two cremation memorial parks in Christchurch, New Zealand, and other
opportunities both closed or currently under investigation.
Share of associate
After contributing $5 million equity in January 2013, InvoCare has a 35% investment in HeavenAddress which provides online memorial
solutions. The company is in the early stages of its development and InvoCare has recognised a $0.5 million share of the operating
losses in accordance with equity accounting standards, as well as an impairment in the carrying value more fully explained under the
heading “Impairments”.
Undelivered prepaid contract gains
Net gains on undelivered prepaid contracts were $10.9 million, an improvement of $9.3 million on 2013. The current year gain comprised
$24.8 million increase in the fair value of funds under management offset by $13.9 million growth in the future liability to deliver prepaid
services (see table (a) below).
The fair value uplift of $24.8 million in funds under management was $4.2 million up on 2013 and represented an effective earnings rate of
6.4% (2013: 5.7%).
During the year the preneed liability was increased to progressively recognise the impact of planned in year price increases. This resulted
in liability growth of $13.9 million which was down on last year’s $19.0 million. The liability growth was lower in 2014 as there was only one
price increase taken compared to 2013 which included an interim price increase as well as the annual price increase in December.
InvoCare Annual Report 2014 25
(a) Income statement impact of undelivered prepaid contracts
Gain/(loss) on prepaid contract funds under management
Change in provision for prepaid contract liabilities
Net gain/(loss) on undelivered prepaid contracts
(b) Movements in prepaid contract funds under management
Balance at the beginning of the year
Sale of new prepaid contracts
Initial recognition of contracts paid by instalment
Redemption of prepaid contract funds following service delivery
Increase due to business combinations
Increase in fair value of contract funds under management
Balance at the end of the year
(c) Movements in prepaid contract liabilities
Balance at the beginning of the year
Sale of new prepaid contracts
Initial recognition of contracts paid by instalment
Decrease following delivery of services
Increase due to business combinations
Increase due to reassessment of delivery costs
Balance at the end of the year
2014
$’m
24.8
(13.9)
10.9
2014
$’m
373.6
33.4
3.2
(35.4)
1.4
24.8
401.0
2014
$’m
376.5
34.0
3.2
(35.2)
1.4
13.9
393.8
2013
$’m
20.6
(19.0)
1.6
2013
$’m
350.9
32.0
2.9
(32.8)
–
20.6
373.6
2013
$’m
355.1
32.0
2.9
(32.5)
–
19.0
376.5
Approximately 79% of InvoCare’s prepaid funds under management are with the Over Fifty Guardian Friendly Society. This fund now holds
approximately 73% of its assets in cash and fixed interest compared to 60% at 31 December 2013. The increase in cash and fixed interest
was attributable to a property sale which was completed in late 2014. Proceeds of this sale are currently being reinvested which may see a
further shift in asset mix towards equities or property if the right opportunities are found.
Movements in the total asset mix of all funds under management over the last 12 months are illustrated in the following table:
Equities
Property
Cash and fixed interest
31 Dec 2014
%
30 June 2014
%
31 Dec 2013
%
10
16
74
11
22
67
13
23
64
Asset sale gains and losses
After tax gains on the sale of assets of $0.4 million relates primarily to the disposal of owned motor vehicles in the normal course of
business. In the previous year, the sale of surplus property assets resulted in after tax gains of $3.2 million.
Impairments
Under IFRS, InvoCare is required to regularly review the carrying value of its business assets. Due to continued improvement in financial
performance, the prior impairment on certain cemetery assets was partially reversed during the year resulting in an after tax gain of $1.8 million.
Offsetting the above impairment reversal was an impairment of $1.4 million (after tax) made against the Group’s associate. The decision to
impair this investment was made after considering the business performance to date, its future cash projections and the risks associated with
a start-up operation. The investment will continue to be monitored and the impairment revisited at future dates based on actual performance.
The above two items resulted in a net after tax impairment gain of $0.4 million (2013: $2.2 million).
26
Directors’ Report continued Income tax expense
Income tax expense on reported profit was $22.6 million (2013: $19.0 million), representing an effective rate of 29.3% (2013: 28.0%).
Income tax expense on operating earnings3 increased by $1.4 million to $19.2 million (2013: $17.8 million) and the effective rate was 29.4%
(2013: 29.5%).
The main contributors to the effective rates being different to Australia’s corporate 30% tax rate are set out in the following table:
Prima facie tax at 30% (2013: 30%) on profit from ordinary activities
Plus/(minus):
Previously unrecognised capital losses offsetting capital gains and unrecognised capital losses
Eliminations of translation gains/(losses) on intercompany balances in foreign currencies
Reassessment of depreciation rates applicable to New Zealand assets
Acquisition costs not deductible
Share of net profit of an associate
Other items (net)
Difference in overseas tax rates
Under/(over) provision in prior years
Income tax expense
Cash flow highlights
Net cash provided by operating activities
Asset sale proceeds
Asset purchases
Purchase of subsidiaries and businesses
Purchase of interest in associates
Net cash used in investing activities
Dividends paid to InvoCare shareholders
Deferred Employee Share Plan purchases
Net (decrease)/increase in borrowings
Other movements
Net cash used in financing activities
Net increase in cash during year
Cash at start of year
Exchange rate effects
Cash at end of the year
2014
$’m
23.2
(0.2)
0.1
–
0.3
0.1
0.1
(0.9)
(0.1)
22.6
2014
$’m
71.8
1.0
(26.7)
(6.7)
–
(32.4)
(38.8)
(1.2)
2.3
(0.2)
(37.9)
1.5
8.9
0.1
10.5
2013
$’m
20.4
(0.7)
0.4
(0.6)
0.1
0.1
0.4
(0.8)
(0.2)
19.0
2013
$’m
72.2
8.0
(19.3)
(8.1)
(5.0)
(24.4)
(37.4)
(0.8)
(6.8)
(0.1)
(45.1)
2.7
6.1
0.1
8.9
Continued focus on working capital management resulted in a 106% operating EBITDA conversion to cash for the period, which was
slightly down on the 110% achieved for 2013 as shown in the table below.
Operating EBITDA
Cash provided by operating activities
Add finance costs
Add income tax paid
Less interest received
Ungeared, tax free operating cash flow
Proportion of operating EBITDA converted to cash
3
Operating earnings is non-IFRS financial information.
2014
$’m
101.1
71.8
15.0
20.2
(0.2)
106.8
106%
2013
$’m
95.1
72.2
16.3
15.9
(0.1)
104.3
110%
InvoCare Annual Report 2014 27
Cash flows provided by operating activities showed a slight decline on last year by $0.4 million to $71.8 million. Part of this decline was
driven by higher income tax instalments paid in 2014 compared to 2013.
Capital expenditure (including the acquisition of a strategic property in Perth) related to:
Property, refurbishments and facility upgrades
Motor vehicles
Digital business
Other assets
Total capital expenditure
2014
$’m
12.5
6.4
4.7
3.1
26.7
2013
$’m
8.0
6.5
2.1
2.7
19.3
Purchases of subsidiary and businesses included the deposit paid on the proposed purchase of two memorial parks in Christchurch,
New Zealand, the acquisition of the Macera cremation business in Southern California, USA, and the purchase of the Charles Crawford
and Sons funeral business in Melbourne.
Dividends paid in the year were 35.25 cents per share, totalling $38.8 million. The amount included $5.6 million for the on-market purchase
of shares for the dividend reinvestment plan.
Shares amounting to $1.2 million (2013: $0.8 million) were acquired during the year by the InvoCare Deferred Employee Share Plan Trust in
connection with long-term, share-based incentives for senior management.
Capital management
At 31 December 2014, the Group had drawn down $230 million borrowings (from total $255 million debt facilities) compared to $239 million
at 30 June 2014 and $225 million at 31 December 2013. Net debt at 31 December 2014 was $220 million which compared to the balance
at 30 June 2014 of $223 million and 31 December 2013 of $216 million.
During the year there was no change to the $255 million bi-lateral, multi-currency, revolver facilities which comprise three-year tranches of
$85 million, maturing in September 2016, and five-year tranches of $170 million, maturing in December 2018.
The three-year tranches are provided in equal proportions by Australia and New Zealand Banking Group Limited (“ANZ”) and
Commonwealth Banking Group Limited (“CBA”). The five-year tranches are provided in equal proportions by ANZ, CBA, Westpac Banking
Corporation (“Westpac”) and HSBC Bank Australia Limited (“HSBC”) or their New Zealand affiliates.
The current facilities’ drawings comprise AUD164.0 million, SGD33.0 million and NZD37.0 million. The foreign currency drawings naturally
hedge investments in foreign Singapore and New Zealand markets.
Financial covenant ratios on the borrowing facilities are a Leverage Ratio (being Net Debt to EBITDA adjusted for acquisitions) which
must be no greater than 3.5 and an Interest Cover Ratio (being EBITDA to net interest) which must be greater than 3.0. Both these ratios
continue to be comfortably met at 31 December 2014, being 2.2 and 7.5 respectively.
To maintain certainty over cash flows, the Group’s policy is to maintain at least 75% of hedging cover for the next 12 months of forecast
borrowings and 50% beyond twelve months up to a maximum of five years. At balance date, 76% of debt principal was covered by floating
to fixed interest rate swaps. The table below shows the current swap profile, including the fixed rate payable in return for receipt of floating
rates (e.g. BBSW in the case of AUD denominated borrowings). As a consequence of hedging, InvoCare has not enjoyed the benefit of the
recent reductions in market rates on its hedged debt.
Swap
Principal
AUD 30.0m
AUD 60.0m
AUD 60.0m
NZD 27.0m
NZD 27.0m
Start
Date
Jun-2011
Sep-2013
Sep-2014
Sep-2011
Sep-2015
Termination
Date
Sep-2015
Sep-2016
Sep-2017
Sep-2015
Sep-2018
Fixed Rate
Payable
5.33%
4.77%
4.00%
3.82%
4.49%
The overall average effective interest rate is currently 5.7% (2013: 6.1%), inclusive of fixed rates on hedged debt, floating rates on unhedged
debt, margins (based on tranche tenor and leverage – currently averaging around 166bps), undrawn commitment fees and amortisation of
establishment fees.
Headroom on the debt facilities of $25.0 million; and cash of $10.5 million, provide $35.5 million in available funds at 31 December 2014.
This amount together with operating cash flows will provide further capacity to fund near-term growth opportunities.
28
Directors’ Report continued InvoCare USA, Inc.
The United States of America has been identified as a new market
for InvoCare to enter in its pursuit of growth opportunities. The
country has an improving economy, a similar demographic profile to
Australia and relatively low sovereign and country risk compared to
other foreign markets. The country’s funeral industry is the largest
in the developed world and, beyond the industry consolidators, the
competitive landscape remains highly fragmented.
An experienced senior executive from the funeral industry in that
country was engaged to develop a strategy and plan for a low cost,
low risk initial pilot entry into the country. Southern California was
selected as the initial market to establish a small InvoCare presence.
The annual number of deaths in that market is around 100,000, similar
to InvoCare’s Australian funeral markets. A small cremation business
was acquired in late 2014 and greenfield funeral service operations
have been established in Los Angeles, Orange County and San Diego.
During the expected three-year start-up and proving stage of this
development, the new operation is anticipated to be loss making,
with negative EBITDA of up to USD2 million per annum and similar
annual net operating losses. Annual sales are not expected to exceed
USD10 million until the third year. The expected investment over this
initial period is approximately USD8 million. There is significant potential
upside in the subsequent years should the venture succeed with future
annual returns on that Southern Californian investment forecast to
grow and exceed InvoCare’s current return on invested capital.
Through establishing a successful maiden presence in the United
States of America, InvoCare will improve its existing knowledge of the
market and be better positioned to capitalise on further longer-term
growth opportunities, whether by additional greenfield expansion or
by selective and more significant existing business acquisitions.
Outlook
Group funeral case volumes in January 2015 are up 3.9%
(comparable 3.4%). Funeral case contract averages improved in line
with December price rises and operations are in line with expectations.
InvoCare USA, Inc. will commence operations in February 2015
and is expected to generate operating losses of approximately
$2.0 million during the year ended 31 December 2015.
In July 2014 the New Zealand Commerce Commission granted
InvoCare permission to proceed with the acquisition of two
memorial parks in Christchurch. Since that time InvoCare has
continued negotiations with the vendor and the New Zealand
Overseas Investment Office to satisfy the remaining foreign
investment requirements. These acquisitions are expected to be
completed by the end of the first quarter of 2015 and will deliver
annual sales and EBITDA of approximately NZD1.7 million and
NZD0.5 million respectively.
In December 2014 InvoCare completed the purchase of Charles
Crawford & Sons, an established funeral business located near
Melbourne. This business will contribute sales of approximately
$1.1 million in 2015.
InvoCare continues to review other expansion opportunities both in
Australia and abroad. There has been discussion with a number of
potential vendors. There is no certainty about the success or timing
of any acquisitions, nor of any movement into new markets.
Prepaid funeral fund returns in 2014 benefited from a one-off
property transaction which will not necessarily be repeated in
2015. In addition, the declining interest rate environment means
the returns achievable on cash and fixed interest investments will
become more challenging. Despite this, overall returns are expected
to continue to exceed the increase in contract liabilities. This outlook
assumes the current asset mix stays largely unchanged, targeted
investment returns are achieved and the equity and property
markets remain stable.
The Group’s capital expenditure in 2015 is expected to be at
similar levels to 2014. The main investments include the upgrading
of funeral homes and operations centres, continuing investment
in chapel facilities, further investment in digital technologies and
cyclical replacement of motor vehicles. InvoCare will continue its
practice of reviewing the performance of its property assets and,
if required, may dispose underperforming assets.
There has been no change to InvoCare’s capital management plans.
Sufficient funds are expected to be available from debt facilities
and free cash flows for capital expenditure and smaller “bolt on”
acquisitions. If a more substantial opportunity arises, alternative
funding sources, such as an equity raising, would be considered.
Although maturing in September 2016, InvoCare will need to renew
its $85 million bi-lateral debt facility in December 2015 in order
to maintain non-current classification at year end. No other debt
facilities are due to mature in 2015.
It remains the policy of the Board to distribute at least 75% of
operating earnings after tax4 as dividends, as well as increase the
quantum of those dividends year on year. Following the strong
operating performance and sustained operating EBITDA to cash
conversion, a final dividend of 20.75 cents per share has been
recommended for the year ended 31 December 2014 payable on
2 April 2015. This represents a 6.4% or 1.25 cents increase on the
2013 final dividend of 19.5 cents.
InvoCare remains committed to its core pillars for continued growth
in 2015. Areas of focus in 2015 include:
–
Investing in our facilities and developing a corporate culture that
will enhance the experience of our client families;
–
– Continued investment in advertising, marketing and digital
business to drive brand awareness, customer satisfaction,
market share improvement and business efficiencies;
Focus on organisational business practices and processes
to deliver improved operational performance;
– Development of the InvoCare USA operations;
– Complete integration of the Christchurch memorial park
acquisitions; and
– Seeking sustained returns on funds under management.
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 the results of those operations or
InvoCare’s state of affairs in future financial years.
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
appropriate risk management systems in place at its 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.
4
Operating EBITDA and operating earnings after tax is non-IFRS financial information.
InvoCare Annual Report 2014 29
Left to right: Aliza Knox; Richard Davis; Richard Fisher; Andrew Smith; Gary Stead; Tina Clifton, Roger Penman.
Information on directors
Mr Richard Fisher AM MEc LLB
Chairman of the Board
Member of Audit Committee
Chairman of Nomination Committee
Member of Remuneration Committee
Age 65 years
Appointed October 2003
Richard Fisher has been a director of InvoCare Limited since
24 October 2003 and was appointed Chairman on 22 October
2013. He is General Counsel to The University of Sydney and is an
Adjunct Professor in both its Graduate School of Government and
Faculty of Law. Richard is the immediate past Chairman of Partners
at Blake Dawson and specialised in corporate law during his
25 years as a partner of that firm. He was appointed as a director
of Sydney Water effective 1 January 2012. Richard is a former
part-time Commissioner at the Australian Law Reform Commission,
former Member of the Library Council of NSW and was an
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.
Interest in shares: 11,956 ordinary shares in InvoCare Limited
Mr Andrew Smith BCom MBA CA
Chief Executive Officer
Age 44 years
Appointed January 2009
Andrew joined InvoCare in January 2006 as Chief Financial Officer
and was promoted to Chief Operating Officer in March 2007. On
1 January 2009, Andrew was promoted to Chief Executive Officer
and Managing Director. He will be retiring on 30 April 2015. Prior
to joining InvoCare Andrew held the position of Chief Financial
Officer with Brazin Limited and previously OrotonGroup Limited.
Andrew was also Financial Controller for Sales and Marketing at
30
a major international fast moving consumer goods company, an
Internal Audit Manager for a global insurance company and an Audit
Senior at KPMG. Andrew was appointed as a director of Over Fifty
Guardian Friendly Society Limited on 24 March 2009. He holds a
Bachelor of Commerce from the University of Queensland, a Master
of Business Administration from the University of New England and
is a member of the Institute of Chartered Accountants Australia
and New Zealand.
Interest in shares: 255,485 ordinary shares in InvoCare Limited
Dr Christine (Tina) Clifton MB BS (Hons) BHA
Non-executive Director
Chairman of Risk Committee
Member of Audit Committee
Member of Nomination Committee
Age 59 years
Appointed October 2003
Tina Clifton has been a director of InvoCare Limited since 24 October
2003. She is a registered medical practitioner, and formerly a
Councillor of the University of New South Wales, a director of various
public and private companies largely in the healthcare sector,
including HCF, Health Care Australia, Ambri Ltd, 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. She has also been President of the Doctors Health
Advisory Service and involved in NSW mental health services Official
Visitors’ programme. Tina holds degrees in medicine and health
administration from the University of New South Wales and obtained
a specialist qualification in medical administration (FRACMA).
Interest in shares: 112,961 ordinary shares in InvoCare Limited
Directors’ Report continued Mr Roger Penman BEc FCA FTIA
Non-executive Director
Chairman of Audit Committee
Chairman of Remuneration Committee
Member of Nomination Committee
Age 60 years
Appointed January 2005
Roger Penman was appointed as a director of InvoCare Limited
on 1 January 2005 and joined both the Audit Committee, as
its Chairman, and the Remuneration Committee in February
2005. He became Chairman of the Remuneration Committee in
December 2009. Due to a sudden unexpected health issue in
early January 2015, Roger has been granted leave of absence
until 30 June 2015, or such earlier date that he is fit to return to
normal duties. Roger is a Partner in the Taxation Services division at
Crowe Horwath Sydney, joining the firm in 1986. He has had over
30 years of high-level specialist tax consulting and general business
experience, including mergers, acquisitions, initial public offerings
and group restructures. Roger holds a Bachelor of Economics
from the Australian National University, is a Fellow of the Institute of
Chartered Accountants Australia and New Zealand, a Fellow of the
Taxation Institute of Australia, a member of the Australian Institute
of Company Directors and a member of the Crowe Horwath
International Tax Committee.
Interest in shares: 16,947 ordinary shares in InvoCare Limited
Ms Aliza Knox BA MBA
Non-executive Director
Member of Nomination Committee
Member of Risk Committee
Age 54 years
Appointed October 2011
Aliza Knox was appointed as a director of InvoCare Limited on
1 October 2011 and became a member of the Risk Committee later
that month. Aliza is a digital media and financial service executive
with more than two decades of broad international marketing
and management experience. Aliza joined Twitter in Asia Pacific
as Managing Director Online Sales in November 2012. She was
formerly Managing Director of the Online Sales Group for Google
Asia Pacific and then the Managing Director Commerce for Google
Asia Pacific, with responsibility for China, India, South East Asia,
Japan, Australia and all other countries in the region.
Her previous roles have included Senior Vice President at global
payments technology company Visa International, with responsibility
for commercial solutions and global product platforms, Senior
Vice President at investing services and solutions provider Charles
Schwab & Company, with responsibility for international wireless
and Asian expansion, and Partner at Boston Consulting Group as
head of its Asian Financial Services Practice.
She is also a non-executive director of Singpost and GfK, as
well as an advisor to several organisations and a government
committee in Singapore.
Aliza holds a Bachelor of Arts, summa cum laude, (Applied Math
and Economics) from Brown University (USA) and Masters of
Business Administration with Honours (Marketing) from New York
University Graduate School of Administration (USA).
Interest in shares: 5,339 ordinary shares in InvoCare Limited
Mr Richard Davis BEc
Non-executive Director
Member of Risk Committee
Member of Remuneration Committee
Member of Nomination Committee
Member and Acting Chairman of Audit Committee
(from 22 January 2015)
Age 59 years
Appointed February 2012
Richard Davis was appointed a non-executive director of InvoCare
Limited on 21 February 2012. Richard previously retired as
InvoCare’s Chief Executive Officer and Managing Director on
31 December 2008 after 20 years with InvoCare. For the majority
of that time, he held the position of Chief Executive Officer and
successfully initiated and managed the growth of the business
through a number of ownership changes and over 20 acquisitions,
including Singapore Casket Company (Private) Limited, the
Company’s first international acquisition.
Richard has been a non-executive director of Australian Vintage Limited
since 5 May 2009 and is also Chairman of the Audit Committee of
that company. During the year he was appointed as a director and
Chairman of Monash IVF Group Limited leading up to its successful
ASX listing. 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.
Other Public Company Directorships held in the last three years:
Australian Vintage Limited (appointed non-executive
director in May 2009)
Monash IVF Group Limited (appointed non-executive director and
chairman in June 2014)
Interest in shares: 581,607 ordinary shares in InvoCare Limited
Mr Gary Stead BCom LLB MBA
Non-executive Director
Member of Risk Committee (from 22 October 2014)
Member of Audit Committee (from 22 October 2014)
Member and Acting Chairman of Remuneration Committee (from
22 January 2015)
Member of Nomination Committee (from 1 September 2014)
Age 57 years
Appointed September 2014
Gary Stead was appointed a non-executive director of InvoCare
Limited on 1 September 2014. Gary has spent 30 years in the
financial services sector, including 20 years in investment banking
and the past 10 years in investment management. He is currently
Managing Director of Olympus Capital Asia Credit and prior to that,
Chief Executive of Fortress Investment Group Australia, where he
established its Australian operations in 2004. For 13 years he held
various senior roles at Merrill Lynch, including Managing Director
and head of mergers and acquisitions in Australia, Asia Pacific
and Japan, co-head of investment banking and a member of the
Management Committee in Merrill Lynch Japan Securities, and
Vice Chairman, investment banking in Australia following earlier roles
at both Schroders in Australia and Salomon Brothers in New York.
Gary started his working career as a solicitor with Mallesons
Stephen Jaques.
Gary holds commerce and law degrees from the University of
New South Wales and an MBA from Wharton Graduate School
of Business at the University of Pennsylvania.
Interest in shares: Nil ordinary shares in InvoCare Limited
InvoCare Annual Report 2014 31
Company Secretary
Mr Phillip Friery BBus CA
Phillip Friery was appointed Company Secretary in January 2007 and
Chief Financial Officer in March 2007. Prior to joining the Group in
1994 as Accounting Manager, Phillip spent approximately 19 years
with Coopers & Lybrand (before its merger with Price Waterhouse)
in external audit, technical advisory and financial management
consulting roles. Phillip joined the board of Over Fifty Guardian
Friendly Society Limited on 24 March 2009. He holds a Bachelor
of Business from the New South Wales Institute of Technology (now
University of Technology Sydney) and is a member of the Institute
of Chartered Accountants Australia and New Zealand.
Interest in shares: 84,233 ordinary shares in InvoCare Limited
Meetings of directors
Details of the meetings attended by each director during the year
ended 31 December 2014 are set below.
In addition to the formal meetings of directors there were numerous
informal meetings of the non-executive directors during the year.
Those meetings were concerned, for the most part, with CEO
succession planning and the appointment of both a new CEO and
an additional director. In the case of the Chairman, for example,
he attended some 60 such meetings as well as visiting numerous
operational locations across Australia, New Zealand and Singapore.
Gary Stead was appointed director on 1 September 2014
and to each of the Audit Committee and Risk Committee on
22 October 2014.
The composition of the Board and Board Committees is a minimum
of three directors. Board Committees consist entirely of independent
non-executive directors. The CEO may attend all Board Committee
meetings by invitation. Other Key Management Personnel attend
Board and Committee meetings by invitation.
As a consequence of Roger Penman’s ill health and his leave of
absence, the following took effect from 22 January 2015 and until
further reviewed by the Board:
– Gary Stead was appointed to the Remuneration Committee and
will act as its Chairman; and
– Richard Davis was appointed to the Audit Committee and will
act as its Chairman.
Non-executive Directors
Richard Fisher
Christine Clifton
Roger Penman
Aliza Knox
Richard Davis
Gary Stead
Executive Director
Andrew Smith
Board
A
B
12
11
11
11
12
3
12
12
12
12
12
12
3
12
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
A
4
4
4
3*
4*
1
4*
B
4
4
4
–
–
1
–
A
3*
3
1*
2
3
1*
3*
B
–
3
–
3
3
–
–
A
2
–
2
–
2
–
2*
B
2
–
2
–
2
–
–
A
8
8
8
8
8
5
–
B
8
8
8
8
8
5
–
A = number of meetings attended.
B = number of meetings held during the time the director held office or was a member of the committee during the year.
* = includes meetings attended as an invited guest of the committee where the director was not a member of the relevant committee.
32
Directors’ Report continued Corporate Governance Statement
The Directors’ Report continues with the Corporate
Governance Statement.
InvoCare Limited (the “Company”) and the Board of Directors
(the “Board”) are committed to achieving and demonstrating the
highest standards of corporate governance. The Company and
its controlled entities together are referred to as “InvoCare” or the
“Group” in this statement.
This statement outlines the main corporate governance practices
in place throughout the financial year, which comply with the ASX
Corporate Governance Council’s principles and recommendations
as issued in March 2014. The Other Key Management Personnel
(“Other KMP”) comprise:
– Greg Bisset, Chief Operating Officer Australia (“COO Australia”);
– Graeme Rhind, Chief Operating Officer New Zealand
(“COO New Zealand”);
– Wee Leng Goh, Chief Executive Officer of Singapore Casket
Company (“CEO Singapore”);
– Phillip Friery, Chief Financial Officer (“CFO”); and
– Andi Luiskandl, Chief Information Officer (“CIO”).
For further information on the corporate governance policies
adopted by InvoCare Limited, refer to the Company’s website:
www.invocare.com.au
Principle 1 – Lay Solid Foundations for Management
and Oversight
Functions of the Board and senior executives
The Board of InvoCare Limited is responsible for guiding and
monitoring the Group on behalf of the shareholders by whom they
are elected and to whom they are accountable.
The Board seeks to identify the expectations of the shareholders, as
well as other regulatory and ethical expectations and obligations. In
addition, the Board is responsible for identifying areas of significant
business risk and ensuring arrangements are in place to adequately
manage those risks.
The responsibility for the operation and administration of the Group,
including day-to-day management of the Group’s affairs and the
implementation of the corporate strategy and policy initiatives,
is delegated by the Board to the CEO, Other KMPs, and other
management. Delegations are set out in the Group’s delegations
policy and are reviewed regularly. Delegations, within defined
authority limits, relate to various operational functions, including
areas such as expenditure and commitments, employee matters
(e.g. recruitment, termination, remuneration, discipline, training,
development, health and safety), pricing, branding, investor
and media communications. The Board ensures that the senior
executives and the management team are appropriately qualified
and experienced to discharge their responsibilities and has in
place procedures to assess the performance of the CEO and the
senior executives.
In deciding which functions and activities the Board reserves to
itself, it is guided by the overarching principle that the Board is
charged with strategic responsibility, along with a management
oversight function, and that the executive management have an
implementation function. In fulfilling these functions, the directors
seek to enhance shareholder value and protect the interests
of stakeholders.
The Board Charter is available on the Company’s website:
www.invocare.com.au
Board and senior executive appointments
Prior to the appointment of a new director thorough background
checks are undertaken to ensure that the individual has the
appropriate background to become a director of the Company.
Information about these checks is included in the Notice of
Meeting when the director filling a casual vacancy stands for
election. All Board members have formal letters of appointment
which clearly articulate the roles, responsibilities, expectations and
remuneration of directors.
The level of seniority of the role of senior executives determines
whether a formally drafted contract of employment or a less
complex letter of appointment is used to confirm employment.
Regardless of type, all employment agreements clearly articulate
duties and responsibilities and also rights and expectations.
Company Secretary
The Company Secretary works closely with the Chairman of the
Board and various committees to ensure that all directors receive
the information they require to fully discharge their duties which
includes facilitating external advice to directors where appropriate.
Some aspects of these functions are undertaken by other senior
staff specialists where appropriate and these interactions are free
of executive management oversight to ensure that directors are
fully informed.
Diversity
InvoCare currently serves a diverse range of communities across
Australia, New Zealand, Singapore and the USA and believes it is
very important to ensure that a diverse range of people, specifically
suited to the community being served, are available for families in
their time of need. This includes actively encouraging women at all
levels of the organisation.
Women currently comprise 29% of the Board, 17% of other key
management personnel, 29% of operational general managers in
Australia and 50% of support general managers. Sixty-one per cent
of total staff are women.
InvoCare’s aspirational target is to exceed 30% of women in all
the senior management positions outlined above. The Australian
Group is a relevant employer under the terms of the Workplace
Gender Equality Act and submitted its first report during 2014. The
benchmarking reports have only recently become available and
as a consequence the Board has yet to consider the measurable
specific targets based on the Gender Equality Indicators to be set
for future years.
The Diversity Policy is available on the Company’s website:
www.invocare.com.au
Directors’ performance evaluation
The Board, through its Nomination Committee, undertakes an
annual performance review of the full Board, its Committees and
of the Chairman. The Chairman performs individual appraisals
of each director.
The evaluation process, which was completed late in 2014, involves
an assessment of Board and committee performance by each
director completing a confidential questionnaire. The questionnaire
covers such matters as the role of the Board, the composition and
structure of the Board and committees, operation of the Board,
Group behaviours and protocols and performance of the Board and
committees, and invites comments from each director.
The results of the questionnaire are aggregated and discussed
by the Board as a basis for collegiate consideration of Board
performance and opportunities for enhancement.
InvoCare Annual Report 2014 33
At the date of this report, the composition of the Board
Committees is as follows:
Director
Audit
Risk
Nomination Remuneration
Richard Fisher
Tina Clifton
✓
✓
Roger Penman Chairman
Aliza Knox
Richard Davis
Gary Stead
Acting
Chairman
✓
Chairman
Chairman
✓
✓
✓
✓
✓
✓
✓
✓
✓
Chairman
✓
Acting
Chairman
During Roger Penman’s leave of absence due to illness, Richard
Davis is interim Chairman of the Audit Committee and Gary Stead
is interim Chairman of the Remuneration Committee.
Nomination Committee
The Nomination Committee critically reviews on an annual basis
the corporate governance procedures of the Group and the
composition and effectiveness of the Board.
The Committee currently consists of the six independent non-
executive directors of the Board. The Committee is chaired by
Richard Fisher. The Committee believes that the Board has a
healthy mix of skills to ensure the ongoing development and
growth of the Group.
In addition to its role in proposing candidates for director
appointment for consideration by the Board, the Nomination
Committee reviews and advises the Board in relation to Chief
Executive Officer succession planning, Board succession planning
and Board and committees’ performance appraisals.
InvoCare may utilise the professional advice of external consultants
to find the best person for the position of Director of the Company.
These advisors seek applicants according to the Board’s skills
requirements. The Board also acknowledges the benefits of a
diverse Board and requires the advisors to present candidates with
equal numbers of suitably qualified men and women and with some
diversity in cultural background and age. The Board then selects the
most suitable candidate(s) for the consideration of the shareholders.
The Board is looking to achieve an appropriate mix of skills and
diversity amongst directors.
The Committee Charter is available on the Company’s website:
www.invocare.com.au
Corporate Governance Statement
continued
The individual appraisals between each director and the Chairman
provide an opportunity for consideration of individual contributions,
development plans and issues specific to the director.
The evaluation process provides the Board an opportunity to make
an informed assessment of the skills of each individual director,
reflect on how those skills are meeting the needs of the Company
and consider Board succession planning. During the year, this
resulted in the appointment of Gary Stead, as a Non-executive
director, and the selection of Martin Earp as the new CEO.
Senior executive evaluation
After the conclusion of each financial year the CEO evaluates and
documents the performance of the Other KMPs. The results of the
achievement of targeted key performance indicators are reviewed
by the Remuneration Committee. Also at this time, key performance
indicator targets for the ensuing year are established. The
Remuneration Committee and the Board also review and determine
the Other KMPs’ remuneration for the ensuing year.
The Remuneration Committee evaluates the performance of
the CEO against annual key performance indicators and reports
to the Board its recommendations on performance appraisal
and remuneration.
In addition to a review of monthly financial results, at least quarterly
the Board monitors the key performance indicators and strategic
plan for the Group which provides the opportunity to more regularly
evaluate the performance of senior executives outside the annual
review process. When appointed, all new senior executives receive
an induction appropriate to their experience, which is designed
to ensure they can quickly and effectively participate in decision
making. The programme is also designed to ensure that the
executive gains a good working knowledge of both the industry and
the Group covering the financial position, strategies and operations.
This induction programme also focuses on the internal policies
and procedures with a particular emphasis on the respective
roles of the Board and its committees and those functions
delegated to management.
Principle 2 – Structure the Board to Add Value
Board composition
The Board currently comprises seven directors, being six non-
executive directors (including the Chairman) and one executive
director, being the CEO. Any director appointed to fill a casual
vacancy, except for the CEO, must stand for election by
shareholders at the next Annual General Meeting. In addition, one-
third of the non-executive directors, and any other director who
has held office for three years or more since last being elected,
must retire from office and, if eligible, may stand for re-election. The
CEO is exempt from retirement by rotation and is not counted in
determining the number of directors to retire by rotation.
The composition of the Board and Board Committees is a minimum
of three directors. Board Committees consist entirely of independent
non-executive directors. The CEO may attend all Board Committee
meetings by invitation. The other KMPs attend Board and
Committee meetings by invitation.
34
Directors’ Report continued Board skills matrix
When considering the appointment of a new director the Board
through the Nomination Committee considers the desirable skills
mix for the Board and focuses its search on potential candidates
who complement the existing skill set of the Board. The current
matrix is summarised in the following table.
Prior to each Board meeting, the Board is provided with
management reports and information in a form, timeframe and
quality that enables them to discharge their duties. If a board
member considers this information to be insufficient to support
informed decision making, then they are entitled to request
additional information prior to, or at, Board or committee meetings.
Business
Manage-
ment/
Industry
✓
✓
✓
✓
✓
✓
✓
Director/
Skill Set
Richard
Fisher
Tina Clifton
Roger
Penman
Aliza Knox
Richard
Davis
Gary Stead
Andrew
Smith
Legal
✓
✓
Account-
ing/
Finance
Marketing/
Digital
Health
Interna-
tional
Business
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Board independence
The majority of the Board must be independent directors, one of
whom is the Chairman. A director is deemed to be “independent”
if independent of management and free of any business or other
relationship that could materially interfere with, or could reasonably
be perceived to materially interfere with, the exercise of unfettered
and independent judgement.
The Board has assessed, using the criteria set out in the ASX
Corporate Governance Principles and Recommendations, the
independence of non-executive directors in light of their interests
and relationships and considers them all to be independent. The
Company will provide immediate notification to the market where
the independence status of a director changes.
The skills, experience and expertise relevant to the position of each
director and their term of office are set out starting on page 30 of
the Directors’ Report.
Directors’ access to independent professional advice and
Company information
To assist in the effective discharge of their duties, directors may, in
consultation with the Chairman, seek independent legal or financial
advice on their duties and responsibilities at the expense of the
Company and, in due course, make all Board members aware of
both instructions to advisors and the advice obtained.
All directors have the right of access to all relevant Company
information and to seek information from the Company Secretary
and other senior executives. They also have a right to other
records of the Company subject to these not being sought for
personal purposes.
Directors’ induction
When appointed to the Board, all new directors receive an induction
appropriate to their experience, which is designed to quickly allow
them to participate fully and productively in Board decision making.
The induction programme covers the Group’s structure and goals,
financial, strategic, operational and risk management positions,
the rights and duties of a director and the role and operation of the
Board Committees. The Nomination Committee is responsible for
reviewing the effectiveness of the director induction programme.
New directors are given an orientation regarding the business,
including corporate governance policies, all other corporate policies
and procedures, Committee structures and responsibilities and
reporting procedures.
Directors’ continuing education
Directors are expected to undertake continuing education both
as regards the normal discharge of their formal director duties, as
well as ongoing developments within the Group and its operating
environment. Directors typically attend courses and seminars
relevant to the effective discharge of their duties.
Principle 3 – Act Ethically and Responsibly
Code of Conduct
The Board, in recognition of the importance of ethical and
responsible decision making, has adopted a Code of Conduct
for all employees and directors which outlines the standards of
ethical behaviour which are essential to maintain the trust of all
stakeholders and the wider community. This code also mandates
the avoidance of conflicts of interest and requires high standards
of personal integrity, objectivity and honesty in the dealings of all
directors, executives and staff, providing detailed guidelines to
ensure the highest standards are maintained.
InvoCare recognises that its clients may be vulnerable due to a
recent bereavement and it requires all employees to be aware
of their ethical and legal responsibilities. Accordingly, InvoCare
requires all employees to behave according to this code, to
maintain its reputation as a good corporate citizen. Such behaviours
extend to areas such as confidentiality, Privacy Act obligations,
communications with the media, work health and safety and
drugs and alcohol.
This code is provided to all directors and employees as part of their
induction process and compliance is reviewed on a regular basis. It
is subject to ongoing review and assessment to ensure it continues
to be relevant to contemporary conditions.
The code is available on the Company’s website:
www.invocare.com.au
All directors and former directors are entitled to inspect and copy
the books of the Company for the purposes of legal proceedings,
including situations where the director is a party to proceedings,
where the director proposes in good faith to bring proceedings
and where a director has reason to believe proceedings will be
brought against him or her. In the case of former directors, this right
of access continues for a period of seven years after the person
ceases to be a director.
Principle 4 – Safeguard Integrity in Corporate Reporting
Audit Committee
The Audit Committee provides assistance to the Board in fulfilling
its corporate governance, financial risk management and oversight
responsibilities in relation to the Group’s financial reporting, internal
control structure, interest rate and foreign currency risks and the
internal and external audit functions.
InvoCare Annual Report 2014 35
Directors’ Report continued
Corporate Governance Statement
continued
It is the responsibility of the Committee to maintain free and open
communication between the Committee, the external auditor, the
internal auditor and management of the Group. Both the internal
and external auditors have a direct line of communication to the
Chairman of the Audit Committee.
The Audit Committee comprises four independent non-executive
directors and is chaired by Roger Penman. Mr Penman is an FCA
and brings a wealth of financial and taxation experience to the
Committee. Other members are Christine Clifton, Richard Fisher and
Gary Stead. The number of meetings held during the year and the
individual attendances at those meetings is set out on page 32 of
the Directors’ Report.
The external auditor met with the Audit Committee during the year
without management being present.
The Committee Charter is available on the Company’s website:
www.invocare.com.au
Assurance
Prior to finalising the release of half-year and full-year results and
reports, the Board receives assurance from the CEO and CFO
in accordance with s295A of the Corporations Act 2001 and
Recommendation 4.2 of the ASX Corporate Governance Principles
and Recommendations. These assurances also provide the Board
with information in relation to internal control and other areas of
risk management. These officers receive similar assurance from
the key financial and operational staff reporting to them in relation
to these matters.
Principle 6 – Respect the Rights of Shareholders
The Board of Directors aims to ensure that the shareholders
are informed of all major developments affecting the Group’s
state of affairs.
The Company uses its website to complement the official release
of material information to the ASX. Shareholders may elect to
receive email alerts when Company announcements are made.
Notice of Annual General Meeting, half-year and annual results
announcements and financial reports, investor presentations, press
releases and other ASX announcements can be found on the
Company’s website: www.invocare.com.au
Additionally, all shareholders have the right to access details of the
holdings, provide email address contacts and make certain elections
via the Company’s share registry Link Market Services Limited
by accessing the web site www.linkmarketservices.com.au.
Shareholders have the option of receiving all or a selection of
communication electronically.
The Company encourages full participation of shareholders at the
Annual General Meeting. The Chairman of the meeting encourages
shareholders to ask reasonable questions at the Annual General
Meeting. The Board makes itself available to all shareholders both
before and after the Annual General Meeting.
The next Annual General Meeting is scheduled to be
held at 11.00am on Friday, 22 May 2015 at the offices of
PricewaterhouseCoopers, 201 Sussex Street, Sydney.
Shareholders are also able to direct any questions relating to
the Company’s securities to the share registry, Link Market
Services Limited.
Auditor attendance at the Annual General Meeting
The Company’s external auditor attends the Annual General Meeting
and is available to answer shareholder questions about the conduct
of the audit and the preparation and content of the auditor’s report.
Principle 7 – Recognise and Manage Risk
The Board, through the Risk Committee and Audit Committee,
reviews and oversees the Group’s risk management systems.
Principle 5 – Make Timely and Balanced Disclosure
The Company has appropriate mechanisms in place to ensure
all investors are provided with timely, complete and accurate
information affecting the Group’s financial position, performance,
ownership and governance.
The Chairman, CEO, CFO or Company Secretary are responsible,
as appropriate, for communication with shareholders and the
Australian Securities Exchange (“ASX”). This includes responsibility
for ensuring compliance with the continuous disclosure
requirements in the ASX listing rules and overseeing and co-
ordinating information disclosure to the ASX, analysts, brokers,
shareholders, the media and the public. Continuous disclosure
obligations are well understood and upheld by the Board and senior
executives. Formal and informal discussion and consideration of
these obligations occurs as and when the need arises.
The Group’s shareholder communication strategy is designed to
ensure that all relevant information, especially market sensitive
information, is made available to all shareholders and other
stakeholders as soon as possible. InvoCare’s website is structured
to ensure information is easily located and logically grouped. Those
shareholders who have made the appropriate election receive email
notification of all announcements.
The Continuous Disclosure Policy and Shareholder
Communication Strategy are available on the Company’s website:
www.invocare.com.au
36
Risk Committee
The Risk Committee determines the Group’s risk profile and
is responsible for overseeing and approving risk management
strategy and policies, internal compliance and internal control. The
Risk Committee does not have responsibility for strategic (Board
responsibility) or financial risk management, which is the focus of
InvoCare’s Audit Committee. The Board has reviewed the Group’s
risk management framework during the year and confirmed that
it remains sound.
The Company’s approach to managing risk draws from the
International Standard ISO 31000 and the Committee of Sponsoring
Organisations of the Treadway Commission’s integrated framework
for Enterprise Risk Management. The Group does not have
any material exposure to economic, environmental and social
sustainability risks.
Each senior executive, with input and assistance from their direct
reports, identifies key risks for their areas of responsibility and
function which are in turn aggregated into an overall corporate risk
register. Each risk is assessed and assigned an inherent risk rating.
The risk register is continuously reviewed and maintained as new
risks are identified or incidents occur, or mitigating controls change.
Extracts of the risk register are provided to the Risk Committee
at each of its meetings, together with specific commentary or
information on significant changes to the risks or the ratings.
Specific major risks or incidents are reported, as and when
they occur, to the CEO and Other KMPs who are responsible
for escalating these to the Risk Committee and Board, where
necessary, if the event occurs outside the regular cycle of
Committee meetings. The Committee is informed of the
effectiveness of actions to mitigate the impact of risk events. In
addition, the Committee considers developments or improvements
in risk management and controls, including the adequacy of
insurance programmes.
Separate records and registers are maintained for other more
common or recurring risks; for example, arising from customer
complaints and occupational health and safety issues. These are
managed and reported to the Committee by relevant in-house
specialists, including the Group Integration and Risk Manager
and General Manager of Human Resources. In this context, the
Committee monitors complaints handling and also has a strong
focus on ensuring suitable work practices and employee learning
and development programmes are developed and delivered.
The Risk Committee comprises four independent non-executive
directors and is currently chaired by Christine Clifton. The other
members are Aliza Knox, Richard Davis and Gary Stead. The
number of meetings held during the year and the individual
attendances at those meetings is set out on page 32 of the
Directors’ Report.
The Risk Committee Charter is available on the Company’s website:
www.invocare.com.au
Internal control
The Group maintains a register of delegated authorities which
are designed to ensure that all transactions are approved at the
appropriate level of management and by individuals who have no
conflicts of interest in relation to the transaction.
An internal audit function is established and conducts a series
of risk-based and routine reviews in accordance with three-year
strategic, and more detailed annual, internal audit plans. These
plans are based on the existing risk environment and the level
of inherent risk, i.e. the level of risk before the application of
controls, in order to effectively identify and prioritise internal audit
projects. Within a three-year period all key business systems and
processes are regularly reviewed, either using in-house or external
resources, to ensure that adequate levels of checks and balances
exist to safeguard the assets of the Company and ensure that all
transactions are correctly and promptly recorded.
Internal audit has developed a self-assessment questionnaire
which is distributed to operational management. This questionnaire
serves to build higher awareness and understanding of business
risks and how to manage and control them. In addition, internal
audit reviews all systems improvements and enhancements prior
to live implementation to ensure an adequate level of internal control
and accountability is maintained. Exception reports have been
developed that assist in continuous monitoring of major processes.
An informal process exists by which employees of InvoCare may, in
confidence, raise concerns about possible improprieties in financial
reporting or other matters. Internal audit would usually be involved
in independent investigations of such matters and follow-up actions.
The Group Internal Audit Manager and Integration and Risk
Manager meet privately with the chairs of the Audit and Risk
Committees without management present on a regular basis.
Principle 8 – Remunerate Fairly and Responsibly
Remuneration Committee
InvoCare’s remuneration policy ensures that remuneration packages
properly reflect the person’s duties and responsibilities, and that
remuneration is competitive in attracting, retaining and motivating
people of the highest calibre.
The Remuneration Committee reviews and makes
recommendations to the Board on senior executive remuneration
and appointment and on overall staff remuneration and
compensation policies.
When making recommendations, the Committee aims to design
policies that attract and retain the executives needed to run
InvoCare successfully and to motivate executives to pursue
appropriate growth strategies while marrying performance
with remuneration.
The Remuneration Committee comprises four independent non-
executive directors with Roger Penman as Chair and Richard
Fisher, Richard Davis and Gary Stead as members. The number
of meetings held during the year and the individual attendances
at those meetings is set out on page 32 of the Directors’ Report.
The Remuneration Committee Charter is available on the
Company’s website: www.invocare.com.au
Remuneration structure
Remuneration for senior executives typically comprises a package
of fixed and performance-based components. The Committee may,
from time to time, seek advice from special remuneration consulting
groups so as to ensure that the Board remains informed of market
trends and practices.
Non-executive directors are remunerated by way of directors’ fees,
which may be sacrificed by payment into superannuation plans or
by allocation of ordinary shares. They do not participate in schemes
designed for the remuneration of executives, and do not receive
retirement benefits, bonus payments or incentive shares.
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, access by invitation to the Deferred
Employee Share Plan and fringe benefits. The Remuneration Report
which begins on page 38 provides detailed information about the
current remuneration practices and the levels of remuneration.
Share Trading Policy
The Company’s share trading policy is designed to minimise the
risk that InvoCare, its directors and its employees will breach the
insider trading provisions of the Corporations Act or compromise
confidence in InvoCare’s practices in relation to securities trading.
The policy prohibits directors and employees from trading in
InvoCare securities when they are in possession of information not
generally available to the investment community, and otherwise
confines the opportunity for directors and employees to trade in
InvoCare securities to certain limited periods. The policy specifically
bans the use of techniques or products to limit the economic risk
associated with holding the Company’s securities.
This policy applies to all senior staff, particularly those, such as
finance team members, who have access to information which is
not generally available. In addition, it applies to all the associates
of these individuals. The policy prohibits trading in the Company’s
shares except within narrow and specific windows when the Group
believes the market is fully informed. There are limited procedural
exceptions to the policy and in certain circumstances the Chairman
has the ability to approve trading outside the policy prescriptions.
The share trading policy is available on the Company’s website:
www.invocare.com.au
The Directors’ Report continues with the Remuneration Report.
InvoCare Annual Report 2014 37
Remuneration Report
The Remuneration Report summarises the key compensation
policies and practices for the year ended 31 December 2014,
highlights the link between remuneration and corporate performance
and provides detailed information on the compensation
for non-executive and executive directors and other key
management personnel.
The Remuneration Report is set out under the
following main headings:
A. Directors and key management personnel
disclosed in this report
B. Remuneration governance
C. Use of remuneration consultants
D. Executive remuneration policy and framework
E. Relationship between remuneration and InvoCare’s performance
F. Non-executive director remuneration policy
G. Voting at InvoCare’s 2014 Annual General Meeting
H. Details of remuneration
I. Service agreements
J. Details of share-based compensation
The information provided in this Remuneration Report
has been audited as required by section 308(3C) of the
Corporations Act 2001.
A. Directors and key management personnel
For the purposes of this report, the key management personnel
are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group or a major
operation within the Group and are as follows:
Non-executive directors
Richard Fisher (Chairman)
Christine Clifton
Roger Penman
Aliza Knox
Richard Davis
Gary Stead (appointed 1 September 2014)
Other key management personnel
Andrew Smith (Managing Director and Chief Executive Officer)
Phillip Friery (Chief Financial Officer)
Greg Bisset (Chief Operating Officer Australia)
Andi Luiskandl (Chief Information Officer)
Wee Leng Goh (Chief Executive Officer Singapore)
Graeme Rhind (Chief Operating Officer New Zealand)
On 17 December 2014, it was announced that Martin Earp will
replace Andrew Smith as Managing Director and Chief Executive
Officer with effect from 1 May 2015. Information relating to
Martin Earp’s remuneration is disclosed in the relevant sections
of this report.
Following a sudden and serious health issue suffered by Roger
Penman on 1 January 2015, he has been granted leave of absence
until 30 June 2015 or such earlier date as the Board is advised that
he is fit to return to normal duties.
38
B. Remuneration Governance
The Board has an established Remuneration Committee which
critically reviews the Group’s remuneration policy and, under its
charter, has the following primary functions:
–
review and make recommendations to the Board regarding the
remuneration and appointment of senior executive officers and
non-executive directors;
review and make recommendations to the Board regarding
policies for remuneration and compensation programmes of the
Group focusing on appropriate remuneration policies designed
to meet the needs of the Group and enhance corporate and
individual performance;
review and make recommendations to the Board regarding
administration of remuneration and compensation programmes;
review and make recommendations for approval by the Board
regarding all reports on executive remuneration required by law
or regulation proposed to be included in the annual report;
review and make recommendations to the Board regarding all
equity based remuneration or compensation plans; and
report to the Board regularly on each of the above matters.
–
–
–
–
–
During 2014, the Remuneration Committee considered
the emerging market remuneration practices and
legislative developments.
Both the previous and this latest Remuneration Report provide
commentary about any changes to remuneration arrangements and
outline the Directors’ rationale for the practices adopted.
The Remuneration Committee makes recommendations to the
Board in relation to the remuneration of the CEO.
The CEO recommends the remuneration of all other key
management personnel. The Remuneration Committee reviews
the recommendation before submission to and approval by the
Board of Directors.
The key management personnel determine the remuneration
of other senior management, within both the Remuneration
Committee remuneration policy framework and a defined budget
approved by the Board.
C. Use of remuneration consultants
The Remuneration Committee conducted its remuneration review
with assistance detailed below from independent remuneration
consultant Mr Ian Crichton of Crichton and Associates (“C+A”),
a specialist consultancy and advisory business dedicated to
all aspects of director and executive compensation and equity
incentive strategies.
C+A was appointed in December 2014, in writing, by the Chairman
of the Remuneration Committee, to undertake a remuneration
benchmark assessment and analysis in respect of Director and
selected key management personnel remuneration. Reports were
provided to the Chairman of the Remuneration Committee during
December 2014 and January 2015. The information provided was
used, in part, to assist the Board in determining changes to Director
and key management personnel remuneration for the 2015 financial
year. C+A received a fee of $13,565 (excluding GST and out of
pocket expenses) for this work.
C+A did not make any “remuneration recommendations” as defined
in the Corporations Act 2001 in the 2014 financial year.
Directors’ Report continued D. Executive remuneration policy and framework
Policy
The guiding principle underlying InvoCare’s executive remuneration
philosophy is to ensure rewards are fair and reasonable, having
regard to both internal and external relativities, and appropriately
balanced between fixed and variable components and that all
variable components are commensurate with performance and
results delivered.
InvoCare’s remuneration policy is that:
–
–
–
–
–
for each role, the balance between fixed and variable
components should reflect market conditions;
individual objectives should reflect the need for
sustainable outcomes;
all variable pay should be tightly linked to measurable personal
and business performance;
total compensation should be market competitive and
be reviewed annually, with no component guaranteed
to increase; and
the Chief Executive Officer’s and senior executives’ total
remuneration be targeted at the 50th percentile of comparable
positions in comparable size companies (taking into account
sales revenue, number of employees, net profit after tax and
market capitalisation) which is achieved when individual and
overall Group performance targets are met.
Remuneration structure
InvoCare’s compensation structure aims to provide a balance of
fixed and variable remuneration components. Variable components
are tied to the performance of the Group and of the individual and
are entirely at risk.
The compensation of the Chief Executive Officer and other
key management personnel is comprised of payments and/or
allocations under the following categories:
–
base salary and benefits, including annual leave, superannuation
and other incidental benefits;
short-term incentives (“STI”) in the form of annual
cash bonuses; and
long-term incentives (“LTI”) in the form of share-based bonuses.
–
–
The target remuneration mix for the CEO and other key
management personnel, as depicted in the following graph (and
averaged for the other key management personnel), is set to place
a considerable portion of executive remuneration at risk so as to
align remuneration with both Group performance and the individual’s
personal influence and contribution to the Group performance.
CEO – 2014
51%
28%
21%
CEO – 2013
52%
27%
21%
Other key
management
personnel – 2014
Other key
management
personnel – 2013
59%
61%
24%
17%
23%
16%
20%
■ Base plus superannuation ■ STI potential ■ LTI potential
60%
40%
0%
80%
100%
No director or other key management personnel has, at
31 December 2014 or during or since the end of the financial
year, had any loans to or from the Group or any options over
unissued ordinary shares of InvoCare Limited.
Base salary and benefits
Executives are offered a market competitive base cash salary,
together with annual leave and post-employment superannuation
benefits in accordance with relevant jurisdictional statutory
requirements and other non-monetary or incidental benefits. An
executive may elect to structure the base salary and benefits as a
combination of cash and other benefits.
The cash salary is reviewed on a regular basis against market data
for comparable positions provided by independent remuneration
consultants and selected survey data. Adjustments to base
salary are based on increases in role scope or responsibility, pay
position relative to market and relative performance in the role. No
guaranteed base pay increases are included in any executive’s
service agreements.
Non-monetary benefits may include provision of fully maintained
cars and car parking spaces. Other incidental benefits may include
payment of total and permanent disablement, death and salary
continuance insurance premiums and nominal discounts for funerals
of immediate family members.
In Australia, entitlements accrue for employee’s long service and,
subject to relevant statutory requirements and qualifying periods,
the entitlement may be taken as leave or is payable to the
employees upon termination of employment.
Termination benefits are provided in the respective individual
contracts of employment and are normally limited to statutory
entitlements, such as accrued but untaken leave, and payments in
lieu of notice, which generally range between one month and up to
a maximum of six months. Details for key management personnel
service agreements are set out on page 47 under the heading
“I. Service Agreements”.
Short-term incentives
STIs are awarded for achievement of pre-determined financial and
non-financial objectives. For key management personnel, the target
criteria and possible bonus levels are defined each year by the
Remuneration Committee and Board. For other executives, the key
management personnel determine the objectives and reward levels,
subject to ratification by the Remuneration Committee, within the
constraints of a Board approved budget.
Each executive has a target STI opportunity depending on the
accountabilities of the role and impact on Group performance.
The STI opportunity is up to a maximum of 56.3% of base salary
plus superannuation for the CEO and up to a maximum of 52% for
the other key management personnel. The target criteria for key
management personnel are heavily weighted to overall financial
performance, being up to 47% of the potential STI opportunity, but
are also tailored to the relevant circumstances of each executive.
In summary, the criteria used to determine short-term bonuses for
key management personnel are aligned with InvoCare’s strategic
and business objectives and include:
– Group, specific country or specific business EBITDA growth
targets, with EBITDA being a key financial measure of the
success of operations;
– Absolute case volume and Group, specific country or specific
market share growth, which are cornerstones of the past
and future growth of the business, including through opening
new locations in existing markets, entering new markets or
acquiring businesses;
Innovation in customer service delivery and business operations,
including introducing new products and services, modifying
operating models and further developing or strengthening
brand positioning;
–
InvoCare Annual Report 2014 39
Remuneration Report continued
– Develop and implement digital business strategies, embracing
and harnessing new or existing technologies (e.g. social media)
to enhance customer service and business efficiencies; and
– Continue to grow the prepaid funeral business and, where
possible, influence independent fund managers to adopt
appropriate asset allocations and achieve investment returns
in excess of price rises and investment management costs.
Other levels of staff also received short-term objective based
compensation based on measurable and pre-determined targets.
In addition to complementing the targets applying to more senior
executives, these objectives include key performance indicators
such as case average pricing, sales of prepaid contracts, the
management of labour costs, client survey results and debtors’
days outstanding.
Most bonuses are payable in cash in the first quarter of each year
after the completion of the audit of the results for the previous
year ended 31 December. In some jurisdictions quarterly market
share incentives are paid upon achievement of targets. The
Remuneration Committee considers that STI bonuses are awarded
for achievement of key performance criteria for a particular financial
year and that no part of the bonus should be deferred for payment
in a later year. The Committee is of the view that the share-based
LTI, described in more detail below, encourage executives to
remain employed with the Group and ensure alignment with
shareholder interests.
Based upon achievements in 2014, the Remuneration Committee
determined the CEO and other key management personnel
achieved an average 77% of their target STI opportunity.
The following factors were among those considered by the
Remuneration Committee in making its assessment on the
remainder of the STI opportunity:
–
Financial performance was improved on the previous year, with
achievement of Group EBITDA targets, stabilisation of market
share after losses during 2013, better investment performance
of prepaid funeral funds and lower debt financing costs after
successful conclusion to refinancing negotiations in late 2013;
– Negotiations with potential business vendors continued during
the year with the successful completion and integration of a
small funeral business in Australia and the taking of further
steps to secure ownership of two crematorium operations in
New Zealand; and
– Roll out of digital strategy across the business.
Long-term incentives
Recognising the importance of an appropriate long-term incentive
for rewarding and retaining senior management, during 2007
a share-based compensation scheme, the InvoCare Deferred
Employee Share Plan (“DESP”), was introduced under which
the Board may offer selected senior managers incentive shares
(“LTI shares”).
In the case of Singapore and New Zealand based senior executives
who may not be able to participate in Australian share offers, share
appreciation rights (“LTI rights”) may be offered which mirror the
same outcomes for the employee as LTI shares. The long-term
incentive for the Chief Operating Officer InvoCare USA, details of
which are set out below, differs to arrangements for executives in
Australia, Singapore and New Zealand more fully described in the
immediately following paragraphs.
40
In determining the amount of an offer to an individual manager,
consideration is given to factors, including market benchmarks, skill
and experience, expected and actual performance over time and
promotion and succession potential.
No consideration is payable by the employee for the offer of LTI
shares or LTI rights, but they are subject to continuous service and,
for senior management, performance conditions.
The LTI shares are purchased on-market and hence the DESP is
operated on a completely non-dilutive basis. LTI rights are valued
by reference to the market value of InvoCare shares at the time
of the offer. The value of LTI shares or LTI rights offered is up to a
maximum of 41.8% of base salary plus superannuation for the CEO
(based upon his 2014 remuneration) and up to a maximum 35.0%
for the other key management personnel.
Vesting of the LTI shares and LTI rights will be in three equal
tranches in February of each of the second, third and fourth
subsequent years after the year of offer. Unless otherwise
determined by the Board in its sole discretion, unvested LTI shares
and LTI rights will be forfeited on death and disability, retirement or
resignation or other employment termination.
The LTI shares are held in trust until vesting and the employees will
be entitled to any dividends paid in respect of unvested, unforfeited
shares. Similarly, notional dividend amounts will be paid to holders
of unvested, unforfeited LTI rights coinciding with the payment
of InvoCare dividends. The Remuneration Committee considers
the payment of dividends on unvested shares or rights reinforces
the value of the long-term reward. The practice helps align the
managers’ interests with those of InvoCare shareholders through
appreciation of the importance of dividend benefits and provides
further incentive for managers to remain with InvoCare until vesting
conditions are met.
Upon vesting of LTI shares, the employee has the discretion
to leave the LTI shares in trust, withdraw or sell any number of
them. In accordance with InvoCare’s Share Trading Policy, senior
managers are not permitted to enter into transactions in products
associated with their shareholding in the Company which operate
to limit the economic risk of their shareholding (e.g. hedging or cap
and collar arrangements), which includes limiting the economic risk
of holdings of unvested entitlements associated with LTI shares.
Upon vesting of LTI rights, the employee will be paid in cash an
amount equivalent to the number of vested LTI rights multiplied by
the value of those rights derived by reference to the market value of
InvoCare shares.
Performance conditions apply to senior managers who have an
important strategic role impacting InvoCare’s financial performance
and relate to compound growth per annum in normalised earnings
per share over the vesting period. “Normalised earnings” means
reported profit as adjusted:
–
to remove the impacts of any gains or losses arising from the
sale, disposal or impairment of non-current assets; and
to maintain consistency in accounting policies across the
respective vesting periods for each grant.
–
Compound growth per annum of normalised earnings per share
was selected at the time of establishment of the DESP as the most
suitable and reliable measure of organisational performance based
on independent advice from C+A and analysis by the Board.
As part of its normal review of remuneration policy, the
Remuneration Committee re-affirmed the appropriateness of the
earnings per share absolute measure, including by comparison to
Directors’ Report continued the commonly used Total Shareholder Return (“TSR”) relative metric.
The reasons for this conclusion include:
–
InvoCare is a stable, unique business without a true comparator
peer or group to benchmark performance against;
relative TSR incentives tend to favour executives in companies
with higher levels of inherent share price volatility than InvoCare,
which has lower volatility in both share price and earnings than
other ASX listed entities or market indices;
InvoCare has relatively small market capitalisation and its
growth may appear constrained relative to an index or
selected peer group;
The vagaries of equity markets are not controllable by InvoCare’s
Board or its executives and introducing TSR would detract from
the clear and proven organisational performance culture which
already exists within InvoCare; and
–
–
–
– Earnings per share growth is aligned with InvoCare’s
strategic objectives and more closely reflects management
performance and success in incrementally creating value
through good decision making and sustained and improving
performance over time.
For 2014 offers, the 2013 base comparison year earnings per share
was set at 39.7 cents per share to exclude the net gains from asset
sales and impairments in 2013. For 2015 offers, the 2014 base
comparison year earnings per share has been set at 49.1 cents
per share which excludes the net gains from asset sales and
impairments in 2014.
LTI shares or LTI rights granted in 2015, 2014, 2012, 2011 and 2010 vest as set out below:
Normalised reported earnings per share (“EPS”) compound
growth per annum from 1 January in the year of offer
Proportion of each one-third tranche of LTI shares that will vest
10% or more
9% or more but less than 10%
8% or more but less than 9%
7% or more but less than 8%
Less than 7%
100%
77% plus 2.3% for each 0.1% growth in EPS over 9%
53% plus 2.4% for each 0.1% growth in EPS over 8%
30% plus 2.3% for each 0.1% growth in EPS over 7%
Nil
LTI shares or LTI rights granted in 2013 vest as set out below:
Normalised reported earnings per share (“EPS”) compound
growth per annum from 1 January in the year of offer
Proportion of each one-third tranche of LTI shares that will vest
12% or more
11% or more but less than 12%
10% or more but less than 11%
9% or more but less than 10%
8% or more but less than 9%
7% or more but less than 8%
Less than 7%
100%
80% plus 2.0% for each 0.1% EPS over 11%
65% plus 1.5% for each 0.1% EPS over 10%
55% plus 1.0% for each 0.1% EPS over 9%
50% plus 0.5% for each 0.1% EPS over 8%
30% plus 2.0% for each 0.1% EPS over 7%
Nil
The performance conditions for LTI shares and LTI rights were selected following analysis of:
–
–
historic and forecast EPS growth in the ASX/S&P 200 Index; and
InvoCare’s own earnings forecasts derived from its annual five-year plans.
If the compound EPS growth performance conditions are not met at the vesting date, the LTI shares or LTI rights remain available until
February in the fifth year after grant and may vest based on the compound annual growth from the base date for the grant to 31 December
of the previous year. Unvested shares at the fifth anniversary of the grant are forfeited.
The Remuneration Committee continues to support as fair and reasonable the consideration that the LTI plan provides for a cumulative EPS
test over the vesting period. Each grant is split into three tranches with vesting ranging over two and up to a maximum of five years after
each grant. This is to allow for the impact that the number of deaths, which is outside the control of management, has on InvoCare’s annual
result, in particular given the fixed cost nature of the business.
To receive 100% of the LTI shares or LTI rights, the senior executive or manager must remain employed during the vesting period and
InvoCare’s compound EPS growth must equal or exceed the maximum target growth percentage. The employee remains exposed over this
timeframe to the consequences of the Group’s results, their own individual performance impacting that result and the market movements in
InvoCare’s share price.
InvoCare Annual Report 2014 41
Remuneration Report continued
The following table summarises the performance to date for the grants made since 2010 which impact remuneration in the current or a
future financial year.
LTI share grant year
Target annual compound
normalised EPS growth
from 1 January of
grant year
Normalised EPS
on 1 January of
grant year
2010
7% to 10%
32.3 cents
2011
7% to 10%
33.9 cents
2012
7% to 10%
34.4 cents
2013
7% to 12%
38.7 cents
2014
7% to 10%
39.7 cents
2015
7% to 10%
49.1 cents
Performance condition testing date and vesting outcome
February 2012 – not satisfied, first 1/3rd not vested
February 2013 – not satisfied, first and second 1/3rd not vested
February 2014 – not satisfied, all tranches not vested
February 2015 – not satisfied, all unvested shares forfeited
February 2013 – not satisfied, first 1/3rd not vested
February 2014 – not satisfied, first and second 1/3rd not vested
February 2015 – not satisfied, all tranches not vested
February 2016 – to be determined
February 2014 – 39% of the first 1/3rd tranche vested
February 2015 – 100% vesting of second and unvested first tranches
February 2016 – to be determined
February 2017 (if required)
February 2015 – 100% of first 1/3rd tranche vested
February 2016 – to be determined
February 2017 – to be determined
February 2018 (if required)
February 2016 – to be determined
February 2017 – to be determined
February 2018 – to be determined
February 2019 (if required)
February 2017 – to be determined
February 2018 – to be determined
February 2019 – to be determined
February 2020 (if required)
Future offers of LTI shares and LTI rights may be made at the discretion of the Board and the service and performance conditions for any
future offers may vary from previous LTI share and LTI rights offers.
Further details of LTI shares and LTI rights are set out on page 49 under the heading “J. Share-based Compensation”.
42
Directors’ Report continued E. Relationship between remuneration and InvoCare’s performance
The overall level of executive reward takes into account the performance of the Group over a number of years, with at risk remuneration
linked to that performance. The remuneration approach, elements and mix has delivered shareholder value since listing as depicted by key
performance indicators for the Group in the tables below.
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
Reported profit after tax ($m)
– note 1
Basic earnings
per share (cents)
Normal dividends ($m)
– note 2
Normal dividends
per share (cents)
Total return per share ($)
– note 3
Total shareholder return (%)
– note 3
Share price ($)
– 31 December
Shares on issue (m)
Market capitalisation ($m)
– note 4
Enterprise value ($m)
– note 5
$54.5
$48.9m $44.5m $27.0m $27.4m $48.1m $28.0m $27.6m $24.0m $20.1m
49.8¢
44.7¢
40.6¢
25.6¢
26.9¢
47.7¢
28.0¢
27.6¢
24.7¢
21.0¢
$40.1m $37.9m $37.4m $32.5m $28.9m $25.7m $23.6m $22.5m $19.2m $16.0m
36.5¢
34.5¢
34.0¢
29.75¢
28.25¢
25.25¢
23.5¢
22.5¢
19.5¢
16.5¢
$1.41
$2.60
$1.39
$0.71
$1.37
$1.28
($1.63)
$1.66
$1.56
$1.11
13%
30%
18%
10%
22%
25%
(23%)
30%
37%
33%
$12.10
$11.04
110m
110m
$8.78
110m
$7.70
110m
$7.28
102m
$6.18
102m
$5.15
101m
$7.01
100m
$5.57
99m
$4.19
97m
$1,331m $1,215m $966m
$847m
$746m $629m
$519m $703m $552m $406m
$1,550m $1,430m $1,183m $1,055m $894m $778m
$671m $849m $698m $542m
1. From 2009, the Group changed its accounting policy for prepaid contracts following review by the Australian Securities & Investments Commission
which introduced volatility into reported results associated with mark to market valuations of prepaid funds under management recognised on
balance sheet for the first time. With a sizeable asset allocation to equities in those prepaid funds, the 2009 and 2010 fair value movements were quite
significant as a consequence of the global financial crisis and equity returns in 2011 were subdued. Investment asset allocation tilts away from equities
have reduced the return volatility.
2. A special dividend of 10.5 cents per share totalling $10.2 million was paid in 2005 in addition to the normal dividends for that year.
3. Total return per share is the share price movement plus in year cash dividends paid. The total shareholder return percentage is the total return per
share divided by the share price at the beginning of the year.
4. Market capitalisation at 31 December, being number of shares on issue multiplied by share price at that date.
5. Enterprise value is market capitalisation plus net debt.
InvoCare’s TSR compared to the S&P/ASX 200 Index for financial years ended 31 December since 2005 is set out below.
InvoCare Limited
Percentile rank
S&P/ASX 200 Index
75th percentile
Median
25th percentile
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
13.1% 29.8%
56.4%
60.1%
18.4%
37.3%
10.2%
78.5%
23.3%
72.9%
25.2% (23.5%)
30.6%
34.9%
77.1%
68.1%
38.0%
66.0%
33.6%
68.6%
28.6%
43.1%
42.8%
5.7%
27.4% 125.9% (24.2%)
36.6%
49.9%
8.6% 24.5%
25.8% (10.0%)
(16.9%)
2.4%
9.0%
(25.1%)
5.2%
(7.1%)
46.8% (45.8%)
12.9%
12.4% (63.3%)
(6.0%)
28.1%
11.7%
40.6%
18.9%
0.4%
Source: Bloomberg as at 28 January 2015
Note: Based on net dividends reinvested and a base currency of Australian dollars. Index members based on membership as at the date of the Bloomberg
data, not historical membership.
InvoCare Annual Report 2014 43
Remuneration Report continued
InvoCare’s Total Shareholder Return (“TSR”) for the financial years ended 31 December over the past nine years compared to a range of
similar international businesses is set out below.
2014
2013
2012
2011
2010
2009
2008
2007
2006
InvoCare Limited
Percentile rank
Service Corporation International
Dignity plc
13.1% 29.8%
33.6% 39.5%
27.3% 33.4%
33.5% 33.3%
18.4%
42.5%
32.6%
35.2%
10.2%
67.0%
31.6%
16.1%
23.3%
49.3%
25.2% (23.5%)
30.6%
28.1%
57.0%
71.1%
2.6%
70.3% (64.0%)
38.6%
20.2%
3.2% (16.2%)
12.3%
38.0%
99.1%
26.9%
38.3%
Lung Yen Life Services Corp
16.5%
(7.1%)
8.8% (16.0%)
419.2% 320.7% (62.0%)
(32.6%)
(29.1%)
Stonemor Partners LP
Stewart Enterprises Inc-CL
Carriage Services Inc
Funespana SA
Tear Corporation
San Holdings Inc
Mean
Median
Source: Bloomberg as at 28 January 2015
11.2% 34.4%
(2.3%)
(15.4%)
n.a
n.a
36.5%
(12.7%)
7.9% 65.7% 114.7%
(2.9%)
(10.8%)
17.1%
2.7%
92.1%
82.8% (32.6%)
22.1%
8.7%
68.5%
33.5%
23.5%
20.2%
50.3%
92.3%
(33.1%)
(13.3%)
33.8%
75.9% (65.7%)
44.5%
17.6%
95.9% (77.2%)
73.1%
12.4%
62.6%
11.3% (43.0%)
6.1% (22.8%)
1.8%
(3.1%)
n.a.
32.4% 18.2%
(8.2%)
6.8% (10.9%)
(16.3%)
1.5%
(2.3%)
(16.3%)
20.0% 33.4%
19.3% 33.3%
32.1%
32.6%
(0.3%)
2.7%
69.7%
23.5%
79.7% (33.3%)
6.1%
70.3%
(33.1%)
(2.3%)
8.7%
9.7%
Note: Based on net dividends reinvested and a base currency of Australian dollars. Stewart Enterprises Inc was acquired by Service Corp International on
24 December 2013, but has been included to maintain historical data.
F. Non-executive director remuneration policy
Non-executive directors
Policy
The Board’s primary focus is on the long-term strategic direction and overall performance of the Group. Accordingly, non-executive director
remuneration is not linked to short-term results. Fees paid to non-executive directors are determined with the assistance of independent
external advisors, C+A.
attract and retain competent and suitably qualified non-executive directors;
The remuneration policy is designed to:
–
– motivate non-executive directors to achieve InvoCare’s long-term strategic objectives; and
align the interests of non-executive directors with the long-term interests of shareholders.
–
Fee pool and other fees
Non-executive directors’ base fees for services as directors are determined within an aggregate directors’ fee pool limit, which is periodically
approved by shareholders. At the date of this report, the pool limit is $1,000,000, being the amount approved by shareholders at the Annual
General Meeting held on 11 May 2012.
This remuneration is divided among the non-executive directors in such proportion as the Board determines. During the 2014 financial year,
annual fees for non-executive directors were $220,000 for the Chairman of the Board and $120,000 for each of the other non-executive
directors. An additional $10,000 was paid to the Chairman of the Audit Committee.
Using market information from an external review of non-executive director compensation commissioned by the Board Remuneration
Committee, the Board has determined 2015 fees will be increased by 5% and be $231,000 for the Chairman and $126,000 for each of the
other non-executive directors. There was no increase in these fees in 2014. The Chairman of the Audit Committee will receive an additional
$10,500 for the additional work associated with the Audit Committee. The aggregate of these fees is $871,500 which is below the current
pool limit. The Directors propose to ask shareholders to consider increasing the pool limit at the next Annual General Meeting on 22 May
2015 to $1,250,000. An increase in the fee pool limit will permit additional directors to be appointed, if warranted, by the needs of the
Company as well as to respond to market increases.
44
Directors’ Report continued
The base fees exclude any remuneration determined by the directors where a director performs additional or special duties for the
Company. 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. No fees for additional or special duties were paid to non-executive
directors holding office during the years ended 31 December 2014 and 31 December 2013.
Directors are entitled to be reimbursed for all reasonable costs and expenses incurred by them in the performance of their
duties as directors.
Equity participation
Non-executive directors may receive options as part of their remuneration, subject only to shareholder approval. No options are held by any
non-executive director at the date of this report.
Non-executive directors may participate in the Company’s Deferred Employee Share Plan on a fee sacrifice basis. No shares have been
issued or allocated to non-executive directors under the Deferred Employee Share Plan.
During 2009, the Board resolved that with effect from 1 January 2009, non-executive directors of InvoCare Limited be required to acquire
a minimum equity interest in the Company equivalent in value to 50% of their annual director’s fee applying at the time of their appointment
as a director of the Company and that directors be allowed up to three years to accumulate the required shareholding. At the date of
this report, all non-executive directors except Mr Gary Stead have equity interests in the Company higher than required. Mr Stead was
appointed to the Board on 1 September 2014 and as a result has until 31 August 2017 to acquire the required shareholding. Directors’
equity holdings are set out under the heading “Information on directors” on pages 30 to 31 of the Directors’ Report and in Note 7: “Key
Management Personnel Disclosures” on page 75 of the notes to the financial statements.
Retiring allowances
No retiring allowances are paid to non-executive directors.
Superannuation
Where relevant, fees paid to non-executive directors are inclusive of any superannuation guarantee charge and, at the discretion of each
non-executive director, may be paid into superannuation funds.
G. Voting at InvoCare’s 2014 Annual General Meeting
The Remuneration Report for the year ended 31 December 2013 received a vote of more than 90% in favour at the Annual General Meeting
held on 23 May 2014.
At that AGM, a shareholder raised a question about the calculation methods and measures used in the Company’s long-term incentive
scheme. The Chairman commented that the Board was aware of market commentary about long-term incentive schemes and that
its approach was calibrated to create maximum shareholder value. The Chairman of the Remuneration Committee also commented
that remuneration practices are reviewed twice yearly, advice is obtained from an external remuneration consultant, earnings per
share is believed to be an appropriate benchmark and, although there may be some objections to the detail, the objectives of all
parties are the same.
The Company did not receive any other feedback at the AGM regarding its remuneration practices.
InvoCare Annual Report 2014 45
Remuneration Report continued
H. Details of Remuneration
Details of the remuneration of the directors and the executive key management personnel of the Group are set out in the following table.
Short-term employment benefits
Post-
employment
benefits
Other
long-term
benefits
Share-based
payments benefits
Cash
Salary
or Fee
(note 1)
$
Short-term
cash bonus
(note 2)
$
Non-
monetary
benefits
(note 3)
$
Super-
annuation
(note 4)
$
Long
Service
Leave
(note 5)
$
LTI Shares
at risk
(note 6)
$
LTI Shares
forfeited
(note 7)
$
Year
Total
Statutory
Re-
muneration
(note 8)
$
Executives’
Actual Re-
muneration
(note 9)
$
Non-executive directors
Richard Fisher
(appointed chairman
22 October 2013)
Christine Clifton
Roger Penman
Aliza Knox
Richard Davis
Ian Ferrier
(resigned 22 October 2013)
Benjamin Chow
(resigned 16 August 2013)
Gary Stead
(appointed 01 September 2014)
Executive director
Andrew Smith (note 12)
2014 201,143
2013 125,221
2014 109,714
2013 109,966
2014 130,000
2013 120,000
2014 120,000
2013 120,000
2014 109,714
2013 109,966
2014
–
2013 168,196
2014
2013
2014
2013
–
73,353
36,529
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,857
11,445
10,286
10,034
–
–
–
–
10,286
10,034
–
15,138
–
6,648
3,471
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
220,000
136,667
120,000
120,000
130,000
120,000
120,000
120,000
120,000
120,000
–
183,333
–
80,000
40,000
–
2014 715,562 330,012
35,359
23,162
38,427
680,089
(182,874) 1,639,736 1,246,852
2013 720,246
122,227
39,945
21,989
20,149
264,881
(55,872) 1,133,565 1,168,354
Other key management personnel
Phillip Friery
2014 366,500
145,164
33,118
19,199
6,234
99,952 (122,546)
547,621
662,276
2013 366,253
64,517
30,402
19,000
10,504
97,893
(7,966)
580,603
546,983
Greg Bisset
2014 350,962
141,644
26,545
26,791
7,440
130,373
(84,117)
599,639
642,482
2013 352,654
64,378
42,535
24,505
5,767
120,837
(9,323)
601,353
542,346
Andi Luiskandl
2014 226,313
28,648
19,614
21,120
2,059
53,191
2013 248,715
37,089
20,222
23,146
1,284
36,605
–
–
350,946
309,639
367,061
333,044
Wee Leng Goh (note 10)
2014 229,934
35,820
5,207
11,897
2013 195,359
26,921
7,323
11,103
Graeme Rhind (note 11)
2014 199,319
88,542
12,266
2013 176,630
24,966
14,656
8,806
9,602
–
–
–
–
87,629
(41,712)
328,775
301,218
76,012
59,028
28,731
–
–
–
316,718
249,425
367,961
321,117
254,585
228,574
Notes to Remuneration Table:
1. The total cost of fees and salary, including annual leave taken and provided and, at the discretion of the director or employee, any salary or fee
sacrificed benefits, for example into superannuation.
2. The amount to be settled in cash relating to performance of the Group and the individual for the financial year from 1 January to 31 December.
The proportions of STI bonuses awarded and forfeited are set out in the following table.
3. The cost to the Company, including any fringe benefits tax, for the provision of fully maintained cars, and other items.
4. Company contributions to superannuation.
5. Long service leave accruals in accordance with relevant Australian Accounting Standards.
46
Directors’ Report continued 6. The amount amortised as an expense in the financial year in accordance with Australian Accounting Standards which require the value of long-term
share-based incentive grants to be amortised as an expense over the relevant future vesting periods. The amounts shown relate to unvested share
and rights grants made in the current and past financial years. Except for Mr Smith (see note 12) subject to meeting the vesting conditions of the
grants, the shares or rights will vest, or be forfeited, in future financial years.
7. The reversal in the current financial year, in accordance with Australian Accounting Standards, previous years’ amortisation expense for long-term
incentive shares granted in earlier years but which were forfeited in the current financial year because vesting conditions were not met.
8. Total statutory remuneration is calculated and disclosed in accordance with the Corporations Act and Australian Accounting Standards.
9. For information purposes and comparison with the total statutory remuneration, this column shows the executives’ remuneration which actually
crystallised during the year, including salary, superannuation, annual leave paid and accrued, short-term incentives payable in respect of the financial
year, the market value at vesting date of long-term incentive shares granted in previous years which vested during the year and other benefits. The
approximate market values of previous grants which were forfeited during the year were $367,888 for Andrew Smith, $246,525 for Phillip Friery,
$169,219 for Greg Bisset and $65,957 for Wee Leng Goh.
10. Wee Leng Goh, Chief Executive Officer of Singapore Casket Company, received total remuneration of SG$375,852 (2013:SG$383,236), which has
been converted to Australian dollars at the average exchange rate for the year of 0.8747 (2013: 0.826).
11. Graeme Rhind, Chief Operating Officer of New Zealand, received total remuneration of NZ$397,586 (2013:NZ$297,272), which has been converted to
Australian dollars at the average exchange rate for the year of 0.9199 (2013: 0.848).
12. Estimated termination benefits for Mr Andrew Smith as outlined under the Chief Executive Officer section below have been recognised in the 2014
financial report. The above table records the proportion of the LTI expense related to Mr Smith’s service up until 31 December 2014. The remainder
of the LTI expense and other termination benefits will be disclosed in the Remuneration Report for the year ending 31 December 2015.
The percentage of the available STI cash bonus that was payable for the financial year and the percentage that was forfeited because the
person or the consolidated entity did not meet the service and performance criteria is set out below:
Name
Andrew Smith
Phillip Friery
Greg Bisset
Andi Luiskandl
Wee Leng Goh
Graeme Rhind
Average
Cash STI bonus
Payable
%
Forfeited
%
79%
78%
76%
40%
72%
100%
77%
21%
22%
24%
60%
28%
0%
23%
I. Service Agreements
Chief Executive Officer
Remuneration and other terms of employment for the retiring Chief Executive Officer, Andrew Smith, have been formalised in a service
agreement, which has been updated from time to time during his employment. The current agreement, which commenced on 1 January
2012 and comes to its natural end on 30 April 2015, provides for provision of salary, superannuation, short-term performance related cash
bonuses, long-term performance related share-based bonuses and other benefits.
The total remuneration package is reviewed annually and the latest review effective from 1 January 2015 and ending 30 April 2015 provides
for Andrew Smith’s remuneration as follows:
–
annual base salary and superannuation, unchanged from 2014 being $745,000, resulting in $248,333 for the four months
to 30 April 2015;
short-term incentive bonus of up to 56.3% (2014: 56.3%) of base salary and superannuation, being a maximum of $139,836 for the
four months to 30 April 2015;
LTI shares of $311,559 (2014: $311,559), being unchanged from 2014 at 41.8% of annual base salary and superannuation; and
other benefits such as fully maintained motor vehicle and membership of relevant professional or commercial bodies.
–
–
–
The incoming Chief Executive Officer, Martin Earp, has entered into a service agreement, substantively consistent with Andrew Smith’s,
commencing on 30 March 2015 for a three-year fixed term ending on 30 March 2018, subject to agreement to extend the term. He will
assume the role of Chief Executive Officer on 1 May 2015. His starting remuneration package, which will be reviewed annually commencing
31 December 2015, comprises:
–
–
annual base salary and superannuation of $763,000, being $572,250 for the period 30 March 2015 to 31 December 2015;
short-term incentive bonus of up to 56.3% of base salary and superannuation, being a maximum of $322,177 for the nine months to
31 December 2015;
LTI shares to the value of 41.8% of annual base salary and superannuation, with the first grant prorated for the period of employment in
2015 (that is LTI shares of $239,200); and
other benefits such as fully maintained motor vehicle and membership of relevant professional or commercial bodies.
–
–
The Remuneration Committee and Board have the discretion to provide additional performance incentives. Under the CEO service
agreements, where less than 100% of a short-term incentive bonus is achieved in a financial year, the employee may recover any shortfall
in a subsequent financial year if the effective compound per annum achievement rate in a subsequent financial year exceeds the original
rate not achieved.
InvoCare Annual Report 2014 47
–
Remuneration Report continued
Termination benefits for Andrew Smith
The Company is required, in accordance with the terms of Andrew
Smith’s service agreement, to pay the following amounts, or provide
the following benefits, to Mr Smith on termination of his service
agreement upon reaching its due termination date on 30 April 2015:
a cash payment for any accrued but unpaid fixed remuneration,
–
including superannuation, in respect of his employment by the
Company up until 30 April 2015;
a cash payment for accrued but untaken annual leave
entitlements up to 30 April 2015, estimated to be $61,831
(or 21.9 days);
a cash payment for accrued but untaken long service leave
entitlements up to 30 April 2015, estimated to be $115,368
(or 40.8 days);
a cash payment of a pro-rata amount of his STI award bonus
for the year ending 31 December 2015, the maximum amount
of which will be $139,836 with the actual amount determined
based upon achievements against defined performance targets
(“2015 STI”); and
allow the automatic vesting of Mr Smith’s unvested LTI shares
that have previously been granted to him under his service
agreement and in accordance with InvoCare’s Deferred
Employee Share Plan (“LTI Automatic Share Vesting”).
–
–
–
The money value of Andrew Smith’s unvested LTI shares has
been calculated as approximately $1.4 million, based on 109,000
shares at $13.00 per share. The actual value of benefit received by
Mr Smith may differ from that valuation and will be based upon the
market value of shares at 30 April 2015.
Under the termination benefits provisions of the Corporations Act
2001 (Cth), shareholders must approve the payment or provision of
any 2015 STI or LTI Automatic Share Vesting termination benefits
exceeding Andrew Smith’s average annual fixed remuneration over
the preceding three years. The Company intends to automatically
vest unvested shares to the value of $770,000 (being the three-
year average of Mr Smith’s fixed remuneration rounded down to
the nearest $10,000) upon his termination on 30 April 2015 and
seek shareholder approval on 22 May 2015 for the payment or
provision of the balance of his contractual termination benefits
above $770,000.
Termination arrangements for Martin Earp
The termination arrangements for incoming CEO, Martin Earp, are
substantively consistent with those of Andrew Smith and are set out
in the following paragraphs.
Termination by the Company, other than in the case of misconduct
or redundancy, may be effected with six months’ notice or by
payment of six months’ total remuneration package, including a
pro-rata short-term bonus for the year of termination based upon
any bonus paid relating to the previous financial year. In addition,
unvested LTI shares will immediately vest.
In the case of misconduct, the Company may terminate the
employee immediately and without notice. Any unvested LTI shares
will be forfeited and there will be no payment of pro-rata short-term
incentive bonus amounts for the year of termination.
If the Company terminates the employee due to redundancy, the
employee will be entitled to payment of an amount equal to the
annual total remuneration package plus a pro-rata short-term bonus
for the year of termination based upon any bonus paid relating to
the previous financial year. Any unvested LTI shares acquired on
behalf of the employee at least one year prior to the termination by
48
redundancy will vest. Any unvested LTI shares acquired on behalf
of the employee less than one year prior to the termination by
redundancy will be forfeited.
If the employee resigns, the employee must give six months’ notice
or forfeit six months’ total remuneration for that notice period. Any
unvested LTI shares will be forfeited and there will be no payment
of pro-rata short-term incentive bonus amounts for the year
of termination.
If the term of the employee’s service agreement is not extended by
the Company, but the employee is willing to extend, any unvested
LTI shares will immediately vest. If the term is not extended, with
the Company willing to extend but the employee not agreeing to
extend, then unvested LTI shares will be forfeited.
In any termination, the employee will be entitled to accrued
statutory leave entitlements. The employee is not subject to
any post-employment restraints.
Further details of the share-based remuneration are set out in
Section J – Share-based Compensation.
Other key management personnel
Remuneration and other terms of employment for each of the
other key management personnel and other senior managers
are formalised in service agreements or letters of appointment as
varied from time to time, including through annual review of the
base salary, short- and long-term incentives. Each contract is for
an indefinite term.
The employee’s total remuneration package is reviewed annually
by the Remuneration Committee and Board and provides for
remuneration to include:
–
–
base salary and superannuation;
short-term incentive bonus of up to 50% of base salary and
superannuation with no retesting to recover any previous
year shortfall;
LTI shares or, in the case of overseas employees, share
appreciation rights of up to 35% of base salary and
superannuation; and
other benefits such as fully maintained motor vehicle and
membership of relevant professional or commercial bodies.
–
–
Up to six months’ notice or payment in lieu of notice is generally
required in the event of termination by the employer company. The
company employer may terminate the employee immediately and
without notice in the case of misconduct.
If the employee resigns, the employee must generally give six
months’ notice or forfeit six months’ total remuneration for
that notice period.
Termination benefits are limited to statutory leave entitlements,
unless determined otherwise by the Remuneration Committee
and Board. There is no payment of pro-rata short-term incentive
bonus amounts for the year of termination. Unless the Board
exercises its discretion to determine otherwise, upon employment
termination for any reason unvested LTI shares will be forfeited.
The Board may decide at its sole discretion that some or all of the
shares will not lapse in the event of voluntary retirement on or after
normal retirement age, bona fide redundancy, death or permanent
disablement and or any other reason.
Other executive key management personnel are generally subject
to post-employment restrictions for up to twelve months after
employment termination without consideration paid for the restraint.
Directors’ Report continued Non-executive directors
On appointment to the Board, all non-executive directors receive a letter of appointment which summarises the Board policies and terms,
including compensation, relevant to the office of director.
J. Share-based Compensation
Details of the LTI share and LTI rights grants, vesting and forfeits for the Chief Executive Officer and other key management personnel
are set out below.
Andrew Smith
Phillip Friery
Greg Bisset
Andi Luiskandl
Wee Leng Goh
Graeme Rhind
Maximum
value yet
to vest
(note 3)
Number
forfeited
during year
(note 4)
Value of
forfeits
(note 4)
Aggregate
forfeited
%
$0
$0
–
–
30,404 $367,888
18%
100%
Vested
%
82%
–
Final
year
vesting
may
occur
(note 1)
Year
of
grant
2009
2010
2014
2015
2012
2013
2014
2009
2010
2017
2018
2019
2014
2015
2012
2013
2014
2009
2010
2017
2018
2019
2014
2015
2012
2013
2014
2012
2013
2014
2010
2017
2018
2019
2017
2018
2019
2015
Number
of shares
or rights
granted
Value at
grant date
(note 2)
Number
vested
during year
Total
number
vested
52,547 $275,000
3,493
43,258
30,404 $182,875
–
–
–
–
27,799 $303,960
27,417 $311,559
–
–
–
–
20,526 $100,000
5,669
18,891
2011
2016
27,288 $201,163
– $201,163
35,792 $284,325
4,677
4,677
13% $247,053
20,374 $122,540
2011
2016
17,454 $128,667
–
–
–
–
8,098
$64,334
1,058
1,058
13% $55,898
9,617 $105,140
9,483 $107,768
–
–
–
–
16,647
$81,100
4,374
15,097
13,985
$84,121
2011
2016
14,749 $108,728
–
–
–
–
– $303,960
– $311,559
92%
–
$0
$0
– $128,667
– $105,140
– $107,768
91%
–
$0
$0
– $108,728
16,088 $127,803
2,103
2,103
13% $111,105
12,212 $133,525
12,044 $136,863
–
–
–
–
– $133,525
– $136,863
5,539
$44,000
724
724
13% $38,239
5,848
$63,946
5,768
5,451
$65,545
$32,760
–
–
–
–
–
–
–
–
–
–
–
–
$63,946
$65,545
$66,684
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8%
20,374 $246,525
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9%
13,985 $169,219
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$0
5,451
$65,683
100%
2011
2016
5,536
$40,800
2012
2013
2014
2012
2013
2014
2017
2018
2019
2017
2018
2019
5,081
$39,432
723
723
14% $52,487
4,124
$45,075
4,607
$52,336
4,536
3,464
$35,199
$37,862
4,011
$45,565
–
–
–
–
–
–
$49,696
$55,538
593
593
13% $47,489
–
–
–
–
–
–
$41,743
$48,353
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Under the terms of the respective year’s LTI grants, unvested shares or rights may vest in whole or in part in any year from 2014 up to the final year
shown for each grant year.
2. The value at grant date is based upon the share price at the time of grant. In accordance with Australian Accounting Standards, the original grant
value of LTI shares is the amount amortised as an expense over the relevant future vesting periods. In the case of LTI rights for overseas based
Wee Leng Goh and Graeme Rhind, the amount expensed over the relevant future vesting periods takes account of value changes of the rights
using the Black-Scholes/Merton valuation methodology.
3. The maximum value of the original grant yet to vest. LTI shares are valued at original grant value. LTI rights for overseas based Wee Leng Goh and
Graeme Rhind are valued using the Black-Scholes/Merton valuation methodology. Performance conditions must be met before vesting and, if not,
the minimum that will vest could be nil.
4. Upon final testing in February 2015, from the balance of unvested shares held in trust at the end of the year, shares from grants made in 2010 were
forfeited due to EPS performance conditions unlikely to be achieved.
The number of ordinary shares in the Company, or share appreciation rights, held during the year by each director of InvoCare Limited and
other key management personnel are summarised in Note 7 on page 75.
InvoCare Annual Report 2014 49
Auditor’s Independence Declaration
The copy of the auditor’s independence declaration as required
under section 307C of the Corporations Act 2001 is set
out on page 51.
Rounding of amounts
The Company is of a kind referred to in Class Order 98/100 issued
by the Australian Securities and Investments Commission, relating to
the “rounding off” of amounts in the Directors’ Report 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.
Signed in accordance with a resolution of the Board of Directors.
Richard Fisher
Director
Andrew Smith
Director
Dated this 17th day of February 2015
Indemnifying officers or auditor
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.
No indemnity has been provided to the auditor of the Company in
its capacity as auditor of the Company.
Proceedings on behalf of the Company
No person has applied for leave of Court to bring proceedings on
behalf of the Company or intervene in any proceedings to which
the Company is a party for the purpose of taking responsibility on
behalf of the Company for all or any part of those proceedings. The
Company was not a party to any such proceedings during the year.
Non-audit services
The directors are satisfied that the provision of non-audit services
during the year is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001.
The nature and scope of each type of non-audit service provided
means that auditor independence was not compromised.
The following fees for non-audit services were paid/payable to the
external auditor (PricewaterhouseCoopers) during the year ended
31 December 2014:
Australian Firm
Assurance services
Taxation services
Other services
Non-Australian Firms
Taxation services
Other services
Total
$
28,733
53,856
38,696
32,321
2,857
156,463
50
Directors’ Report continued Auditor’s Independence Declaration
As lead auditor for the audit of InvoCare Limited for the year ended 31 December 2014, I declare that to the best of my knowledge and
belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of InvoCare Limited and the entities it controlled during the period.
Brett Entwistle
Partner
PricewaterhouseCoopers
Sydney
17 February 2015
InvoCare Annual Report 2014 51
Consolidated Income Statement
For the year ended 31 December 2014
Revenue from continuing operations
Finished goods, consumables and funeral disbursements
Employee benefits expense
Employee related and on-cost expenses
Advertising and public relations expenses
Occupancy and facilities expenses
Motor vehicle expenses
Other expenses
Depreciation, amortisation and impairment expenses
Finance costs
Interest income
Net gain/(loss) on undelivered prepaid contracts
Acquisition related costs
Share of net loss of associate
Net gain on disposal of non-current assets
Profit before income tax
Income tax expense
Profit from continuing activities
Profit for the year
Profit is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Notes
4
5
5
15
6
2014
$’000
2013
$’000
420,204
(121,614)
(105,258)
(24,124)
(14,912)
(27,149)
(8,819)
(17,246)
101,082
(18,587)
(15,483)
749
10,915
(1,215)
(525)
334
77,270
(22,643)
54,627
54,627
54,515
112
54,627
392,186
(113,227)
(97,395)
(22,051)
(13,242)
(26,043)
(8,307)
(16,849)
95,072
(14,587)
(16,820)
658
1,590
(537)
(300)
2,972
68,048
(19,049)
48,999
48,999
48,869
130
48,999
Earnings per share for profit attributable to the ordinary equity
holders of the Company
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
The above consolidated income statement should be read in conjunction with the accompanying notes.
11
11
49.8
49.8
44.7
44.7
52
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges, net of tax
Changes in foreign currency translation reserve, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Notes
2014
$’000
2013
$’000
54,627
48,999
26
26
(82)
1,537
1,455
56,082
55,970
112
56,082
2,575
4,330
6,905
55,904
55,774
130
55,904
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2014 53
Consolidated Balance Sheet
As at 31 December 2014
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid contract funds under management
Property held for sale
Deferred selling costs
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Prepaid contract funds under management
Intangible assets
Derivative financial instruments
Deferred selling costs
Equity accounted investments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Current tax liabilities
Prepaid contract liabilities
Deferred revenue
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Deferred tax liabilities
Prepaid contract liabilities
Deferred revenue
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits
Parent entity interest
Non-controlling interests
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
54
Notes
2014
$’000
2013
$’000
12
13
14
15
18 (c)
10,488
39,237
22,313
32,997
2,702
1,138
8,899
38,366
21,637
30,480
–
1,039
108,875
100,421
13
18
15
19
20
21
22
20
15
23
21
22
20
6 (d)
15
23
25
26
26
27
16,381
61
308,344
367,970
152,480
–
8,719
2,423
856,378
965,253
37,091
2
622
9,364
33,847
7,588
13,726
102,240
260
229,350
5,284
32,275
359,994
45,482
2,409
675,054
777,294
187,959
131,682
6,756
48,367
186,805
1,154
187,959
14,298
63
296,545
343,129
148,912
1
8,493
4,705
816,146
916,567
34,563
11
1,342
9,946
30,481
6,925
12,732
96,000
1,124
223,956
4,437
28,755
346,044
43,527
2,027
649,870
745,870
170,697
132,393
4,423
32,636
169,452
1,245
170,697
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Attributable to Owners of InvoCare Limited
Contri-
buted
equity
$’000
Reserves
$’000
Retained
earnings
$’000
Non con-
trolling
interest
$’000
Total
Total
equity
$’000
Notes
Balance at 1 January 2014
132,393
4,423
32,636
169,452
1,245
170,697
Total comprehensive
income for the year
Transactions with owners in their
capacity as owners:
Dividends paid
Deferred employee share plan
shares vesting during the year
Acquisition of shares by
the InvoCare Deferred
Share Plan Trust
Transfer of shares from the
deferred plan to the InvoCare
Exempt Share Plan Trust
Employee shares –
value of services
Balance at
31 December 2014
Balance at 1 January 2013
Total comprehensive
income for the year
Transactions with owners in their
capacity as owners:
Dividends paid
Deferred employee share plan
shares vesting during the year
Acquisition of shares by
the InvoCare Deferred
Share Plan Trust
Transfer of shares from the
deferred plan to the InvoCare
Exempt Share Plan Trust
Employee shares –
value of services
Balance at
31 December 2013
10
26
25
25
26
10
26
25
25
26
–
–
1,455
54,515
55,970
112
56,082
–
(38,784)
(38,784)
(203)
(38,987)
457
(457)
–
–
–
–
–
(1,168)
–
1,335
–
–
–
–
–
(1,168)
–
1,335
48,367
21,173
186,805
150,740
1,154
1,151
187,959
151,891
–
–
1,335
6,756
(3,120)
6,905
48,869
55,774
130
55,904
–
(37,406)
(37,406)
(36)
(37,442)
(1,168)
–
–
131,682
132,687
–
–
388
(388)
(842)
160
–
–
–
1,026
–
–
–
–
–
(842)
160
1,026
–
–
–
–
–
(842)
160
1,026
132,393
4,423
32,636
169,452
1,245
170,697
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2014 55
466,197
434,007
(367,317)
(336,529)
7,904
106,784
132
(14,981)
(20,182)
71,753
6,833
104,311
77
(16,316)
(15,856)
72,216
1,003
8,025
(6,738)
–
(26,665)
(32,400)
(1,168)
42,250
(40,000)
(38,784)
(203)
(37,905)
1,448
8,899
141
12
10,488
(8,178)
(5,005)
(19,264)
(24,422)
(842)
155,328
(162,162)
(37,406)
(36)
(45,118)
2,676
6,081
142
8,899
Consolidated Statement of Cash Flows
For the year ended 31 December 2014
Notes
2014
$’000
2013
$’000
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Other revenue
Interest received
Finance costs
Income tax paid
Net cash inflow from operating activities
31
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of subsidiaries and other businesses including acquisition costs, net
of cash acquired
Purchase of interest in associates
Purchase of property, plant, equipment and intangibles
Net cash outflow from investing activities
Cash flows from financing activities
Payment for shares acquired by InvoCare Deferred Employee Share Plan Trust
Proceeds from borrowings
Repayment of borrowings
Payment of dividends – InvoCare Limited shareholders
Dividends paid to non-controlling interests in subsidiaries
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
56
Notes to the Financial Statements
For the year ended 31 December 2014
Note 1: Summary of Significant Accounting Policies
The principal accounting policies adopted in the preparation of
the financial report are set out below. These policies have been
consistently applied to all the years presented, unless otherwise
stated. The financial statements are for the consolidated entity
consisting of InvoCare Limited and its subsidiaries.
(a) Basis of preparation
This general purpose financial report has been prepared in
accordance with Australian Accounting Standards, other
authoritative pronouncements of the Australian Accounting
Standards Board, Urgent Issues Group Interpretations and the
Corporations Act 2001.
(i) Compliance with IFRS
Australian Accounting Standards include Australian equivalents to
International Financial Reporting Standards (“AIFRS”). Compliance
with AIFRS ensures that the consolidated financial statements
and notes of InvoCare Limited comply with International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board.
(ii) Historical cost convention
These financial statements have been prepared on an accruals
basis under the historical cost convention, as modified by the
revaluation to fair value of financial assets and liabilities (including
derivative instruments).
(iii) Critical accounting estimates
The preparation of financial statements in conformity with AIFRS
requires the use of certain critical accounting estimates. It also
requires the exercise of judgement in the process of applying
the Group’s accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements are
disclosed at Note 37.
(iv) Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of InvoCare Limited (“Company’’
or “parent entity’’) as at 31 December 2014 and the results of all
subsidiaries for the year then ended. InvoCare Limited and its
subsidiaries are together referred to in this financial report as the
Group or the consolidated entity.
Subsidiaries are all entities (including structured entities) over which
the Group has control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its
power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the
date that control ceases. The purchase method of accounting is
used to account for the acquisition of subsidiaries by the Group
(refer to Note 1(i)).
Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of the impairment of the asset transferred. Accounting policies
of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are
shown separately in the consolidated statement of comprehensive
income and balance sheet, respectively.
(ii) Employee share trust
The Group has formed a trust to administer the InvoCare Exempt
Employee Share Plan and the InvoCare Deferred Employee Share
Plan. This trust is consolidated, as the substance of the relationship
is that the trust is controlled by the Group. Shares held by the
InvoCare Deferred Employee Share Plan Trust are disclosed as
treasury shares and deducted from contributed equity.
(iii) Associates
Associates are entities over which the Group has significant
influence but not control or joint control, generally accompanying
a shareholding between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity
method of accounting, after initially being recognised at cost.
The Group’s share of its associates’ post-acquisition profits or
losses and its share of post-acquisition movements in reserves
is recognised in the statement of comprehensive income. The
cumulative post-acquisition movements are adjusted against
the carrying amount of the investment. Dividends received from
associates are recognised as a reduction in the carrying amount
of the investment.
If the Group’s share of losses in an associate equals or exceeds
its interest in the associate, including any other unsecured long-
term receivables, the Group does not recognised further losses,
unless it has incurred obligations or made payments on behalf
of the associate.
Unrealised gains on transactions between the Group and its
associates are eliminated to the extent of the Group’s interest
in the associates. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the
asset transferred. Accounting policies of associates have been
changed where necessary to ensure consistency with the policies
adopted by the Group.
(c) Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
This reporting is based on the operational location of the business
because different economic and cultural factors impact growth and
profitability of the segment.
InvoCare Annual Report 2014 57
Note 1: Summary of Significant Accounting Policies
continued
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional
currency”). The consolidated financial statements are presented
in Australian dollars, which is InvoCare Limited’s functional and
presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the income statement, except
when they are deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges or are attributable to part of the net
investment in a foreign operation.
(iii) Group companies
The results and financial positions of all the Group entities (none of
which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
–
assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
income and expenses for each income statement are translated
at average exchange rates (unless this is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the dates of the transactions); and
all resulting exchange differences are recognised as a separate
component of equity.
–
–
On consolidation, exchange differences arising from the translation
of any net investment in foreign entities, and of borrowings
and other financial instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign
operation is sold or any borrowings forming part of the net
investment are repaid, a proportionate share of such exchange
differences will be recognised in the income statement, as part of
the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entities and translated at the closing rate.
(e) 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 measured at the fair value of the
consideration received or receivable. Amounts disclosed as revenue
are net of returns, allowances, duties and taxes paid.
Revenue is recognised when the funeral, burial, cremation or other
services are performed or the goods supplied.
Revenues relating to undelivered memorials and merchandise are
deferred until delivered or made ready for use. Minor items such as
plaques, ash containers and vases where actual deliveries are not
individually tracked are released to revenue over 15 years.
58
The Group enters into prepaid contracts to provide funeral, burial
and cremation services in the future and funds received are placed
in trust and are not recognised as revenue until the service is
performed. Refer to Note 1(n).
Interest income is recognised using the effective interest method.
Dividends are recognised as revenue when the right to receive
payments is established.
(f) Deferred selling costs
Selling costs applicable to prepaid funeral service contracts,
net of any administrative fees recovered, are expensed when
incurred. Direct selling costs applicable to deferred revenue on
undelivered memorials and merchandise are deferred until the
revenue is recognised.
(g) Income tax
The income tax expense or revenue for the period is the tax payable
on the current period’s taxable income based on the national
income tax rate for each jurisdiction adjusted by changes in deferred
tax assets and liabilities attributable to temporary differences and
unused tax losses.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However, the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that future
taxable amounts will be available to utilise those temporary
differences and losses. Deferred tax liabilities and assets are not
recognised for temporary differences between the carrying amount
and tax bases of investments in controlled entities where the parent
entity is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not reverse in
the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and when
the deferred tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset where the entity has a
legally enforceable right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised in equity.
InvoCare Limited and its wholly-owned Australian controlled entities
have implemented the tax consolidation legislation.
The head entity, InvoCare Limited, and the controlled entities in the
tax consolidated group, account for their own current and deferred
tax amounts. These tax amounts are measured as if each entity in
the tax consolidated group continues to be a standalone taxpayer
in its own right.
Notes to the Financial Statements continuedFor the year ended 31 December 2014 In addition to its own current and deferred tax amounts, InvoCare
Limited also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and
unused tax credits assumed from controlled entities in the tax
consolidated group.
Assets or liabilities arising under tax funding agreements with the tax
consolidated entities are recognised as amounts receivable from or
payable to other entities in the Group. Details about the tax funding
agreement are disclosed in Notes 34(e) and 35(d).
(h) Leases
Leases of property, plant and equipment where the Group has
substantially all the risks and rewards of ownership are classified
as finance leases.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease. Lease
income from operating leases is recognised in income on a straight-
line basis over the lease term.
(i) Business combinations and acquisitions of assets
The purchase method of accounting is used to account for all
acquisitions of assets (including business combinations) regardless
of whether equity instruments or other assets are acquired. Cost
is measured as the fair value of the assets given, shares issued or
liabilities incurred or assumed at the date of exchange. Where equity
instruments are issued in an acquisition, the value of the instruments
is their published market price as at the date of exchange.
Transaction costs arising on the issue of equity instruments are
recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any
non-controlling interest. The excess of the cost of acquisition over
the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill (refer to Note 1(p)). If the cost of
acquisition is less than the fair value of the net identifiable assets of
the subsidiary acquired, the difference is recognised directly in the
statement of comprehensive income, but only after a reassessment
of the identification and measurement of the net assets acquired.
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 acquisition. The discount rate used is the
entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under
comparable terms and conditions. Any variations in the initial
estimates of deferred consideration and the final amount payable
are remeasured through the statement of comprehensive income.
Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in
profit or loss.
The indirect costs of completing business combinations are
recorded in the statement of comprehensive income.
(j) Impairment of assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment or more
frequently if events or changes in circumstances indicate that the
carrying amount may not be recoverable. Assets that are subject
to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less
costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that suffered impairment
are reviewed for possible reversals of the impairment at each
reporting date.
(k) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value, and bank overdrafts. Any
bank overdrafts are shown within borrowings in current liabilities on
the balance sheet.
(l) Receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost, less provision for
doubtful receivables.
Trade receivables are usually due for settlement no more than
30 days from the date of recognition, except where extended
payment terms (up to a maximum of 60 months) have been
made available on cemetery or crematorium contracts for sale of
interment or inurnment rights and associated memorials and other
merchandise. Receivables arising from cemetery or crematorium
contracts which are initially expected to be collected over a period
exceeding 12 months are recognised as non-current receivables
and measured as the net present value of estimated future cash
receipts, discounted at an imputed effective interest rate. Upon initial
recognition of the contract receivables, any undelivered portion of
the contracts is included in deferred revenue until delivery.
The carrying amount of the asset is reduced through the use of
a provision for doubtful receivables account and the amount of
the loss is recognised in the statement of comprehensive income
within “other expenses”. When a trade receivable is uncollectable,
it is written off against the provision account for trade receivables.
Subsequent recoveries of amounts previously written off are credited
against “sundry revenue” in the statement of comprehensive
income. Details of the impaired receivables, provision account
movements and other details are included in Notes 2 and 13.
(m) 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 predominantly on the basis of weighted
average cost. Net realisable value is the estimated selling price in
the ordinary course of business less the estimated costs necessary
to make the sale.
InvoCare Annual Report 2014 59
Note 1: Summary of Significant Accounting Policies
continued
(n) Prepaid contracts
Prepaid contracts are tripartite agreements whereby the Group
agrees to deliver a specified funeral, cremation or burial service at
the time of need and the beneficiary invests the current price of the
service to be delivered with a financial institution and conditionally
assigns the benefit to the Group. The Group records the value of
the invested funds as an asset and revalues the invested funds to
fair value at the end of each reporting period. The Group initially
recognises a liability at the current selling price of the service to be
delivered and increases this liability to reflect the change in selling
prices to reflect the best estimate of the expenditure required to
settle the obligation at the end of each reporting period.
When the service is delivered, the liability is derecognised. The
initially recorded liability amount is included in revenue and the price
increases recognised since initial recognition are recorded as a
reduction in the cost of service delivery.
(o) Property, plant and equipment
Property, plant and equipment are carried at historical cost less
depreciation or amortisation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. Repairs, maintenance and minor renewals are charged
to the income statement during the financial period in which
they are incurred.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount (Note 1(j)).
Cemetery land is carried at cost less accumulated amortisation and
impairment write-downs. The consolidated entity sells interment
and inurnment rights while retaining title to the property. Cemetery
land is amortised, as the right to each plot or space 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. Other freehold land is not
depreciated or amortised.
Depreciation of other assets is calculated using the straight-line
method to allocate their cost or revalued amounts, net of their
residual values, over their estimated useful lives, as follows:
– Buildings
– Plant and equipment
40 years
3-10 years
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
shorter. The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date. Gains
and losses on disposals are determined by comparing proceeds
with the carrying amount. Gains and losses are included in the
income statement.
60
(p) Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the Group’s share of the net identifiable assets
of the acquired subsidiary at the date of acquisition. Goodwill on
acquisitions of subsidiaries is included in intangible assets. Goodwill
acquired in business combinations is not amortised. Instead,
goodwill is tested for impairment annually or more frequently
if events or changes in circumstances indicate that it might be
impaired, and is carried at cost less accumulated impairment
losses (Note 19).
(ii) Trademarks and brand names
Trademarks and brand names have a finite useful life and are carried
at cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight-line method to allocate
the cost of trademarks and brand names over their estimated useful
lives of 10 years.
(q) Trade and other payables
Trade and other payables represent liabilities for goods and services
provided to the Group prior to the end of the financial year which
had not been settled at balance date. The amounts are unsecured
and are usually paid within 60 days of recognition.
(r) Borrowings
Borrowings are initially recognised at fair value, net of transaction
costs incurred. Borrowings are subsequently measured at amortised
cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in the income
statement over the period of the borrowings using the effective
interest rate method.
Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
Refer to Notes 2 and 22 for further information on borrowings.
(s) Derivative financial instruments
The Group uses derivative financial instruments such as cross
currency and interest rate swaps to hedge its risks associated
with exchange and interest rate fluctuations. Derivatives are initially
recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured to their fair value at each
reporting date. The accounting for subsequent changes in fair value
depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The
Group designates certain derivatives as either:
–
hedges of the risks associated with the cash flows of recognised
assets and liabilities and highly probable forecast transactions
(cash flow hedges); or
hedges of a net investment in a foreign operation.
–
The Group documents at inception the relationship between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. The Group also documents its assessment of whether
the derivatives that are used in hedging transactions have been, and
will continue to be, highly effective in offsetting changes in fair values
or cash flows or hedged items.
Notes to the Financial Statements continuedFor the year ended 31 December 2014 The fair value of interest rate swap contracts is calculated as the
present value of the estimated future cash flows. The fair value of
forward exchange contracts is determined using forward exchange
market rates at the balance sheet date. The fair values of derivative
financial instruments used for hedging purposes are disclosed in
Note 20. Movements in the hedging reserve in shareholders’ equity
are shown in Note 26. The full fair value of a hedging derivative
is classified as a non-current asset or liability when the remaining
maturity of the hedged item is more than 12 months; it is classified
as a current asset or liability when the remaining maturity of the
hedged item is less than 12 months.
(ii) Long service leave
The liability for long service leave is recognised in the provision
for employee benefits 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
periods of service. Expected future payments are discounted using
market yields at the reporting date on national government bonds
with terms to maturity and currency that match, as closely as
possible, the estimated future cash outflows.
Hedges that meet the strict criteria for hedge accounting are
accounted for as follows:
(i) Cash flow hedges
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised
in equity in the hedging reserve. The gain or loss relating to the
ineffective portion is recognised immediately in the statement of
comprehensive income within finance costs.
Amounts accumulated in equity are recycled in the statement of
comprehensive income within finance costs in the periods when the
hedged item affects profit or loss (for instance when the forecast
sale that is hedged takes place).
When a hedging instrument expires or is sold or terminated, or
when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in
equity and is recognised when the forecast transaction is ultimately
recognised in the income statement.
When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately
transferred to the income statement.
(ii) Hedges of a net investment
Hedges of a net investment in a foreign operation, including a
hedge of a monetary item that is accounted for as part of the net
investment, are accounted for in a similar way to cash flow hedges.
Gains or losses on the hedging instrument relating to the effective
portion of the hedge are recognised directly in equity while any
gains or losses relating to the ineffective portion are recognised in
the income statement. On disposal of the foreign operation, the
cumulative value of any such gains or losses recognised directly in
equity is transferred to the income statement.
(t) Employee benefits
(i) Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits,
annual leave and accumulating sick leave expected to be settled
within 12 months of the reporting date are recognised in other
payables and provision for employee benefits 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,
including appropriate on-costs. Liabilities for non-accumulating sick
leave are recognised when the leave is taken and measured at the
rates paid or payable.
(iii) Bonus plans
The Group recognises a liability in other payables and an expense
for bonus plans 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
past practices give clear evidence of a constructive obligation.
–
–
(iv) Retirement benefits
Employees of the Group are entitled to benefits on retirement,
disability or death from the Group sponsored defined contribution
superannuation plans. Fixed statutory contributions are made
by the Group to these plans and are recognised as an expense
as they become payable. The Group’s liability is limited to
these contributions.
(v) Share-based payments
The Group provides benefits to certain employees, including key
management personnel, in the form of share-based payments,
whereby employees render services in exchange for shares, share
appreciation rights or options over shares. Details of the employee
share, share appreciation or option plans are set out in Note 8.
The cost of equity-settled transactions with employees is measured
by reference to the fair value of the equity instruments at the date
granted. The cost is recognised as an employee benefit expense in
the income statement, with a corresponding increase in equity, over
the period during which the performance and/or service conditions
are fulfilled (the vesting period), ending on the date on which the
relevant employees become unconditionally entitled to the award
(the vesting date).
At each balance sheet date, the Group revises its estimate of the
number of awards that are expected to vest. The employee benefit
expense recognised each period takes into account the most recent
estimate. The impact of the revision to original estimates, if any,
is recognised in the statement of comprehensive income with a
corresponding adjustment to equity.
(u) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds. Incremental
costs directly attributable to the issue of new shares or options
for the acquisition of a business are included in the cost of the
acquisition as part of the purchase consideration.
InvoCare Annual Report 2014 61
(aa) New accounting standards and interpretations
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2014 reporting
periods. The Group’s assessments of the impacts of these new
standards and interpretations are set out below.
(i) AASB 15 Revenue from Contracts with Customers
AASB 15 Revenue from Contracts with Customers establishes
principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty
of revenue and cash flows arising from an entity’s contracts with
customers. The standard is not applicable until 1 January 2017
but is available for early adoption. The new standard may have
relevance to the Group’s accounting practices surrounding the
revenue recognition of some sale transactions in the Group’s
cemeteries and crematoria. The exact nature and quantum of
any impacts remains as yet un-determined and is currently being
assessed. The standard is not expected to have a significant impact
on other aspects of the Group’s revenue.
(ii) AASB 9 Financial Instruments, AASB 2009-11 Amendments
to Australian Accounting Standards arising from AASB 9, AASB
2010-7 Amendments to Australian Accounting Standards arising
from AASB 9 (December 2010) and AASB 2012-6 Amendments
to Australian Accounting Standards – Mandatory Effective Date of
AASB 9 and Transition Disclosures (effective for annual reporting
periods beginning on or after 1 January 2015)
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets and financial
liabilities. The standard is not applicable until 1 January 2015 but
is available for early adoption. The new standard is likely to have
no material impact on the Group.
Note 1: Summary of Significant Accounting Policies
continued
(v) Dividends
Provision is made for the amount of any dividend declared being
appropriately authorised and no longer at the discretion of the
Company on or before the end of the financial year but not
distributed at balance date.
(w) Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company, excluding any costs
of servicing equity other than ordinary shares, by the weighted
average number of ordinary shares outstanding during the
financial year.
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares and the weighted
average number of shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary shares.
(x) Goods and Services Tax (“GST”)
Revenues, expenses and assets are recognised net of the amount
of the GST, except where the amount of the GST incurred is not
recoverable from the taxing authority. In these circumstances, the
GST is recognised as part of the cost of acquisition of the asset or
as part of an item of the expense. Receivables and payables in the
balance sheet are shown inclusive of GST.
Cash flows are included in the statement 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
taxing authority, is classified as operating cash flows.
(y) Parent entity financial information
The financial information for the parent entity, InvoCare Limited,
disclosed in Note 35 has been prepared on the same basis as
the consolidated financial statements, except investments in
subsidiaries and associates which are accounted for at cost in the
financial statements of InvoCare Limited. Dividends received from
associates are recognised as a reduction in the carrying value of the
investment in associates.
(z) Rounding of amounts
The Company is of a kind referred to in Class Order 98/100, issued
by the Australian Securities and Investments Commission, relating
to rounding of amounts in the financial report. Amounts in the
financial statements have been rounded off in accordance with that
Class Order to the nearest thousand dollars, or in certain cases, the
nearest dollar.
62
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 2: Financial Risk Management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk, price risk and
fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative
financial instruments such as interest rate swaps to hedge risk exposures. The Group uses different methods to measure different types
of risks to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and price risk and
ageing analysis for credit risk.
Strategic risk management is carried out by the Board of Directors. The Risk Committee and Audit Committee, which operate under policies
approved by the Board, are responsible for operational and financial risk management, respectively. These policies provide written principles
for overall risk management, as well as policies covering specific areas such as interest rate risk and currency risk.
The Group holds the following financial assets and liabilities:
Financial assets
Cash and cash equivalents
Trade and other receivables*
Prepaid contract funds under management
Other financial assets
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
* excluding prepayments and security deposits
2014
$’000
2013
$’000
10,488
47,183
8,899
47,003
400,967
373,609
61
63
458,699
429,574
37,351
229,352
5,906
272,609
35,687
223,967
5,778
265,432
(a) Market risk
(i) Cash flow interest rate risk
The Group’s main interest rate risk arises from long-term borrowings. All borrowings are initially at variable interest rates determined by a
margin over the reference rate based on the Group’s leverage ratio. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. It is the policy of the Group to keep at least 75% of debt on fixed interest rates over the next twelve months by entering
into interest rate swap contracts. The Group has entered into interest rate swap contracts under which it receives interest at variable rates
and pays interest at fixed rates. The bank loans of the Group outstanding during the year had an effective average interest rate of 5.8%
(2013: 6.4%) inclusive of swaps and margins but excluding establishment fees.
At balance date, interest rate swaps for 76% (2013: 80%) of borrowings were in place. Of these interest rate swaps 15% (2013: 14%) were
denominated in New Zealand dollar fixed interest instruments, with the balance denominated in Australian dollars. As at 31 December 2014
the weighted average fixed interest rate payable on the interest rate swaps is 4.43% (2013: 4.94%) and the weighted average variable rate
receivable as at 31 December 2014 is 2.90% (2013: 2.64%).
The following variable rate borrowings and interest rate swap contracts are outstanding:
Bank loans
Interest rate swaps (notional principal)
Net exposure to cash flow interest rate risk
31 December 2014
31 December 2013
Weighted
average
interest rate
5.80%
4.43%
Weighted
average
interest rate
6.39%
4.94%
Balance
$’000
232,658
175,808
56,850
Balance
$’000
225,228
179,318
45,910
InvoCare Annual Report 2014 63
Note 2: Financial Risk Management continued
(a) Market risk continued
(i) Cash flow interest rate risk continued
The notional principal amounts, including forward start interest rate swap contracts, and periods of expiry of the interest rate swap contracts
are as follows:
Less than one year
One to two years
Two to three years
Three to four years
2014
$’000
55,808
60,000
60,000
28,675
2013
$’000
64,500
54,818
60,000
60,000
204,483
239,318
These contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on
which interest is payable on the underlying debt.
As a consequence, the Group is exposed to interest rate risks on that portion of total borrowings not swapped to fixed rates and to
potential movements in the margin due to changes in the Group’s leverage ratio. An increase of 100 basis points in Australian and
New Zealand rates (2013: 100 basis points) and 50 basis points in Singapore (2013: 50 basis points) in the interest rate would result in
additional interest expense after tax of $449,000 (2013: $259,000). A decrease of 100 basis points in Australian and New Zealand rates
(2013: 100 basis points) and 50 basis points in Singapore (2013: 50 basis points) in the interest rate would result in an after tax gain
of $118,000 (2013: $119,000). Where possible, borrowings are made in the same country as the operation being funded to provide a
natural hedge against currency volatility. Where this is not possible, other techniques, such as foreign currency bank accounts, are used
to mitigate the profit and loss volatility due to currency movements.
Due to the use of floating to fixed interest rate swaps, the Group has fixed interest commitments and the changes in the fair value of the
future cash flows of these derivatives are recognised in equity to the extent that the derivative remains effective in accordance with AASB
139 Financial Instruments: Recognition and Measurement.
The interest rate swap contracts were all judged to be effective at 31 December 2014 and the movements in the fair value of these
instruments have been quarantined in equity. If interest rates decline by 100 basis points (2013: 100 basis points) a further $1,417,000
(2013: $1,404,000) net of tax would have been charged to equity and a 100 basis points increase in interest rates would have resulted
in a credit to equity of $1,086,000 (2013: $1,264,000) net of tax.
The overall impact on the Group has been summarised on page 69.
The Group’s cash and cash equivalents held in Australia are interest bearing. At 31 December 2014 the weighted average interest rate was
0.91% (2013: 1.20%). If interest rates changed by 100 basis points (2013: 100 basis points) the Group’s after tax result would increase or
decrease by $53,000 (2013: $38,000).
(ii) Foreign exchange risk
The Group rarely undertakes commercial transactions in currencies other than in the functional currency of the operating entity.
Foreign exchange risks arise from recognised assets and liabilities that are denominated in a currency other than the Group’s functional
currency, the Australian dollar. The major foreign exchange risk relates to the investments in controlled entities in New Zealand, Singapore,
the USA and north Asia. This exposes the Group to foreign currency risk on the assets and liabilities. Borrowings have been made in
New Zealand and Singapore dollars to provide a natural hedge against the risk of changes in exchange rates. Where natural hedges do
not exist, currency swap instruments are used to hedge at least 75% of the net recognised assets and liabilities which are denominated
in foreign currencies.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows:
Borrowings
Derivatives
2014
$’000
2013
$’000
New Zealand
Dollars
Singapore
Dollars
New Zealand
Dollars
Singapore
Dollars
35,844
429
30,454
33,091
29,144
–
1
–
The Group has no significant unhedged foreign exchange exposures at 31 December 2014. The Singapore dollar borrowing is undertaken
in Australia and designated as the hedge of a net investment in a subsidiary. The New Zealand dollar borrowings are undertaken
in New Zealand.
64
Notes to the Financial Statements continuedFor the year ended 31 December 2014 (iii) Price risk
The Group is the ultimate beneficiary of funds invested in various prepaid contract trusts, as described in Note 1(n). There are a significant
number of trusts in existence with various investment profiles.
Accordingly, the Group’s future revenue and margins are sensitive to the price risk relating to the investment returns of these funds
under management. These funds are invested in a range of asset classes with different price risk variables including cash, fixed interest,
Australian and international equities, hybrids and direct and indirect property. Based on the asset allocation as at 31 December 2014
and 31 December 2013 the following changes in investment returns are reasonably probable.
Asset class
Equities (plus or minus 10%)
Property (plus or minus 3%)
Cash and fixed interest (no price risk)
31 December 2014
31 December 2013
Increase
Decrease
Increase
Decrease
4,010
1,925
–
5,935
(4,010)
(1,925)
–
(5,935)
4,857
2,578
–
7,435
(4,857)
(2,578)
–
(7,435)
The returns of these funds are recognised in the income statement. An estimated 50% of the funds are expected to be realised over
the next 10 years and 90% over about 25 years. In any one year approximately 14% of all Australian funeral services performed by
InvoCare have been prepaid; a proportion that has been reasonably constant for many years and is not expected to significantly change
in the short term.
InvoCare monitors the asset allocations and investment performance at least quarterly and makes representations, where possible, to those
in control of the trusts to mitigate price risks and enhance the returns which will ultimately impact InvoCare’s future results.
As the funds are held in trust for relatively long periods, investment strategies take a long-term view for those trusts not restricted to more
conservative, capital guaranteed assets. Historically, equities have provided the best long-term returns although the instability of the equity
markets has caused a substantial shift in the investment bias towards more conservative property, cash and fixed interest investments.
When considering investment strategies the life cycle of the fund is considered so that funds which are closer to the end of their expected
life take a more conservative investment stance than those funds continuing to receive new funds.
The asset allocation at year end of prepaid contract funds under management is as follows:
Equities
Property
Cash and fixed interest
2014
%
10
16
74
2013
%
13
23
64
Approximately 79% of InvoCare’s prepaid funds under management are with Over Fifty Guardian Friendly Society.
Other than disclosed above, the Group does not hold any investments in equities, which are not equity accounted, or commodities and
is therefore not subject to price risk.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits
with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed
transactions. For banks and financial institutions, only independently rated parties with a minimum rating of AA- are accepted.
Credit risks in relation to customers are highly dispersed and without concentration on any particular region or sector. Funeral homes
attempt to collect deposits at the time the service is commissioned both as a sign of good faith and in order to cover out-of-pocket
expenses. Cemetery and crematorium products are generally not delivered prior to the receipt of all or substantially all of the amounts due.
InvoCare Annual Report 2014 65
Note 2: Financial Risk Management continued
(b) Credit risk continued
(i)
Impaired receivables
The total amount of the provision for doubtful receivables was $2,230,000 (2013: $2,608,000). As at 31 December 2014, receivables
with a nominal value of $3,261,000 (2013: $3,515,000) had been specifically identified internally or referred to the Group’s independent
debt collection agent and hence were considered to be impaired. The amount of the provision for doubtful receivables was calculated
by applying the historical debt collector’s recovery ratio to all debtors over 90 days overdue.
The movement in the provision for impaired receivables is set out in Note 13 – Trade and Other Receivables.
(ii) Receivables past due but not impaired
As of 31 December 2014, trade receivables of $7,928,000 (2013: $7,341,000) were past due but had not been referred to external debt
collection agents and hence were considered not to be impaired. These relate to customers where there is no current evidence of an
inability or unwillingness to settle the amount due but where payment has been delayed. The Group’s own collection activity, which varies
based on the nature and relative age of the debt, is routinely applied to all past due accounts. When these activities do not result in a
successful outcome, the debt is referred to external debt collection agencies.
The ageing of receivables past due but not impaired follows:
One to three months overdue
Over three months overdue
2014
$’000
4,479
3,449
2013
$’000
4,260
3,081
(iii) Other receivables
These amounts generally arise from transactions outside the normal operating activities of the Group. Interest is generally not charged on
the amounts involved although collateral is generally obtained for larger amounts receivable.
(iv) Interest rate risks
The Group has no exposure to interest rate risk in respect of receivables as they are non-interest bearing.
(c) Liquidity risk
Prudent liquidity management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate
amount of committed credit facilities and the ability to close out market positions. Due to the relatively stable nature of the Group’s business,
management aims to maintain a large portion of committed credit lines on a long-term basis.
The Group’s borrowings are unsecured but subject to negative pledges and the Group has complied with these covenants throughout and
at the end of the year. Details of the Group’s facilities are as follows:
66
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Finance facilities available
Unrestricted access was available at balance date to the following lines of credit:
Total facilities
–
–
unsecured loan facility expiring in one to two years
unsecured loan facility expiring in two to five years
– working capital facility expiring within one year
Used at balance date
–
unsecured loan facility
– working capital facility
Unused at balance date
–
unsecured loan facility
– working capital facility
2014
$’000
2013
$’000
–
255,000
6,910
261,910
–
255,000
6,838
261,838
230,304
225,228
1,156
231,460
937
226,165
24,696
5,754
30,450
29,772
5,901
35,673
The tables below analyse the Group’s financial liabilities into the relevant maturity groupings based on their contractual terms. Trade and
other payables and borrowings are non-derivative liabilities.
31 December 2014
Trade and other payables
Borrowings
Derivatives
31 December 2013
Trade and other payables
Borrowings
Derivatives
Less than
one year
$’000
Two to three
years
$’000
More than three
years
$’000
37,091
–
622
178
70,304
4,864
82
160,000
420
Less than
one year
$’000
Two to three
years
$’000
More than three
years
$’000
34,563
–
1,342
969
77,400
3,833
155
147,828
603
Total
$’000
37,351
230,304
5,906
Total
$’000
35,687
225,228
5,778
The Group’s external debt financing is provided by four major banks in Australia and their New Zealand operations, where relevant, through
bi-lateral revolver debt facilities totalling $255 million, $85 million expiring in September 2016 and $170 million expiring in December 2018.
The facilities agreements’ covenant ratios are calculated on a rolling 12-month basis and have been met at 31 December 2014. The ratio of
Net Debt to EBITDA (adjusted for acquisitions) must be no greater than 3.5 and the ratio of EBITDA to net interest must be greater than 3.0.
InvoCare Annual Report 2014 67
Note 2: Financial Risk Management continued
(d) Capital risk management
The Group’s capital management objectives and strategies seek to maximise total shareholder returns, while maintaining a capital structure
with acceptable debt and financial risk.
The capital management goals can be broadly described as:
– manage the amount of equity and the expectation of returns – including dividend distribution policy, dividend reinvestment and share
buy-back policies;
– maintain debt and gearing that is prudent, cost effective, supports operational needs and provides flexibility for growth and
development; and
avoid excessive exposure to interest rate fluctuations and debt refinancing risk.
–
The goals are actively managed by the use of quantifiable measures. These measures and relevant comments are as follows:
– Maximising shareholder returns: Earnings per share (EPS) is a key measure and for 2014, basic EPS was 49.8 cents (2013: 44.7 cents).
Operating EPS, which excludes gains and losses on the disposal or impairment of non-current assets and on undelivered prepaid
contracts and non-controlling interests, was 43.1 cents (2013: 38.9 cents). Importantly, senior management of the Group have long-
term incentives linked to EPS growth, thus aligning employee and shareholder interests. Total compound annual shareholder return,
being the sum of cash dividends and share price growth, has exceeded 21% (2013: 22%) per annum since the Company listed in
December 2003, except for 2008 when global equity market values declined, although InvoCare’s share price did not fall as significantly
as the rest of the market. A shareholder investing $1.00 in the initial public offering (IPO) would have enjoyed a total return of $7.03 or
703% (2013: $6.27 or 627%) up to 31 December 2014.
– Maintaining a minimum ordinary dividend payout ratio of at least 75% of operating earnings after tax. For each of the years since listing,
the Group has distributed ordinary dividends in excess of this payout ratio. The aggregate of the interim and final 2014 dividends
represents a payout ratio of 87% (2013: 89%) of operating earnings after tax.
– Monitoring participation in the Dividend Reinvestment Plan: Up to 25% of the Company’s shareholders have participated in the DRP
since it was first activated in October 2006.
– Confirming compliance with the debt covenant ratios, as defined in the facility agreements, through bi-annual calculations. The Group
has complied with its banking covenants as follows:
–
–
Interest cover (EBITDA/Net Interest Expense) must be greater than 3.00:1.
Leverage ratio (Net Debt/Adjusted EBITDA) must not be greater than 3.50:1.
– Maintaining an optimal leverage ratio: The optimal capital structure, which has the lowest cost of capital, is indicatively at a leverage
ratio (i.e. Net Debt/EBITDA) of between 3:1 and 5:1. The Group can sustain and service higher levels of debt than the amount at
balance date. Where the capacity exists, debt financing will be used for small acquisitions and capital expenditure. In the absence of
opportunities to invest in growing the business, the Group will consider applying excess debt capacity to make returns to shareholders.
– Maintaining floating to fixed base interest rate swaps for at least 75% of debt principal. At 31 December 2014 the proportion of debt
hedged was 76% (2013: 80%). The hedge contracts extend to the second half of 2018.
– Managing refinancing risk: The Group’s borrowing facilities were renewed during 2013 and have been split into two tranches across
four banks in order to reduce refinancing risk. The second tranche originally due to expire in September 2014 was refinanced in
December 2013 along with the tranche due to expire in September 2015 and they now expire in December 2018. The tranche expiring
in September 2016 is expected to be re-negotiated during 2015.
68
Notes to the Financial Statements continuedFor the year ended 31 December 2014 (e) Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and foreign exchange
risk net of applicable income tax.
31 December 2014
Financial assets
Cash and cash equivalents
Accounts receivable
Prepaid contract funds
under management
Other financial assets
Financial liabilities
Trade and other payables
Borrowings
Derivatives
Total increase/(decrease)
31 December 2013
Financial assets
Cash and cash equivalents
Accounts receivable
Prepaid contract funds
under management
Other financial assets
Financial liabilities
Trade and other payables
Borrowings
Derivatives
Total increase/(decrease)
Interest rate risk
Foreign exchange risk
– 100 basis points
+ 100 basis points
– 10%
+ 10%
Carrying
amount
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
10,488
47,183
(53)
–
400,967
(1,738)
61
37,351
229,352
5,906
–
–
(118)
–
(1,909)
–
–
–
–
–
–
1,417
1,417
53
–
1,738
–
–
449
–
2,240
–
–
–
–
–
–
(1,086)
(1,086)
–
–
–
–
–
–
–
–
–
–
(108)
2,536
–
(2,536)
(108)
–
–
–
–
–
–
88
–
88
1
–
–
–
–
(2,344)
2,344
1
Interest rate risk
Foreign exchange risk
– 100 basis points
+ 100 basis points
– 10%
+ 10%
Carrying
amount
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
Profit
$’000
Equity
$’000
8,899
47,003
(38)
–
373,609
(1,444)
63
35,687
223,967
5,778
–
–
(119)
–
(1,601)
–
–
–
–
–
–
1,404
1,404
38
–
1,444
–
–
259
–
1,741
–
–
–
–
–
–
(1,264)
(1,264)
–
–
–
–
–
1
–
–
–
–
(91)
–
(91)
3,133
(3,133)
1
–
–
–
–
–
74
–
74
3
–
–
–
–
(2,906)
2,906
3
The sensitivity analysis has been completed by applying the range values to the actual balances that existed at all points
throughout the year.
(f) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
The fair value of derivatives, which are recorded on the balance sheet, are measured using the cumulative dollar offset method.
As of 1 January 2009, the Group adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires the disclosure of
fair value measurements by level of the following fair value measurement hierarchy:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices) (Level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The fair value of contingent consideration is calculated as the present value of the expected cash flows using a discount rate that reflects
the incremental costs of borrowing used to fund the acquisition. If the discount rate was increased by 10% the contingent consideration
would reduce by $7,000 (2013: $15,000). Similarly, a 10% decrease in the discount rate results in an increase in contingent consideration
of $7,000 (2013: $15,000).
InvoCare Annual Report 2014 69
Note 2: Financial Risk Management continued
(f) Fair value estimation continued
Level 1
Prepaid contract funds under management
Level 2
Derivatives financial instruments
Level 3
Contingent consideration
2014
$’000
2013
$’000
400,967
373,609
(5,906)
(5,778)
(1,912)
(2,437)
No financial instruments or derivatives are held for trading.
The carrying value less impairment provisions for trade receivables and payables is a reasonable approximation of their fair values due to the
short-term nature of trade receivables. Non-current trade receivables are discounted to their fair value in accordance with the accounting
policy outlined in Note 1(l).
Note 3: Segment Information
(a) Description of segments
The operating segments should be based on the management reporting regularly reviewed by the CEO. This reporting is based on the
operational location of the business because different economic and cultural factors impact the growth and profitability of the segments.
(b) Segment information provided to the Chief Executive Officer (“CEO”)
The segment information provided to the CEO for reportable segments to 31 December 2014 and 31 December 2013 is outlined below.
Revenue from external customers
Other revenue (excluding interest income)
Operating expenses
Operating EBITDA
Depreciation and amortisation
Finance costs
Interest income
Share of net loss of associate
Income tax expense
Total goodwill
Total assets
Total liabilities
Australian
Operations
Singapore
Operations
New Zealand
Operations
Other
Operations
Consolidated
2014
$’000
356,056
6,704
(277,023)
85,737
(16,560)
(12,916)
701
(525)
(20,887)
85,781
849,099
701,434
2014
$’000
13,820
307
(7,420)
6,707
(576)
(634)
–
–
(793)
13,495
40,838
32,993
2014
$’000
42,986
138
(34,437)
8,687
(2,027)
(1,933)
48
–
(961)
44,596
72,312
42,810
2014
$’000
149
44
(242)
(49)
(24)
–
–
–
2014
$’000
413,011
7,193
(319,122)
101,082
(19,187)
(15,483)
749
(525)
(2)
(22,643)
1,518
3,004
57
145,390
965,253
777,294
70
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Revenue from external customers
Other revenue (excluding interest income)
Operating expenses
Operating EBITDA
Depreciation and amortisation
Finance costs
Interest income
Share of net loss of associate
Income tax expense
Total goodwill
Total assets
Total liabilities
Australian
Operations
Singapore
Operations
New Zealand
Operations
Other
Operations
Consolidated
2013
$’000
338,065
6,397
(262,165)
82,297
(15,578)
(14,442)
628
(300)
(18,308)
84,925
812,542
674,249
2013
$’000
12,982
267
(7,018)
6,231
(512)
(748)
–
–
(569)
12,915
37,331
31,701
2013
$’000
34,177
130
(27,771)
6,536
(1,680)
(1,630)
30
–
(174)
42,870
66,640
39,885
2013
$’000
128
40
(160)
8
–
–
–
–
2
–
54
35
2013
$’000
385,352
6,834
(297,114)
95,072
(17,770)
(16,820)
658
(300)
(19,049)
140,710
916,567
745,870
Operating EBITDA of $101,082,000 (2013: $95,072,000) is reconciled to profit before tax on the face of the consolidated
income statement.
(c) Segment information – accounting policies
The consolidated entity operates in one industry, being the funeral industry, with significant operations in Australia, New Zealand and
Singapore and smaller operations in Hong Kong and the USA.
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be
allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating
cash, receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related provisions. Segment
liabilities consist primarily of trade and other creditors and employee benefits and, in the case of Singapore, include an allocation of the
long-term borrowings raised in Australia to fund the investment in Singapore. New Zealand has long-term borrowings which are arranged in
New Zealand but with the support of Australia.
Note 4: Revenue from Continuing Operations
Sales revenue
Sale of goods
Services revenue
Other revenue
Rent
Administration fees
Sundry revenue
Total revenue from continuing operations
2014
$’000
2013
$’000
166,127
246,884
413,011
154,213
231,139
385,352
270
5,245
1,678
7,193
327
5,017
1,490
6,834
420,204
392,186
InvoCare Annual Report 2014 71
2014
$’000
2013
$’000
4,243
12,712
16,955
344
176
443
1,269
2,232
19,187
(2,500)
–
(100)
–
2,000
–
18,587
13,426
2,057
15,483
4,094
11,613
15,707
359
180
353
1,171
2,063
17,770
(4,900)
1,200
–
407
–
110
14,587
14,727
2,093
16,820
470
729
11,116
7,514
11,089
7,092
Note 5: Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Buildings
Property, plant and equipment
Total depreciation
Amortisation of non-current assets
Cemetery land
Leasehold land and buildings
Leasehold improvements
Brand names
Total amortisation
Total depreciation and amortisation
Impairment of other assets
Cemetery land impairment reversal
Cemetery land impairment charge
Leasehold land impairment reversal
Leasehold land impairment charge
Financial assets impairment charge
Goodwill
Total depreciation, amortisation and impairment
Finance costs
Interest paid and payable
Other finance costs
Total financing costs
Impairment losses – financial assets
Trade receivables
Rental expense
Operating lease rental – minimum lease payments
Defined contribution superannuation expense
72
Notes to the Financial Statements continuedFor the year ended 31 December 2014
Note 6: Income Tax
(a) Income tax expense
Current tax
Deferred tax
Under/(over) provided in prior years
Income tax expense attributable to continuing operations
(b) Reconciliation of income tax expense to prima facie tax payable
Prima facie tax at 30% (2013: 30%) on profit before tax
Tax effect of amounts which are not deductible/(taxable) in calculation of taxable income
Impact of previously unrecognised capital losses offsetting capital gains and
unrecognised capital losses
Impact of the eliminations of translation gains/(losses) on intercompany balances in foreign currencies
Impact of the reassessment of the appropriate depreciation rates applicable to New Zealand
building assets
Acquisition costs not deductible
Impact of share of the net loss of an associate
Revenue losses not recognised
Other items (net)
Difference in overseas tax rates
Under/(over) provision in prior years
Income tax expense
(c) Tax expense/(income) relating to items of other comprehensive income
Cash flow hedges
Foreign currency translation reserve
2014
$’000
19,993
2,774
(124)
22,643
2013
$’000
20,339
(1,050)
(240)
19,049
2014
$’000
2013
$’000
23,181
20,414
(164)
131
–
282
158
168
(61)
(581)
406
(583)
132
90
–
260
23,695
20,138
(928)
(124)
(849)
(240)
22,643
19,049
2014
$’000
48
359
2013
$’000
772
–
InvoCare Annual Report 2014 73
Note 6: Income Tax continued
(d) Deferred tax (asset)/liability
The deferred tax (asset)/liability balances comprised temporary differences attributable to:
Amounts recognised in profit and loss:
Cemetery land
Property, plant and equipment
Deferred selling costs
Prepayments and other
Brand names
Prepaid contracts
Provisions
Receivables
Accruals and other
Amounts recognised directly in equity:
Cash flow hedge reserve
The net movement in the deferred tax (asset)/liability is as follows:
Balance at the beginning of the year
Net charge (credit) to income statement – current period
Net charge (credit) to income statement – prior periods
Amounts recognised due to business combinations net of businesses subsequently sold
Amounts recognised directly in equity
Effect of movements in exchange rates
Balance at the end of the year
Deferred tax liabilities/(assets) to be settled within 12 months
Deferred tax liabilities/(assets) to be settled after 12 months
2014
$’000
2013
$’000
27,014
5,509
2,957
659
2,046
2,482
(4,528)
(1,575)
(526)
(1,763)
32,275
25,191
7,196
2,859
173
1,761
(149)
(4,547)
(1,275)
(721)
(1,733)
28,755
28,755
2,774
28,502
(1,050)
643
101
48
(46)
32,275
(4,404)
36,679
32,275
15
424
772
92
28,755
(7,551)
36,306
28,755
(e) Tax losses
The Group has unutilised Australian capital losses with a potential benefit of $Nil (2013: $164,000) at a tax rate of 30% (2013: 30%). The
Group has unutilised revenue losses of $168,000 in foreign jurisdictions.
74
Notes to the Financial Statements continuedFor the year ended 31 December 2014
Note 7: Key Management Personnel Disclosures
(a) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
2014
$
2013
$
3,697,628
3,381,738
153,876
54,160
679,013
162,644
37,704
551,798
4,584,677
4,133,884
Detailed remuneration disclosures are provided in the Remuneration Report on pages 38 to 49.
(b) Equity instrument disclosures relating to key management personnel
(i) Shares and share appreciation rights provided as remuneration
Details of shares and share appreciation rights provided as remuneration, together with terms and conditions of the shares and share
appreciation rights, can be found in the Remuneration Report on pages 38 to 49.
The Company has not provided any options over unissued shares as remuneration during the 2014 or 2013 financial years.
(ii) Holdings of shares and share appreciation rights
The number of ordinary shares in the Company, or share appreciation rights in the case of overseas based key management personnel,
held during the financial year by each director of InvoCare Limited and other key management personnel of the Group, including indirectly
by their personally related parties or by the trustee of the InvoCare Deferred Employee Share Plan, are set out below. During the year, Long
Term Incentive (“LTI”) shares or LTI rights were granted to other key management personnel under the terms of the InvoCare Deferred
Employee Share Plan the details of which are outlined in Note 8.
Non-executive Directors
Richard Fisher
Christine Clifton
Roger Penman
Aliza Knox
Richard Davis
Executive Directors
Andrew Smith1
Other key management personnel
Phillip Friery1
Greg Bisset1
Andi Luiskandl
Wee Leng Goh2
Graeme Rhind2
Balance at
start of
the year
Granted
during
year as
compensation
Other
changes
during
year
Balance at
end of
the year
11,580
112,961
16,665
5,172
606,607
–
–
–
–
–
376
–
282
167
11,956
112,961
16,947
5,339
(25,000)
581,607
237,357
27,417
(9,289)
255,485
81,385
72,525
11,387
20,192
8,000
9,483
12,044
5,768
4,608
4,011
(6,635)
(1,550)
–
(723)
(593)
84,233
83,019
17,155
24,077
11,418
1. Upon final vesting testing in February 2015, shares from grants made in 2010 were forfeited due to EPS performance conditions not being achieved.
Andrew Smith forfeited 30,404 shares, Phillip Friery forfeited 20,374 shares and Greg Bisset forfeited 13,985 shares which reduces the balance of
shares held at the end of the year as shown in the above table.
2. These grants are share appreciation rights.
InvoCare Annual Report 2014 75
Note 7: Key Management Personnel Disclosures continued
(c) Loans to key management personnel
There were no loans to directors of the Company or other key management personnel.
(d) Other transactions with key management personnel
There were no transactions with key management personnel of the Group, including their personally related parties, during 2014 or 2013.
Note 8: Share-based Payments
To align executive and shareholder interests, key management and other senior managers may be offered shares as long-term incentives
under the InvoCare Deferred Employee Share Plan which was established in 2007.
Performance hurdles apply to certain grants to senior managers which are outlined in detail in the Remuneration Report. Shading in
provisions apply with partial vesting when compound earnings per share growth is less than the target.
In non-Australian jurisdictions the direct ownership of InvoCare Limited shares presents complex legal and taxation challenges in an
employee share plan environment. In these cases senior non-Australian employees are granted share appreciation rights with the same
vesting and performance conditions as the Australia Deferred Employee share plan.
Total expenses, excluding related on-costs, arising from share-based payment transactions recognised during the period as part of
employee benefits expense were as follows:
Long-term incentive bonus share expense
2014
$’000
1,335
2013
$’000
1,026
76
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 8: Share-based Payments continued
Details of unvested grants and other movements in the deferred employee share plan follow:
Grant date
Vesting date
1 January 2009
25 February 2011
25 February 2012
25 February 2013
1 January 2010
25 February 2012
1 March 2010
1 January 2011
1 March 2011
1 July 2011
1 January 2012
1 March 2012
25 February 2013
25 February 2014
25 February 2014
25 February 2013
25 February 2014
25 February 2015
25 February 2014
25 February 2015
25 February 2013
25 February 2014
25 February 2015
25 February 2014
25 February 2015
25 February 2016
25 February 2014
25 February 2015
25 February 2016
1 January 2013
25 February 2015
1 March 2013
25 February 2016
25 February 2017
25 February 2015
25 February 2016
25 February 2017
1 January 2014
25 February 2016
1 March 2014
25 February 2017
25 February 2018
25 February 2016
25 February 2017
25 February 2018
Purchase
price per
share
$
Balance at
the start of
the year
$’000
Granted
during the
year
$’000
Vested
during the
year
$’000
Forfeited
during the
year
$’000
Balance at
the end of
the year
$’000
4.87
4.87
4.87
6.01
6.01
6.01
6.01
7.37
7.37
7.37
7.37
7.37
7.37
7.37
7.37
7.94
7.94
7.94
7.94
7.94
7.94
10.93
10.93
10.93
10.93
10.93
10.93
11.36
11.36
11.36
11.36
11.36
11.36
12
87
155
254
254
254
49
305
305
305
59
59
7
7
7
368
368
368
58
58
58
413
413
413
73
73
73
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
426
426
427
75
75
76
(7)
(50)
(89)
–
–
–
(49)
–
–
–
(59)
–
–
–
–
(144)
–
–
(58)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
(37)
(66)
–
–
–
–
–
–
–
–
(5)
–
–
–
–
–
–
–
(5)
(5)
(3)
(3)
(2)
–
–
–
(7)
(7)
(7)
(3)
(3)
(3)
–
–
–
254
254
254
–
305
305
305
–
54
7
7
7
224
368
368
–
53
53
410
410
411
73
73
73
419
419
420
72
72
73
Note: The data in this table has been calculated in whole dollars and presented in thousands and as a consequence some totals and movements cannot
be computed from the table as presented.
InvoCare Limited has no options over unissued shares granted to executive management outstanding at balance date.
4,855
1,505
(456)
(161)
5,743
InvoCare Annual Report 2014 77
Note 8: Share-based Payments continued
Details of unvested grants and other movements in share appreciation rights follow:
Grant date
Vesting date
22 February 2010
22 February 2012
22 February 2013
22 February 2014
24 February 2011
24 February 2013
24 February 2014
24 February 2015
21 February 2012
21 February 2014
21 February 2015
21 February 2016
1 January 2012
25 February 2014
25 February 2015
25 February 2016
1 March 2012
25 February 2014
25 February 2015
25 February 2016
1 January 2013
21 February 2015
21 February 2016
21 February 2017
21 February 2013
21 February 2015
21 February 2016
21 February 2017
1 March 2013
21 February 2015
21 February 2016
21 February 2017
1 January 2014
25 February 2016
25 February 2017
25 February 2018
25 February 2014
25 February 2016
25 February 2017
25 February 2018
1 March 2014
25 February 2016
25 February 2017
25 February 2018
Purchase
price per
share
$
Balance at
the start of
the year
$’000
Granted
during the
year
$’000
Vested
during the
year
$’000
Increase
during the
year
$’000
Balance at
the end of
the year
$’000
6.01
6.01
6.01
7.37
7.37
7.37
7.76
7.76
7.76
7.76
7.76
7.76
7.76
7.76
7.76
10.93
10.93
10.93
10.93
10.93
10.93
10.93
10.93
10.93
11.36
11.36
11.36
11.36
11.36
11.36
11.36
11.36
11.36
20
20
20
20
20
20
19
19
19
33
33
33
6
6
6
26
26
26
15
15
15
6
6
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30
30
30
17
17
17
7
7
7
–
–
–
–
–
–
(10)
–
–
(14)
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
2
2
2
2
1
2
2
5
5
5
–
–
–
2
2
2
2
2
2
1
1
1
2
2
2
1
1
1
–
–
–
22
22
22
22
22
22
10
21
21
24
38
38
–
6
6
28
28
28
17
17
17
7
7
7
32
32
32
18
18
18
7
7
7
Note: The data in this table has been calculated in whole dollars and presented in thousands and as a consequence some totals and movements cannot
be computed from the table as presented.
The plan rules allow, in instances where full vesting does not occur, an additional year to satisfy the vesting conditions.
435
162
(30)
56
623
78
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 9: Remuneration of Auditors
During the year, the following fees were paid or payable for services provided by the auditor of the parent
entity, its related practices and non-related audit firms.
(a) Audit services
PricewaterhouseCoopers – Australian firm
Audit and review of financial reports
PricewaterhouseCoopers – non-Australian firm
Audit and review of financial reports
Non-PricewaterhouseCoopers – Singaporean firm
Audit and review of financial reports
Total remuneration for audit services
(b) Non-audit services
PricewaterhouseCoopers – Australian firm
Assurance services
Accounting advisory services
Taxation services
Other Services
PricewaterhouseCoopers – non-Australian firms
Taxation services
Other services
Non-PricewaterhouseCoopers – Singaporean firm
Other services
Total remuneration for non-audit services
2014
$
2013
$
310,630
408,630
9,355
8,741
28,446
348,431
28,720
446,091
28,733
–
53,856
38,696
32,321
2,857
26,000
45,122
73,000
–
58,599
12,623
11,896
168,359
12,011
227,355
For 2013, included in $408,630 for audit and review of financial reports is $80,000 in relation to the scope changes for the 2012 audit.
It is the Company’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where
PricewaterhouseCoopers’ expertise and experience with the consolidated entity are important and auditor independence is not
compromised. These assignments are principally tax advice and advisory services, or where PricewaterhouseCoopers is awarded
assignments on a competitive basis. It is the Company’s policy to seek competitive tenders for any major consulting projects.
InvoCare Annual Report 2014 79
Note 10: Dividends
Dividends paid
2014
$’000
2013
$’000
Final ordinary dividend for the year ended 31 December 2013 of 19.5 cents (2012: 19.0 cents) per fully paid
share paid on 4 April 2014 (2012: 5 April 2013), fully franked based on tax paid at 30% (2012: 30%)
21,455
20,901
Interim ordinary dividend for the year ended 31 December 2014 of 15.75 cents (2013: 15.0 cents) per share
paid on 3 October 2014 (2013: 4 October 2013), fully franked based on tax paid at 30% (2013: 30%)
Dividends paid to members of InvoCare Limited
On 16 December 2014 (2013: 24 July 2013) dividend totalling 25.29 cents (2013: 4.46 cents) per fully paid
share, fully franked based on tax paid at 30%, was paid to non-controlling interests.
Dividends not recognised at year end
In addition to the above dividends, since the year end, the directors recommended the payment of a final
dividend to InvoCare Limited shareholders of 20.75 cents (2013: 19.5 cents) per fully paid ordinary share,
fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend, expected to be
paid on 02 April 2015 out of 2014 profits, but not recognised as a liability at year end is:
Franking credit balance
The amounts of franking credits available for subsequent financial years are:
Franking account balance at the end of the financial year
Franking credits that will arise from the payment of income tax payable at the end of the financial year
Reduction in franking account resulting from payment of proposed final dividend of 20.75 cents
(2013: 19.5 cents)
Note 11: Earnings per Share
Reconciliation of Earnings to Profit and Loss
Profit from ordinary activities after income tax
Less profit attributable to non-controlling interests
Profit used to calculate basic and diluted EPS
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic
earnings per share
Weighted average number of ordinary shares used as the denominator in calculating diluted
earnings per share
Earnings per share for profit attributable to the ordinary equity holders of the Company
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
80
17,329
38,784
203
38,987
16,505
37,406
36
37,442
22,831
21,456
23,737
7,974
(9,785)
21,926
23,435
8,346
(9,195)
22,586
2014
$’000
2013
$’000
54,627
(112)
54,515
48,999
(130)
48,869
2014
Number
2013
Number
109,375,375
109,394,543
109,375,375
109,394,543
2014
cents
49.8
49.8
2013
cents
44.7
44.7
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 12: Cash and Cash Equivalents
Cash on hand
Cash at bank
Cash at bank attracts floating interest rate of 1.25% (2013: between 1.25% and 2.0%)
Reconciliation to cash at the end of the year:
The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash
flows as follows:
Balances as above
Balances per the statement of cash flows
Note 13: Trade and Other Receivables
Current
Trade receivables
Provision for doubtful receivables
Prepayments
Other receivables
Non-current
Trade receivables
Provision for doubtful receivables
Security deposits
Other receivables
(a) Impaired receivables
Movements in the provision for impairment of receivables are as follows:
As at 1 January
Provision for impairment recognised during the year
Receivables written off as uncollectible
As at 31 December
Note 14: Inventories
Current
Finished goods – at cost
Work in progress – at cost
2014
$’000
79
10,409
10,488
2013
$’000
82
8,817
8,899
10,488
10,488
8,899
8,899
2014
$’000
2013
$’000
34,407
(2,214)
6,328
716
39,237
34,131
(2,571)
5,297
1,509
38,366
15,006
13,571
(16)
298
1,093
16,381
(37)
364
400
14,298
2014
$’000
2,608
470
(848)
2,230
2013
$’000
2,631
729
(752)
2,608
2014
$’000
2013
$’000
21,522
791
22,313
20,104
1,533
21,637
InvoCare Annual Report 2014 81
Note 15: Prepaid Contracts
(a) Income statement impact of undelivered prepaid contracts
Gain on prepaid contract funds under management
Change in provision for prepaid contract liabilities
Net gain/(loss) on undelivered prepaid contracts
(b) Movements in prepaid contract funds under management
Balance at the beginning of the year
Sale of new prepaid contracts
Initial recognition of contracts paid by instalment
Redemption of prepaid contract funds following service delivery
Increase due to business combinations
Increase in fair value of contract funds under management
Balance at the end of the year
(c) Movements in prepaid contract liabilities
Balance at the beginning of the year
Sale of new prepaid contracts
Initial recognition of contracts paid by instalment
Decrease following delivery of services
Increase due to business combinations
Increase due to re-evaluation of delivery obligation
Balance at the end of the year
2014
$’000
24,832
(13,917)
10,915
2013
$’000
20,622
(19,032)
1,590
2014
$’000
2013
$’000
373,609
350,905
33,326
3,241
(35,389)
1,348
24,832
400,967
31,951
2,941
(32,810)
–
20,622
373,609
2014
$’000
2013
$’000
376,525
355,090
33,990
3,241
(35,180)
1,348
13,917
393,841
31,951
2,941
(32,489)
–
19,032
376,525
(d) Classification of prepaid funds under management and liabilities
The current and non-current portions of the prepaid contract assets and liabilities are disclosed separately to more clearly reflect the
expected pattern of usage associated with the timing of actual contract redemptions.
(e) Nature of contracts under management and liabilities
Prepaid contracts are tripartite agreements, currently entered into and performed in Australia only, whereby InvoCare agrees to deliver a
specified funeral service, cremation or burial at the time of need and the beneficiary invests the current price of the service to be delivered
with a financial institution and conditionally assigns the benefit to InvoCare. InvoCare records the value of the invested funds as an asset and
revalues the invested funds to fair value at the end of each reporting period. InvoCare also records a liability at the current selling price of the
service to be delivered and adjusts this liability for the change in selling prices during the period.
The assignment of the benefit of the invested funds to InvoCare, in most cases, only becomes unconditional when InvoCare demonstrates
that it has delivered the service specified. InvoCare receives the investment returns as well as the initial investment when the service has
been delivered.
As generally required by law, the funds are controlled by trustees who are independent of InvoCare.
InvoCare permits, on request, contracts to be paid by instalments over periods not exceeding three years. In some instances these
contracts are never fully paid. If, during the three-year period the contract becomes at-need, the family is given the option of either paying
outstanding instalments and receiving the contracted services at the original fixed price or using the amount paid as a part payment of
the at-need service. If the contract is not fully paid after three years InvoCare only permits the family to use the amounts paid as a partial
payment of the at-need services. At the end of the year the total balance of amounts received from instalment payments for incomplete
contracts was $6,488,000 (2013: $6,235,000). These funds and the relevant liability are recognised when the contract has been fully paid.
During the year the non-cash fair value movements (i.e. investment earnings) of $24.8 million in prepaid contract funds under management
(2013: $20.6 million) was greater than the non-cash growth due to selling price increases of $13.9 million in the liability for future service
delivery obligations (2013: $19.0 million).
82
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 16: Interests in Other Entities: Subsidiaries
(a) Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2014. Unless otherwise stated, the subsidiaries as listed below
have share capital consisting solely of ordinary shares, which are held directly by the Group, and the proportion of ownership interests held
equals to the voting rights held by the Group. The country of incorporation or registration is also their principal place of business.
Name of entity
InvoCare Australia Pty Limited
Bledisloe Australia Pty Ltd
Bledisloe New Zealand Limited
Country of
incorporation
Principal activities
Australia
Australia
Funeral services provider
Funeral services provider
New Zealand
Funeral services provider
Singapore Casket Company (Private) Limited
Singapore
Funeral services provider
Ownership interest
held by the Group
2014
%
100
100
100
100
2013
%
100
100
100
100
InvoCare Australia Pty Limited and Bledisloe Australia Pty Ltd have been granted relief from the necessity to prepare financial reports
in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. For further information
refer to Note 32.
(b) Significant restrictions
Other than those imposed by the legislative provisions in the respective country of incorporation, for the subsidiaries listed above, the Group
has no significant restriction on its ability to access or use assets and settle liabilities.
InvoCare Annual Report 2014 83
Note 16: Interests in Other Entities: Subsidiaries continued
(c) Complete list of subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of InvoCare Limited and the following controlled entities in
accordance with the accounting policy in Note 1(b).
Name of entity
InvoCare Australia Pty Limited
New South Wales Cremation Company Pty Limited
LifeArt Australasia Pty Limited
Macquarie Memorial Park Pty Limited
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
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Metropolitan Burial and Cremation Society Funeral Contribution Fund Pty Limited Australia
Labor Funerals Contribution Fund Pty Limited
IVC Custodians Pty Limited
Bledisloe Group Holdings Pty Ltd
Bledisloe Finance Pty Ltd (Struck off in 2014)
Bledisloe Holdings Pty. Ltd. (Struck off in 2014)
Bledone Pty Ltd
Bledtwo Pty Ltd (Struck off in 2014)
Bledisloe Australia Pty Ltd
A.C.N. 001 068 373 Pty Ltd (Struck off in 2014)
A.C.N. 000 146 261 Pty Ltd (Struck off in 2014)
A.C.N. 000 963 299 Pty Ltd (Struck off in 2014)
F Tighe & Co Pty Ltd (Struck off in 2014)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Crematorium Chapel Funerals of Australasia Pty Ltd (Struck off in 2014) Australia
William Lee & Sons Pty Ltd (Struck off in 2014)
Dylhost Pty Ltd (Struck off in 2014)
Australian Funerals Pty Limited
Metropolitan Funeral Services Pty. Ltd.
Sydney Cremation Services Pty Ltd (Struck off in 2014)
Australia
Australia
Australia
Australia
Australia
Cemetery & Crematorium Management Services Pty Ltd (Struck off in 2014)
Australia
Cemetery & Crematorium Finance Trust (dissolved)
Nationwide Care Services Pty Ltd (Struck off in 2014)
South-East Asia & Australasian Services Pty Ltd (Struck off in 2014)
Tuckers Funeral & Bereavement Services Pty Ltd
Geelong Mortuary Transfer Services Pty Ltd
IVC Employee Share Plan Managers Pty Ltd
InvoCare Hong Kong Limited
InvoCare Consulting Services (Beijing) Co., Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong SAR
People’s
Republic of China
Equity Holding
2014
%
2013
%
100
100
100
83
100
100
100
100
100
100
100
100
100
100
–
–
100
–
100
–
–
–
–
–
–
–
100
100
–
–
–
–
–
100
100
100
100
100
100
100
100
83
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
84
Notes to the Financial Statements continuedFor the year ended 31 December 2014
(c) Complete list of subsidiaries continued
Name of entity
InvoCare (Singapore) Pty Limited
Singapore Casket Company (Private) Limited
Casket Palace Pte. Ltd.
Simplicity Casket Private Limited
Casket Company Embalming and Funeral Services Pte. Ltd
Lavender Flora Pte. Ltd.
Simplicity Flora Pte. Ltd.
SCC Care Services Pte. Ltd. (formerly SCC Funeral Supplies Pte. Ltd.)
InvoCare New Zealand Limited
Bledisloe New Zealand Limited
InvoCare USA, Inc.
Macera Crematorium, Inc
IVC-Santa Ana, LLC
Country of
incorporation
Australia
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
New Zealand
New Zealand
USA
USA
USA
Equity Holding
2014
%
100
100
100
100
100
100
100
100
100
100
100
100
100
2013
%
100
100
100
100
100
100
100
100
100
100
–
–
–
Shares in subsidiaries are carried at cost and relate to InvoCare Limited’s ownership interest in InvoCare Australia Pty Limited, InvoCare
(Singapore) Pty Limited, InvoCare New Zealand Limited, InvoCare Hong Kong Limited and InvoCare USA, Inc. All shares held are ordinary shares.
InvoCare Australia Pty Limited, InvoCare (Singapore) Pty Limited and Bledisloe Australia Pty Ltd have been granted relief from the necessity
to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. For
further information refer to Note 32.
During 2013 the solvent winding up of a total of 14 entities was commenced and this process was completed during 2014.
(d) Subsidiaries with non-controlling interests (“NCI”)
One subsidiary, Macquarie Memorial Park Pty Limited, has non-controlling interests of 16.86% (2013: 16.86%). During the year dividends
totalling $203,000 were paid to non-controlling interests (2013: $35,745).
Note 17: Interests in Other Entities: Associates
(a) Interests in associates
(i) Set out below is the associate of the Group at 31 December 2014. The entity listed below has share capital consisting solely of
ordinary shares, which are held directly by the Group. The country of incorporation or registration is also its principal place of business,
and the proportion of ownership interest is the same as the proportion of voting rights held. The interest held in this entity is not
material to the Group.
Name of entity
Country of
incorporation
Nature of
relationship
Measurement
method
2014
%
2013
%
2014
$’000
2013
$’000
% of ownership interest
Carrying Amount
HeavenAddress Pte. Ltd Singapore
Associate
Equity method
34.59
34.59
2,423
4,705
HeavenAddress Pte. Ltd offers online memorial services to allow families and communities to celebrate the life of a loved one.
(ii) Commitments and contingent liabilities in respect of associates:
The Group has no commitments or contingent liabilities in respect of its associates at 31 December 2014 (2013: Nil).
(b) Impairment
During 2014 a review of the Group’s investment in its associate was undertaken which resulted in an impairment write down of $2,000,000.
As a result the recoverable amount of the Group’s investment in its associate as at 31 December 2014 is now $2,423,000.
The recoverable amount is based on value-in-use calculations whereby cash flow projections provided by the associate’s management have
been discounted to present value using selected discount rates. Cash projections which covered an initial three-year period have then been
extrapolated using estimated growth rates of 3% for both revenues and expenses.
Sensitivities were conducted on a number of variables including revenue growth and discount rates. Given the start-up nature of the
business, more weight was placed on the existing business than on future opportunities when developing growth scenarios. A pre-tax rate
of 17.8% (2013: Nil) was used to discount the cash projections. This is higher than the 10.9% rate used for impairing existing business
assets and reflects the greater risk associated with a start-up investment. From these scenarios Management has selected a mid-point
which it believes is in a range of possible future outcomes. The Group will continue to monitor its investment in the associate for indicators
of any future impairment losses or reversals.
InvoCare Annual Report 2014 85
Note 18: Property, Plant and Equipment
At 1 January 2014
Cost
Accumulated depreciation/mortisation
Impairment write-downs
Net book amount
Year ended 31 December 2014
Additions
Business combinations
Disposals
Depreciation/mortisation and
impairment charge
Effect of movement in exchange rates
Transfers/reclassifications
Closing net book amount
At 31 December 2014
Cost
Accumulated depreciation/mortisation
Impairment write-downs
Net book amount
At 1 January 2013
Cost
Accumulated depreciation/mortisation
Impairment write-downs
Net book amount
Year ended 31 December 2013
Additions
Business combinations
Disposals
Depreciation/mortisation and
impairment charge
Effect of movement in exchange rates
Transfers/reclassifications
Closing net book amount
At 31 December 2013
Cost
Cemetery
land
$’000
Freehold
land
$’000
Buildings
$’000
Leasehold
land and
buildings
$’000
Leasehold
improve-
ments
$’000
Plant and
equipment
$’000
Total
$’000
107,727
(6,665)
(12,276)
78,685
128,958
–
–
(46,737)
–
4,534
(2,641)
–
5,148
109,302
434,354
(2,554)
(66,936)
(125,533)
–
–
(12,276)
88,786
78,685
82,221
1,893
2,594
42,366
296,545
251
–
–
2,156
–
–
4,555
1,443
–
–
854
5,114
415
(34)
(4,243)
477
(1,578)
(1,609)
213
–
(217)
1,087
15,750
47
(10)
82
(414)
26,970
1,987
(675)
(176)
(443)
(12,712)
(15,418)
–
–
35
492
264
–
1,630
(2,695)
91,193
83,959
82,341
1,713
3,802
45,336
308,344
107,979
83,959
132,262
(7,010)
(9,776)
–
–
(49,921)
–
4,534
(2,821)
–
6,622
118,779
454,135
(2,820)
(73,443)
(136,015)
–
–
(9,776)
91,193
83,959
82,341
1,713
3,802
45,336
308,344
106,189
74,890
123,627
(6,307)
(15,976)
83,906
–
–
(42,306)
–
74,890
81,321
763
1,994
(1,370)
3,662
1,041
(760)
4,900
(2,521)
–
2,379
–
–
–
4,518
(2,208)
–
99,960
(59,792)
–
2,310
40,168
601
29
(7)
12,794
496
(368)
414,084
(113,134)
(15,976)
284,974
19,592
3,560
(2,738)
–
(4,022)
(486)
(352)
(11,786)
(13,305)
2,408
–
979
–
–
–
13
–
1,062
–
4,462
–
88,786
78,685
82,221
1,893
2,594
42,366
296,545
1,772
–
(233)
3,341
–
–
107,727
78,685
128,958
–
–
(46,737)
–
4,534
(2,641)
–
5,148
(2,554)
–
109,302
434,354
(66,936)
(125,533)
–
(12,276)
78,685
82,221
1,893
2,594
42,366
296,545
Accumulated depreciation/mortisation
Impairment write-downs
Net book amount
(6,665)
(12,276)
88,786
86
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 18: Property, Plant and Equipment continued
(a) Assets in the course of construction
The carrying amounts of assets disclosed above include the following expenditure recognised in relation to property, plant and equipment
which is in the course of construction:
Freehold buildings
Leasehold improvements
Plant and equipment
Total assets in the course of construction
2014
$’000
1,115
129
2,513
3,757
2013
$’000
937
123
781
1,841
(b) Impairment
All impaired cemetery and crematorium sites were reassessed at 31 December 2014 using the same methodology as previously applied
and a net write back (i.e. reversal of previous impairment write downs) amounting to $2,500,000 was deemed necessary to the impairment
provision. The net amount comprised of $2,500,000 in the reversal of previous impairments for two cemetery and crematorium sites
in Queensland.
During 2013 a review of the Group’s property requirements in the Australian Capital Territory (“ACT”) identified an undeveloped parcel of
leasehold land was no longer strategically significant to the Group’s long-term growth in the ACT. Accordingly, it was decided to impair the
parcel of land given that the costs to exit the site may exceed its carrying value. The parcel of land was subsequently sold in 2014 and as a
result $100,000 of the initial impairment loss recognised in 2013 was reversed in 2014.
The following table summarises the impairment losses/reversals along with the recoverable amount estimates for the individual sites:
Site Name
Allambe Gardens Memorial Park, Queensland
Mt Thompson Memorial Gardens, Queensland
Tweed Heads Memorial Gardens, New South Wales
Leasehold Land, Australian Capital Territory
Impairment Loss/(Reversal)
Recoverable Amount Estimates
2014
$’000
(500)
(2,000)
–
(100)
(2,600)
2013
$’000
(3,000)
(1,900)
1,200
407
(3,293)
2014
$’000
15,000
12,800
2,200
100
30,100
2013
$’000
13,000
10,800
2,100
–
25,900
The impairment losses recognised over the years may be reversed in future years. The Group has no impairment at other cemetery and
crematorium sites, or of other property, plant and equipment assets. The total recoverable amount of the Group’s assets is well in excess of
carrying value.
The recoverable amount of cash-generating units is based on value-in-use calculations. These calculations use cash flow projections based
on financial estimates approved by management based on past performance and future expectations. The cash flows cover an initial five-
year period and are then extrapolated beyond five years using estimated growth rates of 4% in revenues and 3% in expenses which are not
inconsistent with historical trends and forecasts included in reports prepared by market analysts. A sensitivity analysis has been conducted
on the impaired sites by moving the underlying assumptions both up and down 10%. This analysis demonstrates that changing the
assumptions is unlikely to result in a material change in the currently recognised impairment losses. Management considers that a +/–10%
shift is within the reasonably possible range of long-term outcomes. The pre-tax discount rate used was 10.9% (2013: 10.9%), reflecting the
risk estimates for the business as a whole.
(c) Property held for sale
During the year a review of the Group’s property requirements in New South Wales, Australia and the North Island of New Zealand identified
parcels of land and buildings which were no longer strategically significant to the Group’s long-term growth and being actively marketed.
Accordingly they have been classified as held for sale.
InvoCare Annual Report 2014 87
Note 19: Intangible Assets
At 1 January 2014
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2014
Acquisition of subsidiary/businesses
Effect of movement in exchange rates
Impairment
Amortisation charge
Net book amount
At 31 December 2014
Cost
Accumulated amortisation
Net book amount
At 1 January 2013
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2013
Additions
Acquisition of subsidiary/businesses
Effect of movement in exchange rates
Impairment
Amortisation charge
Net book amount
At 31 December 2013
Cost
Accumulated amortisation
Net book amount
Goodwill
$’000
Brand name
$’000
Total
$’000
140,710
–
140,710
2,315
2,365
–
–
145,390
12,674
(4,472)
8,202
48
109
–
(1,269)
7,090
153,384
(4,472)
148,912
2,363
2,474
–
(1,269)
152,480
145,390
–
12,922
(5,832)
158,312
(5,832)
145,390
7,090
152,480
129,429
–
129,429
–
4,451
6,940
(110)
–
140,710
140,710
–
140,710
11,179
(3,124)
8,055
435
473
410
–
(1,171)
8,202
12,674
(4,472)
8,202
140,608
(3,124)
137,484
435
4,924
7,350
(110)
(1,171)
148,912
153,384
(4,472)
148,912
(a) Impairment test for goodwill
For the Group’s Australian-based operations, goodwill cannot be allocated on a non-arbitrary basis to individual cash-generating Units
(“CGU”s) due to the significant history of numerous acquisitions, especially during the years 1993 to 1999, and resulting post-acquisition
business integration activities and operational changes over many years. The New Zealand, Singapore and USA operations are separate
CGUs and the associated goodwill arising from that acquisition has been allocated to the single New Zealand, Singapore or USA CGU.
As a result, the lowest level within the Group at which goodwill is monitored for management purposes comprises the grouping of all CGUs
within a country of operation. The recoverable amounts of the total of Australian, New Zealand, Singapore and USA CGUs are based on
value-in-use calculations. These calculations use cash flow projections based on approved financial estimates covering a five-year period.
Cash flows beyond the five-year period have been extrapolated using estimated growth rates. The assessment also considered the
reasonable possible long-term shift in key assumptions which will not cause further impairment.
(b) Key assumptions used for value-in-use calculations
Budgeted cash flows have been based on past performance and expectations for the future. The growth rates of 4% in revenue and 3% in
expense projections are not inconsistent with historical trends and forecasts included in reports prepared by market analysts. The pre-tax
discount rate used for assessing the carrying value of goodwill in each CGU was 10.9% (2013: 10.9%), reflecting the risk estimates for the
business as a whole. Sensitivity analysis indicates significant headroom exists in the value-in-use calculations for Australia, New Zealand,
Singapore and USA compared to the carrying value of goodwill.
88
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 20: Derivative Financial Instruments
Current liabilities
Interest rate swap contracts – cash flow hedges
Non-current assets
Interest rate swap contracts – cash flow hedges
Non-current liabilities
Interest rate swap contracts – cash flow hedges
2014
$’000
622
622
–
–
5,284
5,284
2013
$’000
1,342
1,342
1
1
4,437
4,437
Full details of the derivatives being used by the Group and the risks and ageing of the existing derivatives are set out in Note 2 – Financial
Risk Management.
In September 2010, a controlled entity entered into a bank loan amounting to SG$27 million which was renewed in 2012. This loan, which
was taken out to support the investment in Singapore, has been designated as a hedge of the net investment in this subsidiary. The fair
value and carrying amount of the borrowing at 31 December 2014 was $24.9 million (31 December 2013: $23.8 million). There was no
ineffectiveness to be recorded from net investments in foreign entity hedges.
Note 21: Trade and Other Payables
Current
Trade payables
Sundry payables and accrued expenses
Deferred cash settlement for business interests acquired
Non-current
Deferred cash settlement for business interests acquired
2014
$’000
2013
$’000
25,560
9,879
1,652
37,091
260
260
24,926
8,324
1,313
34,563
1,124
1,124
Full details of the risks and currency exposure of trade and other payables are set out in Note 2 – Financial Risk Management.
Note 22: Borrowings
Short-term borrowings
Lease liabilities
Long-term borrowings
Borrowings are represented by:
Principal amount of bank loans – unsecured
Lease liabilities
Loan establishment costs
Full details of the risks, ageing and available facilities are set out in Note 2 – Financial Risk Management.
2014
$’000
2013
$’000
2
2
11
11
230,304
225,228
–
(954)
2
(1,274)
229,350
223,956
InvoCare Annual Report 2014 89
Note 23: Provisions for Employee Benefits
Current
Employee benefits
Non-current
Liability for long service leave
(a) Employee numbers
Number of full-time equivalent employees
2014
$’000
2013
$’000
13,726
12,732
2,409
2,027
2014
Number
2013
Number
1,532
1,470
(b) Superannuation plan
The Company contributes to accumulation-type employee superannuation plans in accordance with statutory requirements.
(c) Exempt Employee Share Plan
The Company’s Exempt Employee Share Plan provides employee members the opportunity to acquire ordinary shares in InvoCare Limited
to the tax exempt value of $1,000. There are 321 members at 31 December 2014 and the balance owing by employee plan members for
the purchase price of shares was $151,814 (2013: $161,962).
Note 24: Current Liabilities expected to be settled within twelve months
The amounts included in current liabilities which are expected to be settled within twelve months are set out below.
Trade and other payables
Short-term borrowings
Current tax liabilities
Prepaid contract liabilities
Deferred revenue
Employee benefits
Total current liability
Expected to settle
within twelve months
2014
$’000
2013
$’000
2014
$’000
2013
$’000
37,091
34,563
37,091
34,563
2
9,364
33,847
7,588
13,726
101,618
11
9,946
30,481
6,925
12,732
94,658
2
9,364
33,847
7,588
6,996
94,888
11
9,946
30,481
6,925
6,604
88,530
The amounts expected to be settled within twelve months have been calculated based on the historical settlement patterns.
90
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 25: Contributed Equity
Fully paid ordinary shares
Ordinary shares
Balance at the beginning of the financial year
Total contributed equity
Treasury shares (note 25 (b))
2014
$’000
2013
$’000
131,682
132,393
2014
Number
2014
$’000
2013
Number
2013
$’000
110,030,298
136,858
110,030,298
110,030,298
136,858
110,030,298
136,858
136,858
(661,978)
(5,176)
(631,733)
(4,465)
Total consolidated contributed equity
109,368,320
131,682
109,398,565
132,393
(a) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number
of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is
entitled to one vote, and upon a poll each share is entitled to one vote.
(b) Treasury shares
Treasury shares are shares in InvoCare Limited that are held by the InvoCare Deferred Employee Share Plan Trust for the purpose of issuing
shares under the InvoCare Deferred Employee Share Plan, as set out in Note 8.
Date
1 January 2013
25 February 2013
Details
Balance
Shares vested
28 February 2013 to 07 March 2013
Acquisition of shares by the Trust
01 July 2013
31 December 2013
31 December 2013
25 February 2014
Forfeit of shares on termination of employment
Transfer of shares to members of the Exempt
Employee Share Plan
Shares provisionally forfeited but not yet
de-allocated by the Trustee
Unallocated shares held by the Trustee
Balance
Shares vested
03 March 2014 to 10 June 2014
Acquisition of shares by the Trust
01 August 2014 to 16 August 2014
Forfeit of shares on termination of employment
31 December 2014
Shares provisionally forfeited but not yet
de-allocated by the Trustee
Unallocated shares held by the Trustee
31 December 2014
Balance
Number of
shares
634,252
(70,260)
77,003
(23,520)
$’000
4,171
(388)
842
(193)
(13,927)
(160)
(36,740)
64,925
631,733
(71,735)
102,883
(5,219)
(126,777)
131,093
661,978
(179)
372
4,465
(457)
1,168
(52)
(763)
815
5,176
(c) Dividend reinvestment plan
During 2006, the Company activated its Dividend Reinvestment Plan under which holders of ordinary shares may elect to have all or part of
their dividend entitlements satisfied in ordinary shares rather than by being paid in cash.
InvoCare Annual Report 2014 91
Note 26: Reserves and Retained Profits
(a) Reserves
Share-based payments reserve
Hedging reserve – cash flow hedge reserve
Foreign currency translation reserve
Movements:
Share-based payments reserve
Balance at the beginning of the year
Deferred employee share plan expense
Vesting of deferred employee share plan shares
Balance at the end of the year
Hedging reserve
Balance at the beginning of the year
Revaluation to fair value – gross
Deferred tax
Balance at the end of the year
Foreign currency translation reserve
Balance at the beginning of the year
Currency translation differences
Balance at the end of the year
(b) Retained profits
Movements in retained profits were as follows:
Balance at the beginning of the year
Net profit for the year
Dividends paid during the year
Balance at the end of the year
2014
$’000
2013
$’000
4,020
(4,071)
6,807
6,756
3,142
1,335
(457)
4,020
(3,989)
(130)
48
(4,071)
5,270
1,537
6,807
3,142
(3,989)
5,270
4,423
2,504
1,026
(388)
3,142
(6,564)
3,347
(772)
(3,989)
940
4,330
5,270
32,636
54,515
(38,784)
48,367
21,173
48,869
(37,406)
32,636
(c) Nature and purpose of reserves
(i) Share-based payments reserve
The share-based payments reserve is used to recognise the expensed portion of shares granted to employees under the terms of the
Australian Deferred Employee Share Plan.
(ii) Hedging reserve – cash flow hedge reserve
The hedging reserve is used to record gains or losses on hedging instruments that are cash flow hedges which are recognised directly in
equity. Amounts are recognised in profit and loss when the associated hedged transaction affects the profit and loss.
(iii) Foreign currency translation reserve
Exchange differences arising on translation of the foreign controlled entities and from the hedging of the net investment in foreign operations
are taken to the foreign currency translation reserve as set out in Notes 1(d) and 1(s). The reserve is recognised in the profit and loss when
the net investment is sold.
92
Notes to the Financial Statements continuedFor the year ended 31 December 2014
Note 27: Non-controlling Interests
Reconciliation of non-controlling interests in controlled entities:
Share capital
Retained earnings
Balance at the beginning of the year
Add share of operating earnings
Less dividends paid
Closing balance of retained earnings
Reserves
Balance at the end of the year
Note 28: Capital and Leasing Commitments
(a) Operating lease commitments
Non-cancellable operating leases contracted for at the reporting date but not capitalised in the
financial statements:
Payable – minimum lease payments
–
–
–
not later than 12 months
between 12 months and five years
greater than five years
2014
$’000
2013
$’000
800
346
112
(203)
255
99
800
252
130
(36)
346
99
1,154
1,245
2014
$’000
2013
$’000
10,095
22,148
12,447
44,690
10,006
21,879
14,814
46,699
Non-cancellable operating leases contracted for at the reporting date but not capitalised in the financial statements include the following:
Not later than 12 months
Between 12 months and five years
Greater than five years
Property
$’000
Equipment
$’000
9,714
21,886
12,447
44,047
381
262
–
643
Total
$’000
10,095
22,148
12,447
44,690
The Group leases premises, motor vehicles and sundry office equipment under non-cancellable operating leases with terms generally from
one to five years. The Rookwood Crematorium lease expires in 2025. The Great Southern Garden of Remembrance lease expires in 2047
with an option to renew for a further 50 years.
InvoCare Annual Report 2014 93
Note 28: Capital and Leasing Commitments continued
(b) Finance lease commitments
Non-cancellable finance leases in respect of motor vehicles contracted for at the reporting date and
capitalised in the financial statements:
Payable – minimum lease payments
–
–
not later than 12 months
between 12 months and five years
(c) Capital expenditure commitments
Capital expenditure commitments contracted or conditionally contracted at the reporting date but not
recognised as liabilities payable:
Building purchase
Building extensions and refurbishments – within one year
Plant and equipment purchases – within one year
(d) Other expenditure commitments
Documentary letters of credit outstanding at balance date payable:
– within one year
Note 29: Business Combinations
2014
$’000
2013
$’000
2
–
2
–
1,099
2,162
11
2
13
4,085
48
1,398
68
129
Charles Crawford and Sons
(a) Summary of acquisition
On 15 December 2014, a subsidiary, InvoCare Australia Pty Limited, completed the acquisition of the funeral business assets of Charles
Crawford and Sons (“Charles Crawford”) which has operated in the Melbourne market since 1987.
Provisional accounting for this acquisition has been completed as at 31 December 2014.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
(b) Purchase consideration
Purchase consideration
Cash paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer (c) below):
Goodwill
$’000
2,103
2,103
1,247
856
The goodwill recognised is attributable to the workforce and the profitability of the acquired business. It will not be deductible or tax purposes.
(c) Assets acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Inventories
Prepayments
Property, plant and equipment
Brand name
Deferred tax liabilities
Net identifiable assets acquired
Fair Value
$’000
17
3
1,280
48
(101)
1,247
The acquired business contributed revenues of $73,000 and after tax profit of $23,000 to the Group for the period from 15 December 2014
to 31 December 2014. If the acquisition had occurred on 1 January 2014, consolidated revenue for the year ended 31 December 2014
would have increased by approximately $1,211,000 and profit after tax by approximately $165,000.
94
Notes to the Financial Statements continuedFor the year ended 31 December 2014
Note 29: Business Combinations continued
Macera Crematorium, Inc
(a) Summary of acquisition
On 26 November 2014, a subsidiary, InvoCare USA, Inc., completed the acquisition of the crematorium business assets of Macera
Crematorium, Inc (“Macera”) which has operated in the Santa Ana, California market in the United States since 1991.
Provisional accounting for this acquisition has been completed as at 31 December 2014.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
(b) Purchase consideration
Purchase consideration
Cash paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer (c) below):
Goodwill
$’000
2,162
2,162
703
1,459
The goodwill recognised is attributable to the expected synergy benefits following the Group’s entry into a new market. It will not be
deductible for tax purposes.
(c) Assets acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Property, plant and equipment
Provisions
Net identifiable assets acquired
Fair Value
$’000
707
(4)
703
The acquired business contributed revenues of $79,000 and after tax profit of $4,000 to the Group for the period from 26 November 2014
to 31 December 2014. If the acquisition had occurred on 1 January 2014, consolidated revenue for the year ended 31 December 2014
would have increased by approximately $547,000 and profit after tax by approximately $6,000.
Tilton, Opie & Pattinson Funeral Services
The funeral business assets of Tilton, Opie & Pattinson Limited were acquired in 2013.
Included in the purchase contract was a $46,000 retention payment which was paid in 2014.
Resthaven Funeral Services
The funeral business assets of Resthaven Funeral Services were acquired in 2013.
Included in the purchase consideration was $324,000 in future payments to be paid if predetermined revenue targets are achieved in each
of the next five calendar years. In early 2015 a payment totalling $95,000 of the $324,000 in future payments will be made.
Tuckers Funeral & Bereavement Services
Tuckers Funeral & Bereavement Services Pty Ltd and Geelong Mortuary Transfer Services Pty Ltd were acquired in December 2012.
Included in the purchase consideration was $2,100,000 in future payments to be paid if predetermined revenue targets are achieved in
each of the next three calendar years. The predetermined revenue target was achieved in 2013 and as a result $574,000 of the $2,100,000
in future payments was paid in 2014. The predetermined revenue target was also achieved in 2014 and as a result $700,000 of the
$2,100,000 in future payments will be paid in early 2015.
InvoCare Annual Report 2014 95
Note 30: Contingent Liabilities and Contingent Assets
The Group had contingent liabilities at 31 December 2014 in respect of bank guarantees given for leased
premises of controlled entities to a maximum of:
1,088
1,221
For information about the deed of cross guarantees given by InvoCare Limited, InvoCare Australia Pty Limited, InvoCare (Singapore) Pty
Limited, Bledone Pty Ltd and Bledisloe Australia Pty Ltd, refer to Note 32.
No liability was recognised by the consolidated entity in relation to the guarantees as the fair value of the guarantees is immaterial.
Note 31: Cash Flow Information
2014
$’000
2013
$’000
Reconciliation of cash flow from operations with profit from ordinary activities after income tax
Profit from ordinary activities after income tax
Non-cash items in profit from ordinary activities
Depreciation, amortisation and impairment
Reversal of impairment loss
Share-based payments expense
Loan establishment costs
Imputed interest from deferred purchase consideration
Net (gain)/loss on disposal of property, plant and equipment
Unrealised (gain)/loss on prepaid contracts
Other prepaid contract movements
Business acquisition costs classified in investing activities
Share of net loss of an associate
Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in deferred selling expenses
Increase/(decrease) in trade and other payables
Increase/(decrease) in deferred revenue
Increase/(decrease) in income taxes payable
Increase/(decrease) in deferred taxes
Increase/(decrease) in provisions
2014
$’000
2013
$’000
54,515
48,869
21,187
(2,600)
1,596
366
91
(334)
(10,915)
186
1,215
525
19,487
(4,900)
1,148
589
113
(2,972)
(1,590)
325
537
300
(2,954)
(3,204)
(676)
(326)
1,665
2,615
(583)
3,520
2,660
71,753
(275)
(382)
8,464
3,009
4,730
253
(2,285)
72,216
96
Notes to the Financial Statements continuedFor the year ended 31 December 2014
Note 32: Deed of Cross Guarantee
InvoCare Limited, InvoCare Australia Pty Limited and InvoCare (Singapore) Pty Limited entered into a Deed of Cross Guarantee on 11
December 2006 under which each company guarantees the debts of the others. Effective from 15 June 2011 Bledone Pty Ltd and
Bledisloe Australia Pty Ltd became parties to this Deed of Cross Guarantee. By entering into the deed, the wholly-owned entities have been
relieved from the requirement to prepare a Financial Report and Directors’ Report under Class Order 98/1418 (as amended) issued by the
Australian Securities and Investments Commission.
The above companies represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the Deed of
Cross Guarantee that are controlled by InvoCare Limited, they also represent the “Extended Closed Group”.
Set out below is a consolidated income statement, statement of comprehensive income, summary of movements in consolidated retained
earnings and balance sheet for the year ended 31 December 2014 of the Closed Group.
(a) Consolidated income statement, statement of comprehensive income, and a summary of movements in consolidated
retained profits of the Closed Group
Consolidated income statement of the Closed Group
Revenue from continuing operations
Finished goods and consumables used
Employee benefits expense
Employee related and on-cost expenses
Advertising and public relations expenses
Occupancy and facilities expenses
Motor vehicle expenses
Other expenses
Depreciation, impairment and amortisation expenses
Reversal of impairment loss
Finance costs
Interest income
Net gain/(loss) on prepaid contracts
Acquisition costs
Inter-segment revenue
Share of net loss of associate
Net gain/(loss) on disposal of non-current assets
Profit before income tax
Income tax expense
Profit for the year
Changes in the fair value of cash flow hedges, net of tax
Changes in foreign currency translation reserve, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Summary of movements in consolidated retained profits of the Closed Group
Retained profits at the beginning of the financial year
Profit for the year
Dividends paid
Retained profits at the end of the financial year
2014
$’000
2013
$’000
339,301
323,264
(94,809)
(84,014)
(20,683)
(12,082)
(20,648)
(7,381)
(14,025)
85,659
(14,956)
600
(13,113)
672
10,915
(482)
2,073
(525)
322
71,165
(18,616)
52,549
212
(227)
(15)
52,534
37,298
52,549
(38,784)
51,063
(90,617)
(78,668)
(18,770)
(10,865)
(20,309)
(6,829)
(13,056)
84,150
(15,644)
4,900
(14,683)
606
1,892
(273)
1,943
(300)
217
62,808
(15,809)
46,999
2,140
(3,207)
(1,067)
45,932
27,705
46,999
(37,406)
37,298
InvoCare Annual Report 2014 97
Note 32: Deed of Cross Guarantee continued
(b) Balance sheet of the Closed Group
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid contract funds under management
Property held for sale
Deferred selling costs
Total current assets
Non-current assets
Trade and other receivables
Shares in subsidiaries
Property, plant and equipment
Prepaid contract funds under management
Intangible assets
Deferred selling costs
Equity accounted investments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Prepaid contract liabilities
Deferred revenue
Provisions for employee benefits
Total current liabilities
Non-current liabilities
Trade and other payables
Long-term borrowings
Derivative financial instruments
Deferred tax liabilities
Prepaid contract liabilities
Deferred revenue
Provisions for employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits/(Accumulated losses)
Total equity
98
2014
$’000
2013
$’000
1,011
33,082
20,128
32,997
2,519
1,138
90,875
44,578
130,704
246,936
367,970
11,688
8,203
2,423
812,502
903,377
31,376
613
7,051
33,554
7,588
10,508
90,690
–
193,500
4,864
28,770
359,995
42,818
2,165
632,112
722,802
180,575
3,080
31,996
19,385
28,991
–
1,039
84,491
12,933
185,477
238,607
328,435
11,048
7,972
4,705
789,177
873,668
28,046
1,342
7,666
28,631
6,925
11,883
84,493
29,118
190,870
4,437
24,443
331,041
40,915
1,914
622,738
707,231
166,437
131,682
132,393
(2,170)
51,063
(3,254)
37,298
180,575
166,437
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 33: Events after the Balance Sheet Date
No significant subsequent events have occurred since 31 December 2014.
Note 34: Related Party Transactions
(a) Parent entity
The ultimate parent entity within and for the Group is InvoCare Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in Note 16.
(c) Directors and key management personnel
Disclosures relating to directors and key management personnel are set out in Note 7.
(d) Transactions with related parties
2014
$
2013
$
Transactions with other related parties
Contributions to superannuation funds on behalf of employees
7,513,557
7,091,636
(e) Guarantees and other matters
Under the terms of common terms deed executed on 20 December 2013, InvoCare Limited and its material wholly-owned entities (the
“Guarantors”) have individually guaranteed to the financiers the due and punctual payment in full of any liabilities or obligations under the
debt facilities provided under the terms of individual Facility Agreements. The Guarantors have also indemnified the financiers against any
loss or damage suffered by the financiers arising from any failure by a borrower or any Guarantor to satisfy the obligations.
Under Australian income tax consolidation legislation, InvoCare Limited assumes responsibility for the income tax payable by the
consolidated Australian tax group comprising InvoCare Limited and its wholly-owned entities. A Tax Sharing and Funding Agreement (“TSA”)
between InvoCare Limited and its wholly-owned Australian entities covers the funding, accounting and calculation of the tax liability for
each individual entity, and also caters for entities joining and exiting the group. In accordance with the terms of the TSA, InvoCare Australia
Pty Limited makes tax payments on behalf of InvoCare Limited and receives reimbursement through the intercompany loan account for
amounts paid except for the tax allocated to that entity.
Note 35: Parent Entity Financial Information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts.
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
Contributed equity
Reserves
Share-based payments
Hedging reserve – cash flow hedge reserve
Foreign currency translation reserve
Retained earnings
Total shareholders’ equity
Profit for the year after tax
Total comprehensive income for the year
2014
$’000
2013
$’000
75
368,240
8,254
174,791
25
372,632
9,529
174,231
131,682
132,393
4,020
(3,833)
837
60,743
193,449
32,615
34,542
3,142
(4,045)
–
66,911
198,401
44,311
46,997
InvoCare Annual Report 2014 99
Note 35: Parent Entity Financial Information continued
(b) Contingent liabilities of the parent entity
2014
$’000
2013
$’000
The parent entity had contingent liabilities at 31 December 2014 in respect of bank guarantees given for
leased premises of controlled entities to a maximum of:
1,088
1,221
No liability was recognised by the parent entity or the consolidated entity in relation to the guarantees as the fair value of the
guarantees is immaterial.
(c) Contractual commitments for the acquisition of property, plant or equipment
The parent entity has no contractual commitments for the acquisition of property, plant or equipment at 31 December 2014
(31 December 2013: Nil).
(d) Tax consolidation legislation
InvoCare Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation from 1 January 2004.
The accounting policy in relation to this legislation is set out in Note 1(g).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing and funding agreement
which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head
entity InvoCare Limited.
This agreement was updated on 5 June 2007 and provides that the wholly-owned entities will continue to fully compensate InvoCare
Limited for any current tax payable assumed and be compensated by InvoCare Limited for any current tax receivable and deferred tax
assets relating to unused tax losses or unused tax credits that are transferred to InvoCare Limited under the tax consolidation legislation.
The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial year. InvoCare Australia Pty Limited, as permitted by the tax funding
agreement, acts on behalf of InvoCare Limited for the purpose of meeting its obligations to make tax payments, or receive refunds, and
reimburses, or is compensated by, that entity through the intercompany loan account for amounts of tax paid, or received, except for the
tax allocated to that entity.
Note 36: Economic Dependence
The parent entity depends on dividend and interest income from, and management fees charged to, its controlled entities to source
the payment of future dividends and fund its operating costs and debt service obligations as borrower under the bank loan facility
agreements. The parent entity’s financial position is sound, notwithstanding a net current liability situation being shown in the balance
sheet. Adequate cash resources are available to enable it to meet its obligations as and when they fall due, through either drawing on
unused finance facilities, which at the reporting date amounted to $30,450,000 as outlined in Note 2(c), or by on-demand repayment
of intercompany advances.
100
Notes to the Financial Statements continuedFor the year ended 31 December 2014 Note 37: Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
(i) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1(p). The
recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use
of assumptions. Refer to Note 19 for details of these assumptions and the potential impact of changes to the assumptions.
(ii) Estimated impairment of other non-financial assets and cash-generating units
The Group annually considers if events or changes in circumstances indicate that the carrying amount of other assets or cash-generating
units may not be recoverable. Similarly, at each reporting date, assets or cash-generating units that suffered a previous impairment are
reviewed for possible reversals of the impairment. The recoverable amounts are determined based on value-in-use calculations which
require the use of assumptions. Refer to Notes 17 and 18 for details of these assumptions.
(iii) Timing of recognition of deferred plaque and miscellaneous merchandise revenue
Prepaid cemetery/crematorium plaque and miscellaneous merchandise sales are currently brought to account over an assumed 15-year
period. Unredeemed merchandise sales (included within deferred revenue on the balance sheet) total $41.4 million at 31 December 2014
(2013: $39.2 million).
The 15-year period is based on the actuarially assessed average period between a customer entering into a prepaid funeral plan and the
contract becoming at-need. The actual history of a prepaid cemetery/crematorium contract may differ from the profile of a prepaid funeral
plan; however, in the absence of more specific data being available, the funeral data has been applied.
The average 15-year period is an assumption only and therefore subject to uncertainty. It is possible that there will remain unperformed
contracts at the end of the 15-year amortisation period, yet all revenue will have been recognised. Offsetting this is the likelihood that
contracts performed during the 15-year period will have unrecognised revenue.
Actual redemptions information is being collated for a sample of sites in order to determine a more accurate historical pattern of cemetery/
crematorium prepaid sale redemptions. The information collated to date suggests there is no material misstatement of revenue using the
assumed 15 years period. The impact of recognising revenue over five years less (or five years more) than 15 years would be to increase
annual revenue by approximately $2.5 million (decrease by $1.2 million).
Note 38: Company Details
InvoCare Limited is a company limited by shares, incorporated and domiciled in Australia.
The registered office and principal place of business of the Company is:
Level 4, 153 Walker Street
North Sydney NSW 2060
Note 39: Authorisation of the Financial Report
This financial report was authorised for issue by the directors on 17 February 2015. The Company has the power to amend and
reissue this report.
InvoCare Annual Report 2014 101
Directors’ Declaration
In the directors’ opinion:
(a) the financial statements and notes set out on pages 52 to 101 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
(ii) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 31 December 2014 and of their
performance for the financial year ended on that date; 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; and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified
in Note 32 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross
guarantee described in Note 32.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Richard Fisher
Director
Sydney
17 February 2015
Andrew Smith
Director
102
Independent Auditor’s Report
to the members of InvoCare Limited
Report on the financial report
We have audited the accompanying financial report of InvoCare Limited (the company), which comprises the consolidated balance sheet as
at 31 December 2014, and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting
policies, other explanatory notes and the directors’ declaration for the InvoCare Group (the consolidated entity). The consolidated entity
comprises the company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors
also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply
with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian
Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and
perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of InvoCare Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2014 and of its performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; and
(b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1.
InvoCare Annual Report 2014 103
Independent Auditor’s Report continued
to the members of InvoCare Limited
Report on the Remuneration Report
We have audited the remuneration report included in pages 38 to 49 of the directors’ report for the year ended 31 December 2014. The
directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A
of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of InvoCare Limited for the year ended 31 December 2014 complies with section 300A of the
Corporations Act 2001.
Matters relating to the electronic presentation of the audited financial report
This auditor’s report relates to the financial report and remuneration report of InvoCare Limited (the company) for the year ended
31 December 2014 included on InvoCare Limited’s website. The company’s directors are responsible for the integrity of the InvoCare
Limited website. We have not been engaged to report on the integrity of this website. The auditor’s report refers only to the financial
report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked
to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic
data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the
information included in the audited financial report and remuneration report presented on this website.
PricewaterhouseCoopers
Brett Entwistle
Partner
Sydney
17 February 2015
104
Shareholder Information
Shares and options as at 25 March 2015
Shares on issue
Options on issue
Distribution of shareholders as at 25 March 2015
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Number
110,030,298
Nil
Number of
shareholders
Number of
shares
Percentage
%
5,326
6,821
1,333
668
38
2,919,343
16,823,147
9,890,268
14,108,826
66,288,714
2.65%
15.29%
8.99%
12.82%
60.25%
14,186
110,030,298
100.00%
There were 185 holders of less than a marketable parcel of ordinary shares (being 37 based on a price of $13.25 on 25 March 2015) who
hold a total of 1,708 ordinary shares.
Equity security holders
Largest 20 holders of ordinary shares at 25 March 2015
1. HSBC Custody Nominees (Australia) Limited
2. National Nominees Limited
3. J P Morgan Nominees Australia Limited
4. Citicorp Nominees Pty Limited
5. HSBC Custody Nominees (Australia) Limited (Nt-Comnwlth Super Corp A/C)
6. Argo Investments Limited
7. Milton Corporation Limited
8. National Nominees Limited (Db A/C)
9. BKI Investment Company Limited
10. Australia Foundation Investment Company Limited
11. BNP Paribas Nominees Pty Ltd (Drp)
12. Australian United Investment Company Limited
13. AET SFS Pty Ltd (Invocare Share Plans)
14. UBS Wealth Management Australia Nominees Pty Ltd
15. UCA Growth Fund Limited
16. Mr Richard Hugh Davis
17. Gwynvill Trading Pty Ltd
18. Mirrabooka Investments Limited
19. Warbont Nominees Pty Ltd (Accumulation Entrepot A/C)
20. Netwealth Investments Limited (Wrap Services A/C)
Total for top 20
Substantial holders
Substantial holders in the Company as at 25 March 2015 are set out below:
JCP Investment Partners Ltd
Mondrian Investment Partners Limited
National Australia Bank Limited Group
Voting rights
The voting rights attaching to each class of security are set out below:
Number of
shares
Percentage
%
18,912,166
12,108,916
10,989,020
4,580,399
2,611,842
2,082,191
1,865,903
1,775,052
1,358,474
1,150,000
1,084,721
1,000,000
924,989
665,597
500,000
487,439
415,643
360,000
342,342
329,005
63,543,699
17.19%
11.01%
9.99%
4.16%
2.37%
1.89%
1.70%
1.61%
1.23%
1.05%
0.99%
0.91%
0.84%
0.60%
0.45%
0.44%
0.38%
0.33%
0.31%
0.30%
57.75%
Number of
shares held
Percentage
%
14,363,249
8,542,485
6,757,884
13.05%
7.76%
6.14%
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.
InvoCare Annual Report 2014 105
InvoCare Locations
Contemporary – Australia and New Zealand
New South Wales
Queensland
Victoria
South Australia
New Zealand
Blackwell Funerals
(est 1940)
Aberfoyle Park
Glenside
Paradise
Payneham
Prospect
Rosewater
South Brighton
Torrensville
Tasmania
Turnbull Family
Funerals (est 1936)
North Hobart
New Zealand
South Island
John Rhind Funeral
Directors (est 1881)
Christchurch
Kaiapoi
Academy Funeral
Services (est 1982)
Christchurch
Geoffrey T Sowman
(est 1869)
Blenheim
Sowman Memorials
Blenheim
Fraser Lawrence
Memorials
Christchurch
Le Pine including
Le Pine Heritage
(est 1891)
Altona
Box Hill
Camberwell
Croydon
Dandenong
Eltham
Ferntree Gully
Footscray West
Glen Waverley
Greensborough
Healesville
Ivanhoe
Kew East
Lilydale
Mordialloc
Oakleigh
Pakenham
Thornbury
Le Pine Asian Funerals
Glen Waverley
West Footscray
W D Rose (est 1884)
Brighton
Burwood
Cheltenham
Joseph Allison
(est 1853)
Brunswick
Essendon
Other Providers
Mulqueen Funerals
(est 1932)
Coburg
Southern Cross
(est 1998)
Noble Park
Tuckers Funeral &
Bereavement Service
(est 1883)
Geelong West
Grovedale
Highton
Lara
Werribee Funerals
Werribee
Charles Crawford
& Son
Melton
George Hartnett
Funerals
(est 1947)
Albany Creek
Cleveland
Holland Park
Redcliffe
Sandgate
Wynnum
Metropolitan Funerals
(est 1941)
Aspley
Cleveland
Mt Gravatt
Petrie
Redcliffe
Southport
Springwood
Toowong
Wynnum
Other Providers
Cannon & Cripps
(est 1886)
Kelvin Grove
Drysdale Funerals
(est 1983)
Nambour
Tewantin
Somerville Funerals
(est 1932)
Nerang
Robina
Southport
City Funeral Services
(est 1959)
Mackay
Gatton Funerals
(est 1983)
Gatton
Hiram Philp Funerals
(est 1903)
Toowoomba
Mackay Funerals
(est 1884)
Mackay
Burkin Svendsens
(est 1884)
Cairns
Laidley Funeral Services
(est 1995)
Beaudesert
Beaudesert Funeral
Services (est 1980)
Beaudesert
North Island
Forrest Funeral
Services (est 1978)
Browns Bay (Auckland)
Orewa (Auckland)
Fountain’s Funeral
Services (est 1956)
Papakura (Auckland)
Manurewa (Auckland)
Sibuns Funeral
Directors (est 1913)
Remuera (Auckland)
H Morris Funerals
(est 1933)
Northcote (Auckland)
Lychgate Funeral
Home (est 1876)
Wellington
Johnsonville
Karori
Resthaven Funerals
(est 2000)
Manurewa (Auckland)
Howick (Auckland)
Gee & Hickton
(est 1946)
Lower Hutt
Upper Hutt
Akatarawa
Crematorium
Guardian North City
(est 1966)
Porirua (Wellington)
James R Hill
(est 1965)
Hamilton
Pellows Funeral
Directors (est 1963)
Hamilton
Elliotts Funeral
Services (est 1967)
Tauranga
Mt Maunganui
Kati Kati
Beth Shan Funeral
Directors (est 1977)
Napier
Cleggs Funeral
Services (est 1919)
Hawera
Vospers (est 1933)
New Plymouth
Wairarapa Funeral
Services (est 1938)
Masterton
Guardian Funeral
Providers
Guardian Funerals
Ballina
Bankstown
Blacktown
Bondi Junction
Burwood
Campbelltown
Casino
Chatswood
Cremorne
Frenchs Forest
Hurstville
Leppington
Lidcombe
Lismore
Merrylands
Minchinbury
North Ryde
Parramatta
Rockdale
Warrawee
Hansen & Cole
Funerals
(est 1936)
Bulli
Kembla Grange
Wollongong
J W Chandler Funerals
(est 1885)
Richmond
Windsor
Boland Funerals
(est 1962)
Maroubra
Tobin Brothers
Funerals
(est 1946)
Queanbeyan
Australian Capital
Territory
Tobin Brothers
Funerals
(est 1946)
Belconnen
Kingston
Tuggeranong
Other Providers
Allan Drew Funerals
(est 1985)
Castle Hill
Rouse Hill
Ann Wilson Funerals
(est 1995)
Dee Why
Mona Vale
David Lloyd Funerals
(est 1885)
Adamstown
Belmont
Beresfield
Toronto
Liberty Funerals
(est 1994)
Chatswood
Granville
Universal Chung Wah
(est 1955)
Chatswood
Fairfield
W N Bull
(est 1892)
Newtown
Parramatta
Western
Australia
Purslowe Funerals
(est 1907)
Mandurah
Midland
North Perth
South Fremantle
Victoria Park
Wangara
Other Providers
Oakwood Funerals
(est 1999)
Booragoon
Rockingham
Chipper Funerals
(est 1889)
Mandurah
Myaree
Rockingham
Subiaco
Christian Funerals
(est 1978)
Maylands
106
New South Wales
Queensland
Victoria
South Australia
Western Australia
Simplicity Funerals (est 1979)+
Balgowlah
Bankstown
Bateau Bay
Chatswood
Erina
Hornsby
Liverpool
Mascot
Miranda
Newcastle
Newtown
Buranda
Cairns*
Ipswich
Kedron
Logan
Miami
Parkwood
Strathpine
Sunshine Coast*
Bayswater
Carnegie
Frankston
Pascoe Vale
Reservoir
Sunshine
Werribee
Penrith
Randwick
Ryde
Smithfield
South Sydney*
Toukley East
Tweed Heads
Woy Woy
Wyong
Australian Capital
Territory
Canberra*
* Mobile Arranger + Incorporate Value Funerals
Black Forest
Brahma Lodge
Enfield
Gawler
Morphett Vale
Victor Harbor
Joondalup
Kelmscott
Mandurah
Osborne Park
South Perth*
Spearwood
New Zealand
Christchurch*
Grey Lynn (Auckland)
Nelson
New Lynn (Auckland)
Royal Oak (Auckland)
Wellington*
New South Wales
Queensland
Victoria
South Australia
Western Australia
White Lady Funerals (est 1987)
Hillcrest
Glenside
Plympton
Ashmore
Cairns
Caloundra
Chelmer
Clayfield
Kelvin Grove
Morningside
Tanah Merah
Warana
Caulfield South
Burwood
Doncaster
Epping
Heathmont
Heidelberg
Mornington
North Essendon
Rosebud
South Melbourne
Operating as
Mareena Purslowe &
Associates Funerals
Fremantle
Midland
Subiaco
Willetton
Bankstown
Belmont
Bondi Junction
Camden
Charlestown
Charmhaven
Eastwood
Five Dock
Frenchs Forest
Liverpool
Manly
Mayfield
Mosman
Queanbeyan
Rockdale
Roseville
Sutherland
Tweed Heads
Wyoming
Narrabeen
Nelson Bay
Northern Rivers*
Pennant Hills
Penrith
Australian Capital
Territory
Belconnen
Kingston
Tuggeranong
Singapore
Singapore Casket Company (est 1920)
Simplicity Casket Company (est 2009)
Lavender Street
Mount Vernon
Sin Ming Drive
Cemeteries and Crematoria
New South Wales
Queensland
Albany Creek Memorial Park (est 1964)
Allambe Gardens Memorial Park (est 1968)
Great Southern Memorial Gardens (est 1997)
Mt Thompson Memorial Gardens (est 1934)
Toowoomba Garden of Remembrance (est 1966)
Bridgeman Downs
Nerang
Carbrook
Holland Park
Toowoomba
Castlebrook Memorial Park (est 1973)
Forest Lawn Memorial Park (est 1962)
Lake Macquarie Memorial Park (est 1994)
Lakeside Memorial Park (est 1964)
Lung Po Shan Information Centre (est 2000)
Newcastle Memorial Park (est 1936)
Northern Suburbs Memorial Gardens and
Crematorium (est 1933)
Pinegrove Memorial Park (est 1962)
Po Fook Shan Information Centre (est 2002)
Rookwood Memorial Gardens and
Crematorium (est 1925)
Tweed Heads Memorial Gardens (est 1971)
Rouse Hill
Leppington
Ryhope
Dapto
Haymarket
Beresfield
North Ryde
Minchinbury
Cabramatta
Rookwood
Necropolis
Tweed Heads
InvoCare Annual Report 2014 107
Tasmania
North Hobart
USA
Macera Crematory
San Diego
Glossary
AASB
ABS
ACCC
AIFRS
ASX
Australian Accounting Standards Board
Australian Bureau of Statistics
Australian Competition & Consumer Commission
The Australian equivalents to International Reporting Standards for annual reporting
periods beginning on or after 1 January 2005
Australian Securities Exchange which is the operating brand of ASX Limited
ASX Corporate Governance
Principles and Recommendations
The eight essential corporate governance principles and best practice recommendations
of the ASX Corporate Governance Council 3rd Edition 2014
Cemetery
CGU
Condolence Lounge
Constitution
Crematorium
Crypts
DRP
EBITDA
EEO
EPS
A place for burials and memorialisation
A cash-generating unit which is the smallest identifiable group of assets that independently
generates cash inflows
A facility for family and friends to gather at after the funeral service – usually offering
a catering service
The Constitution of the Company
A place for cremations and memorialisation
Above ground burial facilities
Dividend reinvestment plan
Earnings before interest, tax, depreciation and amortisation
Equal Employment Opportunity
Earnings per share
Funeral Arrangement
The process in which the funeral service is planned and necessary documentation prepared
Funeral Home
The InvoCare location where a funeral can be arranged and where some services
can be conducted
Memorial or Memorialisation
The physical marker or tribute to the life of the deceased
Memorial Park
WH&S
Operating Earnings
Prepaid Cemetery and
Crematorium Services
An InvoCare location offering cremation, burial and memorialisation services
Work Health and Safety
Earnings before the net gain/(loss) on undelivered prepaid contracts, asset sales gains/
(losses), minority interests and any other unusual items as disclosed in the relevant
reconciliations.
Cemetery and crematorium services that have been arranged and paid for in advance
Prepaid Funeral Fund
The fund where prepaid funeral monies are held in trust until the funeral service is provided
Volume
A term that refers to the number of funeral services, burials and cremations performed
108
Personal details guide
For the benefit of our stakeholders, this guide enables you to record important personal information.
This will assist your family and funeral director to make arrangements ensuring everything is conducted
in accordance with your wishes.
Should you require assistance in completing it or further copies of the guide for other family members,
please call Guardian Plan on Freecall 1 800 PRE PLAN (1 800 772 7526)
Personal Information
Family name
Address
Date of birth
Place of birth (Town/City/State/Country)
If born overseas, year arrived in Australia
Occupation during working life
Given names
Postcode
Female
Male
Name and Address of Person Who I Would Like to Make Any Arrangements
(For instance, registering the death and contacting the funeral director, e.g. executor, solicitor, family member)
Name
Address
Funeral Director
(Funeral director you would like to conduct your service)
Name
Address
Next of Kin
This information is needed when the death is registered.
Name
Address
Executor of My Will
Executor will need certain financial information when applying for grant of probate.
Name
Address
Telephone
Telephone
Telephone
Telephone
Postcode
Postcode
Postcode
Postcode
Copy of My Will
Date of Will
Deposited with (Name and Address)
Solicitor
Name
Address
Family Doctor
Name
Address
Personal Documents
Birth Certificate
Location
Marriage Certificate
Location
Telephone
Telephone
Postcode
Postcode
Medicare Card
Card number (to be returned to Medicare office)
Centrelink Pension
Number
Type of pension
Veterans’ Affairs
Number
Passport
Name shown on passport
(Passport should be returned to passport office in your area, details at local Post Office)
Passport number
Expiry date
Driver Licence
Number
State of issue
Club or association memberships (Should be returned to appropriate organisation.
It may be that a claim can be made for unexpired memberships or mortality fund benefit.)
Family Details
Father’s surname
Usual occupation
Mother’s maiden surname
Usual occupation
Spouse surname
First names
First names
First names
Marriage Details (Please tick appropriate box(es))
Married
Divorced
Separated
Widowed
Never married
De facto
Details of Marriage(s)
First marriage (Place/City/Town/Country)
Age at date of marriage
Name of spouse (at date of marriage)
Second marriage (if applicable) (Place/City/Town/Country)
Age at date of marriage
Name of spouse (at date of marriage)
Children’s Details
(List all children in order of date of birth, including legally adopted, deceased (D), still born (SB), or if no children write “none”.)
First name
First name
First name
First name
Date of birth
Date of birth
Date of birth
Date of birth
Female
Female
Female
Female
Male
Male
Male
Male
Financial Information (Information below may be required by the executor of your Will.)
Bank account details
Bank name
Account numbers
Bank branch
Location of documents, books, statements
Building society/Financial institution
Building society/Financial institution name
Account numbers
Address
Income tax records
Tax File Number
Location of records
Deeds of property
Property address(es)
Location of records
Mortgage details
Location of records
Lender
Reference number
Address of lender
Life insurance policies
Location of records
Superannuation
Details
Stocks and shares
Location of records
Safe deposit box
Box location/number
Location of keys
Accountant
Name
Telephone
Address
Postcode
Car details
Registration number and state
Registration document location
Location of purchase receipt/H.P. details
Military Information (If applicable)
Branch of service
Date entered service
Date of discharge
Grade, rank or rating
Wars/Conflicts served
Service serial number
Place
Place
Additional Information
Historical information
Every individual is deserving of a meaningful obituary written in their memory. It is here that you may list those achievements and
accomplishments that have been of pride to you and your family that are not mentioned elsewhere in your “Personal details guide”.
Education
Name of primary school
Date attended from
Name of secondary school
Date attended from
Name of tertiary institution
Date attended from
Qualifications attained
to
to
to
Societies/Clubs
Memberships and positions held (include dates)
Other (including civic or public office held)
Special achievements (details of any special achievements or recognitions)
Medical History
This information is very important for your spouse, children and grandchildren. It is also suggested that
you keep an updated copy of your medical records for your family, as doctors often ask for it.
Special Instructions and Information
We suggest that you use these lines to keep our information current. We also recommend
that you always date these entries to avoid possible confusion later.
Person to be notified
Name
Relationship
Person to be notified
Name
Relationship
Person to be notified
Name
Relationship
Telephone
Telephone
Telephone
Corporate Information
InvoCare Limited
ABN 42 096 437 393
Directors
Richard Fisher (Chairman)
Andrew Smith (Managing Director
and Chief Executive Officer)
Christine Clifton (Non-executive Director)
Richard Davis (Non-executive Director)
Martin Earp (Executive Director)
Aliza Knox (Non-executive Director)
Roger Penman (Non-executive Director)
Gary Stead (Non-executive Director)
Company Secretary
Phillip Friery
Registered Office
Level 4, 153 Walker Street
North Sydney NSW 2060
Telephone: 02 9978 5200
Facsimile: 02 9978 5299
Website: ww w.invocare.com.au
Share Registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Toll free: 1300 854 911
Facsimile: 02 9287 0303
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 Securities Exchange
only. ASX code is IVC.
Auditors
PricewaterhouseCoopers
Darling Park Tower 2
201 Sussex Street
Sydney NSW 1171
Solicitors
Addisons Lawyers
Level 12
60 Carrington Street
Sydney NSW 2000
Anthony Harper Lawyers
Level 15, Chorus House
66 Wyndham Street
Auckland New Zealand
Bankers
Australia and New Zealand
Banking Group Limited
242 Pitt Street
Sydney NSW 2000
ANZ Bank New Zealand Limited
ANZ Centre
23–29 Albert Street
Auckland New Zealand
Commonwealth Bank of Australia
201 Sussex Street
Sydney NSW 2000
HSBC Bank Australia Limited
580 George Street
Sydney NSW 2000
The Hongkong and Shanghai
Banking Corporation
1 Queen Street
Auckland New Zealand
Westpac Banking Corporation
275 Kent Street
Sydney NSW 2000
Westpac New Zealand Limited
16 Takutai Square
Auckland New Zealand
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