ANNUAL REPORT
2015
www.invocare.com.au
Contents
1 Performance Highlights
10 Director’s Report
95
Independent Auditor’s Report
2 Chairman’s Message
24 Corporate Governance
97 Shareholder Information
4 Chief Executive Officer’s Review
6 Community Activities
8 Management Team
9
Financial Report
Statement
29 Remuneration Report
43 Auditor’s Independence
Declaration
94 Director’s Declaration
98
InvoCare Locations
100 Glossary
BC Corporate Information
Our key objective is to
provide families with the
highest standard of caring and
compassionate service. We want
to ensure families can celebrate
the lives of their loved ones, at
the same time honouring their
memory in a very considerate
and personal way.
Our major focus in 2015 was the
integration of our core values of
Collaboration, Accountability,
Responsiveness and Excellence
into all our teams – across our
global operations.
Performance highlights
The continued focus on key strategies in 2015 has seen
an 4.3% increase in operating EBITDA, following an
estimated increase in the number of deaths of 1% in
InvoCare’s key markets.
Revenue from
external customers
($ million)
4
.
6
3
4
0
.
3
1
4
4
.
5
8
3
13
14
15
4
.
9
4
2
.
6
5 4
.
2
4
Operating EBITDA
($ million)
4
.
5
0
1 1
.
1
0
1 1
.
5
9
13
14
15
0
.
8
3
5
.
6
3
5
.
4
3
Operating earnings
after tax ($ million)
Ordinary dividends
per share
(cents per share)
13
14
15
13
14
15
8
.
4
5
5
.
4
5
9
.
8
4
13
14
15
Profit after tax
attributable to
members ($ million)
The Jasmine Tea Flower
(Jasminum Grandiflorum)
The tea flower is significant to InvoCare’s core
values, and how they are infused across the
entire business.
InvoCare Annual Report 2015 1
Chairman’s Message
Review Confirms
Strategy
InvoCare has once again delivered a healthy
financial result for 2015 derived from
adherence to its proven business strategy.
The ongoing focus on the core strategic
growth pillars embodied in InvoCare’s
operational strategy enabled the company to
continue to grow. The strategy was reviewed
and reaffirmed by both the Board and
management during 2015.
greenfield developments. Additionally, and
importantly, the results give the company
the assurance that, subject to appropriate
disciplines, it has the capacity to pursue
new core markets of the kind currently being
investigated in the USA.
Operating earnings after tax grew by 6.9%
to $49.4 million for the year with a very
strong second half performance from the
core business operations. Statutory profit
after tax, which includes asset sale gains,
impairment charges, and the non-cash
impact of movements in prepaid contracts
funds under management and associated
liabilities, increased to $54.8 million.
In light of strong operating EBITDA to cash
conversion ratio, the Board recommended a
fully franked final dividend of 22.25 cents per
share. Total dividends for the year amounted
to 38 cents per share, an increase of 4.1%
on 2014. The 2015 dividends represent a
payout ratio of 85% 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 19% compound annual growth.
The financial results for 2015, building, as
they do, on the results of previous years,
confirm the integrity of the company’s
existing strategy. Those results also give
the company the confidence to continue
exploring the possibility of acquisitions
in its existing markets, albeit that those
possibilities might be more constrained than
in the past, and to identify opportunities for
Of course, this activity is sustained by the
company’s ongoing and core business.
The engagement of Martin Earp as the
company’s CEO has permitted it to review
those activities with the benefit, so to
speak, of a fresh pair of eyes. The strategic
review which Martin led late in the course
of the year identified ways in which those
business activities might be conducted
more profitably and the means by which the
company might secure a greater return from
its existing assets.
2015 saw a period of Board renewal with
Roger Penman, who had been on the Board
since 2005, standing down due to personal
circumstances. Roger has been replaced
by Joycelyn Morton, who joined the Board
during the year, and was appointed as Chair
of the Audit, Risk & Compliance Committee.
Aliza Knox also resigned from the Board
during the year as a result of competing
commitments. On behalf of the Board
and all shareholders I would like to thank
both Roger and Aliza for their significant
contributions to InvoCare.
On behalf of the Board and all shareholders,
I would like to thank all of the management
and staff of InvoCare for not only delivering
significant financial results but for all of the
2
other contributions which they made to
the company during 2015. As I observed
in last year’s annual report, 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 would also like to express the Board’s
thanks to the company’s shareholders
for their continued support. That support
is important to the Board as it seeks to
provide the company’s executive leadership
with guidance and encouragement as they
engage in, and go about, the delivery of both
substantial financial results to shareholders
and, equally importantly, care, understanding
and support to the company’s customers.
Richard Fisher AM
Chairman
Operating Earnings
Dividends
Cash conversion ratio
$49.4m
Operating earnings after tax
grew by 6.9% to $49.4 million
for the year.
4.1%
97%
Increase of total dividends for
the year to 38 cents per share.
Strong operating EBITDA to
cash conversion ratio.
Five year Financials
$’000
2015
2014
2013
2012
2011
Revenue from external customers
436,371
413,011
385,352
368,652
321,113
Operating EBITDA
Operating EBITDA margin
Operating earnings after tax*
Operating earnings per share (cents)
105,426
101,082
24.2%
49,366
45.1
24.5%
46,191
42.2
95,072
24.7%
42,498
38.9
93,026
25.2%
42,479
38.8
81,802
25.5%
36,406
34.5
Profit after tax attributable to members
54,844
54,515
48,869
44,479
27,012
Earnings per share (cents)
Dividend paid in respect of the financial year (cents)
50.1
38.00
49.8
36.5
44.7
34.5
40.6
34.0
25.6
29.75
Ungeared, tax free operating cash flow
102,618
104,721
105,170
86,416
75,120
Proportion of EBITDA converted to cash
Actual capital expenditure
Net debt
Operating EBITDA/Net interest (times)
Net debt/EBITDA (times)
Funeral homes (number)
Cemeteries and crematoria (number)
Employees (full-time equivalents)
Prepaid contract sales per 100 redemptions
97%
22,035
106%
26,665
110%
19,264
95%
92%
18,412
16,723
222,093
218,864
215,057
217,136
209,114
8.8
2.1
231
16
1,557
115
8.0
2.2
234
14
1,532
108
6.8
2.3
237
14
1,470
115
6.7
2.3
232
14
1,470
116
6.7
2.5
226
14
1,430
122
* 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 2015 3
Chief Executive Officer’s Review
Investing Today
for Future Returns
The 2015 results once again demonstrate
the fundamental strength of both the
business model and the markets that
we operate in. On a like-for-like basis
the sales revenue increased by 5.0%
and the EBITDA increased by 7.6%.
This underlying performance has
allowed investment into projects that
will position InvoCare to deliver strong
sustainable returns into the future.
4
4
Martin Earp
Chief Executive Officer
Summary of 2015
The overall performance of the business for
2015 met budgeted expectations and has
been delivered despite a lower than expected
number of deaths throughout the year.
The Australian business performed strongly
in all divisions. Total comparable business
sales for Australia ($373m) were up 4.8%
on the previous year whilst the EBITDA
($92.3m) was up 7.7% for the same period.
Margins increased to 24.7% (2014: 24.1%)
which was driven by an increased focus on
efficiency and cost control. The performance
of the cemeteries and crematoria division
was particularly pleasing with sales
increasing by 9.1%, driven by a move to a
more collaborative management approach
within the team.
The strong performance of Australia was
supported by Singapore which saw an
increase in sales of 8.2% (S$17.0m). Case
volume was up by 6% against an increase
in the number of deaths of 1.8%, which
increased market share to 10.3%.
Despite sales revenue being up 1.4% on the
previous year the overall EBITDA for New
Zealand comparable business declined by
2.6% (NZ$9.2m). This was due to increased
costs in personnel and advertising that were
built in on the assumption of a continuation of
the strong growth that was achieved in 2014.
The USA delivered a negative EBITDA of
US$2.9m which was US$0.9m greater
than expected for the first 10 months of
operation. However despite a difficult start
the performance of the US business is
beginning to generate momentum, and the
current net outlay of circa US$4m remains
within the investment parameters of the
original decision.
Key Drivers of Growth
People – The fundamental driver of
performance for InvoCare is our people.
They provide the highest levels of customer
service across all of our locations and it
is their dedication to the families that we
serve that sets InvoCare apart from other
companies. In order to formalise the values
that underpin the InvoCare culture, the
company has been rolling out a program of
promoting our core values through the CARE
program (Collaboration, Accountability,
Responsiveness and Excellence).
During the year the staff survey showed
a very high level of engagement, loyalty
and passion for both the industry and for
InvoCare. The Group Executive team will
be working with the broader team to further
embed and reinforce the CARE values into
everything we do at InvoCare.
Number of Deaths – The long term trend
for all core markets remains strong with the
continued increase in the number of deaths
set to continue, with the growth in death
numbers for Australia peaking at a growth
rate of 2.8% in 2034.
Market Share – InvoCare’s market
intelligence indicated that the market
share continues to remain strong in our
key markets (Australia 34%, NZ 34%, and
Singapore 10%). Market share increased
slightly in Australia and Singapore with a
small decline in New Zealand. It is however
recognised that improved market share from
existing assets is critical to the long term
performance of the business and a range of
initiatives are being rolled out in 2016 that will
seek to address this issue. A key part of this
change is to use data to inform decisions
and digital channels to improve customer
education on the key issues (including price)
when planning and organising a funeral.
Funeral Case Average – Funeral case
averages in the comparable business
increased across all regions (in local currency).
In Australia and New Zealand the case
average increased by 2.7%. In Singapore they
were again able to increase case average
without increasing headline price by focusing
on increasing the number and mix of services
provided to our customers.
Operational Efficiency – A focus on cost
helped InvoCare improve margins in Australia
and this will continue into 2016 and beyond.
New Zealand’s margin was negatively
impacted by increasing costs associated
with personnel and advertising and there will
be an increased focus on managing costs to
better align with actual sales in 2016.
Acquisitions – There were two acquisitions
that contributed to 2015 results. The
first was a funeral business in Victoria
(Charles Crawford and Sons) which whilst
completed in December 2014 contributed
to the increased performance in 2015. In
New Zealand InvoCare has acquired two
memorial parks in Christchurch (Harewood
and Canterbury Crematoria) in July 2015.
Acquisitions will continue to be an important
driver of growth for InvoCare, with the main
focus being on the markets of Melbourne,
Adelaide, Auckland and Singapore.
Prepaid Funerals – The percentage by
which new contracts exceeded redemptions
improved to 15%, whilst the performance
of undelivered prepaid funerals delivered a
$7.5m net pre-tax gain.
New Markets – Since 2013 InvoCare has
been seeking to take a long term approach
to identifying and developing new geographic
market that would provide significant
opportunity for growth. The key focus for this
over the last two years has been Southern
California where the number of deaths is
equivalent to InvoCare’s Australian market.
The company began operations in February
2015 and whilst the implementation of the
new business model has been challenging,
the performance of the USA business has
been steadily improving with case volume
growing throughout the year. By the end
of December the business had performed
over 350 funerals and in excess of 2,300
cremations. The challenge for 2016 will be
to build on the positive momentum in case
numbers and continue to refine and develop
the business model.
Strategic Review
During 2015 I have been able to spend time
getting to understand the business. I was
fortunate enough to have a four week hand-
over from Andrew Smith which allowed me
to visit all of our key markets with Andrew
and get his insights into the key strengths
of the business. Following on from this I
spent time with the Group Executive to
clarify past objectives and strategies, as well
as identifying the challenges that face the
business. I was then able to work through
these issues with the Board, and this has
allowed for alignment between Management
and the Board on the way forward.
This review concluded that no fundamental
change in strategy is required, but there is
potential to extract greater benefit from existing
assets. Specifically the review identified:
— Business fundamentals of the core
markets remain strong
— Greater potential for operational efficiencies
— Opportunity for market share
improvements from existing assets
— Opportunity to deliver more efficient
deployment of capital
— Acquisition opportunities still exist in
core markets
Out of this review the company is investing in
a number of projects to deliver shareholder
value in both the short and longer term. The
focus for these projects in 2016 is on capital
allocation, increasing revenue from existing
assets (market share and pricing), increased
efficiencies (business systems, processes
and organisational structure) and a network
and brand optimisation review to ensure our
product and locations remain relevant into
the future.
Outlook
The fundamentals of the business remain
strong and in the short term it should be
expected that the business will continue to
deliver the same level of growth in the key
metrics that it has done traditionally. In the
longer term the current investment into a
series of projects should deliver additional
value to shareholders over the coming years.
InvoCare Annual Report 2015 5
InvoCare continues to show support for important community
occasions and causes, in every area of our operations. It is an important
demonstration of our key corporate values.
2015 was no different. Of the countless opportunities taken by InvoCare
staff to support those around them, here are a three leading examples:
Anzac Day
InvoCare’s funeral brands in Australia and New Zealand, along
with cemeteries and crematoria locations in New South Wales and
Queensland, were profoundly moved by the 2015 Centenary of
Anzac. This marked the 100 years since soldiers from Australia and
New Zealand joined the First World War, through their beach landing
at Suvla Bay, on Turkey’s Gallipoli Peninsula.
Along with soldiers from the United Kingdom, India and Canada, the
Anzac forces charged the beaches on 25 April 1915, into the face
of well-established and well-supplied Turkish forces. The events of
that day have become immortalised in Australian and New Zealand
history, as well as in the national consciousness of the other
participating countries.
InvoCare shared this important anniversary with our friends in
the community, through activities such as creating eye-catching
Anzac-themed displays at various locations, sponsoring Anzac-
themed school essay competitions, donating flags to schools
and community groups, taking horses to visit residents at nursing
homes, hosting Anzac memorial services at aged care centres, and
by creating and distributing commemorative booklets on the military
traditions of Australia’s Anzac forces.
InvoCare staff also took part in the traditional Anzac Day Dawn
Services. InvoCare’s support also included some very practical
gestures, such as donating thousands of sprigs of rosemary and
wreaths for remembrance services, and providing transport for
veterans with mobility issues.
6
Winter Blanket Appeal
During winter 2015, a range of Contemporary funeral providers
across Australia assisted some of the most disadvantaged in our
community, and the organisations that support them, by holding a
blanket and winter goods donation drive.
Leading community organisations such as The Salvation Army,
Anglicare, and others were approached to receive the items, donated
by generous members of the public. Adding to the success of the
campaign was the commitment, from each Contemporary funeral
home, to match every blanket donation with one of their own –
doubling the warmth available to help those depending on assistance
to get through the winter months. Donated blankets and other items
found their way to vulnerable families, the homeless, as well as those
affected by drug addiction and mental illness.
Awareness of the campaign was raised through a multi-channel
approach, via press and radio advertising, newspaper editorials
and general news, window displays, social media, as well as by
promotion through our range of contacts in the community. The
results of this campaign proved this was a cause that resonated well
with the community and provided great assistance to the partnering
community organisations, in their support for vulnerable people
during the winter months.
The success of this campaign in 2015 means InvoCare Contemporary
funeral brands will continue with this activity in the future.
Participating funeral brands and the charities they are supporting include:
Queensland
VIC
City Funerals – CASA
(Community Accommodation and Support Agency)
WD Rose Funerals – Sacred Heart Mission St Kilda
(Winter clothing only)
Mackay Funerals – Mackay Drop In Centre
SA
Drysdale Funerals – The Salvation Army
Blackwell Funerals – St Vincent de Paul
George Hartnett Funerals – The Salvation Army
WA
Somerville Funerals – The Salvation Army
NSW
Guardian Funerals – The Salvation Army
Chipper Funerals – Anglicare
Oakwood Funerals – Anglicare
Moving Memorial Services
Helping families who are experiencing grief is central to everything
InvoCare does, yet the care and professional support provided by
brands and locations doesn’t end when the funeral is over.
Funeral brands and cemeteries and crematoria locations supported
grieving families several times throughout the year, by holding moving
and uplifting memorial services, as a reflection of our understanding
towards, and care for, those affected by grief.
These memorial services took place at important family-focused
times of year, such as Mother’s Day, Father’s Day and at Christmas.
Services were also held to support those with loved ones taken by
cancers of every kind, by heart disease, as well as those grieving the
loss of a baby or infant.
Each service is conducted with gentleness and grace, and included
such touches as the lighting of candles, the release of doves or
butterflies, and multi-media presentations.
InvoCare Annual Report 2015 7
Left to right: Mike Miller Chief Operating Officer InvoCare USA, Phillip Friery Chief Financial Officer and Company Secretary, Graeme Rhind Chief Operating Officer
InvoCare New Zealand, Greg Bisset Chief Operating Officer InvoCare Australia, Wee Leng Goh Chief Executive Officer Singapore, Martin Earp Chief Executive Officer,
Shelley Tate Group Executive People and Culture, Lachlan Sheldon Group Executive Capital Management, Keiron Humbler Group Executive Business Operations,
Fergus Kelly Chief Marketing Officer.
Management Team
Key to the success of InvoCare is its ability
to deploy operational excellence and
technical insights, as well as its ability
to combine the two, for the benefit of the
business, customers and its stakeholders.
From the management of locations, regions
and states, to the specialist functions that
give InvoCare its edge, a high performing
team of managers is an indispensable asset
to InvoCare’s success.
Voices of Success
Over the past year, CEO Martin Earp has
ensured that all of the geographical regions
InvoCare operates in are represented at the
highest level – with Mike Miller COO of InvoCare
USA adding his experience in operations to the
Group Executive team.
Further additions to the Group Executive team
made during 2015 and early 2016 recognise
the importance of the technical expertise
InvoCare is able to draw upon. Fergus Kelly
joined the Group Executive team as Chief
Marketing Officer, Shelley Tate as Group
Executive People and Culture, Lachlan Sheldon,
previously Group Financial Controller to Group
Executive Capital Management, and Keiron
Humbler has been brought on board to lead
a new Business Operation division that will
drive effective, efficient work practices that
are supported by the systems and processes
needed for improving performance.
All of these appointments were carefully
managed to ensure the highest standard of
candidates was matched to InvoCare’s current
operational requirements and future vision.
The Group Executive team meets regularly to
share information, assess opportunities, and
to respond to the challenges of InvoCare’s
operating environments.
8
Financial
Report
InvoCare Limited and Controlled
Entities Annual Financial Report
for the financial year ended
31 December 2015
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 16
February 2016. 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
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
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Summary of Significant Accounting Policies
Financial Risk Management
Segment Information
Revenue from Continuing Operations
Expenses
Income Tax
Key Management Personnel Disclosures
Share-based Payments
Remuneration of Auditors
Dividends
Earnings per Share
Cash and Cash Equivalents
Trade and Other Receivables
Inventories
Prepaid Contracts
Interests in Other Entities: Subsidiaries
Interests in Other Entities: Associates
Property, Plant and Equipment
Intangible Assets
Derivative Financial Instruments
Trade and Other Payables
Borrowings
Provisions for Employee Benefits
Current Liabilities expected to be settled in
twelve months
Contributed Equity
Reserves and Retained Profits
Non-controlling Interests
Capital and Leasing Commitments
Business Combinations
Contingent Liabilities and Contingent Assets
Cash Flow Information
Deed of Cross Guarantee
Events after the Balance Sheet Date
Related Party Transactions
Parent Entity Financial Information
Economic Dependence
Critical Accounting Estimates and Judgements
Company Details
Authorisation of the Financial Report
Note 25
Note 26
Note 27
Note 28
Note 29
Note 30
Note 31
Note 32
Note 33
Note 34
Note 35
Note 36
Note 37
Note 38
Note 39
Directors’ Declaration
Independent Auditor’s Report
10
24
29
43
44
45
46
47
48
49
49
55
62
63
64
65
67
68
71
72
72
73
73
73
74
75
76
77
79
80
80
80
81
81
82
83
84
84
86
87
88
89
91
91
92
93
93
93
93
94
95
InvoCare Annual Report 2015 9
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 2015. 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)
Christine Clifton
Richard Davis
Gary Stead
Martin Earp was appointed as a Director on 13 April 2015. He was
appointed Managing Director and Chief Executive Officer from
1 May 2015 and continues in those roles at the date of this report.
The Board did not renew Andrew Smith’s contract as Managing
Director and Chief Executive Officer which ended on 30 April 2015.
Joycelyn Morton was appointed as an independent Non-executive
Director on 19 August 2015 and is a Director at the date of this report.
Aliza Knox resigned from the Board of the Company effective
31 August 2015 and Roger Penman resigned from the Board of
the Company effective 15 December 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 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 $49,366,000 (2014:
$46,191,000) as reconciled on page 11. The consolidated after tax
profit of the Group attributable to shareholders was $54,844,000
(2014: $54,515,000). 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 22.25 cents per share payable on 8 April 2016. Total full year
dividends are 38.00 cents, being 1.50 cents or 4.1% higher than
2014. The full year dividend payout ratio is 85% (2014: 87%) of
operating earnings after tax.
Dividends to ordinary shareholders of the Company have been paid
or recommended as follows:
Interim ordinary dividend of 15.75 cents (2014: 15.75 cents) per fully paid share paid on 9 October 2015
17,330
17,330
Final ordinary dividend of 22.25 cents (2014: 20.75 cents) per fully paid share has been recommended by
directors on 16 February 2016 to be paid on 8 April 2016
Total ordinary dividends of 38.0 cents (2014: 36.5 cents)
24,482
22,827
41,812
40,157
2015
$’000
2014
$’000
All dividends are fully franked at the company tax rate of 30%.
The Dividend Reinvestment Plan (“DRP”) was available for the 2015 interim dividend and $14,855,000 (2014: $15,882,000) was paid in cash
and $2,475,000 (2014: $1,448,000) through the issue of 226,049 (2014: 131,414) shares purchased on market at $10.95 (2014: $11.02)
per share via the DRP. The shortfall in the DRP take-up was not underwritten in 2015 and shares were not issued at a discount. The DRP will
apply to the final 2015 dividend which is not being underwritten and no discount to the market price will apply.
10
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)
2015
$’000
2014
$’000
436,371
413,011
9,570
7,193
Change
$’000’s
23,360
2,377
(340,515)
(319,122)
(21,393)
105,426
101,082
4,344
24.2%
(20,180)
(14,786)
722
(70)
-
71,112
(21,746)
30.6%
49,366
24.5%
(19,187)
(15,483)
749
(1,215)
(525)
65,421
(19,230)
29.4%
46,191
(993)
697
(27)
1,145
525
5,691
(2,516)
3,175
45.1 cents
42.2 cents
2.9 cents
Net gain on undelivered prepaid contracts after tax (i)
5,269
7,641
(2,372)
Asset sales gain or (loss) after tax (i)
Impairment gain after tax (i)
Non-controlling interest
(6)
340
(125)
375
420
(112)
Net profit after tax attributable to ordinary equity holders of InvoCare
54,844
54,515
(381)
(80)
(13)
329
Basic earnings per share
Interim ordinary dividend per share
Final ordinary dividend per share
Total ordinary dividend per share
(i) Non-IFRS financial information.
50.1 cents
49.8 cents
0.3 cents
15.75 cents
15.75 cents
0.00 cents
22.25 cents
20.75 cents
1.50 cents
38.00 cents
36.50 cents
1.50 cents
%
5.7%
33.0%
6.7%
4.3%
(0.2%)
5.2%
(4.5%)
(3.6%)
(94.2%)
(100.0%)
8.7%
13.1%
1.2%
6.9%
6.9%
0.6%
0.6%
-
7.2%
4.1%
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 above 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 2015 11
Directors’ Report continued
Business model
Results overview
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.
Most pillars contributed positively to 2015 results as depicted in
the following table. More detail is provided throughout this report,
including in the Outlook section details of a review of the business
fundamentals during 2015.
Favourable demographics
Pricing/average contract values
Market share improvements
Prepaid contracts
New locations
Business acquisitions
ü
ü
ü
ü
ü
ü
Operating leverage improvement (comparable business) ü
Comparable business operating earnings after tax for 2015 was
up by 14.5% or $6.6 million to $53.3 million on 2014. The result
was underpinned by strong performances in both Australia and
Singapore.
Including the start-up in USA operations and new acquisitions in
Australia and New Zealand, operating earnings after tax for the
total Group was up by 6.9% or $2.0 million to $49.4 million (2014:
$46.2 million).
Statutory reported profit after tax for the comparable business was
up 7.2% or $3.9 million to $58.8 million (2014: $54.9 million). The
total Group reported profit after tax was up 0.6% or $0.3 million to
$54.8 million (2014: $54.5 million). Reported after tax profits were
impacted by lower undelivered prepaid contract impacts and net
impairment reversals than the previous year.
Total Group sales revenue was up 5.7% or $23.4 million to
$436.4 million (2014: $413.0 million). The increase was due to a
combination of higher numbers of deaths, market share growth,
higher average contract values, increased memorialisation sales in
the cemeteries and crematoria, contributions from new businesses
and favourable currency movements.
Overall numbers of deaths in InvoCare’s core markets increased
by approximately 1% compared to 2014, confirming an apparent
reversal to the longer term trend, and market share growth was
achieved in most markets.
Comparable Group EBITDA was up $7.7 million or 7.6% to
$108.8 million (2014: $101.0 million). The foreshadowed negative
EBITDA for the start-up USA operation of USD2.9 million (or
AUD3.8 million), offset by $0.5 million from acquisitions, resulted
in total Group EBITDA increasing by 4.3% or $4.3 million to
$105.4 million (2014: $101.1 million).
As a percentage of sales, comparable EBITDA margins improved
from 24.5% in 2014 to 25.1% in 2015. Most of this improvement
occurred in the second half where margins rose from 26.0% in 2014
to 27.4%. By comparison, first half margins had declined 0.1% from
22.8% in 2014 to 22.7%.
Cash flows remained strong for the year. Ungeared, tax free
operating cash flow was 97% of EBITDA (2014: 106%), underpinning
the ability to pay a fully franked final dividend of 22.25 cents per
share, which is 1.50 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 38.0 cents (2014: 36.5 cents).
12
Sales, EBITDA, margins and major profit & loss line items
The following table summarises sales revenue, EBITDA and margins by country segments.
Sales Revenue
Australia
New Zealand
Singapore
1H15
$’000
1H14
$’000
Var
%
2H15
$’000
2H14
$’000
Var
%
FY15
$’000
FY14
$’000
Var
%
177,499 169,412
21,326
19,954
4.8%
6.9%
195,551 186,719
4.7%
373,050 356,131
22,665
23,032
(1.6%)
43,991
42,986
4.8%
2.3%
8,169
6,694
22.0%
8,356
7,126
17.3%
16,525
13,820
19.6%
Comparable business
206,994 196,060
5.6%
226,572 216,877
4.5%
433,566 412,937
5.0%
USA & acquisitions
1,123
-
-
1,682
74
-
2,805
74
-
Total
EBITDA
Australia
New Zealand
Singapore
Comparable business
USA & acquisitions
Total
Margin on sales
Australia
New Zealand
Singapore
Comparable business
USA & acquisitions
Total
208,117 196,060
6.1%
228,254 216,951
5.2%
436,371 413,011
5.7%
39,869
37,781
5.5%
52,405
47,871
3,144
3,909
3,773 (16.7%)
3,178
23.0%
5,377
4,062
9.5%
9.4%
4,915
3,529
15.1%
92,274
85,652
7.7%
8,521
7,971
8,688
(1.9%)
6,707
18.8%
46,922
44,732
4.9%
61,844
56,315
9.8%
108,766 101,047
7.6%
(1,747)
-
-
(1,593)
35
-
(3,340)
35
-
45,175
44,732
1.0%
60,251
56,350
6.9%
105,426 101,082
4.3%
22.5% 22.3%
0.2%
26.8% 25.6%
14.7% 18.9% (4.2%)
23.8% 21.3%
1.2%
2.5%
24.7% 24.1%
0.6%
19.4% 20.2% (0.8%)
47.9% 47.5%
0.4%
48.6% 49.5% (0.9%)
48.2% 48.5% (0.3%)
22.7% 22.8% (0.1%)
27.3% 26.0%
1.3%
25.1% 24.5%
0.6%
-
-
-
-
-
-
-
-
-
21.7% 22.8% (1.1%)
26.4% 26.0%
0.4%
24.2% 24.5% (0.3%)
The following table shows the EBITDA performance of the business by halves, discussed in the following sections of the report.
Total - all lines of business
Sales Revenue
Other revenue
Expenses:
1 H15
$’000
1 H14
$’000
Var
%
2 H15
$’000
2 H14
$’000
Var
%
FY 15
$’000
FY 14
$’000
Var
%
208,117
196,061
6.1%
228,254
216,950
5.2%
436,371
413,011
5.7%
3,792
3,470
9.3%
5,778
3,723
55.2%
9,570
7,193
33.0%
Cost of goods sold
(60,347)
(57,182)
5.5%
(65,098)
(64,432)
1.0%
(125,445)
(121,614)
3.2%
Personnel
(69,685)
(63,636)
9.5%
(72,646)
(65,746)
10.5%
(142,331)
(129,382)
10.0%
Advertising & promotions
(8,497)
(7,627)
11.4%
(8,218)
(7,285)
12.8%
(16,715)
(14,912)
12.1%
Occupancy & facility expenses
(14,236)
(13,114)
8.6%
(13,919)
(14,035)
(0.8%)
(28,155)
(27,149)
3.7%
Motor vehicle expenses
(4,159)
(4,106)
1.3%
(4,665)
(4,713)
(1.0%)
(8,824)
(8,819)
0.1%
Other expenses
(9,810)
(9,133)
7.4%
(9,235)
(8,113)
13.8%
(19,045)
(17,246)
10.4%
Operating expenses
(166,734)
(154,798)
7.7%
(173,781)
(164,324)
5.8%
(340,515)
(319,122)
6.7%
Operating EBITDA
Operating margin %
45,175
44,733
1.0%
60,251
56,349
6.9%
105,426
101,082
4.3%
21.7%
22.8% (1.1%)
26.4%
26.0%
0.4%
24.2%
24.5%
(0.3%)
Note: The data in the above tables 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 2015 13
Directors’ Report continued
A summary of the comparable business operating EBITDA by major income statement line item by halves is presented in the following table.
1 H15
$’000
1 H14
$’000
Var
%
2 H15
$’000
2 H14
$’000
Var
%
FY 15
$’000
FY 14
$’000
Var
%
Total - all lines of business
Sales Revenue
Other revenue
Expenses:
206,994
196,060
5.6%
226,572
216,877
4.5%
433,566
412,937
5.0%
3,779
3,470
8.9%
5,721
3,723
53.7%
9,500
7,193
32.1%
Cost of goods sold
(60,028)
(57,184)
5.0%
(65,012)
(64,409)
0.9%
(125,040)
(121,593)
2.8%
Personnel
(68,217)
(63,635)
7.2%
(71,216)
(65,732)
8.3%
(139,433)
(129,367)
7.8%
Advertising & promotions
(7,828)
(7,626)
2.6%
(7,122)
(7,285)
(2.2%)
(14,950)
(14,911)
0.3%
Occupancy & facility expenses
(14,152)
(13,114)
7.9%
(13,716)
(14,035)
(2.3%)
(27,868)
(27,149)
2.6%
Motor vehicle expenses
(4,089)
(4,106)
(0.4%)
(4,573)
(4,712)
(2.9%)
(8,662)
(8,818)
(1.8%)
Other expenses
(9,537)
(9,133)
4.4%
(8,810)
(8,112)
8.6%
(18,347)
(17,245)
6.4%
Operating expenses
(163,851)
(154,798)
5.8%
(170,449)
(164,285)
3.8%
(334,300)
(319,083)
4.8%
Operating EBITDA
46,922
44,732
4.9%
61,844
56,315
9.8%
108,766
101,047
7.6%
Operating margin %
22.7%
22.8% (0.1%)
27.4%
26.0%
1.4%
25.1%
24.5% 0.6%
Number of deaths and cases
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. Projections for New Zealand have been sourced from the latest data supplied by Statistics New Zealand.
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
Actual and projected calendar and fiscal year deaths – New Zealand
57.5
14
52.5
)
0
0
0
’
(
r
e
b
m
u
N
47.5
42.5
37.5
32.5
27.5
22.5
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Actual rolling annual deaths per Statistics NZ
Trend plus/minus 5%
NZ projected deaths 2011 (base)-2061
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
Actual and projected calendar and fiscal year deaths – New Zealand
57.5
52.5
47.5
42.5
37.5
32.5
27.5
22.5
)
0
0
0
’
(
r
e
b
m
u
N
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Actual rolling annual deaths per Statistics NZ
Trend plus/minus 5%
NZ projected deaths 2011 (base)-2061
The table below1 illustrates the trends in InvoCare’s funeral case volumes over the last 24 months, clearly demonstrating how the volumes
have changed from period to period.
Australia
New Zealand
Singapore
Total comparable business
Total Group (incl. USA & acquisitions)
2015 vs 2014
2014 vs 2013
Half 1
Half 2
Full Year
2.4%
3.0%
4.8%
2.5%
3.6%
0.9%
(1.2%)
7.4%
0.8%
2.2%
1.6%
0.7%
6.0%
1.6%
2.8%
Half 1
(0.1%)
1.8%
1.3%
0.1%
1.4%
Half 2
Full Year
5.7%
10.6%
1.3%
6.1%
6.8%
2.9%
6.4%
1.3%
3.2%
4.2%
Commentary on the period since 31 December 2015 is set out in the Outlook section on page 19.
1. Comparable businesses in the table comprise a different mix in 2015 from 2014. The 2014 percentages are as presented in the FY2014 results presentation.
Sales
Key components of the comparable sales movements are summarised below:
— Australian funeral sales increased 3.6% or $10.3 million to $296.2 million (2014: $285.9 million).
— Average revenue per funeral contract, excluding disbursements and delivered prepaid impacts, increased 2.7% (2014: 3.4%) and
contributed an estimated $6.0 million to sales growth. Contributing to the average revenue were the combined effects of price
increases (averaging between 3% and 4%), customer demand for practical and affordable funeral offerings (with InvoCare’s Simplicity
Funerals successfully meeting that demand) and an emerging trend of more clients electing to have direct committals without requiring
a traditional funeral service or to have single rather than double services (eg. church service followed by committal service at cemetery
or crematorium).
— The number of funeral services performed was up on the previous year by 1.6%. Most of this growth came in the first half with the
number of services up 2.4% compared to a 0.9% increase in the second half. InvoCare’s market intelligence indicates that across its
overall markets the number of deaths increased by approximately 1% and that market share growth was achieved, with share gains in
New South Wales and Queensland offset by some declines in other states.
— The number of new prepaid funeral contracts sold for comparable Australian business increased by 4.2% on the previous year and
exceeded the number of prepaid services performed by 14.8% (2014: 6.1%). Prepaid funerals performed in the year were 13.8%
(2014: 14.6%) of comparable at need funerals.
InvoCare Annual Report 2015 15
Directors’ Report continued
— Australian cemeteries and crematoria sales were up 9.1% or $7.4 million to $88.7 million (2014: $81.3 million). Services performed
increased by 1.2%, price increases were similar to the funeral business and memorialisation sales were strong. The net increase in the
deferred revenue pool of unconstructed memorials was approximately $3.4 million (2014: $0.5 million) taking the pool to approximately
$14.9 million (2014: $11.4 million) which will be constructed and included in sales revenue in future periods. New contracts added to the
pool amounted to $7.8 million (2014: $5.9 million) and the amount constructed and included in sales was $4.3 million (2014: $4.9 million).
In addition, deferred revenue includes $44.0 million (2014: $41.5 million) of pre-sold plaques, ash containers and other miscellaneous
items deliverable and recognisable in sales revenue at the customer’s future time of need.
— Comparable New Zealand sales (in NZD) were up 1.4% or $0.6 million to $47.4 million (2014: $46.8 million). Case volumes were up 0.7%,
with market share losses experienced at the same time the numbers of deaths increased, and funeral case averages increased 2.7%.
Case averages benefited from price increases (2-3%) at the beginning of each of January and July, but were impacted, like Australia,
by customers seeking low priced offerings and wanting less service from funeral directors. In AUD New Zealand sales were up 2.3% to
$44.0 million (2014: $43.0 million) which included favourable FX movements of $0.3 million.
— Singapore funeral sales (in SGD) increased by 8.2% to $17.0 million (2014: $15.8 million). Case volumes improved 6.0% and average
contract values were up 2.0%. In AUD Singapore sales increased 19.9% to $16.5 million (2014: $13.8 million) which included favourable
FX movements of $1.6 million.
— Intra-group elimination of cemeteries and crematoria sales to InvoCare owned funeral homes amounted to $12.1 million (2014: $11.1 million).
The start-up operation in Southern California, USA, recorded sales revenue of US$0.8 million (AU$1.1 million) in its first ten months of funeral
operations. Over 350 funerals and in excess of 2,300 cremations were performed. Funeral case averages achieved were approximately
US$1,200 and cremations approximately US$200. The funeral average was lower than had been targeted due to attracting low yielding cases
and the absence of higher yielding burial cases. Further market research was conducted in the second half of 2015 resulting in refreshing
websites and the promotional message in the lead up to the traditionally busier winter months.
Acquired businesses, being a funeral business near Melbourne (Australia) in December 2014 and two cremation memorial parks in
Christchurch (New Zealand) in July 2015, contributed $2.1 million to sales in 2015, before the elimination on consolidation of sales of
$0.5 million by the acquired Christchurch memorial parks to Invocare owned funeral homes in Christchurch.
Other revenue
Other revenue increased by $2.4 million to $9.6 million (2014: $7.2 million). Other revenue mainly comprises administration fees upon initial
sale of prepaid funeral contracts and trailing commissions on prepaid funds, however, in 2015 insurance recoveries of $1.2 million were
received for claims relating to the Christchurch earthquakes several years ago and an ACCC investigation in 2014.
Operating expenses and EBITDA
Operating expenses (excluding depreciation, amortisation, acquisition related and finance costs) for the comparable operations increased
$14.8 million or 4.6% to $333.8 million. Tight cost management, particularly during the second half, resulted in the Operating EBITDA1 to sales
margin increasing to 25.1%, from 24.5% in 2014. The second half margin was 27.3%, compared to 26.0% in the second half of 2014.
Strong EBITDA and margin performances from the Australian and Singaporean businesses were offset by a disappointing result in New
Zealand. In that country, cost growth has exceeded sales growth, the latter adversely impacted by lower than expected volume and case
averages. Personnel costs and advertising had been increased after being constrained in 2014, in anticipation of higher sales in 2015. As
mentioned later in the outlook section of this report, the New Zealand business will receive heightened management attention during 2016.
After including expenses of the USA start-up operation of $5.0 million and from new business acquisitions of $1.6 million, the total Group
operating expenses increased by 6.7% or $21.4 million and margins declined by 0.3% to 24.2%. USA personnel costs were US$1.7 million
and the most significant other cost was US$1.3 million spent on marketing and advertising, which included additional market research during
the second half. The outlook section of this report provides commentary on the USA operation.
Favourable FX movements benefited Operating EBITDA1 by $0.8 million, as the NZD and SGD strengthened against the AUD.
Depreciation and amortisation expenses
Depreciation and amortisation expenses were up $1.0 million in 2015 to $20.2 million (2014: $19.2 million). This increase included $0.2 million
associated with the USA and other acquired businesses.
Finance costs
Finance costs declined by $0.7 million to $14.8 million (2014: $15.5 million). Lower margins and expiry of some higher fixed cost swaps were
the main contributors to lower debt interest. More information about the Group’s debt facilities is set out under the Capital Management section.
Acquisition related costs
Acquisition costs of $0.1 million were down $1.1 million on the prior year (2014: $1.2 million) which included start-up expenses of $0.8 million
associated with the USA operation.
1
Operating EBITDA is non-IFRS financial information.
16
Share of associate
After writing down InvoCare’s investment in on-line memorial associate to $nil, equity accounting of the associate’s losses is no longer
required. The share of losses in 2014 was $0.5 million. The associate, in which InvoCare has a 35% interest, continues to record losses during
its start-up phase.
Undelivered prepaid contract gains
Net gains on undelivered prepaid contracts were $7.5 million, a reduction from net gains of $10.9 million in 2014. The current year gain
comprised $19.8 million increase in the fair value of funds under management offset by $12.3 million growth in the future liability to deliver
prepaid services (see table below).
Gain on prepaid contract funds under management
Change in provision for prepaid contract liabilities
Net gain/(loss) on undelivered prepaid contracts
2015
$’000
2014
$’000
19,790
24,832
(12,263)
(13,917)
7,527
10,915
The fair value uplift of $19.8 million in funds under management was $5.0 million down on 2014, due mainly to a gain on sale of a property
investment in late 2014 as well as quite volatile and poor investment markets, and represented an effective earnings rate of 4.8% (2014: 6.4%).
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 $12.3 million which was down on last year’s $13.9 million when price rises were higher.
Prepaid funds under management recognised on InvoCare’s balance sheet amounted to $422.3 million (2014: $401.0 million), with
approximately 82% of these funds held by the Over Fifty Guardian Friendly Society. Asset allocations, which are being closely reviewed as
equity markets remain volatile, are set out below:
Equities
Property
Cash and fixed interest
Asset sales
31 Dec 2015
%
30 June 2015
%
31 Dec 2014
%
17
26
57
12
26
62
10
16
74
Minor after tax gains and losses on asset sales were recorded in both 2015 and 2014.
Impairments
A net after tax impairment gain of $0.3 million (2014: $0.4 million) was recorded, comprising the reversal of prior impairment write-downs of
certain cemetery assets demonstrating continuing financial performance improvement ($3.8 million after tax) offset by the impairment write-down
of the Group’s investment in an associate ($2.6 million after tax) after considering the business performance to date, its future cash projections
and the risks associated with a start-up operation.
Income tax expense
Income tax expense on reported profit was $26.7 million (2014: $22.6 million), representing an effective rate of 32.7% (2014: 29.3%).
Income tax expense on operating earnings2 increased by $2.5 million to $21.7 million (2014: $19.2 million) and the effective rate was 30.6%
(2014: 29.4%).
The increase in the effective rate is mainly due to the impact of USA losses which have not been tax effected and under provision in prior years.
2
Operating earnings is non-IFRS financial information.
InvoCare Annual Report 2015 17
Directors’ Report continued
Cash flow highlights
Net cash provided by operating activities
Asset sale proceeds
Asset purchases
Purchase of subsidiaries and businesses
Payments to funds for pre-paid contract sales
Receipts from funds for pre-paid contracts performed
Net cash used in investing activities
Dividends paid to InvoCare shareholders
Deferred Employee Share Plan purchases
Net increase in borrowings
Other movements
Net cash used in financing activities
Net increase/(decrease) in cash during year
Cash at start of year
Exchange rate effects
Cash at end of the year
2015
$’000
64,631
1,138
2014
$’000
69,690
1,003
(22,035)
(26,665)
(7,076)
(6,738)
(35,338)
(33,326)
37,022
(26,289)
(40,157)
-
70
(118)
35,389
(30,337)
(38,784)
(1,168)
2,250
(203)
(40,205)
(37,905)
(1,863)
10,488
54
8,679
1,448
8,899
141
10,488
As of 1 January 2015 the Group has adopted a change in the presentation of its Consolidated statement of cash flows whereby cash flows
to and from independent prepaid funeral trust funds are classified as investing instead of operating activities. The changes were adopted to
be consistent with the recognition of trust fund fair value movements in the Consolidated balance sheet and Consolidated income statement.
Further commentary is based on the revised presentation format.
Cash flows provided by operating activities were down on last year by $5.1 million to $64.6 million. Funding the USA start-up operation, higher
income tax instalments and working capital movements all contributed to this movement.
The operating EBITDA conversion to cash ratio for the period was 97% which was down compared to the 104% achieved in 2014 as shown
in the table below.
2015
$’000
2014
$’000
105,426
101,082
64,631
14,380
23,690
(83)
69,690
14,981
20,182
(132)
102,618
104,721
97%
104%
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
18
Capital expenditure related to:
Property, refurbishments and facility upgrades
Motor vehicles
Digital business
Other assets
Total capital expenditure
2015
$’000
6,446
7,320
4,322
3,947
2014
$’000
12,485
6,446
4,731
3,003
22,035
26,665
Purchases of subsidiary businesses mainly comprise the two memorial parks in Christchurch, New Zealand acquired in July 2015.
Dividends paid in the year totalled $40.2 million (2014: $38.8 million), including $6.6 million (2014: $5.6 million) for the on-market purchase of
shares for the dividend reinvestment plan.
There were no shares required to be purchased during the year (2014: $1.2 million) by the InvoCare Deferred Employee Share Plan Trust in connection
with the long-term, share-based incentives scheme. Share grants in 2015 were made using unvested, forfeited shares from prior years’ grants.
Capital management
At 31 December 2015, the Group had drawn down $232 million borrowings (from total $290 million debt facilities) compared to $242 million at
30 June 2015 and $230 million at 31 December 2014. Net debt at 31 December 2015 was $223 million which compared to the balance at 30
June 2015 of $228 million and 31 December 2014 of $220 million.
In December 2015, $85 million of facilities due to mature in September 2016 were refinanced, which will provide an estimated $0.4 million
annualised interest saving, and an additional $35 million in commitment was obtained. As a result, the Group now has $290 million bi-lateral,
multi-currency, revolver facilities which comprise five-year tranches of $170 million, maturing in September 2018, and five-year tranches of
$120 million, maturing in December 2020.
The five-year tranches maturing in September 2018 are provided in equal $42.5 million proportions by Australia and New Zealand Banking
Group Limited (“ANZ”), Commonwealth Banking Group Limited (“CBA”), Westpac Banking Corporation (“Westpac”) and HSBC Bank Australia
Limited (“HSBC”) or their New Zealand affiliates. The five-year tranches maturing in December 2020 are provided by ANZ ($45 million), CBA
($45 million) and HSBC ($30 million).
The current facilities’ drawings comprise AUD164.0 million, SGD27.0 million and NZD44.5 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 2015, being 2.1 and 8.3 respectively.
To maintain certainty over cash flows, the Group has policies limiting exposure to interest rate fluctuations. In accordance with the policy, at
balance date, 64% of debt principal was covered by floating to fixed interest rate swaps.
The overall average effective interest rate is currently 5.4% (2014: 5.7%), inclusive of fixed rates on hedged debt, floating rates on unhedged
debt, margins (based on tranche tenor and leverage – currently averaging around 150bps), undrawn commitment fees and amortisation of
establishment fees.
Headroom on the debt facilities of $58.2 million, and cash of $8.7 million, provide $66.9 million in available funds at 31 December 2015. This
amount together with operating cash flows will provide further capacity to fund near-term growth opportunities.
Outlook
During 2015, the CEO, the executive management team and the Board reviewed the Group’s past strategies and performance and identified
the key challenges and initiatives moving forward.
The review concluded that no fundamental change in strategy is required, but there is potential to extract greater benefit from existing assets.
In particular:
— The business fundamentals of the core markets remain strong;
— There is potential for greater operational efficiencies especially with regard to extracting operating synergies from acquisitions;
— There are on-going opportunities for market share improvements from existing assets;
— There is significant opportunity to deliver increased shareholder returns through more efficient deployment of capital (e.g. network layout); and
— The ability to secure new assets in core markets at the right price is becoming more difficult; however acquisition opportunity still exists in
Melbourne, Adelaide, Auckland and Singapore and, in the longer term, new markets.
InvoCare Annual Report 2015 19
Directors’ Report continued
The key challenges identified include:
— The USA business plan is proving harder to implement than
anticipated, so the business is being re-calibrated to better
reflect current revenue and revised hurdles are being set for
the USA management team to prove the concept and support
continued investment;
— The competitive dynamics associated with the smaller regional/
rural markets (especially New Zealand) continue to require
significant management attention;
— Ensuring the physical asset facilities are attractive to customers
to ensure continued acceptance of price increases and the
retention and growth of market share; and
— Educating the market on the true value of a funeral service to
mitigate a trend for customers to choose simpler service levels
from funeral directors.
The key initiatives are summarised as follows:
— Greater focus on capital allocation involving each of acquisitions,
re-investments, divestments and funds under management;
— Increasing revenue from existing assets through market share
increases, improved product offerings and cross selling; and
— Increasing efficiency through standardising business systems and
processes, network optimisation and centralised purchasing.
Projects that support these key initiatives have been budgeted for
2016 and key appointments have been made, funded in part by
restructuring or eliminating some senior corporate office roles in
early January 2016. Project benefits will begin to flow in H2 2016
with increasing impact in 2017 and beyond. InvoCare will continue
following its proven historic strategies into 2016, whilst investing for
the medium to longer term, to create additional shareholder value.
Total sales revenue for the month of January 2016 was down and
is approximately 4% on January 2015, due mainly to lower case
volumes in each country, believed to be death number rather than
market share related. Consistent with past practice, funeral prices
were increased as planned in late 2015 and cemetery and crematoria
prices are scheduled to be increased during the first quarter of 2016.
As consistently indicated to the market in past years, InvoCare’s
sales revenue is significantly affected by changes in the numbers of
deaths and, as such, the early weeks of 2016 cannot and should not
be used as an indicator of future 2016 results.
The Group’s recurrent capital expenditure in 2016 is expected to be
around the level of depreciation (ie. up to around $25 million). Before
any major new capital investment over and above the recurrent
capital expenditure is approved, it must be justified on the grounds it
will drive market share and must exceed return hurdles. At balance
date, there are two property sales proposed, one being two floors of
the North Sydney corporate office for approximately $3 million due to
settle on 31 May 2016 before a move into new leased premises, also
in North Sydney, and the second being an underperforming funeral
location in a Sydney suburb which is unlikely to be sold until 2017.
It is anticipated a before tax gain on the sale of the North Sydney
premises of approximately $1.0 million will be recorded in the first
half of 2016. In moving to a fully leased corporate office from mid-
2016, based on existing and new lease arrangements, it is expected
that annualised rental costs for the office will reduce EBITDA by
approximately $0.7 million. There are no major capital management
changes expected during 2016. It remains the policy of the Board to
distribute at least 75% of operating earnings after tax3 as dividends,
as well as increase the quantum of those dividends year on year,
continuing the steady dividend returns investors have enjoyed since
ASX listing in December 2003.
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.
3
Operating EBITDA and operating earnings after tax is non-IFRS financial information.
20
Left to right: Joycelyn Morton, Richard Davis, Richard Fisher, Martin Earp, Gary Stead, Tina Clifton
Information on directors
Mr Richard Fisher AM MEc LLB
Chairman of the Board
Chair of Nomination Committee
Member of People, Culture and Remuneration Committee
Age 66 years
Appointed October 2003
Richard Fisher is General Counsel to The University of Sydney and is
an Adjunct Professor in its Faculty of Law. Richard is the immediate
past Chairman of Partners at Blake Dawson (now Ashurst) and
specialised in corporate law. He has been a director of InvoCare
Limited since 24 October 2003. He is also a director of Sydney
Water. Richard is formerly a part-time Commissioner at the Australian
Law Reform Commission, an International Consultant for the Asian
Development Bank and a Member of the Library Council of NSW.
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: 17,389 ordinary shares in InvoCare Limited
Mr Martin Earp MSc, BSc (Hons), MBA
Chief Executive Officer
Age 47 years
Appointed April 2015
Martin Earp joined InvoCare on 30 March 2015, was appointed
as a Director on 13 April 2015 and assumed the role of CEO and
Managing Director on 1 May 2015.
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.
Interest in shares: 17,410 ordinary shares in InvoCare Limited
Dr Christine (Tina) Clifton MB BS (Hons) BHA
Non-executive Director
Chair of People, Culture and Remuneration Committee
Member of Audit, Risk and Compliance Committee
Member of Nomination Committee
Age 60 years
Appointed October 2003
Tina Clifton is a registered medical practitioner. Tina has been a
director of InvoCare Limited since October 2003. She has also
been a Director of various public and private companies over the
last 15 years. Prior to 2001, Tina held various positions in the public
and private healthcare sectors including Chief Executive Officer
of the Sisters of Charity Health Service in New South Wales and
deputy Chief Executive Officer of the Northern Sydney Area Health
Service. From 1980 to 1988 Tina was a general practitioner. Tina
holds degrees in medicine and health administration and obtained a
specialist qualification in medical administration.
Interest in shares: 112,961 ordinary shares in InvoCare Limited
InvoCare Annual Report 2015 21
Directors’ Report continued
Mr Richard Davis BEc
Non-executive Director
Member of People, Culture and Remuneration Committee
Member of Finance, Capital and Investment Committee
Member of Nomination Committee
Age 60 years
Appointed February 2012
Ms Joycelyn Morton BEc FCA FCPA FIPA FGIA FAICD
Non-executive Director
Chair of Audit, Risk and Compliance Committee
Member of Finance, Capital and Investment Committee
Member of Nomination Committee
Age 56 years
Appointed August 2015
Richard Davis was appointed a non-executive director of InvoCare
Ltd 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 is currently serving as Chairman of Singapore Casket
Company (Private) Limited. 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.
Joycelyn Morton was appointed a director of InvoCare Limited on
19 August 2015. She has more than 36 years’ experience in finance
and taxation having begun her career with Coopers & Lybrand (now
PwC), followed by senior management roles with Woolworths Limited
and global leadership roles in Australia and internationally within the
Shell Group of companies.
Joycelyn is also non-executive Chair of Thorn Group Limited (Director
since 2011 and appointed Chair in 2014), non-executive director
of Argo Investments Limited (since 2012), Argo Global Listed
Infrastructure Limited (since 2015). Former non-executive director
roles include Crane Group Limited, Count Financial Limited and Chair
of Noni B Limited.
Joycelyn holds a Bachelor of Economics from the University of Sydney.
Other Public Company Directorships held in the last three years:
Other Public Company Directorships held in the last three years:
Australian Vintage Limited (appointed non-executive director in May
2009 and chairman in May 2015)
Thorn Group Limited (appointed non-executive director in
October 2011)
Monash IVF Group Limited (appointed non-executive director and
chairman in June 2014)
Argo Investments Limited (appointed non-executive director in
March 2012)
Interest in shares: 561,607 ordinary shares in InvoCare Limited
Interest in shares: 6,000 ordinary shares in InvoCare Limited
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: 64,411 ordinary shares in InvoCare Limited
Mr Gary Stead BCom LLB MBA
Non-executive Director
Chair of Finance, Capital and Investment Committee
Member of Audit, Risk and Compliance Committee
Member of Nomination Committee
Age 58 years
Appointed September 2014
Gary Stead was appointed a non-executive director of InvoCare
Limited on 1 September 2014. Gary is currently Managing Director of
Highbridge Principal Strategies, LLC based in Sydney, Australia. Prior
to his current role, Gary was the Managing Director and Co-Head of
Olympus Capital Asia Credit and previously founder and Managing
Director of Australia-focused structured credit fund, Shearwater
Capital and Chief Executive of Fortress Investment Group Australia,
where he established its Australian operations in 2004. Gary’s prior
experience included 13 years at Merrill Lynch, where he held various
leadership positions, including Co-Head of Investment Banking in
Japan, Vice Chairman of Investment Banking in Australia, and Head
of Mergers and Acquisitions in Australia, Asia-Pacific and Japan,
following earlier roles at both Schroders in Australia and Salomon
Brothers in New York.
After starting his working career as a solicitor with degrees in law and
commerce from the University of New South Wales, he subsequently
completed an MBA at Wharton Graduate School of Business at the
University of Pennsylvania before commencing a 30 year investment
banking career.
Interest in shares: 6,500 ordinary shares in InvoCare Limited
22
Meetings of directors
Details of the meetings attended by each director during the year ended 31 December 2015 are set below.
Non-executive Directors
Richard Fisher
Christine Clifton
Richard Davis
Gary Stead
Joycelyn Morton (appointed 19 Aug 2015)
Aliza Knox (resigned 31 Aug 2015)
Roger Penman (resigned 15 Dec 2015)
Executive Director
Martin Earp (appointed 13 Apr 2015)
Andrew Smith (resigned 30 Apr 2015)
A = number of meetings attended.
Board
A
B
10
10
11
10
4
6
-
8
3
11
11
11
11
4
8
11
8
3
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
A
4
2
4*
4
1
2*
-
3*
1*
B
4
4
3
4
1
-
4
-
-
A
3*
4
4
3
2*
2
-
3*
1*
B
-
4
4
4
-
2
-
-
-
A
2
1*
2
2
1
-
-
1*
1*
B
2
-
2
2
1
-
2
-
-
A
3
3
3
3
1
1
-
-
1*
B
3
3
3
3
1
3
3
-
-
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.
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 senior management attend Board and Committee
meetings by invitation.
As a consequence of Roger Penman’s leave of absence (from 1 January 2015 until his resignation on 15 December 2015), from 22 January
2015 Gary Stead was appointed to the Remuneration Committee as its Chairman and Richard Davis was appointed to the Audit Committee
as its Chairman until that role was assumed by Joycelyn Morton on 1 September 2015.
With effect from 1 January 2016, the Board Committee structure was changed. Details are set out in the Corporate Governance Statement on
page 24.
The Directors’ Report continues with the Corporate Governance Statement.
InvoCare Annual Report 2015 23
Directors’ Report continued
Corporate Governance Statement
Board and senior executive appointments
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 2015. The Other Key Management Personnel (“Other
KMP”) comprise:
— Greg Bisset, Chief Operating Officer Australia (“COO Australia”);
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.
— Graeme Rhind, Chief Operating Officer New Zealand
Company Secretary
(“COO New Zealand”);
— Wee Leng Goh, Chief Executive Officer of Singapore Casket
Company (“CEO Singapore”); and
— Phillip Friery, Chief Financial Officer (“CFO”).
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 Senior
Executives (being the direct reports of the CEO including the
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
24
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 33% (2014: 29%) of the Board,
25% (2014: 17%) of the group executive and 35% of Australian
management. InvoCare’s current focus is on specific actions that will
achieve overall gender equality at the Australian management level by
the end of 2020, that is, a minimum of 45% management roles will
be held by either gender. The Australian entity is a relevant employer
under the terms of the Workplace Gender Equality Act and the Board
recently replaced its Diversity policy with an Inclusion policy which 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 2015, 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.
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.
This, combined with a strategic review of the Group’s overall
objectives, resulted in a decision to change the roles of various
committees to better align the Board’s agreed strategic intent
with the activities of each committee. As a result an Audit, Risk &
Compliance Committee was formed to undertake the functions
of the previous Audit committee along with some activities of the
previous Risk Committee. A People, Culture and Remuneration
Committee was formed to undertake the role of the previous
Remuneration Committee but also to absorb the people and culture
functions previously performed by the Risk Committee. The review
also resulted in formation of a new Finance, Capital and Investment
Committee to provide greater focus to oversee the allocation and
efficient use of capital, including decisions relating to business or
asset investments, reinvestment or divestment. This Committee will
also review the performance of prepaid funds under management.
No changes were made to the responsibilities or activities of the
Nomination Committee.
Senior executive evaluation
After the conclusion of each financial year the CEO evaluates
and documents the performance of the other Senior Executives
(including Other KMPs). The results of the achievement of targeted
key performance indicators are reviewed by the People, Culture
and 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 Senior Executives’ remuneration for the ensuing year.
The People, Culture and 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 six directors, being five 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 Senior Executives or managers
attend Board and Committee meetings by invitation.
At the date of this report, the composition of the Board Committees
is as follows:
Audit, Risk &
Compliance
People, Culture
& Remuneration
Finance,
Capital &
Investment Nomination
Director
Richard Fisher
Tina Clifton
Richard Davis
ü
ü
Chair
ü
Joycelyn Morton
Chair
Gary Stead
ü
Nomination Committee
Chair
ü
ü
ü
ü
ü
ü
Chair
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 five independent non-executive directors of the Board. The
Committee is chaired by Richard Fisher.
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 CEO
succession planning, Board succession planning and Board and
Committees’ performance appraisals.
In 2014, the Committee assisted the Board in making the decision
not to renew the former CEO’s contract at the end of its term on
30 April 2015. Martin Earp was appointed as CEO following an
external search conducted with the Committee’s oversight. Although
the replacement CEO was appointed as recently as 1 May 2015,
there is an ongoing focus on CEO succession.
In terms of Board succession planning and composition, there have
been two new directors appointed in the last eighteen months.
These appointments were made to provide additional expertise and/
or replace the skills of departing directors. In addition, with Richard
Fisher and Christine Clifton having served on the Board since
October 2003, planning for their succession in the next few years is
underway, although with the unexpected retirements of both Aliza
Knox and Roger Penman during the year there has been a greater
need for Board renewal than was planned.
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
InvoCare Annual Report 2015 25
Directors’ Report continued
Corporate Governance Statement 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 focusses its search on potential candidates who complement the existing skill set of the Board. The current matrix is summarised
in the following table:
Director/Skill Set
Business Management
Richard Fisher
Tina Clifton
Richard Davis
Joycelyn Morton
Gary Stead
Martin Earp
ü
ü
ü
ü
ü
ü
Legal
ü
ü
Accounting/Finance
Funeral Industry
Health
International Business
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
Board independence
Directors’ induction
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 21 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 advisers 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.
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.
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.
26
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
Principle 4 - Safeguard Integrity in Corporate Reporting
Audit, Risk & Compliance Committee
The Audit, Risk & Compliance Committee provides assistance to the
Board in fulfilling its corporate governance, 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.
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, Risk & Compliance Committee.
The Audit, Risk & Compliance Committee comprises three
independent non-executive directors and is chaired by Joycelyn
Morton. Ms Morton is an FCPA, FCA and FGIA and brings a wealth of
financial and taxation experience to the Committee. Other members
are Christine Clifton and Gary Stead. The number of meetings held
during the year and the individual attendances at those meetings is
set out on page 23 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.
The Continuous Disclosure Policy and Shareholder
Communication Strategy are available on the Company’s
website: www.invocare.com.au
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, 20 May 2016 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.
Principle 7 – Recognise and Manage Risk
The Board, through the Audit, Risk & Compliance Committee,
reviews and oversees the Group’s risk management systems.
Auditor attendance at the Annual General Meeting
Audit, Risk & Compliance Committee
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 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 Audit, Risk & Compliance 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
Committee does not have responsibility for strategic risk which is a Board
responsibility. 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 Audit, Risk &
Compliance 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 Senior Executives who
are responsible for escalating these to the Audit, Risk & Compliance
Committee and Board, where necessary, if the event occurs outside
InvoCare Annual Report 2015 27
Directors’ Report continued
Corporate Governance Statement
continued
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
Group Executive People and Culture. 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 Audit, Risk & Compliance 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.
Principle 8 – Remunerate Fairly and Responsibly
People, Culture and 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 People, Culture and Remuneration Committee reviews
and makes recommendations to the Board on senior executive
remuneration and appointment and on overall staff remuneration and
compensation policies.
28
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 People, Culture and Remuneration Committee comprises three
independent non-executive directors with Christine Clifton as Chair
and Richard Fisher and Richard Davis as members. The number
of meetings held during the year and the individual attendances at
those meetings is set out on page 23 of the Directors’ Report.
The People, Culture and 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
29 provides detailed information about the current remuneration
practices and the levels of remuneration, including proposed changes
to long term incentive arrangements.
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.
Remuneration Report
The Remuneration Report summarises the key compensation
policies and practices for the year ended 31 December 2015,
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 2015 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
(“KMP”) 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
Richard Davis
Gary Stead
Joycelyn Morton (appointed 19 August 2015)
Aliza Knox (resigned 31 August 2015)
Roger Penman (leave of absence from 1 January 2015 and
resigned 15 December 2015)
Other key management personnel
his direct reports. The Board has determined that not all members of
the Group Executive Team are considered KMP, as they do not have
responsibility for planning, directing and controlling a substantial part
of the entities operations. InvoCare periodically makes changes to its
Group Executive Team to reflect the evolving strategy and structure
of the Company. The use of the term Senior Executives in this report
means members of the Group Executive Team.
B. Remuneration Governance
The Board has an established Remuneration Committee (recently
reconstituted as People, Culture and Remuneration Committee)
which critically reviews the Group’s remuneration policy and, under its
charter, has the following primary functions:
— Recommend to the Board the culture that the Group seeks to
aspire to and monitor performance against implementation plans;
— Consider and review (with input from external remuneration
consultants as necessary) the remuneration and employment
policies and procedures for the Group;
— Review and make recommendations to the Board regarding the
remuneration and appointment of Senior Executives;
— Review and make recommendations to the Board regarding the
policies for short term and long term incentives;
— Review employee engagement survey results and recommendations;
— Review the delivery and performance of learning and
development programmes;
— Review findings of talent reviews including succession plans for
Senior Executives;
— Review the annual Health, Safety and Environment Improvement
Plan and performance;
— Review any statutory diversity reporting required to be made by
the Group; and
— Review and, where required, make recommendations to the
Board for approval of all reports on KMP remuneration required
by law or regulation or which are proposed to be included in the
annual report.
During 2015, the Remuneration Committee considered the emerging
market remuneration practices and legislative developments in
the context of evolving business strategy and feedback from key
stakeholders including major investors.
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, including changes made to long
term incentive remuneration and CEO termination arrangements.
Martin Earp (appointed a Director on 13 April 2015, then as
Managing Director and Chief Executive Officer on 1 May 2015)
C. Use of remuneration consultants
Andrew Smith (Managing Director and Chief Executive Officer up to
30 April 2015)
Phillip Friery (Chief Financial Officer)
Greg Bisset (Chief Operating Officer Australia)
Wee Leng Goh (Chief Executive Officer Singapore)
Graeme Rhind (Chief Operating Officer New Zealand)
Soon after his appointment as Managing Director and Chief Executive
Officer (“CEO”) replacing Andrew Smith on 1 May 2015, Martin Earp
formalised the establishment of a Group Executive Team comprising
The Remuneration Committee conducted its remuneration review
with assistance detailed below from independent remuneration
consultants Aon Hewitt, a specialist consultancy and advisory
business dedicated to all aspects of director and executive
compensation and equity incentive strategies.
Aon Hewitt was appointed in August 2015 by the acting Chairman of
the Remuneration Committee, to undertake a review of the Group’s
long term incentive arrangements and, subsequently, a remuneration
benchmark assessment and analysis in respect of non-executive
director and selected Senior Executives. As part of the review Aon
Hewitt met with the CEO and the KMP and held discussions directly
with some of the Company’s largest shareholders and
InvoCare Annual Report 2015 29
Directors’ Report continued
Remuneration Report continued
other stakeholders. The work was undertaken over several months
from October 2015 to February 2016 with reports provided to the
Chairman of the Remuneration Committee. The information provided
was used, in part, to assist the Board in determining changes to the
long term incentive arrangements and changes to the non-executive
director, CEO and other Senior Executives remuneration for the 2016
financial year. Aon Hewitt received a fee of $53,530 (excluding GST
and out of pocket expenses) for this work.
Aon Hewitt did not make any “remuneration recommendations” as
defined in the Corporations Act 2001 in the 2015 financial year.
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;
CEO – 2015
51%
28%
21%
CEO – 2014
51%
28%
21%
Other key
management
personnel – 2015
Other key
management
personnel – 2014
59%
60%
25%
17%
27%
13%
20%
■ Base plus superannuation ■ STI potential ■ LTI potential
60%
40%
0%
80%
100%
Commencing in 2016 for Senior Executives then more broadly
from 2017, the Group intends transitioning to using a more
contemporary Total Fixed Remuneration (“TFR”) measure in place
of the abovementioned “Base plus superannuation” in setting
remuneration levels across the organisation. The key impact will be
the inclusion of motor vehicle benefits in TFR, in addition to base
salary and superannuation.
No director or other key management personnel has, at 31 December
2015 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. Under the terms of a proposed new LTI scheme to
commence in 2016, options may be issued to Senior Executives.
— individual objectives should reflect the need for sustainable
Base salary and benefits
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 CEO’s and Senior Executives’ total remuneration is
benchmarked to comparable positions in comparable size
companies (taking into account sales revenue, market capitalisation
and industry), with the value of the incentives included in total
remuneration based on amounts that can be 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 CEO and other Senior Executives 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 KMP, as depicted
in the following graph (and averaged for the other KMP), 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.
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 Senior Executive’s service
agreements, except for the USA Chief Operating Officer and then
subject to the achievement of agreed individual and business
performance metrics.
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 Senior Executive service agreements are set out
on page 39 under the heading “I. Service Agreements”.
30
Short-term incentives
STIs are awarded for achievement of pre-determined financial and
non-financial objectives. For Senior Executives, the target criteria and
possible bonus levels are defined each year by the Remuneration
Committee and Board, in consultation with the CEO. For other
executives, the Senior Executives determine the objectives and
reward levels 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 for 2015 was up to a maximum of 56.3% of
base salary plus superannuation for the CEO and from 25% up
to a maximum of 49% for the other Senior Executives. The target
criteria for Senior Executives are heavily weighted to overall financial
performance, being 50% of the potential STI opportunity for the CEO
and up to 47% for the other Senior Executives, but are also tailored
to the relevant circumstances of each executive. The STI is capped
at this target and does not provide for additional cash benefits if the
individual or business targets are exceeded for the year. Instead, the
Group seeks to reward executive’s for sustained outperformance
and this is reflected in the design and vesting arrangements in the LTI
Plan, as well as an increased weighting to LTI incentive opportunities
from 2016.
In summary, the criteria used to determine short-term bonuses for
Senior Executive 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;
— Innovation in customer service delivery and business
operations, including introducing new products and services,
modifying operating models and further developing or
strengthening brand positioning;
— Develop and implement information technologies to enhance
customer service and business efficiencies; and
— Continue to grow the prepaid funeral business, including returns
from funds under management.
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 average revenue per case, sales of prepaid contracts, the
management of labour costs, client survey results and debtors’
days outstanding.
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. The Remuneration Committee considers that STI
bonuses are awarded for achievement of key performance criteria
for a particular financial year, without payment for outperformance,
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, provides incentive for
outperformance over the longer term, encourages executives
to remain employed with the Group and ensures alignment with
shareholder interests.
Commencing January 2016, the Group will seek to claw back all or
part of an executive’s STI that has already been paid to ensure the
executive has not been inappropriately awarded in circumstances
including:
— A material misstatement or omission in the Group’s financial
statements;
— If actions or inactions seriously damage the Group’s reputation or
put the Group at significant risk; and/or
— A material abnormal occurrence results in an unintended increase
in the award.
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
(“Deferred Shares”), or, in the case of foreign managers who may not
be able to participate in Australian share offers, share equivalents
(“Deferred Rights”). No consideration is payable by the employee
for the DESP offer, but they are subject to continuous service and,
for senior management, performance conditions. Deferred Shares
are purchased on-market and hence the DESP is operated on
a completely non-dilutive basis. Share equivalents for offshore
employees are settled in cash instead of equity.
During 2015 the Remuneration Committee reviewed the design
and operation of the LTI arrangements. As a consequence, a new
LTI plan is proposed to be made available from February 2016 to
eligible participants. It will be referred to as the Performance Long
Term Incentive Plan (PLTIP) and is aimed at attracting, rewarding and
retaining high performing executives who contribute to the overall
medium and long term success of InvoCare.
The main differences between the proposed PLTIP and the existing
plan are that:
— participants will be restricted to the CEO, the other Senior
Executives, operational General Managers and selected high
performing or high potential senior managers by invitation and as
approved by the Board;
— the awards are proposed to be in performance shares rights
(“PSRs”) or options;
— there will be a return on capital gateway before any awards
meeting performance conditions will vest;
— no dividends will be paid on unvested awards; and
— there will be no voting rights.
Participants in the new PLTIP will no longer be eligible for grants
under the existing DESP. This existing plan will be retained and
continue for remaining participants and, at the CEO’s discretion,
future participants. Future awards under the DESP will vest subject
to continuous service only and recognise the contribution of primarily
middle level managers over time through the granting of modest
amounts of equity.
Similar to share equivalents under the DESP, for offshore employees
PSRs or options may be settled in cash instead of equity.
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.
InvoCare Annual Report 2015 31
Directors’ Report continued
Remuneration Report continued
A tiered arrangement by level will apply to offers under the
proposed PLTIP:
— CEO – of the maximum LTI award, 75% will be in options and
25% in PSRs
— Other Participants – 50% in options and 50% in PSRs, or wholly
in PSRs in certain circumstances with Board approval
The value of LTI award offered in 2015 was up to a maximum of
42% of base salary plus superannuation for the CEO and up to a
maximum 36% for the other Senior Executives.
The number of PSRs will be calculated at the date of issue by
dividing the value of LTI to be awarded in PSRs by the face value of
an InvoCare share. The face value is proposed to be based on the 10
day VWAP for InvoCare shares around the date of grant.
The number of options will be calculated based upon the value of LTI
to be awarded in options divided by the option valuation at the award
date. This option value, or exercise price, will be determined by an
independent actuary using a Black Scholes valuation methodology. The
valuation for allocation will include dividends but will not incorporate any
discount relating to the performance and tenure conditions.
Under the DESP, the number of Deferred Shares or Deferred Rights
is calculated by dividing the value of the LTI award by the on-market
acquisition cost of InvoCare shares.
Consistent with the existing DESP, vesting of the LTI awards under
the PLTIP will be in three equal tranches in February of each of the
second, third and fourth subsequent years after the year of offer. This
is to allow for the impact that the number of deaths, which is outside
the control of management, has on the Group’s annual result, in
particular given the fixed cost nature of the business. Vesting of the
first LTI tranche two years out from the initial grant in part compensates
for the fact STIs are capped without additional reward for short term
outperformance. Over the longer term, sustained levels of short term
outperformance should translate into higher LTI rewards.
Upon vesting of Deferred Shares under the DESP, the employee
has the discretion to leave the Deferred Shares in trust, withdraw or
sell any number of them. Upon vesting of Deferred Rights under the
DESP, the employee will be paid in cash an amount equivalent to the
number of vested Deferred Rights multiplied by the value of those
rights derived by reference to the market value of InvoCare shares.
Upon vesting of PSRs under the proposed PLTIP, the employee will
be provided with InvoCare shares, satisfied either by a new issue or
by on-market purchase. In the case of vested options, the exercise
period is proposed to continue from the date of vesting until 10 years
from the commencement of the performance period of the award (eg
for 2016 awards the end of option life will be February 2026).
In accordance with InvoCare’s Share Trading Policy, senior managers
are prohibited from trading the Company’s shares other than
during specified trading windows, or with approval in exceptional
circumstances, and then only if not in possession of inside
information. In addition, 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.
Consistent with DESP awards, performance conditions under the
proposed PLTIP relate to compound growth per annum in normalised
earnings per share over the vesting period. However, as mentioned
earlier, a ‘gateway’ condition must be met before any PLTIP awards
can vest. The gateway requires a minimum level of Return on
Invested Capital (“ROIC”). This is a safety net to ensure that capital
is being employed efficiently and earnings growth is translating to
shareholder value. ROIC is defined as the annual operating earnings
(excluding net finance costs and after deducting tax) divided by the
average invested capital during the year (being the average of the
beginning and end of year balances of total assets less surplus cash
less non-interest bearing liabilities).
“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;
— to maintain consistency in accounting policies across the
respective vesting periods for each grant; and
— for proposed PLTIP awards from February 2016:
— to reflect constant currency; and
— to remove impacts of non-cash movements in prepaid
contracts and associated funds under management.
Specifically in the case of the CEO, CFO and Group Executive
Capital Management, the abovementioned non-cash movements for
Guardian Plan prepaid contracts and funds under management will
be included in the EPS figure utilised in the proposed PLTIP.
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 and analysis by the Board. As part
of its review of LTI arrangements during 2015, the Remuneration
Committee re-affirmed the appropriateness of the earnings per share
absolute measure, including by comparison to 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, together with the introduction of a ROIC gateway,
more closely reflects management performance and success in
incrementally creating value through good decision making and
sustained and improving performance over time.
32
Subject also to the ROIC gateway condition, the EPS performance conditions applying for PLTIP awards in 2016 are 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%
86% plus 1.4% for each 0.1% EPS over 11%
72% plus 1.4% for each 0.1% EPS over 10%
58% plus 1.4% for each 0.1% EPS over 9%
44% plus 1.4% for each 0.1% EPS over 8%
30% plus 1.4% for each 0.1% EPS over 7%
Nil
For DESP grants made in 2015, 2014, 2012 and 2011, the EPS performance vesting conditions are:
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
For DESP grants made in 2013, the EPS performance vesting conditions are:
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
If the compound EPS growth performance conditions are not met at the vesting date, the unvested LTI awards 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 awards at the fifth anniversary of the grant are forfeited.
To receive 100% of the LTI awards, 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.
In general, should a participant cease employment as a result of resignation or termination in circumstances the Board determines as related
to their performance, all unvested equity awards held by the participant will lapse. In exceptional circumstances the Board has the discretion
to determine the extent to which all or part of any unvested equity may vest and the specific performance testing to be applied.
In circumstances where a termination is for reasons including retirement, death, total and permanent disablement, and bona fide redundancy,
unless it determines otherwise, the Board may allow all or part of the unvested equity awards to continue on foot and vest subject to the
original terms and performance and service conditions set out in the letter of offer and plan rules at the time of award.
In the event of a change in control or other circumstances where the Board determines it is not practical or appropriate for the unvested equity
to continue on foot, the Board has the discretion to determine the extent to which all or part of any unvested equity may vest and the specific
performance testing to be applied.
If no determination is made by the Board, all equity awards held by the participant will lapse upon termination of employment.
The Board has the discretion to determine that any LTI benefit payable in the above termination circumstances can be settled in cash.
InvoCare Annual Report 2015 33
Directors’ Report continued
Remuneration Report continued
Following its 2015 review, the Remuneration Committee and Board have also introduced clawback and malus conditions for the both LTI and
STI. The Board in its sole discretion may determine that all, or part, of any unvested LTI incentive award be forfeited in certain circumstances.
These circumstances include, but are not limited to:
— A material misstatement or omission in the Group’s financial statements;
— If actions or inactions seriously damage the Group’s reputation or put the Group at significant risk; and/or
— A material abnormal occurrence results in an unintended increase in the award.
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
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
2016
7% to 12%
49.8 cents
Performance condition testing date and vesting outcome
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 – not satisfied, all unvested shares forfeited
February 2014 – 39% of the first 1/3rd tranche vested
February 2015 – 100% vesting of second and unvested first tranches
February 2016 – 91% vesting of third 1/3rd tranche vested
February 2017 (if required)
February 2015 – 100% of first 1/3rd tranche vested
February 2016 – 54% of second 1/3rd tranche vested
February 2017 – to be determined
February 2018 (if required)
February 2016 – 100% of first 1/3rd tranche vested
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)
February 2018 – to be determined
February 2019 – to be determined
February 2020 – to be determined
February 2021 (if required)
Future offers of LTI awards may be made at the discretion of the Board and the service and performance conditions for any future offers may
vary from previous LTI offers.
Further details of LTI awards are set out on page 41 under the heading “J. Share-based Compensation”.
34
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 an annualised 21.3% return for shareholders between listing
in December 2003 and the end of 2015. As depicted by the following graph, the growth of an investment of $1 in InvoCare at listing exceeds
the ASX200 growth over that period.
Growth of $1 in IVC with all dividends reinvested vs ASX 200 accumulation index
Since IVC listing December 2003
IVC with divs reinvested
ASX 200 Accumulation index
1
$
n
o
n
r
u
t
e
R
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
3
0
0
2
-
c
e
D
4
0
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4
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b
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-
l
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J
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2
-
c
e
D
6
0
0
2
-
y
a
M
6
0
0
2
-
t
c
O
7
0
0
2
-
r
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M
7
0
0
2
-
g
u
A
8
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0
2
-
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8
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-
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0
2
-
v
o
N
9
0
0
2
-
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p
A
9
0
0
2
-
p
e
S
0
1
0
2
-
b
e
F
0
1
0
2
-
l
u
J
0
1
0
2
-
c
e
D
1
1
0
2
-
y
a
M
1
1
0
2
-
t
c
O
2
1
0
2
-
r
a
M
2
1
0
2
-
g
u
A
3
1
0
2
-
n
a
J
3
1
0
2
-
n
u
J
3
1
0
2
-
v
o
N
4
1
0
2
-
r
p
A
4
1
0
2
-
p
e
S
5
1
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2
-
b
e
F
5
1
0
2
-
l
u
J
5
1
0
2
-
c
e
D
Based upon achievements in 2015, the Remuneration Committee determined the CEO and Senior Executives achieved an average 81% of
their target STI opportunity. 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
Martin Earp
Phillip Friery
Greg Bisset
Wee Leng Goh
Graeme Rhind
Average
Cash STI bonus
Payable %
Forfeited %
92%
83%
88%
98%
15%
81%
8%
17%
12%
2%
85%
19%
InvoCare Annual Report 2015 35
Directors’ Report continued
Remuneration Report continued
The following factors were among those considered by the Remuneration Committee in making its assessment on the achievement of the STI opportunity:
— The successful CEO transition from Andrew Smith to Martin Earp and the establishment of a Group Executive Team, comprising
executives with country or technical responsibilities, and the consequent review and formulation of strategies to continue the Group’s
strong financial performance;
— Financial performance was improved on the previous year, with achievement of Group, Australian and Singapore EBITDA targets, growth in
overall market share in Australia and Singapore, healthy investment performance of prepaid funeral funds and lower debt financing costs;
— The integration of acquired businesses, including a funeral business in Australia and two crematorium operations in New Zealand, and
the establishment of a greenfield operation in Southern California, albeit the performance of the NZ and USA operations has not yet met
expectations; and
— The continued focus on cost management and the roll out of new technologies across the business.
In addition to STI, upon satisfying service and performance conditions, the Senior Executives also received the benefit of the vesting of LTI
awards made in prior years. Further details are set out on page 41 under the heading “J. Share-based Compensation”.
The table below shows measures of the Group’s financial performance over the last five years, including those required by the Corporations
Act 2001. However, these are not necessarily consistent with the measures used in determining the at-risk incentive components of Senior
Executives’ remuneration. As a consequence, there may not always be a direct correlation between the statutory key performance measures
and the variable remuneration awarded.
Reported profit after tax
Basic earnings per share (cents)
Operating earnings after tax - note 1
Normal dividends
Normal dividends per share
Dividend payout of operating earnings
Total return per share – note 2
Total shareholder return – note 2
Share price – 31 December
Shares on issue
Market capitalisation – note 3
Enterprise value – note 4
2015
2014
2013
2012
2011
$54.8m
$54.5m
$48.9m
$44.5m
$27.0m
50.1¢
$49.4m
$40.2m
38.0¢
85%
$0.28
2%
$12.01
110m
49.8¢
44.7¢
40.6¢
25.6¢
$46.2m
$42.5m
$42.5m
$36.4m
$40.1m
$37.9m
$37.4m
$32.5m
36.5¢
95%
$1.41
13%
34.5¢
90%
$2.60
30%
$12.10
$11.04
110m
110m
34.0¢
88%
$1.39
18%
$8.78
110m
29.75¢
89%
$0.71
10%
$7.70
110m
$1,321m
$1,331m
$1,215m
$966m
$847m
$1,544m
$1,550m
$1,430m
$1,183m
$1,055m
1.
2.
Operating earnings after tax is a financial measure which is 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.
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. During 2015, equity markets generally declined in value contributing to lower returns for InvoCare shareholders.
3.
Market capitalisation at 31 December, being number of shares on issue multiplied by share price at that date.
4.
Enterprise value is market capitalisation plus net debt.
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 advisers, Aon Hewitt.
The remuneration policy is designed to:
— attract and retain competent and suitably qualified non-executive directors;
— 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.
36
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 $1,250,000, being the amount approved by shareholders at the Annual
General Meeting held on 22 May 2015.
This remuneration is divided among the non-executive directors in such proportion as the Board determines. During the 2015 financial year,
annual fees for non-executive directors were $231,000 for the Chairman of the Board and $126,000 for each of the other non-executive
directors with an additional $10,500 for 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 2016 fees will be increased to $264,000 for the Chairman and $132,000 for each of the other non-
executive directors. The Chair of the Audit, Risk and Compliance Committee will be paid an additional annual fee of $11,000 for the additional
work associated with the Committee. The aggregate of these fees is below the current pool limit.
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. With the exception of $8,624 (2014: $6,702) paid to Richard Davis, no fees for additional or
special duties were paid to non-executive directors holding office during the years ended 31 December 2015 and 31 December 2014.
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 DESP or PLTIP on a fee sacrifice basis. No shares or options have been issued or
allocated to non-executive directors under either 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 have equity interests in the Company meeting this requirement.
Directors’ equity holdings are set out under the heading “Information on directors” starting on page 21 of the Directors’ Report and in Note 7:
“Key Management Personnel Disclosures” on page 67 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 2015 Annual General Meeting
The Remuneration Report for the year ended 31 December 2014 received a vote of 78.4% in favour at the Annual General Meeting held on
22 May 2015.
A resolution initially included on the Agenda for the 2015 AGM in relation to the proposed retirement arrangements for the former CEO, Mr
Andrew Smith, was withdrawn as a result of expressions of concern by various stakeholders and larger shareholders in the Company.
The Company has assessed this feedback and consequently made amendments to the LTI arrangements and the termination provisions in
the contracts of Senior Executives. These are detailed in the description of the 2016 LTI plan under the headings “D. Executive remuneration
policy and framework” and “I - Service Agreements”. The Board is considering a possible termination benefit arrangement for the former CEO,
which if approved by the Board, will be put to shareholders at the next AGM.
InvoCare Annual Report 2015 37
Directors’ Report continued
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 employee benefits
Post
employment
benefits
Other
long-term
benefits
Share-based ≠payments
Long service
leave (note 5)
LTI shares at
risk (note 6)
LTI shares
forfeited
(note 7)
Total Statutory
Remuneration
(note 8)
Executives’
Actual
Remuneration
(note 9)
Cash salary
or fee (note 1)
Short-term
cash bonus
(note 2)
Non-monetary
benefits
(note 3)
Year
$
Non-executive directors
Richard Fisher
2015
210,959
(Chairman)
2014
201,143
Christine Clifton
2015
115,068
Richard Davis
2015
123,692
2014
109,714
2014
116,668
Aliza Knox
2015
84,000
(resigned 31 August 2015)
2014
120,000
Joycelyn Morton
(appointed 19 August 2015)
Roger Penman
2015
2014
2015
42,464
-
34,125
(resigned 15 December 2015)
2014
130,000
Gary Stead
2015
115,068
(appointed 01 September 2014)
2014
36,529
Executive directors
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Super-
annuation
(note 4)
$
20,041
18,857
10,932
10,286
10,932
10,034
-
-
4,034
-
-
-
10,932
3,471
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
231,000
220,000
126,000
120,000
134,624
126,702
84,000
120,000
46,498
-
34,125
130,000
126,000
40,000
1,007,696
920,067
-
-
560,880
1,612,326
Martin Earp
2015
572,739
295,326
26,531
22,730
9,256
81,115
(appointed 30 March 2015)
2014
-
-
-
-
-
-
Andrew Smith (note 12)
2015
231,756
44,072
12,409
8,667
4,419
259,556
(contract ended 30 April 2015)
2014
719,049
330,012
35,359
23,162
38,427
680,089
(182,874)
1,643,224
1,250,340
Other key management personnel
Phillip Friery
2015
369,123
158,636
35,081
19,205
6,434
104,351
(128,636)
564,194
701,518
Greg Bisset
2015
361,581
168,612
27,393
30,003
20,476
136,291
(108,700)
635,655
779,967
2014
372,526
145,164
33,118
19,199
6,234
99,952
(122,546)
553,647
668,302
2014
350,962
141,644
26,545
26,791
7,440
130,373
(84,117)
599,638
642,482
Andi Luiskandl
2015
-
-
-
-
-
-
(Ceased to be a KMP
on 1 January 2015)
2014
226,313
28,648
19,614
21,120
2,059
53,191
-
-
-
-
350,945
309,639
Wee Leng Goh (note 10)
2015
259,579
56,343
5,753
14,481
Graeme Rhind (note 11)
2015
232,993
13,451
13,305
12,978
2014
229,934
35,820
5,207
11,897
2014
199,319
88,542
12,266
8,806
-
-
-
-
68,358
(81,827)
322,687
416,251
87,629
(41,712)
328,775
301,218
51,791
59,029
-
-
324,518
335,041
367,962
321,117
38
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 table on page 35.
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.
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, leave entitlements 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, including termination
benefits. The approximate market values of previous grants which were forfeited during the year were $209,623 for Phillip Friery, $177,135 for Greg Bisset
and $66,487 for Wee Leng Goh.
10. Wee Leng Goh, Chief Executive Officer of Singapore Casket Company, received total remuneration of SG$333,563 (2014:SG$375,852), which has been
converted to Australian dollars at the average exchange rate for the year of 0.9676 (2014: 0.8750).
11. Graeme Rhind, Chief Operating Officer of New Zealand, received total remuneration of NZ$349,514 (2014:NZ$400,028), which has been converted to
Australian dollars at the average exchange rate for the year of 0.9284 (2014: 0.9199).
12. In accordance with Australian Accounting Standards, the above table records the cash salary for time worked, payments for periods of annual leave taken,
superannuation contributions, STI entitlement, non-monetary benefits and LTI expense all relating to Mr Andrew Smith’s service up to 30 April 2015, the date
his service contract expired. In the column headed “Executives’ Actual Remuneration”, the amount shown for Mr Smith includes the market value of vested
LTI shares granted in prior years which met performance conditions and termination benefits provided effective 30 April 2015, being accrued but untaken
leave entitlements of $177,363, and LTI shares to the value of $769,996 which automatically vested in accordance with the terms of his service contract.
The amount shown in that column does not include provision of additional termination benefits, being the value of further unvested shares nor his 2015 STI
entitlement, which require shareholder approval.
I. Service Agreements
Chief Executive Officer
Remuneration and other terms of employment for the CEO, Martin Earp, have been formalised in a service agreement, which may be updated
from time to time. The service agreement specifies that employment commenced on 30 March 2015, the role of CEO was assumed on
1 May 2015 and, subject to agreement to extend the term, employments ends on 30 March 2018. The agreement 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 2016 provides for Martin Earp’s
remuneration as follows:
— Total fixed remuneration (ie. annual base salary, superannuation and motor vehicle) of $855,000 (“TFR”);
— short-term incentive bonus of up to $439,470, being 51.4% TFR; and
— LTI award under the proposed PLTIP to the value of $513,000, being 60.0% of TFR.
The STI opportunity will be subject to key performance conditions and weightings as follows:
EBITDA achievement (50% weighting) – with no STI earned until 90% of EBITDA budget is achieved at which level 25% of STI is payable, with
pro-rata increases to 100% budget achievement;
Team building (10% weighting) – assessed by external consultant review of success;
Developing marketing and digital business (10% weighting); and
Delivery of agreed growth projects and development of implementation plans for future growth projects (30% weighting).
The Board intends seeking the approval of shareholders at the next AGM for the CEO’s LTI awards.
The Remuneration Committee and Board have the discretion to provide additional performance incentives. Under the CEO service agreement,
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.
Further details of the share-based remuneration are set out in Section J - Share-based Compensation.
InvoCare Annual Report 2015 39
Directors’ Report continued
Remuneration Report continued
Other Senior Executives
Remuneration and other terms of employment for each of the other Senior Executives are formalised in service agreements or letters of
appointment as varied from time to time, including through annual review. Each contract is for an indefinite term.
The Senior Executive’s total remuneration package is reviewed annually by the Remuneration Committee and Board and, from 2016, provides
for remuneration to include:
— TFR;
— short-term incentive bonus averaging 42% of TFR with no retesting to recover any previous year shortfall; and
— LTI awards averaging 35% of TFR.
Termination Arrangements for Senior Executives
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.
Upon employment termination for any reason unvested LTI awards will be forfeited, unless the Board exercises its discretion to determine
otherwise as set out under the sub-heading “Long term incentives” under the heading “D. Executive remuneration policy and framework”. The
Board proposes putting a resolution dealing with termination benefit arrangements to shareholders at the next AGM.
Except for the CEO who is not subject to any post-employment restraints, other Senior Executives are generally subject to post-employment
restrictions for up to twelve months after employment termination without consideration paid for the restraint.
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.
40
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.
Year of
grant
Final year
vesting may
occur (note1)
Number
of shares
or rights
granted
Value at grant
date (note 2)
Number
vested
during year
Total
number
vested
Vested
%
Maximum
value yet to
vest (note 3)
Number
forfeited
during year
(notes 4 & 5)
Value of
forfeits
(note 4)
Aggregate
forfeited %
Andrew Smith
(note 5)
Martin Earp
Phillip Friery
Greg Bisset
Wee Leng Goh
Graeme Rhind
2011
2012
2013
2014
2015
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2012
2013
2014
2015
2016
2017
2018
2019
2020
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2017
2018
2019
2020
-
-
-
-
-
-
-
-
-
419
$4,581
27,417
$311,559
22,677
$311,559
-
-
2%
100%
100%
-
27,288
$201,163
27,288
27,288
100%
35,792
$284,325
31,115
35,792
100%
27,799
$303,960
27,380
27,799
98%
27,417
22,677
0%
0%
27,417
$311,559
22,677
$311,559
17,410
$239,200
17,454
$128,667
8,098
$64,334
9,617
$105,140
9,483
$107,768
8,079
$111,001
14,749
$108,728
-
-
-
-
-
-
-
-
-
$239,200
-
-
17,454
0% $128,667
17,454
$128,667
100%
4,340
3,206
5,398
3,206
67%
33%
$21,450
$70,090
-
-
-
-
$107,768
$111,001
-
-
-
-
-
-
-
-
-
-
-
-
14,749
0% $108,728
14,749
$108,728
100%
16,088
$127,803
8,622
10,725
12,212
$133,525
4,071
4,071
12,044
$136,863
10,260
$140,969
5,536
$40,800
5,081
$39,432
4,124
$45,075
4,607
$52,336
4074
$55,977
4,536
$35,199
3,464
$37,862
4,011
$45,565
3,422
$47,018
-
-
-
2,815
1,374
-
-
2,431
1,154
-
-
-
-
5,536
3,387
1,374
-
-
3,024
1,514
-
-
67%
33%
$42,612
$89,013
-
-
$136,863
$140,969
-
-
-
-
-
-
-
-
-
-
-
-
0%
$85,522
5,536
$85,522
100%
67%
33%
-
-
67%
33%
-
-
$20,344
$33,025
$55,320
$48,916
$18,159
$27,741
$48,353
$41,087
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 2015 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 2016, from the balance of unvested shares held in trust at the end of the year, shares from grants made in 2011 were forfeited
due to EPS performance conditions unlikely to be achieved.
5.
In the case of Andrew Smith, unvested shares at the date of his termination on 30 April 2015, including from the 2011 grant, either automatically vested
upon termination in accordance with the terms of his service contract or will vest subject to shareholder approval (the latter have been displayed as forfeited
in this table).
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 67.
InvoCare Annual Report 2015 41
Directors’ Report continued
Indemnifying officers or auditor
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 43.
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
Martin Earp
Director
Dated this 16th day of February 2016
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 2015:
Australian Firm
Assurance services
Taxation services
Other services
Non-Australian Firms
Taxation services
Other services
Total
$
23,617
80,506
16,666
48,391
485
169,665
42
Auditor’s Independence Declaration
As lead auditor for the audit of InvoCare Limited for the year ended 31 December 2015, 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
16 February 2016
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
InvoCare Annual Report 2015 43
Consolidated Income Statement
For the year ended 31 December 2015
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 and amortisation expenses
Cemetery land impairment reversal
Financial assets impairment charge
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
2015
$’000
2014
$’000
4
445,941
420,204
(125,445)
(121,614)
(115,446)
(105,258)
(26,885)
(16,715)
(28,155)
(8,824)
(19,045)
105,426
(20,180)
5,400
(2,635)
(24,124)
(14,912)
(27,149)
(8,819)
(17,246)
101,082
(19,187)
2,600
(2,000)
(14,786)
(15,483)
5
5
5
5
15
722
7,527
(70)
-
312
81,716
6
(26,747)
54,969
54,969
54,844
125
54,969
749
10,915
(1,215)
(525)
334
77,270
(22,643)
54,627
54,627
54,515
112
54,627
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)
11
11
50.1
50.1
49.8
49.8
The above consolidated income statement should be read in conjunction with the accompanying notes.
44
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2015
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
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Notes
26
26
2015
$’000
2014
$’000
54,969
54,627
1,179
(551)
628
(82)
1,537
1,455
55,597
56,082
55,472
125
55,597
55,970
112
56,082
InvoCare Annual Report 2015 45
Consolidated Balance Sheet
As at 31 December 2015
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
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.
46
Notes
12
13
14
15
18 (c)
13
18
15
19
21
22
20
15
23
21
22
20
6 (d)
15
23
25
26
26
27
2015
$’000
2014
$’000
8,679
41,139
24,451
35,066
3,499
1,299
10,488
39,237
22,313
32,997
2,702
1,138
114,133
108,875
22,881
4
322,248
387,218
152,751
9,374
-
894,476
1,008,609
16,381
61
308,344
367,970
152,480
8,719
2,423
856,378
965,253
39,313
37,091
-
1,130
10,111
34,954
8,660
14,318
2
622
9,364
33,847
7,588
13,726
108,486
102,240
174
230,772
3,062
36,420
373,494
50,457
2,306
696,685
805,171
203,438
133,694
5,529
63,054
202,277
1,161
203,438
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
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
Attributable to Owners of InvoCare Limited
Contributed
equity
$’000
Reserves
$’000
Retained
earnings
$’000
Notes
Non
controlling
interest
$’000
Total
Total equity
$’000
Balance at 1 January 2015
131,682
6,756
48,367
186,805
1,154
187,959
Total comprehensive income for the year
Dividends paid
Deferred employee share plan shares vesting during
the year
Transfer of shares from the deferred plan to the InvoCare
Exempt Share Plan Trust
Employee shares – value of services
Balance at 31 December 2015
Balance at 1 January 2014
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
Employee shares – value of services
-
-
628
54,844
55,472
125
55,597
-
(40,157)
(40,157)
(118)
(40,275)
1,684
(1,684)
328
-
-
(171)
-
-
-
-
328
(171)
-
-
-
-
328
(171)
133,694
5,529
63,054
202,277
1,161
203,438
132,393
4,423
32,636
169,452
1,245
170,697
-
-
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
-
-
-
-
(1,168)
1,335
10
26
25
26
10
26
25
26
Balance at 31 December 2014
131,682
6,756
48,367
186,805
1,154
187,959
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2015 47
Consolidated Statement of Cash Flows
For the year ended 31 December 2015
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
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 property, plant and equipment
Payments to funds for pre-paid contract sales
Receipts from funds for pre-paid contracts performed
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.
Notes
2015
$’000
2014
$’000
489,769
(395,007)
7,856
102,618
83
(14,380)
(23,690)
64,631
1,138
(7,076)
(22,035)
(35,338)
37,022
(26,289)
-
45,023
(44,953)
(40,157)
(118)
(40,205)
(1,863)
10,488
54
8,679
464,134
(367,317)
7,904
104,721
132
(14,981)
(20,182)
69,690
1,003
(6,738)
(26,665)
(33,326)
35,389
(30,337)
(1,168)
42,250
(40,000)
(38,784)
(203)
(37,905)
1,448
8,899
141
10,488
31
12
48
Notes to the Financial Statements
For the year ended 31 December 2015
Note 1: Summary of Significant Accounting Policies
(b) Principles of consolidation
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
The consolidated financial statements and notes of InvoCare Limited
also comply with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”).
(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 IFRS
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.
As of 1 January 2015 the Group has adopted a change in the
presentation of its consolidated statement of cash flows whereby
cash flows to and from independent prepaid funeral trust funds are
classified as investing instead of operating activities. The changes
were adopted to be consistent with the recognition of trust fund
fair value movements in the consolidated balance sheet and
consolidated income statement.
As a result the 2014 comparative information in the consolidated
statement of cash flows and reconciliation of cash flow from
operations with profit from ordinary activities after income tax has
changed as follows:
-
receipts from customers (including GST) have decreased
$2,063,000 and
(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 2015 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-acquistion profits or losses
and its share of post-acqusition 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.
- net cash flows from investing activities have increased by
$2,063,000 comprising payments to funds for pre-paid contract
sales $33,326,000 and receipts from funds for pre-paid contracts
performed $35,389,000.
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 recognise 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.
InvoCare Annual Report 2015 49
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 1: Summary of Significant Accounting Policies
continued
(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.
(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 in other
comprehensive income.
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
recognised in other comprehensive income. 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.
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.
50
Note 1: Summary of Significant Accounting Policies
continued
(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
depreciation or 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.
(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.
InvoCare Annual Report 2015 51
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 1: Summary of Significant Accounting Policies
continued
(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.
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.
(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.
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.
Hedges that meet the strict criteria for hedge accounting are
accounted for as follows:
52
Note 1: Summary of Significant Accounting Policies
continued
(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.
(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 corporate bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash outflows.
(t) Employee benefits continued
(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.
Cash settled share based payments are valued at each reporting date
using a Black Scholes valuation technique. Increases or decreases in
value are recorded as part of employee benefits expense. 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.
(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.
InvoCare Annual Report 2015 53
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 1: Summary of Significant Accounting Policies
continued
(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 presented 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, are presented 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.
(aa) New accounting standards and interpretations
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2015 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 2018 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.
54
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 Audit, Risk and Compliance Committee, which operate under policies
approved by the Board, is 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
(a) Market risk
(i) Cash flow and fair value interest rate risk
2015
$’000
2014
$’000
8,679
55,759
422,284
4
486,726
39,487
230,772
4,192
274,451
10,488
47,183
400,967
61
458,699
37,351
229,352
5,906
272,609
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. The broad policy of the Group to keep 75% of debt, measured by individual currency, on fixed interest rates over the next twelve
months by entering into interest rate swap contracts. The policy, however, provides flexibility to reduce the level of coverage in low interest rate
currency or when the interest rate outlook is relatively benign. 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 5.38% (2014: 5.80%) inclusive of swaps and margins but excluding establishment fees.
At balance date, interest rate swaps for 64% (2014: 76%) of borrowings were in place. Of these interest rate swaps 19% (2014: 15%) were
denominated in New Zealand dollar fixed interest instruments, with the balance denominated in Australian dollars. As at 31 December 2015
the weighted average fixed interest rate payable on the interest rate swaps is 4.38% (2014: 4.43%) and the weighted average variable rate
receivable as at 31 December 2015 is 2.44% (2014: 2.90%).
The following variable rate borrowings and interest rate swap contracts are outstanding:
31 December 2015
31 December 2014
Weighted average
interest rate
Balance $’000
Weighted average
interest rate
Balance $’000
Bank loans
Interest rate swaps (notional principal)
Net exposure to cash flow interest rate risk
5.38%
4.38%
238,819
148,124
90,695
5.80%
4.43%
232,658
175,808
56,850
InvoCare Annual Report 2015 55
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 2: Financial Risk Management continued
(a) Market risk continued
(i) Cash flow and fair value 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
Four to five years
2015
$’000
60,000
60,000
28,110
30,000
30,000
2014
$’000
55,808
60,000
60,000
28,675
-
208,110
204,483
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 (2014:
100 basis points) and 50 basis points in Singapore (2014: 50 basis points) in the interest rate would result in additional interest expense after tax of
$395,000 (2014: $449,000). A decrease of 100 basis points in Australian and New Zealand rates (2014: 100 basis points) and 50 basis points in
Singapore (2014: 50 basis points) in the interest rate would result in an after tax gain of $395,000 (2014: $118,000). 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 2015 and the movements in the fair value of these
instruments have been quarantined in equity. If interest rates decline by 100 basis points (2014: 100 basis points) a further $1,179,000 (2014:
$1,417,000) 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 $1,179,000 (2014: $1,086,000) net of tax.
The overall impact on the Group has been summarised on page 61.
The Group’s cash and cash equivalents held in Australia are interest bearing. At 31 December 2015 the weighted average interest rate was
0.67% (2014: 0.91%). If interest rates changed by 100 basis points (2014: 100 basis points) the Group’s after tax result would increase or
decrease by $44,000 (2014: $53,000).
(ii) Foreign exchange risk
The Group rarely undertakes significant 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.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows:
2015
$’000
2014
$’000
Borrowings
Derivatives
New Zealand Dollars
Singapore Dollars
New Zealand Dollars
Singapore Dollars
41,696
1,126
26,136
-
35,844
429
30,454
-
The Group has no significant unhedged foreign exchange exposures at 31 December 2015. 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.
56
Note 2: Financial Risk Management continued
(a) Market risk continued
(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 2015 and 31 December
2014 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 2015
31 December 2014
Increase
Decrease
Increase
Decrease
7,179
3,294
-
(7,179)
(3,294)
-
4,010
1,925
-
(4,010)
(1,925)
-
10,473
(10,473)
5,935
(5,935)
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 conservation 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
2015
%
17
26
57
2014
%
10
16
74
Approximately 82% 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 2015 57
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 2: Financial Risk Management continued
(b) Credit risk continued
(i)
Impaired receivables
The total amount of the provision for doubtful receivables was $2,268,000 (2014: $2,230,000). As at 31 December 2015, receivables with
a nominal value of $3,050,000 (2014: $3,261,000) 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 2015, trade receivables of $8,745,000 (2014: $7,928,000) 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
(iii) Other receivables
2015
$’000
4,365
4,381
2014
$’000
4,479
3,449
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.
58
Note 2: Financial Risk Management continued
(c) Liquidity risk continued
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:
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
2015
$’000
2014
$’000
-
-
290,000
255,000
9,685
6,910
299,685
261,910
231,832
230,304
2,416
1,156
234,248
231,460
58,168
7,269
65,437
24,696
5,754
30,450
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 2015
Trade and other payables
Borrowings
Derivatives
31 December 2014
Trade and other payables
Borrowings
Derivatives
Less than one year
$’000
Two to three years
$’000
39,313
-
1,130
174
163,332
2,978
Less than one year
$’000
Two to three years
$’000
37,091
-
622
178
70,304
4,864
More than
three years
$’000
-
68,500
84
More than
three years
$’000
82
160,000
420
Total
$’000
39,487
231,832
4,192
Total
$’000
37,351
230,304
5,906
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 $290 million, $120 million expiring in December 2020 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 2015. 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 2015 59
Notes to the Financial Statements continued
For the year ended 31 December 2015
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 2015, basic EPS was 50.1 cents (2014: 49.8 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 45.1 cents (2014: 42.2 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 19% (2014: 21%) 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 $7.25 or 725% (2014: $7.03 or
703%) up to 31 December 2015.
- 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 2015 dividends
represents a payout ratio of 85% (2014: 87%) of operating earnings after tax.
- Monitoring participation in the Dividend Reinvestment Plan: Up to 20% 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 2015 the proportion of debt
hedged was 64% (2014: 76%). The hedge contracts extend to the second half of 2020.
- Managing refinancing risk: The Groups borrowing facilities were renewed during 2015 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 was re-negotiated during 2015 and now expires in December 2020.
60
Note 2: Financial Risk Management continued
(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.
Prepaid contract funds under management
422,284
(1,385)
Total increase/(decrease)
(1,824)
1,179
1,824
(1,179)
(133)
-
109
2
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
8,679
55,759
(44)
-
4
39,487
-
-
230,772
(395)
-
-
-
-
-
-
44
-
1,385
-
-
395
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2
-
-
-
-
(133)
1,444
109
(1,432)
4,192
-
1,179
-
(1,179)
-
(1,444)
-
1,432
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)
-
61
37,351
-
-
229,352
(118)
-
-
-
-
-
-
53
-
1,738
-
-
449
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
(108)
2,536
88
(2,344)
5,906
-
1,417
-
(1,086)
-
(2,536)
(1,909)
1,417
2,240
(1,086)
(108)
-
-
88
2,344
1
31 December 2015
Financial assets
Cash and cash equivalents
Accounts receivable
Other financial assets
Financial liabilities
Trade and other payables
Borrowings
Derivatives
31 December 2014
Financial assets
Cash and cash equivalents
Accounts receivable
Other financial assets
Financial liabilities
Trade and other payables
Borrowings
Derivatives
Total increase/(decrease)
(f) Fair value estimation
Prepaid contract funds under management
400,967
(1,738)
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.
This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and
measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the
Group has classified its financial instruments into the three levels prescribed under the accounting standards as detailed below:
(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 $1,000 (2014: $7,000). Similarly, a 10% decrease in the discount rate results in an increase in contingent consideration of $1,000 (2014: $7,000).
InvoCare Annual Report 2015 61
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 2: Financial Risk Management continued
(f) Fair value estimation continued
Level 1
Prepaid contract funds under management
422,284
400,967
2015
$’000
2014
$’000
Level 2
Derivatives financial instruments
Level 3
Contingent consideration
(4,192)
(5,906)
(1,457)
(1,912)
No financial instruments or derivatives are held for trading. The contingent consideration represents expected future payments for business
acquisitions which are subject to performance hurdles. The carrying value is calculated by discounting the expected future payments to their
present value using the current interest rate on the Group’s borrowings.
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 2015 and 31 December 2014 is outlined below.
Australian
Operations
Singapore
Operations
New Zealand
Operations
Other
Operations
Consolidated
2015
$’000
2015
$’000
2015
$’000
2015
$’000
2015
$’000
374,080
16,525
44,337
1,429
436,371
8,367
397
704
102
9,570
(289,895)
(8,951)
(36,398)
(5,271)
(340,515)
7,971
(635)
8,643
(2,304)
(3,740)
105,426
(151)
(20,180)
92,552
(17,090)
5,400
(2,635)
-
-
-
-
(11,831)
(789)
(2,165)
661
(25,343)
85,780
886,448
725,160
-
(930)
14,168
38,181
28,802
61
(457)
45,323
80,286
50,697
-
-
(1)
-
5,400
(2,635)
(14,786)
722
(17)
(26,747)
1,704
146,975
3,694
1,008,609
512
805,171
Revenue from external customers
Other revenue (excluding interest income)
Operating expenses
Operating EBITDA
Depreciation and amortisation
Cemetery land impairment reversal
Financial assets impairment charge
Finance costs
Interest income
Income tax expense
Total goodwill
Total assets
Total liabilities
62
Revenue from external customers
Other revenue (excluding interest income)
Operating expenses
Operating EBITDA
Depreciation and amortisation
Cemetery land impairment reversal
Financial assets impairment charge
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
2014
$’000
2014
$’000
356,056
13,820
42,986
2014
$’000
149
44
2014
$’000
413,011
7,193
(242)
(319,122)
(49)
(24)
-
-
-
-
-
101,082
(19,187)
2,600
(2,000)
(15,483)
749
(525)
307
(7,420)
6,707
(576)
-
-
138
(34,437)
8,687
(2,027)
-
-
(634)
(1,933)
-
-
48
-
(793)
(961)
(2)
(22,643)
13,495
40,838
32,993
44,596
72,312
42,810
1,518
3,004
57
145,390
965,253
777,294
6,704
(277,023)
85,737
(16,560)
2,600
(2,000)
(12,916)
701
(525)
(20,887)
85,781
849,099
701,434
Operating EBITDA of $105,426,000 (2014: $101,082,000 ) 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. Group’s operations in Hong Kong and the USA have been aggregated under “Other Operations” in
the tables above due to their relatively small size.
Note 4: Revenue from Continuing Operations
Sales revenue
Sale of goods
Services revenue
Rent
Administration fees
Sundry revenue
2015
$’000
2014
$’000
178,707
257,664
436,371
345
5,623
3,602
9,570
166,127
246,884
413,011
270
5,245
1,678
7,193
Total revenue from continuing operations
445,941
420,204
InvoCare Annual Report 2015 63
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
Leasehold land impairment reversal
Financial assets impairment charge
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
2015
$’000
2014
$’000
4,382
13,394
17,776
389
176
567
1,272
2,404
20,180
(5,400)
-
2,635
17,415
12,739
2,047
14,786
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
923
470
11,422
8,396
11,116
7,514
64
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% (2014: 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 impairment of financial 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
2015
$’000
24,207
1,406
1,134
26,747
2014
$’000
19,993
2,774
(124)
22,643
2015
$’000
2014
$’000
24,515
23,181
(48)
(123)
790
27
-
1,358
308
26,827
(1,214)
1,134
26,747
(164)
131
-
282
158
168
(61)
23,695
(928)
(124)
22,643
2015
$’000
552
-
2014
$’000
48
359
InvoCare Annual Report 2015 65
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
(e) Tax losses
2015
$’000
2014
$’000
29,524
27,014
5,208
3,202
960
1,675
1,621
(2,892)
(770)
(898)
(1,210)
36,420
32,275
1,406
602
1,481
552
104
36,420
(2,326)
38,746
36,420
5,509
2,957
659
2,046
2,482
(4,528)
(1,575)
(526)
(1,763)
32,275
28,755
2,774
643
101
48
(46)
32,275
(4,404)
36,679
32,275
The Group has unutilised Australian capital losses with a potential benefit of $120,000 (2014: $176,000) at a tax rate of 30% (2014: 30%). The
Group has unutilised revenue losses with a potential benefit of $2,700,000 (2014: $168,000) in foreign jurisdictions.
66
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
2015
$
2014
$
3,610,058
3,714,095
164,935
40,585
382,299
153,623
54,160
679,014
4,197,877
4,600,892
Detailed remuneration disclosures are provided in the Remuneration Report on pages 29 to 41.
(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 starting on pages 29 to 41.
The Company has not provided any options over unissued shares as remuneration during the 2015 or 2014 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.
Balance at start of
the year
Granted during year
as compensation
Other changes
during year
Balance at end of
the year
Non-executive Directors
Richard Fisher
Christine Clifton
Roger Penman (note 3)
Aliza Knox (note 3)
Richard Davis
Gary Stead
Joycelyn Morton
Executive Directors
Martin Earp
Andrew Smith (note 3)
Other key management personnel
Phillip Friery (note 1)
Greg Bisset (note 1)
Wee Leng Goh (note 2)
Graeme Rhind (note 2)
11,956
112,961
16,947
5,339
581,607
-
-
-
255,485
84,233
83,019
24,077
11,418
-
-
-
-
-
-
-
17,410
22,677
8,079
10,260
4,074
3,422
5,433
-
(16,947)
(5,339)
(20,000)
6,500
6,000
17,389
112,961
-
-
561,607
6,500
6,000
-
17,410
(278,162)
-
(27,901)
(13,985)
(9,640)
(2,399)
64,411
79,294
18,511
12,441
1. Upon final vesting test in February 2016, from the balance of shares held at the end of the year as shown in the above table, shares from grants made in
2011 were forfeited due to EPS performance conditions not being achieved. Phillip Friery forfeited 17,454 shares and Greg Bisset forfeited 14,749 shares.
2. These grants are share appreciation rights.
3. Andrew Smith resigned on 30 April 2015, Aliza Knox resigned on 31 August 2015 and Roger Penman resigned on 15 December 2015 and consequently the
shares held at the date of resignation reported as an other movement.
InvoCare Annual Report 2015 67
Notes to the Financial Statements continued
For the year ended 31 December 2015
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 2015 or 2014.
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
2015
$’000
261
2014
$’000
1,335
68
Note 8: Share-based Payments continued
Details of unvested grants and other movements in the deferred employee share plan follow:
Grant date
1 January 2010
1 January 2011
1 March 2011
1 July 2011
1 January 2012
1 March 2012
1 January 2013
1 March 2013
1 January 2014
1 March 2014
1 January 2015
1 March 2015
31 March 2015
Vesting date
25 February 2012
25 February 2013
25 February 2014
25 February 2013
25 February 2014
25 February 2015
25 February 2015
25 February 2013
25 February 2014
25 February 2015
25 February 2014
25 February 2015
25 February 2016
25 February 2015
25 February 2016
25 February 2015
25 February 2016
25 February 2017
25 February 2015
25 February 2016
25 February 2017
25 February 2016
25 February 2017
25 February 2018
25 February 2016
25 February 2017
25 February 2018
21 February 2017
21 February 2018
21 February 2019
21 February 2017
21 February 2018
21 February 2019
21 February 2017
21 February 2018
21 February 2019
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
6.01
6.01
6.01
7.37
7.37
7.37
7.37
7.37
7.37
7.37
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
13.74
13.74
13.74
13.74
13.74
13.74
13.74
13.74
13.74
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
72
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
412
412
412
82
82
82
80
80
80
-
-
-
(67)
(67)
(67)
(54)
-
-
(7)
(224)
(368)
(95)
(53)
-
(410)
(98)
(94)
(73)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(254)
(254)
(254)
-
-
-
-
(7)
(7)
-
-
-
-
-
(6)
-
-
(5)
-
(9)
(9)
(103)
(103)
(104)
(7)
(7)
(7)
(104)
(104)
(104)
(9)
(9)
(9)
-
-
-
-
-
-
238
238
238
-
-
-
-
-
-
273
-
47
-
312
312
-
64
64
316
316
316
65
65
65
308
308
308
73
73
73
80
80
80
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.
5,743
1,722
(1,677)
(1,475)
4,298
InvoCare Annual Report 2015 69
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
1 January 2012
25 February 2014
25 February 2015
25 February 2016
21 February 2012
21 February 2014
1 March 2012
21 February 2015
21 February 2016
25 February 2015
25 February 2016
1 January 2013
21 February 2015
21 February 2016
21 February 2017
21 February 2013
21 February 2015
1 March 2013
21 February 2016
21 February 2017
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
1 March 2014
25 February 2017
25 February 2018
25 February 2016
25 February 2017
25 February 2018
1 January 2015
22 February 2017
22 February 2018
22 February 2019
22 February 2015
22 February 2017
1 March 2015
22 February 2018
22 February 2019
22 February 2017
22 February 2018
22 February 2019
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
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
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
13.74
13.74
13.74
13.74
13.74
13.74
13.74
13.74
13.74
22
22
22
22
22
22
24
38
38
10
21
21
6
6
28
28
28
17
17
17
7
7
7
32
32
32
18
18
18
7
7
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38
38
38
19
19
19
2
2
2
-
-
-
-
-
-
(24)
(38)
-
(10)
(21)
-
(6)
-
(28)
-
-
(17)
-
-
(7)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(22)
(22)
(22)
(22)
(22)
(22)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
623
177
(151)
(132)
-
-
-
-
-
-
-
-
7
-
-
5
-
-
-
5
5
-
3
3
-
-
-
-
-
-
2
2
2
-
-
-
(5)
(5)
(5)
(2)
(2)
(2)
(1)
(1)
(1)
10
-
-
-
-
-
-
-
-
45
-
-
26
-
6
-
33
33
-
20
20
-
7
7
32
32
32
20
20
20
7
7
7
33
33
33
17
17
17
1
1
1
530
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.
70
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
Taxation services
Other Services
PricewaterhouseCoopers – non-Australian firms
Taxation services
Other services
Non-PricewaterhouseCoopers – Singaporean firm
Other services
Total remuneration for non-audit services
2015
$
2014
$
416,900
310,630
-
9,355
31,460
28,446
448,360
348,431
23,617
80,506
16,666
48,391
485
28,733
53,856
38,696
32,321
2,857
13,157
11,896
182,822
168,359
For 2015, included in $416,900 for audit and review of financial reports is $46,000 in relation to the scope changes for the 2014 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 2015 71
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 10: Dividends
Dividends paid
Final ordinary dividend for the year ended 31 December 2014 of 20.75 cents (2013: 19.5 cents) per fully
paid share paid on 2 April 2015 (2013: 4 April 2014), fully franked based on tax paid at 30% (2013: 30%)
Interim ordinary dividend for the year ended 31 December 2015 of 15.75 cents (2014: 15.75 cents) per
share paid on 9 October 2015 (2014: 3 October 2014), fully franked based on tax paid at 30% (2014: 30%)
Dividends paid to members of InvoCare Limited
On 20 July 2015 (2014: 16 December 2014) dividend totalling 14.75 cents (2014: 25.29 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 22.25 cents (2014: 20.75 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 8 April 2016 out of 2015 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 22.25 cents
(2014: 20.75 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)
72
2015
$’000
2014
$’000
22,827
21,455
17,330
40,157
118
40,275
17,329
38,784
203
38,987
24,482
22,827
28,120
23,737
8,563
7,974
(10,492)
26,191
(9,785)
21,926
2015
$’000
2014
$’000
54,969
(125)
54,844
54,627
(112)
54,515
2015
Number
2014
Number
109,533,561
109,375,375
109,533,561
109,375,375
2015
cents
50.1
50.1
2014
cents
49.8
49.8
Note 12: Cash and Cash Equivalents
Cash on hand
Cash at bank
Cash at bank attracts floating interest rate of 0.75% (2014: 1.25%)
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
2015
$’000
83
8,596
8,679
2014
$’000
79
10,409
10,488
8,679
8,679
10,488
10,488
2015
$’000
2014
$’000
35,737
(2,265)
6,138
1,529
41,139
34,407
(2,214)
6,328
716
39,237
22,290
15,006
(4)
595
-
22,881
(16)
298
1,093
16,381
2015
$’000
2,230
923
(884)
2,269
2014
$’000
2,608
470
(848)
2,230
2015
$’000
2014
$’000
22,487
1,964
24,451
21,522
791
22,313
InvoCare Annual Report 2015 73
Notes to the Financial Statements continued
For the year ended 31 December 2015
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 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
2015
$’000
19,790
(12,263)
7,527
2014
$’000
24,832
(13,917)
10,915
2015
$’000
2014
$’000
400,967
373,609
35,338
3,211
(37,022)
-
19,790
422,284
33,326
3,241
(35,389)
1,348
24,832
400,967
2015
$’000
2014
$’000
393,841
376,525
35,338
3,211
(36,205)
-
12,263
408,448
33,990
3,241
(35,180)
1,348
13,917
393,841
(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 $6,797,000
(2014: $6,488,000). 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 $19.8 million in prepaid contract funds under management
(2014: $24.8 million) was greater than the non-cash growth due to selling price increases of $12.3 million in the liability for future service
delivery obligations (2014: $13.9 million).
74
Note 16: Interests in Other Entities: Subsidiaries
(a) Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2015. 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
Country of incorporation
Principal activities
InvoCare Australia Pty Limited
Bledisloe Australia Pty Ltd
Australia
Australia
Funeral services provider
Funeral services provider
Bledisloe New Zealand Limited
New Zealand
Funeral services provider
Singapore Casket Company (Private) Limited
Singapore
Funeral services provider
Ownership interest
held by the Group
2015
%
2014
%
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 2016 Bledisloe New Zealand Limited will be renamed InvoCare New Zealand Limited and InvoCare New Zealand Limited will be
renamed InvoCare Holdings NZ Limited.
(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.
(c) Subsidiaries with non-controlling interests (“NCI”)
One subsidiary, Macquarie Memorial Park Pty Limited, has non-controlling interests of 16.86% (2014: 16.86%). During the year dividends
totalling $118,000 were paid to non-controlling interests (2014: $203,000).
InvoCare Annual Report 2015 75
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 17: Interests in Other Entities: Associates
(a) Interests in associates
(i) Set out below is the associate of the Group at 31 December 2015. 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
HeavenAddress Pte. Ltd
Singapore
Associate
Equity method
2015
%
34.59
2014
%
34.59
2015
$’000
-
2014
$’000
2,423
% of ownership interest
Carrying Amount
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 2015 (2014: Nil).
(b) Impairment
During 2015 a review of the Group’s investment in its associate was undertaken which resulted in an impairment write down of $2,577,000
(2014:$2,000,000). 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 for performance improvements.
As a result the recoverable amount of the Group’s investment in its associate as at 31 December 2015 is now Nil (2014:$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%
(2014: 17.8%) 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 reversals.
76
Note 18: Property, Plant and Equipment
At 1 January 2015
Cost
Accumulated depreciation/amortisation
Impairment write-downs
Net book amount
Year ended 31 December 2015
Additions
Business combinations
Disposals
Depreciation/amortisation & impairment charge
Effect of movement in exchange rates
Transfers/reclassifications
Closing net book amount
At 31 December 2015
Cost
Accumulated depreciation/amortisation
Impairment write-downs
Net book amount
At 1 January 2014
Cost
Accumulated depreciation/amortisation
Impairment write-downs
Net book amount
Year ended 31 December 2014
Additions
Business combinations
Disposals
Effect of movement in exchange rates
Transfers/reclassifications
Closing net book amount
At 31 December 2014
Cost
Accumulated depreciation/amortisation
Impairment write-downs
Net book amount
Depreciation/amortisation & impairment charge
2,156
Cemetery
land
$’000
Freehold
land
$’000
Buildings
$’000
Leasehold land
and buildings
$’000
Leasehold
improvements
$’000
Plant and
equipment
$’000
Total
$’000
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
25
3,584
-
5,011
-
-
746
433
(200)
-
226
-
5,018
2,326
(223)
(4,382)
(44)
(800)
-
-
-
1,027
15,399
22,215
-
(19)
336
(385)
6,679
(827)
(176)
(567)
(13,394)
(13,508)
(8)
-
(1)
-
(28)
-
145
(800)
99,813
85,164
84,236
1,529
4,242
47,264
322,248
111,588
85,164
137,741
(7,399)
(4,376)
-
-
(53,505)
-
4,534
(3,005)
-
7,510
128,857
475,394
(3,268)
(81,593)
(148,770)
-
-
(4,376)
99,813
85,164
84,236
1,529
4,242
47,264
322,248
107,727
78,685
128,958
(6,665)
(12,276)
-
-
(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
-
-
-
-
4,555
1,443
-
-
854
5,114
415
(34)
(4,243)
477
(1,578)
(1,609)
213
-
(217)
(176)
-
-
1,087
15,750
26,970
47
(10)
82
(414)
1,987
(675)
(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
InvoCare Annual Report 2015 77
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
(b) Impairment
2015
$’000
2,008
700
1,721
4,429
2014
$’000
1,115
129
2,513
3,757
All impaired cemetery and crematorium sites were reassessed at 31 December 2015 using the same methodology as previously applied and a
write back (i.e. reversal of previous impairment write downs) amounting to $5,400,000 was deemed necessary to the impairment provision.
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
Leasehold Land, Australian Capital Territory
Impairment Loss/(Reversal)
Recoverable Amount Estimates
2015
$’000
(3,000)
(2,400)
-
(5,400)
2014
$’000
(500)
(2,000)
(100)
(2,600)
2015
$’000
17,500
15,300
-
32,800
2014
$’000
15,000
12,800
100
27,900
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% (2014: 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.
This includes a property in North Sydney, New South Wales where Group’s corporate office is located. The contract for sale of this property
was signed in early 2016 and will be settled in the first half of 2016.
78
Note 19: Intangible Assets
At 1 January 2015
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2015
Acquisition of subsidiary/businesses
Effect of movement in exchange rates
Amortisation charge
Net book amount
At 31 December 2015
Cost
Accumulated amortisation
Net book amount
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
Amortisation charge
Net book amount
At 31 December 2014
Cost
Accumulated amortisation
Net book amount
(a) Impairment test for goodwill
Goodwill
$’000
Brand name
$’000
Total
$’000
145,390
12,922
158,312
-
145,390
1,536
49
-
146,975
(5,832)
7,090
-
(42)
(1,272)
5,776
(5,832)
152,480
1,536
7
(1,272)
152,751
146,975
12,909
159,884
-
146,975
(7,133)
5,776
(7,133)
152,751
140,710
12,674
153,384
-
140,710
2,315
2,365
-
145,390
(4,472)
8,202
48
109
(1,269)
7,090
(4,472)
148,912
2,363
2,474
(1,269)
152,480
145,390
12,922
158,312
-
145,390
(5,832)
7,090
(5,832)
152,480
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% (2014: 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.
InvoCare Annual Report 2015 79
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 20: Derivative Financial Instruments
Current liabilities
Interest rate swap contracts – cash flow hedges
Non-current liabilities
Interest rate swap contracts – cash flow hedges
2015
$’000
1,130
1,130
3,062
3,062
2014
$’000
622
622
5,284
5,284
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.
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
2015
$’000
2014
$’000
26,446
11,583
1,284
39,313
174
174
25,560
9,879
1,652
37,091
260
260
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
Loan establishment costs
Full details of the risks, ageing and available facilities are set out in Note 2 – Financial Risk Management.
2015
$’000
2014
$’000
-
-
2
2
231,833
(1,061)
230,772
230,304
(954)
229,350
80
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
(b) Superannuation plan
2015
$’000
2014
$’000
14,318
13,726
2,306
2,409
2015
Number
2014
Number
1,557
1,532
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 322 members at 31 December 2015 and the balance owing by employee plan members for the
purchase price of shares was $159,812 (2014: $151,814).
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
2015
$’000
39,313
-
10,111
34,954
8,660
14,318
2014
$’000
37,091
2
9,364
33,847
7,588
13,726
2015
$’000
39,313
-
10,111
34,954
8,660
8,031
107,356
101,618
101,069
2014
$’000
37,091
2
9,364
33,847
7,588
6,996
94,888
The amounts expected to be settled within twelve months have been calculated based on the historical settlement patterns.
InvoCare Annual Report 2015 81
Notes to the Financial Statements continued
For the year ended 31 December 2015
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))
Total consolidated contributed equity
(a) Ordinary shares
2015
$’000
2014
$’000
133,694
131,682
2015
Number
2015
$’000
2014
Number
2014
$’000
110,030,298
136,858 110,030,298
110,030,298
136,858 110,030,298
(444,300)
(3,164)
(661,978)
109,585,998
133,694 109,368,320
136,858
136,858
(5,176)
131,682
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 2014
25 February 2014
Details
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
Number of
shares
631,733
(71,735)
102,883
(5,219)
31 December 2014
Shares provisionally forfeited but not yet de-allocated by the Trustee
(126,777)
31 December 2014
25 February 2015
30 April 2015
30 April 2015
Unallocated shares held by the Trustee
Balance
Shares vested
Shares vested
Forfeit of shares on termination of employment
22 May 2015 to 3 July 2015
Forfeit of shares on termination of employment
6 July 2015
Transfer of shares to members of the Exempt Employee Share Plan
6 August 2015 to 14 December 2015
Forfeit of shares on termination of employment
31 December 2015
Shares provisionally forfeited but not yet de-allocated by the Trustee
Unallocated shares held by the Trustee
31 December 2015
Balance
(c) Dividend reinvestment plan
131,093
661,978
(133,614)
(57,334)
(50,513)
(4,006)
(26,730)
(1,681)
(76,996)
133,196
444,300
$’000
4,465
(457)
1,168
(52)
(763)
815
5,176
(988)
(695)
(627)
(41)
(328)
(20)
(737)
1,424
3,164
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.
82
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
(c) Nature and purpose of reserves
(i) Share-based payments reserve
2015
$’000
2014
$’000
2,165
(2,892)
6,256
5,529
4,020
(171)
(1,684)
2,165
(4,071)
1,731
(552)
(2,892)
6,807
(551)
6,256
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
48,367
54,844
(40,157)
63,054
32,636
54,515
(38,784)
48,367
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.
InvoCare Annual Report 2015 83
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
2015
$’000
2014
$’000
800
800
255
125
(118)
262
99
1,161
346
112
(203)
255
99
1,154
2015
$’000
2014
$’000
11,828
30,530
11,045
53,403
10,095
22,148
12,447
44,690
During the year the Group entered into a lease for premises at 181 Miller Street, North Sydney and subsequent to the execution of the lease
Transport for NSW announced plans to acquire the building as part of the works for the Sydney Metro. It is expected that Transport for NSW
will cause the lease to be rescinded as soon as practical and pay compensation in accordance with the normal legislative requirements. As
the location had not been outfitted alternate premises were located and an additional lease executed prior to the end of the financial year. The
commitments associated with this additional lease are included above.
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
11,464
30,029
11,045
52,538
Equipment
$’000
364
501
-
865
Total
$’000
11,828
30,530
11,045
53,403
84
Note 28: Capital and Leasing Commitments continued
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.
(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
2015
$’000
2014
$’000
-
-
-
2
-
2
-
2,539
5,345
1,099
2,162
129
68
InvoCare Annual Report 2015 85
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 29: Business Combinations
Harewood Memorial Gardens and Crematorium/Cremation Society of Canterbury
(a) Summary of acquisition
On 22 July 2015, a subsidiary, Bledisloe New Zealand, completed the acquisition of the cemetery and cremation assets of Harewood
Memorial Gardens and Crematorium Limited and Cremation Society of Canterbury Limited (“Harewood”) which have operated crematoria in
the Christchurch market for over 70 years.
Provisional accounting for this acquisition has been completed as at 31 December 2015.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
(b) Purchase consideration
Purchase consideration
Cash paid
Retention amount to be paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer (c) below):
Goodwill
$’000
5,964
276
6,240
4,704
1,536
The goodwill recognised is attributable to the locations, brand names and the profitability of the acquired business. It will not be deductible for
tax purposes.
Retention amount listed in the table above was paid in early 2016.
86
Note 29: Business Combinations continued
(c) Assets acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Inventories
Land and buildings
Property, plant and equipment
Provisions
Deferred revenue
Deferred tax liabilities
Net identifiable assets acquired
Fair Value
$’000
17
6,018
320
(71)
(98)
(1,482)
4,704
If the acquisition had occurred on 1 January 2015, consolidated revenue for the year ended 31 December 2015 would have increased by
approximately $900,000 and profit after tax by approximately $103,000.
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 $2,200,000 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 2014 and as a result $700,000 of the $2,200,000 in
future payments was paid in 2015. The predetermined revenue target was also achieved in 2015 and as a result $900,000 of the $2,200,000
in future payments was paid in early 2016.
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 relating to 2014 totalling $95,000 of the $324,000 in future payments was made.
Note 30: Contingent Liabilities and Contingent Assets
The Group had contingent liabilities at 31 December 2015 in respect of bank guarantees given for leased
premises of controlled entities to a maximum of:
2015
$’000
2014
$’000
2,287
1,088
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.
InvoCare Annual Report 2015 87
Notes to the Financial Statements continued
For the year ended 31 December 2015
Note 31: Cash Flow Information
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
2015
$’000
2014
$’000
54,844
54,515
22,815
(5,400)
779
366
56
(312)
21,187
(2,600)
1,596
366
91
(334)
(7,527)
(10,915)
837
71
-
(8,403)
(2,138)
(816)
2,136
6,049
748
4,145
(3,619)
64,631
186
1,215
525
(2,954)
(676)
(326)
1,665
2,615
(583)
3,520
597
69,690
88
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 2015 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
2015
$’000
2014
$’000
358,727
(97,652)
(90,059)
(22,218)
(11,629)
(21,145)
(7,307)
(14,550)
94,167
(15,448)
2,823
(12,543)
649
7,527
9
2,341
-
507
80,032
(22,548)
57,484
1,662
(1,255)
407
57,891
51,063
57,484
(40,157)
68,390
339,301
(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
InvoCare Annual Report 2015 89
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
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
90
2015
$’000
2014
$’000
559
35,309
21,997
35,066
3,320
1,299
97,550
47,126
136,425
252,774
387,218
11,418
8,857
-
843,818
941,368
32,594
1,130
7,304
34,700
8,660
13,061
97,449
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
189,076
193,500
1,936
31,313
4,864
28,770
373,494
359,995
47,559
2,074
645,452
742,901
198,467
42,818
2,165
632,112
722,802
180,575
133,694
131,682
(3,617)
68,390
(2,170)
51,063
198,467
180,575
Note 33: Events after the Balance Sheet Date
No significant subsequent events, not otherwise disclosed, have occurred since 31 December 2015.
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 material to the Group 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
Transactions with other related parties
Contributions to superannuation funds on behalf of employees
8,395,542
7,513,557
(e) Guarantees and other matters
Under the terms of common terms deed executed on 20 December 2013 and amended on 22 December 2015, 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.
2015
$
2014
$
InvoCare Annual Report 2015 91
Notes to the Financial Statements continued
For the year ended 31 December 2015
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
(b) Contingent liabilities of the parent entity
The parent entity had contingent liabilities at 31 December 2015 in respect of bank guarantees given for
leased premises of controlled entities to a maximum of:
2015
$’000
2014
$’000
188
381,571
8,782
173,044
75
368,240
8,254
174,791
133,694
131,682
2,165
(2,171)
1,080
73,759
208,527
53,174
53,224
4,020
(3,833)
837
60,743
193,449
32,615
34,542
2015
$’000
2014
$’000
2,287
1,088
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 31December 2015
(31 December 2014: Nil).
(d) Tax consolidation legislation
InvoCare Limited and its wholly-owned Australian controlled entities implemented the tax consolidation legislation from 1 January 2004.
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.
92
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 $65,437,000 as outlined in Note 2(c), or by on-demand repayment of intercompany advances.
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 $44.0 million at 31 December 2015
(2014: $41.4 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 $2.9 million (decrease by $1.4 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 16 February 2016. The Company has the power to amend and reissue this report.
InvoCare Annual Report 2015 93
Directors’ Declaration
In the directors’ opinion:
(a)
the financial statements and notes set out on pages 44 to 93 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 2015 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
16 February 2016
Martin Earp
Director
94
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 2015, 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 Consolidated 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.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
DX 77 Sydney, Australia
T +61 2 8266 0000, F +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
InvoCare Annual Report 2015 95
Independent Auditor’s Report continued
to the members of InvoCare Limited
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 2015 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.
Report on the Remuneration Report
We have audited the remuneration report included in pages 29 to 41 of the directors’ report for the year ended 31 December 2015. 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 2015 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 2015 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
96
Sydney
16 February 2016
Shareholder Information
Shares and options as at 21 March 2016
Shares on issue
Options on issue
Distribution of shareholders as at 21 March 2016
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number
110,030,298
Nil
Percentage
%
3.57%
18.16%
10.07%
13.33%
54.87%
Number of
shareholders
7,453
8,279
1,497
694
37
Number of
shares
3,927,413
19,986,686
11,077,628
14,665,261
60,373,310
There were 213 holders of less than a marketable parcel of ordinary shares (being 40 based on a price of $12.56 on 21 March 2016) who hold
a total of 2,124 ordinary shares.
17,960
110,030,298
100.00%
Equity security holders
Largest 20 holders of ordinary shares at 21 March 2016
1. HSBC Custody Nominees (Australia) Limited
2. J P Morgan Nominees Australia Limited
3. National Nominees Limited
4. Citicorp Nominees Pty Limited
5. National Nominees Limited (Db A/C)
6. Argo Investments Limited
7. Milton Corporation Limited
8. BKI Investment Company Limited
9. BNP Paribas Nominees Pty Ltd (Drp)
10. Australia Foundation Investment Company Limited
11. Australian United Investment Company Limited
12. AET SFS Pty Ltd (Invocare Share Plans)
13. UBS Wealth Management Australia Nominees Pty Ltd
14. Mr Richard Hugh Davis
15. Questor Financial Services Limited (TPS RF A/C)
16. Netwealth Investments Limited (Wrap Services A/C)
17. Gwynvill Trading Pty Ltd
18. HSBC Custody Nominees (Australia) Limited - A/C 3
19. Mirrabooka Investments Limited
20. Navigator Australia Ltd (MLC Investment Sett A/C)
Total for top 20
Substantial holders
Substantial holders in the Company as at 21 March 2016 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:
Ordinary Shares
Number of
shares
Percentage
%
20,995,551
11,060,580
5,698,168
4,969,276
2,325,470
2,082,191
1,950,914
1,358,474
1,354,765
1,150,000
1,000,000
777,698
576,760
541,607
463,033
445,979
415,643
393,362
360,000
335,112
19.08%
10.05%
5.18%
4.52%
2.11%
1.89%
1.77%
1.23%
1.23%
1.05%
0.91%
0.71%
0.52%
0.49%
0.42%
0.41%
0.38%
0.36%
0.33%
0.33%
58,254,583
52.94%
Number of
shares held
12,646,442
12,007,408
5,796,827
Percentage
%
11.49%
10.91%
5.27%
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 2015 97
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
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
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
George Hartnett
Funerals (est 1947)
Albany Creek
Cleveland
Holland Park
Kelvin Grove
Redcliffe
Sandgate
Wynnum
Metropolitan
Funerals (est 1941)
Aspley
Cleveland
Mt Gravatt
Petrie
Redcliffe
Southport
Springwood
Toowong
Wynnum
Other Providers
Drysdale Funerals
(est 1983)
Nambour
Tewantin
Somerville Funerals
(est 1932)
Nerang
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
Beaudesert Funeral
Services (est 1980)
Beaudesert
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
North Island
Forrest Funeral
Services (est 1978)
Browns Bay
Orewa
Fountain’s Funeral
Services (est 1956)
Papakura
Manurewa
Sibuns Funeral
Directors (est 1913)
Remuera
H Morris Funerals
(est 1933)
Northcote
Lychgate Funeral
Home (est 1876)
Wellington
Johnsonville
Resthaven Funerals
(est 2000)
Manurewa
Howick
Gee & Hickton
(est 1946)
Lower Hutt
Upper Hutt
Akatarawa
Crematorium
Wheeler’s Guardian
North City
(est 1966)
Porirua
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
98
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
Penrith
Randwick
Ryde
Smithfield
South Sydney*
Toukley East
Tweed Heads
Woy Woy
Wyong
Buranda
Cairns*
Ipswich
Kedron
Logan
Parkwood
Robina
Strathpine
Sunshine Coast*
Bayswater
Carnegie
Frankston
Hume*
Pascoe Vale
Reservoir
Sunshine
Werribee
Australian Capital
Territory
Canberra*
* Mobile Arranger + Incorporate Value Funerals
Black Forest
Brahma Lodge
Enfield
Gawler
Morphett Vale
South Adelaide*
Victor Harbor
Tasmania
Hobart*
Joondalup
Kelmscott
Mandurah
Osborne Park
South Perth*
Spearwood
New Zealand
Grey Lynn
Nelson
New Lynn
Royal Oak
Sydenham
Wellington*
New South Wales
Queensland
Victoria
South Australia
Western Australia
White Lady Funerals (est 1987)
Bankstown
Belmont
Bondi Junction
Bulli
Camden
Charlestown
Charmhaven
Eastwood
Five Dock
Frenchs Forest
Liverpool
Mayfield
Mosman
Narrabeen
Nelson Bay
Northern Rivers*
Pennant Hills
Penrith
Queanbeyan
Rockdale
Roseville
Sutherland
Toronto
Tweed Heads
Wyoming
Ashmore
Cairns
Caloundra
Chelmer
Clayfield
Cleveland
Holland Park
Kelvin Grove
Miami
Morningside
Tanah Merah
Warana
Burwood
Doncaster
Epping
Glen Huntly
Heathmont
Heidelberg
Mornington
North Essendon
Rosebud
South Melbourne
Singapore
Singapore Casket Company (est 1920)
Simplicity Casket Company (est 2009)
Lavender Street
Mount Vernon
Sin Ming Drive
Hillcrest
Glenside
Plympton
Operating as
Mareena Purslowe
Funerals
Fremantle
Midland
Subiaco
Victoria Park
Wangara
Tasmania
North Hobart
Australian Capital
Territory
Belconnen
Kingston
Tuggeranong
USA
Macera Crematory
San Diego
Cemeteries and Crematoria
New South Wales
Queensland
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
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
New Zealand
Harewood Memorial Gardens &
Crematorium (est 1963)
Woodlawn Memorial Gardens &
Crematorium (est 1936)
Christchurch
Christchurch
InvoCare Annual Report 2015 99
Glossary
AASB
ABS
ACCC
AIFRS
ASX
ASX Corporate
Governance Principles and
Recommendations
Cemetery
CGU
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
The eight essential corporate governance principles and best practice recommendations of the ASX
Corporate Governance Council 3rd Edition 2014
A place for burials and memorialisation
A cash-generating unit which is the smallest identifiable group of assets that independently generates
cash in flows
Condolence Lounge
A facility for family and friends to gather at after the funeral service – usually offering a catering service
Constitution
Crematorium
Crypts
DRP
EBITDA
EEO
EPS
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
An InvoCare location offering cremation, burial and memorialisation services
Operating Earnings
Prepaid Cemetery and
Crematorium Services
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
100
Corporate Information
InvoCare Limited
ABN 42 096 437 393
Directors
Richard Fisher (Chairman)
Martin Earp (Managing Director
and Chief Executive Officer)
Christine Clifton (Non-executive Director)
Richard Davis (Non-executive Director)
Joycelyn Morton (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: www.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
Designed and produced by InvoCare
ANNUAL REPORT
ANNUAL REPORT
2015
2015
www.invocare.com.au
www.invocare.com.au