2019 ANNUAL REPORT
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INNOVATIONVOCATIONCARE We’re here to support our clients, their families and friends, at a
pivotal time in their lives. We do this by being compassionate,
exceeding expectations and delivering outstanding service.
,,
,,
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Annual Report 2019Allambe Memorial Park, Nerang QLD. Artist impression CONTENTS
InvoCare Limited
ABN 42 096 437 393
Performance Highlights
Chairman’s Message
Five Year Financials
Chief Executive Officer’s Review
Protect & Grow
Senior Leadership Team
Focus on Leadership
The Core and More
Directors’ Report – Operating and financial review
Directors’ Report – Remuneration report
Directors’ Report – Other statutory matters
Auditor’s Independence Declaration
Financial Report
Consolidated Financial Statements
Financial Notes – Key performance metrics
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16
37
58
65
66
68
73
Financial Notes – Significant operating assets and liabilities
87
Financial Notes – Capital and risks
Financial Notes – Business portfolio
Financial Notes – Other statutory disclosures
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Glossary
Corporate Information
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108
111
121
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127
129
130
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PERFORMANCE HIGHLIGHTS
Operating
financial summary
SALES
REVENUE
OPERATING
EBITDA
OPERATING EARNINGS
AFTER TAX
REPORTED
PROFIT 1
$494.1m
↑ 3.5%
$144.4m
↑ 21.4%
$59.2m
↑ 19.6%
$63.8m
↑ 54.6%
OPERATING
EPS
51.7¢
↑ 14.4%
Underlying EBIT
business lines
FUNERALS
MEMORIAL PARKS*
CORPORATE SERVICES
PREPAID FUNERALS
$79.4m
↑ 15.4%
$44.4m
↑ 16.1%
($32.0m)
↑ 3.9%
10%
FUM growth
Pillars
of growth
DEATHS 2
MARKET
SHARE 3
FUNERAL CASE
AVERAGE
OPERATING
MARGIN
NPS 4
↑ 2.9%
↑ 20bps
↑ 2.1%
↑ 430bps
=+78
PROTECT
& GROW
106
locations
completed
* Excludes pets 1 After non-controlling interests 2 Internal estimate 3 IVC Group 4 Australia & New Zealand
4
Annual Report 2019
Operating and underlying*
sales revenue ($m)
Operating and underlying*
EBITDA ($m)
424.1
448.4
2014
2015
2016
2017
2018
2019
462.5
470.9
455.8
21.6
477.3
477.8
16.3 494.1
2014
2015
2016
2017
2018
2019
105.1
110.0
115.3
124.3
103.1
15.9
119.0
400
420
440
460
480
500
90
102
117.8
114
26.7
144.4
126
138
150
Operating earnings
after tax ($m)
Profit after tax
attributable to members ($m)
2014
2015
2016
2017
2018
2019
53.0
57.4
49.5
49.5
63.5
59.2
2014
2015
2016
2017
2018
2019
54.5
54.8
41.2
63.8
70.9
97.4
40
46
52
58
64
70
20
36
52
68
84
100
Operating earnings per share
(¢ per share)
Ordinary dividends
(¢ per share)
2014
2015
2016
2017
2018
2019
45.2
48.8
45.2
52.4
51.7
57.9
2014
2015
2016
2017
2018
2019
36.5
38.0
42.5
46.0
37.0
41.0
40
44
48
52
56
60
30
34
38
42
46
50
* Underlying figures remove inflating effect of AASB 15 and AASB 16 reporting changes
5
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 CHAIRMAN’S MESSAGE
Looking beyond Protect & Grow
As demand in 2019 for InvoCare’s funeral, crematoria and cemetery
We believe that the fundamental elements are now in place for
services partially recovered from the deeper than anticipated decline
InvoCare to step up to improved management performance
in 2018, it was pleasing to see clear evidence to support the Board’s
across our infrastructure, supply chain, human resource and
decision to invest in Network and Brand Optimisation (NBO) as a key
financial management. Workplace Health and Safety (WHS) and
strategy to underpin InvoCare’s future growth.
Environmental, Social and Governance (ESG) performance are
In addition to opportunities for growth driven by acquisition, the
Board recognises that InvoCare increasingly needs to adapt to
two areas of increasing Group focus which we expect to drive
improvement in Group performance.
changing demand drivers affecting our existing network of funeral
Having recognised as far back as 2014 that we could no longer
locations. The importance of offering contemporary, client-
sustain historical growth levels based predominately on core market
customised experiences in digitally equipped environments with
acquisitions, we are very pleased to see that the broad-reaching
ample parking has been starkly confirmed by the performance of
commitment to organisational evolution implemented as the
NBO versus non-NBO locations. It is clear that once the effects of
Protect & Grow strategy in 2017 is now proving its worth as a
refurbishment downtime are accounted for, post-NBO locations are
fundamental platform for sustainable growth.
pleasingly in line with expectations and justify our confidence in future
sustainable growth.
I would like to acknowledge the resilience and commitment of our
people, right across the organisation, in the way that they have
Looking ahead, the Board is highly conscious of shareholders’
risen to the challenges of fundamental organisational change. The
expectations to balance the short-term negative impacts of capital
fact that we have sustained high levels of employee engagement
investment expenditures with the aim for annual growth in earnings
and customer satisfaction throughout this challenging period is
per share. Now equipped with two years of learnings , we have
testament to their loyalty and willingness to move with the times.
adjusted the planned rate of spend on existing location renovations
I also extend the thanks of the Board to our CEO, Martin Earp,
to achieve a balance between EPS growth and balance sheet
and the entire executive team for their leadership and perseverance
leverage. However, the fundamental importance of carrying through
through this transformational journey.
with planned levels of NBO investment across the full breadth of our
existing locations is not a matter for debate: the issue is simply one
of timing.
We remain confident in our underlying fitness to drive future growth
for our shareholders. The potential impact of the global COVID-19
pandemic is a source of uncertainty for all businesses and we are
Apart from our upgraded facilities, the evidence is also increasingly
rapidly developing contingencies and plans to meet the challenge.
clear that we need to continue to focus on becoming a more flexible,
We remain committed to providing caring support for client families
customer-centric service culture. For example, our long-term
by flexibly evolving our services and capabilities to meet their needs.
commitment to meeting culturally specific needs in our memorial
parks has been key to their growth in market share. We are now
placing increasing priority on extending this cultural flexibility across
the range of our funeral service offerings. We expect the investment
to date in our market research will begin to bear fruit as we broaden
the demographic appeal of our core funeral service offerings.
The third plank of our new growth focus has been to develop the
Enterprise Resource Planning (ERP) system required to drive
operational efficiencies and enable more sophisticated analysis of
our operational performance. Based on the output of the first phase
of the implementation, we believe the system will provide richer
data-driven insights and opportunities to better serve our client
families and drive further efficiencies.
2019 dividend
With our basic earnings per share impacted by funds under
management returns, the Board has once again looked to
underlying, operating earnings per share as the most appropriate
guide to determining the rate of dividend for 2019.
Conscious of the challenges of capital management associated
with on-going refurbishment and enhancement of our core business
infrastructure, we set the 2019 full year payout ratio at 79.3%, which
is consistent with our policy, and translates to a final dividend of
23.5 cents per share providing for a full-year payout of 41.0 cents,
10.8% up on 2018.
Bart Vogel
Chairman
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Annual Report 2019
Five year financials
$’000
2019
2018
2017
2016
2015
Operating sales revenue
494,112
477,337
470,852
462,476
448,359
Operating EBITDA
144,433
118,998
124,316
115,344
110,089
Operating EBITDA margin
29.2%
24.9%
26.4%
24.9%
24.6%
Operating earnings after tax
59,202
49,496
63,526
57,417
52,999
Operating earnings per share (cents)
51.7
45.2
57.9
52.4
48.4
Profit after tax attributable to members
63,752
41,224
97,439
70,949
54,844
Basic earnings per share (cents)
55.8
37.8
88.8
64.7
50.1
Dividend paid in respect of the financial year (cents)
41.00
37.00
46.00
42.50
38.00
Ungeared, tax free operating cash flow
118,776
104,222
116,891
105,007
99,545
Proportion of EBITDA converted to cash
82%
88%
94%
91%
90%
Actual capital expenditure
65,289
84,120
47,471
30,321
22,035
Net debt
352,379
393,469
227,547
222,927
222,093
Operating EBITDA / Net interest (times)
Net debt / EBITDA (times)
Funeral homes (number)
Cemeteries and crematoria (number)
10.6
2.4
268
17
9.6
3.3
255
16
13.8
11.0
1.8
228
16
1.9
233
16
9.2
2.0
231
16
Operating earnings after tax excludes the net gain/(loss) on prepaid contracts,
costs associated with the administration of prepaid contracts, commissions received,
gain/(loss) on sale, disposal or impairment of non-current assets and non-controlling interests.
OPERATING EARNINGS
AFTER TAX
DIVIDENDS
CASH CONVERSION
RATIO
↑ 19.6%
↑ 10.8%
82%
Operating earnings after tax
Dividends for the year
Consistently strong cash
increased to $59.2 million
increased to 41¢ per
share
conversion ratio with 82%
of operating EBITDA
converted to cash
Bart Vogel
7
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 CEO’S MESSAGE
Building the platform for sustainable growth
While 2018’s unprecedented 4.4% decline in the number of deaths in
With the change in Australia’s financial reporting regulations affecting
our main market of Australia severely impacted the Group’s EBITDA
comparability across previous years, InvoCare’s overall performance
performance in the previous comparable year, the estimated increase
management is now focussed on underling EBITDA, which excludes
of 3.3% in 2019 deaths within the Australian market has brought
the impact of financial results of non-operating activities and recent
earnings back in line with historical norms. This is despite the ongoing
accounting standards changes. It is pleasing to see that underlying
drag of downtime and expenditures associated with investing in
EBITDA increased by 14.2% in 2019 compared to the previous
our locations, our operational centres, our people and our business
comparable period (PCP), well ahead of the underlying growth in
systems.
market demand. This has underpinned a 14.4% uplift in operating
earnings per share, and net profit after income tax attributable to
ordinary equity holders has risen by 54.6% to $63.8 million.
InvoCare delivered these positive results due to a variety of factors
which reflect our increasingly flexible, contemporary and competitive
approach to managing business performance.
Business acquisitions continue to provide a key growth impetus, albeit that
the focus is on regional areas identified as long-term growth markets
due to sea- and tree-change migration by older urban dwellers. The
recent regional acquisitions have outperformed expectations, and
this is in no small part driven by the level of effort and commitment
demonstrated by these new members of our operational team.
InvoCare’s memorial parks have also performed strongly, contributing
10% growth in underlying EBITDA and a 2.4% increase in EBITDA margin
off the back of a 4.5% increase in sales. These results reflect the
success of ongoing investment in more relevant memorial product that
meet the multi-cultural market needs of Sydney and Brisbane.
The performance of our funeral business continues to be impacted
by the need to undertake long overdue renovations to our existing
metropolitan funeral locations, as well as upgrading our centrally
located operational service facilities. The overall results for the funerals
line of business reflects the impost associated with this investment
however in 2019 we began to see the benefits start to flow through the
business, with over 50% of our locations having been renovated since
2017.
In funeral locations that have not yet been renovated InvoCare’s market
share decline continues to accelerate, confirming customers’ growing
preference for modern contemporary up-lifting facilities. Overall, the
NBO investment is driving an increase in earnings due to a combination
of increasing market share and increasing demand for the additional
services now provided, all of which are designed to improve the quality
of the funeral experience.
We reduced the number of renovations in 2019 in order to assess the
performance of the first phase of renovations, free up resources for the
full roll-out of the new ERP system and to allow for the development
of local management skills, particularly in the key areas of customer
service and safety.
8
Martin Earp
Annual Report 2019 Our focus on our people and culture is critical to our success and in
Subject to these uncertainties, the aim for 2020 is to largely complete
2019 we launched our local leadership program (Aspire) and placed
the Protect component of our NBO strategy, whilst an increasingly
a continued focus on our customer service ‘masterclass’ program
conservative approach to our balance sheet means that investment
and One InvoCare culture. The very strong net promoter score (NPS)
in the Growth-focussed aspect of NBO will be deferred to minimise
performance and high employee engagement reflect the ongoing
capital outlay. We will also consider carefully the ability of the Company
levels of staff commitment and loyalty throughout these challenging
to acquire high quality businesses in regional areas of Australia and
times of across-the-board change.
further expansion into the pet cremation market segment.
The net outcome for our funeral line of business has been a 4.7% uplift
Significantly, the result of planned investment and efforts in 2020
in sales associated with an 11.1% uplift in EBITDA and 1.5% increase
will see InvoCare continue its journey from an amalgam of traditional
in EBITDA margin.
Looking ahead, InvoCare is confident that the combination of
investment into our locations along with on-going regional and
adjacent market acquisitions, supported by a strong underlying
business practices driving growth through acquisitions, to a
contemporary, innovative and customer focussed organisation
capable of building on a solid platform of competitive advantage to
deliver future growth.
demographic growth in the number of deaths, will continue to sustain
In the short-term, we will do everything in our power to support
strong underlying earnings per share growth for many years to come.
the wellbeing of our people, our client families and the community
As this report was being finalised, the potentially disruptive impacts of the
COVID-19 pandemic are becoming increasingly apparent. We are closely
monitoring developments and potential impacts to our operations
and business plans. InvoCare has an active Business Continuity Plan
that encompasses Crisis Management Plans to respond to adverse
external events such as communicable health threats.
We anticipate the growing number of travel and event restrictions, in
particular the imposition by Federal and State governments on mass
events, may affect our ability to conduct normal funeral services and
this in turn will impact the number of NBO renovations previously
envisaged. We are now focussed on developing contingency plans to
address the potential impacts of COVID-19 to our business and expect
that our ability to realise 2020 goals may be affected by the need to
adhere to the social distancing guidelines and travel restrictions.
members impacted by COVID-19. We will innovate as needed to
ensure that our people can still work and our client families can come
together to celebrate the lives of loved ones, even if that may require
smaller or more virtual gatherings. Our commitment to innovation,
vocation and care will never be more important to ensuring that
meeting the needs of our client families is realised during these
unprecedented and difficult times.
Martin Earp
Managing Director and
Chief Executive Officer
Rockingham WA
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
PROTECT & GROW, 2017-2020
2019 was the third year of implementation
for our far reaching Protect & Grow strategy
Key Protect & Grow initiatives have included:
Protect
Grow
Renovations of existing funeral locations ranging from substantial
Investment in new shop-fronts to act as feeders for large funeral
site enhancement to superficial refreshment
hosting sites, plus centrally-located operational centres to realise
Development and roll-out of a business-wide Enterprise
scale efficiencies across the network
Resource Platform (ERP) to enable increased management
Development of new products and customer service capabilities
efficiencies
Investment in local leadership development
through the Aspire Leadership Program
designed to meet changing needs and expectations of
increasingly diverse customer segments
Strategic acquisitions in regional areas identified as high-growth
zones due to migration of urban retirees (sea- and tree-changers)
Extension into the adjacent market of pet cremations through a
mixture of acquisitions and greenfield developments on existing
Memorial Park sites
Kew, VIC. Artist impression
Glenside, SA
10
Wangara, WA
Annual Report 2019 Outcomes and outlook
Investment in our core market funeral facilities under the Network
Significant investment in new product development across our
Brand Optimisation (NBO) program has been completed across
Memorial Park business line has created more than 2,200 new
more than half of our existing network, including 9 substantially
vaults, niches and crypts available across three sites, while extending
Enhanced sites and 73 Refreshed sites. 24 Growth sites have been
the life of our Allambe Memorial Park facility by about 20 years.
added to the network while 3 metropolitan Operational Centres have
The benefits of new product availability was evident in 2019 and
now been completed.
As detailed in the Directors’ Report, the uplift in performance of
renovated sites is in line with our expectations, with substantially
Enhanced sites delivering better than anticipated growth. In 2020
we expect they will substantially contribute to growth in 2020 and
beyond. Acquisition of the Broulee Memorial Park has also extended
our footprint in the NSW South Coast, complementing our funeral
acquisitions in this key growth area.
we will continue to focus on realising the benefits of NBO investment
Our move into pet cremations was consolidated in 2019 with two
to date while easing back on growth investment to reflect a more
greenfield sites developed in NSW. Strong performance in the
conservative approach to managing the balance sheet, while aiming
existing business that was acquired in 2018, driven by increased
for positive EPS growth.
awareness and network support, has encouraged us to focus on
Roll out of the new ERP under the Compass program was a major
focus for 2019, and is now largely in place, enabling substantial
development in analysis, reporting and management to be undertaken
in 2020. We anticipate significant efficiencies will flow from these
efforts, particularly in relation to staffing levels and asset utilisation.
InvoCare made three strategic regional acquisitions in 2019 involving
four funeral locations and one memorial park across the NSW South
Coast and Queensland. The acquisitions made in 2018 have performed
above expectations and made a significant contribution to our strong
growth performance in 2019. A number of additional acquisitions
have been evaluated and several are currently under negotiation.
further strategic acquisitions in 2020.
Terra Santa Crypts, Pinegrove Memorial Park, NSW
Allambe Memorial Park, Nerang QLD. Artist impression
11
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 SENIOR LEADERSHIP TEAM
Martin Earp
Managing
Director and
Chief Executive
Officer
Heidi Aldred
Company
Secretary and
Corporate
Counsel
Fergus Kelly
Chief Marketing
Officer
Lachlan Sheldon
Group Executive
Mergers &
Acquisitions
12
Josée Lemoine
Chief Financial
Officer
Damien MacRae
Chief Operating
Officer
Amanda Tober
Group Executive
People & Culture
Steve Nobbs
Executive General
Manager –
Cemeteries &
Crematoria
Annual Report 2019 FOCUS ON LEADERSHIP
Our regional and frontline leaders’ ability to realise the potential
inherent in new products and management practices is critical
for driving growth by better meeting clients families’ needs.
InvoCare’s People & Culture vision is to ‘Enable a geographic
regional management structure with empowered local leaders
supported by experts in the field’.
One of the key goals of the three-year people plan is to enhance
local leadership capabilities and the leadership pipeline
The launch of the Aspire Leadership Program was a major
InvoCare business issues and supported by an executive sponsor,
achievement in 2019. This builds on inputs of a diverse stakeholder
which enable participants to apply what they have learned to real
group from across Australia and New Zealand, which has been
situations.
consolidated into the InvoCare leadership capabilities framework to
clearly articulate what ‘good’ leadership looks like in our business.
The Aspire program targets Regional and Area Managers and similar
levels from Memorial Parks and corporate functions. Running for
six months, the program aims to deliver a significant capability
uplift, feed the talent pipeline and demonstrate the career path for
high potential employees. It incorporates online feedback from
team members, face to face learning, virtual modules, self-paced
and e-learning tasks, plus the completion of projects focussed on
After refinement in light of experience with the pilot program this
critical initiative will become part of business as usual in 2020.
Also planned for 2020 is the development of a Management
Essentials Suite to offer a range of modular learning solutions built
around key capabilities for our Frontline Managers. The modular
suite will enable consistent skills development across this large and
geographically diverse group of leaders, supplemented as required
by some face-to-face, leader-led learning opportunities including
on-job coaching by direct managers.
13
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234,,,, THE CORE AND MORE
The ultimate goal of InvoCare’s investment in people, places and
while People & Culture efforts are aimed at building the customer-
practices through the Protect & Grow strategy is to equip InvoCare as
centric ethic and flexible services required to adapt to increasingly
the leading funeral services and memorialisation provider with the clear
diverse customer needs. As we move towards the conclusion of
vision, effective management tools and excellent customer service
Protect & Grow, these initiatives are being complemented by an
capabilities required to drive sustainable growth by gaining market
increased focus on evolving products and service offerings to directly
share and increasing case values in our core markets. Looking beyond
target emerging needs.
the Protect & Grow strategy in 2020 – opportunities for regional
acquisitions and growth into adjacent markets such as pet cremations
will continue to underpin strong EPS performance. Increasingly we
will look to develop new products and more flexible customer service
capabilities to sustain growth rates above rising number of deaths in
our contested markets.
Of particular importance over 2019 and into 2020 are our efforts to
build more culturally diverse offerings into our core funeral service
capabilities. We have already proven the value of culturally tailored
offerings in our memorial parks business, where the long-standing
multi-cultural unit has helped us to build a very strong position
amongst the large Vietnamese, Chinese, Filipino and Korean
As detailed in the InvoCare 2019 Sustainability Report, issued for the
communities living in NSW. Drawing on insights gathered through
first time under a separate cover, many initiatives have been planned
market research undertaken in 2019 we plan to develop a range of
or implemented in 2019 that will contribute to our emergence as a
new funeral service offerings that will broaden our relevance across
contemporary business leader with long-term sustainable growth
major cultural groups living in the communities that we serve.
potential. These include increased focus on health and safety and
cultural initiatives designed to develop a mutually supportive and
inclusive One InvoCare team that embraces diversity. It also includes
development of a comprehensive Environment, Social and Governance
policy to drive best practice in management, data gathering and
reporting, increasingly expected by employees and investors.
Our brands and marketing messages will also continue to evolve
to reflect changing needs and expectations amongst our target
audiences. Research has also played a critical role in identifying the
emergence of a new segments whose aspirations to celebrate the life
of a loved one embrace highly individualistic experiences, enabled
by new digital technologies and social norms. Much effort has been
At the heart of our continued ability to grow lies the effort to better
aimed at enhancing our digital capabilities and offerings to reflect the
understand and evolve to meet the needs of our customers. NBO
emergence of a digitally savvy client base, aimed both at winning their
investments are creating the right environment to enable this goal,
business and empowering their customer experience.
Forest Lawn Memorial Park,
Macarthur, Sydney, NSW
14
Annual Report 2019 15
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234,,,,Drawing on insights gathered through extensive market research undertaken in 2019 we plan to develop a range of new funeral service offerings. Annual Report
2019
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
16
The directors submit their report on the consolidated entity comprising InvoCare Limited (the “Company”) and the entities it controlled at 31 December 2019. InvoCare Limited is referred to as “InvoCare”, the “Group” or the “consolidated entity” in this report. Company review and principal activities
Operating earnings after tax ($m)
InvoCare is a leading international provider of funeral, cemetery,
crematoria and related services and is listed on the Australian
Securities Exchange (ASX: IVC). The Company is headquartered
in Sydney, Australia with operations also in New Zealand and
Singapore.
2019 financial highlights
2019 full year results have seen a strong bounce back in operating
EBITDA growth of 21.4%. This result was driven by:
The number of deaths increasing back towards the long term
trend – deaths up 2.9% against a drop of 2.3% in 2018
Strong performance from the renovated locations, which are
delivering 8.5% improvement in EBITDA over unrenovated
locations
The benefit of recent acquisitions, delivering an additional
$4.3 million of EBITDA YOY
Effective cost control (comparative business costs decrease by
0.9%)
2014
2015
2016
2017
2018
2019
53.0
57.4
49.5
49.5
63.5
59.2
40
46
52
58
64
70
Operating and Underlying* sales revenue ($m)
424.1
448.4
2014
2015
2016
2017
2018
2019
462.5
470.9
455.8
21.6
477.3
477.8
16.3 494.1
400
420
440
460
480
500
Strong performance in the prepaid funds under management with
growth >10% YOY
Operating and Underlying* EBITDA ($m)
Operating earnings after tax increased ↑19.6% while profit after
tax attributable to equity holders grew ↑54.6% to $63.8 million
with an uplift in our operating sales revenue ↑3.5% and operating
EBITDA ↑21.4%.
The Board has determined to issue a final dividend of 23.5 cents per
share bringing the total dividend for 2019 to 41.0 cents, an increase
of 4 cents or 10.8% on prior period.
NOTE: Underlying Revenue and EBITDA is presented for historical
comparison purposes and represents the Groups performance
without including the impact of the recent accounting standard
changes from AASB 15 and AASB 16.
Operating Revenue and Profit figures represent the Group’s financial
performance prepared in accordance with all current accounting
standards.
2014
2015
2016
2017
2018
2019
105.1
110.0
115.3
124.3
103.1
15.9
119.0
90
102
117.8
114
26.7
144.4
126
138
150
Profit after tax attributable to members ($m)
2014
2015
2016
2017
2018
2019
54.5
54.8
41.2
63.8
70.9
97.4
20
36
52
68
84
100
Operating earnings per share (cents per share)
2014
2015
2016
2017
2018
2019
45.2
48.8
45.2
52.4
51.7
57.9
40
44
48
52
56
60
1717
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Overall summary of 2019 results
The Group delivered strong Operating EBITDA growth in 2019
Key financial performance
metrics 2019
2019
$’000
2018
$’000
Movement
%
(+21.4%), underpinned in part by the number of deaths growing at
Operating sales revenue
494,112
477,337
2.9%, although deaths still lag behind 2017 levels.
Operating EBITDA a
144,433
118,998
Notwithstanding the strong headline Group performance, the traditional
Operating EBIT a
105,439
89,366
funeral business continues to face the longstanding headwind of
declining market share. As previously reported, this was the main driver
behind our Protect & Grow strategy. This loss of market share has been
driven by ageing locations, changing customer needs and the need to
transition new local leaders into the operational business. Protect &
Grow has been a success to date but whilst it is being implemented it
does negatively impact performance due to the closure of locations
for renovation, ramp up post reopening and the rollout of the new
ERP system. The combination of these factors resulted in year on
year comparable EBITDA growth of 4.7% in Australian Funerals and a
decline of 12.6% in New Zealand.
With regard to New Zealand, the combination of the initial
purchase price paid for the assets and the subsequent operational
performance has prompted the impairment in goodwill within the
New Zealand business by $24.4 million.
Despite the drag on earnings from addressing the long-standing
challenges of the traditional funeral business, underlying sales
revenue grew by 4.8%, with contributions from recent acquisitions,
renovated locations and strong memorial sales from recently
developed crypt complexes. Underlying EBITDA grew by 14.2%
supported by increased gross margin and cost control. Operating
earnings after tax grew by 19.6% whilst net profit after tax
attributable to ordinary equity holders of InvoCare Limited is up by
54.6%, boosted by the growth of Funds under Management, with
basic earnings per share up by 47.6% (including the impact of the
impairment of the New Zealand goodwill).
The chart below visualises how changing accounting standards have
impacted the EBITDA numbers being reported, highlighting how the
AASB 15 unwind and AASB 16 has contributed to the increase in
operating EBITDA.
3.5
21.4
18.0
19.6
Operating earnings
after income tax a
Net profit after income
tax attributable to equity
holders
59,202
49,496
63,752
41,224
54.6
Underlying sales revenue b
477,779
455,773
Underlying EBITDA b
117,776
103,128
Underlying EBIT b
90,188
73,496
4.8
14.2
22.7
a Operating EBITDA and operating EBIT (being earnings before
interest and tax) exclude financial results of non-operating activities
(including net gain/loss on prepaid contracts).
b Underlying sales revenue and underlying EBITDA (being, earnings
before interest, tax, depreciation and amortisation) exclude financial
results of non-operating activities (including net gain/loss on prepaid
contracts) and recent accounting standards changes (AASB 15
Revenue from Contracts with Customers and AASB 16 Leases).
Basic earnings per share
(EPS)
Operating EPS
Final dividend
Total dividend for the
financial year
2019
cents
2018
cents
Movement
%
55.8
51.7
23.5
37.8
45.2
19.5
47.6
14.4
20.5
41.0
37.0
10.8
Dividend payout ratio%
79.3%
82.0%
(2.7ppts)
Composition of operating and underlying EBITDA movements by segment ($m)
150
140
130
120
110
100
90
80
1818
119.0
9.6
(15.9)
103.1
1.6
12.4
4.6
(1.1)
117.8
14.3
144.4
FY 2018
Operating
AASB 15
Unwind
2018
Underlying
Funerals
Memorial
Parks
Pet
cremations
Corporate
services
2019
Underlying
AASB15
Unwind
AASB16
Adoption
FY 2019
Operating
Annual Report 2019Annual Report 2019 Broad perspective on InvoCare growth potential
Demographic growth in underlying demand
The following section provides an overview of the basic dynamics
The populations in our core geographical markets of Australia, New
of the funeral and memorial service markets in which we operate,
Zealand and Singapore are growing and ageing, with the first wave of the
including the key drivers of demand, before outlining the
so-called baby boomer generation now impacting on anticipated death
business strategies aimed to maximise InvoCare’s market share
volumes. This positive demand profile is forecast to continue for at least
and sales growth in our core markets.
two more decades.
Also included is a summary of the need for the Protect &
The challenge for funeral and memorial service providers is to recognise
Grow strategy, and an explanation as to why this strategy is
that the demands of client families is changing considerably. There is
fundamental to providing a solid platform from which to deliver
a strong movement away from religious services designed to mourn
future growth.
Finally, we will review the 2019 performance of our three key lines
of business – funerals, memorial parks and prepaid funerals.
the death, towards a more contemporary celebration of the life lived.
InvoCare is leading the market in understanding this change and
investing considerable capital to meet these changing needs. While
long-term volume growth is inevitable, the timing of this growth is
unpredictable from year to year. The impact is magnified by the fact that
marginal returns are much higher when demand is above average, and
much lower when below, which serves to amplify the financial impacts
of year to year demand fluctuations. InvoCare operates in a market that
has some degree of short-term fluctuations but strong and predictable
longer-term demand. This point is illustrated in the charts below.
Projected number of deaths in Australia
Number of Deaths
2.3% CAGR
2.0% CAGR
1.1% CAGR
1.0% CAGR
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
1999
2003
2007
2011
2015
2019
2043
Source: ABS 3222.0 Population Projections 2017, Australia, Series B
2023
2027
2031
2035
2039
2047
2051
2055
2059
2063
Annual variations in the occurrence of deaths in Australia
4%
3%
2%
1%
0
(1%)
(2%)
(3%)
(4%)
(5%)
1998
1999 2000 2001 2002
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
Source: ABS 3202.0 Deaths Australia (Date occurrence) * 2019= IVC Internal estimate
1919
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Ways to grow earnings and sustain margins
InvoCare seeks to deliver future growth by focusing on adapting our
offering to meet the needs of client families. This requires us to be
innovative in the way we deliver our services into the future.
Specific actions to deliver this are:
Extending our geographical footprint
Memorialisation is also an area where the quality and aesthetic
values of memorial experiences are valued by those who desire to
be remembered or to remember their loved ones in an emotionally
uplifting and respectful way. The ability to achieve a price premium
reflects the desire to experience a high-quality memorial environment
and associated infrastructure.
The challenge for funeral and memorial service providers is to evolve
Raising brand awareness and offering more relevant products to
our offerings and service capabilities to maximise the perceived value
win business away from competitors
Increasing the scope and value of services provided and focusing
on providing client families with ever more value for money
Increasing the share of total spend retained “in-house”, which
would otherwise flow to external service providers
Pre-selling services to increase fund management income, at the
same time as securing future demand
Continually pursuing operating efficiencies to increase margins
Implement digital service provisions to improve client families’
experience
of our services at all levels of expectation, and so realise consistently
higher levels of satisfaction by meeting and, ideally, exceeding
customer expectations for social approval and emotional fulfilment.
Growth of national brands in metro markets
Brand reputation is a powerful driver in the funeral market, with
local (often personality driven) brand recognition traditionally key
to referrals and awareness. However, in increasingly mobile and
rapidly growing metropolitan populations, national brands are
becoming more important as recognised sources of trusted value.
This is creating an increasing disparity between the patterns of brand
preference between metropolitan and rural locations, where local,
Trends in demand and value drivers
personality-based relationships remain dominant.
Family directed services
Historically, funeral and memorial services have reflected dominant
cultural norms, typically with strong religious overtones set in church-
like environments. People have expected, and have been expected
by our industry, to follow these norms without significant input.
However, as Australia has experienced greater levels of ethnic
diversity and decreasing levels of religiosity, it is clear that people’s
Sea and tree changers shift to regional areas
Another trend differentiating metro and regional locations is being
driven by baby-boomers’ enthusiasm for sea and tree change in their
retirement. This has resulted in a reduction in the metro death rates
as their populations skew younger and a commensurate rise in the
death rates in areas to which metropolitan retirees typically migrate.
needs and expectations have changed and continue to evolve. While
Decreasing supply of state-owned memorial sites
A final trend in the memorial space has been the decreasing
availability of burial or memorial sites in metropolitan areas currently
supplied by state governments. These authorities are looking to
private institutions to meet new demand by developing appropriate
sites and facilities in outer urban fringes where the existing metro area
supply is unable to meet demand.
The following section explains how InvoCare has approached these
opportunities since 2003, and how we plan to realise them in the
coming decade.
some continue to seek the traditional, religiously orientated funeral
and/or memorial experiences, an increasing number of client families
are looking for experiences that individualistically celebrate the life of
a loved one or, in the case of funeral pre-sales, their own life.
The desire for more control and transparency has shifted
expectations away from the delivery of a standardised funeral
experience, towards the desire for supportive facilitation to create
and host more customised experience that is both culturally and
personally appropriate.
With this greater desire for control has come a greater diversity in
expectations about the scope of services appropriate for a funeral or
memorial experience. These range from very simple arrangements
for a cremation, up to very substantial group celebrations involving
catering, audio-visual displays and event coordination.
Potential to increase sales lies in the ability to better meet client family
needs by providing new and additional services that they value. Many
client families aspire to mark the passing of a life in an emotionally
fulfilling and socially respectful way. This is driving a demand for
bespoke services that enable personally distinctive experiences.
2020
Annual Report 2019Annual Report 2019 InvoCare business strategy
InvoCare was launched in 2003 and was the first ASX listed provider
of funeral and memorial services enabling investors to benefit
The ability to leverage our operational scale and national brands
across relevant markets whilst maintaining our connection to the
local communities that we serve
from the demographically driven growth in demand for funeral and
Capital capability and corporate desire to provide facilities,
memorial services.
The Group is structured around three lines of business with each
focusing on a specific area of consumer need:
Funerals
training and tools for a safe and decent working environment
Breadth of business and focus on professional development
provides career paths for our staff
Provide client families peace of mind with regard to the
management of their prepaid funerals
The largest line of business caters to the need for funerals to be
arranged, typically by family members, following the death of a loved
InvoCare’s evolving growth strategy
one. Performance in this sector is largely driven by the capacity to
Over the first decade of InvoCare’s operations, earnings growth was
facilitate and host events that celebrate a person’s life in a way that
driven primarily by acquisition of established businesses in major
meets the needs and expectations of their family.
Memorial Parks
This line of business caters to the desire for the burial or cremation
metropolitan areas across our three core geographical markets.
While maintaining many well-established local funeral brands, the
Group also invested in building three national funeral brands in
Australia, each targeted at different market segments.
and storage of a person’s remains in a way that demonstrates
Lifting service levels was another key growth strategy during
respect for their life, in an attractive environment where they can
the period, while cost control was maintained in part by keeping
be remembered fondly by loved ones. Performance in this area
expenditure to a minimum.
is dependent on the providers’ ability to invest in attractive and
contemporary new facilities to enable positive memorialisation.
Australian (National) brand target market segments
Prepaid Funerals
An increasing number of people choose to pay in advance for their
own funeral, which generates a pool of funds under management
from which future service payments are drawn to deliver pre-agreed
arrangements. These funds are held in trust by an independent third
party regulated by APRA. Demand for this product has historically
been driven by a desire to minimise financial and organisational
burden for family members, but research indicates that it is
increasingly motivated by the desire to dictate the type of funeral
event that reflects one’s own personal preferences and aspirations to
be remembered.
InvoCare advantages
As a corporate operator, the key advantages over smaller family-
owned chains and single site operators include:
Higher levels of governance and superior management systems
allows us to meet increasing statutory requirements and provide a
consistent, high level of service to our client families
Access to capital allows for us to deliver high quality facilities,
staffing and training that provide world class customer service
The willingness to invest in research provides us with significant
data which then allows us to remain relevant with our client families
Ability to grow through acquisitions and in-fills in existing markets,
moving into new regional markets, and the expansion into
adjacent markets (pet cremations)
White Lady Funerals is a committed
and professional team of female funeral
directors who have been offering a unique
and distinctive quality of funeral service
since 1987. The brand is renowned
for providing superior quality funeral
and memorial services to families of all
cultural and religious and non-religious
backgrounds.
Simplicity Funerals is a brand targeting the
many Australians who want a dignified,
practical, affordable funeral, offering simple
packages that suit different needs, backed
by a unique price guarantee. Our service
guarantee assures client families that they’ll
get what they expect at a price they can
afford, while their loved one receives the
care and professionalism they deserve.
Value Cremations offers an entry level
cremation service, providing a dignified
and quality service at a reasonable price.
It caters to people for whom the cost of
a funeral service may be an unexpected
burden, or who may not feel that a
traditional or elaborate funeral service is
right for them.
2121
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Reinvestment in existing assets, people
and culture – 2015-2020
In 2015 the InvoCare Board recognised that acquisitions alone
could not continue to drive EPS growth at the same level into
Description of NBO renovation types
Type of renovation
Description
Enhance
the future. Regulatory limits on further acquisitions in Australian
Growth
metropolitan markets imposed by the ACCC and the growing
demand for personalised funeral celebrations in modern, non-
religious surroundings led to a shift in focus to updating existing
facilities, products and service capabilities to meet contemporary
Refresh
expectations.
Substantial rebuilding of sites to create
state-of-the-art funeral hosting centres
New store fronts to complement larger
funeral hosting facilities as part of a local
site network
New furniture, paint, carpets and other
cosmetic changes to contemporise decor
and lighting
During 2016 and 2017, comprehensive plans were developed for
a major transformation of the Group’s physical network to ensure
that the Group’s facilities and product offerings were appropriate
to drive organic growth into the future. The rollout of this Protect &
Grow strategy was started in 2H2017, and focussed on reversing
market share decline, increasing revenue by providing increased
product offering to meet the changing needs of client families and
creating opportunities to drive operational efficiencies. The rollout of
this strategy continued through 2018 and 2019 and will continue into
2020 and beyond.
Network and Brand Optimisation
A core focus of the Protect & Grow strategy has been the Network
and Brand Optimisation (NBO) program which is transforming
InvoCare’s traditional funeral facilities into facilities that are more
contemporary and better able to deliver additional service levels that
are in-tune with client families’ needs and preferences. At the end of
2019 the NBO program has delivered the following:
Number of NBO sites completed and investment
Year completed
Type of renovation
2017
Number
2018
Number
2019
Number
Total
Number
Enhance
Growth
Refresh
TOTAL
Total investment ($m) *
0
4
26
30
29
7
16
32
55
43
2
4
15
21
34
9
24
73
106
106
* The total investment figure of $114m reported during the half year
results reflected the investment budget for Phase 1 rather than the
actual spend as at June 2019.
Outcomes of NBO to date
The performance of completed renovated funeral locations
compared to unrenovated locations has seen positive EBITDA
growth of 8.5%. This is in part because the performance of
unrenovated sites has declined at a greater than anticipated rate.
The drag associated with the reduction of cases while closing
sites for refurbishment has impacted InvoCare’s ability to maintain
historical rates of EPS growth during the Protect & Grow investment
period. This evidence indicates that the long-term uplift in market
share and case averages should be in line with expectations.
Results to date have strengthened the Board’s commitment to
continue to invest in the NBO program in 2020, with a further circa
74 sites planned for renovation. After considering the need for a
strong balance sheet, the ability for the business to digest the level of
change and the impact on EPS growth due to temporary closures,
the Board has decided to slow down the rollout of the implementation
of the more capital-intensive elements of the strategy. This includes
selected enhance locations and operational centres.
The charts on the following page provide further insight into the
relative performance of non-NBO and NBO sites in Australia, where
the numbers of each now provide a basis for comparison over one
year (76 NBO sites) and two years (30 NBO sites) after renovation.
2222
Annual Report 2019Annual Report 2019 Volume trends in NBO vs non-NBO sites
Chart A shows the actual performance of all locations that have been
renovated between 2017-2019 (with 2016 being the base year).
Chart A – Australian case volumes,
NBO locations completed 2016-2019
e
m
u
l
o
V
e
s
a
C
16,000
14,000
12,000
10,000
8,000
The blue line shows what would have happened to case volume if
these sites had maintained their 2016 market share. The dark grey
line indicates what would have happened at these locations if the
renovation work was not undertaken (based on actual performance
of non-renovated locations). The light grey bar illustrates the loss of
volume due to NBO work. This is referred to as the NBO drag.
The chart shows that the renovation strategy has delivered on its first
objective, with market volume share remaining in line with historical
levels in NBO sites, as shown by the blue line ‘NBO constant market
share’. By contrast, case volumes at non-NBO sites have declined
by 13.8% in 2019 compared to the numbers that would have been
delivered if market share had been maintained.
This non-NBO market share reduction reflects the underlying decline
in competitive appeal of unrenovated sites, the lack of local leaders
and the short-term impost associated with the rollout of the new
ERP system. This rate of decline has been used as the opportunity-
cost benchmark against which to assess the performance of our
renovated sites, as shown in the grey line series ‘NBO no reno’.
EBITDA trends in NBO vs non-NBO sites
2016
2017
2018
2019
NBO no reno
NBO actual
Constant Market Share
NBO drag + closure
Chart B shows that EBITDA has grown by 6.9% in NBO sites from
Chart B – EBITDA, Australian
2018 to 2019, which represents an underlying 3.7% growth once
NBO locations completed 2016-2019
allowance is made for EBITDA losses associated with temporary
closures of sites renovated in 2018. This primarily reflects the strong
underlying growth in case averages, with EBITDA per case increasing
by 4.5% from 2018 to 2019 in NBO sites, driven by the provision of
additional services that client families value.
Completed and planned NBO renovations
The table below summarises the level of investment associated with
the NBO program to date and identifies the number of sites planned
for renovation in 2020.
Number and cost of NBO completed and number plan
)
m
$
(
A
D
T
I
B
E
60
50
40
30
2016
2017
2018
2019
Completed to 2019
Planned in 2020
NBO no reno
NBO actual
Type of renovation
Sites
$ million
Sites
NBO drag + closure
Enhance
Growth
Refresh
Other b
Total
9
24
73
-
47 a
9
29
21
106
106
9
6
59
-
74
a Includes acquisition costs of $8.3m for Singapore building
b Includes project management and internal labour costs
2323
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
The overall impact of NBO has been positive at a volume and EBITDA level, however the drag and ramp up associated with renovations is masking
the full benefit. The Board is committed to continuing to renovate our locations throughout 2020 as this is seen as an essential foundation for future
growth.
Geographical location of NBO completed locations to date
106 locations have been renovated so far.
Singapore
1 enhance
Perth
2 enhance
9 refresh
3 growth
Mandurah
1 refresh
Not to scale
2424
Mackay
2 refresh
Sunshine Coast
1 enhance
1 refresh
3 growth
Brisbane
1 enhance
12 refresh
7 growth
Gold Coast &
Northern NSW
1 enhance
5 refresh
2 growth
Sydney &
Central Coast
23 refresh
3 growth
Canberra
1 refresh
Hobart
1 enhance
1 growth
Auckland
4 refresh
Christchurch
1 refresh
Adelaide
3 refresh
2 growth
Geelong
1 growth
Melbourne
2 enhance
11 refresh
2 growth
Annual Report 2019Annual Report 2019 People & Culture
The local leadership program (Aspire)
Effective local leadership is central to our growth due to the
importance played in building relationships and community
connections. A key aspect of our Protect & Grow strategy has
been to invest in the development of local leadership capabilities
throughout the Group network.
In 2018 we built the InvoCare leadership capability framework to
clarify the essential leadership capabilities and clearly articulate what
“good” looks like, which was launched at the March 2019 Leadership
Forum. We have since focussed on rolling out our Aspire Leadership
Program, aiming to achieve capability uplift in targeted leaders, to
continue to feed a talent pipeline, and to provide a demonstrated
career path for our high potential employees.
The Aspire program targets Funeral Managers and similar leaders
from Memorial Parks and Corporate functions. The program
incorporates online feedback from team members, face-to-face
learning, virtual modules, self-paced and e-learning tasks. Another
key component of Aspire is the completion of business projects
focussed on InvoCare business issues and supported by an
executive sponsor. This means those taking part get to apply what
they have learned to real situations.
Post pilot program completion in 2019, the Aspire Leadership
program moves into business as usual in 2020 and continued
investment will be maintained to ensure the program runs annually.
Management Essential Suite
Another learning initiative, planned in 2019 for launch in 2020, has
been to create a set of modular online learning solutions built around
the key leadership capabilities for our frontline managers. This
Management Essentials Suite is designed to meet the needs of a
large number of geographically dispersed frontline people managers
and aims to uplift their capability by developing their skills to lead their
people and deliver against operational requirements.
One InvoCare – Our Culture
Working with client families to facilitate their specific needs and
expectations is as much a cultural focus as it is operational.
InvoCare’s group-wide cultural transformation initiative began
in 2018 with detailed plans for evolving our culture, based on
inputs from a Culture Planning Team of people drawn from across
the business.
This led to the establishment of the One InvoCare culture
program in 2019, centred around our core values of:
Collaboration
Accountability
Responsibility
Excellence
This ongoing effort is already reflected in updated client family service
training, as well as the new focus for our One InvoCare Awards which
publicly recognise excellence by our staff in these key behavioural
areas. Work is now underway to develop and implement a robust
culture diagnostic tool to measure and track the Group’s culture over
time, most importantly the degree in which our key culture behaviours
are demonstrated across the business. The pilot program for this
cultural measurement is planned for 2020.
Diversity
As part of our commitment to continuous improvement, a key
area of focus for cultural evolution has been to ensure greater
cultural diversity, particularly in terms of the gender diversity of our
management team. In 2019 we achieved 50:50 gender balance at
the senior management level, with progress being made at the local
management level.
As our operational focus shifts towards offering a more ethnically
diverse customer experience, we anticipate that increasing ethnic
diversity in our frontline and management staff will become a key area
of focus for us in 2020 and beyond.
Outcomes of People & Culture programs to date
A number of indicators suggest that the investment in leadership and
management training alongside the Group’s cultural and community
engagement initiatives are all having a positive impact on both
employee and client family experiences.
Feedback from our client families shows we have continued to
improve with our Net Promoter Score for 2019 remaining strong at a
market leading position of +78.
Feedback from staff remains positive, with our 2019 Employee
Engagement survey receiving a 75% participation rate and
delivering an engage score of 80%, despite the disruption caused
by implementation of our substantial change program. 90% of our
employees agree that InvoCare excels at supporting client families,
which reflects the highest levels of commitment to our core values.
2525
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Operational efficiencies
In parallel with investment in our properties and people, InvoCare
has embarked on a program of work to transform the corporate
governance and management systems required to run a
contemporary ASX-listed corporate enterprise.
The regional markets therefore continue to provide an excellent
source of growth for InvoCare both in the short and medium term.
Adjacent markets from 2019
While remaining firmly focussed on our core, InvoCare has made
The most significant initiative in this area has been the development
cautious moves to assess and develop opportunities in adjacent
and rollout of a customised Enterprise Resource Platform (ERP)
markets that directly leverage existing core capabilities and
under a program known as Compass. Replacing the existing,
corporate strengths.
unsupported ERP system addressed one of the most significant risks
on the risk register.
The new ERP has been rolled out to our funeral businesses starting
late 2018 and has been implemented to 99% of our funeral locations
as well as to the corporate functions including Human Resources,
Payroll and Finance. The new system will in time underpin efficiencies
as well as improvements to customer experience. It should be noted
that as with most new business system implementations of this scale,
the project has not been without its challenges. Perhaps the biggest
challenge has been to manage the impact that the implementation
Meeting the growing demand for pet cremations and memorialisation
is one adjacent market opportunity currently being implemented.
Pillars of growth
InvoCare has developed a set of key metrics that reflect the dynamics
of our core markets – particularly funerals – to provide a high-level
snapshot of our performance in the context of annual demand
fluctuations.
has had on our staff and suppliers who have had to learn new work
Key performance driver indices (pillars of growth)
practices and procedures. Whilst difficult to assess the cost of
Number of deaths in markets in which we operate
these factors it should be recognised that the implementation had a
negative impact on the business in 2019.
A positive feature of the new ERP system is that it implements
CRM to avoid repetitious paperwork for the arranger and ensure
that we are able to quickly and efficiently amend the arrangement.
This will reduce the amount of time that arrangers need to spend on
administration and allow them to focus on providing higher levels of
service to client families.
Another area of operational efficiency focus has been investment
in shared service capability based in centrally located operational
centres. A total of $8.7 million was invested in developing these
centres in 2019.
Work is underway to assess the impact of existing operational
centres with a view to optimising the model and proving up the
business case before further rollouts. A further 14 centres have been
identified for improvement post 2020.
Regional growth from 2018
While shifting the focus to better meeting client family expectations in
existing sites, InvoCare also embarked on a targeted acquisition led
expansion strategy into the key regional areas to which metropolitan
retirees typically migrate (often referred to as a sea or tree changers).
This more geographically focussed acquisition strategy has been an
important contributor to EBITDA growth in recent years.
Augmenting the acquisitions in these areas is the opportunity to
leverage the national brands into areas where sea/tree changers make
up a large portion of the community. This in-filling strategy using national
brands is possible only due to the access to the shared services facilities
Market share
Funeral case average
Cost control
Net Promoter Score (NPS)
Number of locations renovated (P&G)
The chart below summarises the key financial and pillars of growth
indices for 2019.
InvoCare pillars of growth 2019
Pillars
of growth
DEATHS1 ↑ 2.9%
MARKET SHARE 2 ↑ 20 bps
FUNERAL CASE AVERAGE ↑ 2.1%
OPERATING MARGIN ↑ 430 bps
NPS3 = +78
Protect & Grow 106 locations
completed
in the traditional businesses that are being acquired.
1 Internal estimate 2 IVC Group 3 Australia & New Zealand
2626
Annual Report 2019Annual Report 2019
Underlying results for 2019
InvoCare considers underlying EBITDA and EBIT as key performance
measures. Underlying EBITDA and EBIT relates to the adjusted
earnings before interest, tax, depreciation and amortisation after
excluding the following items:
The financial impacts of the prepaid funeral business
Other non-operating activities, including asset sales gain/loss,
impairment loss and restructuring costs
For 2018 and 2019, the underlying results also excluded the
recent Australian Accounting Standards changes (AASB 15 and
AASB 16). InvoCare was impacted by AASB 15 more than many other
companies. For AASB 16, due to the methodology of adoption elected
by InvoCare, there was no comparative in 2018 financial data.
Underlying financial performance
Underlying sales revenue
Other revenue
Operational expenses
Underlying EBITDA
Underlying EBITDA margin (%)
Depreciation and amortisation
Business acquisition costs
Underlying EBIT
Underlying EBIT margin (%)
Finance costs
Interest income
Underlying earnings before income tax
Income tax expense on underlying earnings
Underlying earnings after income tax
2019
$’000
2018
$’000
Movement
%
477,779
455,773
5,553
2,861
(365,556)
(355,506)
117,776
103,128
24.7%
(25,567)
(2,021)
90,188
18.9%
22.6%
(26,030)
(3,602)
73,496
16.1%
(16,797)
(16,192)
1,211
74,602
(20,705)
53,897
1,354
58,658
(17,850)
40,808
4.8
94.1
2.8
14.2
2.1ppts
(1.8)
43.9
22.7
2.8ppts
3.7
(10.6)
27.2
(16.0)
32.1
Underlying EBITDA and EBIT by region and revenue type
Underlying EBITDA
Underlying EBIT
2018
$’000
Movement
%
2019
$’000
2018
$’000
Movement
%
By regions
Australia
New Zealand
Singapore
By revenue types
Funeral services
Memorial Parks
2019
$’000
97,341
10,555
9,880
96,015
49,426
86,724
9,678
6,726
86,391
44,852
Pet cremations
(1,319)
(200)
Corporate services
(26,346)
(27,915)
Total
117,776
103,128
12.2
9.1
46.9
11.1
10.2
n/a
(5.6)
14.2
74,176
61,896
7,301
8,711
79,350
44,428
(1,586)
5,818
5,782
68,736
38,280
(221)
(32,004)
(33,299)
90,188
73,496
19.8
25.5
50.7
15.4
16.1
n/a
(3.9)
22.7
2727
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Underlying sales revenue
Underlying operational expenses
Strong growth in underlying results across all financial metrics with
Operational Expenses growth of 2.8% was contained by improved
sales revenue growth of 4.8% across the Group with improved
gross margin and lower general expenses partially offset by
volume and case averages across most regions with:
annualised expenses from 2018 acquisitions;
Cost of goods sold % to underlying sales of 25.7% improved by
1ppt (2018: 26.7%) through continued procurement focus
Employee and facilities costs increase was impacted by
the annualised impact of the 2018 acquisitions and greenfield
locations (new shop fronts)
Technology costs increase in 2019 reflect the cloud-licencing
costs (non-capitalisable) following the implementation of a new
cross-company ERP system
Underlying operational expenses
2019
$’000
2018
$’000
Movement
%
Finished goods,
consumables and funeral
disbursements
123,161
121,495
Employee benefit expense
160,928
155,222
(1.4)
(3.7)
1.1
(11.0)
1.8
(20.1)
13.7
12,331
12,467
34,693
31,258
8,411
11,283
14,749
8,569
9,398
17,097
365,556
355,506
(2.8)
76.5%
78.0%
(1.5ppts)
Advertising and public
relations expenses
Occupancy and facilities
expenses
Motor vehicle expenses
Technology
Other
Total underlying
operational expenses
Percentage to
underlying sales
Other costs
Depreciation and amortisation contained following a review of
useful life on cremators, fixtures and fittings and motor vehicles
Finance costs in line with prior period following capital raise in
March 2019 and subsequent net debt reduction (refer to capital
management section)
Tax expenses benefitted from utilisation of capital losses
Australia’s growth of 2.9% was achieved through solid
Memorial Parks sales growth of 4.6% following the build of large
memorial complexes together with the recent 2018-2019 funeral
acquisitions. These contributed additional sales of $9m in 2019.
The comparable renovated funeral locations improved whilst the
unrenovated continued to decline
New Zealand’s growth of 12.9% delivered by the recent
acquisitions whilst the comparable business’ performance has
continued to decline leading to the impairment of goodwill
Singapore’s growth of 26.5% followed the re-opening of the
location post renovations in 2018
Other revenue augmented by $2.3 million from one-off sale
option fees on properties as part of the network optimisation
program under the Protect & Grow strategy
Underlying sales revenue by region and revenue type
2019
$’000
2018
$’000
Movement
%
By
regions
By
revenue
types
Australia
400,923
389,662
New Zealand
Singapore
Funeral
services
Memorial
Parks
56,033
20,823
49,652
16,459
372,918
356,261
104,045
99,463
Pet cremations
816
49
Total
477,779
455,773
2.9
12.9
26.5
4.7
4.6
n/a
4.8
2828
Annual Report 2019Annual Report 2019 Group funerals performance 2019
Memorial Parks performance 2019
Funerals delivered solid business growth in 2019, with underlying
EBITDA up by 11.2%. The growth was driven by Regional
Memorial Parks
Acquisitions, growth from completed NBO sites, cost management
Sales of memorial services increased by 4.6%, while underlying
and strong case average growth.
EBITDA was up by 10.2% and EBIT up by 16.1%, across
Key funeral performance financials 2019
Underlying
Performance
2019
2018
Var. Movement
%
Case volume
46,171
44,480
1,691
Sales ($m)
EBITDA ($m)
372.9
96.0
356.3
86.4
16.6
9.6
3.8
4.7
11.1
Memorial Parks.
Growth was driven by ongoing focus and strategy for product
development combined with strong cost control.
Summary of Memorial Parks performance
2019
$m
104.0
49.4
2018
$m
99.5
44.9
Var.
$m
Movement
%
4.5
4.5
4.5
10.0
EBITDA margin
25.7%
24.2%
1.5 ppts
Sales
EBIT ($m)
79.4
68.7
10.7
15.4
Underlying EBITDA
Funerals
Growth associated with acquisition
Since the shift to Protect & Grow, the focus of acquisitions has
been on regional areas where the demand for funeral and memorial
services are forecast to increase due to the influx of sea and tree
EBITDA margin
47.5%
45.1%
2.4 ppts
EBIT
44.4
38.3
6.1
16.1
Significant investment in product development has been made,
with more than 2,200 new memorial products e.g. vaults, niches,
crypts built across three sites:
changers from metropolitan areas. In 2019, key acquisitions included:
Pinegrove Crypt Complex
Heritage Funerals (Toowoomba, QLD)
Batemans Bay & Moruya District Funerals (Batemans Bay,
Moruya and Narooma, South Coast NSW)
Forest Lawn Crypt Complex
Pinegrove Vietnamese & Catholic
With the impact of these new products coming online during 2019,
New acquisitions have been a source of funeral services earnings
the growth is forecast to continue into 2020.
growth in 2019 (largely driven from acquisitions undertaken in 2018).
Prepaid Funerals
We also invested significantly in the Allambe Memorial Park facility
in 2019, extending its life by ~20 years.
The funds under management for our prepaid funerals delivered a net
During 2019, the acquisition of the Broulee Memorial Gardens
9.9% uplift in the value of funds under management, bringing them up to
(Broulee, South Coast NSW) expanded the Memorial Parks footprint
around 120% of the value of liabilities associated with prepaid funerals.
into regional Australia.
Year end funds under management - $ million
Developments in pet cremations
2019 saw the first substantial phase of implementation of the
Assets
strategy to move into the adjacent market of pet cremations.
Liabilities
The aim was to assess this opportunity through a mix of acquisition
and greenfield developments on existing memorial sites, before
rolling out the strategy nationally once the business model is proven.
Our first acquisition, made in 2018, has performed strongly under
corporate management largely due to the extended marketing
support. 2019 saw the development of an additional greenfield
crematorium site built on an existing NSW Memorial Park.
)
m
$
(
t
e
e
h
S
e
c
n
a
l
a
B
650
600
550
500
450
400
350
300
2016
2017
2018
2019
2929
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Review of financial position
Assets and liabilities
Assets and liabilities as at 31 December 2019
Total assets
Total liabilities
Net assets
2019
$’000
2018
$’000
Movement
%
1,600,763
1,356,319
1,303,784
1,165,022
296,979
191,297
18.0
11.9
55.2
The net assets of the Group as at 31 December 2019 were
$296,979,000 compared to $191,297,000. The increase of
$105,682,000 was mainly due to:
Net increase in prepaid contract / funds under management
and the prepaid contract liabilities of $40,463,000 due to strong
returns from equities and some property revaluations
Increase in property, plant and equipment of $23,167,000 mainly
due to the refurbishments pursuant to the NBO program and to
The two businesses acquired in 2018 have been integrated into the
existing New Zealand operations, however their performance has not
sufficiently compensated for the impact of a reduction in case volume
and increased costs of the New Zealand operations as a whole.
Activities have commenced to reduce costs and improve the
financial performance of the New Zealand operations however;
these activities are in progress and any potential benefit to future
performance is uncertain at this early stage.
Recognising an impairment loss on the goodwill of the New Zealand
operations has no impact on cash.
All cemetery and crematoria parks were reassessed during the
year ended 31 December 2019 and no change to the impairment
provision was deemed necessary (2018: nil). The remediation of the
residual land at Allambe Memorial Park was completed in January
2020, with sales of burial sites in the newly developed section due to
occur in early 2020. The Group will reassess the recoverable amount
of the park in June 2020.
the properties acquired in the period of $6,828,000
Cash flows
Increase in net liabilities of $18,900,000, being the recognition
of $144,001,000 of right of use asset offset by $162,901,000 of
lease liabilities due to the application of AASB 16 Leases
Decrease in borrowings of $51,056,000 as InvoCare completed
an Institutional Placement and a Share Purchase Plan in raising a
total $85,787,000 of ordinary share capital, net of costs. Part of
the capital raised was used to reduce borrowings
Temporary increase of $7,234,000 in current trade receivables
during the transition of the ERP system implementation and non-
current trade receivable increase of $18,893,000 following the
adoption of accounting change (AASB 15)
Decrease in intangible assets of $15,865,000 as a result of
goodwill and brand names arising from the three acquisitions
in the period and goodwill reduced by $24,404,000 from the
impairment testing on the New Zealand CGU
Recoverable amount testing for the period ended 31 December 2019
has identified the New Zealand CGU as being impaired. Taking a
considered approach, an impairment loss of $24,404,000 has been
recognised.
The impairment reflects the under performance of the New Zealand
operations during the six months ended 31 December 2019,
the competitive landscape and relative size of the New Zealand
market and the updating of long-term modelling for the expected
performance of those operations.
The operating EBITDA conversion to cash ratio for 2019 was 82%
(2018: 88%). Net operating cash flows have improved on PCP by
$15,522,000 due to increased trading and the reclassification of
lease related cash payments to financing cash outflows following the
adoption of AASB 16 Leases ($14,733,000).
Summary of cash flows 2019
Operating EBITDA
Statutory ungeared,
tax free operating cash flows
Receipts from prepaid
contracts performed
Receipts from prepaid
contract sales
Other cash flows related
to the prepaid contracts
Ungeared, tax free operating
cash flows
Proportion of operating EBITDA
converted to cash
2019
$’000
2018
$’000
144,433
118,998
100,504
90,296
40,842
46,006
(24,976)
(34,639)
2,406
2,559
118,776
104,222
82%
88%
The conversion ratio calculation and the line items as shown in
the table above are all non-IFRS information, however, all financial
data is based on the information disclosed in the audited financial
statements and notes to the financial statements and follow the
recognition requirements of Australian Accounting Standards.
3030
Annual Report 2019Annual Report 2019 Capital management
The financial covenant ratios targets on debt facilities are:
During 2019, InvoCare completed an Institutional Placement
followed by a Share Purchase Plan, and new capital before costs
of $65,000,000 and $22,712,000 were raised, respectively. Net
proceeds from the capital raised will be applied to InvoCare’s
strategic growth objectives and in the short term for the reduction of
its outstanding debts.
The Group has a total of $450,000,000 debt facilities to cover
needs from all three regions (Australia, New Zealand and Singapore)
with total drawn down of $359,600,000 as at 31 December 2019.
The current debt facilities’ drawing comprises A$250,500,000,
SG$35,000,000 and NZ$75,000,000. The foreign currency drawings
naturally hedge investments in Singapore and New Zealand markets.
Capital management as at 31 December 2019
Leverage ratio (being net debt to operating EBITDA adjusted for
acquisitions and restructuring costs) must be no greater than 3.5
Interest cover ratio (being operating EBITDA adjusted for
acquisitions and restructuring costs to net interest) must be
greater than 3.0
The above ratios continued to be met as at 31 December 2019,
being 2.52:1 and 9.54:1, respectively (2018: 2.99:1 and 8.96:1,
respectively). Internally, the Group has adopted a conservative
approach to capital management and targets a leverage ratio of
3.0x operating EBITDA.
In order to maintain certainty over cash flows, the Group also has
policies limiting exposure to interest rate fluctuations. In accordance
with InvoCare’s policy, at 31 December 2019, 94% of Australia and
2019
2018 Movement Covenant
New Zealand debt principal was fixed interest rates through using
Net debt
($’000)
Leverage
ratio
Interest
coverage ratio
352,379
393,500
(10.5%)
either floating to fixed interest rate swaps or fixed rates debt (2018:
75%). Due to the level of stability of Singaporean interest rates and
its quantum, Singapore dollar debt is not covered by interest rate
2.52x
2.99x
(0.47x)
< 3.5x
swaps.
9.54x
8.96x
0.58x
> 3.0x
With the headroom in debt facilities of $90,400,000, cash held
of $19,560,000, the Group maintained an available funds of
over $110,000,000.
As at 26 February 2020, the Board determined to declare a final
dividend of 23.5 cents per share, fully franked. This brings the full
year dividend to 41.0 cents per share, which equates to a payout
ratio of 79.3% of operating earnings, in line with InvoCare’s dividend
guidelines to distribute no less than 75% of operating earnings in any
full financial year.
3131
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Risks, Safety and Sustainability
InvoCare risk registry
InvoCare has in place an Enterprise Risk Management Framework. As part of the framework the Group maintains an extensive risk register.
The most significant risk for annual financial performance is the number of deaths in our markets. Our approach to forecasting deaths and adjusting
budgetary expectations has always been conservative, however significant uncertainty is inevitable, which can negatively impact actual versus
expected performance, as it did in 2018 when actual deaths declined by 2.3%, ahead of our estimated 2.2% increase.
The rollout of the new ERP has significantly reduced our IT risks and helped to mitigate reputational risk to some extent. The key areas of identified
risks are summarised below.
Risk
Description
Risk management mitigation
Number of deaths
Change in mortality rates
Workforce flexibility
Improvement in health due to
Geographic footprint
medical advances
Relocation of population to
areas outside InvoCare business
operating regions
Service offerings
BDM data
Data Analytics Software
Loss of key brand
reputation/customer
relationships
Failure to maintain brand reputation
Continued investment in customer research to sustain market leading
in market
position
Failure to react to changes in
Customer feedback surveys
customers’ needs/trends
Products and/or services do not
keep pace with developments in
market needs or technological
advancements
Customers/media complaints
Net promoter score reporting or tracking
Close monitoring of market developments and direction of strategies
NBO renovations and transformations of locations and facilities to exceed
customer expectations
Reliance on single
point of failure in
supply chain
Unable to supply products to deliver
Dedicated internal resources to monitor supply agreement contracts
services for families
Commercial tendering processes to identify alternative suppliers
Inventory management
Competitive risk
Risk from existing and new market
Focus on client satisfaction via continuous improvements in delivery of
entrants
customer required products and services
Competitors may offer / develop
Leveraging existing brands in the local regions with acquisitions
superior products/services
strategies to expand market share locally
Delivery of superior products/services to exceed customer expectations
and against competitors’ products/services offerings in the same
operating regions
Focus on local community engagement and relationship to maintain or
improve competitive advantage against other operators
Regulatory risk
OHS risks
HSE Management Plan
Environmental regulations risks
Behavioural base safety programs
Perpetual care
Consumer Act training for employees
Australian Competition and
Customer Act 2010 (Consumer Act)
and other related legislation
3232
Annual Report 2019Annual Report 2019 Risk
Description
Risk management mitigation
People risk
Loss of key executives
Appropriate incentives and career development opportunities for key
Loss of key individuals in operating
executives and senior management
businesses with consequential
Identification and management of high potential employees
material business interruption
Investment risk
– acquisitions
Insufficient funding to capitalise on
Investment Committee provides strategic guidelines and
opportunities
recommendation to the Board on acquisitions decisions
Deficiencies in due diligence by
Treasury function monitors the application of the Board’s guidelines and
InvoCare
provides recommendation to senior management and Board for the final
Potentially unknown or contingent
acquisition decisions
liabilities
Reliance on previous owners
performing satisfactorily
No guarantee of continued
successful performance of acquired
businesses
Investment risk
– prepaid funeral
contracts
Potential escalation in service/
Maintain Board representation in the Over Fifty Guardian Friendly
product costs
Society, the main investment portfolio for over 85% of the prepaid
Volatility of investment returns on
funeral contracts
prepaid funds fluctuation
Ensure the prepaid funeral contracts are invested in diversified asset
classes to maximise returns without exceeding risk levels as specified in
accordance with the investment policy and guidelines
Information
technology (IT) risk
– cyber risk, privacy
and data sovereignty
Risk of data loss/fraud, system
Dedicated internal resources to monitor and address cyber and
breakdown
information risks as and when they arise
Implementation risk for the ERP
Measures to detect and prevent unauthorised access to Company
system into the business
IT assets
A crisis occurs
threatening the
organisation, our
stakeholders or the
general public
Risk of targeted cyber attack
Code of Conduct is set up and relevant employee training is conducted
against Company assets
Disaster Recovery Plan is set up and identified processes/alternative
Unauthorised access to or loss of
activities to assist mitigation disruption risks at time of needs
customer data including personally
Penetration Testing
identifiable data
A pandemic spreads across the
Infectious Disease procedure in place
business or community
Emergency Management Plans, developed locally with clear escalation
Natural disaster occurs such as
guidelines to Corporate Emergency Management Plan (EMP)
fire, floods impacting significant
operations
IT system breakdown
Disaster Recovery Plan (DRP) in place to manage IT risks
InvoCare Pandemic and Epidemic Diseases Plan in place
EMP, DRP and Pandemic / Epidemic Diseases Plan link to Business
Continuity Plan (BCP) with identified processes, roles and responsibilities
to mitigate disruption to the business and community
3333
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
Workplace Health and Safety Initiatives
The funeral, cremation and memorial services industry has always
been impacted by safety risks and mitigating these is a top priority for
InvoCare.
Many initiatives already underway have been discussed in the section
of People & Culture. We anticipate that further initiatives will be
introduced to address our responsible production and consumption
targets, particularly in relation to reviewing our supply chains and
Our strategies to improve safety have ranged from investment in
more appropriate lifting equipment, to a greater focus on reward and
recognition of those who achieve excellent safety performance. We
have signalled the importance of safety through the appointment
of a market recognised Head of Safety; whose primary focus is
to drive further improvement in this critical area. A sustainable
long-term safety plan is being developed as part of our wider focus
on Sustainability, which will be discussed in greater detail in the
Sustainability Report released in March 2020. We anticipate that this
safety plan will be implemented in the first half of 2020.
Specific initiatives developed or implemented in 2018 and 2019 include:
Development of detailed safety plans for all roles in all locations
Introduction of the Safe Zone across all Business Units to
proactively flag workplace risks
environmental areas of responsibility.
2020 outlook
It is difficult to provide full year earnings guidance with any degree of
certainty, given the importance that the Winter trading period has on
the results for InvoCare.
Summarised below are the key assumptions for 2020:
A continuation of the revision to trend in the number of deaths
across our three markets
Case average growth of circa 2%
Disciplined cost control across existing business
Continued positive contribution from acquisitions
Placement of Visual Safety Boards in all locations
Estimated NBO drag of circa $4 million EBITDA
Inclusion of Safety Performance within all managers’ STIPs
Forecast impact on Operating EBITDA of AASB 15 unwind is
Working with external parties (e.g. AFDA) to ensure best-practice
safety measures are in place
expected be circa $14 million in 2020 assuming current customer
repayment schedules. The current estimates for 2021 and 2022 are
Putting proactive safety measure in place for potential risks,
such as COVID-19
These efforts have resulted in a strong improvement against 2018
results. Overall, Lost Time Injury Frequency Rate (LTIFR) finished
the year at 14.1, under the target of 14.8, which represents a 19%
reduction on the 2018 result. In response to the COVID-19 outbreak
we have reviewed our policies and procedures to ensure we meet or
exceed requirements needed to protect our people. We continue to
circa $12.5 million and $11 million respectively.
A trading update will be provided for Q1 at the May AGM.
Beyond 2020
The focus beyond 2020 will then be on investing in “Growth” activities
to provide sustainable growth over the medium to longer term.
work with relevant health authorities.
Growth activities to be considered include:
Sustainability
In 2019, we progressed a comprehensive Environmental and Social
Governance (ESG) strategy and implementing appropriate reporting
protocols.
We published a separate InvoCare Sustainability Report in
March 2020.
The underlying objective is to integrate both environmental and social
governance into mainstream management and reporting practices
as rapidly as possible. To support our ESG strategy, an ESG working
group was established in July 2019 comprising members of the
Board and senior executives.
Working with the UN’s Sustainable Development Goals, as well as
a range of other reporting protocols, InvoCare has identified the
following initial key areas of focus:
SDG 5 – Gender Equality
SDG 8 – Decent work and economic growth
SDG 10 – Reduced inequality
SDG 12 – Responsible production and consumption
Enhance traditional locations
Establish new locations
Acquisitions
Continue to rollout pet cremation business
Explore multicultural funerals, green funerals and innovations in
funerals and memorialisation
In addition, Protect & Grow provides the base for more innovative
growth strategies. A key part of preparing for growth beyond Protect
& Grow has been the recent renewal of the Board of Directors. These
changes have ensured that we have the appropriate skill set to
identify these new areas of growth.
InvoCare will be conducting research into these new areas of growth
to better understand how we can meet the needs of an increasing
socially diverse and digital savvy population who have different
religious and cultural needs.
Mindful of the need to attract executives with the skill sets to deliver
these innovative solutions, attention will be given to leadership and
succession development.
3434
Annual Report 2019Annual Report 2019 Reconciliation of financial information
The table below presents a reconciliation of statutory results as disclosed in the consolidated statement of comprehensive income, operating
results in Note 1: Operating segments and underlying results after removing AASB adjustments.
Statutory
results a
$’000
Reclass-
ification b
$’000
Operating
results c
$’000
AASB
adjustments d
$’000
Underlying
results e
$’000
2019
Sales revenue
Other revenue
Operating expenses
EBITDA
EBITDA margin (%)
Depreciation and amortisation
Business acquisition costs
EBIT
EBITDA margin (%)
2018
Finance costs
Interest income
Earnings before income tax
Income tax on operating earnings
Earnings after income tax
Non-operating items:
Net gain/(loss) on prepaid contracts before income tax
Asset sales gain/(loss) before income tax
Impairment loss on intangibles
Income tax on non-operating results
Non-controlling interest
Net profit after income tax attributable to
ordinary equity holders of InvoCare Limited
Sales revenue
Other revenue
Operating expenses
EBITDA
EBITDA margin (%)
Depreciation and amortisation
Business acquisition costs
EBIT
EBITDA margin (%)
Finance costs
Interest income
Earnings before income tax
Income tax on operating earnings
Earnings after income tax
Non-operating items:
Net gain/(loss) on prepaid contracts before income tax
Asset sales gain/(loss) before income tax
Income tax on non-operating results
Non-controlling interest
Net profit after income tax attributable to
ordinary equity holders of InvoCare Limited
494,584
5,764
(363,258)
137,090
27.7%
(36,986)
(2,021)
98,083
19.8%
(25,671)
1,211
73,623
(20,873)
52,750
45,550
2,404
(24,404)
(12,412)
(136)
63,752
477,703
3,094
(369,067)
111,730
23.4%
(26,039)
(3,602)
82,089
17.2%
(21,036)
1,354
62,407
(19,593)
42,814
(4,992)
329
3,209
(136)
(472)
(211)
8,026
7,343
13
-
7,356
1,247
-
8,603
(2,151)
6,452
(8,603)
-
-
2,151
-
-
(366)
(233)
7,867
7,268
9
-
7,277
1,386
-
8,663
(1,981)
6,682
(8,663)
-
1,981
-
494,112
5,553
(355,232)
144,433
29.2%
(36,973)
(2,021)
105,439
21.3%
(24,424)
1,211
82,226
(23,024)
59,202
36,947
2,404
(24,404)
(10,261)
(136)
63,752
477,337
2,861
(361,200)
118,998
24.9%
(26,030)
(3,602)
89,366
18.7%
(19,650)
1,354
71,070
(21,574)
49,496
(13,655)
329
5,190
(136)
41,224
-
41,224
(16,333)
-
(10,324)
(26,657)
11,406
-
(15,251)
7,627
-
(7,624)
2,319
(5,305)
477,779
5,553
(365,556)
117,776
24.7%
(25,567)
(2,021)
90,188
18.9%
(16,797)
1,211
74,602
(20,705)
53,897
(21,564)
-
5,694
(15,870)
-
-
(15,870)
3,458
-
(12,412)
3,724
(8,688)
455,773
2,861
(355,506)
103,128
22.6%
(26,030)
(3,602)
73,496
16.1%
(16,192)
1,354
58,658
(17,850)
40,808
a Statutory results as presented in the consolidated statement of comprehensive income. b Reclassification of prepaid funeral business as non-
operating. c Operating results, including the impacts of AASB 15 and AASB 16. d For 2019, the removal of the impacts of AASB 15 and AASB 16
from Operating results to present Underlying results. AASB 16 was adopted from 1 January 2019, with no changes to comparatives. For the financial
year ended 31 December 2018 (2018), the removal of the impact of AASB 15 only. e Underlying results excluding the financial impacts of AASB 15
and AASB 16 (2019 only) accounting standards.
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DIRECTORS’ REPORT – OPERATING AND FINANCIAL REVIEW
InvoCare considers underlying EBITDA and EBIT as the key
performance measures. It represents adjusted earnings after
excluding the following items:
The financial impacts of the prepaid funeral business
Other non-operating activities, including asset sales gain/loss,
impairment loss and restructuring costs
Net gain/loss on prepaid contracts, as presented separately in the
table above, includes all amounts related to the administration and
financial impacts of the prepaid funeral business. This has resulted
in normalisation adjustments to sales, other revenue and operating
expenses to reflect the exclusion of the financial impact of the prepaid
funeral business. The directors consider that the presentation of
all activities related to funds under management as non-operating
provides a clearer and better reflection of InvoCare’s underlying
performance and results.
Operating and underlying EBITDA, EBIT and 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 items. The table
above summarises the key reconciling items between net profit
after tax attributable to InvoCare’s equity holders and underlying
EBITDA, EBIT and earnings before and after tax. The underlying
EBITDA, EBIT and earnings before and after-tax information included
in the table above has not been subject to any specific audit or
review procedures by the auditor but has been extracted from the
accompanying financial report.
In addition to clearly defining or segregating operating and non-
operating financial performance of the Group. The adoption of
recently applicable accounting standards (AASB 15 from 2018)
have impacted InvoCare more than many companies given the
large prepaid component of the business. From 2019, due to the
methodology elected by InvoCare on adoption of AASB 16, there
is no comparative financial data in 2018. This makes a simple
comparison with previous years challenging.
Whilst the new accounting standards have changed the reported
results, there have not changed the way InvoCare operates.
From the financial year ending 31 December 2020, the financial
performance of InvoCare will reflect two full year impacts from both
AASB 15 and AASB 16 other than the unwind of deferred revenue on
the prepaid contract at time of transition.
3636
Annual Report 2019Annual Report 2019 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
Letter from the Chair of the People,
Culture & Remuneration Committee
To our valued shareholders,
The Board is pleased to present the Remuneration Report for
While there is a need to remain conservative, the Board felt that
InvoCare for the year ended 31 December 2019, which sets out
for retention and market equity reasons, some remuneration
the remuneration strategy and framework for our key management
adjustments should be granted for 2020. After a zero fixed pay
personnel (KMP). As well as complying with our statutory obligations,
increase in 2019, the CEO and Non-Executive Directors will receive
each year we look to continuously improve our remuneration
a 3% increase from 1 January 2020. Further detail around these
reporting, to make it easier to understand. To that end, we have
increases can be found in sections F.I and G in this report.
introduced a new Q&A format that we hope you will find helpful and
informative.
2019 performance reflects rollout
of Protect & Grow strategy
We will continue to engage with investors, proxy advisors and
independent remuneration consultants on our remuneration
strategy. Last year we communicated that we had commissioned
an independent report on market practices among peer companies
for STI plans. As a result, a deferred component to the STI will be
InvoCare has a track record of delivering solid financial results
introduced in 2020.
over the long-term. Since its ASX listing in 2003, the Company has
delivered an annualised Total Shareholder Return (TSR) of 17%.
The Board has also reviewed the effectiveness of the
current LTI plan with particular focus on its ability
While 2018 was a challenging year for the Company and for our
to attract and retain senior management to
shareholders, 2019 marks the second year of the implementation
ensure they are focussed on delivering longer
of our transformation under our Protect & Grow strategy. In 2019,
term goals of all stakeholders while avoiding
we have seen this translate into improved performance and we
short term decision making. Changes to the
believe completing the investment over the coming year will enable
LTI to align to both market practices and
us to continue to deliver long-term, sustainable returns to our
ensure for attraction and retention will take
stakeholders.
The Board continues to ensure close alignment between shareholder
and employee interests. In 2018 there were no fixed pay increases for
KMP. Likewise, 2018 short term incentive (STI) were to a large extent
forfeited and long-term incentive (LTI) vesting hurdles not met. A
significant decline in the death rate contributed to the 2018 result that
was largely beyond the direct control of management.
The improvement in 2019 year-on-year performance was pleasing
and management and the Board remain enthusiastic about the year
ahead. However, business performance in 2019 did not meet or
exceed agreed targets in all areas and as a result, a proportion of STI
has again been forfeited by the KMP and the wider Group Executive
Team (GET).
We believe the remuneration outcomes for 2019 demonstrate
continuing close alignment of performance and executive
incentive rewards.
2020: the year ahead
The Board is committed to a remuneration framework that attracts,
retains and motivates a high calibre team in what is a unique,
emotionally challenging industry. To do this, we are constantly
reviewing the effectiveness of the framework to ensure continued
relevance in a changing environment, as well as remaining reflective
of current market practices.
place in 2020, this will include the removal
of retesting. Further detail around 2020
changes as they relate to the CEO will
be provided in the Notice of the
Annual General Meeting, with
a full overview outlined in the
2020 Remuneration report.
We remain confident our
approach to remuneration
closely aligns shareholder
and employee outcomes
and we remain committed
to continually improving in
future to ensure InvoCare
attracts, motivates and
retains a high performing
team.
Robyn Stubbs
Chair, People,
Culture & Remuneration
Committee
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DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
The Board presents the 2019
Remuneration Report for InvoCare in
accordance with the Corporations Act
2001 and its regulations. This report
outlines the key remuneration policies
and practices for the year ended 31
December 2019. It highlights the link
between remuneration and corporate
performance and provides detailed
information on the remuneration for key
management personnel (KMP).
The Remuneration Report is set out under the following sections:
Section What it covers
Page
A
B
C
D
E
F
G
H
I
Remuneration strategy
Key management personnel
2019: How did we perform?
Executive KMP overview
Remuneration governance and framework
The year ahead – what can we expect in 2020?
Non-Executive Director remuneration
Statutory disclosures
Additional information
39
39
40
42
45
50
51
53
57
3838
Annual Report 2019Annual Report 2019 A. Remuneration strategy
B. Key management personnel
Principle and policy
For the purposes of this report, the key management personnel
(KMP) are those persons having authority and responsibility for
The guiding principle underlying the executive remuneration
planning, directing and controlling the activities of the Group or a
philosophy is to ensure InvoCare reward and recognise the delivery of
major operation within the Group, as listed in Table 1 and 2 below.
the Group’s strategy, promote long term sustainable success, align
management and stakeholder interests and encourage behaviours
Table 1 – Independent Non-Executive Directors
reflective of the One InvoCare culture.
InvoCare’s remuneration policy is that:
Key performance indicators should balance the near-term focus
on current year results to drive value creation and reflect the need
for sustainable outcomes
Performance for incentive plan purposes is measured at the level
which best aligns with driving accountability for the delivery of the
business objectives
Name
Bart Vogel
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
Role
Date of appointment
Chairman
1 October 2017
21 February 2012
1 October 2018
1 October 2018
1 September 2018
1 January 2017
All variable pay should align reward with the stakeholders and
Table 2 – Executive key management personnel (KMP)
encourage a long-term view
It should enable InvoCare to compete effectively to attract and
retain the critical people InvoCare needs
Reward must be aligned with, and promote the achievement of
InvoCare’s purpose and consistently demonstrating, living and
promoting the InvoCare Values
The Chief Executive Officer and Group Executive Team’s (GET)
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 overall Group performance targets are met
Name
Role
Date of appointment
Martin Earp
Managing Director
1 May 2015
and Chief Executive
Officer (CEO)
Damien MacRae Chief Operating
5 February 2018
Officer (COO)
Josée Lemoine
Chief Financial
8 September 2016
Officer (CFO)
Management of the Group is delegated to the Group Executive
Team (GET) comprising Martin Earp’s direct reports. The Board
has determined that not all members of the GET are considered
Executive KMP other than those as listed in Table 2 above, as they
do not have responsibility for planning, directing and controlling a
substantial part of the operations of InvoCare. Periodically changes
are made to the GET to reflect the evolving strategy and structure of
the Group.
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
C. 2019: how did we perform?
After a challenging year for InvoCare in 2018, as InvoCare
continues to implement the Protect & Grow strategy, it is
pleasing to see 2019 net profit after income tax increase by
55% and operating earnings per share (EPS) increase
by 14%.
I. Relationship between remuneration and InvoCare’s
performance
The overall level of Executive KMP reward considers
the performance of the Group over several years, with
at risk remuneration linked to that performance. The
remuneration approach, elements and mix has delivered
an annualised 17% return for shareholders between listing
in December 2003 and the end of 2019.
Relationship between STI performance payout versus
operating earnings after tax
Table 3 outlines the Group’s performance delivered
over the past five years. It also provides details on the
relationship between financial performance (EPS) over the
last five years versus percentage of short-term incentive
bonus (STI bonus) paid for CEO and average percentage of
STI paid for other Executive KMP.
Table 3 – Key financial performance indicators
Net profit after income tax attributable to equity holders of
InvoCare Limited ($’000)
Operating EBITDA ($’000)
Operating earnings after income tax* ($’000)
Basic EPS (cents)
Operating EPS (cents)
Dividend per share (cents)
Share price at 31 December ($)
% of Cash STI bonus paid to CEO
Average % Cash STI bonus paid to other Executive KMP
$m
100
90
80
70
60
50
40
30
20
10
0
Reported
profit
after
tax ($m)
Operating
earnings
per share
(cents)
¢
100
90
80
70
60
50
40
30
20
10
0
57.9
52.4
51.7
42.2
45.1
45.2
2014
2015
2016
2017
2018
2019
2019
2018
2017
2016
2015
63,752
144,433
59,202
55.80
51.70
41.00
13.19
62%
57%
41,224
97,439
70,949
54,844
118,998
124,316
115,344
110,089
49,487
63,526
57,417
52,999
37.80
45.20
37.00
10.30
32%
35%
88.80
57.90
46.00
16.10
69%
68%
64.70
52.40
42.50
13.80
92%
80%
50.10
48.40
38.00
12.01
92%
81%
* Operating earnings after tax excludes the net gain/(loss) on prepaid contracts, commissions received and costs associated
with the administration of prepaid contracts, gain/(loss) on sale, disposal or impairment of non-current assets and non-controlling interests.
4040
Annual Report 2019Annual Report 2019 II. 2019 remuneration outcomes vs financial performance
Element
Purpose
Link to performance
2019 changes and outcomes
Fixed remuneration
Total fixed
TFR (base salary plus fixed
TFR is benchmarked to be competitive to
There were no TFR increases
remuneration
cost benefits) is targeted at
attract and retain experienced individuals to
awarded in 2019 to any Executive
(TFR)
the median of the market for
drive InvoCare’s strategy.
KMP.
expected performance with
the opportunity to earn above
median remuneration for
exceptional performance.
Changes to TFR are linked to a combination
There were no changes to Board
of rewarding high performance, and the
and committee fees in 2019.
capacity to pay.
At risk remuneration
Short term
incentive
(STI)
STI is awarded for achievement
The following factors are among those
There were no changes to the CEO
of pre-determined financial
considered by the People, Culture &
or Executive KMP STI in 2019.
and non-financial objectives.
Remuneration Committee (PCR Committee)
This element of remuneration
in making its assessment on the achievement
constitutes part of a market
of the STI opportunity:
competitive total remuneration
package and aims to provide
an incentive for eligible roles
to deliver annual business
plans that will lead to
sustainable superior returns for
shareholders.
Financial performance
Our customers
Our people
Our safety
Key projects
STIs are measured over a one year
performance period and paid in cash.
For 2019 Executive KMP outcomes
ranged from 52% to 65% of target.
For further detail on 2019 STI
outcome refer to Table 4 in Section
D.III below.
Long term
incentive
(LTI)
The LTI Plan is aimed at
InvoCare utilises incentives to align the
There were no changes to LTI’s
attracting, rewarding and
long-term interests of executives with those
performance conditions in 2019
retaining high performing
of equity holders and to ensure that the
compared to 2018’s grant.
executives who contribute to
participants are rewarded in line with the
the overall medium and long-
economic value created.
term success of InvoCare.
Target annual compound
normalised EPS growth starts at
LTI granted are in the form of a combination of
8% from grant year.
options and performance rights. The ratio of
options to performance rights granted is 75%
and 25% respectively.
The value of LTI awards offered in 2019
were up to a maximum of 85% of TFR for the
CEO and up to a maximum 45% for other
Executive KMP.
For further details on LTI vesting
outcome for 2019 refer to Table 10
and Table 11 in Section H.II below.
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
D. Executive KMP remuneration overview
b. CEO remuneration breakdown
Target remuneration represents total potential remuneration of TFR,
STI (achieved at 100% for both financial and non-financial targets)
and LTI awarded (at 100% subject to performance and employment
conditions to be met).
Long term
incentive
Actual remuneration in the graph below represents the take home
(LTI)
25% in performance rights
I. CEO 2019 remuneration details
a. What was target and actual remuneration in 2019?
The target remuneration for the CEO is set to place a considerable
portion of remuneration at risk to align remuneration with both the
Group’s performance and the individual’s personal influence and
contribution to the Group’s performance. The total maximum, target
and actual remuneration for the CEO for the full year is summarised in
the graph below.
Maximum remuneration represents total potential remuneration
of TFR, STI and LTI. For STI, the amount includes the 150%
achievement for financial targets as prescribed by the STI
performance targets conditions.
amount for 2019 and consists of:
Cash salary received during 2019 of $896,397, included
non-cash benefits and excluded the movement of annual leave
accruals
STI awarded based on 2019 achievement of performance targets
of $283,776
No LTI awarded as performance hurdles for prior years’ grant due
for testing are not met
CEO remuneration maximum, target and actual
25.8%
34.1%
$2,217,129
Maximum
Target
Actual
40.1%
42.3%
76.0%
Total fixed
remuneration
(TFR)
Short term
incentive
TFR of $889,520 per annum
There was no change to TFR for 2019
Target STI of $457,213 (51.4% of TFR)
The balanced scorecard was based on the
(STI)
following:
Financials 60%
Our customer 10%
Our people 10%
Our safety 10%
Key projects 10%
The CEO received 62% of target STI for 2019
For further detail on 2019 STI outcome refer to
Table 4 in Section D. III below
Target LTI of $756,092 (85% of TFR)
Of the maximum LTI award, 75% is in options and
For all the grants which were up for performance
hurdle testing, 2015 and 2016 grants were partially
met and 2017 grant was not met. For further details
on LTI vesting outcome for 2019 refer to Table 10
and Table 11 in Section H.II below
c. CEO’s employment terms
The total remuneration package is reviewed annually and the key
terms are summarised below.
The Board intends seeking the approval of shareholders at the
next Annual General Meeting (AGM) for the CEO’s remuneration
arrangements. The PCR Committee and Board have the discretion to
21.7%
36.0%
$2,102,825
provide additional performance incentives.
24.0%
$1,180,173
Terms
Conditions
Total Rem $
$800,000
$1,600,000
$2,400,000
Fixed Renumeration
STI
LTI
Commencement date
Fixed term employment contract
effective 1 April 2018
Contract duration
Three years
End date
Notice period
by employer
Notice period
by employee
Termination
entitlements
31 March 2021
Six months
Six months
No redundancy payment entitlements.
If there is any termination entitlements
to be paid, they will be limited by the
current Corporations Act 2001 (Cth)
or the ASX Listing Rules or both
Post-employment
12 months non-compete
restraints
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Annual Report 2019Annual Report 2019
II. Other Executive KMP 2019 remuneration details
Target remuneration for each Executive KMP is determined by the InvoCare
framework. The total maximum, target and actual remuneration for the other
Executive KMP for the full year is summarised in the graph below:
Other Executive KMP remuneration maximum, target and actual
Damien MacRae
Maximum
Target
Actual
Josée Lemoine
Maximum
Target
Actual
49.7%
52.6%
81.3%
52.6%
55.6%
79.3%
28.0%
22.4%
$1,106,875
23.7%
23.7%
$1,045,000
18.7%
$682,383
26.3%
21.1%
$872,100
22.2%
22.2%
$826,200
20.7%
$579,989
Fixed
Renumeration
STI
LTI
Total Rem $
$200,000
$400,000
$600,000
$800,000
$1,000,000
Other Executive KMP employment terms
The total remuneration package is reviewed annually and the key terms are
summarised below:
Terms
Contract duration
Notice periods
(by Company or by employee)
Conditions – COO
Conditions – CFO
No expiry date
Six months
No expiry date
Six months
Redundancy entitlements
Any payment required under
Any payment required under
the Fair Work Act 2009 (Cth)
the Fair Work Act 2009 (Cth)
Post-employment restraints
12 months non-compete
Six months non-compete
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
III. Summary of 2019 STI performance
Financial targets are set with reference to the annual budget for the financial year. Participation percentages vary for each Executive KMP
depending on their role and responsibilities.
Component
2019 performance targets
Financial
performance
Group EBITDA
Funds under management growth
Our customer
Net Promoter Score
Market share growth – year on year
Our people
Employee engagement
Employee turnover < 12 months tenure
Our safety
Lost time injury frequency rate (LTIFR)
Key projects
Align to the continued focus
on the Protect & Grow strategy
CEO –
weight
COO –
weight
CFO –
weight
2019 performance
outcome
50%
10%
10%
-
10%
-
10%
10%
50%
-
10%
10%
10%
10%
10%
-
50%
Target was partially met
-
-
-
Target was met
Target was partially met
Target was not met
10%
Target was not met
-
Target was met
10%
30%
Target was met
Target was partially met
Based on achievements in 2019, the PCR Committee determined the Executive KMP forfeited an average of 40%, achieving an average
of 60% of their target STI opportunity.
Table 4 – Executive KMP 2019 STI outcome
Executive KMP
Performance
target
Martin Earp
Financial
Customer
People
Safety
Key projects
Damien MacRae
Financial
Customer
People
Safety
Josée Lemoine
Financial
People
Safety
Key projects
Achievement
37%
5%
0%
10%
10%
26%
5%
10%
10%
27%
0%
10%
28%
Target STI
potential
$
457,213
Actual STI
awarded as a
% of target STI
potential
Actual STI
awarded
$
STI forfeited
as a % of target
STI potential
62%
283,776
38%
247,500
52%
127,653
48%
183,600
65%
120,251
35%
4444
Annual Report 2019Annual Report 2019 E. Remuneration governance and framework
I. InvoCare’s remuneration governance framework
InvoCare Board of Directors
People, Culture & Remuneration Committee*
Management
Ensuring the Group’s
Approving the Group’s overall remuneration policy and process.
Implementing remuneration
remuneration framework
is aligned with the Group’s
purpose, core values, strategic
objectives and risk appetite.
Monitoring GET performance
and implementation of the
Group’s objectives against
measurable and qualitative
indicators.
Reporting to the Board on corporate culture within the Group and
policies and practices.
making recommendations to the Board regarding corporate
Providing information relevant
governance policies to support a strong corporate culture.
Reviewing and recommending to the Chair arrangements for the
CEO and the GET in relation to their terms of employment,
remuneration and participation in the Group’s incentive programs
(including performance targets).
Reviewing and recommending to the Board the remuneration
arrangements for the Chair and Non-Executive Directors of the
Board, including fees, travel and other benefits.
to remuneration decisions and
makes recommendations to the
PCR Committee with respect to
remuneration arrangements.
Making recommendations to the
PCR Committee in relation to the
design and implementation of
the remuneration strategy and
structure.
* The full charter for the PCR Committee is displayed on the InvoCare website.
II. Use of remuneration advisors
From time to time, the PCR Committee engages external remuneration consultants to provide independent benchmarking data and information
on best practice and community expectations. This ensures InvoCare continually reviews, assesses and adapts the remuneration governance
functions to assist the Board and the committee in making informed decisions.
During 2019, the PCR Committee commissioned an external consultancy group to provide the following information:
Peer market practices for a deferred component to the STI plan
A comprehensive review on the existing LTI plan
No remuneration recommendations as defined by the Corporations Act 2001 were provided by the external consultancy group.
III. Remuneration structure
a. Total fixed remuneration
What is total fixed
remuneration?
Base salary, superannuation and any other benefits e.g. motor vehicle.
How is total fixed
remuneration determined?
TFR (base salary plus fixed cost benefits) is targeted at the median of the market for expected performance with
the opportunity to earn above median remuneration for exceptional performance.
TFR is benchmarked to be competitive to attract and retain experienced individuals to drive InvoCare’s strategy.
Changes to TFR are linked to a combination of rewarding high performance, and the capacity to pay.
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
b. Short term incentive
What is the purpose
STI aims to provide an incentive for senior executives to deliver annual business plans that will lead to sustainable
of the STI plan?
superior returns for shareholders. Target based STIs are intended to modulate the cost to the Group of employing
senior executives, so that risk is shared with the senior executives themselves and the cost to the Company is
reduced in periods of poor performance.
The incentive plan has been developed to reinforce InvoCare’s values and behaviours, while supporting a
commercial mindset and alignment to business objectives.
What is the performance
The Group’s financial year is from 1 January to 31 December.
period?
What is the award
In 2019 target STI as a percentage of TFR was 51.4% for the CEO and from 40% - 45% for the Executive KMP.
opportunities?
What key performance
STI outcomes are directly linked to both individual performance against KPIs and on the performance of the Group.
indicators (KPIs) are
measured for STI to be
paid?
The Board has focussed the Executive KMP on five main areas, which align to the Protect & Grow strategy:
Financial performance
Our customers
Our people
Our safety
Key projects
STI attainment is determined excluding the impact of change in accounting standards. For further detail on 2019
What is the relationship
between performance
scales and outcome?
STI outcome refer to Table 4 in Section D.III above.
Performance scales
Below threshold
STI outcome
0% paid
Between threshold and target – For the
50% earned on achievement of threshold level performance, increasing
financial components, threshold is 95%
on a straight-line basis to 100% for target level performance.
Target
100% paid
Maximum – For financial
100% earned at target level performance, increasing on a straight-line
components only
basis to 150% earned on achievement of maximum level performance.
Is overachievement
No. Overachievement is only available on the financial components of the STI and this is capped at 150%.
applicable for all the
components of the STI?
Are non-financial
Yes. Non-financial components are capped at 100% payment.
components capped?
When is STI paid?
Incentives are payable in cash in the first quarter of each year after the completion of the audit of the results for the
Are there any
disqualification
provisions?
previous year ended 31 December.
All financial performance data relating to the plan is subject to external audit.
Potential participants may be disqualified from all or part of the plan if their annual performance is determined
to be below the “on track” rating category in the performance management practices. Should a dispute arise
regarding a potential disqualification, eligibility will be at the discretion of the CEO, or the Board for the CEO.
InvoCare reserves the right to suspend or alter payments to any participant in the plan due to any action which
has caused the Group loss or reputational damage.
How is STI treated on
In the event of cessation of employment due to resignation or dismissal for cause, all entitlements in relation to
cessation of employment?
the performance period are forfeited. Where an executive’s employment is terminated by the Company for any
reason other than cause, the relevant executive may receive a pro-rated portion of their STI opportunity based
on the portion of the performance year served and the incentive paid or payable in respect of the immediately
preceding financial year.
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Annual Report 2019Annual Report 2019 c. Long term incentive
What is the purpose
The LTI Plan is aimed at attracting, retaining and rewarding high performing executives who contribute to the
of the LTI Plan?
overall medium and long-term success of InvoCare.
Who participates in
Participation is limited to Executive KMP and selected high performing or high potential senior managers by
the LTI plan?
invitation, and as approved by the Board.
What size of award is
The 2019 LTI target opportunity was 85% of TFR for the CEO and 40% - 45% for other Executive KMP.
granted?
Plan features
The LTI awards are in the form of options and performance rights subject to vesting conditions. The ratio of
options and performance rights are at 75% and 25% for Executive KMP.
How are the grants
The number of options is calculated based upon the value of LTI to be awarded in options divided by the option
calculated?
valuation at the award date. The option value is determined using a Black-Scholes valuation methodology.
The valuation for allocation excludes dividends and does not incorporate any discount relating to the
performance and tenure conditions.
The number of performance rights is calculated at the date of issue by dividing the value of LTI to be awarded
in the form of performance rights by the face value of an InvoCare share. The face value is based on the 10-day
volume weighted average price (VWAP) for InvoCare shares starting from the first day of the trading window
immediately following the announcement of the full-year result.
What are the
Performance hurdles:
performance hurdles?
Is there a gateway before
any LTI awards can vest?
Continued employment condition
Compound growth per annum in normalised earnings per share (EPS) over the vesting period
A ‘gateway’ condition must be met before any LTI awards can vest. The gateway requires a minimum level
of return on invested capital (ROIC) greater that the weight average cost of capital (WACC) (refer to EPS
performance conditions summarised below for details of the ROIC gateway and stretch targets). 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
For LTI awards from February 2018:
• To reflect constant currency
Why were these
measures chosen?
Compound growth per annum of normalised EPS was selected as the most suitable and reliable measure of
organisational performance, based on independent advice and analysis by the Board. The reasons for this
• To remove impacts of prepaid contracts and associated funds under management
conclusion include:
InvoCare is a unique and relatively stable business
EPS 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
EPS remains a preferred metric to TSR, which the Board continues to monitor
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What are the
performance
conditions?
Subject to the ROIC gateway condition, the EPS performance conditions applying for LTI awards from 2018 are
as follows:
EPS growth
Less than 8%
8%
Between 8% and 12%
12% and above
Percentage of target that vests
Nil
30%
Pro rata vesting on a straight-line basis
100%
Subject to the ROIC gateway condition, the EPS performance conditions applying for LTI awards in 2016 and
2017 are as follows:
EPS growth
Less than 7%
7%
Between 7% and 12%
12% and above
Percentage of target that vests
Nil
30%
Pro rata vesting on a straight-line basis
100%
What happens on
For the options and performance rights to vest, the employee must be employed at the date of vesting unless the
ceasing employment?
termination of employment has been determined to be a good leaver.
For good leavers, providing a participant has at least three years employment with InvoCare and has not
engaged in proscribed conduct (meaning serious and wilful misconduct, wilful disobedience, gross negligence
or incompetence, disqualification under Corporations Act or serious breaches of contract of employment), the
Board may at its discretion allow unvested awards to continue on foot and vest subject to the original terms and
performance conditions attaching to the relevant grants, regardless of whether or not the participant is employed
by InvoCare at the relevant vesting time.
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.
What happens if a change
In the event of a change in control or other circumstances where the Board determines it is not practical or
in control occurs?
appropriate for the unvested awards 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.
Are there dividends or
There are no dividends or voting rights attached to the options and performance rights awarded. It is only if the
voting rights?
options and performance rights vested and exercised that there will be any entitlement.
Is there a clawback policy
Payments or vesting related to performance conditions associated with LTI are subject to a clawback policy.
included?
The Group will seek to clawback all or part of an executive’s incentives 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
A material abnormal occurrence results in an unintended increase in the award
InvoCare Share
Trading Policy
In accordance with InvoCare’s Share Trading Policy, senior managers are prohibited from trading in the
Company’s shares other than during specified trading windows, or with approval in exceptional circumstances,
provided they do not possess inside information. In addition, senior managers are not permitted to enter
into transactions with their shareholding in the Company which operate to limit the economic risk of their
shareholding (e.g. margin loans, hedging or cap and collar arrangements), include limiting the economic risk of
holdings of unvested entitlements associated with LTI securities.
4848
Annual Report 2019Annual Report 2019
IV. Executive KMP remuneration details – statutory basis
Table 5 below discloses the remuneration for Executive KMP calculated in accordance
with statutory requirements and Accounting Standards. Refer to table note underneath
Table 5 for the relevant statutory and accounting requirements.
Table 5 – Total Executive KMP remuneration – statutory basis
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Share based
payments
Total
1
Cash salary
and leave
accruals
$
2
Short term
incentive
$
2019
2018
842,702
283,776
761,054
147,177
3
Non-
monetary
benefits
$
77,127
72,397
25,000
22,886
2019
527,017
127,653
4,730
25,000
2018
2019
2018
502,359
82,170
-
431,676
120,251
4,730
444,180
37,069
-
21,570
25,000
20,290
Martin
Earp
Damien
MacRae
appointed 5
February 2018
Josée
Lemoine
4
Super-
annuation
$
Termination
payments
$
5
Long service
leave
accruals
$
6
Options and
performance
rights
$
$
-
-
-
-
-
-
13,097
14,159
(232,563)
1,009,139
81,215
1,098,888
8,749
(68,779)
624,370
7,926
7,262
7,539
68,779
682,804
(154,260)
434,659
90,566
599,644
Footnote to Table 5
Table notes to Table 5
a
The remuneration mix for the Executive KMP based on the
1
The total cost of cash salary and leave accruals, including annual
remuneration details in Table 5 above are:
• Martin Earp: 96% fixed and 4% at-risk (2018: 69% fixed and
31% at-risk)
leave taken and the increase or decrease in the annual leave
provision applicable as determined in accordance with the
Accounting Standard AASB 119 Employee Benefits.
• Damien MacRae: 91% fixed and 9% at-risk (2018: 74% fixed
2
The amount to be settled in cash relating to performance of the
and 26% at-risk)
• Josée Lemoine: 100% fixed and 0% at-risk (2018: 74% fixed
and 26% at-risk)
The 2019 remuneration mix had a higher fixed remuneration
compared to 2018. This was impacted by the negative value
of share based payments value in 2019. The share-based
payments value in 2019 is lower than 2018 is due to the
performance hurdle forecast to be partially met at a lower rate in
2019 for all options and performance rights whilst in 2018 it was
forecast to be met at a higher rate.
b
During 2019, the Board re-assessed Goh Wee Leng’s
classification as Executive KMP and determined that she was
no longer involved in strategic planning, direction and control of
the activities of the Group. Effective from 1 January 2019, Goh
Wee Leng ceased as KMP, her total 2018 remuneration was
$334,103.
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 Table 4 in section D. III of this Remuneration
Report.
3
The cost to the Company, including any fringe benefits tax, for the
provision of fully maintained cars, free parking and other items.
4
Superannuation contributions are paid in line with legislative
requirements.
5
Long service leave accruals are determined in accordance with
Accounting Standard AASB 119 Employee Benefits.
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 shares, options
and performance rights grants made in the current and past
financial years. Subject to meeting the vesting conditions of the
grants, the shares, options or performance rights will vest, or be
forfeited, in future financial years.
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DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
F. The year ahead – what can we expect in 2020?
I. Total fixed remuneration
The CEO has received a 3% increase to Total Remuneration effective 1 January 2020.
Table 6 – 2020 CEO potential remuneration breakdown
Total fixed remuneration
TFR of $916,206 per annum.
(TFR)
This represents a 3% increase from $889,520 in 2019.
Short term incentive
Target STI of $470,930 (51.4% of TFR).
(STI)
This represents a 3% increase from $457,213 in 2019.
The balanced scorecard is based on the following:
Financials 50%
Our customer 20%
Our people 10%
Our safety 20%
Long term incentive
Target LTI of $778,775 (85% of TFR).
For further details on 2020 STI refer to Table 7 in Section F. II below.
(LTI)
II. STI 2020
This represents a 3% increase from $756,092 in 2019.
Of the maximum LTI award, 75% is in options and 25% in performance rights.
The Executive KMP 2020 STI opportunity will be subject to key performance conditions and weightings as follows:
Table 7 – 2020 STI performance targets
Component
Financial
performance
2020 performance
targets
CEO –
weight
COO –
weight
CFO –
weight
Why this was chosen?
Group EBIT
50%
50%
50%
Our customer
Net Promoter Score
10%
10%
10%
Our people
Market share growth
Employee turnover < 12
months tenure
10%
10%
10%
10%
10%
10%
Our safety
LTIFR
20%
20%
20%
Moving to EBIT reflects the operating results and the
investment in capital.
Customer feedback and satisfaction remains core to
the service offering.
Creating long term value.
People are InvoCare’s greatest asset. This
encourages greater involvement and consideration
around all recruitment activity in the regions.
InvoCare continue to reinforce the commitment to
safety in the workplace.
For 2020 the decision has been made to remove the operational projects component as the Protect & Grow delivery winds down.
5050
Annual Report 2019Annual Report 2019 G. Non-Executive Director remuneration
I. Fee structure and policy
The following table outlines the Non-Executive Directors (NED) fee policy and any changes introduced for 2020.
Maximum aggregate
Non-Executive Directors’ base fee for services as directors are determined within an aggregate directors’ fee pool
fees approved by
cap, which is periodically approved by shareholders. At the date of this report, the pool cap is $1,250,000, being the
shareholders
amount approved by shareholders at the AGM held on 22 May 2015.
Contracts
On appointment to the Board, all NED receive a letter of appointment which summarises the Board policies and
terms, including compensation, relevant to the office of director.
Non-Executive
The Board reviews NED fees on an annual basis in line with general industry practice. This ensures fees are
Director fee reviews
appropriately positioned in the market to attract and retain high calibre individuals. Fees are set as a base fee and
additional responsibilities and committees are inclusive of this (excluding the Chair of the Audit, Risk & Compliance
committee).
NED are entitled to be reimbursed for all reasonable costs and expenses incurred by them in performing their duties.
The NED fees remained unchanged for 2019.
NED fee changes effective 1 January 2020
As part of reviewing NED fee levels for 2020, the Board took into account the fact the base fees are inclusive of
committee fees, the establishment of additional committees and alignment to market.
The introduction of an Environmental, Social and Governance (ESG) Committee and a Customer Committee,
consisting of both NED and GET members, was established, reflecting InvoCare’s purpose, sustainability and the
strategic development of the customer experience.
To maintain market equity, the Board determined an increase of 3% to the base fee from 1 January 2020 for the
Chairman and the NED roles.
No changes to the Chair of the Audit, Risk & Committee fee will be made in 2020.
Refer to Table 8 below for details of current and new NED fees. The aggregation of all Board and committee fees
for 2020 remains below the current pool limit.
Additional or special
The base fees exclude any remuneration determined by the directors where a director performs additional or special
duties
duties for the Company. If a NED performs additional or special duties for the Company, they may be remunerated as
determined by the Board and that remuneration can be in addition to the limit mentioned above.
Whilst all directors have contributed actively to the Board and special projects beyond the Board room during the
year, these contributions have been made as directors and as such have not resulted in any additional payments.
Superannuation
The fees set out above include superannuation contributions in accordance with relevant statutory requirements.
Equity participation
NED may receive options as part of their remuneration, subject only to shareholder approval. No options are held by
any NED at the date of this report.
NED of InvoCare Limited are encouraged 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
Non-Executive Directors be allowed up to three years to accumulate the required shareholding.
Non-Executive Directors’ equity holdings are set out in Table 14 in Section H.VI.
Post-employment
NED are not entitled to any compensation on cessation of employment.
benefits
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Table 8 – Non-Executive Director fees (inclusive of superannuation)
Board/Committee
Board base fee
Role
Chairman
Non-Executive Directors
Audit, Risk & Compliance Committee
Chairman
Total
Prior 1 January 2020
From 1 January 2020
Per Role
$
277,370
138,680
11,560
Total
$
277,370
693,400
11,560
982,330
Per Role
$
285,691
142,840
11,560
Total
$
285,691
714,200
11,560
1,011,451
II. Non-Executive Directors remuneration details
Table 9 below provides the remuneration details for the Non-Executive Directors on the Company’s Board. For any directors appointed during the
financial year, their remuneration has been pro-rated from the date of appointment to the end of the financial year.
Table 9 – Total Non-Executive Directors remuneration
Bart Vogel
Appointed as Chairman from 1 October 2018
Richard Davis
Jackie McArthur
Appointed 1 October 2018
Megan Quinn
Appointed 1 October 2018
Keith Skinner
Appointed 1 September 2018
Robyn Stubbs
Short term employee
benefits
Post-employment
benefits
Board and
committee fees
$
Superannuation
$
253,306
159,260
126,648
126,648
126,648
31,662
126,648
31,662
137,205
45,735
126,648
126,648
24,064
14,044
12,032
11,983
12,032
3,008
12,032
3,008
13,035
4,345
12,032
11,983
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Total
$
277,370
173,304
138,680
138,631
138,680
34,670
138,680
34,670
150,240
50,080
138,680
138,631
During 2018, the following Non-Executive Directors retired or resigned, and their total remuneration received during the period from 1 January 2018
to the date of ceasing as KMP were:
Richard Fisher, former Chairman, retired 30 September 2018, his total remuneration was $219,815
Joycelyn Morton retired 31 May 2018, her total remuneration was $75,051
Gary Stead resigned 31 December 2018, his total remuneration was $138,631
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Annual Report 2019Annual Report 2019
H. Statutory disclosures
I. LTI plan
The Executive KMP were granted LTI in the form of a combination of options and performance rights (under the Performance Long-term Incentive
Plan) and shares (under the Deferred Employee Share Plan, which was replaced by the Performance Long-term Incentive Plan from 2016 onwards).
The key terms and conditions of the LTI granted are disclosed in Note 20 Share-based remuneration section B and C. Refer to Section II below for
the performance to date of all LTI grants impacting the value of Executive KMP remuneration.
II. Performance to date of LTI grants
a. Performance Long-term incentive Plan’s grants
Table 10 below summarises the performance to date for the LTI grants under the Performance Long-term Incentive Plan (PLTIP) since 2016 which
impact remuneration in the current or a future financial year.
Table 10 – Performance of outstanding LTI granted via PLTIP
Grant
Tranche
Performance hurdle a
First testing /
vesting date
Performance
target at
grant date
Retesting of
unvested rights
Vesting
outcome
%
2016 grant
– three equal
tranches
2017 grant
– three equal
tranches
2018 grant
– two equal
tranches
2019 grant
– two equal
tranches
Tranche One
30% vesting at 7% CAGR
February 2018 49.7 cents b, c
No retesting is required
Tranche Two
100% vesting at 12% CAGR
Pro rata vesting in between
7% and 12%
February 2019
Tranche Three
0% vesting if less than 7% CAGR
February 2020
First test in 2019
Retest in 2020
First test in 2020
Tranche One
30% vesting at 7% CAGR
February 2019 65.4 cents b, c
First test in 2019
Tranche Two
100% vesting at 12% CAGR
Pro rata vesting in between
7% and 12%
February 2020
Retest in 2020
First test in 2020
Tranche Three
0% vesting if less than 7% CAGR
February 2021
N/A
Tranche One
30% vesting at 8% CAGR
February 2021 57.8 cents b, d N/A
Tranche Two
100% vesting at 12% CAGR
Pro rata vesting in between
8% and 12%
0% vesting if less than 8% CAGR
February 2022
N/A
Tranche One
30% vesting at 8% CAGR
February 2022 35.9 cents d
N/A
Tranche Two
100% vesting at 12% CAGR
Pro rata vesting in between
8% and 12%
0% vesting if less than 8% CAGR
February 2023
N/A
100
0
100
100
0
0
0
N/A
N/A
N/A
N/A
N/A
a The performance target is annual compound normalised EPS growth (CAGR) from 1 January of grant year.
b During the performance testing for 2018 results, a calculation error was identified, hence, the performance targets at grant date for the 2016 to
2018 grants were impacted. The performance targets for 2016 to 2018 grants were updated in Table 8 above. However, the change in performance
targets do not impact any of the performance outcome for prior years.
c Including financial performance on funds under management on prepaid contracts.
d Excluding financial performance on funds under management on prepaid contracts.
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b. Deferred Employee Share Plan’s grants
Table 11 below summarises the performance to date for the LTI grants under the Deferred Employee Share Plan (DESP, a legacy plan which was no
longer grant performance based LTI) for 2015 which impact remuneration in the current financial year for the last time.
Table 11 – Performance of outstanding LTI granted via DESP
Grant
Tranche
Performance hurdle a
First testing /
vesting date
Performance
target at
grant date
Retesting of
unvested rights
Vesting
outcome
%
2015 grant
– three equal
tranches
Tranche One
30% vesting at 7% CAGR
February 2017 49.1 cents b, c
No retesting is required
Tranche Two
Tranche Three
100% vesting at 10% CAGR
Pro rata vesting in between
7% and 10%
0% vesting if less than 7% CAGR
February 2018
No retesting is required
February 2019
First test in 2019
Retest in 2020
100
100
0
100
a The performance target is annual compound normalised EPS growth (CAGR) from 1 January of grant year.
b During the performance testing for 2018 results, a calculation error was identified, hence, the performance targets at grant date for the 2015
grant was impacted. The performance target for 2015 was updated in Table 11 above. However, the change in performance target does not impact
any of the performance outcome for prior years.
c Including financial performance on funds under management on prepaid contracts.
5454
Annual Report 2019Annual Report 2019 III. Fair value and maximum value for LTI grants
Table 12 below provided the fair value of all outstanding LTI grants at grant date and the maximum potential value for the Executive KMP.
If the performance conditions are not met, the minimum value of the LTI will be nil.
Table 12 – Fair value and maximum value for LTI grants
Fair value
per LTI
$
Number
of LTI
granted
Grant
date
Performance
period
Maximum value
to be recognised
from grant date
$
31/03/2015
13.74
17,410
1 January 2015 to 31 December 2019
239,200
Executive
KMP
Martin Earp
Martin Earp
Shares granted
under DESP
Options
granted
under
PLTIP a
01/01/2016
01/01/2017
01/01/2018
01/01/2019
Damien MacRae
01/01/2018
01/01/2019
Josée Lemoine
01/01/2016
Martin Earp
Performance
rights
granted
under
PLTIP b
01/01/2017
01/01/2018
01/01/2019
01/01/2016
01/01/2017
01/01/2018
01/01/2019
Damien MacRae
01/01/2018
01/01/2019
Josée Lemoine
01/01/2016
01/01/2017
01/01/2018
01/01/2019
2.40
2.93
2.78
2.51
2.78
2.51
2.40
2.93
2.78
2.51
12.08
14.06
13.91
12.96
13.91
12.96
12.08
14.06
13.91
12.96
160,313
1 January 2016 to 31 December 2020
133,284
1 January 2017 to 31 December 2021
203,982
1 January 2018 to 31 December 2022
225,923
1 January 2019 to 31 December 2023
66,772
1 January 2018 to 31 December 2022
73,954
1 January 2019 to 31 December 2023
14,754
1 January 2016 to 31 December 2020
46,075
1 January 2017 to 31 December 2021
49,532
1 January 2018 to 31 December 2022
54,860
1 January 2019 to 31 December 2023
10,617
1 January 2016 to 31 December 2020
9,258
1 January 2017 to 31 December 2021
13,589
1 January 2018 to 31 December 2022
13,072
1 January 2019 to 31 December 2023
4,448
1 January 2018 to 31 December 2022
4,279
1 January 2019 to 31 December 2023
2,931
1 January 2016 to 31 December 2020
3,201
1 January 2017 to 31 December 2021
3,300
1 January 2018 to 31 December 2022
3,174
1 January 2019 to 31 December 2023
384,750
390,521
567,069
567,067
185,625
185,625
35,410
135,000
137,699
137,699
128,250
130,174
189,023
189,021
61,875
61,874
35,410
45,000
45,900
45,896
a The grant date fair value of the options granted under PLTIP using Black-Scholes valuation methodology.
b The grant date fair value of the performance rights granted under PLTIP equals the 10-day VWAP starting from the first day of the trading window
immediately following the announcement of the full year result.
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PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – REMUNERATION REPORT – AUDITED
IV. Movements in LTI grants
Table 13 below provides the movement of all outstanding LTI grants for the Executive KMP during 2019.
Table 13 – Movement of LTI grants
Shares granted
under DESP
Options granted
under PLTIP
Performance
rights granted
under PLTIP
Executive KMP
Martin Earp
Martin Earp a
Damien MacRae
Josée Lemoine b
Martin Earp
Damien MacRae
Josée Lemoine
Number of LTI
held at 1 January
2019
Number of LTI
granted during
2019
5,804
-
497,579
66,772
110,361
29,925
4,448
8,455
225,923
73,954
54,860
13,072
4,279
3,174
Number of LTI
vested and
exercised during
2019
Number of LTI
lapsed during
2019
Number of
LTI held at 31
December 2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,804
723,502
140,726
165,221
42,997
8,727
11,629
a At 1 January 2019 and 31 December 2019, Martin Earp holds 53,438 vested and exercisable options.
b At 1 January 2019 and 31 December 2019, Josée Lemoine holds 4,918 vested and exercisable options.
V. Loans to Executive KMP
There were no loans at the beginning or at the end of the financial year ended 31 December 2019 to the Executive KMP. No loans were made
available to Executive KMP during 2019.
VI. Shareholdings of Non-Executive Directors and the Executive KMP
Table 14 below summarises the movement in holdings of InvoCare ordinary shares during the year and the balance at the end of the financial year,
both in total and held indirectly by related parties of the KMP.
Table 14 – Movement of shareholding interests of Directors in accordance with section 205G of the Corporations Act 2001 and the
other Executive KMP
Balance as at
1 January
2019
Number
15,000
260,000
-
-
-
7,905
21,378
-
977
Grant as
compensation
Number
Exercise of LTI
vested during
2019
Number
Net other
changes
during 2019
Number
Total shares
held directly and
indirectly as at 31
December 2019*
Number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,129
(60,000)
4,000
-
1,084
-
1,293
1,000
-
16,129
200,000
4,000
-
1,084
7,905
22,671
1,000
977
Non-Executive
Directors
Bart Vogel
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
Executive KMP
Martin Earp
Damien MacRae
Josée Lemoine
* Shares held indirectly are included in the column headed Total shares held at 31 December 2019. Total shares are held directly by the KMP and
indirectly by the KMP’s related parties, inclusive of domestic partner, dependents and entities controlled, jointly controlled or significantly influenced
by the KMP.
5656
Annual Report 2019Annual Report 2019 I. Additional information
Former Chief Executive Officer – Andrew Smith
At the AGM held on 20 May 2016, shareholders approved
the cash settlement of LTI shares held by the former chief
executive officer, Andrew Smith, subject to the satisfaction
of the original vesting conditions.
The relevant performance tests have been applied to the
unvested grants totalling 7,559 and they are fully vested
on 21 February 2020.
This concludes the Remuneration Report
which has been audited.
5757
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OTHER STATUTORY MATTERS
Directors
Directors’ profiles
The directors of InvoCare Limited at any time during or since the end
of the financial year are as listed below. Directors were in office for the
entire period until otherwise stated:
Name
Role
Bart Vogel
Chairman
Martin Earp
Managing Director and Chief Executive Officer
Richard Davis
Independent Non-Executive Director
Jackie McArthur Independent Non-Executive Director
Megan Quinn
Independent Non-Executive Director
Keith Skinner
Independent Non-Executive Director
Robyn Stubbs
Independent Non-Executive Director
Directorship of other listed companies
Directorship of other listed companies held by the directors in the
three years preceding the end of the financial year are as follows.
Name
Bart Vogel
Company
Macquarie Telecom
Limited
Period of
directorship
Since 2014
Bart Vogel BCom (Hons), FCA, FAICD
Independent Non-Executive Chairman
Infomedia Ltd
Since 2015
Bart Vogel was appointed to the InvoCare board of directors on
1 October 2017, and as Chairman of the Board from 1 October 2018.
Salmat Limited
From May 2017 to
November 2019
Bart serves on the Audit, Risk & Compliance Committee, People,
Culture & Remuneration Committee and Nomination Committee.
Martin Earp
None
Bart’s career includes 20 years in the management consulting
Richard Davis
Australian Vintage Ltd
Since 2009
industry, as a partner with Deloitte Consulting, A.T. Kearney and
Monash IVF Group Limited Since 2014
Jackie McArthur
Inghams Group Limited
Since 2017
Tassal Group Limited
Since 2018
Blackmores Limited
Megan Quinn
City Chic Collective Limited
(formerly known as Specialty
Fashion Group Limited)
From April 2018 to
August 2019
Since 2012
Bain & Company, focussed on the technology and services sectors.
In his consulting roles, Bart has spent extensive time working in
global markets with multinational corporates and government
bodies. He also spent 13 years in senior executive roles at Asurion
Australia, Spherion Limited and as the Asia Pacific leader of Lucent
Technologies.
Bart is a director of listed companies Infomedia Ltd (serves as
chairman) and Macquarie Telecom Limited and was a director of
Salmat Limited. He is also a director of BAI Communications and of
Reece Limited
Since 2017
the Children’s Cancer Institute Australia.
Zip Co Limited
From August 2016
to November
2017
Keith Skinner
Emeco Holdings Limited
Since 2017
Robyn Stubbs
Aventus Group – Aventus
Retail Property Fund and its
subsidiaries
Since 2015
Brickworks Limited
Since 2020
5858
Annual Report 2019Annual Report 2019 Martin Earp BSc (Hons), MSc, MBA
Jackie McArthur BEng, MAICD
Managing Director and Chief Executive Officer
Independent Non-Executive Director
Martin Earp joined InvoCare on 30 March 2015. Martin was
Jackie McArthur was appointed to the InvoCare board of directors
appointed to the InvoCare board of directors on 13 April 2015 and
on 1 October 2018.
assumed the role of Managing Director and CEO on 1 May 2015.
Jackie serves on the Audit, Risk & Compliance Committee,
Prior to joining InvoCare, Martin was the CEO of Campus Living
Investment Committee and Nomination Committee.
Villages and was responsible for the strategic direction and
operational leadership of the company. He 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 for Airtrain (where he also served as
a director for eight years) and Business Development Manager for
Airport Rail Link. Prior to this he worked for a London based transport
consultancy advising on large infrastructure and investment deals.
Jackie has over 20 years’ experience at board and executive levels
in strategic planning processes, organisational design, operations,
franchising systems, retail, supply chain, logistics, transport, food
processing and manufacturing, emerging brand issues and crisis
management, risk management, corporate social responsibility and
compliance issues, as well as governance at a global level, across
Australia, Asia and globally.
Most recently she was managing director, Australia and New
Zealand, of Martin-Brower ANZ, the exclusive distributor to
McDonald’s restaurants across Australia and New Zealand.
Previously, for more than 13 years, she held various senior executive
positions with McDonalds, both in Australia and overseas, including
vice president of supply chain for Asia, Pacific, Middle East and Africa
and, in McDonalds Australia, as senior vice president chief restaurant
support officer and vice president supply chain director.
Jackie is a director of listed companies Inghams Group Limited and
Tassal Group Limited.
Jackie was the 2016 Telstra NSW Business Woman of the Year
and overall 2016 Telstra Business Women’s Awards - Corporate
and Private National Winner. She has completed the INSEAD
International Executive Program.
5959
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OTHER STATUTORY MATTERS
Directors’ profiles
Richard Davis BEc
Megan Quinn GAICD
Independent Non-Executive Director
Independent Non-Executive Director
Richard Davis was appointed to the InvoCare board of directors
Megan Quinn was appointed to the InvoCare board of directors
on 21 February 2012.
on 1 October 2018.
Richard is the Chair of Investment Committee and serves
Megan serves on the Audit, Risk & Compliance Committee, People,
on the People, Culture & Remuneration Committee and
Culture & Remuneration Committee and Nomination Committee.
Nomination Committee.
Megan is internationally regarded as a transformation, marketing,
Richard previously retired as InvoCare’s Chief Executive Officer
retail and business expert and is invited to speak and consult on
and Managing Director on 31 December 2008 after 20 years with
service, innovation, creativity, strategy, building a global brand,
InvoCare. For the majority of that time, he held the position of Chief
business excellence and customer experience for companies,
Executive Officer and successfully initiated and managed the growth
conferences and media outlets around the world. Named a global
of the business through a number of ownership changes and over 20
game changer and one of Australia’s most powerful women in retail,
acquisitions, including Singapore Casket Company (Private) Limited,
Megan was a co-founder of the world’s premier online luxury fashion
the Company’s first international acquisition.
retailer, NET-A-PORTER.
Richard is the chairman of Australian Vintage Limited and Monash
Megan is a director of listed companies City Chic Collective Limited
IVF Group Limited. Richard is also serving as chairman of Singapore
and Reece Limited. Having previously served on the board and
Casket Company (Private) Limited.
national committee of UNICEF Australia, she is a dedicated advocate
for children’s rights, and is a passionate ambassador of Fitted For
Work.
6060
Annual Report 2019Annual Report 2019 Keith Skinner BCom, FCA, FAICD
Robyn Stubbs BBus, MSc, GAICD
Independent Non-Executive Director
Independent Non-Executive Director
Keith Skinner was appointed to the InvoCare board of directors
Robyn Stubbs was appointed to the InvoCare board of directors
on 1 September 2018.
on 1 January 2017.
Keith is the Chair of Audit, Risk & Compliance Committee and serves
Robyn is the Chair of People, Culture & Remuneration Committee
on the Investment Committee and Nomination Committee.
and serves on the Investment Committee and Nomination
Keith has a strong record in business management, restructuring,
Committee.
finance, accounting, risk and governance. He commenced his career
She has more than 25 years’ experience in senior marketing, sales,
as an auditor with Deloitte Australia in 1974, later moving to the
leasing and broader management roles with large and complex
firm’s Restructuring Services division, and was appointed a partner
organisations, including Stockland, Ten Network, Fairfax Media,
in 1986. He was a leading practitioner for company turnarounds for
Lend Lease and Unilever.
over a decade, before becoming chief operating officer of Deloitte
Australia in 2001.
Robyn is a director of listed Aventus Group comprising Aventus
Holdings Limited and Aventus Capital Limited as responsible entity
Since retirement in 2015, he has been a director of a number of public
of the Aventus Retail Property Fund and Brickworks Limited. She is
and private organisations (including Emeco Holdings Limited, North
also a director of Aventus Investment Management Pty Ltd which
Sydney Local Health Board and not for profit organisation Lysicrates
oversees all unlisted funds management initiatives of the Aventus
Foundation) and has consulted to a number of organisations on
Group. Robyn stood down from the board of Lifeline Northern
strategy execution, restructuring and operational improvement.
Beaches Incorporated at the end of 2019.
6161
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
DIRECTORS’ REPORT – OTHER STATUTORY MATTERS
Meetings of Directors
The number of meetings of the Company’s board of directors (the Board) and each Board committee held during the financial year ended
31 December 2019, and the number of meetings attended by each director were as follows.
Board
Audit, Risk &
Compliance
Committee
Investment
Committee
People, Culture
& Remuneration
Committee
Nomination
Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
14
14
14
14
14
14
14
14
14
14
14
14
14
13
4
-
-
4
4
4
-
4
-
-
4
4
4
-
-
-
7
7
-
7
7
-
-
7
7
-
7
7
5
-
5
-
5
-
5
5
-
5
-
5
-
5
1
-
1
1
1
1
1
1
-
1
1
1
1
1
Name
Bart Vogel
Martin Earp
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
In addition to the formal meetings of directors there were numerous informal meetings of the non-executive directors during the year. Those meetings
were concerned, for the most part, with succession planning, environmental, social and governance and customer strategy and site visits.
The composition of the Board and Board Committees is a minimum of three directors. Board Committees consist entirely
of independent non-executive directors.
Company Secretary
Chief Financial Officer
Heidi Aldred BEcon, LLB
Josée Lemoine BCom, FCPA
Heidi Aldred was appointed as Company Secretary on 15 March
Josée Lemoine was appointed as Chief Financial Officer on
2019. Heidi, a qualified lawyer, has over 20 years’ experience in
8 September 2016. Josée has had a finance career spanning several
secretarial and general counsel roles in a wide variety of areas
bluechip companies across multiple industries and geographies, with
with both listed and unlisted companies. Her early career included
a clear focus on driving businesses to deliver commercial outcomes.
working with legal firms Arnold Bloch Leibler and Allens Linklaters
(formerly Arthur Robinson & Hedderwicks).
Phillip Friery
Phillip Friery was Company Secretary from January 2007 and retired
on 15 March 2019.
Prior to joining InvoCare, Josée was the Finance Director – Innovation
& Business Performance at Telstra where she led the Finance
transformation program as part of her broader portfolio. Furthermore,
Josée has held senior leadership roles at Rio Tinto Alcan, Fairfax,
Boral and Arnott’s. She started her career at KPMG where she
worked in Canada, New Zealand and Hungary. Josée has been a
director of the Over Fifty Guardian Friendly Society Ltd since 2016.
6262
Annual Report 2019Annual Report 2019 Significant changes in the state of affairs
Indemnification and insurance of officers
The significant changes in the state of affairs during the financial year
To the extent permitted by law, InvoCare has indemnified the
were as follows:
During March 2019, the Company undertook a fully underwritten
institutional placement and a Share Purchase Plan which raised
a total of $85,787,000 in capital net of costs. The net proceeds
directors and executives of InvoCare for liability, damages and
expenses incurred, in their capacity as a director or an executive, for
which they may be held personally liable, except where there is a lack
of good faith.
of the capital raised are applied to InvoCare’s strategic growth
During the financial year, InvoCare paid a premium in respect of an
objectives
The Group acquired two regional businesses – Australian
Heritage Funerals a highly successful business in the Toowoomba
region, and Batemans Bay & Moruya District Funerals and
Broulee Memorial Gardens located on the South Coast of NSW.
Further details of these acquisitions are provided in Note 18:
Business combinations
Other than the matters as stated above, there were no other
significant changes in the state of affairs of InvoCare during the
financial year.
Dividends
Details of dividends paid or declared by the Company during the
financial year ended 31 December 2019 are set out in Note 4.
Subsequent events
Other than the Board declaring a final dividend of 23.5 cents per
share, fully franked, there have been no other matter or circumstance
arising since 31 December 2019 that has significantly affected
InvoCare’s operations, results or state of affairs, or may do so in future
financial years.
insurance policy to insure directors and officers of the company
against a liability to the extent permitted by the Corporations Act
2001. The insurance policy specifically prohibits disclosure of the
nature and liability covered and the amount of the premium paid.
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 InvoCare operates its
business. The Group 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.
6363
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 DIRECTORS’ REPORT – OTHER STATUTORY MATTERS
Corporate governance
InvoCare and the Board of Directors are committed to achieving
and demonstrating the highest standards of corporate governance.
The Board adopts an continuance improvement approach and
regularly reviews corporate governance and reporting practices. For
2019 the InvoCare Corporate Governance reports against the 3rd
The Directors are of the opinion that the services as disclosed in
Note 25 to the financial statements do not compromise the external
auditor’s independence requirements of the Corporations Act 2001
for the following reasons:
All non-audit services have been reviewed and approved to
ensure that they do not impact the integrity and objectivity of the
Edition of the ASX Corporate Governance Council’s Principles and
auditor
Recommendations (ASX Principles). InvoCare notes the publication
of the 4th Edition ASX Principles and intends to report against the
4th Edition in its 2020 Corporate Governance Statement.
The 2019 InvoCare Corporate Governance Statement is available on
the InvoCare website at: www.invocare.com.au/investor-relations/
corporate-governance
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit
services provided during the financial year by the auditor are outlined
in Note 25 to the financial statements.
The directors are satisfied that the provision of non-audit services
during the financial year, by the auditor (or by another person or firm
on the auditor’s behalf), is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001.
None of the services undermine the general principles relating to
auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants issued by the Accounting Professional
and Ethical Standards Board, including reviewing or auditing the
auditor’s own work, acting in a management or decision-making
capacity for the Company, acting as advocate for the Company or
jointly sharing economic risks and rewards
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under
section 307C of the Corporations Act 2001 is set out immediately
after the directors’ report.
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding
in Financial/Directors’ Reports) Instrument 2016/191, 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 instrument.
This report is made in accordance with a resolution of Directors,
pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the Directors on 26 February 2020.
Bart Vogel
Director
Martin Earp
Director
6464
Annual Report 2019Annual Report 2019 AUDITOR’S INDEPENDENCE DECLARATION
Auditor’s Independence Declaration
As lead auditor for the audit of InvoCare Limited for the year ended 31 December 2019, 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.
MW Chiang
Partner
PricewaterhouseCoopers
Sydney
26 February 2020
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
6565
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
Annual Report
2019
FINANCIAL REPORT
66
Annual Report 2019This year’s financial report is re-ordered and re-written to aid improvement in communication. Disclosures are split into five distinct groups to enable better understanding of how the Group has performed. Accounting policies and critical accounting judgements applied in the preparation of the financial statements are shown together with the related accounting balance and where the financial statement matter is disclosed. This is the financial report of InvoCare
Financial report content
Limited (the Company) and its
subsidiaries (together referred to
as InvoCare or the Group).
InvoCare Limited (ABN 42 096 437 393)
is a listed public company limited by
shares, incorporated and domiciled in
Australia. Its registered office and principal
Consolidated financial
statements
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Basis of preparation
place of business is:
Key performance metrics Note 1. Operating segments
Level 2, 40 Miller Street
North Sydney NSW 2060
A description of the nature of the Group’s
operations and its principal activities is
included in the Directors’ Report.
The financial report was authorised for
issue by the Directors on 26 February
2020. The Directors have the power to
amend and reissue the financial report.
Significant operating
assets and liabilities
Note 2. Revenue
Note 3. Earnings per share
Note 4. Dividends
Note 5. Expenses
Note 6. Income tax
Note 7. Cash flow information
Note 8. Trade receivables
Note 9. Deferred selling costs and revenue
Note 10. Prepaid contracts
Note 11. Non-current operating assets
Note 12. Intangibles
Capital and risks
Note 13. Financial risk management
Note 14. Contributed equity
Note 15. Contingencies
Note 16. Commitments
Note 17. Events after reporting period
Business portfolios
Note 18. Business combinations
Other statutory
disclosures
Note 19. Interests in subsidiaries
Note 20. Share-based remuneration
Note 21. Related party transactions
Note 22. Parent entity information
Note 23. Deed of cross guarantee
Note 24. Economic dependence
Note 25. Remuneration of auditors
Note 26. Other accounting policies
Page
68
69
70
71
72
73
76
78
79
80
81
85
87
89
90
92
97
99
105
106
107
107
108
110
111
114
114
115
118
118
119
67
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 CONSOLIDATED FINANCIAL STATEMENTS – CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
Revenue from continuing operations
Finished goods, consumables and funeral disbursements
Employee benefits expense
Advertising and public relations expenses
Occupancy and facilities expenses
Motor vehicle expenses
Technology expenses
Other expenses
Depreciation and amortisation expenses
Impairment loss on intangibles
Gain/(loss) on disposal of an associate
Finance costs
Interest income
Net gain/(loss) on undelivered prepaid contracts
Acquisition related costs
Net gain on disposal of non-current assets
Profit before income tax
Income tax expense
Net profit after income tax from continuing activities
Net profit after income tax 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, net of tax
Total comprehensive income for the year is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Earnings per share for profit attributable to
the ordinary equity holders of InvoCare Limited
Basic earnings per share
Diluted earnings per share
Notes
2
5
12
5
10
6
3
3
2019
$’000
500,348
(125,066)
(166,204)
(16,810)
(20,937)
(8,480)
(10,795)
(14,966)
137,090
(36,986)
(24,404)
52
2018
$’000
480,797
(124,392)
(161,079)
(17,055)
(31,258)
(8,620)
(9,424)
(17,239)
111,730
(26,039)
-
-
(25,671)
(21,036)
1,211
45,550
(2,021)
2,352
97,173
(33,285)
63,888
63,888
(1,661)
(198)
(1,859)
62,029
61,893
136
62,029
2019
cents
55.8
54.9
1,354
(4,992)
(3,602)
329
57,744
(16,384)
41,360
41,360
162
3,363
3,525
44,885
44,749
136
44,885
2018
cents
37.8
37.3
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
68
Annual Report 2019
CONSOLIDATED FINANCIAL STATEMENTS – CONSOLIDATED BALANCE SHEET
As at 31 December 2019
Current
assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Prepaid contract funds under management
Assets held for sale
Deferred selling costs
Total current assets
Non-current
assets
Trade receivables
Other receivables
Other financial assets
Property, plant and equipment
Right of use asset
Prepaid contract funds under management
Intangibles
Deferred selling costs
Total non-current assets
Total assets
Current
liabilities
Trade and other payables
Lease liabilities
Non-current
liabilities
Derivative financial instruments
Current tax liabilities
Prepaid contract liabilities
Deferred revenue
Provision for employee entitlements
Total current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments
Deferred tax liabilities
Prepaid contract liabilities
Deferred revenue
Provision for employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Parent entity interests
Non-controlling interests
Total equity
Notes
7
8
10
9
8
11
11
10
12
9
11
13
10
9
13
11
13
6
10
9
14
2019
$’000
19,560
40,679
9,983
51,566
57,552
5,842
4,480
189,662
31,477
655
4
448,745
144,001
561,837
188,934
35,448
1,411,101
1,600,763
60,904
12,934
735
813
48,885
34,913
14,864
174,048
800
357,189
149,967
3,422
34,826
476,498
104,387
2,647
2018
$’000
14,776
33,445
9,253
45,754
45,986
3,936
3,101
156,251
12,584
453
4
425,578
-
517,601
204,799
39,049
1,200,068
1,356,319
61,110
-
101
1,486
41,428
23,345
14,356
141,826
-
408,245
-
1,694
24,314
468,616
115,409
4,918
1,129,736
1,303,784
1,023,196
1,165,022
296,979
219,826
7,728
68,169
295,723
1,256
296,979
191,297
124,140
7,778
58,138
190,056
1,241
191,297
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
69
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 CONSOLIDATED FINANCIAL STATEMENTS – CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Attributable to equity holders of InvoCare Limited
2019 Balance at 1 January 2019
Change in accounting policy
Contri-
buted
equity
$’000
124,140
-
Restated balance at the beginning of the year
124,140
Total comprehensive income for the year
Transactions with owners
in their capacity as owners:
Dividends paid (Note 4)
Reclassification of equity settled
share-based payments
Employee share plan shares
vested during the year
Issue of ordinary shares as
part of dividend reinvestment plan
Issue of ordinary shares
Share-
based
payment
reserve
$’000
Foreign
currency
translation
reserve
$’000
Hedging
reserve
$’000
Retained
profits
$’000
Non-
controlling
interests
$’000
Total
equity
$’000
246
-
246
-
-
2,353
-
-
-
450
(192)
9,137
85,787
-
-
(1,193)
8,725
58,138
1,241
191,297
-
(1,193)
(1,661)
-
(11,842)
-
(11,842)
8,725
46,296
1,241
179,455
(198)
63,752
136
62,029
-
-
-
-
-
-
-
-
-
-
-
-
(32,742)
(121)
(32,863)
-
-
(9,137)
-
-
-
-
-
-
-
2,353
258
-
85,787
(40)
Employee shares – value of services
312
(352)
Balance at 31 December 2019
219,826
2,055
(2,854)
8,527
68,169
1,256
296,979
2018
Balance at 1 January 2018
136,344
1,039
(1,355)
5,362
139,843
1,184
282,417
Change in accounting policy
-
-
-
-
(73,411)
-
(73,411)
Restated balance at the beginning of the year
136,344
1,039
(1,355)
Total comprehensive income for the year
Transactions with owners
in their capacity as owners:
Dividends paid (Note 4)
Employee share plan shares
vested during the year
-
-
-
-
951
(711)
Issue of ordinary shares as
part of dividend reinvestment plan
Acquisition of shares by the InvoCare
Deferred Share Plan Trust
Transfer of shares from the deferred plan
to the InvoCare Exempt Share Plan Trust
Employee shares – value of services
2,731
(16,196)
310
-
Balance at 31 December 2018
124,140
-
-
-
(82)
246
5,362
3,363
66,432
41,224
1,184
209,006
136
44,885
-
-
-
-
-
(46,787)
(79)
(46,866)
-
(2,731)
-
-
-
-
-
-
-
-
240
-
(16,196)
310
(82)
162
-
-
-
-
-
-
(1,193)
8,725
58,138
1,241
191,297
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
70
Annual Report 2019
CONSOLIDATED FINANCIAL STATEMENTS – CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
Cash flows
from operating
activities
Cash flows
from investing
activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Notes
Other revenue
Interest received
Finance costs
Income tax paid
Net cash flows from operating activities
Proceeds from sale of property, plant and equipment
Purchase of subsidiaries and other businesses including acquisition costs, net of
cash acquired
Proceeds from sale of subsidiaries and other businesses, net of restructuring
costs
Purchase of property, plant and equipment
Payments to funds under management for pre-paid contract sales
Receipts from funds under management for pre-paid contracts performed
7
10
10
Cash flows
from financing
activities
Net cash outflow from investing activities
Share capital issue
Payment for shares acquired by InvoCare Deferred Employee Share Plan trust
Proceeds from share option vested and exercised
Proceeds from borrowings
Repayment of borrowings
Proceeds from lease arrangements
Principal elements of lease payments
Dividends paid to InvoCare Limited equity holders
Dividends paid to non-controlling interests in subsidiaries
Net cash flows from financing activities
Net increase/(decrease) 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
2019
$’000
2018
$’000
488,008
495,284
(393,541)
(412,358)
6,037
100,504
388
(16,431)
(20,631)
63,830
5,565
7,370
90,296
64
(14,501)
(27,551)
48,308
1,196
(15,187)
(73,000)
985
(65,289)
(24,976)
40,842
-
(84,120)
(34,639)
46,006
(58,060)
(144,557)
85,787
-
258
-
(16,196)
-
47,397
444,752
(100,500)
(286,509)
13,598
(14,733)
-
-
(32,742)
(46,787)
(121)
(79)
(1,056)
95,181
4,714
14,776
70
(1,068)
15,531
313
Cash and cash equivalents at the end of the year
7
19,560
14,776
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
71
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 CONSOLIDATED FINANCIAL STATEMENTS – BASIS OF PREPARATION
This consolidated financial report is a general purpose financial
The Group presents assets and liabilities in the consolidated balance
report which:
sheet as current or non-current.
Has been prepared in accordance with Australian Accounting
Current assets include assets held primarily for trading purposes,
Standards (AASBs) and Interpretations adopted by the Australian
cash and cash equivalents, and assets expected to be realised in,
Accounting Standards Board and the Corporations Act 2001
or intended for sale or use in, the course of the Group’s operating
cycle (that is 12 months). All other assets are classified as non-
current
Current liabilities include liabilities held primarily for trading
purposes, liabilities expected to be settled in the course of the
Group’s operating cycle and those liabilities due within one year
from the reporting date. All other liabilities are classified as non-
current
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
Non-IFRS information
Some of the financial data in the notes to the financial statements
as listed below are not disclosures in accordance with the current
AASBs’ requirements:
EBITDA (earnings before interests, tax, depreciation and
amortisation) and EBIT (earnings before interests and tax)
in Note 1: Operating segments
Operating and underlying EBITDA and EBIT in key performance
metrics section
Voluntary tax transparency code disclosure in Note 6: Income tax;
Cash conversion ratio in Note 7: Cash flow information
However, all financial data is based on the information disclosed in
the audited financial statements and notes to the financial statements
of InvoCare and follow the recognition requirement of AASBs.
Complies with International Financial Reporting Standards (IFRS)
adopted by the International Accounting Standards Board
Is presented in Australian dollars ($). At balance sheet date,
all values have been rounded off to the nearest thousand
dollars unless otherwise indicated, in accordance with ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191
Is prepared under the historical cost basis except for the following
assets and liabilities, which are stated at their fair value: derivative
financial instruments; fair value through profit or loss funds
under management; and liabilities for cash settled share-based
compensation plans. Recognised assets and liabilities that are
hedged are stated at fair value in respect of the risk that is hedged.
Refer to the specific accounting policies within the notes to the
financial statements for the basis of valuation of assets and
liabilities measured at fair value
Significant accounting policies have been:
Included in the relevant notes to which the policies relate, while
other significant accounting policies are discussed in Note 26
Other accounting policies
Consistently applied to all financial years presented in the
consolidated financial statements and by all entities in the Group,
except as explained in Note 26 Other accounting policies – New
and revised accounting standards and interpretations not yet
mandatory or early adopted
The preparation of a financial report that complies with AASBs
requires management to make judgements, estimates and
assumptions.
This can affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
The significant accounting policies highlight information about
accounting judgements in applying accounting policies that have the
most significant effects on reported amounts and further information
about estimated uncertainties that have a significant risk of resulting
in material adjustments within the next financial year.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the
financial statements are disclosed within the notes following the
financial information of those transactions or activities.
72
Annual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
Operating earnings before interest, tax,
depreciation and amortisation (Operating EBITDA)
is a key measure used to assess the Group’s
performance. This section of the Financial Report
focuses on disclosure that enhances a user’s
understanding of Operating EBITDA.
Operating segment provides a breakdown of revenue
and profit by the operational activity. The key line items
of the consolidated statement of comprehensive
income along with their components provide detail
behind the reported balances. Group performance
will also impact the earnings per ordinary share
capital and dividend payout.
Finally, the cash flows reflect the core results of the
Group’s capital management strategy and therefore
the disclosure on these items has been included in
this section.
NOTE 1. Operating segments
A. Identification of reportable segments
The Group is organised into three reportable segments:
Australia
Singapore
New Zealand
The Group’s operation in Hong Kong has been included under “Other
Operations” in the tables over the page due to its relatively small size.
These reportable segments are based on the internal reports that are
reviewed and used by the Managing Director and Chief Executive
Officer (who is identified as the Chief Operating Decision Maker
(CODM)) in assessing performance and in determining the allocation
of resources. There is no aggregation of reportable segments.
The reportable segments are identified by management based on the
countries in which the product is sold or service is provided. Discrete
financial information about each of these operating segments is
reported to CODM and the Board of Directors regularly.
The CODM reviews operating earnings before interest, tax,
depreciation and amortisation (Operating EBITDA) and operating
earnings before interest and tax (Operating EBIT).
The accounting policies adopted for internal reporting to the CODM
are consistent with those adopted in the financial statements.
73
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
Australia
$’000
Singapore
$’000
New Zealand
$’000
Other
$’000
B. Reportable segments information
2019 Revenue from external customers
Other revenue (excluding interest income)
Operating expenses
Adjustment to revenue - prepaid redemptions*
Adjustment to other revenue - prepaid redemptions*
Adjustment to operating expenses - prepaid redemptions*
Operating EBITDA
Depreciation and amortisation
Business acquisition costs
Operating EBIT
Finance costs
Interest income
Non-operating activities (including prepaid contracts funds
under management)
Impairment loss on intangibles
Income tax expense
Non-controlling interest
Net profit after income tax
Total goodwill
Total assets
Total liabilities
2018
Revenue from external customers
Other revenue (excluding interest income)
413,403
9,176
20,823
400
(308,253)
(11,306)
114,326
9,917
3,855
(4,538)
8,026
121,669
(30,775)
(1,984)
88,910
(19,561)
1,301
40,739
-
-
-
-
9,917
(1,201)
-
8,716
(1,309)
(43)
(20)
-
(31,638)
(1,126)
(136)
79,615
119,573
1,427,388
1,156,812
406,932
7,057
-
6,218
15,514
47,131
41,774
16,459
425
56,033
513
(43,657)
12,889
-
-
-
12,889
(4,997)
(37)
7,855
(3,552)
(47)
(1,368)
(24,404)
(521)
-
(22,037)
47,382
126,105
105,131
49,642
282
Operating expenses
(318,621)
(10,158)
(40,247)
Adjustment to revenue - prepaid redemptions*
Adjustment to other revenue - prepaid redemptions*
Adjustment to operating expenses - prepaid redemptions*
Operating EBITDA
Depreciation and amortisation
Business acquisition costs
Operating EBIT
Finance costs
Interest income
Non-operating activities (including prepaid contracts funds
under management)
Income tax expense
Non-controlling interest
Net profit after income tax
Total goodwill
Total assets
Total liabilities
95,368
4,304
(4,903)
7,867
102,636
(21,895)
(2,934)
77,807
(16,083)
1,258
(11,681)
(15,121)
(136)
36,044
110,813
1,167,370
1,044,608
6,726
9,677
-
-
-
6,726
(944)
-
5,782
(1,061)
96
-
(646)
-
4,171
15,192
60,567
40,300
-
-
-
9,677
(3,191)
(668)
5,818
(2,507)
-
(1,645)
(618)
-
1,048
71,536
128,229
80,075
Total
$’000
490,259
10,089
(363,258)
137,090
3,855
(4,538)
8,026
-
-
(42)
(42)
-
-
-
(42)
144,433
-
-
(42)
(2)
-
-
-
-
-
(44)
-
139
67
-
-
(41)
(41)
-
-
-
(36,973)
(2,021)
105,439
(24,424)
1,211
39,351
(24,404)
(33,285)
(136)
63,752
182,469
1,600,763
1,303,784
473,033
7,764
(369,067)
111,730
4,304
(4,903)
7,867
(41)
118,998
-
-
(41)
1
-
-
1
-
(39)
-
153
39
(26,030)
(3,602)
89,366
(19,650)
1,354
(13,326)
(16,384)
(136)
41,224
197,541
1,356,319
1,165,022
* Adjustment to reclassify the non-operating impacts of performing prepaid funeral, burial and cremation services to net gain/loss on prepaid contracts.
74
Annual Report 2019
C. Accounting policy for segment reporting
Operating EBITDA is reconciled to profit after tax as disclosed on the
consolidated statement of comprehensive income.
Segment revenue, 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, right of use assets and goodwill
and other intangible assets, net of related provisions. Segment liabilities
consist primarily of trade and other creditors, lease liabilities 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.
75
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
NOTE 2. Revenue
A. Disaggregation of revenue from contracts with
customers
The tables below provide detailed disaggregation of revenue derived
by the Group.
2019 Funeral services
Memorial Parks
Pet cremations
Rent
Sundry revenue
Total revenue from continuing operations
2018
Funeral services
Memorial Parks
Pet cremations
Rent
Sundry revenue
Total revenue from continuing operations
Australia
$’000
298,868
117,973
816
417,657
307
4,616
422,580
292,979
118,454
49
411,482
369
2,122
413,973
Singapore
$’000
20,823
-
-
20,823
65
335
New Zealand
$’000
53,576
2,528
-
56,104
13
428
Total
$’000
373,267
120,501
816
494,584
385
5,379
21,223
56,545
500,348
16,459
-
-
16,459
47
378
47,234
2,528
-
49,762
21
157
356,672
120,982
49
477,703
437
2,657
16,884
49,940
480,797
B. Critical accounting judgements,
estimates and assumptions
I. Significant financing
The Group receives payment from customers for prepaid funeral,
burial and cremation services prior to the transfer of the promised
goods or services to the customer. As the period between receipt of
the consideration and transfer of the goods or services can exceed
one year, the Group adjusts deferred revenue using a discount rate.
The Group determines the discount rate that best reflects the at-need
funerals price the customers would have paid (that is the cash selling
price as if the customer had paid the consideration at the time when
the services are performed or the goods delivered).
II. 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
$58,617,000 at 31 December 2019 (2018: $58,773,000).
The 15 year period is based on a periodically updated actuarial
assessment of the 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 was 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 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 $3,300,000 (2018:
$3,600,000) or decrease by $1,700,000 (2018: $1,800,000).
76
Annual Report 2019
C. Accounting policy – revenue recognition
The Group adopted AASB 15 Revenue from Contracts with
II. Cemetery and crematorium memorial products
(‘memorial products’)
Customers (AASB 15) from 1 January 2018. Full details of the impact
The Group’s deliverables under memorial contracts are:
of adoption of AASB 15 can be found in the 2018 Annual Report.
The Group derives its revenue from the transfer of goods and services
on delivery of the underlying good or service.
The Group predominately generates revenue through the following
streams:
I.
Funeral services, including prepaid funeral, burial and
crematorium services
II.
Cemetery and crematorium memorial products (‘memorial
products’)
Each of the above goods and services delivered or to be delivered
to the customers are considered separate performance obligations
even though for some situations they may be governed by a single
legal contract with the customer.
Revenue recognition for each of the above revenue streams are as
follows:
I. Funeral services, including prepaid funeral,
burial and crematorium services
The Group’s performance obligations under funeral services
contracts are:
At-need funeral services – Revenue is recognised when the
funeral, burial and cremation, other services are performed or the
goods supplied.
Prepaid (Pre-need) funeral services – The Group enters
into prepaid contracts to provide funeral, burial and cremation
services or other services in the future. For these contracts, the
period between payment by the customer and transfer of the
promised goods or services to the customer can exceed one year.
The funds received are placed in Trust and are not recognised
as revenue until the service is performed. As a result, the Group
adjusts the deferred revenue and prepaid contract liabilities
using a discount rate that results in revenue being recognised
that approximates the cash selling price the customer would
have paid if the consideration was paid at the same time as the
services are provided.
On delivery of a prepaid funeral service contract, the Group
recognises the financing component as a component of revenue.
Interment right – An interment right is the right to be committed
in a designated space in a cemetery in perpetuity. The specific
site is allocated at the time of signing the contract. Revenue is
recognised when control of the interment right and associated
memorial passes to the customer.
Pre-2018 memorial product contracts
For memorial product contracts entered into with customers
prior to 1 January 2018, the customer gains control of the
interment right on full and final settlement.
Post-2018 memorial product contracts
For contracts entered into from 1 January 2018, the customer
gains control of the interment right at contract inception, thereby
allowing revenue to be recognised on delivery.
Headstone/monument/gardens – In a memorial products
contract, a customer purchases a memorial, such as headstone/
heritage garden/monument, to be installed on the interment site.
The memorial may be onsite at the time of purchase or may be
delivered at a future time. Typically, there is a considerable time lag
between a contract being signed and the delivery of the memorial.
These items are tracked on a contract by contract basis and
recognised as revenue upon delivery of products.
Plaques (and other associated smaller merchandise) – These
products are delivered to the customer on an ‘at-need’
basis (generally when the beneficiary has passed away). The
revenue recognised for plaques and other associated smaller
merchandise such as ash containers, vases and photos, where
actual deliveries are not individually tracked, are managed on a
portfolio basis given the small value of the individual items. The
revenue is recognised over a 15 year period on a straight-line
basis. The 15 year period represents an actuarial estimate of
when the contracts will be delivered.
Billing and collection of memorial products contracts can be
immediate and in full upon contract signing. However, most memorial
products contracts are paid via instalments over a period of up to five
years (although the payment periods do vary). The interment right,
memorial products and plaques are each considered to be distinct
performance obligations under AASB 15 as a customer can use the
site without a memorial and there is not a transformative or integrated
relationship between the products. The transfer of control of these
distinct performance obligations determines when revenue should
be recognised.
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 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.
77
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
NOTE 3. Earnings per share
A. Reported period value
Basic earnings per share
Diluted earnings per share
Operating earnings per share
C. Weighted average number of shares used in
calculating basic and diluted earnings per share
2019
cents
55.8
54.9
51.7
2018
cents
37.8
37.3
45.2
Weighted average number of
shares used in calculating basic
earnings per share
Adjustments for calculation of
diluted earnings per share:
2019
Number
’000
2018
Number
’000
114,189
108,982
InvoCare determines the dividends to be paid for any financial
periods from Operating earnings after tax. Operating earnings is
derived from basic earnings after excluding earnings generated from
all non-operating activities relating to prepaid contracts. This is a
financial measure which is not prescribed by Australian equivalents to
International Financial Reporting Standards (AIFRS) and represents
the earnings under AIFRS adjusted for specific items as per the table
below from the statement of comprehensive income.
B. Reconciliation of earnings used in calculating
earnings per share
Net profit after income tax
Less: Non-controlling interests
Net profit after income tax attributable
to InvoCare Limited’s equity holders for
calculating statutory basic and diluted
earnings per share
Less: Non-operating items
Net (gain)/loss on prepaid contracts
before income tax
Impairment loss on intangibles
Asset sales gain before income tax
Income tax on non-operating items
Operating earnings after income
tax for calculating operating
earnings per share
2019
$’000
63,888
(136)
2018
$’000
41,360
(136)
63,752
41,224
(36,947)
13,655
24,404
(2,404)
10,261
-
(329)
(5,190)
59,066
49,360
Share options and rights *
1,994
1,537
Weighted average number of
shares used in calculating diluted
earnings per share
116,183
110,519
The weighted average number of ordinary shares or dilutive potential
ordinary shares is calculated by taking into account the period from
the issue date of the shares to the reporting date unless otherwise
stated below.
* InvoCare operates share-based payments arrangements (in
the form of a long term incentive plan) where eligible employees
may receive options and performance rights. One option or
performance right will convert to one InvoCare ordinary share
subject to vesting conditions being met. These share-based
payments arrangements are granted to employees free of costs.
For performance rights, no consideration is paid on conversion to
InvoCare ordinary shares upon vesting and exercise. For options,
strike price is payable on conversion to InvoCare ordinary shares
upon vesting and exercise. These arrangements have a dilutive
effect to the basic earnings per share.
D. Accounting policy for earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to the equity holders of InvoCare Limited by the weighted
average number of ordinary shares outstanding during the financial
year, adjusted for any bonus elements in ordinary shares issued
during the financial year and excluding treasury shares.
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 at no
consideration received in relation to dilutive potential ordinary shares.
78
Annual Report 2019 C. Franking credits
Franking credits available for
subsequent financial years based
on a tax rate of 30%
2019
$’000
2018
$’000
39,256
31,063
Franking credits available for subsequent financial years include:
Franking credits that will arise from the payment of the amount of
the provision for income tax at the reporting date
Any franking debits that will arise from the payment of dividends
recognised as a liability at the reporting date
Franking credits that will arise from the receipt of dividends
recognised as receivables at the reporting date
D. Accounting policy for dividends
Dividends are recognised when declared during the financial year.
NOTE 4. Dividends
A. Dividends paid
Amount
per share
cents
Total
amount
$’000
Tax
rate for
franking
credit
%
Percen-
tage
franked
%
2019
Dividends on InvoCare
Limited’s ordinary shares
2019 interim dividend
2018 final dividend
17.5
19.5
2018
2018 interim dividend
2017 final dividend
17.5
27.5
20,428
21,451
41,879
19,261
30,257
49,518
30%
30%
100%
100%
30%
30%
100%
100%
B. Dividends declared and not recognised at year end
On 26 February 2020, the directors declared a final dividend of 23.5
cents per share, fully franked, to be paid on 17 April 2020. As this
occurred after the reporting date, the dividends declared have not
been recognised in these financial statements and will be recognised
in future financial statements.
The Company has a Dividend Reinvestment Plan (DRP) that allows
equity holders to elect to receive their dividend entitlement in the
form of the Company’s ordinary shares. The price of DRP shares
is the average market price, less a discount if any (determined by
the directors) calculated over the pricing period (which is at least
five trading days) as determined by the directors for each dividend
payment date.
The Company’s DRP operates by issuing new shares on market at a
2.0% discount. Election notices for participation in the DRP in relation
to this final dividend must have been received by 6 March 2020.
79
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
NOTE 5. Expenses
Profit before income tax includes the following specific expenses:
A. Finance costs
Interest paid and payable
Interest expense: customer advance payments
Interest expense on lease liabilities
Other finance costs
B. Depreciation,
amortisation and
impairment of non-current
assets
Interest expense on prepaid contracts
Depreciation
Buildings
Property, plant and equipment
Right of use assets
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 non-current assets
Impairment loss on intangibles
Total depreciation, amortisation and impairment
C. Impairment loss –
financial assets
Trade receivables
D. Leases expense
Minimum lease payments for operating leases
Expense relating to short term leases
Expense relating to leases of low value assets not included in short term leases
Expense relating to variable lease payments not included in lease liabilities
E. Employee benefits
expense
F. Accounting policies
Defined contribution superannuation expense
Share-based payments expense
2019
$’000
14,882
4,114
4,760
1,915
25,671
20,331
4,646
16,982
11,406
33,034
384
170
1,962
1,436
3,952
2018
$’000
13,735
4,844
-
2,457
21,036
18,573
5,731
17,267
-
22,998
387
176
1,349
1,129
3,041
36,986
26,039
24,404
61,390
1,016
-
569
145
-
714
10,750
(206)
-
26,039
824
12,841
-
-
-
12,841
10,631
(19)
The accounting policies on the above specified expenses are located in the notes where the assets or liabilities are disclosed other than defined
contribution superannuation expense disclosed below.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
80
Annual Report 2019 NOTE 6. Income tax
A. Income tax expense
Current tax
Deferred tax
B. Reconciliation of income
tax expense to prima facie tax
payable
Under/(over) provided in prior years
Income tax expense
Profit before income tax
Prima facie tax at 30% (2018: 30%) on profit before income tax
Tax effect of amounts which are not deductible/(taxable) in
calculation of taxable income:
Effect of foreign tax rate differences
Acquisition costs
Capital gains not subject to tax as offset against capital losses
Impairment loss on intangibles
Other items (net)
Under/(over) provision in prior years
Income tax expense attributable to continuing operations
C. Tax expense relating to items
of other comprehensive income Cash flow hedges
D. Deferred tax liability
Amounts recognised in profit and loss:
The deferred tax liability balances
comprised temporary differences
attributable to:
Cemetery land
Property, plant and equipment
Deferred selling costs
Prepayments and other
Brand names
Prepaid contracts
Provisions
Receivables
Accruals and other
Deferred revenue
Leased assets
Capital losses recognised
Amounts recognised directly in equity:
Cash flow hedge reserve
The net movement in the deferred tax liability is as follows:
Balance at the beginning of the year
Net charge to statement of comprehensive income – current period
Net charge/(credit) to statement of comprehensive income – prior periods
Amounts recognised directly in equity
Amounts recognised directly in equity-transition to AASB 15
Amounts recognised directly in equity-transition to AASB 16
Effect of movements in exchange rates
Balance at the end of the year
2019
$’000
19,816
14,326
(857)
33,285
97,173
29,152
(685)
203
(1,284)
6,833
(77)
34,142
(857)
33,285
2018
$’000
18,905
(1,335)
(1,186)
16,384
57,744
17,323
(748)
602
-
-
393
17,570
(1,186)
16,384
-
62
26,626
9,013
12,115
(947)
1,900
28,202
(5,444)
(618)
(2,044)
26,714
7,179
12,645
310
2,104
6,159
(5,109)
(1,291)
(1,780)
(26,302)
(22,088)
(5,628)
(826)
(1,221)
34,826
24,314
14,326
(727)
692
-
(5,030)
1,251
34,826
-
-
(529)
24,314
55,427
(1,335)
1,376
(62)
(31,462)
-
370
24,314
81
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
E. Tax losses
The Australian Group has capital losses of $2,750,000
(2018: $590,000) (gross) available to offset capital gains in
future years, which has been recognised as a deferred tax asset
at 31 December 2019.
F. Change in method of tax effect accounting for the
adoption of AASB 15 Revenue from Contracts with
Customers
The Group changed the method in which it determines the tax base
of its deferred revenue balance for purposes of calculating deferred
tax assets. This change impacted the recognition of deferred tax
assets on the Group’s transition adjustment to AASB 15 as of
1 January 2018 for the Cemetery and Crematorium memorial
products revenue stream only.
The details of the adjustments are:
i.
The Group considers the new method better attributes the tax
impact of those transactions, where revenue was deferred on
adoption of AASB 15, to the period when the revenue will be
recognised. That is, a deferred tax asset has been recognised
for the entire amount of revenue that has been taxed but will be
recognised in the future for financial reporting purposes. The
change of $16,612,000 has been accounted for retrospectively
at the date of transition to AASB 15, being 1 January 2018
ii.
Upon reviewing the implications of the above change in
accounting method, the Group identified an understatement of
deferred revenue and trade receivables as at 31 December 2018
of $14,320,000. This understatement relates to cash received
from memorial product customers where control of the interment
right and associated memorial had not passed to the customer
at 31 December 2018. As a result, the Group has corrected trade
receivables and deferred revenue by $14,320,000 as at
31 December 2018
There is no change to reported profit or cashflows for the year ended
31 December 2018 from these adjustments.
The line items impacted by the changes as at 1 January 2018
and 31 December 2018 are disclosed in the table below.
1 January 2018
31 December 2018
As reported
$’000
Adj (i)
$’000
Restated
$’000
As reported
$’000
Adj (i) & (ii)
$’000
Restated
$’000
Assets
Trade receivables
Liabilities
Deferred revenue
Deferred tax liability
Equity
Retained profits
18,866
129,454
40,577
49,820
-
-
(16,612)
16,612
18,866
129,454
23,965
66,432
31,709
124,434
40,926
41,526
14,320
14,320
(16,612)
16,612
46,029
138,754
24,314
58,138
82
Annual Report 2019 G. Voluntary tax transparency code disclosure
The Tax Transparency Code (TTC) is a set of principles and minimum
standards to guide medium and large businesses on public
disclosure of tax information. The TTC was developed by the Board
of Taxation and endorsed by the Government in the Federal Budget
2016–17.
Adoption of the TTC is voluntary and intended to complement
Australia’s existing tax transparency measures. The TTC is designed
to encourage greater transparency within the corporate sector,
particularly by multinationals, and to enhance the community’s
understanding of the corporate sector’s compliance with Australia’s
tax laws.
Companies (including entities treated as companies for Australian
tax purposes) that are medium or large businesses are encouraged
to adopt the TTC. For the purpose of TTC, InvoCare is classified as a
medium business and elected to adopt TTC.
Income tax expense on reported profit was $34,142,000 (2018:
$17,570,000), representing an effective rate of 35.1% (2018: 30.4%).
An analysis of tax paid, based on tax residency status, for Australia
and the Group is set out below.
Profit before income tax
Tax at nominal rate in relevant country
Increase/(decrease) due to non-temporary differences
Non-deductible acquisition costs
Capital gains offset against capital losses or not subject to tax
Impairment loss on intangibles
Foreign exempt dividends
Other items
Increase/(decrease) due to temporary differences
Unrealised prepaid contract funds under management gains and losses
Other items
Current income tax paid or payable
Current income tax paid rate*
Current income tax expense
Effective tax rate
Prior period tax adjustments
* Calculated as the total amount of income tax paid divided by the profit before income tax.
Australia
2019
$’000
113,501
34,050
170
(946)
-
(1,026)
68
(12,128)
(2,802)
17,386
15.3%
32,017
28.2%
2018
$’000
51,319
15,396
499
-
-
-
79
2,923
(1,949)
16,948
33.0%
15,973
31.1%
Group
2019
$’000
97,173
28,467
203
(1,284)
6,833
-
26
(12,128)
(2,301)
19,816
20.4%
34,142
35.1%
2018
$’000
57,744
16,575
602
-
-
-
140
2,923
(1,335)
18,905
32.7%
17,570
30.4%
(771)
(1,171)
(857)
(1,186)
83
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
Governance of tax planning for the Group has been delegated by
H. Accounting policy for income tax
the Board to the Audit, Risk & Compliance Committee (Committee),
which pursues a non-aggressive tax planning strategy which is
principled, transparent and sustainable in the long term. It oversees
the Group’s tax affairs in a proactive manner that seeks to maximise
shareholder value, while operating in accordance with the law,
and not participating in any aggressive tax planning activities. The
Committee receives a regular report on the Group’s tax compliance.
Tax planning initiatives are not implemented until they receive
approval from the Committee. Tax risks and opportunities are rated
according to their potential impact which determines whether
management or the Committee has the delegated authority to
resolve the matter.
During 2019, capital losses were realised on the sale of a digital
business and land. These capital losses were partially offset against
capital gains realised during the year on call options and the sale of
buildings. The benefit of the remaining net capital loss of $2,750,000
(gross) has been recognised as a deferred tax asset.
The Group has a limited number of international related party
arrangements in place. They are:
An Australian subsidiary receives dividends from Singapore
Casket Company, which is resident in Singapore
The New Zealand group is charged management fees, based
on time spent, for management, administration, accounting and
other services provided by the Australian operation
Loans from the Australian Group to subsidiaries outside Australia
are made occasionally under documented loan agreements
The income tax expense or benefit for the period is the tax payable on
that period’s taxable income based on the applicable income tax rate
for each jurisdiction, adjusted by the changes in deferred tax assets
and liabilities attributable to temporary differences, unused tax losses
and the adjustment recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary
differences at the tax rates expected to be applied when the assets
are recovered or liabilities are settled, based on those tax rates that
are enacted or substantively enacted.
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.
The carrying amount of recognised and unrecognised deferred tax
assets are reviewed at each reporting date. Deferred tax assets
recognised are reduced to the extent that it is no longer probable
that future taxable profits will be available for the carrying amount
to be recovered. Previously unrecognised deferred tax assets are
recognised to the extent that it is probable that there are future
taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a
legally enforceable right to offset current tax assets against current
tax liabilities and deferred tax assets against deferred tax liabilities;
and they relate to the same taxable authority on either the same
taxable entity or different taxable entities which intend to settle
simultaneously. Deferred tax balances are presented as non-current
In addition to income tax paid, the Australian group paid the following
assets/liabilities on the balance sheet.
types of taxes and fees during 2019:
Payroll tax of $6,608,000 (2018: $6,647,000)
Fringe benefits tax of $1,663,000 (2018: $2,134,000)
Land tax on owned buildings of $5,246,000 (2018: $4,441,000),
to various state governments
Council and water rates paid to various authorities of $2,291,000
(2018: $2,153,000)
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised in equity.
84
Annual Report 2019 NOTE 7. Cash flow information
A. Reconciliation of cash flows from operations with net profit after income tax
Net profit from ordinary activities after income tax
Adjustments for non-cash items in profit from ordinary activities
Depreciation and amortisation
Impairment loss on intangibles
Share-based payments expense
Loan establishment costs
Net (gain)/loss on disposal of property, plant and equipment
Unrealised loss/(gain) on prepaid contracts
Other prepaid contract movements
Interest expense: customer advance payments
Other non-cash deferred revenue/deferred selling costs movements
Business acquisition costs classified in investing activities
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
Net cash flows from operating activities
B. Non-cash investing and financing activities
Non-cash investing and financing activities for the current and prior
financial years are:
Acquisition of right of use assets through the changes in
accounting treatments in accordance with AASB 16 Leases
(refer to Note 11.B for further details)
Dividends satisfied by the issue of shares under the dividend
reinvestment plan of $9,137,000 (2018: $2,731,000)
Performance rights and shares issued to employees under the
Employee Share Trusts Plan and employee share scheme for no
cash consideration
2019
$’000
2018
$’000
63,752
41,224
36,986
24,404
(206)
679
(2,352)
(45,550)
13,909
4,114
26,039
-
(19)
962
(329)
4,992
14,449
4,844
(19,251)
(24,049)
2,021
3,611
(20,210)
(15,910)
(5,639)
2,222
(1,315)
538
(673)
8,847
1,554
63,830
(4,954)
1,727
11,293
(5,015)
(10,551)
(493)
487
48,308
85
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – KEY PERFORMANCE METRICS
C. Net debt reconciliation
The tables set out below provide an analysis of net debt and the movements in net debt for the current and last financial year.
2019 Net debt as at 1 January 2019
14,776
(408,245)
-
(393,469)
Cash
and cash
equivalents
$’000
Borrowings
$’000
Lease
liabilities
$’000
Net debts
$’000
Recognised due to adoption of AASB 16
Cash flows - proceeds
Cash flows - repayments
Additions / variations
Interest expense on lease liabilities
Foreign exchange adjustments
Net debt as at 31 December 2019
2018
Net debt as at 1 January 2018
Cash flows
Foreign exchange adjustments
Net debt as at 31 December 2018
D. Cash conversion ratio
-
4,714
-
-
-
70
-
(135,629)
(135,629)
(47,397)
100,500
-
-
(2,047)
-
(42,683)
14,733
115,233
(37,245)
(37,245)
(4,760)
-
(4,760)
(1,977)
19,560
(357,189)
(162,901)
(500,530)
15,531
(243,078)
(1,068)
(158,243)
313
(6,924)
14,776
(408,245)
-
-
-
-
(227,547)
(159,311)
(6,611)
(393,469)
The cash conversion ratio is one of the key cash performance metrics of the Group, refer to the table below for detailed calculation.
The conversion ratio calculation and the line items as shown in the table below are all non-IFRS information. However, all financial data is based
on the information disclosed in the audited financial statements and notes to the financial statements of InvoCare and follow the recognition
requirements of Australian Accounting Standards. Although the adoption of AASB 15 and AASB 16 have significant financial impacts on the Group,
they have had no cash impact.
Operating EBITDA
Statutory ungeared, tax free operating cash flows
Add: Receipts from funds from prepaid contracts performed
Less: Receipts from prepaid contract sales
Add: Other cash flows related to the prepaid contracts funeral business
Ungeared, tax free operating cash flows
Proportion of operating EBITDA converted to cash
E. Cash and cash equivalents
Cash on hand
Cash at bank
2019
$’000
2018
$’000
144,433
118,998
100,504
40,842
90,296
46,006
(24,976)
(34,639)
2,406
2,559
118,776
104,222
82%
88%
2019
$’000
119
19,441
19,560
2018
$’000
126
14,650
14,776
Cash at bank is non-interest bearing as at 31 December 2018 and 2019. Therefore, the weighted average interest rate for cash at bank is rounded
to zero for both 2018 and 2019.
86
Annual Report 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
NOTE 8. Trade receivables
2019
$’000
2018
$’000
Current
Trade receivables*
44,351
36,449
Less: Loss allowance
(3,672)
(3,004)
Non-
current
Trade receivables*
40,679
31,480
33,445
12,590
Less: Loss allowance
(3)
(6)
31,477
12,584
* Refer to Note 6.F for details of restatement of trade receivable as at 1
January 2018 as a result of the change in accounting method in tax
effect accounting for the adoption of AASB 15.
This section contains the key operating assets
and liabilities in relation to the three main streams,
being funeral business (at-need and pre-need)
and the cemetery and crematoria business. These
operating assets and liabilities include:
The trade and receivables, deferred selling
costs and revenue (including the impact of
transition to AASB 15 Revenue from Contracts
with Customers since 2018)
The prepaid contracts from the pre-need
funeral business
The non-current operating assets, being
the land for cemetery, crematoria, plant and
equipment for supporting the operations as
well as the newly recognised right of use assets
(due to the adoption of AASB 16 Leases from
1 January 2019)
Intangibles recognised for acquired businesses
87
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
A. Loss allowance
The ageing of the impaired trade receivables provided for above are
as follows:
Consolidated
Forward aged (12 - 60 months contracts)
Current
Over 30 days past due
Over 60 days past due
Over 90 days past due
Expected credit loss rate
Carrying amount
Allowance for expected
credit losses
2019
%
0.0%
0.2%
1.0%
8.0%
2018
%
0.0%
0.2%
1.0%
8.0%
21.0%
28.8%
2019
$’000
32,811
20,047
4,556
2,177
16,240
75,831
2018
$’000
10,210
22,899
4,298
2,062
9,570
49,039
2019
$’000
-
40
46
174
3,415
3,675
2018
$’000
-
46
43
165
2,756
3,010
The movements of loss allowance of trade receivables are as
follows:
As at 1 January
Loss allowance recognised
during the year
Receivables written off as uncollectable
As at 31 December
2019
$’000
3,010
1,057
(392)
3,675
2018
$’000
2,592
844
(426)
3,010
B. Accounting policies
I. Trade receivables
Trade receivables are amounts due from customers for goods
sold or services performed in the ordinary course of business.
They are initially recognised at the amount of consideration that
is unconditional. The Group holds the trade receivables with
II. Loss allowance on trade receivables
The Group has applied the simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance
for all trade receivables.
the objective to collect the contractual cash flows and therefore
To measure the expected credit losses, trade receivables have been
measures them subsequently at amortised cost using the effective
grouped based on shared credit risk characteristics and the days
interest method.
past due.
Trade receivables are usually due for settlement no more than 30
When a trade receivable is uncollectable, it is written off against the
days from the date of recognition, except where extended payment
loss allowance account for trade receivables. Subsequent recoveries
terms (up to a maximum of 60 months) have been made available on
of amounts previously written off are credited against sundry revenue
cemetery and crematorium memorial contracts for sale of interment
in the consolidated statement of comprehensive income.
rights and associated memorials and other merchandise.
Receivables arising from cemetery and crematorium memorial
contracts, which are initially expected to be collected over a period
exceeding twelve 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.
88
Annual Report 2019 NOTE 9. Deferred selling costs and revenue
This note provided details on the movements for the deferred selling costs and revenue arising from
the prepaid funeral contracts.
2019 Balance as at 1 January 2019
Add/(less): Changes during the year
Deferred
selling costs
$’000
42,150
Deferred
revenue
$’000
138,754
Revenue deferred: Cash received from customer instalment payments
-
11,953
Revenue recognised related to transition adjustment and instalments received during the year:
Cemetery and crematorium memorial products
Revenue deferred during the year:
Recognition of significant financing on customer advance payments:
Cemetery and crematoria memorial products
Revenue deferred: Cemetery and crematorium memorial products
Revenue deferred: Administration fees prepaid funeral service contracts
Recognition of significant financing on customer advance payments:
Administration fees prepaid funeral service contracts
Other movements
Balance as at 31 December 2019
Current
Non-current
Balance as at 31 December 2019
2018
Balance as at 1 January 2018
Add/(less): Changes during the year
(2,036)
(16,332)
-
(209)
23
-
-
39,928
4,480
35,448
39,928
2,867
(1,002)
1,614
1,247
199
139,300
34,913
104,387
139,300
43,877
129,454
Revenue deferred: Cash received from customer instalment payments
-
24,479
Revenue recognised related to transition adjustment and instalments received during the year:
Cemetery and crematorium memorial products
Revenue deferred during the year:
Recognition of significant financing on customer advance payments:
Cemetery and crematoria memorial products
Revenue deferred: Cemetery and crematorium memorial products
Revenue deferred: Administration fees prepaid funeral service contracts
Recognition of significant financing on customer advance payments:
Administration fees prepaid funeral service contracts
Other movements
Balance as at 31 December 2018
Current
Non-current
Balance as at 31 December 2018
(2,787)
(21,564)
-
586
631
-
(157)
3,458
-
1,553
1,386
(12)
42,150
138,754
3,101
39,049
42,150
23,345
115,409
138,754
Accounting policies
A. Deferred selling costs
Direct selling costs applicable to deferred revenue on undelivered
memorials and merchandise are deferred until the revenue is
recognised. Direct selling costs applicable to sale of prepaid funeral,
cremation and burial contracts are deferred until the underlying
service is delivered.
B. Deferred revenue
Revenue relating to undelivered memorials and merchandise are
deferred until delivered or made ready for use.
89
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
NOTE 10. Prepaid contracts
A. Statement of comprehensive income impact
of undelivered prepaid contracts
Gain on prepaid contract funds
under management
Change in provision for prepaid
contract liabilities
Net gain/(loss) on undelivered
prepaid contracts
2019
$’000
2018
$’000
65,881
13,581
Increase due to transition to
AASB15: Revenue from Contracts
with Customers
(20,331)
(18,573)
Sale of new prepaid contracts
45,550
(4,992)
Initial recognition of contracts paid
by instalment
C. Movements in prepaid contract liabilities
2019
$’000
2018
$’000
Balance as at 1 January
510,044
452,084
B. Movements in prepaid contract funds
under management
-
24,976
28,590
34,639
2,494
3,757
(35,800)
(41,334)
3,338
20,331
13,735
18,573
Decrease following delivery of
services
Increase due to business
combinations
Increase due to significant financing
2019
$’000
2018
$’000
563,587
545,825
24,976
34,639
Balance as at 31 December
525,383
510,044
Current
Non current
48,885
41,428
476,498
468,616
2,494
3,757
Balance as at 31 December
525,383
510,044
(40,842)
(46,007)
3,293
11,792
65,881
13,581
619,389
563,587
57,552
45,986
561,837
517,601
619,389
563,587
Balance as at 1 January
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 as at 31 December
Current
Non-current
Balance as at 31 December
90
Annual Report 2019
D. Nature of contracts under management
and liabilities
E. Classification of prepaid funds under management
and liabilities
Prepaid contracts are tripartite agreements, currently entered into
The current and non-current portions of the prepaid contract assets
and performed in Australia, whereby InvoCare agrees to deliver a
and liabilities are disclosed separately to more clearly reflect the
specified funeral service, cremation or burial at the time of need and
expected pattern of usage associated with the timing of actual
the beneficiary invests the current price of the service to be delivered
contract redemptions.
with a financial institution and conditionally assigns the benefit to
InvoCare.
The assignment of the benefit of the invested funds to InvoCare 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.
F. Critical accounting judgements, estimates and
assumptions
I. Fair value measurements – prepaid contract funds
under management
The fair values of the prepaid contract funds under management are
recognised and measured based on inputs that require judgements
As required by law, all of the funds are controlled independently of
and estimates. To provide an indication about the reliability 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 $6,863,000 (2018: $6,960,000).
the inputs used in determining fair value of the prepaid contract
funds under management, the Group has used Level 2 inputs as
prescribed under the accounting standards. Level 2 input for fair
value is described as observable inputs either directly (as prices) or
indirectly (derived from prices) for the asset or liability, other than the
unadjusted quoted prices in active markets.
II. Current and non-current split
The Group determines the classification of current and non-current
portions of prepaid contract asset and liabilities based on the pattern
of usage (based on an independent actuarial review) associated
with the timing of actual contract redemptions. This pattern of usage
is based on historical data, is reviewed annually and has remained
During the year, the non-cash fair value movements (i.e. investment
consistent over the past five years.
earnings) of $65,881,000 in prepaid contract funds under
management (2018: $13,581,000) was greater than the non-cash
growth due to interest expense increases of $20,331,000 in the
liability for future service delivery obligations (2018: $18,573,000).
G. Accounting policies for prepaid contracts
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 equal to the value
of the undelivered service associated with prepaid contracts and
adjusts the deferred revenue using a discount rate that results in
revenue being recognised that approximates the cash selling price
the customer would have paid if the consideration is paid at the same
time as the services are provided.
When the service is delivered, the liability is derecognised and
included in revenue.
91
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
NOTE 11. Non-current operating assets
This note includes the information for the following two categories of non-current operating assets:
Property, plant and equipment
Right of use assets (recognised in relation to adoption of AASB 16 from 1 January 2019) and the related lease liability
A. Property, plant and equipment
Cemetery
land
$’000
Freehold
land
$’000
Buildings
$’000
Leasehold
land and
buildings
$’000
Leasehold
Improve-
ments
$’000
Plant and
equip-
ment
$’000
Total
$’000
2019 Composition as at 31 December 2019
Cost
121,519
102,503
216,309
4,534
27,166
175,126
647,157
Accumulated depreciation/
amortisation
Impairment write-downs
(9,126)
(15,299)
-
-
Net book value
97,094
102,503
148,459
(67,850)
(3,690)
(6,979)
(95,468)
(183,113)
-
-
844
-
-
(15,299)
20,187
79,658
448,745
Movement for the year ended 31 December 2019
Opening net book value
92,386
101,964
130,826
1,014
14,289
85,099
425,578
Additions
Additions through business
combinations
Disposals
Depreciation/amortisation
and impairment charge
Effect of movement in exchange rates
Transfers to held for sale
Closing net book value
2,037
3,000
-
(384)
30
25
-
21,899
1,390
(625)
2,229
(820)
-
-
-
7,180
27,746
58,862
-
209
6,828
(56)
(15,997)
(17,498)
-
(4,646)
(170)
(1,962)
(16,982)
(24,144)
505
(731)
333
(1,362)
-
-
11
725
140
(557)
1,019
(1,900)
97,094
102,503
148,459
844
20,187
79,658
448,745
2018
Composition as at 31 December 2018
Cost
116,426
101,964
195,085
4,534
20,029
188,712
626,750
Accumulated depreciation/
amortisation
Impairment write-downs
(8,764)
(15,276)
-
-
(64,259)
(3,520)
(5,740)
(103,613)
(185,896)
-
-
-
-
(15,276)
Net book value
92,386
101,964
130,826
1,014
14,289
85,099
425,578
Movement for the year ended 31 December 2018
Opening net book value
88,929
92,778
3,685
-
-
(387)
159
-
837
8,882
(359)
-
2,019
(2,193)
98,117
32,096
6,461
(78)
(5,731)
1,243
(1,282)
1,189
11,205
62,507
354,725
-
-
-
4,264
37,180
124
(6)
2,735
(540)
78,062
18,202
(983)
(176)
(1,349)
(17,267)
(24,910)
1
-
51
-
484
-
3,957
(3,475)
92,386
101,964
130,826
1,014
14,289
85,099
425,578
Additions
Business combinations
Disposals
Depreciation/amortisation
and impairment charge
Effect of movement in exchange rates
Transfers to held for sale
Closing net book value
92
Annual Report 2019
I. Assets in the course of construction
The impairment losses recognised over the years may be reversed
The carrying amounts of assets disclosed above include the following
in future years. The total recoverable amount of the Group’s assets is
expenditure recognised in relation to property, plant and equipment
well in excess of carrying value.
which is in the course of construction.
Cemetery land improvements
Freehold buildings
Leasehold improvements
Plant and equipment
Total assets in the course of
construction
2019
$’000
5,571
22,262
2,164
19,716
2018
$’000
3,519
11,744
1,177
14,318
49,713
30,758
II. Impairment
All cemetery and crematorium sites were assessed during the year
using consistently applied methodology and no changes to the
impairment provision were deemed necessary.
In 2017, the Allambe Gardens Memorial Park was impaired due to a
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 3% (2018: 4%) in revenue
and 3% (2018: 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%, considered to be within the reasonably possible range of
long term outcomes. This analysis demonstrates that changing the
assumptions is unlikely to result in a material change in the currently
recognised impairment losses. The pre-tax discount rate used was
9.2% (2018: 10.9%), reflecting the risk estimates for the business as
a whole.
reassessment of the land available for memorialisation plots. In 2018,
III. Asset held for sale
remediation of the residual land at the Memorial Park commenced. The
remediation work was completed in January 2020, with sales of burial
sites in the newly developed section due to occur in early 2020. The
Group will reassess the recoverable amount of the park in June 2020.
Asset held for sale represents property identified as surplus to
Group’s requirement pursuant to the Network & Brand Optimisation
review carried out as part of the Protect & Grow Plan.
B. Right of use assets and lease liabilities
The Group has adopted AASB 16 using the modified retrospective approach from 1 January 2019, but has not restated comparatives for the 2018
reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the
new leasing accounting are therefore recognised in the opening balance sheet on 1 January 2019. The accounting policies are disclosed in section
D.II. in this note below.
The right of use assets and related lease liabilities recognised at 1 January 2019 and the movement during 2019 are disclosed in section I and II
below.
I. Right of use assets
2019
Composition as at 31 December 2019
Cost
Accumulated depreciation
Net book value
Movement for the year ended 31 December 2019
Opening net book value (cost only)
Additions
Depreciation
Effect of movement in exchange rates
Closing net book value
Properties
$’000
Equipment
$’000
Motor vehicles
$’000
Total
$’000
140,536
(11,177)
129,359
121,641
18,895
(11,012)
(165)
129,359
694
(269)
425
590
104
(262)
(7)
425
14,350
(133)
14,217
22
14,328
(132)
(1)
155,580
(11,579)
144,001
122,253
33,327
(11,406)
(173)
14,217
144,001
93
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
The right of use assets for property leases were measured on a
III. InvoCare’s leasing activities and impact on adoption
modified retrospective basis as if the new rules had always been
of AASB16
applied. Other right of use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
balance sheet as at 31 December 2018. There were no onerous lease
contracts that would have required an adjustment to the right of use
assets at the date of initial application.
II. Lease liabilities on related right of use assets
On adoption of AASB 16, the Group recognised lease liabilities in
The Group leases various properties, cemeteries, equipment and
cars. Rental contracts are typically made for fixed periods of 5 to 10
years, with some leases for periods of 30 years. The Group’s leases
may have extension options as described in section b below. Lease
terms are negotiated on an individual basis and contain a wide
range of different terms and conditions. The lease agreements do
not impose any covenants, but leased assets may not be used as
security for borrowing purposes.
relation to leases which had previously been classified as operating
a. Changes in accounting policies on adoption of AASB16
leases under the principles of AASB117 Leases. These liabilities were
measured at the present value of the remaining lease payments,
discounted using the Group’s weighted average incremental
borrowing rate as of 1 January 2019 which was 3.4%.
Lease liabilities recognised in the balance sheet at the date of initial
application are as below.
Operating lease commitments disclosed as at
31 December 2018
Discounted using the lessee’s incremental
borrowing rate at the date of initial application
Less: Low-value leases recognised on a straight
line basis as expense
Add: Adjustments as a result of a different
treatment of extension and termination options*
Lease liabilities recognised as at 1 January 2019
2019
$’000
55,532
46,983
1,691
86,955
135,629
* Refer to section III.b below for the Group’s assessment confirming it
is reasonably certain that InvoCare will exercise its options to renew
its operating lease contracts.
Lease liabilities as at 1 January 2019
Current
Non-current
2019
$’000
13,743
121,886
135,629
Until the 2018 financial year, leases of property, plant and equipment
were classified as either finance or operating leases. Payments
made under operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight line basis over the
period of the lease. There has been no change to the accounting for
finance leases.
From 1 January 2019, the Group adopts AASB16 and accounts for
operating leases differently. The accounting policy is disclosed in
section D.II below.
The change in accounting policy affected the following items in the
balance sheet on 1 January 2019:
Right of use assets – increase by $122,253,000
Deferred tax assets – increase by $5,030,000
Lease liabilities – increase by $135,629,000
Provision – increase by $3,496,000
The net impact on retained earnings on 1 January 2019 was a
decrease of $11,842,000.
b. Extension and termination options
Extension and termination options are included in a number of
property leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. The majority of
extension and termination options held are exercisable only by the
Group and not by the respective lessor.
c. Practical expedients applied
In applying AASB 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
The use of a single discount rate to a portfolio of leases with
reasonably similar characteristics
Reliance on previous assessments on whether leases are
onerous
The accounting for operating leases with a remaining lease term
of less than 12 months as at 1 January 2019 as short term leases
The exclusion of initial direct costs for the measurement of the
right-of-use asset at the date of initial application
The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
94
Annual Report 2019 d. Impact on segment disclosures and earnings
Adjustment to EBITDA, segment assets and segment liabilities for the
year ended 31 December 2019 all increased as a result of the change
in accounting policy. Lease liabilities are now included in segment
liabilities.
C. Critical accounting judgements, estimates and
assumptions
I. Estimated impairment of non-financial assets
The Group annually considers if events or changes in circumstances
indicate that the carrying value of non-financial assets may not be
The following segments were affected by the change in policy for the
recoverable. Similarly, at each reporting date, the non-financial
2019 year:
New
assets that suffered a previous impairment are reviewed for
possible reversals of the impairment. The recoverable amounts
Australia
Zealand Singapore
Total
are determined based on value-in-use calculations which require
2019
$’000
2019
$’000
2019
$’000
2019
$’000
the use of assumptions. Refer to section A.II above for details of
these assumptions and the potential impact to changes to the
11,895
2,334
36
14,265
assumptions.
II. Determining the lease term
Adjustment to
EBITDA
Depreciation and
amortisation
(9,594)
(1,780)
(32)
(11,406)
Finance costs
(3,833)
(925)
(2)
(4,760)
Income tax expense
460
79
Earnings after tax
(1,072)
(292)
Total right of use
assets
121,783
22,166
Total lease liabilities 138,843
23,989
-
2
539
(1,362)
52 144,001
69 162,901
In determining the lease term, management considers all facts and
circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in the
lease term if the lease is reasonably certain to be extended (or not
terminated). The Group has assessed it is reasonably certain that it
will exercise its option to renew all leases.
The assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment and
that is within the control of the Group.
95
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
D. Accounting policies
I. 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.
II. Right of use assets and lease liabilities
AASB 16 is adopted by InvoCare and a right of use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group are recognised. Each lease payment
is allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
Subsequent costs are included in the asset’s carrying amount or
a constant periodic rate of interest on the remaining balance of the
recognised as a separate asset, as appropriate, only when it is
liability for each period. The right of use asset is depreciated over
probable that future economic benefits associated with the item
the shorter of the asset’s useful life and the lease term on a straight
will flow to the Group and the cost of the item can be measured
line basis.
reliably. Repairs, maintenance and minor renewals are charged to
the statement of comprehensive income during the financial period in
which they are incurred.
Cemetery land is carried at cost less accumulated depreciation and
impairment write-downs. The Group 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: 40 years
Plant and equipment: 3-10 years
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of
the following lease payments:
Fixed payments (including in-substance fixed payments), less any
lease incentives receivable
Amounts expected to be payable by the Group under residual
value guarantees
The exercise price of a purchase option if the Group is reasonably
certain to exercise that option
Payments of penalties for terminating the lease, if the lease term
reflects the Group exercising that option
The lease payments are discounted using the interest rate implicit in
the lease. If that rate cannot be determined, the Group’s incremental
borrowing rate is used, being the rate that the Group would have to
The cost of improvements to or on leasehold properties is amortised
pay to borrow the funds necessary to obtain an asset of similar value
over the unexpired period of the lease or the estimated useful
in a similar economic environment with similar terms and conditions.
life of the improvement to the Group, 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
Right of use assets are measured at cost comprising the following:
The amount of the initial measurement of lease liability
Any lease payments made at or before the commencement date
carrying amount. Gains and losses are included in the statement of
less any lease incentives received
comprehensive income.
Any initial direct costs
Restoration costs
Payments associated with short term leases and leases of low-value
assets (less than $10,000) are recognised on a straight line basis as
an expense in profit or loss. Short term leases are leases with a lease
term of 12 months or less. Low-value assets comprise information
technology equipment and small items of office equipment.
96
Annual Report 2019 NOTE 12. Intangibles
2019 Composition as at 31 December 2019
Cost
Accumulated amortisation
Impairment
Net book value
Movement for the year ended 31 December 2019
Opening net book value
Additions through business combinations
Finalisation of prior period acquisitions
Disposals
Amortisation charge
Impairment loss
Effect of movement in exchange rates
Closing net book value
2018
Composition as at 31 December 2018
Cost
Accumulated amortisation
Net book value
Movement for the year ended 31 December 2018
Opening net book value
Additions through business combinations
Amortisation charge
Effect of movement in exchange rates
Closing net book value
Goodwill
$’000
Brand name
$’000
206,949
-
(24,480)
182,469
197,541
7,210
1,550
(275)
-
(24,404)
847
182,469
197,541
-
197,541
143,688
49,884
-
3,969
197,541
18,549
(12,084)
-
6,465
7,258
629
-
(9)
(1,436)
-
23
6,465
17,844
(10,586)
7,258
3,500
4,761
(1,129)
126
7,258
Total
$’000
225,498
(12,084)
(24,480)
188,934
204,799
7,839
1,550
(284)
(1,436)
(24,404)
870
188,934
215,385
(10,586)
204,799
147,188
54,645
(1,129)
4,095
204,799
A. Impairment test for goodwill
Impairment tests are performed annually, or more frequently if events
or circumstances indicate that the carrying amount may not be
recoverable.
For the Group’s Australian-based operations, goodwill cannot be
allocated on a non-arbitrary basis to individual cash generating
unit (CGU) due to the significant history of numerous acquisitions,
especially during the years 1993 to 1999, 2018 and 2019, and
resulting post-acquisition business integration activities and
operational changes over many years. New Zealand and Singapore
operations are separate CGU and the associated goodwill arising
from their acquisition have been allocated to the individual New
Zealand or Singapore 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 Australia, New Zealand and
Singapore 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 may potentially cause an impairment
to arise.
97
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – SIGNIFICANT OPERATING ASSETS
AND LIABILITIES
B. Goodwill
I.
Impairment of New Zealand CGU
Recoverable amount testing for the period ended 31 December 2019
has identified the New Zealand CGU as being impaired.
As at 31 December 2019, an impairment charge of NZ$25,500,000
of goodwill has been applied as the carrying amount of goodwill,
property, plant & equipment, right of use assets and brand names
exceeded its recoverable amount within the New Zealand business
CGU. The impairment is a result of the financial under performance
relative to the original forecast of the New Zealand business during
the six months ended 31 December 2019, the competitive landscape
and relative size of the New Zealand market and based on revised
future forecasts of financial performance of the New Zealand
operations.
The remaining goodwill acquired through business combinations or
territory acquisitions has been allocated to a reportable segment for
impairment testing (refer Note 1).
II. Sensitivity – New Zealand CGU
These discount rates reflect the risk estimates for each business as
a whole.
Sensitivity analysis indicates significant headroom exists in the value-
in-use calculations for Australia and Singapore CGUs compared to
the carrying value of goodwill. There is no reasonable possible long
term shift in key assumptions considered likely which will cause
impairment of either of these two CGUs.
D. Critical accounting judgements, estimates and
assumptions
The Group annually considers if events or changes in circumstances
indicate that the carrying value of goodwill or cash-generating units
may not be recoverable. Similarly, at each reporting date, 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 section C. above for details of
these assumptions and the potential impact to changes to the
assumptions.
Each of the sensitivities below assumes that a specific assumption
moves in isolation, while other assumptions are held constant. A
E. Accounting policies
change in one of the key assumptions could be accompanied by a
I. Goodwill
change in another assumption, which may increase or decrease the
net impact.
Terminal growth rate decreased by 0.5%: $6,007,000
Post-tax weighted average cost of capital increase by 0.3%:
$4,713,000
C. Key assumptions used for value-in-use calculations
Goodwill arises on acquisition of business/subsidiary. 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. Impairment
losses on goodwill are taken to profit or loss and are not subsequently
reversed if the related assets subsequently increases in value.
Budgeted cash flows have been based on past performance and
II. Trademarks and brand names
expectations for the future. The growth rates of 3% (2018: 4%) in
revenue, 3% (2018: 3%) in expense and 1% (2018: 1%) in volume
growth projections are not inconsistent with historical trends and
forecasts included in reports prepared by market analysts. In the
calculation of the terminal value, the long term annual growth rate
Trademarks and brand names recognised through business
acquisitions 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 ten
of the real gross domestic product (GDP) of the country is used as a
basis for the terminal growth rate. For goodwill, these assumptions
years.
are based on the CGU to which the goodwill is attributed.
III. Impairment of assets
The pre-tax discount rate used for assessing the carrying value of
goodwill in each CGU was as follows:
Australian operations
Singapore operations
New Zealand operations
2019
%
9.2%
9.2%
10.0%
2018
%
10.9%
10.9%
10.9%
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment or six monthly
only 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 indicators
every six months. 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).
98
Annual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – CAPITAL AND RISKS
The Group’s activities expose it to a variety of financial risks.
The Group’s overall financial risk management strategy
focuses on the unpredictability of financial markets and
seeks to minimise adverse effects on the Group’s financial
performance. This section contains disclosures of financial
risks the Group is exposed to and how the Group manages
those risks.
The capital management, impact of contingencies,
commitments and events subsequent to reporting period
are also considered in this section
NOTE 13. Financial risk management
The Group operates in different jurisdictions and
markets. Strategic risk management is carried out by
the Board of Directors. The Audit, Risk & Compliance
Committee, which operates under policies approved by
the Board, is responsible for operational and financial risk
management. 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 table below summarises the key risks identified,
exposures and management of exposures.
Risk identified Definition
Exposures
Management of exposures
Market risk
The risk that the value of a
Financial assets: mainly cash at bank
Fixed interest rate borrowings.
– interest rate
financial asset or liability
Financial liabilities: mainly borrowings,
Derivative financial instruments, mainly
or cash flow associated
with the financial asset
or liability will fluctuate
due to changes in market
interest rates
prepaid contract liabilities, lease liabilities
interest rate swaps.
Further information on exposures is detailed
Managing to the hedge limits in respect of
in section A below. Interest rate risk exposure
the policies as approved by the Board.
and Hedging effectiveness
Market risk
The risk in local currency
Foreign currency earnings
– foreign
currency
terms that the value of
a financial commitment
or a recognised asset
or liability, will fluctuate
due to changes in foreign
currency exchange rates
Net investments in foreign operations
Foreign currency borrowings
Further information on exposures is detailed
in section B below. Foreign currency risk
exposure
Speculative trading is not permitted.
Physical financial instruments, including
natural hedges from matching foreign
assets and liabilities.
Speculative trading is not permitted.
Market risk
– price
The risk that the
Investment returns of the funds under
Maintain Board representation in OFGFS.
investment returns of
management of prepaid contracts
Monitor the investment strategy of OFGFS
funds under management
on prepaid contracts
impacting future income
Majority of the funds under management is
and the investment assets mix.
placed with the Over Fifty Guardian Friendly
Society (OFGFS)
Further information on exposures is detailed
in section C below. Pricing risk exposure
Credit risk
The risk that a
Recoverability of receivables
Policies dictate the Group only deals
counterparty will not
be able to meet its
obligations in respect of
a financial instrument,
resulting in a financial loss
to the Group
Recoverability of other financial assets and
cash deposits
Further information on exposures is detailed
in section D below. Credit risk exposure
with banks and financial institutions with
minimum independent credit ratings.
Operations of the Group results in no
concentration of customers in any particular
region or sector enhanced.
Enhanced alternative payment methods for
customers in regional areas.
Liquidity risk
The risk of having
Insufficient levels of committed credit facilities
Maintaining sufficient levels of cash
insufficient funds to settle
financial liabilities as and
when they fall due
Settlement of financial liabilities
Further information on exposures is detailed
in section E below. Liquidity risk exposure
and committed credit facilities to meet
financial commitments and working capital
requirements.
Timely review and renewal of credit facilities.
99
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – CAPITAL AND RISKS
The Group holds the following financial assets and liabilities:
2019
$’000
2018
$’000
Bank borrowings a
2019
%
2018
%
Financial
assets
Cash and cash equivalents
19,560
14,776
Trade receivables
72,156
46,029
Effective average interest rate as at
31 December
3.94%
4.17%
Financial
liabilities
Prepaid contract funds under
management
619,389
563,587
Other financial assets
4
4
711,109
624,396
Trade and other payables
61,704
61,110
Borrowings
Lease liabilities
Derivative financial
instruments
357,189
408,245
162,901
-
4,157
1,795
585,951
471,150
Interest rate swaps position
as at 31 December
Weighted average fixed
interest rate payable
Weighted average variable
interest rate receivable
Interest rate swaps coverage on
outstanding bank borrowings
Australia
New Zealand
Singapore b
A. Interest rate risk exposure (cash flow and fair value)
Combined Australia and New Zealand
The Group’s main interest rate risk arises from long term borrowings.
2.34%
2.47%
1.03%
2.05%
93%
87%
Nil
91%
59%
87%
Nil
75%
All bank borrowings are initially at variable interest rates determined
a The effective average interest rate includes swaps and margins but
by a margin over the reference rate based on the Group’s leverage
excluding establishment fees.
ratio. Borrowings issued at variable rates expose the Group to cash
flow interest rate risk. The Group’s policy is 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.
b Due to the relative stability of Singapore interest rates, Singapore
denominated debt has been allowed to stay at floating rates.
At balance date, fixed interest rate swaps for 93% (2018: 59%) of
Australia debt and 87% (2018: 87%) of New Zealand debt were in place.
Hedging for interest rate risk exposure
Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic prospective effectiveness
assessments to ensure that an economic relationship exists between
In addition to bank borrowings, the Group also entered into a note
the hedged item and hedging instrument.
purchase agreement in February 2018 that is denominated in
Australian dollars at a fixed interest rate. This assists in minimising the
Group’s overall interest rate risk.
The Group enters into interest rate swaps that have similar critical
terms as the hedged item, such as reference rate, reset dates,
payment dates, maturities and notional amount. The Group does not
The interest rate swaps position and the coverage on outstanding
hedge 100% of its loans; therefore the hedged item is identified as a
bank borrowings as at end of the financial years are set out in the
proportion of the outstanding loans up to the notional amount of the
table opposite.
100
swaps. As all critical terms matched during the year, the economic
relationship was 100% effective.
Hedge ineffectiveness for interest rate swaps is assessed by
performing a qualitative assessment of effectiveness. If changes
in circumstances affect the terms of the hedged item such that the
critical terms no longer match exactly with the critical terms of the
hedging instrument, the Group uses the hypothetical derivative
method to assess effectiveness.
Hedge ineffectiveness may occur due to:
The credit value/debit value adjustments on the interest rate
swaps which is not matched by the loans
Differences in critical terms between the interest rate swaps and
loans
Annual Report 2019
The following variable rate bank borrowings and interest rate swap contracts are outstanding at the reporting date.
Variable borrowings
Interest rate swaps (notional principal)
Net exposure to cash flow interest rate risk
31 December 2019
31 December 2018
Weighted average
interest rate
%
3.94%
2.34%
Balance
$’000
259,600
(202,400)
57,200
Weighted average
interest rate
%
4.17%
2.47%
Balance
$’000
311,230
(181,793)
129,437
The notional principal amounts and swap liability periods of expiry of the interest rate swap contracts are as follows.
Nominal Value
Swap Liability
Less than one year
One to two years
Two to three years
Three to four years
2019
$’000
74,400
54,000
49,000
25,000
2018
$’000
30,000
74,260
53,767
23,766
202,400
181,793
2019
$’000
984
1,340
1,143
690
4,157
2018
$’000
101
906
663
125
1,795
These contracts require settlement of net interest receivable or
B. Foreign currency risk exposure
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. 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
9 Financial Instruments.
The interest rate swap contracts were all judged to be effective at
31 December 2019 and the movements in the fair value of these
instruments have been quarantined in equity.
The overall impact and sensitivities of the interest bearing assets and
liabilities and related derivatives of the Group has been summarised
in section F is Summarised sensitivity analysis in this note.
The Group rarely undertakes significant commercial transactions
in currencies other than in the functional currency of the operating
subsidiaries in New Zealand and Singapore.
Foreign currency 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 currency risk relates
to the investments in subsidiaries in New Zealand and Singapore.
This exposes the Group to foreign currency risk on the assets and
liabilities.
Borrowings have been made by the New Zealand subsidiary and by
the Group in Singapore dollars to provide a natural hedge against the
risk of changes in exchange rates in New Zealand and Singapore.
The borrowings in Singapore dollars are therefore a hedge of a net
investment in a foreign subsidiary.
The Group has no significant unhedged foreign exchange exposures
at 31 December 2019. Therefore, there was no ineffectiveness to be
recorded from net investments in foreign entity hedges.
The Group’s exposure to foreign currency risk at the end of the
reporting period, expressed in Australian dollars, was as follows.
New Zealand
Dollars
2019
$’000
2018
$’000
Singapore
Dollars
2019
$’000
2018
$’000
Borrowings
72,000
71,300
37,100
36,322
Derivatives
1,334
478
-
-
101
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – CAPITAL AND RISKS
C. Price risk exposure
The Group is the ultimate beneficiary of prepaid contract funds under
management (Invested Funds) invested in various prepaid contract
trusts, as described in Note 10.D. There are a significant number of
trusts in existence with various investment profiles.
Accordingly, the Group’s future income is 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. The
return on these funds (net of the increase in the liability to deliver the
future services) are recognised in the statement of comprehensive
income.
87% of the funds are managed by the Over Fifty Guardian Friendly
Society (OFGFS) which is controlled by a five-member independent
Board with two InvoCare representatives. Non OFGFS funds
primarily invested in capital guaranteed funeral bonds managed by a
range of APRA regulated institutions.
Other than disclosed above, the Group does not hold any
investments in equities or commodities and is therefore not subject
to price risk.
Based on the asset allocation as at 31 December 2019 and 31
December 2018 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 2019
31 December 2018
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
26,875
(26,875)
17,702
(17,702)
4,993
(4,993)
4,278
(4,278)
-
-
-
-
31,868
(31,868)
21,980
(21,980)
The OFGFS Board has appointed an Investment Committee (GIC)
which is responsible for the management of the Invested Funds in
D. Credit risk exposure
accordance with an approved Investment Policy Statement (IPS).
Credit risk is managed on a Group basis. Credit risk arises from cash
The IPS provides guidance on the ongoing prudent and efficient
and deposits with banks and financial institutions, derivative financial
management of the investment arrangements. The principle objective
instruments, as well as credit exposures to customers, including
of the Invested Funds is to maximise returns without exceeding risk
outstanding receivables and committed transactions. For banks and
levels specified in the Investment Guidelines. By pursuing these
financial institutions, only independently rated parties with a minimum
objectives, the Invested Funds are expected to provide a long-term
rating of AA- are accepted.
rate of return sufficient to meet the original plus subsequent increases
in retail prices of delivering the promised funeral services after
considering all Invested Funds expenses and tax.
Credit risks in relation to customers are highly dispersed and
without concentration on any particular region or sector. The trade
receivables are non-interesting bearing. Funeral homes attempt
The GIC regularly sets a target asset allocation to ensure investment
to collect deposits at the time the service is commissioned both as
activity sits within the stated risk profile and to also ensure that other
a sign of good faith and in order to cover out-of-pocket expenses.
limits specified in the IPS are being met. External consultants are
Cemetery and crematorium products are generally not delivered prior
engaged to review the risk and return forecasts on a regular basis and
to the receipt of all or substantially all of the amounts due.
recommend amendments to the target asset allocation if required.
The Group applies the simplified approach to measuring expected
Normally funds are invested for extended periods, with the median
credit losses which uses a lifetime expected loss allowance for all
life of a prepaid funeral contract being circa nine years. Liquidity risk is
trade receivables.
considered low with the flow of funds from the sale of new contracts
exceeding redemptions in most years. The fund can therefore take
a long-term view on its investment horizon and absorb short term
fluctuations in returns caused by market volatility.
To measure the expected credit losses, trade receivables have
been grouped based on shared credit risk characteristics and the
days past due. The expected loss rates are based on the payment
profiles of sales over a period of rolling 24 months before the financial
The asset allocation at year end of prepaid contract funds under
year ended 31 December 2019. Refer to Note 8 for details of loss
management is as follows:
allowance and movement for the financial year.
Equities
Property
Cash and fixed interest
(includes hybrid securities)
102
2019
%
43%
27%
2018
%
31%
25%
30%
44%
Receivables past due but not impaired
As of 31 December 2019, trade receivables of $18,441,000
(2018: $7,464,000) were past due but not 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. As such these amounts are not considered to be in default.
Annual Report 2019 The Group’s own collection activity, which varies based on the
Details of the facilities available, drawn down, unused by facilities
nature and relative age of the debt, is routinely applied to all past due
disclosed in the table below.
accounts. When these activities do not result in a successful recovery
of the debt, it is referred to external debt collection agencies.
Trade receivables are written off when there is no reasonable
Total facilities available
expectation of recovery. Indicators which include amongst others,
is the failure of the debtor to engage in a repayment plan with the
Group. Once all attempts to recover the debt have been exhausted,
then a debt is considered to be in default and written off. Subsequent
recoveries of amounts previously written off are credited against
sundry revenue in the consolidated income statement.
E. Liquidity risk exposure
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.
In February 2018, the Group entered into new financing
arrangements:
A Syndicated Facility Agreement supported by ANZ, Westpac,
HSBC, Mizuho and SMBC providing $150,000,000 for five years
on a fully drawn basis and $200,000,000 three-year revolving
facility. Both facilities are multi-currency allowing drawings in
Australian, New Zealand and Singaporean dollars
A Note Purchase Agreement with Metlife for $100,000,000 for ten
years at a fixed rate and drawn in Australian dollars to eliminate
currency risks
During 2019, the Group completed an Institutional Placement and a
Share Purchase Plan to raise $85,949,000 of ordinary share capital.
The cash from the capital raised are used to repay borrowings.
At 31 December 2019, the Group had drawn down $359,600,000
borrowings (from total $450,000,000 debt facilities) compared to
$411,200,000 at 31 December 2018.
The facilities agreements’ covenant ratios are calculated on a rolling
12-month basis and have been met at 31 December 2019. The ratio
of Net Debt to bank adjusted operating EBITDA must be no greater
than 3.5 and the ratio of EBITDA to net interest must be greater
than 3.0.
Working capital facility - expiring within
one year
Unsecured loan facility - expiring in two
to five years
Drawn down as at 31 December
Working capital facility - expiring within
one year
Unsecured loan facility* - expiring in two
to five years
Unused as at 31 December
Working capital facility - expiring within
one year
Unsecured loan facility* - expiring in two
to five years
2019
$’000
2018
$’000
9,638
9,624
450,000
450,000
459,638
459,624
3,297
2,495
359,600
411,230
362,897
413,725
6,341
38,770
90,400
7,129
96,741
45,899
* The balance of the borrowings, unsecured loan facility outstanding
as at 31 December after loan establishing costs is as follows:
2019
$’000
2018
$’000
Long-term borrowings outstanding as
at 31 December
Unsecured loan facility - expiring in two
to five years
359,600
411,230
Less: Loan establishment costs
(2,411)
(2,985)
357,189
408,245
103
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – CAPITAL AND RISKS
The table below analyses the Group’s financial liabilities into the relevant maturity groupings based on their contractual terms as at the reporting
date. Trade and other payables, lease liabilities and borrowings are non-derivative liabilities.
2019
Trade and other payables
Lease liabilities
Borrowings
Derivatives
2018
Trade and other payables
Borrowings
Derivatives
Less than one year
$’000
Two to three years
$’000
More than three years
$’000
60,904
12,934
-
984
61,110
-
101
800
28,639
259,600
2,483
-
159,767
1,569
-
121,328
100,000
690
-
251,463
125
Total
$’000
61,704
162,901
359,600
4,157
61,110
411,230
1,795
F. 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.
Interest rate risk
Foreign exchange risk
-100 basis point
+100 basis point
-10%
+10%
Carrying
amount
$’000
Profit/
(loss)
$’000
Equity
$’000
Profit/
(loss)
$’000
Equity
$’000
Profit/
(loss)
$’000
Equity
$’000
Profit/
(loss)
$’000
Equity
$’000
2019
Financial assets
Cash and cash equivalents
Trade receivables
Prepaid contract funds
under management
Other financial assets
Financial liabilities
Trade and other payables
Lease liabilities
Borrowings
Derivatives
19,560
72,156
(137)
-
619,389
(4,567)
4
(61,704)
(162,901)
-
-
-
(357,189)
(400)
(4,157)
-
Total increase/(decrease)
(5,104)
2018
Financial assets
Cash and cash equivalents
Trade receivables
Prepaid contract funds
under management
Other financial assets
Financial liabilities
14,776
46,029
(71)
-
563,587
(951)
4
-
-
Trade and other payables
(61,110)
Borrowings
Derivatives
(408,245)
(773)
(1,795)
-
Total increase/(decrease)
(1,795)
104
-
-
-
-
-
-
-
1,424
1,424
-
-
-
-
-
-
137
-
4,567
-
-
-
400
-
-
-
-
-
-
-
-
(1,424)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(325)
-
(637)
637
266
(5,178)
-
5,178
5,104
(1,424)
(325)
71
-
951
-
-
773
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
266
-
-
-
-
-
-
-
-
-
-
-
(317)
2,542
259
(2,426)
1,273
1,273
-
(1,273)
-
(2,542)
-
2,426
1,795
(1,273)
(317)
-
259
-
Annual Report 2019 NOTE 14. Contributed equity
Ordinary shares - fully paid
Treasury shares - fully paid
A. Ordinary shares
Movement during the financial year
Balance as at 1 January
Shares issued for Dividend Reinvestment Plan*
Shares issued for Institutional Placement and Share Purchase Plan
Balance as at 31 December
2019
Number
‘000
2018
Number
‘000
2019
2018
$‘000
$‘000
117,185
110,256
234,513
139,589
(1,225)
(1,261)
(14,687)
(15,449)
115,960
108,995
219,826
124,140
2019
Number
‘000
2018
Number
‘000
2019
2018
$‘000
$‘000
110,256
110,030
139,589
136,858
664
6,265
226
-
9,137
85,787
2,731
-
117,185
110,256
234,513
139,589
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.
* During 2006, the Company activated its Dividend Reinvestment Plan under which equity 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.
B. Treasury shares
Movement during the financial year
Balance as at 1 January
Disposal of shares - vested share rights/options
Disposal of shares - transfer to EESP's members
Acquisition of shares by the Trust
Balance as at 31 December
2019
Number
‘000
2018
Number
‘000
2019
2018
$‘000
$‘000
(1,261)
(192)
(15,449)
12
24
-
(1,225)
75
22
(1,166)
(1,261)
450
312
-
(14,687)
(514)
951
310
(16,196)
(15,449)
Treasury shares are shares in InvoCare Limited that are held by the InvoCare Deferred Employee Share Plan Trust (Trust) for the purpose of issuing
shares under the InvoCare Deferred Employee Share Plan, as set out in Note 20.
105
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – CAPITAL AND RISKS
C. Capital management
The Group’s capital management objectives and strategies seek
to maximise total shareholder returns, while maintaining a capital
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:
structure with acceptable debt and financial risk.
•
Interest cover (EBITDA/Net interest expense) must be greater
The capital management goals can be broadly described as:
than 3.00:1
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
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 2019, basic EPS was 55.8 cents (2018:
37.8 cents). Operating EPS, which excludes restructuring costs,
gains and losses on the disposal or impairment of non-current
assets and on undelivered prepaid contracts and non-controlling
interests and disposal of subsidiaries, was 51.7 cents (2018: 45.2
cents). Importantly, senior management of the Group have long-
• 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 no higher than a range
between 3:1 and 3.5:1 but preferably lower than 3:1 with an
interest cover ratio of greater than 4:1. A liquidity buffer of at least
$25 million should be maintained. 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 in Australia and New Zealand
Managing refinancing risk: By spreading the tenure of the debt
available to the Group minimises its exposure to the risks that all
the debt will become due at a single point of time
term incentives linked to EPS growth, thus aligning employee and
D. Accounting policy for ordinary shares
shareholder interests. Total compound annual shareholder return,
being the sum of cash dividends and share price growth, has
exceeded 17% 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
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in equity as a
deduction, net of tax, from the proceeds.
Maintaining a minimum ordinary dividend payout ratio of at least
NOTE 15. Contingencies
75% of operating earnings after tax. For each of the years since
There were no unrecognised contingent assets as at 31 December
listing, the Group has distributed ordinary dividends in excess
2019 and 31 December 2018.
of this payout ratio. The aggregate of the interim and final 2019
dividends represents a payout ratio of 79% (2018: 82%) of
operating earnings after tax
The Group had the following guarantee which are determined as
contingent liabilities at 31 December 2019:
Bank guarantees given for leased premises of subsidiaries to a
maximum of $3,261,000 (2018: $2,428,000)
Deed of cross guarantee by a number of the entities within the
Group. Refer to Note 22 for further details of the bank guarantee
106
Annual Report 2019
NOTE 16. Commitments
NOTE 17. Events after reporting period
As at reporting date, the Group has the following capital and other
Apart from the dividend declared as disclosed in Note 4, no other
commitments which are not recognised as liabilities.
matter or circumstance has arisen since 31 December 2019 that
2019
$’000
2018
$’000
has significantly affected, or may significantly affect the Group’s
operations, the results of those operations, or the Group’s state of
affairs in future financial years.
A. Capital commitments
Contracted and conditionally contracted
- within one year building extensions and
refurbishments
Leasehold improvements
Plant and equipment purchases
B. Other commitments
Within one year
4,969
14,321
70
434
-
2,580
Documentary letters of credit
35
67
C. Operating lease commitments
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.
From 1 January 2019, the Group has recognised right of use assets
for these leases, except for short term and low value leases, see Note
11. B. Right of use assets for further information.
Contracted non-cancellable operating leases committed at reporting
date but not recognised as liabilities or payable are provided in the
table below.
Within one year
One to five years
Greater than five years
2019
$’000
2018
$’000
1,723
14,946
711
37,989
-
2,597
2,434
55,532
107
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – BUSINESS PORTFOLIO
This section provides information on how the Group structure affects the financial
position and performance of the Group as a whole. The disclosures detail the types of
entities and transactions included in the consolidation and those excluded.
NOTE 18. Business combinations
A. Acquisitions for the year ended 31 December 2019
I. Summary of acquisitions
During the year ended 31 December 2019, the Group acquired three businesses. A summary of the purchase
consideration, goodwill and identifiable assets and liabilities acquired for all the acquisitions are presented below.
The accounting for these acquisitions is provisional as at 31 December 2019.
Subsidiaries/businesses acquired are:
Australian Heritage Funerals in Toowoomba Queensland
Batemans Bay & Moruya District Funerals
Broulee Memorial Gardens in the South Coast of New South Wales
The purchase consideration, fair value of identifiable net assets acquired, and goodwill are disclosed below:
a. Total purchase consideration paid/payable
2019
Cash consideration
Contingent consideration
Deferred consideration
Total purchase consideration
b.
Identifiable assets and liabilities acquired
2019
Cash and cash equivalents
Inventories
Other current assets
Property, plant and equipment
Right of use assets
Prepaid contract funds under management
Identifiable intangibles
Prepaid contract liabilities
Other liabilities
Deferred tax liability
Total net identifiable assets acquired
Goodwill
Australian
Heritage
Funerals
$’000
Batemans Bay &
Moruya District
Funerals
$’000
2,635
300
-
2,935
5,152
-
-
5,152
Australian
Heritage
Funerals
$’000
Batemans Bay &
Moruya District
Funerals
$’000
-
35
-
85
-
640
100
(685)
(9)
(17)
149
2,786
-
-
9
3,056
-
2,653
308
(2,653)
(42)
(544)
2,787
2,365
Broulee
Memorial
Gardens
$’000
4,421
-
500
4,921
Broulee
Memorial
Gardens
$’000
-
-
3
3,687
-
-
221
-
(118)
(931)
2,862
2,059
Total
$’000
12,208
300
500
13,008
Total
$’000
-
35
12
6,828
-
3,293
629
(3,338)
(169)
(1,492)
5,798
7,210
If new information obtained within one year from the acquisition date about facts and circumstances that existed at the acquisition date identifies
adjustments to the above amounts, then the acquisition accounting will be revised.
108
Annual Report 2019 c. Financial performance of acquired businesses
2019
Revenue
Net profit/(loss) after tax
Australian Heritage
Funerals
$’000
Batemans Bay &
Moruya District
Funerals
$’000
Broulee Memorial
Gardens
$’000
845
127
87
(8)
52
21
If all the acquisitions had occurred on 1 January 2019, consolidated revenue and profit after tax for the
year ended 31 December 2019 would have increased by approximately $3,700,000 and $500,000,
respectively.
d. Total purchase consideration – cash flows
2019
Outflow of cash to acquire subsidiary/
businesses, net of cash acquired
Cash consideration
Less: Cash balances acquired
Add: Acquisition related costs*
Add: Payment of deferred consideration
(Archer's Funerals)
Australian Heritage
Funerals
$’000
Batemans Bay &
Moruya District
Funerals
$’000
Broulee Memorial
Gardens
$’000
2,635
5,152
4,421
-
-
-
-
-
-
-
-
-
Net cash outflows – investing activities
2,635
5,152
4,421
* Acquisition-related costs totalling $2,021,000 (as shown on the consolidated statement of comprehensive
income) are not able to be allocated to individual transactions as they include the costs of operating a
Mergers and Acquisitions team in addition to costs arising directly attributable to the acquisitions.
Total
$’000
984
140
Total
$’000
12,208
-
2,021
1,000
15,229
B. Acquisition for the year ended 31 December 2018
values at the acquisition date. The excess of the cost of acquisition
For all eleven acquisitions settled during the prior year ended 31
December 2018, the accounting for all of them has been finalised
during 2019. The only changes to the financial information disclosed
for each acquisition in the 2018 Annual Report relate to the
finalisation of the tax effect accounting for non-depreciable buildings
which resulted in an increase to deferred tax liabilities by $1,550,000
and a corresponding increase in goodwill by $1,550,000. Refer to
2018 Annual Report for further details of those acquisitions.
over the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. 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. Any variations in the initial estimates of
C. Accounting policies for business combination
deferred consideration and the final amount payable are remeasured
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.
through the statement of comprehensive income.
The present value of contingent consideration is classified as a
financial liability and is subsequently remeasured to fair value with
changes in fair value recognised in profit or loss.
The acquisition-related costs are recorded in the statement of
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair
comprehensive income.
109
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – BUSINESS PORTFOLIO
NOTE 19. Interests in subsidiaries
A. Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31
December 2019. 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. The principal activities of all these subsidiaries are funeral
services provider.
Name of subsidiaries
Country of
incorporation
2019
%
2018
%
Ownership interest
InvoCare Australia
Pty Limited
Bledisloe Australia
Pty Ltd
InvoCare New
Zealand Limited
William Morrison
Funeral Director
Singapore Casket
Company (Private)
Limited
Australia
100
100
Australia
100
100
New Zealand
100
100
New Zealand
100
100
E. Accounting policies
I. Subsidiaries
Subsidiaries are all entities (including employee share trust) 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.
II. Consolidation of subsidiaries
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
19.C.).
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 non-wholly
owned subsidiaries are shown separately in the consolidated
statement of comprehensive income and balance sheet, respectively.
Singapore
100
100
III. Employee share trust
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 and
InvoCare Hong Kong Limited. 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 ASIC
Corporations Instrument 2016/785 issued by the Australian
Securities and Investments Commission. For further information refer
to Note 23.
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% (2018: 16.86%). During the year
dividends totalling $121,000 were paid to non-controlling interests
(2018: $79,000).
D. Employee share trust
The Group has formed a trust to administer the InvoCare Exempt
Employee Share Plan and the InvoCare Deferred Employee Share Plan.
The employee share trusts are consolidated, as the substance of the
relationship is that the trusts are controlled by the Group. Shares held
by the InvoCare Deferred Employee Share Plan Trust are disclosed as
treasury shares and deducted from contributed equity.
IV. Foreign currency translation on subsidiaries
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 statement of comprehensive
income are translated at average exchange rates
All resulting exchange differences are recognised in other
comprehensive income
On consolidation, exchange differences arising from the translation
of any net investment in foreign subsidiaries, 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 statement of comprehensive
income, as part of the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of a
foreign subsidiary are treated as assets and liabilities of the foreign
subsidiaries and translated at the closing rate.
110
Annual Report 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
This section provides information on other
disclosures which are required by various
accounting standards and reporting requirements.
NOTE 20. Share-based remuneration
The ultimate objective of share-based remuneration is to align the
participants with delivery of shareholder value. Long term incentives,
with appropriate performance hurdles, align participants to the longer
term strategies, goals and objectives of the Group, and provide
greater incentive for senior employees to have broader involvement
and participation in the Group beyond their immediate role. Equity
participation also assists the Group to attract and retain skilled and
experienced senior employees.
A. Exempt Employee Share Plan
Australian based permanent employees with more than six months
service and a salary less than $180,000 per annum and casual staff
with more than two years service routinely working at least 40% of
a full time equivalent are annually offered the opportunity to acquire
$1,000 worth of InvoCare Limited shares via a salary sacrifice
arrangement as permitted by Australian Taxation Legislation. During
2019, 310 employees accepted the offer and at 31 December
2019 a further $163,000 was remaining to be collected via payroll
deductions.
B. Performance Long-term Incentive Plan
This plan was introduced during 2016. For senior management
team, it replaces the DESP (for the performance based section
as described in section C below). The plan permits settlement in
either equity or cash, at the Board’s discretion. The plan provides
options and performance rights to senior management team and is
heavily weighted towards options, so employees are incentivised to
maximise shareholder value in the longer term.
The obligations under share-based payment arrangements are
settled by either issuing new ordinary shares in the Company or
The key terms and conditions of this plan:
acquiring ordinary shares of the Company on market. Overseas
In the form of options and performance rights to be granted as
participants receive cash equivalent to the value of the equity
approved by the Board
awarded that vests.
Both options and performance rights are granted for nil
Trading in the Company’s ordinary shares awarded under the share-
consideration
based remuneration arrangements is governed by the Company’s
Allocation between options and performance rights is:
Share Trading Policy. The policy restricts employees from trading in
the Company’s shares when they are in a position to be aware, or
are aware, of price sensitive information. The policy also implements
blackout periods which prohibit trading in the Company’s
shares in the lead up to the Group’s half year and annual result
announcements, unless Board express approval is obtained.
The arrangements are governed by the terms of the Company’s three
Plan Rules.
Three plans are currently in operation. They are:
Plan is available to eligible employees, who meet the employment
conditions
• Exempt Employee Share Plan (EESP) – in the form of shares
to the maximum value of $1,000 instead of cash salary
Plans are only available to nominated employees
• Performance Long-term Incentive Plan (PLTIP) – in the forms
of options and performance rights or cash equivalent, they
will vest if the performance and employment conditions are
both met
• Deferred Employee Share Plan (DESP) – in the form of shares
or share appreciation rights (SARs) for overseas employees
which will vested when employment condition is met and
performance conditions are met for senior management
team. The performance based section of this plan is replaced
by PLTIP from 2016 onwards
• For senior management team (including key management
personnel): 75%:25% per the Board’s discretion
• For other participants: 50%:50% based on the contractual
arrangement or election
Upon vesting:
• For Australian participants, each option and performance
right (after paying the options price) entitle the participant to
subscribe for one InvoCare ordinary share
• For overseas participants, each option and performance
right (after paying the options price) entitle the participant to
receive cash equivalent value of one InvoCare ordinary share
at the market value at date of vesting
For 2016 and 2017 grants, each grant is divided in three equal
tranches and the first testing date of the three tranches are; in the
second, third and fourth year anniversary following the grant year
with last retesting in the fifth year anniversary
For grants from 2018 onwards, each grant is divided in two equal
tranches and the first testing date of the two tranches are; in the
third and fourth year anniversary following the grant year with last
retesting in the fourth year anniversary
Unvested options and performance rights can be retested in the
following testing period
111
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
Vesting of options and performance rights is conditional on
meeting a minimum level of return on vested capital (ROIC a)
a
ROIC means return on invested capital and is calculated by
dividing the operating earnings by the average invested capital.
Performance hurdle: compound annual growth (CAGR) target:
Normalised EPS b growth above the base year
Vesting scale:
• For 2016 and 2017 grants: Below 7% CAGR: Nil; At 7%:
30%; Between 7% and 12%: straight line pro rata vesting
between 30%-100%; At or above 12%: 100%
• For grants from 2018 onwards: Below 8% CAGR: Nil; At 8%:
b
Normalised EPS means constant currency EPS adjusted to
exclude the after tax impacts of funds under management
movements, the gain or loss on the sale, disposal or impairment
of non-current assets, non-cash movements in derivative
financial instruments reported in profit before tax and impacts of
changed accounting policies because of changes of accounting
standards from the base year.
30%; Between 8% and 12%: straight line pro rata vesting
The fair value of the options and performance rights at grant date is
between 30%-100%; At or above 12%: 100%
estimated using Black-Scholes Pricing model. The model takes into
Not entitled to any dividends or voting rights during the vesting
period
Upon termination of employment ,all unvested options and
performance rights will be forfeited
Clawback and malus: the Board, at its sole discretion, may
determine that all or part of any vested and unvested options or
performance rights may be forfeited in certain circumstance
account the exercise price, the term of the option, the share price at
grant date and expected price volatility of the underlying share, the
expected dividend yield, the risk-free interest rate for the term of the
option.
The following information related to the options and performance rights issued under the PLTIP.
Grant
date
Expiry
date
Fair value
at grant
date
Balance
at the start
of the year
Number
Granted
Number
Options
1/01/2016
1/01/2026
22/02/2016
22/02/2026
1/01/2017
1/01/2027
22/02/2017
22/02/2027
1/01/2018
1/01/2028
1/01/2019
1/01/2029
Performance
1/01/2016
1/01/2026
rights
1/03/2016
1/03/2021
22/02/2016
22/02/2026
1/01/2017
1/01/2027
22/02/2017
22/02/2027
1/03/2017
1/03/2028
1/01/2018
1/01/2028
1/03/2018
1/03/2028
23/08/2018
23/08/2028
1/01/2019
1/01/2029
$2.40
$2.40
$2.93
$2.93
$2.78
$2.51
$12.08
$12.08
$12.08
$14.06
$14.06
$14.06
$13.91
$13.91
$13.91
$12.96
367,866
20,946
384,779
16,221
605,974
-
-
-
-
-
-
795,028
1,395,786
795,028
36,324
256
2,983
37,321
3,380
331
55,494
335
1,354
-
137,778
-
-
-
-
-
-
-
-
-
70,089
70,089
Balance
at the end
of the year
Number
363,842
20,946
384,779
16,221
605,974
795,028
2,186,790
34,904
256
2,983
37,321
3,380
331
55,494
335
1,354
70,089
206,447
Lapsed
Number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vested
Number
(4,024)
-
-
-
-
-
(4,024)
(1,420)
-
-
-
-
-
-
-
-
-
(1,420)
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2019 and was $14.08.
112
Annual Report 2019 C. Deferred Employee Share Plan
For ongoing employment condition only shares, the vesting date
This plan introduced in 2007 is settled by the transfer of InvoCare
of the three tranches are:
ordinary shares to participants upon vesting. This plan is for
• Tranche 1 –
recognising, rewarding and retaining InvoCare’s key talent in critical
completion of 12 months employment from grant date
roles in middle management level. Eligible employees participate in
• Tranche 2 –
this plan based on nomination only.
completion of 24 months employment from grant date
Prior to 2015, the senior management team participate in this plan is
• Tranche 3 –
also required to meet both performance and employment conditions
completion of 36 months employment from grant date
The required ordinary shares are purchased on market held by the
Deferred Employee Share Plan Trust. In the event that the Trust has
sufficient ordinary shares, due to forfeits. For new grants, the number
of shares to be allocated to eligible employees is based on the
volume weighted average price (VWAP) of InvoCare ordinary shares
For performance and ongoing employment conditions shares,
the shares are divided into three equal tranches. The first testing
date of the three tranches are; in the second, third and fourth
year anniversary following the grant year with last retesting for
unvested right in the fifth year anniversary
traded during the first 10 days of the trading window that immediately
Performance hurdle: compound annual growth (CAGR) target:
follows the announcement of the previous full year results.
Adjusted EPS* growth above the base year
The key terms and conditions of this plan:
In the form of shares to be granted as approved by the Board
Shares are granted for nil consideration
The vesting conditions are:
• To meet both performance and ongoing employment
conditions at date of vesting for prior to 2015, for senior
management team participants prior to 2016
• To meet ongoing employment condition the date of vesting
for all other participants
Each grant of shares is divided in three equal tranches
Vesting scale: Below 7% CAGR: Nil; At 7%: 30%; Between 7%
and 10%: straight line pro rata vesting between 30%-100%; At or
above 10%: 100%
Entitle to receive any dividends that may become payable on the
shares during the vesting period
Entitle to voting rights of the shares during the vesting period
Upon termination of employment ,all unvested shares will be
forfeited
* Adjusted EPS means EPS adjusted to exclude the gain or loss on
the sale, disposal or impairment of non-current assets, reported
in profit before tax and impacts of changed accounting policies
because of changes of accounting standards from the base year.
The following information relates to the shares held in the share plan trust under this plan.
Grant
date
Expiry
date
Fair value
at grant
date
Balance
at the start
of the year
Number
Granted
Number
Vested
Number
Lapsed
Number
Shares -
ongoing
employment
condition
only
1/03/2016
1/03/2031
1/03/2017
1/03/2032
1/03/2018
1/03/2028
1/03/2019
1/03/2029
Shares -
1/01/2015
1/01/2020
performance
and ongoing
employment
conditions
1/01/2015
1/01/2030
1/03/2015
1/03/2030
31/03/2015
31/03/2030
$12.08
$14.06
$13.91
$14.46
$13.74
$13.74
$13.74
$13.74
6,221
11,004
12,801
-
30,026
4,330
8,011
2,669
5,804
20,814
-
-
-
29,617
29,617
-
-
-
-
-
(3,110)
(3,670)
-
-
(6,780)
-
-
(2,669)
-
(2,669)
-
-
-
-
-
-
-
-
-
-
Balance
at the end
of the year
Number
3,111
7,334
12,801
29,617
52,863
4,330
8,011
-
5,804
18,145
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2019 and was $14.08.
113
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
NOTE 21. RELATED PARTY TRANSACTIONS
NOTE 22. PARENT ENTITY INFORMATION
A. Key management personnel compensation
A. Summary financial information
2019
$
2018
$
The financial information provided in the table below is only for
InvoCare Limited, the parent entity of the Group.
Short-term employee benefits
3,316,765
3,340,522
Termination benefits
Post-employment benefits
Other long-term benefits
Share-based payments
-
160,227
29,108
-
166,601
29,624
Statement of comprehensive income
2019
$’000
2018
$’000
(455,602)
182,175
Profit after income tax
3,050,498
3,718,922
Total comprehensive income
66,079
65,024
56,414
52,647
B. Parent entity
The ultimate parent entity within and for the Group is InvoCare
Limited.
C. Transactions with subsidiaries
All transactions that have occurred among the subsidiaries within the
Group have been eliminated for consolidation purposes.
D. Transactions with other related parties
The contributions to superannuation funds on behalf of employees
are disclosed in Note 5.E.
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Equity holders’ equity
Contributed equity
Share-based payments reserve
Cash flow hedges reserve
Foreign currency
translation reserve
Retained profits
Total equity holders’ equity
2,015
-
653,989
578,858
2,353
1,338
256,760
302,733
219,826
124,140
2,055
(1,976)
1,080
176,244
397,229
246
(921)
1,080
151,580
276,125
B. Guarantees entered into by the parent entity
The parent entity provided the following guarantees during the year
ended 31 December 2019 and 31 December 2018:
Bank guarantees given for leased premises of subsidiaries to a
maximum of $3,261,000 (2018: $2,428,000)
Under the terms of a General Security Trust Deed executed on
16 February 2018 the parent entity, InvoCare Limited, and its
material wholly-owned subsidiaries (the Guarantors) have
individually guaranteed to the financiers the due and punctual
payment in full of any liabilities or obligations provided under
the terms of the Syndicated Facility Agreement and the Note
Purchase Agreement both dated 16 February 2018. 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
114
Annual Report 2019
C. Contingent liabilities
NOTE 23. Deed of cross guarantee
Other than the guarantees as disclosed in section B above, there
InvoCare Limited, InvoCare Australia Pty Limited and InvoCare
were no unrecognised contingent liabilities as at 31 December 2019
(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 subsidiaries
have been relieved from the requirement to prepare a Financial
Report and Directors’ Report under ASIC Corporations Instrument
2016/785 issued by the Australian Securities & Investments
Commission.
The above companies represent a “Closed Group” for the purposes
of the ASIC Corporations Instrument, 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 statement of comprehensive
income, summary of movements in consolidated retained profits and
consolidated balance sheet for the year ended 31 December 2019 of
the Closed Group.
and 31 December 2018.
D. Capital commitment – property, plant and equipment
The parent entity has no capital commitments for the acquisition of
property, plant or equipment at 31 December 2019 and
31 December 2018.
E. Tax consolidation group
InvoCare Limited (the head entity) and its wholly-owned Australian
subsidiaries 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 subsidiaries in the case of a default by the
head entity.
This agreement was updated on 5 June 2007 and provides that
the wholly-owned subsidiaries 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.
F. Accounting policy applicable to parent entity
The accounting policies of the parent entity are consistent with those
of the Group, except for the following:
Investments in subsidiaries are accounted for at cost, less any
impairment, in the parent entity
Dividends received from subsidiaries are recognised as other
income by the parent entity and its receipt may be an indicator of
an impairment of the investment
115
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
A. Consolidated statement of comprehensive income of the Closed Group
Revenue from continuing operations
Finished goods and consumables used
Employee benefits expense
Advertising and public relations expenses
Occupancy and facilities expenses
Motor vehicle expenses
Technology
Other expenses
Depreciation, impairment and amortisation expenses
Finance costs
Interest income
Net gain/(loss) on undelivered prepaid contracts
Acquisition related costs
Inter-segment revenue
Net gain/(loss) on disposal of non-current assets
Profit before income tax
Income tax expense
Profit after income tax for the year
Other comprehensive income
Items that may be reclassified to profit and loss
Changes in 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, net of tax
B. Summary of movements in consolidated retained profits of the Closed Group
Retained profits as at 1 January
Profit after income tax for the year
Dividends paid
Retained profits as at 31 December
2019
$’000
400,261
(95,930)
(132,503)
(9,106)
(14,741)
(7,066)
(10,795)
(11,087)
119,033
(29,176)
(17,959)
1,092
45,550
(1,984)
1,810
2,189
120,555
(29,827)
90,728
(1,055)
(1,248)
(2,303)
88,425
2019
$’000
144,401
90,728
(41,928)
193,201
2018
$’000
387,932
(97,826)
(132,071)
(9,180)
(24,213)
(7,242)
(9,424)
(12,226)
95,750
(20,310)
(13,651)
1,258
(4,992)
(2,942)
2,789
260
58,162
(14,000)
44,162
(36)
(2,856)
(2,892)
41,270
2018
$’000
147,020
44,162
(46,781)
144,401
116
Annual Report 2019
C. Consolidated balance sheet of the Closed Group
Current
assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Prepaid contract funds under management
Asset held for sale
Deferred selling costs
Total current assets
Non-current
Other receivables
assets
Shares in subsidiaries
Property, plant and equipment
Right of use asset
Prepaid contract funds under management
Intangible assets
Deferred selling costs
Total non-current assets
Total assets
Current
liabilities
Trade and other payables
Lease liabilities
Non-current
liabilities
Derivative financial instruments
Current tax liabilities
Prepaid contract liabilities
Deferred revenue
Provision for employee benefits
Total current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments
Deferred tax liabilities
Prepaid contract liabilities
Deferred revenue
Provision for employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
2019
$’000
7,920
35,172
7,576
47,137
57,551
3,981
4,481
163,818
62,132
246,778
353,630
121,784
561,837
43,682
14,201
1,404,044
1,567,862
52,865
11,418
735
-
48,715
34,909
13,626
162,268
800
295,228
114,632
2,088
35,766
476,498
69,579
5,528
2018
$’000
6,937
54,016
6,943
41,889
45,986
3,324
3,102
162,197
13,697
233,139
329,322
-
517,601
34,648
17,849
1,146,256
1,308,453
50,641
-
101
318
41,242
23,340
13,192
128,834
-
337,084
-
1,216
23,179
468,616
83,204
4,837
1,000,119
1,162,387
918,136
1,046,970
405,475
219,826
(7,552)
193,201
405,475
261,483
124,140
(7,058)
144,401
261,483
117
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
NOTE 24. Economic dependence
NOTE 25. Remuneration of auditors
The parent entity depends on dividend and interest income from, and
During the year the following fees were paid or payable for services
management fees charged to, its subsidiaries to source the payment
provided by the auditor of the parent entity, InvoCare Limited, its
of future dividends and fund its operating costs and debt service
related practices and non-related audit firms.
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 $96,741,000 as
outlined in Note 13.E., or by on-demand repayment of intercompany
advances.
A. Audit services
PricewaterhouseCoopers
– Australian firm
2019
$
2018
$
Audit and review of financial reports
450,621
416,000
PricewaterhouseCoopers
– non-Australian firm
Audit and review of financial reports
24,788
25,735
Non-PricewaterhouseCoopers
– Singaporean firm
Audit and review of financial reports
32,743
29,940
Total remuneration for audit services
508,152
471,675
B. Non-audit services
PricewaterhouseCoopers
– Australian firm
Assurance services
Taxation services
Other Services
PricewaterhouseCoopers
– non-Australian firm
Taxation services
Other services
Non-PricewaterhouseCoopers
– Singaporean firm
Other services
Total remuneration for non-audit
services
2019
$
2018
$
29,050
25,500
58,500
125,229
7,250
67,692
35,687
131,847
-
2,858
12,389
14,210
142,876
367,336
It is the Company’s policy to employ PricewaterhouseCoopers
on assignments additional to their statutory audit duties where
PricewaterhouseCoopers’ expertise and experience with the Group
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.
118
Annual Report 2019 NOTE 26. Other accounting policies
III. Trade and other payables
A. New or amended accounting standards and
interpretations adopted
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
The Group has adopted all of the new or amended Accounting
are usually paid within 60 days of recognition.
Standards and Interpretations issued by the Australian Accounting
Standards Board (AASB) that are mandatory for the current reporting
IV. Borrowings
period.
AASB 16 Leases is the most relevant to the Group, the financial
impact and additional disclosures required are provided in Note 11.B.
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 statement of
comprehensive income over the period of the borrowings using the
B. Other accounting policies applicable
effective interest rate method.
I. Foreign currency translation
a. 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.
b. 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
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
V. Derivative financial instruments
The Group uses derivative financial instruments, 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
re-measured 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
qualifying net investment hedges or are attributable to part of the net
Hedges of a net investment in a foreign operation
investment in a foreign operation.
II. Inventories
Inventories comprising of funeral merchandise and memorialisation
property items in the Cemeteries and Crematoria business, primarily
held for the purpose of trading, are sold, consumed or realised as
part of the normal operating cycle even when they are not expected
to be realised within twelve months, and are classified as current.
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.
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 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
twelve months; it is classified as a current asset or liability when the
remaining maturity of the hedged item is less than twelve months.
119
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – OTHER STATUTORY DISCLOSURES
Hedges that meet the criteria for hedge accounting are accounted for
b. Long service leave
as follows.
a. 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, 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 statement of comprehensive income.
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 statement of comprehensive income.
b. 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.
VI. Employee benefits
a. Wages and salaries, annual leave and sick 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.
c. 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
Past practices give clear evidence of a constructive obligation
VII. New Accounting Standards and Interpretations not yet
mandatory or early adopted
Australian Accounting Standards and Interpretations that have
recently been issued or amended but are not yet mandatory, have
not been early adopted by the Group for the annual reporting period
ended 31 December 2019. The Group’s assessment of the impact of
these new or amended Accounting Standards and Interpretations,
most relevant to the Group, are set out below.
New Conceptual Framework for Financial Reporting
A revised Conceptual Framework for Financial Reporting has
been issued by the AASB and is applicable to InvoCare Limited for
annual reporting periods beginning on or after 1 January 2020. The
application of new definition and recognition criteria as well as new
guidance on measurement will result in amendments to several
Liabilities for wages and salaries, including non-monetary benefits
accounting standards. The issue of AASB 2019-1 Amendments to
and annual leave expected to be settled within 12-months of the
Australian Accounting Standards – References to the Conceptual
reporting date are recognised in other payables and provision for
Framework, is also applicable from 1 January 2020, includes such
employee benefits in respect of employees’ services up to the
amendments. The Group refers to the Framework as a source of
reporting date and are measured at the amounts expected to be paid
guidance in developing and applying an accounting policy if there is
when the liabilities are settled, including appropriate on-costs.
no accounting standard or interpretation dealing with an accounting
issue. Where the Group has relied on the conceptual framework
in determining its accounting policies for transactions, events
or conditions that are not otherwise dealt with under Australian
Accounting Standards, the Group may need to revisit such policies.
The Group will apply the revised conceptual framework from
1 January 2020 and is yet to assess its impact.
120
Annual Report 2019 INVOCARE LIMITED AND CONTROLLED ENTITIES – DIRECTORS’ DECLARATION
In the directors’ opinion:
a. The financial statements and Notes 1 to 26 are in accordance
with the Corporations Act 2001, including:
i. Complying with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting
requirements
ii. Giving a true and fair view of the Company’s and consolidated
entity’s financial position as at 31 December 2019 and of their
performance for the financial year ended on that date
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
c.
At the date of this declaration, there are reasonable grounds
to believe that the members of the Extended Closed Group
identified in Note 23 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 23
Basis of preparation on page 72 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.
Bart Vogel
Director
Sydney
26 February 2020
Martin Earp
Director
121
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234
INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report
To the members of InvoCare Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of InvoCare Limited (the Company) and its controlled entities
(together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 31 December 2019 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the consolidated balance sheet as at 31 December 2019
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
122
Annual Report 2019 Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
(cid:120)
For the purpose of our audit
we used overall Group
materiality of $6.0 million,
which represents
approximately 5% of the
Group’s profit before tax
adjusted for impairment.
(cid:120) Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
(cid:120) We applied this threshold,
(cid:120)
The Group comprises
businesses operating
predominately in Australia,
New Zealand and Singapore
with the most financially
significant operations being
Australia.
(cid:120) We conducted an audit of the
financial information of the
Australian operation given its
financial significance to the
Group.
(cid:120) We performed specific risk-
focused audit procedures over
those operations.
together with qualitative
considerations, to determine
the scope of our audit and the
nature, timing and extent of
our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
(cid:120) We chose Group profit before
tax because, in our view, it is
the benchmark against which
the performance of the Group
is most commonly measured.
We adjusted for impairment as
it is an infrequently occurring
item impacting the statement
of comprehensive income.
(cid:120) We selected 5% which is within
the range of acceptable
quantitative profit related
materiality thresholds.
(cid:120) Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
and Risk Committee:
(cid:16) Estimated recoverable
amount of goodwill for the
New Zealand operation
(cid:16) Accounting for prepaid
funeral contracts
(cid:120)
These are further described in
the Key audit matters section of
our report.
123
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 INDEPENDENT AUDITOR’S REPORT
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Estimated recoverable amount of goodwill for
the New Zealand operation
Refer to note 12.
Under Australian Accounting Standards, the Group is
required to test goodwill and indefinite lived intangible
assets annually for impairment, irrespective of whether
there are indications of impairment. This assessment is
inherently complex and judgemental as the Group is
required to:
(cid:120)
(cid:120)
forecast the operational cash flows of the cash
generating units of the Group
determine discount rates and terminal value
growth rates
which are used in the discounted cash flow model used
to assess impairment (the model).
The Group recognised a $24.4 million goodwill
impairment charge relating to New Zealand operation
in the year ended 31 December 2019 .
We considered this a key audit matter because
significant judgement is required by the Group in
estimating the recoverable amount of goodwill relating
to New Zealand operation.
We focused our efforts on developing an understanding
and testing the overall calculation and methodology of
the Group’s impairment assessment, including
identification of the cash generating unit for the
purpose of impairment testing, and the attribution of
net assets, revenues and costs to the New Zealand cash
generating unit.
In obtaining sufficient audit evidence, our procedures
included, amongst others:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
comparing the cash flow forecasts to the Group’s
approved long term plan
assessing the Group’s historical ability to forecast
future cash flows by comparing budgets with
reported actual results for the past year
testing the mathematical calculations within the
models
comparing the terminal value growth rate applied
in the model to external information sources
performing sensitivity analysis over the discount
rate and terminal value growth rate used in the
model
assessing the related financial statement
disclosures for consistency with Australian
Accounting Standards requirements.
Accounting for prepaid funeral contracts
Refer to note 10.
For the asset value invested, we performed the
following procedures amongst others:
The Group enters into prepaid funeral contracts
whereby they agree to deliver a specified funeral,
cremation or burial service at the time of need. The
beneficiary invests the current price of the service to be
delivered with a financial institution and conditionally
assigns the benefit to the Group. For each prepaid
funeral contract, the Group records an asset for the
value of the funds invested (funds under management)
and a liability to deliver the services.
(cid:120)
(cid:120)
agreed a sample of balances recorded by the Group
to statements and confirmations received from
independent custodians
tested the valuation of the invested funds under
management by comparing a sample of underlying
investments to relevant market pricing data and
custodian confirmations.
124
Annual Report 2019 Key audit matter
How our audit addressed the key audit matter
As at 31 December 2019, the Group had recorded
$619.4 million of funds under management and $525.4
million of contract liabilities.
We considered prepaid funeral contracts to be a key
audit matter due to the:
(cid:120)
(cid:120)
size of the asset and liability balances
significant financing component within the
contracts, as a result of significant time differences
that may arise between receipt of cash from
customers and the subsequent recognition of
revenue on the delivery of services (redemption
date).
For the liability recognised, we performed the following
procedures amongst others:
(cid:120)
(cid:120)
(cid:120)
tested the mathematical accuracy of the significant
financing component within the prepaid funeral
contracts
compared the date and value of a sample of new
contracts to that recorded by the Group
selected a sample of redeemed contracts
(recognised revenue) to assess whether the Group’s
performance obligation under the prepaid funeral
contracts had been satisfied. This included
comparing the relevant original contracts to
service delivery documents.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 31 December 2019, but does not include
the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
125
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATION1234 INDEPENDENT AUDITOR’S REPORT
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 37 to 57 of the directors’ report for the
year ended 31 December 2019.
In our opinion, the remuneration report of InvoCare Limited for the year ended 31 December 2019
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
MW Chiang
Partner
Sydney
26 February 2020
126
Annual Report 2019 SHAREHOLDER INFORMATION
As at 12 March 2020
The following information is presented in compliance with ASX Listing Rules 4.10 (as relevant). The information is current as at 12 March 2020.
1. Securities on issue
Shares and options as at 12 March 2020
Ordinary shares on issue
Unquoted options on issue
Number
117,184,787
2,186,790
2. Distribution of quoted ordinary shares and small holdings
Range
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Unmarketable Parcels
Fully paid ordinary shares
%
Number of holders
61,746,872
15,893,596
10,943,831
23,324,997
5,275,491
117,184,787
8,728
52.70%
13.56%
9.34%
19.90%
4.50%
100.00%
40
741
1,528
10,044
11,684
24,037
496
3. Top 20 registered shareholders
Name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
ARGO INVESTMENTS LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMINEES PTY LTD
BKI INVESTMENT COMPANY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
AUSTRALIAN UNITED INVESTMENT COMPANY LIMITED
SOLIUM NOMINEES (AUSTRALIA) PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
NETWEALTH INVESTMENTS LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
MIRRABOOKA INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
SCJ PTY LTD
WARBONT NOMINEES PTY LTD
Number
of shares
Percentage
%
21,789,500
18.59%
8,653,417
4,492,680
2,816,031
2,315,252
2,119,642
1,950,914
1,795,017
1,638,974
1,491,453
1,200,000
1,082,265
1,077,227
971,535
963,751
775,992
650,000
603,586
500,000
428,952
7.38%
3.83%
2.40%
1.98%
1.81%
1.66%
1.53%
1.40%
1.27%
1.02%
0.92%
0.92%
0.83%
0.82%
0.66%
0.55%
0.52%
0.43%
0.37%
Total for top 20
57,316,188
48.89%
127
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTSFINANCIAL REPORTOTHER INFORMATION1234 SHAREHOLDER INFORMATION
As at 12 March 2020
4. Substantial shareholders
The share balances in this table are extracted from substantial shareholder notices received by the Company.
Shareholders
Number of shares
Voting power
Date of last notice
Vanguard Group (The Vanguard Group, Inc.
and some of its controlled entities)
5,854,408
5.01%
5 September 2019
5. Voting rights
Fully paid ordinary shares
On a show of hands every member present at a meeting in person or by proxy shall have one vote
and upon a poll shall have one vote for each share represented.
Unquoted options
No voting rights apply unless and until the unquoted options are converted to fully paid ordinary shares.
128
Annual Report 2019
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 Financial 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 inflows
Condolence Lounge
A facility for family and friends to gather at after the funeral service – usually offering a catering service
Constitution
Crematorium
Crypts
DRP
EBIT
EBITDA
EPS
The Constitution of the Company
A place for cremations and memorialisation
Above ground burial facilities
Dividend Reinvestment Plan
Earnings before interest and tax
Earnings before interest, tax, depreciation and amortisation
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
Non-operating earnings before tax Earnings from the net gain/(loss) on prepaid contracts, asset sales gains/(losses), commissions
received, less costs associated with the administration prepaid contracts, share of profits attributable
to non-controlling interests and any other unusual items as disclosed in the relevant reconciliations
Operating earnings
Earnings before the net/gain(loss) on prepaid contracts, asset sales gains/(losses), commissions
received, costs associated with the administration of prepaid contracts, share of profits attributable to
non-controlling interests and any other unusual items as disclosed in the relevant reconciliations
Operating sales revenue
Sales revenue from external customers adjusted to remove the impact of prepaid contract redemptions
PCP
Prior comparative period
Prepaid cemetery and
crematorium services
Prepaid funeral fund
Underlying earnings
Volume
VWAP
Cemetery and crematorium services that have been arranged and paid for in advance
The fund where prepaid funeral monies are held in trust until the funeral service is provided
Operating earnings exclude the financial impact of AASB 15, being the unwind of deferred revenue on
the prepaid contract at the time of transition and AASB16 (2019 only)
A term that refers to the number of funeral services, burials and cremations performed
Volume Weighted Average Price a trading benchmark used to determine the face value of an InvoCare
share. VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by
number of shares traded) and then dividing by the total shares traded for the day
129
PERFORMANCE HIGHLIGHTSDIRECTORS’ REPORTSFINANCIAL REPORTOTHER INFORMATION1234 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
HSBC Bank Australia Limited
Tower 1 - International Towers Sydney
100 Barangaroo Avenue
Sydney NSW 2000
The Hongkong and
Shanghai Banking Corporation
1 Queen Street
Auckland New Zealand
MetLife Investment Advisors, LLC
One MetLife Way
Whippany, New Jersey
USA 07981
Mizuho Bank, Ltd.
60 Margaret Street
Sydney NSW 2000
Sumitomo Mitsui Banking Corporation
2 Chifley Square
Sydney NSW 2000
Westpac Banking Corporation
275 Kent Street
Sydney NSW 2000
Westpac New Zealand Limited
16 Takutai Square
Auckland New Zealand
CORPORATE DIRECTORY
InvoCare
Limited
Directors
Company
Secretary
Registered
Office
Share
Registry
Stock
Exchange
Listing
ABN 42 096 437 393
Financiers
Bart Vogel Chairman
Martin Earp Managing Director
and Chief Executive Officer
Richard Davis Non-Executive Director
Jackie McArthur Non-Executive Director
Megan Quinn Non-Executive Director
Keith Skinner Non-Executive Director
Robyn Stubbs Non-Executive Director
Heidi Aldred
Level 2, 40 Miller Street
North Sydney NSW 2060
Telephone: 02 9978 5200
Facsimile: 02 9978 5299
www.invocare.com.au
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Toll free: 1300 854 911
Facsimile: 02 9287 0303
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
Solicitors
One International Towers Sydney
Watermans Quay, Barangaroo
Sydney NSW 2000
Addisons Lawyers
Level 12, 60 Carrington Street
Sydney NSW 2000
Anthony Harper Lawyers
Level 6, Chorus House
66 Wyndham Street
Auckland New Zealand
130
Annual Report 2019 Lake Macquarie Memorial Park, NSW
invocare.com.au