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Resilient operating result
in a challenging year
,,
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.
,,
About this report
InvoCare’s 2020 Annual Report is our primary statutory and regulatory
reporting disclosure. It comprises information about our activities, strategy,
our financial and non-financial performance, risk management, remuneration
and our financial statements. The financial statements are structured to
provide prominence to the disclosures that are considered most relevant to
the user’s understanding of the operations, results and financial position.
Corporate reporting suite
InvoCare’s corporate reporting suite brings together the Group’s financial,
non-financial, risk and sustainability performance for the financial year
ended 31 December 2020, including:
Investor
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www.invocare.com.au/investor-relations/
Resilient operating resultin a challenging year2020FullYearResults24 February 2021InvoCare FY20 Sustainability ReportNew dimension to sustainability Contents
InvoCare Limited
ABN 42 096 437 393
Section 1
Performance
Overview
Performance highlights
Chairman’s message
Five year financials
Chief Executive Officer’s message
Executive Leadership Team
2020 Sustainability highlights
Managing the impact of COVID-19
Our community
Section 2
Directors’ Report
Operating and financial review
Remuneration report – audited
Other statutory matters
Auditor’s Independence declaration
Section 3
Financial Report
Financial Report Introduction
Consolidated financial statements
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
Section 4
Other Information
Shareholders information
Glossary
Corporate directory
InvoCare Annual Report 2020 | 3
4
6
9
10
12
13
14
16
21
36
60
66
68
69
75
125
126
132
134
135
P
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t
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o
n
1
2
3
4
Performance highlights
Remained focused on our mission and values of care and service
Financial a
summary
Operating
revenue b
$476.2m
↓ 4.7%
Operating
EBITDA
$102.6m
↓ 29%
Reported loss
($9.2m)
↓ 114%
Operating EPS
20.4¢
↓ 61%
Capital
management
Cash flow
conversion
107%
↑ 25 ppts
Leverage
ratio
1.3x
↓ 1.1x
ROCE
8.6%
↓ 8.5 ppts
Full year
dividend
12.5¢
↓ 70%
Operating
EBITDA
business
lines
Operational
and
sustainability
metrics
Funeral
services
$80.1m
↓ 26%
Memorial
Parks
$57.6m
↓ 8.7%
Pet
cremations
$0.5m
↑ 141%
Funeral case
volumes
44,784
↓ 3.0%
Funeral case
average c
$7,858
↓ 4.5%
Memorialisation
revenue
+4.4%
↑ on PCP
NPS
+79
↑ 0.5
LTIFR
12.5
↓ 1.6
N.B Variations noted above are versus the prior corresponding period
a For reconciliation of operating to statutory results, refer to page 33
b Includes operating sales revenue and other revenue
c Gross funeral case average, including disbursements
InvoCare Annual Report 2020 | 4
Operating sales revenue
$m
Operating EBITDA
$m
2016
462.5
2017
2018
2019
2020
470.9
477.3
494.1
2016
2017
2018
2019
115.3
124.3
119.0
144.4
470.2
2020
102.6
450
460
470
480
490
500
90
100
110
120
130
140
150
Operating earnings after tax
$m
(Loss)/profit after tax attributable to
members $m
2016
2017
2018
2019
2020
27.5
57.4
63.5
49.5
59.2
2016
2017
2018
2019
2020
(9.2)
70.9
97.4
41.2
63.8
20
30
40
50
60
70
(10)
10
30
50
70
90
Operating earnings per share
¢ per share
Ordinary dividend (full year)
¢ per share
2016
2017
2018
2019
2020
20.4
52.4
57.9
45.2
51.7
2016
2017
2018
2019
2020
12.5
42.5
46.0
37.0
41.0
10
20
30
40
50
60
10
20
30
40
50
InvoCare Annual Report 2020 | 5
Performance Review12Directors’ Report3Financial Report4Other Information Chairman’s message
Dear Shareholder,
On behalf of the Board, we would like to thank you for your support
in what has been a year of unprecedented disruption.
The Board would also like to extend their thanks and gratitude to
our employees. In 2020, our teams across our Funeral Services,
Memorial Parks and Pet Cremations businesses, as well as our
support office teams, stepped up to the significant challenge of
the COVID-19 pandemic (COVID-19). They have committed to
our purpose, serving families when they need us most, focusing
on high standards of safety and service. They showed resilience,
agility, and a readiness to do things differently to support families
across Australia, New Zealand and Singapore.
In 2020, our client families showed their satisfaction with these
efforts with a very strong Net Promoter Score of +79, an
exceptional result in difficult circumstances. We are proud and
so grateful for everything our teams have achieved in such a
demanding year.
2020 financial results
InvoCare reported statutory revenue of $477.7 million for the
year, a decrease of 4.5% on the prior corresponding period
(PCP). COVID-19 and the associated government restrictions
had a significant impact on both InvoCare’s ability to deliver
full-service funeral arrangements and on the mortality rate in
the countries in which it operates.
The statutory net loss after tax attributed to shareholders
was $9.2 million for the year. As disclosed to the market
on 17 February 2021, this 2020 full year result includes the
impact of net $26.5 million (pre-tax) of significant operating
and non-operating items.
The Group delivered an operating earnings per share
(EPS) of 20.4 cents, 61% below the PCP, driven by the
decline in operating earnings in the year and the dilutive
impact of the increased number of shares on issue
following the successful equity raising completed in
April and May 2020.
the Board remains confident
about the long-term potential of
the business, with future growth
supported by both population growth
,,
and ageing trends in its markets,,
InvoCare Annual Report 2020 | 6
Impact of COVID-19
Embracing sustainability
The last year has clearly been challenging across the world and
As Australia, Singapore and New Zealand’s leading operator in the
the ongoing impact of COVID-19 is the backdrop to our financial
funeral, cemetery and crematoria sector, InvoCare has a responsibility
performance. While the strategies employed by various governments
to both our shareholders and the communities we serve to lead the way
in our part of the world to control the spread of COVID-19 have been
in defining standards of excellence in the sustainability of our industry’s
successful, they have led to softer market conditions in the Funeral
environmental, social and governance (ESG) practices.
Services sector in particular.
2020 was the second year in our initial three-year plan, with a focus
In 2020 our people were truly able to live our mission to support
on developing the operational and reporting model ideal for our
families at the most pivotal time of their lives. They have done so
core sectors, and building on established and globally recognised
by being compassionate, exceeding expectations and delivering
frameworks such as the GRI Index. Further information is provided in
outstanding service and by setting the highest standards in safety
our separate Sustainability Report issued on 31 March 2021, which is
and business practice. They were able to support families through
available on our website.
situations where they either couldn’t hold a funeral or were not able to
attend in person because of government restrictions.
Despite the disrupted year hampering our ability to pursue some of
their intended sustainability initiatives, the team’s response has been
We implemented a detailed and comprehensive COVID-19 response
to increase the focus on areas such as the health and safety of our
plan. This involved additional measures in each business to protect
employees and client families and expanding digital accessibility to
the health and safety of our teams and customers, while supporting
funeral events, which required the accelerated deployment of digital
government efforts to limit the spread of the virus. These important
capabilities at our funeral and memorial park locations.
measures resulted in additional costs. I should note that our
businesses in Australia did not benefit from JobKeeper assistance.
There was also a measured approach to cost control in order to
Leadership changes
maintain uncompromised service levels and this was a deliberate
The InvoCare Board established and executed a leadership transition
decision of the Board and Management given the important role our
plan during the year. Adrian Gratwicke was appointed as InvoCare’s
teams play in the community and in helping our client families farewell
new Chief Financial Officer (CFO) from 3 August 2020. Adrian is
their loved ones.
The impacts from COVID-19 have mostly been experienced in our
core Funeral Services businesses where restrictions on gathering
an experienced public company CFO, having worked across a
broad range of sectors stretching into Oil & Gas, Mining, FMCG and
Agriservices.
limits impacted our ability to provide our full range of services. Rules
Additionally, as announced on 19 November 2020, Olivier Chretien
differed between geographies and states and changed multiple times
joined the Company on 1 January 2021 as InvoCare’s new Managing
Director and Chief Executive Officer (CEO). Olivier has a proven
record of value creation, strategic design and execution, and he has
pleasingly hit the ground running. Along with his refreshed Executive
Leadership Team (see page 12), he has been working on the details of
the InvoCare strategy for the next five years.
over the year.
A common trend seen across all markets has been an increase
in direct cremations during the height of lockdowns as family and
friends were unable to attend a ceremony in person. However, we
have observed how important the ‘gathering’ element of a funeral
arrangement to celebrate a loved one’s life was to client families. Even
though the rise in digital solutions assisted families during lockdown,
we have seen a progressive return to traditional arrangements when
restrictions have lifted. Additionally, the breadth of our brand portfolio,
particularly in Australia, has helped the business manage the shift to
direct cremation and back to traditional services. Either way, digital
solutions will continue to be needed and we have ensured our funeral
homes and memorial park chapels have the appropriate technology.
InvoCare Annual Report 2020 | 7
Performance Review12Directors’ Report3Financial Report4Other Information Chairman’s message
continued
Remuneration activities
Capital management
Robyn Stubbs resigned as an independent Non-Executive Director
In response to the uncertain impact of COVID-19 and to ensure
effective 1 February 2021. Robyn has been a valued member of the
the continued positive momentum of growth initiatives through
Board since her appointment in 2017, especially in her role as Chair
an environment of temporary restrictions on the funeral industry,
of the People, Culture & Remuneration Committee (Committee).
InvoCare successfully completed a $274 million capital raise in April
On behalf of the Board we thank her for her commitment and
and May 2020 via an institutional placement and share purchase plan.
contributions to the business.
We are delighted with the strong support shown by participants in the
Our 2020 Remuneration Report is contained in this Annual Report.
raise, which positioned the Group to maintain momentum to deliver
Led by Robyn, the main activities of the Committee during the year
long-term value for its shareholders and I thank our shareholders on
were highly influenced by COVID-19, which provided a back drop for
behalf of the Board for their continued support.
its assessments of both the STI and LTI outcomes for the year but also
in assessments of base salary and director fees. Key remuneration
outcomes in the year included:
• • The financial performance in 2020 did not meet the agreed financial
targets, and as a result the full financial portion (50%) of STI has
been forfeited by the Executive Key Management Personnel (KMP).
The average STI outcome for 2020 for Executive KMP was 27%
based on their balanced scorecard
• • The Return on Invested Capital (ROIC) gateway was not met for
the 2017 and 2018 LTI grants that were tested in the year. None of
these awards therefore vested in 2020 in accordance with the plan
rules
The net proceeds of the capital raise have been used to reduce
net debt, increase liquidity, and provide balance sheet flexibility for
acquisitions and ongoing capital investment. Management also
successfully re-negotiated an extension of the undrawn $200 million
debt tranche due to mature in February 2021. This funding line,
along with the additional capital is expected to provide InvoCare with
increased flexibility to further strengthen its balance sheet, accelerate
the roll out of Enhance and Growth projects in the NBO program, and
in taking advantage of new growth opportunities that may arise.
Notwithstanding the earnings reduction, the Group was able to
maintain strong cash conversion and that in turn has enabled the
Board to determine a final fully franked dividend of 7 cents per share,
• • From 1 August to 30 November 2020, the Non-Executive Directors
which brings the full year dividend to 12.5 cents per share. The
took a 25% base fee reduction (COVID-19 related)
reduction in dividend payout ratio to 61% reflects an appropriately
The Committee also undertook a review of the LTI arrangements in
place and a new LTI plan was introduced during the year for the 2020
grant with a particular focus on its ability to attract and retain senior
management to ensure they are focused on delivering sustainable
long term growth. Key features of the 2020 LTI plan include:
• • Introduction of two performance hurdle measures weighted 50%
on compound annual growth of EPS and 50% on average ROIC
over the three-year performance period with no ROIC gateway and
the testing point for vesting being at the end of this performance
period only
• • Participants are able to choose a mix of options and performance
rights based on their personal risk profile
• • Vested options or performance rights are subject to a further
12- month restriction period
• • The performance rights are entitled to dividends, if determined,
prudent approach to capital management given ongoing short-term
outlook uncertainty and another year of heightened capital spend as
the Group seeks to complement its commitment to the NBO program
of works with other growth initiatives.
Outlook
Short-term market conditions are still being impacted by COVID-19
restrictions and the timing and extent of the unwind of related
impacts remains hard to predict. Notwithstanding this, the Board
remains confident about the long-term potential of the business,
with future growth supported by both population growth and
ageing trends in its markets. The refreshed Executive Leadership
Team and the appointment of Olivier as CEO sets the Company up
for its next phase in meeting the evolving needs of client families.
paid in the form of shares but no voting rights attach to the options
Bart Vogel Chairman
or performance rights awarded
The Board would also like to extend their thanks and gratitude to our
employees... They have committed to our purpose, serving families when they
need us most, focusing on high standards of safety and service. They showed
,,
resilience, agility, and a readiness to do things differently to support families,,
InvoCare Annual Report 2020 | 8
Five year financials
$’000
Operating sales revenue a
Operating EBITDA
Operating EBITDA margin
Operating earnings after tax b
Operating earnings per share (cents)
(Loss)/profit after tax attributable to members
Earnings per share (cents)
Dividend paid in respect of the financial year (cents)
2020
2019
2018
2017
2016
470,232
494,112
477,337
470,852
462,476
102,565
144,433
118,998
124,316
115,344
22%
29%
25%
26%
25%
27,478
59,202
49,496
63,526
57,417
20.4
(9,242)
(6.9)
12.5
51.7
45.2
57.9
52.4
63,752
41,224
97,439
70,949
55.8
41.0
37.8
37.0
88.8
46.0
64.7
42.5
Ungeared, tax free operating cash flow
109,324
118,776
104,222
116,891
105,007
Proportion of EBITDA converted to cash
107%
82%
88%
94%
91%
Actual capital expenditure
68,136
65,289
84,120
47,471
30,321
Net debt
137,468
349,968
393,469
227,547
222,927
Operating EBITDA/Net interest (times)
Net debt/EBITDA (times)
Funeral homes (number)
Memorial Parks (number)
8.3
1.3
278
17
10.1
2.4
280
17
9.6
3.3
255
16
13.8
1.8
228
16
11.0
1.9
233
16
a Operating sales revenue excludes other revenue including rent and sundry revenue
b Operating earnings after tax excludes the net gain/(loss) on pre-paid contracts, costs associated with the administration of pre-paid contracts,
commissions received, gain/(loss) on sale, disposal or impairment of non-current assets and non-controlling interests
Le Pine Funerals / White Lady Funerals, Kew Victoria
InvoCare Annual Report 2020 | 9
Performance Review12Directors’ Report3Financial Report4Other Information
Chief Executive Officer’s message
Dear Shareholder,
I have only been here a short time but from the site visits I’ve
done and employees I have met with, I am impressed and proud
of their professionalism, flexibility, and work ethic. Echoing the
Chairman’s message, I would like to thank all our employees in
Australia, New Zealand and Singapore for their tireless efforts this
last year to support each other and our client families to ensure
they were provided with the best care and service at all times,
notwithstanding the very difficult conditions they faced.
During the past year, we completed 63 NBO projects across Australia
and New Zealand. We also welcomed to our Group the team of
Galaxy Funerals in NSW and two well-established Pet Cremations
businesses in Australia, Family Pet Care and Pets in Peace, providing
strong platforms for growth.
We delivered full year operating revenue of
$476.2 million and an operating EBITDA of
$109.6 million after excluding the impact of
some significant items captured in our results,
which was in line with market expectations.
This is pleasing in what was a very difficult
year where all our businesses faced
significant operating constraints, changes
in consumer behaviours and demand, as well
as increased price competition, especially at the
height of the lockdowns. But that was the past and
we need to focus on the future.
We are still living with a level of uncertainty and ever-changing
restrictions across our three countries. This simply means that we
need to continue to adapt and be nimble. I am delighted to have joined
a team who is extremely passionate about what they do every day.
With drive, expertise and commitment, there is so much more we can
do for our client families in the year ahead.
Refreshed Executive Leadership Team
We recently announced a leadership restructure of the business
where I confirmed several recent executive promotions and made
additions and changes to accountabilities to align with our strategic
focus areas and my strong commitment to diversity.
This new ‘leaner’, flat structure will enable me as CEO to have direct
oversight of our operations and I am pleased to have the leadership
accountabilities in place to deliver on our strategic plan for the next five
years. In addition, my Executive Leadership Team and I are committed
to doing all we can to ensure that over the coming years we
build an even safer, inclusive and rewarding place to
work, so that all our employees can be proud to
work here.
InvoCare Annual Report 2020 | 10
InvoCare 2025
As the Chairman touched on, my team and I are in the process of
Leveraging stronger foundations, we can then really grow our market
evaluating some elements of our five-year strategic plan.
share in value – several avenues for growth exist across pre, at and
The guiding principle for this next stage of our strategy is to leverage our
core assets and recent investments in our properties (the NBO program)
and IT systems, and to optimise their potential to meet the evolving
needs of our client families through an expanding value proposition.
Our key focus will be on enhancing the experience we provide to both
our client families and teams to position our business for success today
and for sustainable growth in the future. Our purpose is to honour life
and celebrate memories for generations. This means considering our
lifetime customer journey, where we can really leverage our pre, at and
post-need offerings, through our Pre-paid Funerals, Funeral Services,
Memorial Parks and Crematoria, as well as Pet Cremations services.
We will also focus on expanding our service offering for targeted
customer segments – rather than taking a generic approach to market
share in case volume. This will require a progressive shift in our business
post-need including expanding our provision of value-add services to
customers. We will also continue to seek to expand our addressable
market. This includes further growth in our Pet Cremation business,
expanding digital channels and being a partner of choice. Work is also
underway to assess and prioritise other growth opportunities.
Last but not least, I believe we can and have a duty to extend our
industry leadership across a number of dimensions – our commitment
to service excellence; our safety standards and performance;
developing talent; our sustainability commitments; digital, data and
innovation investments; as well as our community support and a
more proactive stakeholder engagement, including with our industry
associations.
Outlook
focus with a greater emphasis on innovation, flexibility, and diversity.
I am energised by the quality of our teams, services, brands and
First and foremost – we are a service business, so the core foundation
of the strategy will be a relentless focus on our client families and our
teams to meet and exceed customer needs. This includes a focus on
our service excellence and customer metrics, and ensuring we provide
a safe, inclusive, and rewarding workplace.
assets across Australia, New Zealand and Singapore. In the years
ahead, I really look forward to providing an increased quality of care
and excellence in service to our client families and communities;
a safe, inclusive and rewarding workplace to our employees;
industry stewardship, notably through our commitments to
sustainability, innovation and proactive stakeholder engagement;
To succeed, we need to simplify our approach. We need to put our
and delivering value to our shareholders through a relentless
attention on what matters by empowering our local leaders and
commitment to profitable growth and satisfactory returns on
supporting our frontline teams to do the best they can. My commitment
capital employed.
as CEO is that we will remain focused on achieving better experiences
for our teams and client families.
We have already initiated a review of our operating model and will look
for opportunities to variabilise more of our cost base over the long term.
Finally, I too would like to thank all our shareholders for their
ongoing support.
Some areas of focus here will include our funeral network performance
Olivier Chretien Managing Director & Chief Executive Officer
and strategy; the value propositions of our leading brands; our capital
deployment; as well as more efficient support services.
,,
...we will also focus
on expanding our service
offering for targeted
customer segments...
this will require a
progressive shift in our
business focus with a
greater emphasis on
innovation, flexibility, and
diversity ,,
Beth Shan Funerals, Taradale New Zealand
InvoCare Annual Report 2020 | 11
Performance Review12Directors’ Report3Financial Report4Other Information Executive Leadership Team
Chief Executive Officer
Chief Financial Officer
Olivier Chretien
Adrian Gratwicke
Executive General Manager
– Australian Funerals
Lynne Gallucci
Executive General Manager
– Cemeteries & Crematoria
Executive General Manager
– Customer
Executive General Manager
– Stakeholder Engagement
Steve Nobbs
Victoria Doidge
Fergus Kelly
Executive General Manager
– Health, Safety and Sustainability
Executive General Manager
– Human Resources
Grace Westdorp
Amanda Tober
Company Secretary
Heidi Aldred
InvoCare Annual Report 2020 | 12
2020 Sustainability highlights
Health & Safety
InvoCare was very pleased to have remained
operational throughout the 2020 COVID-19
Local empowerment and rewards
A significant component of 2020’s COVID-19
driven cost control was to substantially reduce the
lockdowns without any recorded cases of workplace-
level of centrally located operational management,
acquired infections.
delegating more authority and responsibility to local
Heightened awareness of safety, backed by increased
leaders and teams.
resources around safety risk evaluation and best
The quarterly Net Promoter Score incentives for
practices were realised through online safety training
our customer-facing employees were deferred
and incentive initiatives. These initiatives contributed to
during 2020. However in recognition of the critical
a 11.6% reduction in Lost Time Injury Frequency Rates
roles they had in maintaining excellent client service
(LTIFR) from 2019 to 2020, which was ahead of our
and satisfaction, an end of year incentive was paid in
proposed target (10.0%).
December 2020.
Digital accessibility
Another key achievement in 2020 was to provide our
client families and others much greater online access
to our employees, product and service information and
live events.
Accelerated due to COVID-19 lockdowns, digital
platform innovations were a key outcome of the
increased focus on positive customer engagement.
More accessible and transparent information was
provided which contributed to positive Net Promoter
Score outcomes.
Modern slavery statement
A significant milestone at the end of the 2020 year was
the development of our Modern Slavery Statement,
which sets out our process to identify, prevent, mitigate
and address modern slavery risks in our supply chain.
The Statement reflects our commitment to
understanding and addressing the social and ethical
challenges associated with our business and to
promoting high standards of ethics and integrity.
Building on the success of the ongoing Aspire
Leadership program, these initiatives have supported
the maintenance of very high Net Promoter Score
levels (+79) despite the frustrations and uncertainties
associated with COVID-19 lockdown regulations.
Gender-balanced senior
leadership team
At the end of 2020 our Executive Leadership Team,
including the CEO, was equally gender balanced
with four females and four males. Normally reported
without the CEO (who is counted with the Board) this
is a significant improvement on last year.
Diversity and inclusion leadership
In 2020, InvoCare was included as one of only nine
Australian listed corporations in the world’s top 100
companies by the Refinitiv Diversity and Inclusion
Index.
As one of the top 100 international organisations from
over 9,000 assessed globally, that places InvoCare
in the top 1% of the world’s listed organisations on
Diversity and Inclusion.
Download the full 2020
Sustainability Report
Scan this QR code on your smart
device to access the full report
InvoCare Annual Report 2020 | 13
InvoCare FY20 Sustainability ReportNew dimension to sustainabilityPerformance Review12Directors’ Report3Financial Report4Other Information Managing the impact of COVID-19
The Company’s response to the
COVID-19 pandemic revolved around
four key principles:
• • Safety
of our staff, suppliers and client families
• • Retention of key talent
measured approach to cost control, retaining frontline
field staff expertise to ensure uninterrupted support to
client families
The operation and financial performance of all InvoCare business units
was substantially impacted by the COVID-19 pandemic, due both to
a decline in the number of deaths in the communities we serve, and to
the restrictions placed on our ability to host funeral gatherings.
Preliminary indications of partial data from the ABS for doctor certified
deaths in Australia covering the 52 weeks ending 31 December 2020
are that social isolation, social distancing, face masks and hygiene
awareness has contributed to the number of deaths reducing by
around 2.3% relative to the comparable period in 2019. In New
Zealand, full-year data shows that the number of deaths has declined
• • Maintain customer service standards
by 4.8% year on year.
innovative and digitally focused solutions allowed
families to continue to arrange a service which
honoured their loved ones
• • Strong balance sheet
The decline in the number of deaths is reflected in both funeral
and cremation case volumes, which were down 3% and 3.8%
respectively. During the winter flu season, which is normally the
busiest time of the year (Q2/3), the Group’s funeral case volumes were
capital raise and extension of debt maturity allowed
down by 6%.
the Group to deleverage the balance sheet and
maintain the momentum of its growth initiatives.
The nature and impact of government restrictions varied from time to
time and place to place, as circumstances changed. The overall result
was a substantial shift towards simpler funeral ceremonies and an
increase in cremations and direct cremations in all three countries.
InvoCare Annual Report 2020 | 14
The financial impact on our funeral businesses was relatively greater
government cost relief to cover the cost of PPE and it did not qualify
in Singapore, where full-service offerings on farewells which normally
for JobKeeper. Wage subsidies were received in the New Zealand and
last from three to seven days were severely affected by prolonged
Singaporean businesses contributing $2.3 million to other income in
government restrictions and ongoing bans on catered indoor wakes
the year.
and gatherings. New Zealand, where traditionally most people are
embalmed, was also badly impacted. In Australia, we were able
to leverage our Simplicity and Value Cremations brands to meet
the market demand for affordable arrangements that combined a
memorial event with a cremation, reducing the relative severity of the
financial impact.
On the positive side, InvoCare was able to sustain its very high NPS
(+79) over the course of the year, in part due to our ability to provide
online video access to funeral ceremonies, which was offered to
clients free of charge. We were also able to manage the relatively high
risks of COVID-19 infections associated with serving many families
affected by the disease, with no recorded cases of work-related
Social distancing measures also impacted on the performance
infections amongst staff or customers throughout the year.
of our Memorial Parks business, albeit to a lesser extent. Chapels
had reduced capacities due to the two and four-square metre rules
restricting our full range of services. Offsetting an initial reduction
in revenue during March and April due to reduced attendance at
our parks, we have seen strong revenue performance from the
Memorial Parks business in the second half of the year, particularly
The majority of our staff voluntarily chose to take one day a week leave
for several weeks during the first wave of lockdowns in April and May,
a testament to the One Team culture embedded within the business.
The Non-Executive Directors also chose to reduce their fees by 25%
for a period of four months this financial year.
in memorialisation sales. Also, digital investment was accelerated
The extraordinary challenges and stresses placed on our staff by
to ensure our parks had the appropriate AV technology to be able to
the need to manage COVID-19 restrictions and remain operational
conduct live streamed funeral services.
With the easing of COVID-19 related restrictions all markets have seen
a return to more typical patterns of demand for face-to-face services
and larger funeral gatherings.
despite risks of exposure to the disease have been acknowledged
and addressed via a heightened focus on mental wellbeing and social
support. An important challenge for the coming year will be to mitigate
the cumulative effects of these human impacts while ensuring that we
sustain high levels of service quality and continue to reduce voluntary
Operating expenses for the Group included $1.9 million of incremental
turnover rates.
costs associated with live streaming, cleaning, and personal
protection equipment (PPE). The ability to travel remains volatile and
specific safety measures remain necessary. In addition, the funeral
services industry in Australia was not considered to be an ‘essential
service’ and therefore the business did not receive any Australian
Photographs courtesy of Billy Foster Photography
InvoCare Annual Report 2020 | 15
Performance Review12Directors’ Report3Financial Report4Other Information Our community
The Queen of Nurses
Louise Thomson, 1960 – 2021
Our ladies were honoured to farewell an incredible woman, Louise
Thomson, who dedicated her life to bettering the nursing community.
Working in consultation with her husband Steve Thomson, White
Lady Funerals in Melbourne ensured that Louise was farewelled in
the grandeur befitting her larger-than-life personality and her long and
accomplished career.
Louise, or Louy as she was affectionately known, left an enduring
mark on our communities through her work to empower women
to progress their careers or enrich their personal lives. She was
farewelled in style in a sea of her favourite colours – hot pink and red –
with eight adorned horses leading the procession and guard
of honour.
The Queen of Queensland
Mabel Crosby, 1909 – 2021
The team at George Hartnett Metropolitan Funerals were
honoured to host a celebration of the life of Mabel Crosby,
Australia’s oldest resident, who passed following a brief
illness at the age of 111.
Mabel’s own desire was for a simple service with just one
hymn and a single red rose for her coffin, requesting that
people should honour her passing with donations to
Vision Australia rather than flowers.
Farewelled by her three surviving children, 10
grandchildren, 20 great grandchildren and 9 great, great
grandchildren, Mabel’s long life was a testament to
the tough and pioneering spirit that has
been so important to the development of
Australia as we know it today.
InvoCare Annual Report 2020 | 16
Making it personal
Life Art
An area of focus is to increase the variety of ways in which customers
might choose to memorialise a life; Life Art is a business that offers
personalised artwork on coffins that reflect the special character or
passion of the loved one whose life is being celebrated.
LifeArt predesigned
or customised coffins
Making it personal
Luteru Reupena
A personal passion for honouring the
end of life is part of the vocation that calls
people of all ages and cultures to work in our
industry. From a Samoan heritage and trained
as a carpenter, Luteru first learned his carving
skills working with a professional Samoan carver
to carving the lecterns, pulpits and icons for his
church.
In 2017, more than a decade after Luteru chose
to become a mortician, his skills were called
upon to carve the coffin of a fellow church
member. Since then, Luteru has accepted many
requests for personalised carvings of coffins and
grave markers.
Combining the roles of contemporary funeral professional, traditional
cultural craftsman and dedicated local community member, Luteru epitomises
,,
the personal passion that we share for celebrating the end of life.,,
InvoCare Annual Report 2020 | 17
Performance Review12Directors’ Report3Financial Report4Other Information InvoCare Annual Report 2020 | 18
Directors’ Report
InvoCare Annual Report 2020 | 19
Directors’ Report
Your directors present their report, together with the consolidated financial report
of InvoCare Limited (the Company) and its subsidiaries (together referred to as
InvoCare or the Group) for the financial year ended 31 December 2020, along with
the independent audit report.
The flow of the information in the Directors’ report is outlined in the table below.
Information is only being included in the 2020 Annual
PAGE
INFORMATION
Operating and financial review
Report to the extent it has been considered material
and relevant to the understanding of the financial
performance and financial position of the Group.
21
21
21
21
21
25
25
27
28
30
31
33
34
36
60
60
60
61
64
64
64
65
65
65
65
65
65
65
66
Company overview and principal activities
A disclosure is considered material and relevant if,
for example:
• • The dollar amount is significant in size (quantitative
factor)
• • The dollar amount is significant by nature
(qualitative factor)
• • The Group’s results cannot be understood without
the specific disclosure (qualitative factor)
• • It is critical to allow a user to understand the impact
of significant changes in the Group’s business
during the period such as business acquisitions
(qualitative factor)
• • It relates to an aspect of the Group’s operations
that is important to its future performance
Review of financial performance
Generating long term shareholder returns
Profit performance
Portfolio management
Balance sheet
Cash flow
InvoCare business strategy update
2021 outlook
Risks
Reconciliation of financial information
Glossary for operating and financial review
Remuneration report – audited
Other statutory matters
Directors
Directorships of other listed companies
Directors’ profiles
Meetings of directors
Company secretary
Significant changes in the state of affairs
Dividends
Subsequent events
Indemnification and insurance of officers
Environmental regulation and performance
Corporate governance
Non-audit services
Rounding of amounts
Auditor’s independence declaration
InvoCare Annual Report 2020 | 20
Directors’ Report
Operating and financial review
Company overview and principal activities
Profit performance
InvoCare Limited (listed on the Australian Securities Exchange,
The year ended 31 December 2020 has been a year of unprecedented
ASX:IVC), headquartered in Sydney, is a leading provider of
disruption. Whilst the success that countries like Australia, New
at-need and pre-need funeral services in Australia, New Zealand
Zealand and Singapore have had in controlling COVID-19 has kept
and Singapore operating a portfolio of national and local brands in its
their populations safe, the travel restrictions and social distancing
network of over 278 locations. It also owns and operates 17 private
initiatives combined with government imposed funeral attendee limits,
memorial parks providing burial, memorialisation and cremation
have led to a softening of the funeral services sector.
services respectively. Following acquisitions in 2020, InvoCare is now
also a leading provider of Pet Cremation services in Australia.
Review of financial performance
To grow earnings per share and total shareholder returns, we seek
to complement operational execution of our strategy with financial
discipline, strong portfolio management, balance sheet strength and
cash flow generation. Set out below is a description of these areas and
the financial tools we use to measure success:
The Group delivered Operating net profit after tax of $27.3 million
for the year, a 54% decline on the PCP driven both by a decrease
in funeral case volume and case average in Australia, New Zealand
and Singapore and an $18.5 million increase in operating costs. The
latter includes $5.3 million of significant items arising from reviews of
carrying values undertaken at the year-end of aged debtors and slow
moving inventory and $1.7 million of costs associated with the change
in senior leadership that was announced in the second half. It also
reflects increased costs of working such as COVID-19 driven PPE
and live streaming costs and EBA award increases to wages that were
• • Financial discipline – Focus on cost control and efficiency to drive
unavoidable.
positive operating leverage
• • Balance sheet strength – Maintain funding flexibility and disciplined
capital management to support growth aspirations
Reported loss for the year attributable to shareholders of $9.2 million
reflects the impact of $25.5 million of impairments recognised
with respect to the Group’s goodwill arising from its New Zealand
• • Portfolio management – Acting decisively on the allocation of
operations and of capitalised IT development costs relating to certain
capital and managing returns from investments
• • Cash flow generation – Pursue working capital efficiency and
realisation of profits into cash to reinvest in the business
The Group’s performance in these areas during the financial year ended
31 December 2020 (2020) is set out on the following pages. The prior
corresponding period (PCP) is the year ended 31 December 2019.
Generating long term shareholder returns
InvoCare seeks to optimise shareholder’s returns through earnings
per share (EPS) and dividend growth which, if delivered, should
support share price performance. The Board determined a fully
franked final dividend of 7.0 cents per share for 2020, taking the
full year ordinary dividend to 12.5 cents per share (fully franked),
representing a dividend payout ratio of 61% of Operating EPS.
The final dividend is payable on 22 April 2021 to shareholders who
were on the Company’s register as at 4 March 2021, the record date
for the final dividend. The Dividend Reinvestment Plan continues to
operate in respect of the final dividend.
2020
cents
2019
cents
Movement
%
Basic earnings per share
(EPS)
Operating EPS
Final dividend
Total dividend for the
financial year
Dividend payout ratio (%)
(6.9)
20.4
7.0
12.5
61%
55.8
51.7
23.5
41.0
79%
(112)
(61)
(70)
(70)
modules of the Oracle Enterprise Resource Planning (ERP) system
rolled out in the PCP. The impairment of goodwill related to the New
Zealand operations (which represents less than 10% of Group
Operating EBITDA) reflects the disruption caused by COVID-19
and the subsequent restrictions imposed by the New Zealand
government that hampered the Group’s ability to operate as planned.
New Zealand’s financial performance was significantly impacted
as a consequence and this has been reflected in long term financial
projections used to support carrying value testing. The $6.2 million
partial impairment of certain modules of the Oracle ERP system
reflects significant remediation in 2020 and the replacement of certain
functionality that has rendered some elements of the IT platform
obsolete.
Partially offsetting the impact of these impairments, an assessment
of carrying values of our memorial parks and crematoria during the
year has identified an impairment reversal of $6 million with respect
to Allambe Memorial Park following remediation works undertaken
over the last two years enabling a gradual return to successful sales
performance.
Also reflected in the reported loss for the year is a $16.6 million loss
arising from the mark-to-market accounting for pre-paid funeral
contracts with a $3.7 million gain on the revaluation of pre-paid funds
under management (FUM) offset by a $20.3 million increase in the
associated provision for pre-paid contract liabilities. It should be
noted that the provision for pre-paid contract liabilities has increased
in line with expected change in costs to fulfil the contracts. The
corresponding value of the (independently controlled) funds under
management reflects the gradual recovery in equities and asset values
(18 ppts)
over the year from the significant equity market volatility experienced
in the first half of 2020. This net movement compares unfavourably
InvoCare Annual Report 2020 | 21
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
to the PCP where a large $45.6 million net gain on the revaluation of
Despite such a challenging year, the resilient nature of the funeral
pre-paid FUM assets was recognised driven by strong returns from
services industry is reflected in the operating revenue results, with a
the equities market and property investment revaluations. Importantly,
stronger Q4 in funeral case volume and case averages stemming the
the headroom between pre-paid contract FUM assets and pre-paid
full year operating revenue decline to 4.7%.
contract liabilities remains healthy at $71.8 million at 31 December 2020.
Operating results for 2020
InvoCare considers Operating earnings before interest, tax,
depreciation and amortisation and business acquisition costs
(Operating EBITDA) and Operating earnings before interest and tax
(Operating EBIT) as key performance measures.
Operating EBITDA, EBIT and net profit after tax exclude the following
items:
• • The financial impacts of the pre-paid funerals business
A high proportion of our sales are driven through referrals and
therefore maintaining the quality of our service standards is critical.
It was a deliberate management decision to maintain full service
levels at a time of heightened anxiety amongst our client families.
With employee costs a large proportion of OPEX this meant that
fluctuations in revenue had a consequential impact on Operating
EBITDA, which reduced 29% on the PCP and is reflected in the
7.1 ppts increase in OPEX to sales % metric to 54%.
Cost savings achieved in employee expenses from leave initiatives,
reduction in temporary labour and restructuring activities undertaken
in response to COVID-19 have been offset by a number of additional
• • Other non-operating activities, including asset sale gains/losses,
expenses including contractual wage increases of c.3%, $5.3 million
impairment losses and restructuring costs as relevant
• • Net finance costs associated with the pre-paid funerals business
• • The tax effect of the above items
A reconciliation of operating to statutory financial results is included on
page 33.
Set out in the table below is the operating result and key performance
metrics:
Revenue
Expenses
EBITDA
Depreciation and
amortisation
2020
$’000
2019
$’000
Movement
%
476,249
499,665
(373,684)
(355,232)
102,565
144,433
(44,280)
(36,973)
Business acquisition costs
(1,918)
(2,021)
EBIT
56,367
105,439
Net finance costs
(20,484)
(23,213)
Profit before income tax
35,883
82,226
Income tax expense
(8,405)
(23,024)
Non-controlling interest
(167)
(136)
Operating net profit after
income tax
27,311
59,066
(4.7)
(5.2)
(29)
(20)
5.1
(47)
12
(56)
63
(23)
(54)
of costs arising from the increases in provisions for aged debtors and
slow moving inventory and $1.7 million of costs associated with the
change in senior leadership announced in the second half.
Depreciation and amortisation expense increased $7.3 million or
20% on the PCP driven by increased depreciation of leasehold
improvements arising from completed Network and Brand
Optimisation (NBO) projects and amortisation of captialised IT
costs relating to the implementation of the Oracle ERP system. The
impairment of the latter as previously disclosed, has been recognised
within non-operating expenses.
Net finance costs have declined $2.7 million reflecting the benefit of
repaying $111.8 million of borrowings following the successful capital
raising in April and May 2020.
Operating revenue by region
By regions
Australia
New Zealand
Singapore
Total
2020
$’000
2019
$’000
Movement
%
404,855
421,863
51,990
56,579
19,404
21,223
476,249
499,665
(4.0)
(8.1)
(8.6)
(4.7)
OPEX to sales %*
EBITDA margin (%)
EBIT margin (%)
Operating EPS (cents per
share)
53%
22%
12%
46%
29%
21%
(7.1 ppts)
(7.4 ppts)
(9.3 ppts)
20.4
51.7
(61)
* OPEX excludes finished goods, consumables and funeral
disbursements.
InvoCare Annual Report 2020 | 22
Operating EBITDA and EBIT by region
By regions
Australia
New Zealand
Singapore
Total
Operating results by revenue type
2020
Case volumes (number)
Revenue
EBITDA
EBITDA margin (%)
EBIT
2019
Case volumes (number)
Revenue
EBITDA
EBITDA margin (%)
EBIT
Australia
Funeral services
The Australian funeral services business experienced challenging
market conditions, notably in Q2 and Q3. It finished the year with
a 7.2% decrease in revenue overall attributed primarily to a 4.5%
reduction in funeral case average and to a lesser extent a reduction in
volume, which had recovered in most states by the end of the year and
grew 3% on the PCP in Q4.
Despite decreases in revenue earned from professional service
fees and items such as catering and transport services, which were
unable to be provided in a lot of instances in line with social restriction
requirements, the business also observed changes in category spend
by client families, with the inability to hold in-person farewells driving
an increase in coffin and floral arrangement spend, particularly at the
height of lock downs.
The trend observed in the first half of an increase in demand for simpler
funerals and direct cremations continued into Q3 as travel restrictions
and attendee limits hampered the ability for client families to conduct
full service farewells, but, as restrictions eased demand for full service
offerings has slowly recovered.
Operating EBITDA
Operating EBIT
2020
$’000
2019
$’000
Movement
%
2020
$’000
2019
$’000
Movement
%
84,395
121,627
8,778
9,392
12,889
9,917
102,565
144,433
(31)
(32)
(5.3)
(29)
44,746
88,868
3,416
8,205
7,855
8,716
56,367
105,439
Funeral
services
$’000
44,784
349,297
80,035
23%
49,673
46,171
377,525
107,853
29%
81,813
Memorial
Parks
$’000
Pet
cremations
$’000
Support
office
$’000
122,310
57,632
47%
51,661
121,324
63,150
52%
57,275
4,642
502
11%
(301)
816
(1,239)
(152%)
(1,580)
-
(35,604)
-
(44,666)
-
(25,331)
-
(50)
(57)
(5.9)
(47)
Total
$’000
44,784
476,249
102,565
22%
56,367
46,171
499,665
144,433
29%
(32,069)
105,439
The business was also able to respond to this change in market
demand notably with our Simplicity brand, which offers client families
an arrangement that combines a memorial event and cremation
at an affordable price. In addition, despite a weaker April and May,
packages put together in our White Lady and traditional brand
locations meant we could still provide client families with higher
service arrangements that were meaningful farewells but just of a
smaller size. Live streaming was also provided to client families at no
additional charge. This continuation of high-quality service has been
reflected in the business’ NPS score of +79 for the year.
Overall funeral case volume in Australia declined 2.5% compared to
the PCP with a strong second half in both New South Wales and West
Australian businesses partially offsetting declines experienced in
Victoria and Queensland. Victoria notably was hard hit by lockdowns
in Q3 compared to other states.
As noted previously, the focus on maintaining client service
throughout the pandemic and the fixed cost nature of the funeral
services business has meant that the revenue decline has been
transmitted directly to Operating EBITDA, which has decreased by
27%, and EBITDA margin has dropped 5.5 ppts. Despite actions
taken during the year to reorganise the business on a regional basis
InvoCare Annual Report 2020 | 23
Performance Review12Directors’ Report3Financial Report4Other Information
Directors’ Report
Operating and financial review continued
and to remove layers of middle management that resulted in second
half employee cost savings, increased marketing costs in the first
half to protect volumes in a market where we couldn’t offer our usual
product and services, the increase in facilities costs arising from NBO
locations, the impact of incremental COVID-19 driven costs and the
increase to provisions for aged debtors noted previously, have driven
a 5.8% increase in operating expenses for the year.
Pre-paid funerals
The recognition of a reported loss for the year partly reflects the
impact of non-cash movements in our pre-paid funerals business’
funds under management (FUM). Reported profit of $63.8 million in
the PCP included a net $45.6 million mark-to-market (MTM) gain on
the revaluation of undelivered pre-paid FUM and contract liabilities.
New Zealand
Total revenue for the New Zealand business declined 8.1% on the
PCP driven primarily from a 6.7% decline in case average and to a
lesser extent volume decline.
The restrictions placed on funeral services in New Zealand were more
extreme than in Australia with no funerals or tangihanga permitted
in late March into April (direct cremation or burials only). This led to a
25% decline in Q2 funeral case averages alone in this business.
Similar trends to Australia were observed in revenue drivers of case
average decline with a reduction in professional service fees the main
contributor but reduced catering services have had a greater impact
on case average than in Australia, as attendee limits reduced demand
Market volatility (particularly in equity markets) in 2020 arising from
for this service significantly.
COVID-19 uncertainty has held asset valuations relatively flat,
resulting in a net $17 million MTM loss for 2020 (which reflects a
material improvement on the $39.5 million half year net loss recorded
at 30 June 2020). It is primarily for this reason that the Company has
historically distinguished its results on an operating versus non-
Despite restrictions on the level of service that was able to be provided
to client families, the hard work and dedication of our employees to
support our client families through these difficult periods was reflected
in growth in the business’ NPS score by 2 ppts to +86.
operating basis to exclude the impact of such material, non-cash
Overall, the New Zealand funeral case volume declined 4.9%
movements. Importantly, FUM asset headroom (defined as pre-paid
compared to the PCP driven primarily by a weaker Q2 and Q3 with the
contract assets less liabilities) at 31 December 2020 remains strong at
country experiencing a benign winter flu season (like Australia), but
approximately $72 million.
Memorial Parks
COVID-19 led to reduced patronage at the parks with the cancellation
of many community events, particularly in the first half of the reporting
period. Despite this, the Memorial Parks business recorded strong
growth in memorialisation sales in the second half of the year,
notably from sales from deepening relationships with local religious
communities at some of our largest parks. This growth, together
with a favourable release of revenue deferred on transition to
AASB 15 Revenue from Contracts with Customers as instalment
payers completed their plans, drove an overall increase in revenue of
1% against the PCP.
Operating EBITDA was down 8.7% on the PCP as operating costs
increased with the shift to live streaming of memorial services,
increased cleaning to protect client families and employees, and
increased grounds maintenance costs. An additional provision for
slow moving inventory of $2.5 million has also been recognised
following a review of slow-moving inventory items. The provision mainly
relates to single-site niche walls and specific memorial developments
that have not achieved expected sales since construction.
Pet cremations
The pet cremations business in Australia continued to grow and was
largely untouched by COVID-19. The greenfield development on the
existing NSW Lakeside Memorial Park continued to ramp up and
the second greenfield development on the NSW Central Coast had
reached practical completion in June.
In November, the Group acquired two pet cremations businesses,
Family Pet Care and Pets in Peace, representing a strategic expansion
of the Group’s existing pet cremations business. Both of these
businesses contributed only one month of trading results in the year.
volumes have slowly recovered over Q4.
The New Zealand funeral services market remains fragmented across
regional areas and competition, particularly on price, has been
increasing along with an observed increase in client family preference
for simpler funerals and cremations for their loved ones. COVID-19
has accelerated this change, with government restrictions on the
number of funeral attendees and economic pressure on household
incomes. This trend has a greater impact in New Zealand, where
traditionally most people are embalmed, and the business does not
currently have the breadth of brand portfolio in every local market
to the extent we do in Australia, to quickly meet such changes in
consumer demand. As a result, a review of the assumptions used
in the long-term modelling to support the carrying value of the New
Zealand group of cash generating units (CGUs) was made at the
balance date and an impairment of $19.3 million of the goodwill
allocated to this group of CGUs was recognised.
Singapore
Total revenue for the Singaporean business declined 8.6% with the
funerals market negatively impacted by prolonged funeral attendance
restrictions, a ban on catering and a general economic downturn
in the country all of which has heightened price competition and
reduced discretionary spend attached to higher service offerings.
Declines in revenue have been driven both by funeral case average
and volume declines.
InvoCare Annual Report 2020 | 24
Funeral case average has declined 6.5% for the year with an
increase in consumer preference for direct cremations as higher
service, catered wakes and gatherings not permitted by government
authorities. Similarly, funeral case volume has declined 5.3% on the
PCP with an increase in competition observed in the market due to the
low barriers of entry to the lower service, and direct cremation.
Disciplined cost control in the Singaporean business has held OPEX
as a % of sales to 32% and improved EBITDA margin 3 ppts to 51% in
the year despite a decline in Operating EBITDA to $9.4 million.
Balance sheet
InvoCare successfully deleveraged its balance sheet during the
year via a successful $274 million institutional placement and share
purchase plan and continues to maintain a strong balance sheet with
a disciplined focus on working capital management. The Group’s capital
employed excluding net debt items is comprised of the following.
Total capital employed as at 31 December
2020
$’000
2019
$’000
Movement
%
Support office
InvoCare’s support office includes the centralised costs of
Procurement as well as Information and Technology (IT), Finance,
Marketing, Safety, Sustainability, Human Resources and the costs
Trade and other receivables
82,582
82,794
Inventories
44,117
45,117
Trade and other payables
(60,514)
(60,810)
associated with the CEO, Company Secretary and Board. The
Net working capital
66,185
67,101
increase in support office costs is attributed to a step up in IT related
software license costs incurred by the Group following system
investments in the current and prior year and $1.7 million of
one-off transition costs incurred as a result of the appointment of
new executive leadership during the year.
Portfolio management
Decisive action to invest, restructure or divest non-core operations
while fulfilling the Company’s investment and strategic priorities is vital
to managing InvoCare’s portfolio of operations.
Acquisitions
In July, the Group acquired Galaxy Funerals for $5.9 million,
$5.3 million of which is deferred as it is contingent on achieving
earnings targets over the next two years. Galaxy Funerals is a Sydney
based funeral business with two locations that specialise in serving
the Asian community. The acquisition represents an investment in the
strategic priority of growing presence in the inclusive funerals market.
In November, the Group acquired two pet cremation businesses as
noted previously for $49.8 million, $11.9 million of which was deferred
and is contingent on achieving earnings targets over the next two
years. These acquisitions represent a strategic expansion of the
Group’s existing pet cremation businesses in NSW, positioning the
Company to be Australia’s leading provider of pet cremation services
in a growing industry.
Disposals
As part of the NBO project, sites that have been identified as non-core
(0.3)
(2.2)
0.5
(1.4)
8.7
16
24
5.5
37
(73)
1.1
3.2
Property, plant and
equipment
464,277
426,955
Intangibles
243,515
210,724
Net pre-paid funds under
management/contract
liabilities
71,822
94,006
Deferred selling costs
37,712
39,928
Deferred contract assets
4,066
6,449
Net right of use asset and
lease liabilities a
(11,346)
(6,561)
Deferred revenue
(137,718)
(139,300)
Net tax items
Other items b
(34,513)
(35,639)
(34,632)
(16,716)
(107)
Total capital employed
669,368
646,947
Net debt
Net assets
(137,468)
(349,968)
531,900
296,979
3.5
61
79
Average working capital %
of sales c
ROCE % d
14%
8.6%
10%
17%
4.0 ppts
(8.5 ppts)
a Excludes certain finance leases which are considered ‘debt-like’ and
included in net debt balance.
b Includes assets held for sale, other financial assets, derivative financial
instruments, provisions for employee entitlements and deferred
consideration.
c Represents the average working capital for the reporting period
(average of opening and closing) divided by revenue for the same
period.
are sold to realise their value. During the year the Group disposed of
d ROCE = Operating EBIT/(Average total equity + Average net debt).
six locations, four in Australia and two in New Zealand for combined
proceeds of $11.9 million giving rise to a gain on disposal recognised
through non-operating profit of $7.4 million.
Disciplined working capital management and the $5.3 million impact
from the review of trade receivable and inventory carrying values at
year end held working capital relatively steady on the PCP. Despite
this, average working capital as a % of sales has increased 4 ppts in
the year as the nature of inventory balances (primarily memorialisation
items like crypts) do not fluctuate materially in response to revenue.
InvoCare Annual Report 2020 | 25
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
Total capital employed has increased by 3.5% reflecting the continued
After accounting for borrowings, capitalised loan establishment costs,
capital investment in property, plant and equipment arising primarily
finance leases and a cash position of $118.8 million the Group’s net
from the NBO program, an increase in intangibles arising from the
debt as at 31 December 2020 was $137.5 million, a 61% decrease on
acquisitions and continued capitalisation of IT development costs.
the PCP.
ROCE has deteriorated, reducing 8.5 ppts to 8.6%. This reflects
InvoCare successfully deleveraged its balance sheet during the year
reduced Operating EBIT in the year (as explained above) and an
and undertook two key initiatives:
enlarged capital base driven by the equity raise. The $274 million of
funds raised from the institutional placement and share purchase plan
in April/May has been used to continue the roll out of NBO, shared
service centres and IT projects and fund the acquisitions conducted
during the year.
Included in the increase of property, plant and equipment is
$39.5 million associated with the continuation of the NBO project as
well as IT development costs. It was also impacted by the $6 million
increase in the value of cemetery land reflecting a reversal of a portion
of the previous impairment at Allambe Memorial Park (refer to
Note 11 Non-current operating assets).
The net $32.8 million increase in intangible assets is net of the
$52 million impact of acquisitions in the year and the $25.5 million
impairment of the goodwill relating to the New Zealand business and
of capitalised IT development costs previously referred to in this report
(refer to Note 12 Intangibles).
The decrease in net pre-paid funds under management/contract
liabilities of $22.2 million is driven by higher redemptions following
service delivery and an increase in the provision for pre-paid contract
liabilities of $20.3 million (2019: $20.3 million) reflecting the financing
charge recognised on the liability. The 2019 net pre-paid funds
under management of $94 million reflected a net $45.6 million gain
on the revaluation of these balance sheet items. Equity market
volatility, particularly in the first half due to uncertainties regarding
COVID-19, have stabilised in the second half resulting in a significantly
lower gain of $3.7 million from the mark-to-market revaluation
of these independently controlled funds at 31 December 2020.
Notwithstanding this impact in 2020, significant headroom
between the asset and liability remains healthy at $71.8 million at
31 December 2020.
Net debt as at 31 December
2020
$’000
2019
$’000
Movement
%
Cash and cash equivalents
118,781
19,560
Borrowings
(246,039)
(357,189)
Net right of use asset and
lease liabilities
(10,210)
(12,339)
Net debt
(137,468)
(349,968)
Total shareholders’ equity
531,900
296,979
507
31
17
61
79
Gearing ratio (spot) %
Leverage ratio (times)
Interest cover ratio (times)
21%
1.3
8.3
54%
2.4
10.1
(34 ppts)
1.1
1.8
• • Conducted a well-supported institutional placement and share
purchase plan that raised $274 million of capital in April/May with a
small discount to prevailing share price ($270.9 million net of raise
costs)
• • On 19 June 2020, the Group successfully renegotiated its three
year $200 million revolving debt facility, extending its maturity
to February 2023, as it was due to expire in February 2021. This
facility remains undrawn
Both these measures provide the Group with balance sheet flexibility
to support the business during the period of economic uncertainty
and to fund growth initiatives, and also allowed repayment of
$111 million of borrowings during the year.
The Group has access to $452.5 million of loan facilities at
31 December 2020 as follows:
• • 10 year $100 million Note Purchase Agreement with Metlife,
fully drawn at 31 December 2020 and due for repayment in
February 2028
• • 5 year Syndicated Facility Agreement supported by ANZ, HSBC,
Westpac, Mizuho and SMBC providing $152.5 million (fully drawn)
and $200 million (undrawn) due for repayment in February 2023.
The facilities are multi-currency with NZ$50 million drawn with
respect to New Zealand and SG$35 million drawn with respect to
Singapore
The foreign currency drawings naturally hedge InvoCare’s
investments in the Singapore and New Zealand markets.
The financial covenant ratios included on the debt facilities differ from
the calculations included in the table above as they are calculated on
an adjusted Operating EBITDA basis (primarily to include the proforma
earnings contributions from acquisitions and to adjust for costs arising
from restructuring initiatives). The covenant target ratios are as follows:
• • Leverage ratio (being net debt to adjusted Operating EBITDA) must
be no greater than 3.5x
• • Interest cover ratio (being adjusted Operating EBITDA to net
interest adjusted to remove interest related to AASB 16 lease
accounting) must be greater than 3.0x
The above ratios continued to be met as at 31 December 2020, being
1.3x and 8.3x, respectively (2019: 2.4x and 10.1x, respectively).
To maintain certainty over cash flows, the Group also has financial risk
management policies limiting exposure to interest rate fluctuations. In
accordance with InvoCare’s policy, at 31 December 2020, 58% (2019:
94%) of the debt principal was at fixed interest rates through using
either floating to fixed interest rate swaps or fixed rate debt (notably
the $100 million Note Purchase Agreement).
InvoCare Annual Report 2020 | 26
Due to the level of stability of Singaporean interest rates and its
The Group ended the period with cash on hand of $118.8 million and
quantum, Singapore dollar debt is not covered by interest rate swaps.
improved its cash conversion to 107% (2019: 82%).
Additionally, due to low volatility of interest rates the Group’s policy has
been amended and no new interest rate swaps will be taken out whilst
low interest rates continue. Existing swaps in place will be allowed to
expire.
Despite a reduction in business activity during the year, a disciplined
focus on current year cash collections and a reduction in tax and
finance costs paid has led to growth in operating cash flows of 7.6%.
This has also led to improved cash conversion and realisation ratios as
While there is the ability to pay down an additional, material amount
more earnings were converted into cash.
of debt, the fixed term nature of these drawn facilities means that
repayment would result in retirement of such debt. A review will
be undertaken in the first half of 2021 to determine an appropriate
structure and tenure of the Group’s debt facilities.
Cash flow
Investing cash flows for the year of $84 million includes $38.5 million
for the purchase of the two pet cremation businesses and the Galaxy
Funerals business (excluding the amounts deferred as previously
noted) and proceeds of $11.9 million from the disposal of certain
properties as part of our ongoing portfolio management activities.
Capital expenditure (CAPEX) of $68.1 million in the year included
InvoCare aims to use cash generated from operations to pay down
$39.5 million of NBO related expenditure and $16.2 million of
borrowings, fund capital expenditure and bolt-on acquisitions and
IT related projects. The remainder relates primarily to annual
return dividends to shareholders.
maintenance CAPEX of the Group’s facilities.
Net financing cash flows includes the impact of the $270.9 million
capital raise net of raise costs, the subsequent $111.8 million
repayment of debt and $3.1 million of payments made to exit related
interest rate swaps early following repayment of a debt as noted
previously. In addition, the deferred 2019 final dividend was paid in
October 2020.
Cash conversion % calculation
Operating cash flows
2020
$’000
2019
$’000
63,568
59,070
Add back: Net finance costs paid
17,046
20,803
Add back: Tax paid
14,424
20,631
Net funds from pre-paid contracts
12,857
15,866
Other cash flows related to pre-paid
contracts
1,429
2,406
Ungeared, tax free operating cash flows
109,324
118,776
Operating EBITDA
Cash conversion %
102,565
144,433
107%
82%
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.
Abridged cash flow for the year ended 31 December
Movement
%
2020
$’000
2019
$’000
Operating EBITDA
102,565
144,433
Net change in working
capital
(7,527)
(43,929)
Net finance costs paid
(17,046)
(20,803)
Tax paid
(14,424)
(20,631)
Operating cash flows
63,568
59,070
Acquisitions
(40,581)
(15,187)
Divestments/sale of assets
11,908
6,550
Capital expenditure
(68,136)
(65,289)
Net funds from pre-paid
contracts
12,857
15,866
Investing cash flows
(83,952)
(58,060)
Dividends paid
(29,514)
(32,863)
(29)
(83)
18
30
7.6
(167)
82
(4.4)
(19)
(45)
10
Equity raise (net of raise
costs)
270,875
85,787
216
Net draw down/repayment
of borrowings
(106,761)
(53,103)
Net lease payments
(11,599)
3,625
Other
(3,184)
258
Financing cash flows
Change in cash held
Cash conversion %a
Cash realisation %b
119,817
99,433
107%
89%
3,704
4,714
82%
62%
(101)
420
(1,334)
(3,135)
2,009
25 ppts
27 ppts
a Cash conversion % calculated as per table below.
b Cash realisation % means Operating cash flows as a % of operating
profit after income tax for the period adjusted to remove depreciation
and amortisation expense.
InvoCare Annual Report 2020 | 27
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
InvoCare business strategy update
In 2016 the InvoCare Board recognised that acquisitions alone
could not continue to drive EPS growth at the same level as
historically achieved. Regulatory limits on further acquisitions in
Australian 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
expectations.
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 &
share decline, increasing revenue by providing increased product
offerings to meet the changing needs of client families and creating
opportunities to drive operational efficiencies. The rollout of this
strategy continued in 2020.
Network and brand optimisation (NBO)
A core focus of the Protect & Grow strategy has been the NBO
program which is transforming InvoCare’s unrenovated, out-of-date
and underperforming funeral homes into modern, contemporary
locations with new capabilities that allow for additional service levels
that are in-tune with client families’ needs and preferences. The
following tables provide a summary of the completed projects since
the commencement of the project in 2017 and the projects planned
Grow strategy was started in 2017, with a focus on reversing market
for completion in 2021.
Year completed/due
2017
2018
2019
2020
Refresh
Enhance
Growth
Total
CAPEX ($m)
Acquired properties ($m)
Sites sold (Number)
Proceeds ($m)
26
-
4
30
(21.0)
(8.3)
2
6.1
32
7
16
55
(39.2)
(1.2)
1
0.7
15
2
4
21
54
7
2
63
Total
127
16
26
169
(26.5)
(39.5)
(126.2)
-
3
3.1
-
6
12.0
(9.5)
12
21.9
2021
estimate
40-50*
~2
* Number of projects is approximate and subject to change
The total amount of capital deployed for NBO sites is $126.2 million
As noted at half year, the restrictions and social distancing have had
by the end of the four years to date. Offsetting this is $21.9 million of
a greater impact on the renovated locations than the unrenovated
proceeds from the sale of identified non-core sites as a result of this
locations due to the low attendance at funerals negatively impacting
program.
As part of the Group’s response to COVID-19 earlier in the year,
CAPEX was delayed or deferred until such time as the full impact on
the business was known. Despite a resumption of NBO activity in
the second half, some projects have been delayed and are due to be
the locations that are able to provide a wider range of services.
Therefore, when assessing performance of NBO locations, 2020
provides an abnormal trading year for comparison. It also makes it
difficult to ascertain the drag on earnings that may have come from
closed sites due to renovation and construction.
completed in early 2021. Notwithstanding the COVID-19 driven delay,
The first cohort of 48 sites that were completed between June 2017
a total of 63 projects were completed during the year. A further 40-50
and July 2018 have now had two years of post completion trading for
sites are planned for works in 2021, subject to business case and DA
comparability purposes. Projects completed post that date have the
approval.
abnormal 2020 trading conditions to cycle in their post completion
returns assessments.
It should be noted that there are around 50 to 60 locations remaining
that do not form part of the NBO program of works. These are
locations that either do not require renovation or are intended to be
sold. Additionally, future Refresh renovation type activity will form part
of the annual maintenance CAPEX budgets of the network from 2021.
Work will continue Enhance and Grow projects, to be categorised as
Growth CAPEX and subject to disciplined capital approval processes.
InvoCare Annual Report 2020 | 28
When comparing the growth in net sales of this cohort and growth in EBITDA margin (both pre NBO to now), those sites that were Enhance
or Growth locations continue to outperform other locations both in volumes and sales. This is shown in the graph below.
Positive
EBITDA
margin
(2016 –
2020)
versus
Average
Average
Enhance/Growth
location (first cohort)
Refresh location
(first cohort)
Unrenovated
location (as of
December 2020)
Negative
Negative
Average
Positive
Net sales (2016 – 2020) versus Average
How to read the above graph:
Operational efficiencies
• • Locations plotted include unrenovated sites (as of December
2020) and the 48 Refresh and Enhance/Grow NBO sites that were
completed in the first cohort (2017 to July 2018)
As noted at half year, the roll out of the Oracle ERP system for the
funeral services businesses in Australia and New Zealand is now
complete (except for acquisitions and the Memorial Parks business,
• • Bubble size reflects NBO CAPEX spend per location
which is a focus in 2021). Initial implementation issues are being
• • Average is the average of all funerals locations in Australia and New
Zealand including those that have been renovated after July 2018
and those identified as not requiring NBO investment
• • The horizontal axis is the growth in revenue (excluding
disbursements) for a location relative to the average
• • The vertical axis is the change in EBITDA margin of that location
over the same period relative to the average
• • The closer a bubble appears towards the top right of the chart, the
better it has performed relative to the average for the same period.
addressed and the current year remediation activities undertaken
is what has driven the $6.2 million of impairment of capitalised IT
development costs.
In addition, four shared service centre projects were completed in
the year with a further six to eight planned for 2021. A summary of the
amount spent on IT investment and shared service centre projects
from 2017 to 2020 is included in the table below.
CAPEX spend
Information technology ($m)
Shared service centres ($m)
2017
(6.7)
-
2018
(12.4)
(2.2)
2019
(7.6)
(7.9)
2020
(8.6)
(1.2)
Total
(35.3)
(11.3)
2021
estimate
6-8 sites*
* Number of projects is approximate and subject to change
InvoCare Annual Report 2020 | 29
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
People & Culture
2021 outlook
InvoCare is acutely aware of the additional pressures our employees
InvoCare remains cautious in its outlook with short term market
faced throughout the COVID-19 crisis. Working with grieving families
conditions still being impacted by COVID-19 restrictions and the
is highly emotional and demanding. In a COVID-19 impacted world,
timing and extent of the unwind of related impacts remains hard to
our team have strived to meet and exceed government guidelines to
predict.
ensure the safety of themselves and their client families and friends.
Those guidelines impact many aspects of the way funerals are
planned and managed including restrictions on the attendance at
funerals.
The Group remains nevertheless confident about the long term
potential of this business with future growth underpinned by
population and ageing trends in its markets, and management
have initiated an operating model and cost efficiency review to
NPS is a our key measure of customer satisfaction and the fact that
further strengthen the business foundations. With an experienced
the Group overall (excluding Singapore, which is not measured by
team, strong national and local brands, a modernised asset base
this metric) has been able to maintain or grow their NPS scores during
and leading market position, the Company’s management see
the year is a testament to the quality of the service that our employees
many opportunities to leverage and optimise the foundations
provide. The NPS result of +79 in 2020 also compares favourably to
of the business to meet the evolving needs of client families and
the NPS achieved at the beginning of the Protect & Grow strategy
communities with an expanding value proposition. The Company will
in 2017 of +74, a 5 point increase over the three years. This reflects
also look to extend its industry leadership through increased focus
the investment in leadership and management training alongside
on talent, safety, sustainability, innovation, and proactive stakeholder
the Group’s cultural and community engagement initiatives and the
management.
positive impact these are having on both employee and client family
experiences.
Ensuring the health and safety of our employees and client families
is our highest priority. At the onset of the COVID-19 pandemic,
InvoCare created a COVID-19 Taskforce focused on creating safe
work practices, including infection control procedures, adequate
personal protective equipment (PPE) availability and usage, cleaning
guidelines, supporting remote working practices and general
principles of COVID-19 safety.
Lost time injury frequency rate (LTIFR) is a key metric to measure the
safety performance of the Group. The LTIFR in 2020 was 12.5, which
reflects a 1.6 ppts improvement since the renewed strategic focus
began in 2017. The recent appointment of a new EGM of Health,
Safety and Sustainability in early 2021 reflects the continued focus on
safety in our organisation.
Additionally, InvoCare took a proactive approach to the
implementation of a paid pandemic leave policy in March 2020. We
have also worked hard to support the new ways of working that have
come with COVID-19, not only how we engage with each other,
but also how we engage with our client families. In response, the
Learning & Development team have delivered many training initiatives
to employees via virtual platforms this year in order to upskill their
capabilities in this changing environment.
The focus in 2019 shifted towards training our field team to become
strong local leaders with a focus on providing the leadership required
to elicit high levels of discretionary effort which is essential to delivering
the highest levels of customer service. While this training has been
put on hold in 2020 due to budgetary and travel constraints imposed
by COVID-19, it is our intention to resume this program in 2021 as
high performing, empowered local leaders are an essential part of our
service proposition.
InvoCare Annual Report 2020 | 30
Risks
The Company 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 occurring in the markets in which we operate.
The key areas of identified risks are summarised below.
Risk
Description
Risk management mitigation
Number of deaths
• • Change in mortality rates
• • BDM data monitoring and analysis
• • Relocation of population to areas
• • Workforce flexibility
outside InvoCare business operating
• • Geographic footprint
regions
• • Service offerings
• • Data analytics
Strategic risk
• • The risk that the Company’s
• • Experienced executive team
strategies and growth initiatives
are not successfully executed or
integrated or deliver the expected
returns
• • Board and CEO sign-off of individual business cases with process in place to
monitor performance post execution
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 local markets with strategies to expand market
superior products/services
share locally
• • Delivery of superior products/services to exceed customer expectations and
competitors’ products/services offerings in same operating regions
• • Focus on local community engagement and relationship to maintain or
improve competitive advantage
Loss of key brand
• • Failure to maintain brand reputation
• • Continued investment in customer research to sustain market leading
reputation/customer
in market
position
relationships
• • Failure to react to changes in
• • Customer feedback surveys and complaints monitoring
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
• • NBO renovations and transformations of locations and facilities to exceed
customer expectations
Regulatory risk
• • Environmental regulations risks
• • Sustainability plan and commitments
• • Perpetual care
• • Consumer Act training for employees
• • Australian Competition and
• • Aligned accountabilities at executive level
Customer Act 2010 (Consumer Act)
and other related legislations
Safety risk
• • Occupational, health and safety risks
• • Behavioural-based safety programmes
• • Lost Time Injury Frequency Rate metrics reported monthly by business
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
InvoCare Annual Report 2020 | 31
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
Risk
Description
Risk management mitigation
Information
• • Risk of targeted cyber-attack against
• • Cyber-security training
technology (IT) risk –
Company assets
• • Dedicated internal resources to monitor and address cyber and information
cyber risk, privacy
and data sovereignty
• • Unauthorised access to or loss of
risks
customer data including personally
identifiable data
• • Risk of data loss/fraud, system
breakdown
• • ERP implementation risk
• • Monitoring and prevention of unauthorised access to IT assets
• • Code of Conduct is set up and relevant employee training is conducted
• • Disaster Recovery Plan
• • Penetration Testing
Reliance on single
• • Unable to supply products to deliver
• • Dedicated internal resources to monitor supply agreement contracts
point of failure in
services for families
supply chain
• • Commercial tendering processes to identify alternative suppliers
• • Inventory management
Working capital
• • The risk that the Company cannot
• • Six monthly reporting to funding providers on covenant compliance
meet its financial obligations
• • Quarterly reforecasting and annual budget requiring Board sign off
• • Regular monitoring and reporting on debtors
Investment risk –
• • Potential escalation in service/
• • Control our cost of service at below 4% inflation factor applied to liability
pre-paid funeral
product costs
revaluation annually
contracts
• • Volatility of investment returns on
• • Maintain Board representation in the Over Fifty Guardian Friendly Society, the
pre-paid funds under management
main investment portfolio for over 85% of the pre-paid funeral contracts
fluctuation
• • Ensure the pre-paid funeral contracts are invested in diversified asset classes
to maximise returns without exceeding risk levels as specified in accordance
with the Fund investment policy and guidelines
Investment risk –
• • Deficiencies in due diligence
• • Balance sheet management
acquisitions
• • Potentially unknown or contingent
• • Investment Committee scrutinises investment proposals and provides
liabilities
recommendations to the Board on acquisition decisions
• • Reliance on previous owners
• • Post-acquisition reviews conducted to ensure performance in line with
performing satisfactorily
expectation
• • No guarantee of continued
successful performance of acquired
businesses
Financing risk
• • Insufficient funding to capitalise on
• • Monthly reporting of financial metrics to the Board and Executive Leadership
opportunities
Team
• • Business unit performance reviews and monitoring against budget and
forecasts
• • Monitoring of debt covenants and monthly cashflow statements
Lease arrangements
• • The risk that existing lease
• • Monthly reporting to executive on leases due for renewal
agreements are not renewed or not
renewed at satisfactory levels
• • Legal review for all lease contracts
A crisis occurs
• • A pandemic
• • Pandemic and Epidemic Diseases Plan in place
threatening the
Company, our
stakeholders or the
general public
• • Natural disaster occurs such as
• • Infectious Disease procedure in place
fire, floods impacting significant
operations
• • IT system breakdown
• • Emergency Management Plans, developed locally with clear escalation
guidelines to Corporate Emergency Management Plan (EMP)
• • Disaster Recovery Plan (DRP) in place to manage IT risks
• • Above plans linked to Business Continuity Plan (BCP) with identified
processes, roles and responsibilities to mitigate disruption to the business
and community
InvoCare Annual Report 2020 | 32
Reconciliation of financial information
The Company results are reported under Australian Accounting
Standards (AASB). This report and associated market releases
include certain non-IFRS measures including reference to operating/
non-operating measures of profitability and associated performance
measures that are used internally to assess the performance of the
business.
The Company considers Operating EBITDA and Operating profit
after income tax as key performance measures. These measures
are considered to provide more useful indications of the Group’s
recurring earnings base and exclude the impact of significant items
such as material impairments, asset sales gains/losses and costs
of restructuring operations. Operating measures also exclude the
impact of accounting for the Group’s funds under management and
pre-paid funerals business which requires net gains and losses from
undelivered pre-paid contracts to be included in reported profit. These
gains and losses are non-cash and do not impact on the Company’s
business operations.
The table below presents a reconciliation of statutory results as
disclosed in the consolidated statement of comprehensive income
and operating results in Note 1 Operating segments.
Year ended 31 December
Revenue
Expenses
EBITDA
Depreciation and amortisation
Business acquisition costs
Net gain/(loss) on pre-paid contracts
Asset sales gain/(loss)
Impairment loss on intangibles
EBIT
Net finance costs
Tax
Non-controlling interest
2020
Non-
operating
results
$’000
Operating
results
$’000
Statutory
results
$’000
Operating
results
$’000
2019
Non-
operating
results
$’000
Statutory
results
$’000
476,249
1,403
477,652
499,665
683
500,348
(373,684)
(6,350)
(380,034)
(355,232)
(8,026)
(363,258)
102,565
(4,947)
97,618
144,433
(7,343)
137,090
(44,280)
(1,918)
(12)
(44,292)
-
(1,918)
(36,973)
(2,021)
(13)
(36,986)
-
(2,021)
-
-
-
(16,618)
(16,618)
7,383
7,383
(19,500)
(19,500)
-
-
-
45,550
45,550
2,404
2,404
(24,404)
(24,404)
56,367
(33,694)
22,673
105,439
16,194
121,633
(20,484)
(3,386)
(23,870)
(23,213)
(1,247)
(24,460)
(8,405)
(167)
527
-
(7,878)
(167)
(23,024)
(10,261)
(33,285)
(136)
-
(136)
Net profit/(loss) after income tax attributable to
equity holders of InvoCare Limited
EPS (cents per share)
OPEX to sales %
EBITDA margin (%)
EBIT margin (%)
27,311
(36,553)
(9,242)
59,066
4,686
63,752
20.4
53%
22%
12%
(27.3)
(6.9)
54%
20%
4.7%
51.7
46%
29%
21%
4.1
55.8
48%
27%
24%
The table above summarises the key reconciling items between
The Directors also consider that the presentation of all activities
net profit after tax attributable to the Company’s equity holders
related to the mark-to-market fair value movements in the
and operating EBITDA and EBIT. The operating EBITDA and EBIT
independently controlled funds under management and pre-paid
information included in the table above has not been subject to any
contract liabilities as non-operating in nature and therefore these are
specific audit or review procedures by the auditor but has been
also excluded from Operating EBIT and Operating profit after income
extracted from the accompanying financial report.
tax. This is considered to provide a better reflection of the Company’s
As well as impairments and gains or losses arising from disposals
of assets, items included in the non-operating column include the
financial consequences of all activities related to the administration and
financial impacts of the pre-paid funerals business. This has resulted in
normalisation adjustments to revenue and operating expenses to reflect
the exclusion of the financial impact of the business.
core business performance and results. It also removes volatility from
the reported profit and loss that arises from the fair value activities
required by accounting standards on these pre-paid funerals business
related assets and liabilities.
InvoCare Annual Report 2020 | 33
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Operating and financial review continued
Glossary for operating and financial review
Term
AV
Description
Term
Description
Audio visual equipment including technology to
Interest cover
Calculated as Operating EBITDA/Net finance
facilitate live streaming of funeral services
ratio
costs. Interest cover calculation used for bank
Average capital
Average of opening and closing capital
employed
employed
Average working
Average of opening and closing working capital
capital
Average working
Average working capital divided by Operating
capital % of
Revenue for a 12 month period
sales
B2B/B2C
Business to business/Business to consumer
Compound annual growth rate
Capital expenditure
CAGR
CAPEX
Capital
employed
covenant testing purposes uses an Adjusted
EBITDA measure (primarily adjusted to include
proforma earnings from acquisitions and
costs arising from restructuring initiatives) and
adjusted net finance costs to exclude interest
arising from AASB 16 lease accounting
Leverage ratio
Calculated for disclosure purposes as Net debt/
Operating EBITDA. Leverage calculation used
for bank covenant testing purposes uses an
Adjusted EBITDA measure (primarily adjusted to
include proforma earnings from acquisitions and
costs arising from restructuring initiatives)
As used in ROCE % calculation. Calculated as
LTIFR
Lost time injury frequency rate
Total equity + Net debt
Maintenance
Recurring annual CAPEX required to maintain
Cash conversion
Ungeared, tax free operating cash flows divided
CAPEX
facilities
%
by Operating EBITDA
Memorialisation
Revenue earned from the sale of memorials,
Cash realisation
Calculated as Operating cash flow/ (Operating
revenue
plaques, burial plots etc. in the Memorial Parks
%
NPAT + Depreciation and amortisation expense)
COVID-19
COVID-19 pandemic
Dividend payout
Dividend per share/Operating EPS
MTM
NBO
ratio
business
Mark-to-market
Network & Brand Optimisation program of
projects as part of Protect & Grow Strategy
EBITDA margin
Operating EBITDA/ Operating revenue
Net debt
Cash and cash equivalents + Borrowings +
EGM
EPS
Executive General Manager
Earnings per share, calculated as Reported
profit/(loss)/ weighted average number of
shares
ERP
Enterprise Resource Planning, the main Oracle
general ledger financial system used by the
business
Funeral case
Calculated as funeral gross revenue (including
average
disbursements)/funeral case volume
Funeral case
Number of funeral services undertaken
volume
FUM
Funds under management in the pre-paid
funerals business
Gearing ratio
Calculated as Net debt / (Net debt + Total
shareholder’s equity)
Growth CAPEX
CAPEX undertaken to expand existing
operations or further growth prospects
Finance leases
NPS
Net Promoter Score, calculated based
on customer feedback with Group score
representative of Australia and New Zealand
only
Operating
Reported profit excluding non-operating items
earnings after
and associated tax
tax
Operating
EBITDA
Operating earnings before business acquisition
costs, interest, tax, depreciation and
amortisation
Operating EBIT
Operating earnings before interest and tax
Operating EPS
Operating net profit after tax/weighted average
number of shares
Operating
leverage
Means the percentage growth in Operating
EBITDA divided by the percentage growth in
Operating revenue
Operating
revenue
Revenue for the Group excluding revenue
earned from pre-paid funerals business
OPEX % sales
Operating expenses / Operating revenue
InvoCare Annual Report 2020 | 34
Term
PCP
PPE
Pet case
average
Description
Prior corresponding period
Personal protective equipment
Pet cremation revenue/pet cremation volume
Pet cremation
The number of pets cremated
volumes
Reported profit/
Net profit/(loss) attributed to shareholders of
(loss)
InvoCare Limited
ROCE %
Calculated as Operating EBIT/Average capital
employed
Ungeared, tax
Calculated as operating cash flow excluding
free cash flows
net finance costs paid and tax paid adjusted by
net funds from pre-paid contracts (Payments
to funds under management for pre-paid
contract sales and receipts from funds under
management for pre-paid contracts performed)
sourced from investing cash flows and other
cash flows related to pre-paid contracts
WFH
Work from home
Working capital
Inventories + Trade and other receivables +
Trade and other payables
InvoCare Annual Report 2020 | 35
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited
The Board presents the 2020 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 2020. 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 main headings:
PAGE
SECTION WHAT IT COVERS
36
A
Who is covered by the report –
Key Management Personnel
A. Who is covered by the report –
Key Management Personnel
For the purposes of this report, the Key Management Personnel
37
39
41
47
57
59
B
C
D
E
F
G
Remuneration snapshot 2020
(KMP) are those persons who have the authority and responsibility
2020: How did we perform?
Remuneration governance and framework
Executive KMP remuneration
Non-Executive Director remuneration
Additional information
for planning, directing and controlling the activities of the Group or a
major operation within the Group as listed in Tables 1 and 2 below.
Table 1 – Independent Non-Executive Directors (NED)
Name
Role
Date
appointed
Date
resigned
Bart Vogel
Chairman
1 October
N/A
of the Board
2017
Richard Davis
Non-Executive
21 February
N/A
Director
2012
Jackie McArthur
Non-Executive
1 October
N/A
Director
2018
Megan Quinn
Non-Executive
1 October
N/A
Director
2018
Keith Skinner
Non-Executive
1 September
N/A
Director
2018
Robyn Stubbs
Non-Executive
1 January
1 February
Director
2017
2021
Table 2 - Executive Key Management Personnel (Executive KMP)
Name
Role
Martin Earp
Damien MacRae
Managing
Director and
Chief Executive
Officer (MD and
CEO)
Deputy Chief
Executive
Officer (Deputy
CEO)
Date
appointed
as KMP
Date
ceasing
as KMP
1 May
2015
31 December
2020
5 February
2018
31 December
2020
Adrian Gratwicke
Chief Financial
Officer (CFO)
3 August
2020
N/A
Josée Lemoine
Former CFO
8 September
2016
3 August
2020
InvoCare Annual Report 2020 | 36
Management of the Group is delegated to the Executive Leadership
Team (ELT) comprising Martin Earp’s direct reports. The Board has
determined that not all members of the ELT are considered Executive
KMP other than those listed in Table 2 above, as they do not have
B. Remuneration snapshot 2020
Total fixed
remuneration
(TFR)
STI outcome
LTI outcome
NED
remuneration
responsibility for planning, directing and controlling a substantial part
The CEO
The average
2015 –
The NEDs
of the operations of the Company. Periodically, changes are made to
and the COO
STI outcome
100% vested
received a 3%
the ELT to reflect the evolving strategy and structure of the Group.
Changes to Executive KMP
During 2020, the Company had the following Executive KMP
changes:
• • Martin Earp – Mr Earp determined not to seek re-appointment
upon conclusion of his six year contract on 31 March 2021.
On 19 November 2020, the Company announced the appointment
of Olivier Chretien, as the new Managing Director and Chief
Executive Officer (MD and CEO) effective 1 January 2021. Mr Earp
stepped down to support Mr Chretien’s transition into his role from
1 January 2021. Therefore, Mr Earp ceased as Executive KMP from
31 December 2020.
• • Damien MacRae – In support of succession planning for the CEO,
Mr MacRae was appointed to the role of Deputy CEO on
1 July 2020, previously from the role of Chief Operations Officer
(COO). Following the appointment of Mr Chretien, the role of
Deputy CEO ceased from 1 January 2021. Therefore, Mr MacRae
ceased as Executive KMP from 31 December 2020.
received a 3%
for the 2020
increase to
year for
TFR effective
Executive
2016 –
100% vested
increase to the
Board base fee
effective
1 January 2020
KMP was
2017 –
1 January 2020
27% based on
0% vested
their balanced
scorecard
2018 –
0% vested
From 1 August
to 30 November
2020, the NEDs
took a 25%
Board base
fee reduction
(COVID-19
related)
I. 2020 Target pay mix
CEO – Target pay mix
• • Josée Lemoine – Ms Lemoine resigned from her position of
36%
Chief Financial Officer and stepped down to assist with the
transition of her responsibilities to Mr Gratwicke from
3 August 2020. Ms Lemoine ceased as Executive KMP from
3 August 2020.
Fixed
remuneration
42%
STI – Cash
STI – Restricted
shares
LTI
8%
14%
Other Executive KMP – Target pay mix
29%
10%
19%
42%
Fixed
remuneration
STI – Cash
STI – Restricted
shares
LTI
InvoCare Annual Report 2020 | 37
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited continued
II. 2020 Remuneration outcome vs financial performance
Element
Purpose
Link to performance
2020 changes and outcome
FIXED REMUNERATION
Total fixed
TFR (base salary plus fixed cost
TFR is benchmarked to be competitive to
There was a 3% TFR increase to the CEO
remuneration
benefits) is targeted at the median of
attract and retain experienced individuals
and COO (effective 1 January).
(TFR)
the market for expected performance
to drive the Company’s strategy.
with the opportunity to earn above
median remuneration for exceptional
performance.
AT RISK REMUNERATION
Promotion of the COO to Deputy CEO
Changes to TFR are linked to a
(Effective 1 July) resulted in a 22.7%
combination of rewarding high
increase to TFR. For further details, see
performance, and the capacity to pay.
Section E. II.
Short term
STI is awarded for achievement of pre-
The following factors are among those
Promotion of the COO to Deputy CEO
incentive (STI)
determined financial and non-financial
considered by the People, Culture
(effective 1 July) resulted in an increased
objectives. This element of remuneration
& Remuneration Committee (PCR
STI from 45% to 70% of TFR. For further
constitutes part of a market competitive
Committee) in making its assessment on
details see Section E. III.
total remuneration package and aims
the achievement of the STI opportunity:
to provide an incentive for eligible roles
to deliver annual business plans that will
lead to sustainable superior returns for
shareholders.
STI for Executive KMP is delivered
through cash with a potential portion that
can be deferred to be settled in the form
of restricted shares.
A deferral STI was introduced to the
Executive KMP and ELT with the purpose
to aid retention and align to market
practices.
For 2020 Executive KMP outcome was
• • Financial performance
27% of target.
There were no deferrals for 2020 as
total STI payments did not exceed the
threshold of $150,000.
For further details of 2020 STI outcome
refer to Table 6 in Section E.III.
• • Our customers
• • Our people
• • Our safety
The STI is measured over a one year
performance period and paid in cash
with a potential portion subject to deferral
paid in the form of restricted shares. The
shares will be held in trust for 12 months.
Refer to Section D. IV. Remuneration
framework for further information.
Long term
The LTI plan is aimed at attracting,
The Company utilises incentives to align
Promotion of the COO to Deputy CEO
incentive (LTI)
rewarding and retaining high performing
the long-term interests of Executive KMP
(effective 1 July) resulted in an increased
Executive KMP, ELT and other nominated
with those of equity holders and to ensure
target LTI from 45% to 70% of TFR.
participants who contribute to the overall
that the participants are rewarded in line
medium and long term success of the
with the economic value created.
A new LTI plan was introduced for
2020. For further details of the changes
Company.
LTI granted are in the form of a
introduced refer to Section D. IV.
combination of options and performance
rights.
Introduction of two performance
hurdles – earnings per share (EPS) with
Participants can choose the mix of
a weighting reduced to 50% of the LTI
vehicles that has most appeal to them.
and the introduction of return on invested
The value of LTI awards offered in 2020
was up to a maximum of 85% of TFR for
capital (ROIC) as a measure rather than a
gate with a weighting of 50% of the LTI.
the CEO and up to a maximum of 70% for
For further details on LTI vesting outcome
other Executive KMP.
for 2020 refer to 2020 LTI outcome below
and Table 10 in Section E.VI.c.
InvoCare Annual Report 2020 | 38
a. 2020 STI outcome
C. 2020: How did we perform?
In the second half of 2020 the PCR Committee reviewed the impact
that COVID-19 was having on both the short term and long term
incentives. This required careful and diligent consideration to ensure
the plans continued to engage and drive performance. As such, the
decision was made to adjust our financial focus for the remainder of
2020 and set separate financial STI targets for the second half of the
year.
All non-financial components of the STI remained unchanged, and
therefore applied across the full year.
In what has been a year of unprecedented disruption, the Company
has reported a net loss after income tax attributed to equity holders
of $9,242,000 for 2020. COVID-19 and the associated government
restrictions had a significant impact on both the Company’s ability to
deliver full-service funeral arrangements and on the mortality rate in
the countries in which its businesses operate.
The Group delivered an Operating EPS of 20.4 cents, 61% below
the prior year, driven by the decline in operating earnings in the year
and the dilutive impact of the increased number of shares on issue
Despite this, business performance in 2020 did not meet agreed
following the equity raising completed in April 2020.
Further details of the analysis of our financial performance for 2020
are provided in the Operating and financial review section.
97.4
57.9
70.9
52.4
63.8
51.7
45.2
41.2
54.5
54.8
45.1
42.2
20.4
2020
(9.2)
2014
2015
2016
2017
2018
2019
Reported profit after income tax ($m)
Operating earnings per share (cents)
financial targets and as a result, the full financial portion of STI has
been forfeited by the Executive KMP.
In the table below, financial targets are set with reference to the annual
budget for the financial year. Refer to Table 6 in Section E.III for details
of STI outcome for each Executive KMP.
Component
Financial
performance
Our
customer
Our
people
Our
safety
2020
performance
targets
Group EBIT
Net Promoter
Score (NPS)
Market share
growth – year on
year
Employee
turnover < 12
month tenure
Lost time injury
frequency rate
(LTIFR)
Weight
50%
10%
2020
performance
outcome
Target was not
met
Target was
partially met
10%
Target was not
met
10%
Target was not
met
20% Target was met
b. 2020 LTI outcome
Grant year
2015
2016
2017
2018
Performance
measure
7-10%
CAGR in EPS
7-12%
CAGR in EPS
Result
Proportion of
award vested
10.3%
100%a
12.3%
100%a
7-12%
CAGR in EPS
ROIC gateway
not met
8-12%
CAGR in EPS
ROIC gateway
not met
0%b
0%b
a CAGR is above the top end of performance measure from the grant
year to the 2019 annual financial results. The vesting tests took place
after the ASX announcement of the 2019 annual results.
b Based on the plan rules, no grants can be vested if return on invested
capital (ROIC) for the year does not exceed the weighted average
cost of capital in the year of testing.
InvoCare Annual Report 2020 | 39
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited continued
Relationship between remuneration and the Company’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 have delivered an annualised 15% shareholders’ return (being the sum of cash dividends
and share price growth) between listing in December 2003 and the end of 2020.
Table 3 outlines the Group’s performance delivered over the last five years. It provides details of the key financial performance indicators which are used
to determine the STI and LTI outcome over the last five years. This table also shows the STI payout percentage to the CEO and the average payout
percentage to the other Executive KMP.
Table 3 – Key financial performance indicators
Net (loss)/profit after income tax attributable
to equity holders of InvoCare Limited ($’000)
Operating EBITDA ($’000)
Operating EBIT * ($’000)
Operating net profit after income tax ($’000)
Basic EPS (cents)
Operating EPS (cents)
Full year dividend per share (cents)
Share price at 31 December ($)
Payout % of Cash STI to CEO
Average payout % Cash STI to other Executive KMP
2020
2019
2018
2017
2016
(9,242)
63,752
41,224
97,439
70,949
102,565
144,433
118,998
124,316
115,344
56,367
27,478
(6.9)
20.4
12.5
11.45
27%
27%
105,439
59,202
55.8
51.7
41.0
13.19
62%
57%
89,366
49,496
37.8
45.2
37.0
10.30
32%
35%
N/A
N/A
63,526
57,417
88.8
57.9
46.0
16.10
69%
67%
64.7
52.4
42.5
13.87
91%
80%
* Operating EBIT was a financial performance indicator only reported from 2018 onwards, no comparatives are provided for the financial years prior to
2018.
InvoCare Annual Report 2020 | 40
D. Remuneration governance and framework
I. Guiding remuneration principles
The guiding remuneration principle underlying the executive remuneration philosophy is to ensure the Company rewards and recognises the delivery
of the Group’s strategy, promoting long term sustainable success, aligning management and stakeholder interests and encouraging behaviours
reflective of the One InvoCare culture. The Company’s remuneration policy follows six guiding principles:
1 Key performance indicators should balance the near-term focus on current year results to drive value creation and the need for sustainable
outcomes
2 Performance for incentive plan purposes is measured at the level which best aligns with driving accountability for the delivery of the business
objectives
3 All variable pay should align reward with the stakeholders and encourage a long-term view
4 It should enable the Company to compete effectively to attract and retain talent
5 Reward must be aligned with, and promote the achievement of the Company’s purpose and consistently demonstrate and promote its Values
6 The KMP and ELT total remuneration is benchmarked to comparable positions in comparably sized 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
II. The Company’s remuneration governance framework
Board of Directors
People, Culture & Remuneration Committee*
Management
Ensuring the Group’s remuneration
Approving the Group’s overall remuneration policy
Implementing of remuneration policies and
framework is aligned with the Group’s
and process.
practices.
purpose, core values, strategic
objectives and risk appetite.
Reporting to the Board on corporate culture within
Providing information relevant to remuneration
the Group and making recommendations to the
decisions and making recommendations to the
Determining Non-Executive Directors
Board regarding corporate governance policies to
PCR Committee with respect to remuneration
and Executive KMP remuneration.
support a strong corporate culture.
arrangements.
Monitoring Executive KMP and the
Reviewing and recommending to the Chair
Making recommendations to the PCR Committee
ELT performance and implementation
arrangements for the Executive KMP and the ELT in
in relation to the design and implementation of the
of the Group’s objectives against
relation to their terms of employment, remuneration
remuneration strategy and structure.
measurable and qualitative indicators.
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.
* The full charter for the PCR Committee is displayed on the Company’s website
III. 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 the Company continually reviews, assesses and adapts the remuneration governance
functions to assist the Board and the PCR Committee in making informed decisions.
During 2020, the PCR Committee commissioned an external consultancy group to provide the following information:
• • Executive remuneration alternatives in response to COVID-19
• • Further work on the new LTI plan
No remuneration recommendations as defined by the Corporations Act 2001 were provided by the external consultancy group.
InvoCare Annual Report 2020 | 41
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited continued
IV. Remuneration framework
TOTAL FIXED REMUNERATION
What is total fixed remuneration
Base salary, superannuation and any other benefits e.g. motor vehicle.
(TFR)?
How is TFR 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 the Company’s
strategy.
Changes to TFR are linked to a combination of rewarding high performance, and market equity.
SHORT TERM INCENTIVE
What is the purpose of the short
STI aims to provide an incentive for the Executive KMP and the ELT to deliver annual business plans that will
term incentive (STI) plan?
lead to sustainable 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.
This year we have introduced a deferral to the Executive KMP and ELT STI plan with the purpose to aid
retention and align to market practices.
The STI plan has been developed to reinforce the Company’s values and behaviours, while supporting a
commercial mindset and alignment to business objectives.
What is the performance period?
The Group’s financial year from 1 January to 31 December.
What is the award opportunity?
In 2020 target STI as a percentage of TFR was 51.4% for the CEO and 70% for the other Executive KMP.
What key performance
STI outcome is directly linked to both individual and Group performance against KPIs. The Board has focused
indicators (KPIs) are measured
the Executive KMP on four main areas:
for STI to be paid?
• • Financial performance
• • Our customers
• • Our people
• • Our safety
STI attainment is determined excluding the impact of changes in accounting standards. For further details of
2020 STI outcomes refer to Table 6 in Section E.III.
What is the relationship between
performance scales and
outcomes?
Performance scales
STI outcome
Below threshold
0% paid
Between threshold and target – for the
50% earned on achievement of threshold level performance,
financial components, threshold is 95%.
increasing on a straight-line basis to 100% for target level
Target
performance.
100% paid
Maximum – for financial
100% earned at target level performance, increasing on a straight-
components only
line basis to 150% earned on achievement of maximum level
performance.
Is over achievement applicable
No. Over achievement is only available on the financial components of the STI and this is capped at 150%.
for all the components of the STI?
Is there a gate to
over achievement?
Yes. Access to over achievement for all financial components is dependent on the Group achieving
EBITDA target.
Are non-financial components
Yes. Non-financial components are capped at 100% payment.
capped?
InvoCare Annual Report 2020 | 42
What are the plan features
50% of any STI award that exceeds $150,000 will be subject to deferral and will be paid in the form of
of the deferral?
restricted shares. The shares will be held in trust for 12 months.
What is the deferral period?
There is a one-year deferral period from grant.
How is the number of shares
The number of shares to be granted will be calculated by dividing the deferred STI amount by the volume
determined?
weighted average price (VWAP) of shares transacted for the first ten days of the trading window immediately
after the announcement of the Company’s ASX annual financial results for the STI performance year.
Will participants have access
Yes. The restricted shares held in trust are entitled to dividends.
to dividends during the deferral
period?
Is there Board discretion on the
Yes. The deferred STI will be paid in InvoCare shares, but the Board retains the discretion to deliver the
payment vehicle used?
deferred STI in cash.
When is STI paid?
Cash STI is payable in the first quarter of each year after the announcement of the Company’s ASX annual
financial results for the previous year ended 31 December.
For deferred STI, restricted shares will be allocated in the first quarter of each year after the VWAP price is
available for the previous year ended 31 December.
Are there any disqualification
All financial performance data relating to the plan is subject to external audit.
provisions?
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.
The Company reserves the right to suspend or alter STI payments to any participant due to any action which
has caused the Group loss or reputational damage. This includes any deferral STI (in the form of restricted
shares) in the event of fraud, malfeasance, dismissal for cause, or other misconduct.
How is STI treated on cessation of
In the event of cessation of employment due to resignation or dismissal for cause, all entitlements in relation to
employment?
the performance period are forfeited. Where an Executive KMP’s employment is terminated by the Company
LONG TERM INCENTIVE
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 STI paid or payable in respect of the immediately
preceding financial year.
Deferred STI will not vest if the individual resigns or is terminated for cause during the deferral period. The
Board retains the discretion to allow deferred STI to remain on foot and vested in the normal course for
approved good leavers. A good leaver will generally be determined by the Board (or its delegate) at the time of
cessation of employment having regard for the facts and circumstances prevailing at that time.
The Company’s long term incentive (LTI) plan seeks to closely align the interests of the senior executive
participants with those of investors to ensure participants are rewarded in line with economic value created.
The following graphic provides a detailed timeline of the key activities of the new 2020 LTI throughout its
lifecycle. Further details comparing the features of 2020 and 2019 and prior terms and conditions of the LTI
plan are provided in the question and answer table below.
2019 Initial
performance
period
Baseline
Grant of
performance rights
and/or options
March 2020
Vesting and
commencement
of restriction period
March 2023
Performance rights
and/or options
exercisable
March 2024
Performance period
Restriction period
2019
2020
2021
2022
2023
2024
Jan Mar
Dec
Jan Mar
Dec
Jan
Mar
Dec
Jan
Mar
Dec
Jan Mar
Dec
Jan Mar
Dec
What is the purpose of the long
The LTI plan is aimed at attracting, retaining and rewarding high performing executives who contribute to the
term incentive (LTI) plan?
overall medium and long-term success of the Company.
InvoCare Annual Report 2020 | 43
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited continued
Who participates in the LTI plan?
Participation is limited to Executive KMP and selected senior management positions by invitation and as
approved by the Board.
What size of award is granted?
The 2020 LTI target opportunity was 85% of TFR for the CEO and 70% for the other Executive KMP.
How are the grants calculated?
The number of options is calculated based upon the value of LTI to be awarded in options divided by the option
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
ten-day VWAP for InvoCare shares starting from the first day of the trading window immediately following the
announcement of the annual financial result.
CHANGES TO THE LTI PLAN
2019
2020
Plan features
The LTI awards are in the form of options and
Participants are able to choose a mix of options and
performance rights subject to vesting conditions.
performance rights but are limited to the following
The ratio of options and performance rights are
combinations:
at 75% and 25% for participants.
• • 100% of either options or performance rights
• • 50% each of options and performance rights
• • 25% of one, and 75% of the other
What are the performance
The performance hurdles for the
The performance hurdles for the 2020 LTI plan:
hurdles?
2016-2019 LTI plans:
• • Continued employment condition and
• • Compound annual growth (CAGR) in normalised
EPS over the vesting period
EPS is calculated based on “normalised earnings”
meaning 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
• To remove impacts of pre-paid contracts and
associated funds under management
• • Continued employment condition and
• • Two performance hurdles:
• 50% weighting on EPS
• 50% weighting on ROIC
EPS is calculated based on the Operating EPS
adjusted to reflect constant currency.
ROIC in each year is calculated based on Operating
EBIT divided by the average invested capital.
Is there a gateway before
A ‘gateway’ condition must be met before any LTI
Removal of gateway.
any LTI awards can vest?
awards can vest. The gateway requires a minimum
level of return on invested capital (ROIC) greater than
the weight average cost of capital (WACC).
ROIC is a performance hurdle in addition to
CAGR in EPS.
What are the performance
Performance is measured over four years:
Performance is measured over three years.
and vesting periods?
• • Tranche One – 50% vest in year three
• • Tranche Two – 50% vest in year four
Vesting of the options and performance rights are
tested on the third and fourth anniversary of their
grant. Unvested awards at the fourth anniversary of
the grant are automatically forfeited.
Vesting of the options and performance rights are
tested at the end of this three year period, subject to a
further 12 months restriction period.
It also permits for malus in the event of governance
concerns with Board discretion to be applied
if performance is impacted by events outside
management’s control.
InvoCare Annual Report 2020 | 44
Do we allow for re-testing?
If performance measures are not met on the third
Re-testing has been removed.
anniversary they are again tested on the fourth
anniversary.
What are the performance
Subject to the ROIC gateway condition,
50% on EPS
conditions?
the EPS performance conditions applying for
LTI awards are as follows:
For 2018 and 2019:
• • 8% to 12% CAGR in EPS results in
30% to 100% of LTI vested
For 2016 and 2017:
• • 7% to 12% CAGR in EPS results in
30% to 100% of LTI vested
• • 6% to 10% CAGR in EPS results in
30% to 100% of LTI vested
50% on ROIC
• • 10% to 12% average ROIC over the three-year
period results in 30% to 100% of LTI vested
Are there dividends
or voting rights?
There are no dividends or voting rights attached to
There are no voting rights attached to the options and
the options and performance rights awarded. It is
performance rights awarded.
only if the options and performance rights vested and
exercised that there will be any entitlement.
Performance rights are entitled to dividends, if
determined. Dividends will only be paid, in the form
of shares, if the performance rights vested and
exercised.
Why were these
measures chosen?
CAGR 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 conclusion include:
• • The Company is a unique and relatively stable business
• • EPS growth is aligned with the Company’s strategic objectives and is intended to underwrite appropriate
dividend returns to shareholders
ROIC was selected as the second performance measure as it is intended to ensure effective capital
deployment and maintenance of balance sheet strength.
What happens on ceasing
For the options and performance rights to vest, the employee must be employed at the date of vesting unless
employment?
the termination of employment has been determined to be a good leaver.
For good leavers, providing a participant has at least three years’ employment with the Company and has
not engaged in proscribed conduct (meaning serious and wilful misconduct, wilful disobedience, gross
negligence or incompetence, disqualification under the Corporations Act or serious breaches of contract
of employment), the Board may at its discretion allow unvested LTI grants to continue to be on foot and
vest subject to the original terms and performance conditions attached to the relevant grants, regardless of
whether or not the participant is employed by the Company at the relevant vesting time.
If no determination is made by the Board, all unvested LTI 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
of control occurs?
appropriate for the unvested LTI to continue on foot, the Board has the discretion to determine the extent to
which all or part of any unvested LTI may vest and the specific performance testing to be applied.
Is there a clawback policy
Payments or vesting related to performance conditions associated with an LTI are subject to a clawback
included?
policy. The Group will seek to recover all or part of an executive’s incentives that have 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
• • Actions or inactions seriously damaging the Group’s reputation or putting the Group at significant risk and/or
• • A material abnormal occurrence resulting in an unintended increase in the award
InvoCare Annual Report 2020 | 45
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited continued
When would Board discretion
Board discretion may be applied to either operating earnings or capital employed in the calculation of EPS or
be considered?
ROIC. The guiding principle will be to ensure fairness in assessing LTI vesting outcome and alignment with
shareholder interests.
Any Board discretion applied will be disclosed at the latest when vesting occurs.
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), including
limiting the economic risk of holdings of unvested entitlements associated with LTI securities.
InvoCare Annual Report 2020 | 46
Directors’ Report
Remuneration report – audited
Executive KMP remuneration
E. Executive KMP remuneration
I. CEO 2020 remuneration details
a. What was target and actual remuneration in 2020?
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 are 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.
Target remuneration represents total potential remuneration of TFR, STI (achieved at 100% for both financial and non-financial targets and
reflected through cash and restricted shares) and LTI awarded (at 100% subject to performance and employment conditions to be met).
2020 CEO maximum, target and actual take home
Maximum
Target
Actual take
home*
40.1%
42.3%
38.6%
16.2%
9.6%
34.1%
$2,283,644
14.3%
7.4%
36.0%
$2,165,911
5.4%
56.0%
$2,377,067
0
400,000
800,000
1,200,000
1,600,000
2,000,000
2,400,000
Fixed remuneration
STI - cash
STI - restricted shares
LTI
Total remuneration in $
* Inclusive of LTI award in 2020 related to 2015 and 2016 grants vested when performance hurdles were tested post 2019 annual results announcement.
Refer to Table 5 below for further detail.
b. 2020 CEO remuneration breakdown
Total fixed remuneration (TFR)
TFR of $916,206 per annum.
Short term incentive (STI)
Target STI of $470,930 (51.4% of TFR).
The balanced scorecard was based on the following:
• • Financials 50%
• • Our customer 20%
• • Our people 10%
• • Our safety 20%
The CEO received 27% of target STI for 2020.
100% of this was received in cash.
For further detail on 2020 STI outcome refer to Table 6 below.
Long term incentive (LTI)
Target LTI of $778,775 (85% of TFR).
Of the maximum LTI award, 75% is in options and 25% in performance rights.
For all the grants which were up for performance hurdle testing during 2020, 2015 Tranche Three, 2016
Tranches Two and Three were 100% vested and 2017 grant hurdles were not met.
For further details on LTI vesting outcomes for 2020 refer to Table 10 in Section E.VI.c below.
InvoCare Annual Report 2020 | 47
Performance Review12Directors’ Report3Financial Report4Other Information
Directors’ Report
Remuneration report – audited
Executive KMP remuneration continued
II. Executive KMP remuneration details – actual received
This section provides details of the cash and value of other benefits
STI paid in cash and vested LTI exercised or exercisable.
actually received by the Executive KMP. This is a voluntary disclosure
Refer to table notes below for further details on how these
to provide shareholders with increased clarity and transparency in
amounts were determined.
relation to Executive KMP remuneration.
Director’s discretion was considered in the determination of both the
Actual pay in Table 5 below represents the pre-tax take home amounts
2020 STI and 2020 LTI awards. For the Executive KMP who were in
by each Executive KMP for the financial years ended 31 December
their roles for the full financial year, the 2020 LTI calculations of EPS
2020 and 2019. This consists of cash salary, non-monetary benefits,
and ROIC will be adjusted to take account of the impairment of the
NZ business and Compass ERP system.
Table 5 - Executive KMP remuneration details – actual pre-tax received
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Share
based
payments
Total
Cash
salary 1
$
Short term
incentive-
cash 2, a
$
Non-
monetary
benefits 1
$
Super-
annuation 1
$
Termination
payments
$
Long
service
leave
accruals
$
Shares,
options and
perform-
ance
rights 3
$
$
Martin Earp
Damien MacRae,
Deputy CEO commenced
1 July 2020 (formerly COO) b
Adrian Gratwicke,
appointed 3 August 2020 c
2020
818,809
126,880
77,075
25,000
2019
794,270
283,776
77,127
25,000
2020
595,750
104,571
4,678
25,000
2019
525,000
127,653
4,730
25,000
2020
272,211
63,652
1,949
10,847
Former Executive KMP ceased during the financial year
Josée Lemoine, resigned
and ceased as Executive KMP
effective 3 August 2020
2020
290,148
50,000
3,119
15,925
2019
430,008
120,251
4,730
25,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,329,303
2,377,067
-
-
-
-
1,180,173
729,999
682,383
348,659
130,869
490,061
-
579,989
Footnotes to Table 5
Table notes to Table 5
a Based on performance in 2020, the PCR Committee determined the
Executive KMP forfeited an average of 73%, achieving an average of
27% of their target STI opportunity. Refer to Table 6 below for further
details.
1 Cash salary, non monetary benefits and superannuation represents
actual amounts received during the financial year. Cash salary
excludes the movement of annual leave accruals.
2 STI awarded based on 2020 and 2019 achievement of performance
b Damien MacRae was promoted to Deputy CEO on 1 July 2020.
targets and payable in cash.
His remuneration package was increased accordingly to reflect the
increased scope of the role and external market positioning.
c Adrian Gratwicke commenced in the role of CFO on 3 August 2020.
His remuneration package was commensurate with his skills and
extensive experience combined with the external market positioning.
For 2020, 50% of the STI awarded that exceeded $150,000 would
be subject to deferral and paid in the form of restricted shares. The
shares would be held in trust for 12 months. Therefore, any deferred
portion of the 2020 STI is not included as take home pay for 2020.
3 For 2020, LTI awarded related to 2015 and 2016 grants vested
when performance hurdles were tested post 2019 annual results
announcement. The vested and exercised/exercisable performance
rights and options were converted or convertible to InvoCare shares
during 2020. The value in Table 5 above represents the variable
weighted average price (VWAP) of InvoCare shares for the financial
year ended 31 December 2020 times the number of vested and
exercised/exercisable performance rights and options. The VWAP
over the period was $11.10.
For 2019, no LTI vested when performance hurdles were tested post
2018 annual results announcement.
InvoCare Annual Report 2020 | 48
III. Executive KMP 2020 STI outcomes
Table 6 below provided details of each Executive KMP’s balance scorecard and the achievements and the financial outcomes during the financial year
ended 31 December 2020.
Table 6 – Executive KMP 2020 STI outcomes
Executive KMP
Performance
target
Achievement
%
Target STI
potential
$
Actual STI
awarded
as a % of
target
STI potential
%
Actual STI
awarded
$
STI forfeited as
a % of target STI
potential
%
Financial
Customer
People
Safety
Financial
Customer
People
Safety
Financial
Customer
People
Safety
Martin Earp
Damien MacRae a
Adrian Gratwicke b
Footnotes to Table 6
-
35
-
100
-
35
-
100
-
35
-
100
470,930
27
126,880
73
388,125
27
104,571
73
236,250
27
63,652
73
a Damien MacRae was promoted to Deputy CEO on 1 July 2020. His target STI potential reflects 45% of current TFR from the 1 January to 30 June 2020
and 70% of current TFR from 1 July to 31 December 2020, or 57.5% of TFR for the financial year ended 31 December 2020.
b Adrian Gratwicke’s target STI potential reflects 70% of TFR which was pro-rated to six months in 2020.
InvoCare Annual Report 2020 | 49
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited
Executive KMP remuneration continued
IV. Executive KMP remuneration details – statutory basis
Table 7 below discloses the remuneration for Executive KMP calculated in accordance with statutory requirements and Accounting Standards. Refer
to table notes underneath Table 7 for the relevant statutory and accounting requirements.
Table 7 – Total Executive KMP remuneration – statutory basis
Short-term employee benefits
Post-employment
benefits
Long-term
benefits
Cash
salary 1
$
Short term
incentive-
cash 2
$
Non-
monetary
benefits 3
$
Super-
annuation 4
$
Termination
payments
$
Long
service
leave
accruals 5
$
Share
based
payments
Shares,
options and
perform-
ance
rights 6
$
Total
$
Martin Earp a
Damien MacRae,
Deputy CEO commenced
1 July 2020 (formerly COO) a
Adrian Gratwicke,
appointed 3 August 2020 a
2020
875,719
126,880
77,075
25,000
2019
842,702
283,776
77,127
25,000
-
-
(62,453)
101,709
1,143,930
13,097
(232,563)
1,009,139
2020
568,607
104,571
4,678
25,000
428,909
(16,675)
80,951
1,196,041
2019
527,017
127,653
4,730
25,000
2020
297,365
63,652
1,949
10,847
Former Executive KMP ceased during the financial year
Josée Lemoine, resigned
and ceased as Executive KMP
effective 3 August 2020 a,b
2020
308,888
50,000
3,119
15,925
2019
431,676
120,251
4,730
25,000
-
-
-
-
8,749
(68,779)
624,370
1,499
137,018
512,330
(24,301)
812
354,443
7,262
(154,260)
434,659
Footnotes to Table 7
Table notes to Table 7
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 7 above are:
• Martin Earp: 80% fixed and 20% at-risk
(2019: 96% fixed and 4% at-risk)
• Damien MacRae: 84% fixed and 16% at-risk
(2019: 91% fixed and 9% at-risk)
• Adrian Gratwicke: 61% fixed and 39% at-risk
• Josée Lemoine: 86% fixed and 14% at-risk
(2019: 100% fixed and 0% at-risk)
2019 remuneration mix had a higher fixed remuneration compared
to 2020. This was impacted by the negative value of share based
payments value in 2019. The share based payments value in 2019
was lower than 2020 due to the performance hurdle forecast being
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 Josée Lemoine resigned during 2020. No STI was awarded,
however, in recognition of Ms Lemoine’s contribution to the Company
during her service and transition support to the incoming CFO,
a special bonus of $50,000 was paid to her for her assistance in
completion of all handover duties as agreed.
Ms Lemoine’s unvested performance rights and options granted
under the 2017, 2018 and 2019 LTI plans will remain on foot and will
be subject to the relevant performance hurdles before any vesting
occurs. No performance rights or options under the 2020 LTI plan
were granted to Ms Lemoine.
No termination benefits have been provided to Ms Lemoine on
cessation of her employment.
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.
2 The amount to be settled in cash relating to performance of the
Group and the individual for the financial year from 1 January to
31 December. The proportions of STI bonuses awarded and forfeited
are set out in Table 6 in Section E.III of this Remuneration Report.
3 Non-monetary benefits represent the costs to the Group, including
any fringe benefits tax, for the provision of fully maintained cars, free
car 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 share based payments value in Table 7 above represents the
amount of sign-on incentive, deferred STI and LTI (in the form of
unvested shares, options and performance rights) grants made
in the current and past financial years. They are accounted for in
accordance with AASB 2 Share-based Payments. Subject to
meeting the vesting conditions of the grants, the shares, options or
performance rights will vest, or be forfeited, in future financial years.
Table 8 below provides the breakdown of share based payments.
InvoCare Annual Report 2020 | 50
Table 8 – Breakdown of share based payments
Deferred STI
in the form of
shares
$
Sign-on
incentive in
the form of
shares
$
LTI in the
form of
shares
$
LTI in the
form of
options
$
LTI in the
form of
performance
rights
$
Total share
based
payments
$
Martin Earp
Damien MacRae,
Deputy CEO commenced
1 July 2020 (formerly COO)
Adrian Gratwicke,
appointed 3 August 2020 a,b
2020
2019
2020
2019
2020
Former Executive KMP ceased during the financial year
Josée Lemoine,
resigned and ceased as Executive
KMP effective 3 August 2020 b
2020
2019
Footnotes to Table 8
-
-
-
-
-
-
-
-
-
-
-
108,008
-
-
2,275
54,631
44,803
101,709
236,939
(384,191)
(85,311)
(232,563)
-
-
-
-
-
-
80,951
80,951
(51,584)
(17,195)
(68,779)
-
29,010
137,018
406
406
812
(126,305)
(27,955)
(154,260)
a Adrian Gratwicke received a sign-on incentive in the form of shares held in trust. One third each of the total number of shares granted will be vested on
1 July 2021, 2022 and 2023 respectively provided that Mr Gratwicke meets the employment condition at the date of vesting.
b The share based payments for both Adrian Gratwicke and Josée Lemoine are only recognised for the period from the date commenced as or up to the
date ceasing as Executive KMP.
V. Executive KMP employment terms
The total remuneration package is reviewed annually and the key terms are summarised below.
Role
Martin Earp
Term of
agreement
Notice period
(by company or
by employee)
Post
employment
restraints
Termination benefits
1 April 2018 –
31 March 2021
Six months
12 months
No redundancy payment entitlements. If there are any
termination entitlements to be paid, they will be limited by
the current Corporations Act 2001 (Cth) or the ASX Listing
Rules or both.
Damien MacRae
No expiry date
Six months
12 months
Any payment required under the Fair Work Act 2009 (Cth)
Adrian Gratwicke
No expiry date
Six months
12 months
Any payment required under the Fair Work Act 2009 (Cth)
InvoCare Annual Report 2020 | 51
Performance Review12Directors’ Report3Financial Report4Other Information
Directors’ Report
Remuneration report – audited
Executive KMP remuneration continued
VI. Share based payments
a. 2020 Deferred Employee Share Plan’s grant
As part of the CFO appointment during 2020, Adrian Gratwicke received a one-off sign-on incentive in the form of 30,000 InvoCare shares, which will
be held in trust within the InvoCare Deferred Employee Share Plan (DESP). The shares will vest in three equal tranches on 1 July 2021, 1 July 2022 and
1 July 2023, respectively, provided that he is still employed by InvoCare at those dates and the applicable vesting conditions are met as described in
the DESP rules. Table 9 below provides details of the fair value and maximum value for the sign-on incentive granted.
Table 9 – Fair value and maximum value for sign-on incentive
Grant
Executive KMP
Grant date
Fair value per
sign-on incentive
$
Number of
shares granted
Performance
period
Maximum value to
be recognised from
grant date
$
Adrian Gratwicke
15/06/2020
11.1
30,000
15 June 2020
to 1 July 2023
333,000
Shares granted
under DESP
b. 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 (LTIP)) and shares (under the Deferred Employee Share Plan (DESP), 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 E.VI.c below for the performance to date of all LTI grants impacting the value of Executive KMP remuneration.
InvoCare Annual Report 2020 | 52
c. Performance to date of LTI grants
i. Performance Long-term Incentive Plan’s grants
Table 10 below summarises the performance to date for the LTI grants under the LTIP since 2016 which impact remuneration in the current or a future
financial year.
Table 10 – Performance of outstanding LTI granted under LTIP
Grant
Tranche
Performance hurdles a
Tranche One
30% vesting at 7% CAGR
100% vesting at 12% CAGR
Tranche Two
Pro-rata vesting in between 7% and 12%
February 2019
Tranche Three
0% vesting if less than 7% CAGR
February 2020
Tranche One
30% vesting at 7% CAGR
February 2019
2016 grant
– three equal
tranches
2017 grant
– three equal
tranches
2018 grant
– two equal
tranches
2019 grant
– two equal
tranches
Tranche Two
Tranche Three
Tranche One
Tranche Two
Tranche One
Tranche Two
2020 grant
– one
tranche, two
performance
hurdles
50% of
2020 grant
50% of
2020 grant
Footnotes to Table 10
100% vesting at 12% CAGR
Pro-rata vesting in between 7% and 12%
0% vesting if less than 7% CAGR
30% vesting at 8% CAGR
100% vesting at 12% CAGR
Pro-rata vesting in between 8% and 12%
0% vesting if less than 8% CAGR
30% vesting at 8% CAGR
100% vesting at 12% CAGR
Pro-rata vesting in between 8% and 12%
0% vesting if less than 8% CAGR
30% vesting at 6% CAGR
100% vesting at 10% CAGR
Pro-rata vesting in between 6% and 10%
0% vesting if less than 6% CAGR
30% vesting at 10% ROIC
100% vesting at 12% ROIC
Pro-rata vesting in between 10% and 12%
ROIC
0% vesting if less than 10% ROIC
First testing /
vesting date
February 2018
Performance
target at
grant date
Retesting
of unvested
rights
Vesting
outcome
%
No retesting is
required
49.7 cents b
First test in 2019
Retest in 2020
First test in 2020
First test in 2019
Retest in 2020
Retest in 2021
First test in 2020
Retest in 2021
First test in 2021
100
0
100
100
0
0
0
0
0
0
0
65.4 cents b
February 2020
February 2021
February 2021
First test in 2021
57.8 cents c
February 2022
N/A
N/A
February 2022
N/A
N/A
35.9 cents c
February 2023
N/A
N/A
March 2023
46.9 cents c
N/A
N/A
March 2023
N/A
N/A
a The performance targets are annual compound normalised EPS growth (CAGR) and/or return on invested capital (ROIC) from 1 January of grant year.
b Including financial performance on funds under management on pre-paid contracts.
c Excluding financial performance on funds under management on pre-paid contracts.
InvoCare Annual Report 2020 | 53
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited
Executive KMP remuneration continued
d. Fair value and maximum value for LTI grants
Table 11 provides the fair value and the maximum potential value of all outstanding LTI grants at grant date for the Executive KMP.
If the performance conditions are not met, the minimum value of the LTI will be nil.
Table 11 – Fair value and maximum value for LTI grants
Grant
Executive KMP
Grant date
Number
of LTI
granted
Fair value
per LTI
$
Performance
period
Maximum value
to be recognised
from grant date
$
Shares granted
under DESP
Martin Earp
31/03/2015
13.74
17,410
1 January 2015 to 31 December 2019
01/01/2016
01/01/2017
Martin Earp
01/01/2018
Options
granted under
LTIP a
Damien MacRae
01/01/2019
01/01/2020
01/01/2018
01/01/2019
2.40
2.93
2.78
2.51
0.58
2.78
2.51
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
272,934
1 January 2020 to 31 December 2022
66,772
1 January 2018 to 31 December 2022
73,954
1 January 2019 to 31 December 2023
Former Executive KMP ceased during the financial year
Josée Lemoine c
01/01/2016
01/01/2017
01/01/2018
01/01/2019
01/01/2016
01/01/2017
Martin Earp
01/01/2018
01/01/2019
01/01/2020
01/01/2018
Performance
rights granted
under LTIP b
Damien MacRae
01/01/2019
01/01/2020
Adrian Gratwicke d
15/06/2020
2.40
2.93
2.78
2.51
12.08
14.06
13.91
12.96
9.70
13.91
12.96
9.70
9.70
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
14,098
1 January 2020 to 31 December 2022
4,448
1 January 2018 to 31 December 2022
4,279
1 January 2019 to 31 December 2023
26,336
1 January 2020 to 31 December 2022
17,107
15 June 2020 to 3 August 2023
Former Executive KMP ceased during the financial year
Josée Lemoine c
01/01/2016
01/01/2017
01/01/2018
01/01/2019
12.08
14.06
13.91
12.96
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
239,200
384,750
390,521
567,069
567,067
158,302
185,625
185,625
35,410
135,000
137,699
137,699
128,250
130,174
189,023
169,413
136,751
61,875
55,456
255,459
165,938
35,410
45,000
45,900
41,135
Footnotes to Table 11
a The grant date fair value of the options granted under LTIP was
c No LTI was granted to Josée Lemoine for the financial year ended
determined using Black-Scholes valuation methodology.
31 December 2020.
b The grant date fair value of the performance rights granted for 2016 to
2018 under LTIP equalled the ten-day VWAP starting from the first day
of the trading window immediately following the announcement of the
full year result. From 2019 grants onwards, the grant date fair value
of the performance rights granted under LTIP was determined using
Black-Scholes valuation methodology.
d The performance period for the 2020 grant to Adrian Gratwicke is
from 15 June 2020 (i.e., the signing date of the employment condition
which is deemed to be the commencement date of performance
period as per AASB 2) instead of 3 August 2020. The performance
targets are the same as the 2020 grant for other Executive KMP, ie
50% CAGR on EPS and 50% on ROIC from 1 January 2020.
InvoCare Annual Report 2020 | 54
e. Movements in LTI grants
Table 12 provides the movement of all outstanding LTI grants for the Executive KMP during 2020.
Table 12 – Movement of LTI grants
Grant
Executive KMP
Number
of LTI held at
1 January
2020
Number
of LTI
granted
during 2020
Number of LTI
vested and
exercised
during 2020
Number
of LTI
lapsed
during 2020
Number of
LTI held at
31 December
2020
Shares granted
under DESP
Options
granted
under LTIP
Performance
rights granted
under LTIP
Martin Earp
Adrian Gratwicke
Martin Earp a
Damien MacRae
5,804
-
723,502
140,726
Former Executive KMP ceased during the financial year
Josée Lemoine b
Martin Earp
Damien MacRae
Adrian Gratwicke
165,221
42,997
8,727
-
-
(5,804)
30,000
272,934
-
-
14,098
26,336
17,107
-
-
-
-
(7,078)
-
-
Former Executive KMP ceased during the financial year
Josée Lemoine
11,629
-
(1,954)
-
-
-
-
-
-
-
-
-
-
30,000
996,436
140,726
165,221
50,017
35,063
17,107
9,675
Footnotes to Table 12
a At 1 January 2020 and 31 December 2020, Martin Earp held 53,438 and 160,313 vested and exercisable options, respectively.
b At 1 January 2020 and 31 December 2020, Josée Lemoine held 4,918 and 14,754 vested and exercisable options, respectively.
VII. Loans to Executive KMP
There were no loans at the beginning or at the end of the financial year ended 31 December 2020 to the Executive KMP. No loans were made available
to the Executive KMP during 2020.
VIII. The year ahead – What can we expect in 2021?
a. STI 2021
The Executive KMP 2021 STI opportunity will be subject to key performance conditions and weightings as listed in Table 13.
Table 13 – 2021 STI performance targets
Component
2021 performance targets
CEO –
weight
CFO –
weight Why this was chosen?
Financial
performance
Group EBITDA
30%
30% The Company’s key performance metric
Group case volume
10%
10% Case volume is an indicator of revenue growth
Personal financial objective
10%
10% Alignment of KMP’s STI reward with key objectives for the year
Our customer
Net Promoter Score
10%
10% Customer feedback and satisfaction remains core to the service offering
Our people
Employee turnover
< 12 months tenure
10%
10%
People are the Company’s greatest asset. This encourages greater
involvement and consideration around all recruitment activity in the regions
Our safety
culture in the workplace. The safety components reflect both a lead and a
LTIFR
15%
15% The Company continues to reinforce its commitment to a strong safety
Workplace inspections
5%
5%
lag measure.
Personal
Project objective
10%
10% Alignment of KMP’s STI reward with key objectives for the year
InvoCare Annual Report 2020 | 55
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited
Executive KMP remuneration continued
b. 2021 Executive KMP changes announced
i.
Olivier Chretien – Managing Director and Chief Executive
Officer, effective 1 January 2021
ii
Martin Earp – Former Chief Executive Officer ceasing 31
March 2021
Mr Olivier Chretien has been appointed to the position of Chief
The following provides an overview of final payments upon conclusion
Executive Officer effective 1 January 2021, and Managing Director
of Mr Earp’s six year contract in 2021:
effective 4 January 2021.
TFR of $1,025,000 per annum.
Total fixed
remuneration
(TFR)
Short term
incentive (STI)
• • Fixed remuneration until 31 March 2021
• • Payment for completion of agreed handover arrangements
• • Grant of 2021 LTI pro-rated for the period ended 31 March 2021
Target STI of $717,500 (70% of TFR).
• • Unused accrued annual leave entitlements until 31 March 2021
The STI is based on Mr Chretien’s achievement of
iii. Damien MacRae – Former Deputy Chief Executive Officer
key performance indicators prescribed by InvoCare
ceasing 5 February 2021
for the relevant financial year.
If Mr Chretien’s STI award exceeds $150,000,
50% of the value that exceeds this amount will be
The following provides an overview of final payments upon
redundancy of Mr MacRae. They included all items in accordance to
the statutory requirements for his redundancy:
deferred and paid into the Company’s shares held in
• • Fixed remuneration until 5 February 2021
trust. There is a one year deferral period from grant.
The Board retains a discretion to deliver deferred STI
in cash.
Long term
incentive (LTI)
Target LTI of $717,500 (70% of TFR).
• • Remaining contractual notice period from 6 February to 30 June
2021
• • Redundancy payments in accordance with statutory requirements
• • Unused accrued annual leave entitlements until 5 February 2021
Mr Chretien will be eligible to participate in the
Company’s Long Term Incentive Plan, under
which he may be granted performance rights and/
or options (subject to shareholders’ approval).
For the financial year ending 31 December
2021, the maximum value of Mr Chretien’s LTI
will be $717,500. Vesting of the LTI is subject
to performance and continuous employment
conditions.
Sign-on incentive: Mr Chretien will receive a one-off sign-on incentive
to the value of $400,000, in the form of InvoCare shares (subject
to shareholders’ approval). The shares will be allocated and held in
trust and pursuant to the terms of the InvoCare Deferred Employee
Share Plan (DESP). The shares will vest two years after Mr Chretien’s
appointment date provided that he is still employed by InvoCare at
that date and the applicable vesting conditions as described in the
DESP rules and accompanying offer letter have been satisfied.
InvoCare Annual Report 2020 | 56
Directors’ Report
Remuneration report – audited
Non-Executive Director remuneration
F. Non-Executive Director remuneration
I. Fee structure and policy
The following table outlines the Non-Executive Directors (NEDs) fee
policy and any changes introduced for 2021.
Maximum
Non-Executive Directors’ base fee for services
Additional or
The base fees exclude any remuneration determined
aggregate
as Directors is determined within an aggregate
special duties
by the Directors where a Director performs additional
fees
Directors’ fee pool cap, which is periodically
approved by
approved by shareholders. At the date of this report,
shareholders
the pool cap is $1,250,000, being the amount
approved by shareholders at the AGM held on
22 May 2015.
Contracts
Upon appointment to the Board, all NEDs receive a
letter of appointment which summarises the Board
policies and terms, including compensation, relevant
to the office of Director.
Non-
The Board reviews NED fees on an annual basis in
Executive
line with general industry practice. This ensures fees
Director fee
are appropriately positioned in the market to attract
reviews
and retain high calibre individuals.
or special 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.
Superan-
The fees set out above include superannuation
nuation
contributions in accordance with relevant statutory
requirements.
NEDs are entitled to be reimbursed for all reasonable
Equity
NEDs may receive options as part of their
costs and expenses incurred by them in performing
participation
remuneration, subject only to shareholder approval.
No options are held by any NED at the date of this
report.
NEDs 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 NEDs are allowed up to three years to
accumulate the required shareholding.
NEDs equity holdings are set out in Table 16
in Section G.
Post
NEDs are not entitled to any compensation on
employment
cessation of employment.
benefits
their duties.
NED fee changes 2020
To maintain market equity, the Board determined an
increase of 3% to the base fee from 1 January 2020
to the Chairman and the NED roles.
No change to the Chair of the Audit, Risk &
Committee fee was made in 2020.
Following the half year financial results with the
impact of COVID-19, it was agreed that NEDs would
take a 25% reduction to their fees for four months
from 1 August to 30 November 2020. This reflects
the continued alignment with all our stakeholders.
NED fee changes 2021
There are no changes to the Board base fees in
2021. In recognition of the additional workloads for
Chairs of committees and alignment, the decision
was made to extend the current Chair fee of $11,560
for the Audit, Risk & Compliance Committee to the
Chairs of both the Investment Committee and the
People, Culture & Remuneration Committee.
Refer to Table 14 for details of 2020 fees including
reduced NED fees from 1 August to 30 November
2020 as well as 2021 fees. The aggregation of all
Board and committee fees for 2020 and 2021,
respectively, remains below the current pool limit.
InvoCare Annual Report 2020 | 57
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Remuneration report – audited
Non-Executive Director remuneration continued
Table 14 – Non-Executive Director fees (inclusive of superannuation)
Board/Committee
Role
Per role
$
2020
Total *
$
From 1 January 2021
Per role
$
Total
$
Board base fee
Chairman
285,691
261,883
285,691
285,691
Non-Executive Directors
142,840
654,683
142,840
714,200
Audit, Risk & Compliance Committee
Chairman
11,560
10,597
Investment Committee
Chairman
People, Culture & Remuneration Committee Chairman
-
-
-
-
11,560
11,560
11,560
11,560
11,560
11,560
Total
927,163
1,034,571
*
Following the half year financial results with the impact of COVID-19 the NEDs took a 25% reduction to their fees for four months from 1 August to
30 November. Therefore, the total annual Board base fee in 2020 column was less than the annual amount per role.
II. Non-Executive Director’s remuneration details
Table 15 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. During the financial year ended
31 December 2020, the Non-Executive Directors took a reduced Board base fee received during the period from 1 August to 30 November 2020.
Therefore, total remuneration for the financial year ended 31 December 2020 was lower than that for the prior financial year.
Table 15 – Total Non-Executive Director’s remuneration
Short-term
employee benefits
Post- employment
benefits
Board and
committee fees
$
Superannuation
$
240,535
253,306
119,577
126,648
119,577
126,648
119,577
126,648
129,254
137,205
119,577
126,648
21,348
24,064
11,420
12,032
11,420
12,032
11,420
12,032
12,279
13,035
11,420
12,032
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Total
$
261,883
277,370
130,997
138,680
130,997
138,680
130,997
138,680
141,533
150,240
130,997
138,680
Bart Vogel
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
InvoCare Annual Report 2020 | 58
G. Additional information
Table 16 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 16 – 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
2020
Number
Grant as
compensation
Number
Exercise of LTI
vested during
2020
Number
Net other
changes during
2020
Number
Non-
Executive
Directors
Bart Vogel
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
Martin Earp
Damien MacRae
Adrian Gratwicke b
Executive
KMP
16,129
200,000
4,000
-
1,084
7,905
22,671
1,000
-
Former Executive KMP ceased during the financial year
Josée Lemoine
977
Footnotes to Table 16
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,882
-
-
1,954
3,214
(40,000)
480
-
2,884
-
(17,119)
3,884
-
-
Total shares
held directly and
indirectly as at
31 December
2020 a
Number
19,343
160,000
4,480
-
3,968
7,905
18,434
4,884
-
2,931
a Shares held indirectly are included in the column headed Total shares held at 31 December 2020. Total shares are held directly by the KMP and indirectly
by the KMP’s related parties, inclusive of domestic partner, dependants and entities controlled, jointly controlled or significantly influenced by the KMP.
b Adrian Gratwicke commenced as Executive KMP from 3 August 2020 and therefore there were no shares held as at 1 January 2020.
This concludes the Remuneration Report which has been audited.
InvoCare Annual Report 2020 | 59
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Other statutory matters
Directors
The directors of InvoCare Limited at any time during or since the end of the financial year are as follows. Directors were in office for the entire period until
otherwise stated.
Name
Bart Vogel
Martin Earp
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
Role
Chairman
Date of appointment/resignation
Chief Executive Officer and Managing Director
Resigned 4 January 2021
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Resigned 1 February 2021
Directors appointed subsequent to balance sheet date
Olivier Chretien
Chief Executive Officer and Managing Director
Appointed 4 January 2021
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
Company
Period of directorship
Bart Vogel
Martin Earp
Richard Davis
Jackie McArthur
Megan Quinn
Macquarie Telecom Limited
Infomedia Ltd
Salmat Limited
None
Australian Vintage Ltd
Monash IVF Group Limited
Inghams Group Limited
Tassal Group Limited
Blackmores Limited
Qube Holdings Limited
City Chic Collective Limited (formerly known as Specialty Fashion
Group Limited)
Reece Limited
Keith Skinner
Emeco Holdings Limited
Since 2014
Since 2015
From May 2017 to November 2019
Since 2009
Since 2014
Since 2017
Since 2018
From April 2018 to August 2019
Since 2020
Since 2012
Since 2017
Since 2017
Robyn Stubbs
Aventus Group – Aventus Retail Property Fund and its subsidiaries
Since 2015
Brickworks Limited
Since 2020
Directors appointed subsequent to balance sheet date
Olivier Chretien
None
InvoCare Annual Report 2020 | 60
Directors’ profiles
Bart Vogel BCom (Hons), FCA, FAICD
Richard Davis BEc
Independent Non-Executive Chairman
Independent Non-Executive Director
Bart Vogel was appointed to the InvoCare Board of Directors
Richard Davis was appointed to the InvoCare Board of Directors
on 1 October 2017, and as Chairman of the Board
on 21 February 2012.
from 1 October 2018.
Richard is the Chair of Investment Committee and serves on the
Bart serves on the Audit, Risk & Compliance Committee, People,
People, Culture & Remuneration Committee and Nomination
Culture & Remuneration Committee and Nomination Committee.
Committee.
Bart’s career includes 20 years in the management consulting
Richard previously retired as InvoCare’s Chief Executive Officer
industry, as a partner with Deloitte Consulting, A.T. Kearney and
and Managing Director on 31 December 2008 after 20 years with
Bain & Company, focused on the technology and services sectors.
InvoCare. For the majority of that time, he held the position of Chief
In his consulting roles, Bart has spent extensive time working in
Executive Officer and successfully initiated and managed the growth
global markets with multinational corporates and government
of the business through a number of ownership changes and over
bodies. He also spent 13 years in senior executive roles at Asurion
20 acquisitions, including Singapore Casket Company (Private)
Australia, Spherion Limited and as the Asia Pacific leader of Lucent
Limited, the Company’s first international acquisition.
Technologies.
Richard is the Chairman of Australian Vintage Limited and Monash
Bart is a director of listed companies Infomedia Ltd (serves as
IVF Group Limited. Richard is also serving as Chairman of Singapore
Chairman) and Macquarie Telecom Limited. He is also a Director of
Casket Company (Private) Limited.
BAI Communications and of the Children’s Cancer Institute Australia
and was a Director of Salmat Limited (delisted on 3 September 2020).
InvoCare Annual Report 2020 | 61
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Other statutory matters continued
Jackie McArthur BEng MAICD
Megan Quinn GAICD
Independent Non-Executive Director
Independent Non-Executive Director
Jackie McArthur was appointed to the InvoCare Board of Directors
Megan Quinn was appointed to the InvoCare Board of Directors
on 1 October 2018.
on 1 October 2018.
Jackie serves on the Audit, Risk & Compliance Committee,
Megan serves on the Audit, Risk & Compliance Committee, People,
Investment Committee and Nomination Committee.
Culture & Remuneration Committee and Nomination Committee.
Jackie has over 20 years experience at board and executive levels
Megan is internationally regarded as a transformation, marketing,
in strategic planning processes, organisational design, operations,
retail and business expert and is invited to speak and consult on
franchising systems, retail, supply chain, logistics, transport, food
service, innovation, creativity, strategy, building a global brand,
processing and manufacturing, emerging brand issues and crisis
business excellence and customer experience for companies,
management, risk management, corporate social responsibility and
conferences and media outlets around the world. Named a global
compliance issues, as well as governance at a global level, across
game changer and one of Australia’s most powerful women in retail,
Australia, Asia and globally.
Megan was a co-founder of the world’s premier online luxury fashion
Most recently she was managing director, Australia and New Zealand,
retailer, NET-A-PORTER.
of Martin-Brower ANZ, the exclusive distributor to McDonald’s
Megan is a Director of listed companies City Chic Collective Limited
restaurants across Australia and New Zealand. Previously, for more
and Reece Limited. Having previously served on the Board and
than 13 years, she held various senior executive positions with
national committee of UNICEF Australia, she is an advocate for the
McDonalds, both in Australia and overseas, including vice president
Rights of the Child,and is a passionate ambassador of Fitted For
of supply chain for Asia Pacific, Middle East and Africa and, in
Work.
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,
Tassal Group Limited and Qube Holdings 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.
InvoCare Annual Report 2020 | 62
Keith Skinner BCom, FCA, GAICD
Olivier Chretien MEng, MBA, GAICD
Independent Non-Executive Director
Managing Director and Chief Executive Officer
Keith Skinner was appointed to the InvoCare Board of Directors
Olivier Chretien was appointed as Managing Director and Chief
on 1 September 2018.
Keith is the Chair of Audit, Risk & Compliance Committee and serves
Executive Officer effective from 1 January 2021. Mr Chretien was
appointed to the InvoCare Board of Directors on 4 January 2021.
on the Investment Committee and Nomination Committee.
Olivier was recently Group Chief Strategy Officer with Ramsay Health
Keith has a strong record in business management, restructuring,
finance, accounting, risk and governance. He commenced his career
as an auditor with Deloitte Australia in 1974, later moving to the firm’s
Care, where he was in charge of Group Strategy, M&A and Ventures,
the Australian Pharmacy business, and a Director of the European and
Asian JV Boards.
Restructuring Services division, and was appointed a partner in 1986.
Prior to this, Olivier spent 12 years with Wesfarmers. His last role was
He was a leading practitioner for company turnarounds for over a
Managing Director, Business Development for the Group, where he
decade, before becoming Chief Operating Officer of Deloitte Australia
was also a Director of retail divisional Boards for Coles, Bunnings,
in 2001.
Since retirement in 2015, Keith has been a Director of a number of
public and private organisations including Emeco Holdings Limited,
North Sydney Local Health Board and not for profit organisation
Kmart and Officeworks. He was previously the Managing Director
of the Wesfarmers Industrial & Safety division for seven years, with
more than 4,000 employees and 250 locations across Australia, New
Zealand, China, Indonesia and the United Kingdom.
Lysicrates Foundation. He has also been Independent Chair of
Prior to Wesfarmers, he spent nine years with Boston Consulting
the Audit and Risk Committee of the Australian Digital and Health
Group in France and Australia, consulting to clients in the
Agency and has consulted to a number of organisations on strategy
pharmaceuticals and travel and tourism services industries. He
execution, restructuring and operational improvement.
started his career in engineering.
Olivier holds an Executive MBA (AMP) from Harvard Business School
(Boston USA), an MBA from INSEAD (France), and a Master of
Engineering from Ecole Centrale de Paris (France).
InvoCare Annual Report 2020 | 63
Performance Review12Directors’ Report3Financial Report4Other Information Directors’ Report
Other statutory matters continued
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 2020, 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
Name
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Bart Vogel
Martin Earp
Richard Davis
Jackie McArthur
Megan Quinn
Keith Skinner
Robyn Stubbs
19
19
19
19
19
19
19
19
19
19
19
19
19
19
4
-
-
4
4
4
-
4
-
-
4
4
4
-
-
-
5
5
-
5
5
-
-
5
5
-
5
5
5
-
5
-
5
-
5
5
-
5
-
5
-
5
8
-
8
8
8
8
8
8
-
8
8
8
8
8
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
Significant changes in the state of affairs
The significant changes in the state of affairs during the financial year
were as follows:
• • During April 2020, the Company undertook a fully underwritten
institutional placement and a Share Purchase Plan which raised
a total of $270,862,000 in capital net of costs. Part of the capital
raised was used to reduce borrowings, continue growth projects
and increase liquidity during the COVID-19 pandemic
• • During the financial year, the Group acquired the following business
assets and companies. Further details of these acquisitions are
provided in Note 18 Business combinations:
• The business assets of Galaxy Funerals based in Sydney, New
South Wales. Galaxy Funerals is a specialist business providing
funeral care to the Chinese community, with religious and
non-religious backgrounds
• Family Pet Care Pty Limited which is the provider of pet
cremation services and has a presence in Western Australia,
South Australia, Victoria and Southern New South Wales
• The pet cremation business assets of Pets in Peace which is
based in Queensland
Other than the matters as stated above, there were no other
Heidi Aldred BEcon, LLB
Heidi Aldred was appointed as Company Secretary on 15 March 2019.
significant changes in the state of affairs of the Company during the
Heidi, a qualified lawyer, has over 20 years experience in secretarial
financial year.
and general counsel roles in a wide variety of areas with both listed
and unlisted companies. Her early career included working with
legal firms Arnold Bloch Leibler and Allens Linklaters (formerly Arthur
Robinson & Hedderwicks).
InvoCare Annual Report 2020 | 64
Dividends
Non-audit services
Details of dividends paid or determined by the Company during the
Details of the amounts paid or payable to the auditor for non-audit
financial year ended 31 December 2020 are set out in Note 4.
services provided during the financial year by the auditor are outlined
Subsequent events
Refer to Note 17 for details of a property sale in January 2021. Other
than this transaction and the Board’s determination of a final dividend
of 7.0 cents per share, fully franked, there have been no other matter
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.
or circumstance arising since 31 December 2020 that has significantly
The Directors are of the opinion that the services as disclosed in
affected the Company’s operations, results or state of affairs, or may
Note 25 to the financial statements do not compromise the external
do so in future financial years.
auditor’s independence requirements of the Corporations Act 2001
Indemnification and insurance of officers
To the extent permitted by law, the Company has indemnified the
directors and executives of the Company 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.
During the financial year, the Company paid a premium in respect of
an 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
The Company is committed to the protection of the environment,
the health and safety of its employees, customers and the general
public, as well as compliance with all applicable environmental
laws, rules and regulations in the jurisdictions in which the Company
operates. 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. The Company has appropriate risk management systems
in place at its locations.
There have been no claims during the year and the directors believe
the Company has complied with all relevant environmental regulations
and holds all relevant licences.
Corporate governance
The Company and the Board of Directors are committed to achieving
and demonstrating the highest standards of corporate governance.
The Board adopts a continuance improvement approach and
regularly reviews corporate governance and reporting practices. For
2020, InvoCare’s Corporate Governance Statement reports against
the 4th Edition ASX Principles and will be published at the time of
publication of the 2020 Annual Report.
The 2020 InvoCare Corporate Governance Statement is available on
the InvoCare website at:
www.invocare.com.au/investor-relations/corporate-governance
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 auditor
• • 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 reports 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 24 February 2021.
Bart Vogel Chairman
Sydney
InvoCare Annual Report 2020 | 65
Performance Review12Directors’ Report3Financial Report4Other Information
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. 66Auditor’s Independence Declaration As lead auditor for the audit of InvoCare Limited for the year ended 31 December 2020, 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 inrelation 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 Sydney Partner PricewaterhouseCoopers 24 February 2021 Financial Report
InvoCare Annual Report 2020 | 67
Financial Report
Introduction
This is the financial report of InvoCare Limited (the Company) and its
PAGE CONTENT
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 place of business is:
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
24 February 2021. The Directors have the power to amend and
reissue the financial report.
About this report
This financial report’s 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.
69
69
70
71
72
73
75
75
78
80
81
82
83
86
88
88
89
90
92
96
99
99
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
Key performance metrics
Note 1. Operating segments
Note 2. Revenue
Note 3. Earnings per share
Note 4. Dividends
Note 5. Expenses
Note 6. Income tax
Note 7. Cash flow information
Significant assets and liabilities
Note 8. Trade receivables
Note 9. Deferred selling costs and revenue
Note 10. Pre-paid contracts
Note 11. Non-current operating assets
Note 12. Intangibles
Capital and risks
Note 13. Financial risk management
106 Note 14. Contributed equity
107 Note 15. Contingencies
108 Note 16. Commitments
108 Note 17. Events after reporting period
109 Business portfolios
109 Note 18. Business combinations
112 Note 19. Interests in subsidiaries
114 Other statutory disclosures
114 Note 20. Share-based remuneration
118 Note 21. Related party transactions
119 Note 22. Parent entity information
120 Note 23. Deed of cross guarantee
122 Note 24. Economic dependence
122 Note 25. Remuneration of auditors
123 Note 26. Other accounting policies
125 Directors declaration
InvoCare Annual Report 2020 | 68
Financial Report
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2020
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
Impairment reversal on cemetery land
Gain on disposal of an associate
Finance costs
Interest income
Net (loss)/gain on undelivered pre-paid contracts
Acquisition related costs
Net gain on disposal of non-current assets
(Loss)/profit before income tax
Income tax expense
Net (loss)/profit after income tax from continuing activities
Net (loss)/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
Total realised loss on early settlement of interest rate swaps reclassified to profit or loss
Net changes to cash flow hedges, net of tax
Changes in foreign currency translation reserve, net of tax
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive (loss)/income for the year, net of tax
(Loss)/profit is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Total comprehensive (loss)/income for the year is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Notes
2
12
11
10
18
6
2020
$’000
477,652
(120,514)
(174,764)
(17,725)
(22,533)
(9,473)
(12,736)
(22,289)
97,618
(44,292)
(25,500)
6,000
-
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
(24,929)
(25,671)
1,059
(16,618)
(1,918)
7,383
(1,197)
(7,878)
(9,075)
(9,075)
(320)
2,419
2,099
(1,091)
1,008
(8,067)
(9,242)
167
(9,075)
(8,234)
167
(8,067)
2020
cents
1,211
45,550
(2,021)
2,352
97,173
(33,285)
63,888
63,888
(1,661)
-
(1,661)
(198)
(1,859)
62,029
63,752
136
63,888
61,893
136
62,029
2019
cents
Earnings per share for (loss)/profit attributable to the ordinary equity holders of InvoCare
Limited
Basic earnings per share
Diluted earnings per share
3
3
(6.9)
(6.9)
55.8
54.9
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2020 | 69
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Consolidated financial statements
Consolidated balance sheet
As at 31 December 2020
Assets
Current
assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Pre-paid contract funds under management
Assets held for sale
Deferred selling costs
Deferred contract assets
Total current assets
Non-current
assets
Trade receivables
Other receivables
Other financial assets
Property, plant and equipment
Right of use asset
Pre-paid contract funds under management
Liabilities Current
liabilities
Non-current
liabilities
Equity
Intangibles
Deferred selling costs
Deferred contract assets
Total non-current assets
Total assets
Trade and other payables
Contingent considerations
Lease liabilities
Derivative financial instruments
Current tax liabilities
Pre-paid contract liabilities
Deferred revenue
Provision for employee entitlements
Total current liabilities
Contingent considerations
Borrowings
Lease liabilities
Derivative financial instruments
Deferred tax liabilities
Pre-paid contract liabilities
Deferred revenue
Provision for employee entitlements
Total non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Retained profits
Parent entity interests
Non-controlling interests
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2020 | 70
Notes
7
8
10
9
8
11
11
10
12
9
18
11
10
9
18
13
11
6
10
9
2020
$’000
118,781
38,757
13,710
44,117
50,268
2,788
3,644
1,541
273,606
29,445
670
4
464,277
144,368
562,863
243,515
34,068
2,525
2019
$’000
19,560
40,679
9,983
45,117
57,552
5,842
4,480
2,409
185,622
31,477
655
4
426,955
144,001
561,837
210,724
35,448
4,040
1,481,735
1,415,141
1,755,341
1,600,763
60,514
9,265
19,465
600
1,874
44,685
28,632
16,613
181,648
7,909
246,039
146,459
548
32,639
496,624
109,086
2,489
60,810
94
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
1,041,793
1,129,736
1,223,441
1,303,784
531,900
497,005
9,977
23,495
530,477
1,423
531,900
296,979
219,826
7,728
68,169
295,723
1,256
296,979
Financial Report
Consolidated financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2020
Attributable to equity holders of InvoCare Limited
2020
Contributed
equity
$’000
Share-based
payment
reserve
$’000
Hedging
reserve
$’000
Foreign
currency
translation
reserve
$’000
Retained
profits
$’000
Non-
controlling
interests
$’000
Total
equity
$’000
Balance at 1 January 2020
219,826
2,055
(2,854)
8,527
68,169
1,256
296,979
Total comprehensive income/(loss)
for the year
Transactions with owners in their
capacity as owners:
Dividends paid (Note 4)
Employee share plan shares vested during
the year
Issue of ordinary shares as part of dividend
reinvestment plan (Note 4)
Issue of ordinary shares, net of transaction
costs
Transfer of shares from the deferred plan to
the InvoCare Exempt Share Plan Trust
Employee shares – value of services
Balance at 31 December 2020
497,005
2019
Balance at 1 January 2019
Change in accounting policy
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 (Note 4)
Issue of ordinary shares, net of transaction
costs
-
-
-
-
48
(16)
5,918
270,862
351
-
-
-
-
-
-
-
1,257
3,296
246
-
246
-
-
2,353
450
(192)
9,137
85,787
-
-
2,099
(1,091)
(9,242)
167
(8,067)
-
-
-
-
-
-
-
-
-
-
-
-
(29,514)
-
(5,918)
-
-
-
-
-
-
-
-
-
(29,514)
32
-
270,862
351
1,257
(755)
7,436
23,495
1,423
531,900
(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
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2020 | 71
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Consolidated financial statements
Consolidated statement of cash flows
For the year ended 31 December 2020
Notes
Cash flows from
operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Other revenue
Interest received
Finance costs
Income tax paid
Cash flows from
investing activities
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 and intangibles
Payments to funds under management for pre-paid contract sales
Receipts from funds under management for pre-paid contracts
performed
Cash flows from
financing activities
Net cash flows from investing activities
Share capital issue, net of transaction costs
(Payments)/proceeds from share option vested and exercised
Proceeds from borrowings
Repayment of borrowings
Payment for early settlement of interest rate swaps
Proceeds from lease arrangements
Principal elements of lease payments
2020
$’000
2019
$’000
505,716
488,008
(421,870)
(393,541)
11,192
95,038
373
6,037
100,504
388
(17,419)
(21,191)
(14,424)
(20,631)
63,568
11,908
59,070
5,565
(40,581)
(15,187)
-
985
(68,136)
(65,289)
(32,169)
(24,976)
45,026
40,842
(83,952)
(58,060)
270,875
85,787
(69)
258
5,000
47,397
(111,761)
(100,500)
(3,115)
-
(11,599)
-
13,598
(9,973)
Dividends paid to InvoCare Limited equity holders
(29,514)
(32,742)
Dividends paid to non-controlling interests in subsidiaries
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
-
119,817
99,433
19,560
(212)
(121)
3,704
4,714
14,776
70
Cash and cash equivalents at the end of the year
7
118,781
19,560
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2020 | 72
Financial Report
Basis of preparation
This consolidated financial report is a general purpose financial report
Critical accounting estimates and judgements
which:
• • Has been prepared in accordance with the Corporations Act 2001,
Australian Accounting Standards (AASBs) and Interpretations
adopted by the Australian Accounting Standards Board, as
appropriate for for-profit oriented entities and the Australian
Securities Exchange (ASX) Listing Rules
• • Complies with International Financial Reporting Standards (IFRS)
The preparation of a financial report that complies with AASBs
requires management to make judgements, estimates and
assumptions.
This can affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
adopted by the International Accounting Standards Board
Estimates and underlying assumptions are reviewed on an on-going
• • Is presented in Australian dollars ($) which is the functional currency
basis. Revisions to estimates are recognised prospectively.
of InvoCare
• • 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:
The significant accounting policies highlight information about
accounting judgements made 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.
The COVID-19 pandemic has not significantly increased the
estimation uncertainty in the preparation of the consolidated financial
• • Included in the relevant notes to which the policies relate, while
statements. A thorough consideration of potential COVID-19 impacts
other significant accounting policies are discussed in Note 26
on carrying values of assets and liabilities, contracts and potential
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
liabilities has been made, with no material impact to the financial
statements, except as recognised in these consolidated financial
statements.
Current and non-current split
The Group presents assets and liabilities in the consolidated balance
sheet as current or non-current:
• • Current assets include assets held primarily for trading purposes,
cash and cash equivalents and assets expected to be realised in,
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 the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the reporting
period
InvoCare Annual Report 2020 | 73
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Basis of preparation continued
Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
The following balance sheet and cash flow items are reclassified
during the current year:
• • Deferred contract assets separated from inventories and
presented on the face of the consolidated balance sheet
• • Capitalised software reclassified from property, plant and
equipment to intangibles
• • Deferred considerations separated from trade and other payables
and presented on the face of the consolidated balance sheet
• • Interest paid on lease liabilities reclassified to finance costs on the
face of consolidated statement of cash flows
Rounding
The Group is of the kind referred to in the ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191
issued by the Australian Securities & Investments Commission.
In accordance with that instrument, amounts in the financial report
have been rounded to the nearest thousand dollars, unless otherwise
indicated.
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 interest, tax, depreciation and
amortisation) and EBIT (earnings before interest and tax) in
Note 1 Operating segments
• • Operating 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.
InvoCare Annual Report 2020 | 74
Financial Report
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
These reportable segments are based on the internal reports that
are reviewed and used by the Chief Executive Officer & Managing
Director (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 the 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.
InvoCare Annual Report 2020 | 75
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
B. Reportable segments information
2020
Australia
$’000
Singapore
$’000
New
Zealand
$’000
Other
$’000
Revenue from external customers
397,756
18,593
50,174
Other revenue (excluding interest income)
8,501
812
1,816
Operating expenses
Adjustment to revenue - pre-paid redemptions*
Adjustment to other revenue - pre-paid redemptions*
Adjustment to operating expenses - pre-paid redemptions*
Operating EBITDA
Depreciation and amortisation
Business acquisition costs
Operating EBIT
Finance costs
Interest income
Non-operating activities (including pre-paid contracts funds under
management)
Impairment loss on intangibles
Impairment reversal
Income tax expense
Non-controlling interest
Net profit/(loss) after income tax
Total goodwill
Total assets
Total liabilities
(326,809)
(10,013)
(43,212)
79,448
9,392
8,778
3,709
(5,113)
6,351
-
-
-
-
-
-
84,395
9,392
8,778
(37,731)
(1,187)
(5,362)
(1,918)
-
-
44,746
8,205
3,416
(18,445)
1,040
(1)
-
(3,097)
19
(18,040)
(19)
479
(6,176)
6,000
-
-
(6,490)
(1,352)
(167)
-
(19,324)
-
(36)
-
2,468
6,833
(18,543)
171,284
14,365
27,057
1,595,502
46,754
113,085
1,135,264
3,866
84,311
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$’000
466,523
11,129
(380,034)
97,618
3,709
(5,113)
6,351
102,565
(44,280)
(1,918)
56,367
(21,543)
1,059
(17,580)
(25,500)
6,000
(7,878)
(167)
(9,242)
212,706
1,755,341
1,223,441
* Adjustment to reclassify the non-operating impacts of performing pre-paid funerals, burial and cremation services to net gain/loss on pre-paid contracts.
InvoCare Annual Report 2020 | 76
2019
Australia
$’000
Singapore
$’000
New
Zealand
$’000
Other
$’000
Revenue from external customers
413,403
20,823
56,033
Other revenue (excluding interest income)
9,176
400
513
Operating expenses
Adjustment to revenue - pre-paid redemptions*
Adjustment to other revenue - pre-paid redemptions*
Adjustment to operating expenses - pre-paid redemptions*
(308,253)
(11,306)
(43,657)
114,326
9,917
12,889
3,855
(4,538)
8,026
-
-
-
-
-
-
-
-
(42)
(42)
-
-
-
Total
$’000
490,259
10,089
(363,258)
137,090
3,855
(4,538)
8,026
Operating EBITDA
Depreciation and amortisation
Business acquisition costs
Operating EBIT
Finance costs
Interest income
Non-operating activities (including pre-paid contracts funds under
management)
Impairment loss on intangibles
Income tax expense
Non-controlling interest
121,669
9,917
12,889
(42)
144,433
(30,775)
(1,201)
(4,997)
(1,984)
-
(37)
88,910
8,716
7,855
(19,561)
(1,309)
(3,552)
1,301
40,739
-
(43)
(20)
-
(31,638)
(1,126)
(136)
-
(47)
(1,368)
(24,404)
(521)
-
-
-
(42)
(2)
-
-
-
-
-
(36,973)
(2,021)
105,439
(24,424)
1,211
39,351
(24,404)
(33,285)
(136)
Net profit/(loss) after income tax
79,615
6,218
(22,037)
(44)
63,752
Total goodwill
Total assets
Total liabilities
119,573
15,514
47,382
-
182,469
1,427,388
47,131
126,105
139
1,600,763
1,156,812
41,774
105,131
67
1,303,784
* Adjustment to reclassify the non-operating impacts of performing pre-paid funerals, burial and cremation services to net gain/loss on pre-paid contracts.
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.
InvoCare Annual Report 2020 | 77
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
Note 2. Revenue
A. Disaggregation of revenue from contracts with customers
The tables below provide detailed disaggregation of revenue derived by the Group.
2020
Funeral services
Memorial Parks
Pet cremations
Rent
Sundry revenue
Australia
$’000
Singapore
$’000
New
Zealand
$’000
Total
$’000
278,699
119,463
4,646
18,593
48,004
345,296
-
-
2,212
121,675
-
4,646
402,808
18,593
50,216
471,617
411
3,039
29
782
121
1,653
561
5,474
Total revenue from continuing operations
406,258
19,404
51,990
477,652
2019
Funeral services
Memorial Parks
Pet cremations
Rent
Sundry revenue
298,868
117,973
816
20,823
53,576
373,267
-
-
2,528
120,501
-
816
417,657
20,823
56,104
494,584
307
4,616
65
335
13
428
385
5,379
Total revenue from continuing operations
422,580
21,223
56,545
500,348
InvoCare’s New Zealand and Singapore businesses were eligible for government subsidies. The government subsidies were recognised as sundry
revenue during the financial year ended 31 December 2020.
B. Critical accounting judgements, estimates and
The 15 year period is based on a periodically updated actuarial
assumptions
I. Significant financing
The Group receives payment from customers for pre-paid funerals,
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
assessment of the average period between a customer entering into a
pre-paid funeral plan and the contract becoming at-need. The actual
history of a pre-paid cemetery/crematorium contract may differ from
the profile of a pre-paid 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
price as if the customer had paid the consideration at the time when
revenue.
the services are performed or the goods delivered).
II. Timing of recognition of deferred plaque and
miscellaneous merchandise revenue
Pre-paid 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 $57,663,000 at
31 December 2020 (2019: $58,617,000).
Actual redemptions information has been collated for a sample of sites
in order to determine a more accurate historical pattern of cemetery/
crematorium pre-paid 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 $3,500,000 (2019: $3,300,000) or
decrease by $1,700,000 (2019: $1,700,000).
InvoCare Annual Report 2020 | 78
C. Accounting policy for revenue recognition
II. Cemetery and crematorium memorial products
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:
(‘memorial products’)
The Group’s deliverables under memorial contracts are:
• • Interment right – An interment right is the right to be committed in a
designated space in a cemetery. The specific site is allocated at the
time of signing the contract. Revenue is recognised when control of
I. Funeral services, including pre-paid funerals, burial and
the interment right and associated memorial passes to the customer.
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 pre-paid funerals,
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, cremation and other services are performed or the
goods supplied
• • Pre-paid (Pre-need) funerals services – The Group enters
into pre-paid contracts to provide funerals, 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 pre-paid 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 pre-paid funeral service contract, the Group
recognises the financing component as a component of revenue.
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 on site 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 Revenue from Contracts with Customers
(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.
InvoCare Annual Report 2020 | 79
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
Note 3. Earnings per share
A. Reported period value
Basic earnings per share
Diluted earnings per share
Operating earnings per share
2020
cents
2019
cents
(6.9)
(6.9)
20.4
55.8
54.9
51.7
C. Weighted average number of shares used in
calculating basic and diluted earnings per share
2020
Number
’000
2019
Number
’000
Weighted average number of shares used in
calculating basic earnings per share
133,927
114,189
InvoCare determines the dividends to be paid for any financial periods
from Operating earnings after tax. Operating earnings is derived from
Adjustments for calculation of diluted
earnings per share:
Share options and rights *
-
1,994
Weighted average number of shares used in
calculating diluted earnings per share
133,927
116,183
* For the year ended 31 December 2020, the potential ordinary shares
issued under the Performance Long-Term Incentive Plan of the Group
were excluded from the calculation because they are anti-dilutive.
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.
basic earnings after excluding earnings generated from all non-
operating activities and the financial impacts of pre-paid contracts.
This is a financial measure which is not prescribed by Australian
Accounting Standards (AASBs) and represents the earnings under
AASBs 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
2020
$’000
2019
$’000
Net (loss)/profit after income tax
(9,075)
63,888
Less: Non-controlling interests
(167)
(136)
Net (loss)/profit after income tax attributable
to InvoCare Limited’s equity holders for
calculating statutory basic and diluted
earnings per share
Less: Non-operating items
(9,242)
63,752
Non-operating EBITDA
4,947
7,343
Net loss/(gain) on pre-paid contracts before
income tax
16,618
(45,550)
Depreciation and amortisation
12
13
Net impairment loss on non-current assets
19,500
24,404
Asset sales gain before income tax
(7,383)
(2,404)
Net finance costs
3,386
1,247
Income tax on non-operating items
(527)
10,261
Operating earnings after income tax for
calculating operating earnings per share
27,311
59,066
InvoCare Annual Report 2020 | 80
Note 4. Dividends
A. Dividends paid
2020
Dividends on InvoCare Limited’s ordinary shares
2020 interim dividend
2019 final dividend
2019
2019 interim dividend
2018 final dividend
Cents
per share
Total
amount
$’000
Tax rate for
franking credit
%
Percentage
franked
%
5.5
23.5
17.5
19.5
7,894
27,538
35,432
20,428
21,451
41,879
30
30
30
30
100
100
100
100
B. Dividends determined and not recognised at
C. Franking credits
year end
On 24 February 2021, the Directors determined a final dividend of
7.0 cents per share, fully franked, to be paid on 22 April 2021. As this
occurred after the reporting date, the dividends determined 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
2020
$’000
2019
$’000
Franking credits available for subsequent
financial years based on a tax rate of 30%
35,133
39,256
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
the directors) calculated over the pricing period (which is at least
• • Franking credits that will arise from the receipt of dividends
five trading days) as determined by the directors for each dividend
recognised as receivables at the reporting date
payment date.
The Company’s DRP operates by acquiring shares on market at no
discount. Election notices for participation in the DRP in relation to this
final dividend must be received by 5 March 2021.
D. Accounting policy for dividends
Dividends are recognised when declared during the financial year.
InvoCare Annual Report 2020 | 81
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
Note 5. Expenses
Profit before income tax includes the following specific expenses:
A. Finance costs
C. Impairment loss – financial assets
2020
$’000
2019
$’000
Interest paid and payable
11,122
14,882
Trade receivables
Interest expense on customer advance
payments
3,232
4,114
D. Leases expense
2020
$’000
2019
$’000
3,598
1,016
Interest expense on lease liabilities
5,297
4,760
Other finance costs
3,156
1,915
Realised loss on early settlement of interest
rate swaps
2,122
-
24,929
25,671
Expense relating to short term leases
936
569
Expense relating to leases of low value assets
not included in short term leases
905
1,841
145
714
Interest expense on pre-paid contracts
20,277
20,331
E. Employee benefits expense
B. Depreciation, amortisation and impairment of
non-current assets
Buildings
5,927
4,646
Defined contribution superannuation expense
10,993
10,750
Share-based payments expense
1,192
(206)
Property, plant and equipment
13,723
14,474
F. Accounting policies
Right of use assets
Total depreciation
Cemetery land
Leasehold land and buildings
Leasehold improvements
Capitalised software
Brand names
16,384
11,406
The accounting policies on the above specified expenses are located
36,034
30,526
445
141
384
170
2,642
1,962
3,574
2,508
1,457
1,436
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.
Amortisation of non-current assets
8,259
6,460
Total depreciation and amortisation
44,293
36,986
Impairment loss on intangibles
25,500
24,404
Impairment reversal of cemetery land
(6,000)
-
Impairment of non-current assets
19,500
24,404
Total depreciation, amortisation and
impairment
63,793
61,390
InvoCare Annual Report 2020 | 82
Note 6. Income tax
A. Income tax expense
D. Deferred tax liability
Current tax
Deferred tax
2020
$’000
2019
$’000
7,232
19,816
(614)
14,326
Under/(over) provided in prior years
1,260
(857)
Income tax expense
7,878
33,285
2020
$’000
2019
$’000
The deferred tax liability balances comprised
temporary differences attributable to:
Amounts recognised in profit and loss:
Cemetery land
30,750
26,626
Property, plant and equipment
2,410
9,013
B. Reconciliation of income tax expense
to prima facie tax payable
(Loss)/profit before income tax
(1,197)
97,713
Prima facie tax at 30% (2019: 30%) on (loss)/
profit before income tax
(359)
29,152
Tax effect of amounts which are not
deductible/(taxable) in calculation of
taxable income:
Deferred selling costs
Prepayments and other
Brand names
Pre-paid contracts
Provisions
Receivables
Accruals and other
Effect of foreign tax rate differences
(296)
(685)
Deferred revenue
Acquisition costs
465
203
Leased assets
Capital gains not subject to tax as offset
against capital losses
(405)
(1,284)
Impairment loss on intangibles
5,850
6,833
Capital losses recognised
Amounts recognised directly in equity:
Cash flow hedge reserve
11,938
12,115
485
(947)
2,408
1,900
21,777
28,202
(6,480)
(5,444)
(1,923)
(618)
(2,483)
(2,044)
(19,318)
(26,302)
(6,593)
(5,628)
-
(826)
(332)
(1,221)
32,639
34,826
Non-deductible interest expense
Effect of interest rate swap settlement
Other items (net)
232
1,005
126
-
-
(77)
6,618
34,142
Under/(over) provision in prior years
1,260
(857)
Income tax expense attributable
to continuing operations
7,878
33,285
C. Tax expense relating to items of other
comprehensive income
Cash flow hedges
880
-
The net movement in the deferred
tax liability is as follows:
Balance at the beginning of the year
34,826
24,314
Net (credit)/charge to statement of
comprehensive income – current period
(614)
14,326
Net credit to statement of comprehensive
income – prior periods
(1,939)
(727)
Amounts recognised directly in equity
880
692
Amounts recognised directly in equity –
transition to AASB 16
-
(5,030)
Additions from business combinations
544
-
Effect of movements in exchange rates
(1,058)
1,251
Balance at the end of the year
32,639
34,826
InvoCare Annual Report 2020 | 83
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
E. Tax losses
The Australian Group has nil capital losses (2019: $2,750,000 gross)
available to offset against capital gains in future years. The capital
losses carried forward at 31 December 2019, for which a deferred tax
asset was recognised, were fully utilised against capital gains made
during 2020. Accordingly no deferred tax asset is recognised at
31 December 2020 in respect of tax losses.
F. 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 Australian’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 $6,618,000
(2019: $34,142,000), representing an effective rate of 28.0%
(2019: 35.1%). An analysis of tax paid, based on tax residency
status, for Australia and the Group is set out below.
Profit/(loss) 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 goodwill
Foreign exempt dividends
Non-deductible interest expense
Other items
Increase/(decrease) due to temporary differences
Unrealised pre-paid contract funds under management gains and losses
Impairment of capitalised software
Impairment of cemetery land
Property, plant and equipment temporary differences
Other items
Current income tax paid or payable
Current income tax paid rate *
Current year income tax expense
Effective tax rate
Prior period tax adjustments
Australia
Group
2020
$’000
2019
$’000
19,924
113,501
5,977
34,050
465
(517)
-
170
(946)
-
(2,478)
(1,026)
-
165
6,655
1,853
(1,800)
(3,422)
(1,118)
5,780
29.0%
5,060
25.4%
1,427
-
68
(12,128)
-
-
(2,017)
(785)
17,386
15.3%
32,017
28.2%
(771)
2020
$’000
(1,197)
(1,000)
465
(405)
5,411
-
232
194
6,655
1,853
(1,800)
(3,529)
(844)
7,232
25.8%
6,618
28.0%
1,260
2019
$’000
97,173
28,467
203
(1,284)
6,833
-
-
26
(12,128)
-
-
(1,834)
(467)
19,816
20.4%
34,142
35.1%
(857)
* Calculated as the total amount of income tax paid divided by the profit before income tax.
InvoCare Annual Report 2020 | 84
Governance of tax planning for the Group has been delegated by
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 pro-active 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
G. Accounting policy for income tax
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.
receives a regular report on the Group’s tax compliance. Tax planning
Deferred tax assets and liabilities are recognised for temporary
initiatives are not implemented until they receive approval from the
Committee. Tax risks and opportunities are rated according to their
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
potential impact which determines whether management or the
enacted or substantively enacted.
Committee has the delegated authority to resolve the matter.
During 2020, capital gains were realised on the sale of land and
buildings. These capital gains were partially offset against capital
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
losses ($2,750,000 gross) carried forward from the year ended
and losses.
31 December 2019.
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
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.
services provided by the Australian operation
Deferred tax assets and liabilities are offset only where there is a
legally enforceable right to offset; 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 assets/liabilities on the balance sheet.
Current and deferred tax balances attributable to amounts recognised
directly in equity are also recognised in equity.
• • Loans from the Australian group to subsidiaries outside Australia
are made occasionally under documented loan agreements.
A loan of NZ$25,000,000 was made by InvoCare Limited to
InvoCare Holdings New Zealand Limited on 30 April 2020
In addition to income tax paid, the Australian group paid the following
types of taxes and fees during 2020:
• • Payroll tax of $6,779,000 (2019: $6,608,000)
• • Fringe benefits tax of $1,791,000 (2019: $1,663,000)
• • Land tax on owned buildings of $5,360,000 (2019: $5,246,000),
to various state governments
• • Council and water rates paid to various authorities of $3,330,000
(2019: $3,162,000)
InvoCare Annual Report 2020 | 85
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Key performance metrics continued
Note 7. Cash flow information
A. Reconciliation of cash flows from operations
B. Non-cash investing and financing activities
with net profit after income tax
2020
$’000
2019
$’000
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 $5,918,000 (2019: $9,137,000)
• • Performance rights and shares issued to employees under the
Employee Share Trusts Plan and employee share scheme for no
cash consideration
Net (loss)/profit from ordinary activities after
income tax
(9,242)
63,752
Adjustments for non-cash items in
(loss)/profit from ordinary activities
Depreciation and amortisation
44,292
36,986
Impairment loss on intangibles
25,500
24,404
Impairment reversal on cemetery land
Share-based payments expense
Loan establishment costs
Net gain on disposal of property, plant and
equipment
(6,000)
1,192
890
-
(206)
679
(7,383)
(2,352)
Unrealised loss/(gain) on pre-paid contracts
16,618
(45,550)
Other pre-paid contract movements
15,749
13,909
Interest expense: customer advance
payments
3,232
4,114
Other non-cash deferred revenue/deferred
selling costs movements
(26,003)
(19,251)
Business acquisition costs classified in
investing activities
1,918
2,021
Changes in assets and liabilities, net of the
effects of purchase and disposal of
subsidiaries
(Increase)/decrease in trade and other
receivables
(1,117)
(20,210)
(Increase)/decrease in inventories
(11)
(7,544)
(Increase)/decrease in deferred contract
assets
(Increase)/decrease in deferred selling
expenses
Increase/(decrease) in trade and other
payables
2,383
1,905
2,217
2,222
(896)
(6,075)
Increase/(decrease) in deferred revenue
(1,583)
Increase/(decrease) in income taxes payable
1,061
538
(673)
Increase/(decrease) in deferred taxes
(1,642)
8,847
Increase/(decrease) in provisions
2,393
1,554
Net cash flows from operating activities
63,568
59,070
InvoCare Annual Report 2020 | 86
C. Net debt reconciliation
D. Cash conversion ratio
The tables set out below provide an analysis of net debt and the
The cash conversion ratio is one of the key cash performance metrics
movements in net debt for the current and last financial year.
of the Group, refer to the table below for detail calculation.
Cash
and cash
equiv-
alents
$’000
Borrow-
ings
$’000
Lease
liabilities
$’000
Net
debts
$’000
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.
19,560
(357,189)
(162,901)
(500,530)
Although the adoption of AASB 15 and AASB 16 have significant
2020
Net debt as at
1 January 2020
Cash flows
99,433
106,761
11,599
217,793
financial impacts on the Group, they have had no cash impact.
Additions/variations
Interest expense on
lease liabilities
Foreign exchange
adjustments
Net debt as at
31 December 2020
2019
Net debt as at
1 January 2019
Recognised due to
adoption of AASB16
-
-
-
-
(9,631)
(9,631)
(5,297)
(5,297)
Operating cash flows
2020
$’000
2019
$’000
63,568
59,070
(212)
4,389
306
4,483
118,781
(246,039)
(165,924)
(293,182)
14,776
(408,245)
-
(393,469)
-
-
(135,629)
(135,629)
Add back: Net finance costs paid
17,046
20,803
Add back: Tax paid
14,424
20,631
Net funds from pre-paid contracts
12,857
15,866
Other cash flows related to pre-paid contracts
1,429
2,406
Ungeared, tax free operating cash flows
109,324
118,776
Operating EBITDA
Cash conversion %
102,565
144,433
107%
82%
Cash flows
4,714
53,103
14,733
72,550
Additions/variations
Interest expense on
lease liabilities
Foreign exchange
adjustments
Net debt as at
31 December 2019
-
-
-
-
(37,245)
(37,245)
E. Cash and cash equivalents
(4,760)
(4,760)
Cash on hand
70
(2,047)
-
(1,977)
Cash at bank
19,560
(357,189)
(162,901)
(500,530)
2020
$’000
2019
$’000
126
119
118,655
19,441
118,781
19,560
Cash at bank is non-interest bearing as at 31 December 2019 and
2020. Therefore, the weighted average interest rate for cash at bank is
rounded to zero for both 2019 and 2020.
InvoCare Annual Report 2020 | 87
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities
This section contains the key assets and liabilities in relation to the three main streams
of businesses, being funeral business (at-need and pre-need) and the cemetery and
crematoria business. These assets and liabilities include:
• • Trade and receivables, deferred selling costs and revenue
• • Pre-paid contracts from the pre-need funeral business
• • Non-current operating assets, being the land for cemetery, crematoria,
plant and equipment for supporting the operations and right of use assets
• • Intangibles recognised for acquired businesses
Note 8. Trade receivables
Current
Trade receivables
Less: loss allowance
Non-current
Trade receivables
Less: loss allowance
2020
$’000
2019
$’000
45,230
44,351
(6,473)
(3,672)
38,757
40,679
29,445
31,480
-
(3)
29,445
31,477
A. Loss allowance
The ageing of the impaired trade receivables provided for above are as follows:
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
2020
%
-
0.2
1.5
10.5
39.4
2019
%
-
0.2
1.0
8.0
21.0
2020
$’000
36,482
13,718
5,765
3,535
15,175
74,675
2019
$’000
32,811
20,047
4,556
2,177
16,240
75,831
2020
$’000
-
27
86
371
5,989
6,473
2019
$’000
-
40
46
174
3,415
3,675
The movements of loss allowance of trade receivables are as follows:
As at 1 January
2020
$’000
2019
$’000
3,675
3,010
Loss allowance recognised during the year
3,667
1,057
Receivables written off as uncollectable
(869)
(392)
As at 31 December
6,473
3,675
InvoCare Annual Report 2020 | 88
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 the objective to collect the
contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method.
2020
Note 9. Deferred selling costs and revenue
This note provided details on the movements for the deferred
selling costs and revenue arising from the sales of pre-paid funeral,
cremation and burial contracts and undelivered memorials and
merchandise for the current and prior financial year.
Deferred
selling
costs
$’000
Deferred
revenue
$’000
Trade receivables are usually due for settlement no more than
Balance as at 1 January 2020
39,928
139,300
30 days from the date of recognition, except where extended payment
terms (up to a maximum of 60 months) have been made available on
cemetery and crematorium memorial contracts for sale of interment
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.
II. Loss allowance on trade receivables
Add/(less): Changes during the year
Revenue deferred: Cash received from
customer instalment payments
Revenue recognised related to transition
adjustment and instalments received
during the year:
Cemetery and crematorium memorial
products
Revenue deferred during the year:
-
9,938
(2,605)
(20,256)
Recognition of significant financing on
customer advance payments: Cemetery and
crematoria memorial products
-
1,955
The Group has applied the simplified approach to measuring
expected credit losses which uses a lifetime expected loss allowance
Revenue deferred: Cemetery and crematorium
memorial products
520
4,720
Revenue deferred: Administration fees pre-
paid funeral service contracts
(131)
371
Recognition of significant financing on
customer advance payments: Administration
fees pre-paid funeral service contracts
Other movements
-
-
1,277
413
Balance as at 31 December 2020
37,712
137,718
Current
Non-current
3,644
28,632
34,068
109,086
Balance as at 31 December 2020
37,712
137,718
for all trade receivables.
To measure the expected credit losses, trade receivables have been
grouped based on shared credit risk characteristics and the days
past due.
When a trade receivable is uncollectible, it is written off against the
loss allowance account for trade receivables. Subsequent recoveries
of amounts previously written off are credited against sundry revenue
in the consolidated statement of comprehensive income.
The occurrence of the pandemic has changed the risk characteristics
of the Group’s trade receivables. During the year, the Group
experienced an increase in the number and amount of uncollectible
trade receivables, due to both the age of the balances and certain
customers’ financial circumstance. At 31 December 2020, the
Group’s loss allowance on trade receivables has been increased
with all of the increase related to the Australian and New Zealand
Funerals businesses. The increase in provision reflects the Group’s
assessment of the potential impact of customers’ inability to repay
debts due to financial hardship caused by the pandemic. The
Group has implemented a range of initiatives to mitigate any further
deterioration in the risk characteristics of its trade receivables,
including requiring the payment of up-front deposits and the
introduction of key performance metrics focused on collecting
outstanding trade receivables. These initiatives have resulted in the
increase in the cash conversion ratio in 2020, however as collection
of older trade receivables remains challenging, an increased provision
was recognised.
InvoCare Annual Report 2020 | 89
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities continued
2019
Deferred
selling
costs
$’000
Deferred
revenue
$’000
Balance as at 1 January 2020
42,150
138,754
Note 10. Pre-paid contracts
A. Statement of comprehensive income impact of
undelivered pre-paid contracts
2020
$’000
2019
$’000
-
11,953
under management
3,659
65,881
Gain on pre-paid contract funds
Add/(less): Changes during the year
Revenue deferred: Cash received from
customer instalment payments
Revenue recognised related to transition
adjustment and instalments received
during the year:
Cemetery and crematorium memorial
products
(2,036)
(16,332)
Revenue deferred during the year:
Recognition of significant financing on
customer advance payments: Cemetery and
crematoria memorial products
-
2,867
Change in provision for pre-paid
contract liabilities
(20,277)
(20,331)
Net (loss)/gain on undelivered
pre-paid contracts
(16,618)
45,550
B. Movements in pre-paid contract funds under
management
2020
$’000
2019
$’000
619,389
563,587
Revenue deferred on cemetery and
crematorium memorial products
(209)
(1,002)
Balance as at 1 January
Revenue deferred on administration fees
Sale of new pre-paid contracts
32,169
24,976
pre-paid funeral service contracts
23
1,614
Recognition of significant financing on
customer advance payments: Administration
fees pre-paid funeral service contracts
Other movements
-
-
1,247
199
Initial recognition of contracts paid by
instalment
3,908
2,494
Redemption of pre-paid contract funds
following service delivery
(45,026)
(40,842)
Increase/(adjustment) due to business
Balance as at 31 December 2019
39,928
139,300
combinations
(968)
3,293
Current
Non-current
4,480
34,913
Increase in fair value of contract funds under
35,448
104,387
management
3,659
65,881
Balance as at 31 December 2019
39,928
139,300
Balance as at 31 December
613,131
619,389
Current
Non-current
50,268
57,552
562,863
561,837
Balance as at 31 December
613,131
619,389
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 pre-paid 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.
InvoCare Annual Report 2020 | 90
C. Movements in pre-paid contract liabilities
E. Classification of pre-paid funds under
2020
$’000
2019
$’000
management and liabilities
Balance as at 1 January
525,383
510,044
Sale of new pre-paid contracts
32,169
24,976
The current and non-current portions of the pre-paid contract
assets and liabilities are disclosed separately to more clearly reflect
the expected pattern of usage associated with the timing of actual
Initial recognition of contracts paid by
instalment
3,908
2,494
contract redemptions.
Decrease following delivery of services
(39,460)
(35,800)
F. Critical accounting judgements, estimates and
Increase/(adjustment) due to business
combinations
(968)
3,338
Increase due to significant financing
20,277
20,331
Balance as at 31 December
541,309
525,383
assumptions
I.
Fair value measurements – Pre-paid contract
funds under management
The fair values of the pre-paid contract funds under management are
44,685
48,885
recognised and measured based on inputs that require judgements
Current
Non current
496,624
476,498
Balance as at 31 December
541,309
525,383
D. Nature of contracts under management and
liabilities
Pre-paid contracts are tripartite agreements, currently entered into
and performed in Australia, whereby InvoCare agrees to deliver a
specified funeral service, cremation or burial at the time of need and
the beneficiary invests the current price of the service to be delivered
with a financial institution and conditionally assigns the benefit to
InvoCare.
and estimates. To provide an indication about the reliability of the
inputs used in determining fair value of the pre-paid 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 pre-paid 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, which is reviewed annually and has remained
The assignment of the benefit of the invested funds to InvoCare only
consistent over the past five years.
G. Accounting policies for pre-paid contracts
The Group records the value of the invested funds as an asset and
revalue 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 pre-paid 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.
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.
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 $6,519,397 (2019: $6,863,000).
During the year, the non-cash fair value movements (i.e. investment
earnings) of $3,659,000 in pre-paid contract funds under
management (2019: $65,881,000) was less than the non-cash
growth due to interest expense increases of $20,277,000 in the
liability for future service delivery obligations (2019: $20,331,000) due
to lower returns on equities and property revaluations.
InvoCare Annual Report 2020 | 91
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities continued
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 and the related lease liability
A. Property, plant and equipment
2020
Composition as at 31 December 2020
Cemetery
land
$’000
Freehold
land
$’000
Buildings
$’000
Leasehold
land and
buildings
$’000
Leasehold
Improve-
ments
$’000
Plant and
equipment
$’000
Total
$’000
Cost
122,579
100,478
246,480
4,534
33,574
160,000
667,645
Accumulated depreciation/amortisation
Accumulated impairment
(9,568)
(9,299)
-
-
Net book value
103,712
100,478
172,959
Movement for the year ended 31 December 2020
(73,521)
(3,832)
(9,188)
(97,960)
(194,069)
-
702
-
-
(9,299)
24,386
62,040
464,277
Opening net book value
97,094
102,503
148,459
843
20,187
57,868
426,954
Additions
Additions through business combinations
Disposals
Depreciation/amortisation charge
Impairment reversal
Effect of movement in exchange rates
Transfers from held for sale
1,146
-
-
(445)
6,000
(83)
-
515
-
32,478
-
(2,670)
(2,090)
-
-
-
6,310
15,939
56,388
668
(102)
1,697
2,365
408
(4,454)
(5,927)
(141)
(2,642)
(13,723)
(22,878)
-
-
(1,671)
(1,177)
1,801
1,216
-
-
-
-
(35)
-
-
6,000
(149)
(3,115)
-
3,017
Closing net book value
103,712
100,478
172,959
702
24,386
62,040
464,277
2019
Composition as at 31 December 2019
Cost
121,519
102,503
216,309
4,534
27,166
142,229
614,260
Accumulated depreciation/amortisation
Accumulated impairment
(9,126)
(15,299)
-
-
Net book value
97,094
102,503
148,459
Movement for the year ended 31 December 2019
(67,850)
(3,691)
(6,979)
(84,361)
(172,007)
-
843
-
-
(15,299)
20,187
57,868
426,954
Opening net book value
92,386
101,965
130,825
1,013
14,289
66,723
407,201
Additions
Business combinations
Disposals
Depreciation/amortisation 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
2,229
(625)
(820)
-
-
-
7,180
21,044
52,160
-
209
6,828
(56)
(15,997)
(17,498)
-
(4,646)
(170)
(1,962)
(14,474)
(21,636)
504
(731)
334
(1,362)
-
-
11
725
137
226
1,016
(1,117)
97,094
102,503
148,459
843
20,187
57,868
426,954
InvoCare Annual Report 2020 | 92
-
-
-
I. Assets in the course of construction
III. Asset held for sale
The carrying amounts of assets disclosed above include the following
Asset held for sale represents property identified as surplus to the
expenditure recognised in relation to property, plant and equipment
Group’s requirement pursuant to the Network & Brand Optimisation
which is in the course of construction.
review carried out as part of the Protect & Grow Plan.
Cemetery land improvements
Freehold buildings
Leasehold improvements
Plant and equipment
2020
$’000
2019
$’000
31
5,571
6,945
22,262
574
2,164
5,141
19,716
Total assets in the course of construction
12,691
49,713
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 except as noted below.
B. Right of use assets and lease liabilities
The Group leases various properties, cemeteries, equipment and
motor vehicles. Rental contracts are typically made for fixed periods of
5 to 10 years, with some leases for periods of 30 years.
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.
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, and leased assets may not be used as
In 2017, the Allambe Gardens Memorial Park was impaired due to a
security for borrowing purposes.
This section provides information for leases where the Group is a
lessee. The consolidated balance sheet shows the following types of
assets and liabilities related to leases:
• • Right of use assets
• • Lease liabilities
reassessment of the land available for memorialisation plots. In 2018,
remediation of the residual land at the Memorial Park commenced.
The remediation of the residual land was completed in January
2020, with sales of burial sites in the new Lakeside development
commencing in 2020. Once all phases of the monumental
developments are complete, the Lakeside development will ultimately
result in over 3,000 burial spaces, increasing the lifespan of the park
by a further 40 years. As a result, a reversal of $6,000,000 of the
previous impairment has been recognised at 31 December 2020
(2019: Nil).
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 2.5% (2019: 3%) in
revenue and 2% (2019: 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% (2019: 9.2%), reflecting the risk estimates for the business as
a whole.
InvoCare Annual Report 2020 | 93
Performance Review12Directors’ Report3Financial Report4Other Information Properties
$’000
Equipment
$’000
Motor vehicles
$’000
Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities continued
I. Right of use assets
2020
Composition as at 31 December 2020
Cost
Accumulated depreciation
Net book value
Movement for the year ended 31 December 2020
Opening net book value
Additions
Additions through business combinations
Depreciation
Effect of movement in exchange rates
Closing net book value
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
Additions
Depreciation
Effect of movement in exchange rates
Closing net book value
II. Lease liabilities on related right of use assets
Current
Non-current
Balance as at 31 December
156,103
(22,924)
133,179
129,359
9,309
6,978
(12,774)
307
133,179
140,536
(11,177)
129,359
121,641
18,895
(11,012)
(165)
129,359
2020
$’000
19,465
146,459
165,924
721
(365)
356
425
27
-
(96)
-
356
694
(269)
425
590
104
(262)
(7)
425
2019
$’000
12,934
149,967
162,901
Total
$’000
171,304
(26,936)
144,368
14,480
(3,647)
10,833
14,217
144,001
130
-
(3,514)
-
10,833
14,350
(133)
14,217
22
14,328
(132)
(1)
9,466
6,978
(16,384)
307
144,368
155,580
(11,579)
144,001
122,253
33,327
(11,406)
(173)
14,217
144,001
InvoCare Annual Report 2020 | 94
C. Critical accounting judgements, estimates and
The cost of improvements to or on leasehold properties is amortised
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
recoverable. Similarly, at each reporting date, the non-financial assets
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 Note A.II above for details of these assumptions and the
potential impact to changes to the assumptions.
II. Determining the lease term
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
over the unexpired period of the lease or the estimated useful 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 carrying amount. Gains
and losses are included in the statement of comprehensive income.
II. Right of use assets and lease liabilities
InvoCare recognises a right of use asset and a corresponding liability
at the date at which the leased asset is available for use by the Group.
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 a constant periodic rate of interest on the
remaining balance of the liability for each period. The right of use asset
is depreciated over the shorter of the asset’s useful life and the lease
term on a straight line basis.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of
terminated). The Group has assessed it is reasonably certain that it will
the following lease payments:
exercise its option to renew all leases.
• • Fixed payments (including in-substance fixed payments), less any
The assessment is reviewed if a significant event or a significant
lease incentives receivable
change in circumstances occurs which affects this assessment and
that is within the control of the Group.
D. Accounting policies
I. Property, plant and equipment
Property, plant and equipment are carried at historical cost less
• • Amounts expected to be payable by the Group under residual
value guarantees
• • 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
depreciation or amortisation. Historical cost includes expenditure that
The lease payments are discounted using the interest rate implicit in
is directly attributable to the acquisition of the items.
the lease. If that rate cannot be determined, the Group’s incremental
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
borrowing rate is used, being the rate that the Group would have to
pay to borrow the funds necessary to obtain an asset of similar value in
a similar economic environment with similar terms and conditions.
will flow to the Group and the cost of the item can be measured
Right of use assets are measured at cost comprising the following:
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
• • Amount of the initial measurement of lease liability
• • Any lease payments made at or before the commencement date
less any lease incentives received
• • 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.
InvoCare Annual Report 2020 | 95
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities continued
Note 12. Intangibles
2020
Composition as at 31 December 2020
Cost
Accumulated amortisation
Impairment
Net book value
Movement for the year ended 31 December 2020
Opening net book value
Additions
Goodwill
$’000
Brand
name
$’000
Capitalised
software
$’000
Total
$’000
256,066
19,748
45,351
321,165
-
(13,349)
(14,765)
(28,114)
(43,360)
-
(6,176)
(49,536)
212,706
6,399
24,410
243,515
182,469
6,465
21,790
210,724
-
-
12,011
12,011
Additions through business combinations
51,676
1,491
366
53,533
Amortisation charge
Impairment loss
Effect of movement in exchange rates
Closing net book value
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
Additions through business combinations
Finalisation of prior period acquisitions
Disposals
Amortisation charge
Impairment loss
Effect of movement in exchange rates
Closing net book value
-
(1,457)
(3,574)
(5,031)
(19,324)
-
(6,176)
(25,500)
(2,115)
(100)
(7)
(2,222)
212,706
6,399
24,410
243,515
206,949
18,549
32,897
258,395
-
(12,084)
(11,107)
(23,191)
(24,480)
-
-
(24,480)
182,469
6,465
21,790
210,724
197,541
7,258
18,377
223,176
-
7,210
1,550
(275)
-
629
-
(9)
5,921
-
-
-
5,921
7,839
1,550
(284)
-
(1,436)
(2,508)
(3,944)
(24,404)
847
-
23
-
-
(24,404)
870
182,469
6,465
21,790
210,724
InvoCare Annual Report 2020 | 96
A. Impairment test for goodwill
B. 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 to 2020, 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
I.
Impairment of New Zealand CGU
Recoverable amount testing for the period ended 31 December 2020
has identified the New Zealand CGU as being impaired.
As at 31 December 2020, an impairment charge of $19,324,000
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 disruption caused by COVID-19 and the subsequent
restrictions imposed by the New Zealand government have hampered
the Group’s ability to operate to planned expectations previously
used to assess the recoverable amount of this business. While some
progress had been made to improve the business, the reassessment
of recoverable value has resulted in a further impairment charge of
$19,324,000 of goodwill for the year ended 31 December 2020.
are based on value-in-use calculations. These calculations use cash
New Zealand is a very traditional market that is fragmenting on price
flow projections based on approved financial estimates covering a
as customer demand has shifted to lower value packages rather
five year period. Cash flows beyond the five year period have been
than larger traditional funeral services. This change in consumer
extrapolated using estimated growth rates. The assessment also
behaviour was previously experienced in Australia prompting the
considered the reasonable possible long term shift in key assumptions
NBO strategy and it was mitigated by the Group’s ability to leverage
which may potentially cause an impairment to arise.
brands such as Simplicity and Value Cremations. The pandemic has
accelerated the change in New Zealand, as restrictions on the number
of funeral attendees and economic pressure on household incomes
has contributed to customers choosing a simpler funeral service for
their loved ones. The Simplicity brand provides some mitigation to
the impact of this change on customer preference. Notwithstanding
the impairment, the Group remains confident that the quality of our
frontline team in New Zealand will continue to provide excellent service
to our client families.
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
Each of the sensitivities below assumes that a specific assumption
moves in isolation, while other assumptions are held constant.
A change in one of the key assumptions could be accompanied by
a change in another assumption, which may increase or decrease
the net impact. A reasonable possible shift in these key assumptions
would result in the following outcomes:
• • Terminal growth rate decreased by 0.5%: $4,800,000
(2019: $6,007,000) additional impairment
• • Post-tax weighted average cost of capital increase by 0.3%:
$3,789,000 (2019: $4,713,000) additional impairment
InvoCare Annual Report 2020 | 97
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Significant assets and liabilities continued
C. Key assumptions used for value-in-use
E. Critical accounting judgements, estimates and
calculations
assumptions
Budgeted cash flows have been based on past performance and
The Group annually considers if events or changes in circumstances
expectations for the future. The growth rates of 2.5% (2019: 3%) in
indicate that the carrying value of goodwill or cash-generating units
revenue, 2% (2019: 3%) in expense and 1% (2019: 1%) in volume
may not be recoverable. Similarly, at each reporting date, cash-
growth projections are not inconsistent with historical trends and
generating units that suffered a previous impairment are reviewed
forecasts included in reports prepared by market analysts. In the
for possible reversals of the impairment. The recoverable amounts
calculation of the terminal value, the long term annual growth rate
are determined based on value-in-use calculations which require the
of the real gross domestic product (GDP) of the country is used as a
use of assumptions. Refer to section C. above for details of these
basis for the terminal growth rate. For goodwill, these assumptions are
assumptions and the potential impact to changes to the assumptions.
based on the CGU to which the goodwill is attributed.
The pre-tax discount rate used for assessing the carrying value of
F. Accounting policies
goodwill in each CGU was as follows:
Australian operations
Singapore operations
New Zealand operations
2020
%
2019
%
9.2
9.2
9.2
9.2
10.0
10.0
I. Goodwill
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
These discount rates reflect the risk estimates for each business as
reversed if the related assets subsequently increases in value.
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. Capitalised software
I.
Impairment of Oracle cloud ERP (Compass)
The Group has been on a three year enterprise resource planning
(ERP) and digital transformation journey, with the journey set to
continue with a second phase of enhancements and transitioning
the Memorial Parks business onto the Oracle cloud ERP platform
(referred to as Compass), including providing a digital interface for
our customers and suppliers. The Group remains committed to
Compass. There have been some challenges through the journey
with some lessons learnt from the early phases of the implementation.
The Group has continued to enhance and update functionality
of Compass in 2020. These enhancements have resulted in the
replacement of certain functionality and significant improvements
in certain modules to ensure the asset is operating as intended.
A detailed analysis of the modules, integrations and functionality
of Compass has identified some modules as having indicators of
impairment at 31 December 2020. As a result, an impairment charge
of $6,176,000 of capitalised software has been recognised.
II. Trademarks and brand names
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
years.
III. Capitalised software
Capitalised software is carried at historical cost less accumulated
amortisation and impairment write-downs. Historical cost includes
expenditure that is directly attributable to the acquisition of the
software. Amortisation is calculated using the straight line method to
allocate the cost of software over its estimated useful life of ten years.
IV. Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation
and are tested annually for impairment or half yearly 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).
InvoCare Annual Report 2020 | 98
Financial Report
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 or
cash flow associated with the
financial asset or liability will
fluctuate due to changes in
market interest rates
• • Financial liabilities: mainly borrowings, pre-
paid contract liabilities, lease liabilities
• • Derivative financial instruments, mainly
interest rate swaps
• • Further information for interest rate risk
exposure and hedging effectiveness is
provided in section A below
• • Managing to the hedge limits in respect of
the policies as approved by the Board
• • Speculative trading is not permitted
Market risk –
The risk in local currency
• • Foreign currency earnings
• • Physical financial instruments, including
foreign currency
terms that the value of a
• • Net investments in foreign operations
financial commitment or a
recognised asset or liability,
will fluctuate due to changes
in foreign currency exchange
rates
• • Foreign currency borrowings
• • Further information on foreign currency risk
exposures is provided in section B below
Market risk –
The risk that the investment
price
returns of funds under
• • Investment returns of the funds under
management of pre-paid contracts
management on pre-paid
contracts impact future
income
• • Majority of the funds under management is
placed with the Over Fifty Guardian Friendly
Society (OFGFS)
• • Further information on pricing risk exposures
is provided in section C below
natural hedges from matching foreign assets
and liabilities
• • Speculative trading is not permitted
• • Maintain Board representation in OFGFS
• • Monitor the investment strategy of OFGFS
and the investment assets mix
Credit risk
The risk that a counterparty
• • Recoverability of receivables
• • The Group’s policy is to only deal with banks
will not be able to meet its
• • Recoverability of other financial assets and
obligations in respect of a
cash deposits
financial instrument, resulting
in a financial loss to the Group
• • Further information on credit risk exposures
is detailed in section D below
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
• • Insufficient levels of committed credit
• • Maintaining sufficient levels of cash
funds to settle financial
facilities
liabilities as and when they
• • Settlement of financial liabilities
fall due
• • Further information on liquidity risk
exposures is detailed in section E below
and committed credit facilities to meet
financial commitments and working capital
requirements
• • Timely review and renewal of credit facilities
InvoCare Annual Report 2020 | 99
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Capital and risks continued
The Group holds the following financial assets and liabilities.
The interest rate swaps position and the coverage on outstanding
2020
$’000
2019
$’000
bank borrowings as at end of the financial years are set out in the table
below.
Financial assets
Cash and cash equivalents
118,781
19,560
Trade receivables
68,202
72,149
Pre-paid contract funds under management
613,131
619,389
Other financial assets
Financial liabilities
Trade and other payables
Contingent considerations
Borrowings
Lease Liabilities
4
4
800,118
711,102
60,514
60,810
17,174
894
246,039
357,189
165,923
162,901
Derivative financial instruments
1,148
4,157
Bank borrowings a
Effective average interest rate as at
31 December
Interest rate swaps position as at
31 December
2020
%
2019
%
3
4
Weighted average fixed interest rate payable
2.49
2.34
Weighted average variable interest rate
receivable
0.12
1.03
Interest rate swaps coverage on outstanding bank borrowings
Australia
New Zealand
Singapore b
490,798
585,951
Combined Australia and New Zealand
39
40
Nil
30
93
87
Nil
91
A. Interest rate risk exposure
(cash flow and fair value)
The Group’s main interest rate risk arises from long term borrowings.
All bank borrowings are initially at variable interest rates determined by
a margin over the reference rate based on the Group’s leverage ratio.
Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. The Group’s policy is to keep 75% of debt, measured
by individual currency, on fixed interest rates over the next 12 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.
In addition to bank borrowings, the Group also entered into a note
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.
a The effective average interest rate includes swaps and margins but
excluding establishment fees.
b Due to the relative stability of Singapore interest rates, Singapore
denominated debt has been allowed to stay at floating rates.
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
the hedged item and hedging instrument.
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
hedge 100% of its loans; therefore the hedged item is identified as a
proportion of the outstanding loans up to the notional amount of the
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
InvoCare Annual Report 2020 | 100
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
2020
2019
Weighted average
interest rate
%
2.71
2.49
Weighted average
interest rate
%
3.94
2.34
Balance
$’000
114,308
(44,723)
69,585
The notional principal amounts and swap liability periods of expiry of the interest rate swap contracts are as follows.
Less than one year
One to two years
Two to three years
Three to four years
Nominal value
Swap liability
2020
$’000
30,681
14,042
-
-
2019
$’000
74,400
54,000
49,000
25,000
2020
$’000
600
548
-
-
44,723
202,400
1,148
Balance
$’000
259,600
(202,400)
57,200
2019
$’000
984
1,340
1,143
690
4,157
These contracts require settlement of net interest receivable or
payable each 90 days. The settlement dates coincide with the dates
on which interest is payable on the underlying debt.
As a consequence, the Group is exposed to interest rate risks on that
B. Foreign currency risk exposure
The Group rarely undertakes significant commercial transactions
in currencies other than in the functional currency of the operating
subsidiaries in New Zealand and Singapore.
portion of total borrowings not swapped to fixed rates and to potential
Foreign currency risks arise from recognised assets and liabilities
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
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
future cash flows of these derivatives are recognised in equity to the
investment in a foreign subsidiary.
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 2020 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 G Summarised sensitivity analysis in this note.
The Group has no significant unhedged foreign exchange exposures
at 31 December 2020. 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
Singapore dollars
2020
$’000
2019
$’000
2020
$’000
2019
$’000
Borrowings
50,000
72,000
35,000
37,100
Derivatives
678
1,334
-
-
InvoCare Annual Report 2020 | 101
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Capital and risks continued
C. Price risk exposure
The Group is the ultimate beneficiary of pre-paid contract funds under
management (Invested Funds) invested in various pre-paid contract
trusts, as described in Note 10.D. There are a significant number of
trusts in existence with various investment profiles.
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 2020 and
31 December 2019 the following changes in investment returns are
Accordingly, the Group’s future income is sensitive to the price risk
reasonably probable.
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.
88% 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.
The OFGFS Board has appointed an Investment Committee (GIC)
which is responsible for the management of the Invested Funds in
accordance with an approved Investment Policy Statement (IPS).
The IPS provides guidance on the ongoing prudent and efficient
management of the investment arrangements. The principle objective
of the Invested Funds is to maximise returns without exceeding risk
levels specified in the Investment Guidelines. By pursuing these
objectives, the Invested Funds are expected to provide a long-term
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.
The GIC regularly sets a target asset allocation to ensure investment
activity sits within the stated risk profile and to also ensure that other
limits specified in the IPS are being met. External consultants are
engaged to review the risk and return forecasts on a regular basis and
recommend amendments to the target asset allocation if required.
Normally funds are invested for extended periods, with the median life
of a pre-paid funeral contract being circa nine years. Liquidity risk is
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.
The asset allocation at year end of pre-paid contract funds under
management is as follows.
Equities
Property
Cash and fixed interest (includes hybrid
securities)
2020
%
2019
%
40
28
32
43
27
30
Asset class
Equities
(plus or minus 10%)
Property
(plus or minus 3%)
Cash and fixed
interest (no price risk)
2020
2019
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
20,819
(20,819)
26,875
(26,875)
4,305
(4,305)
4,993
(4,993)
-
-
-
-
25,124
(25,124)
31,868
(31,868)
D. Credit risk exposure
Credit risk is managed on a Group basis. Credit risk arises from cash
and deposits with banks and financial institutions, derivative financial
instruments, as well as credit exposures to customers, including
outstanding receivables and committed transactions. For banks and
financial institutions, only independently rated parties with a minimum
rating of AA- are accepted.
Credit risks in relation to customers are highly dispersed and without
concentration on any particular region or sector. The trade receivables
are non-interest bearing. Funeral homes attempt to collect deposits at
the time the service is commissioned both as a sign of good faith and
in order to cover out-of-pocket expenses. Cemetery and crematorium
products are generally not delivered prior to the receipt of all or
substantially all of the amounts due.
The Group applies the simplified approach to measuring expected
credit losses which uses a lifetime expected loss allowance for all
trade receivables.
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 year end
31 December 2020. Refer to Note 8 for details of loss allowance and
movement for the financial year.
The Group’s own collection activity, which varies based on the
nature and relative age of the debt, is routinely applied to all past due
accounts. When these activities do not result in a successful recovery
of the debt, it is referred to external debt collection agencies.
Trade receivables are written off when there is no reasonable
expectation of recovery. Indicators which include amongst others,
is the failure of the debtor to engage in a repayment plan with the
InvoCare Annual Report 2020 | 102
Group. Once all attempts to recover the debt have been exhausted,
As at 31 December 2020, the details of the facilities available, drawn
then a debt is considered to be in default and written off. Subsequent
down, unused by facilities are disclosed in the table below.
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
Total facilities available
Working capital facility
– expiring within one year
Unsecured loan facility
– expiring in two to five years
credit lines on a long term basis.
Drawn down as at 31 December
On 19 June 2020, InvoCare completed the extension to February 2023
of its $200,000,000 three-year revolving debt facility, which was due
to expire in February 2021.
This $200,000,000 debt facility is currently undrawn.
Working capital facility
– expiring within one year
Unsecured loan facility *
– expiring in two to five years
During April and May 2020, the Group completed an Institutional
Placement and a Share Purchase Plan and raised a total of
Unused as at 31 December
$274,034,000, gross of transaction costs. The net proceeds of the
capital raised are to be utilised to reduce net debt, increase liquidity
and balance sheet flexibility to support the business during the current
uncertain environment and to fund growth initiatives.
With the reduction in net debt post capital raised, the covenant ratios
of the Group continued to be met as per the facilities agreements as at
31 December 2020.
The facilities agreements covenants ratios are calculated on a rolling
12-month basis and are:
Working capital facility
– expiring within one year
Unsecured loan facility *
– expiring in two to five years
2020
$’000
2019
$’000
7,440
9,638
448,702
450,000
456,142
459,638
-
3,297
248,717
359,600
248,717
362,897
7,440
6,341
199,985
90,400
207,425
96,741
*
As at 31 December, the balance of the long-term borrowings –
unsecured loan facility outstanding after loan establishment costs is
as set out in the table below.
• • Net debt to bank adjusted operating EBITDA must be no greater
Long-term borrowings outstanding as at 31 December
than 3.5 times
• • EBITDA to net interest must be great than 3.0 times
Unsecured loan facility
– expiring in two to five years
248,717
359,600
Less: Loan establishment costs
(2,678)
(2,411)
246,039
357,189
In order to comply with the Group’s Treasury Policy, the repayment of
the $200,000,000 tranche resulted in the early settlement of several
interest rate swaps to ensure the Group remained within its policy
bands and was not ‘over hedged’. The early settlement of the interest
rate swaps resulted in a loss of $2,122,000 recognised through profit
and loss during the half year ended 31 December 2020. Refer to
Note 5.A.
InvoCare Annual Report 2020 | 103
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Notes to the consolidated financial statements
Capital and risks continued
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.
2020
Trade and other payables
Contingent considerations
Lease liabilities
Borrowings
Derivatives
2019
Trade and other payables
Contingent considerations
Lease liabilities
Borrowings
Derivatives
Less than
one year
$’000
Two to
three years
$’000
More than
three years
$’000
60,514
9,265
19,465
-
600
60,810
500
12,934
-
984
-
7,909
36,486
146,039
548
-
394
28,639
257,189
2,483
-
-
109,973
100,000
-
-
-
121,328
100,000
690
Total
$’000
60,514
17,174
165,924
246,039
1,148
60,810
894
162,901
357,189
4,157
F. Fair value measurement
The Group’s financial assets and liabilities are measured at fair value at the end of each reporting period. They are measured or disclosed at fair value,
using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:
• • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
• • Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
• • Level 3: Unobservable inputs for the asset or liability
The following table gives information about how the fair value of financial assets and liabilities are determined, including the valuation technique and
inputs used. For the Group’s financial assets and liabilities not measured at fair value, their carrying amount provides a reasonable approximation of
their fair values.
Financial assets
or liabilities
Fair value
hierarchy
Valuation technique
Significant
unobservable
inputs
Relationship of unobservable
inputs to fair value
Pre-paid
contract
funds under
management
Derivative
financial
instruments
Level 2
The fair value is calculated based on the number
Not applicable
Not applicable
of units multiplied by the unit price of the funds
which administers the invested funds.
The unit price of the funds is based on the fair
value of the underlying investments, which
include equities, cash, fixed interest deposits and
property.
Level 2
The fair value is calculated as the present value
Not applicable
Not applicable
of the estimated future cash flows based on
observable yield curves
Contingent
Level 3
The fair value is calculated based on the
Forecast
The estimated fair value would
consideration
contracted terms of performance measures,
performance
increase/decrease if the forecast
eg revenue, EBITDA or net profit
measures per the
performance measures per the
contracts
contracts were higher/lower. Refer
to Note 18. C for further details
There were no transfers between levels during the reporting period.
InvoCare Annual Report 2020 | 104
G. 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.
2020
Financial assets
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
Cash and cash equivalents
118,781
(831)
Trade receivables
68,202
-
Pre-paid contract funds under
management
613,131
(188)
Other financial assets
4
Financial liabilities
Trade and other payables
Contingent considerations
Lease liabilities
Borrowings
Derivatives
(60,514)
(17,175)
(165,924)
(246,039)
(888)
(1,148)
-
Total increase/ (decrease)
(1,907)
2019
Financial assets
Cash and cash equivalents
Trade receivables
19,560
72,149
(137)
-
Pre-paid contract funds under
management
619,389
(4,567)
Other financial assets
4
Financial liabilities
Trade and other payables
Contingent considerations
Lease liabilities
Borrowings
Derivatives
(60,810)
(894)
(162,901)
(357,189)
(400)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
626
626
-
-
-
-
-
-
-
-
831
-
188
-
-
-
-
888
-
1,907
137
-
4,567
-
-
-
-
400
-
-
-
-
-
-
-
-
(626)
(626)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(179)
-
(179)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(520)
520
147
(1,114)
-
1,114
-
-
-
-
-
-
-
-
147
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(325)
-
(637)
637
266
(5,178)
-
5,178
(4,157)
-
1,424
-
(1,424)
Total increase/ (decrease)
-
(5,104)
1,424
5,104
(1,424)
(325)
-
266
-
InvoCare Annual Report 2020 | 105
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Notes to the consolidated financial statements
Capital and risks continued
Note 14. Contributed equity
Ordinary shares – fully paid
Treasury shares – fully paid
A. Ordinary shares
2020
Number
‘000
144,061
(1,175)
142,886
2019
Number
‘000
117,185
(1,225)
115,960
2020
Number
‘000
2019
Number
‘000
Movement during the financial year
Balance as at 1 January
117,185
110,256
Shares issued for Dividend Reinvestment Plan*
Shares issued for Institutional Placement and Share Purchase Plan
Balance as at reporting date
527
26,349
144,061
664
6,265
117,185
2020
$‘000
511,293
(14,288)
497,005
2020
$‘000
234,513
5,918
270,862
511,293
2019
$‘000
234,513
(14,687)
219,826
2019
$‘000
139,589
9,137
85,787
234,513
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.
* Since 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
2020
Number
‘000
2019
Number
‘000
2020
$‘000
2019
$‘000
(1,225)
(1,261)
(14,687)
(15,449)
19
31
12
24
48
351
450
312
Balance as at reporting date
(1,175)
(1,225)
(14,288)
(14,687)
Treasury shares are shares in InvoCare Limited that are held by the InvoCare Deferred Employee Share Plan Trust for the purpose of issuing shares
under the InvoCare Deferred Employee Share Plan, as set out in Note 20.
InvoCare Annual Report 2020 | 106
C. Capital management
The Group’s capital management objectives and strategies seek
• • Maintaining an optimal leverage ratio: The optimal capital structure,
to maximise total shareholder returns, while maintaining a capital
which has the lowest cost of capital, is indicatively at a leverage
structure with acceptable debt and financial risk.
The capital management goals can be broadly described as:
• • Manage the amount of equity and the expectation of returns –
including dividend distribution policy, dividend reinvestment and
share buy-back policies
ratio (i.e. Net debt/Adjusted operating EBITDA) of no higher
than a range between 3.0 times and 3.5 times but preferably
lower than 3.0 times with an interest cover ratio of greater than
4.0 times. 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
• • Maintain debt and gearing that is prudent, cost effective,
of opportunities to invest in growing the business, the Group
supports operational needs and provides flexibility for growth and
will consider applying excess debt capacity to make returns to
development
shareholders
• • Avoid excessive exposure to interest rate fluctuations and debt
• • Maintaining floating to fixed base interest rate swaps for at least
refinancing risk
75% of debt principal in Australia and New Zealand
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 2020, basic EPS was (6.9 cents)
• • Managing refinancing risk: By spreading the tenor 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
(2019: 55.8 cents). Operating EPS, which excludes restructuring
D. Accounting policy for ordinary shares
costs, gains and losses on the disposal or impairment of
non-current assets and on undelivered pre-paid contracts and
non-controlling interests and disposal of subsidiaries, was
20.4 cents (2019: 51.7 cents). Importantly, senior management
of the Group have long-term incentives linked to EPS growth, thus
aligning employee and shareholder interests. Total compound
annual shareholder return, being the sum of cash dividends and
share price growth, has exceeded 15% per annum since the
Company listed in December 2003, except for 2008 when global
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.
Note 15. Contingencies
There were no unrecognised contingent assets as at
equity market values declined, although InvoCare’s share price did
31 December 2020 and 31 December 2019.
not fall as significantly as the rest of the market
The Group had the following guarantee that are determined as
• • Maintaining a minimum ordinary dividend payout ratio of between
contingent liabilities at 31 December 2020:
• • Bank guarantees given for leased premises of subsidiaries to a
maximum of $2,870,000 (2019: $3,261,000)
• • Deed of cross guarantee by a number of the entities within the
Group. Refer to Note 22 for further details of the bank guarantee
60% to 80% of operating earnings after tax. For each of the years
since listing, the Group has distributed ordinary dividends in
excess of this payout ratio. The aggregate of the interim and final
2020 dividends represents a payout ratio of 61% (2019: 79%) of
operating earnings after tax
• • Confirming compliance with the debt covenant ratios, as defined in
the facility agreements, through bi-annual calculations. The Group
has complied with its banking covenants as follows:
• Interest cover (EBITDA/Net interest expense) must be greater
than 3.0 times
• Leverage ratio (Net debt/Adjusted operating EBITDA) must not
be greater than 3.5 times
InvoCare Annual Report 2020 | 107
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Capital and risks continued
Note 16. Commitments
Note 17. Events after reporting period
As at reporting date, the Group has the following capital and other
On 27 January 2021, a property classified as held for sale at
commitments which are not recognised as liabilities.
31 December 2020 was sold for $7.4 million resulting in a gain of
A. Capital commitments
$6.3 million.
Other than the above transaction and the dividend determined as
2020
$’000
2019
$’000
disclosed in Note 4, no other matter or circumstance has arisen since
31 December 2020 that 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.
Contracted and conditionally contracted - within one year
Building extensions and refurbishments
301
4,969
Leasehold improvements
Plant and equipment purchases
1,112
511
70
434
B. Other commitments
Within one year
Documentary letters of credit
104
35
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
2020
$’000
669
137
806
2019
$’000
1,723
711
2,434
InvoCare Annual Report 2020 | 108
Financial Report
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 2020
I.
Summary of acquisitions
During the year ended 31 December 2020, 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 2020.
Subsidiaries/businesses acquired are:
• • Galaxy Funerals
• • Family Pet Care Pty Limited
• • Pets in Peace
The purchase consideration, fair value of identifiable net assets acquired,
and goodwill are disclosed below.
a. Total purchase consideration paid/payable
2020
Cash consideration
Contingent consideration
Deferred consideration
Total purchase consideration
b.
Identifiable assets and liabilities acquired
2020
Cash and cash equivalents
Inventories
Other current assets
Property, plant and equipment
Right of use assets
Identifiable intangibles
Lease liabilities
Borrowings
Other liabilities
Deferred tax liability
Total net identifiable assets acquired
Goodwill
Galaxy Funerals
$’000
Family Pet Care
Pty Limited
$’000
Pets in Peace
$’000
591
5,333
-
5,924
32,806
8,465
438
41,709
5,130
2,982
-
8,112
Galaxy Funerals
$’000
Family Pet Care
Pty Limited
$’000
Pets in Peace
$’000
-
-
-
59
431
-
(431)
-
(18)
-
41
5,883
364
1,010
1,320
1,695
4,539
1,857
(4,470)
(17)
(1,876)
(544)
3,878
37,831
-
-
10
611
2,008
-
(2,301)
-
(178)
-
150
7,962
Total
$’000
38,527
16,780
438
55,745
Total
$’000
364
1,010
1,330
2,365
6,978
1,857
(7,202)
(17)
(2,072)
(544)
4,069
51,676
The goodwill recognised is attributable to the location, workforce and the profitability of the acquired businesses. It will not be deductible for tax
purposes.
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.
InvoCare Annual Report 2020 | 109
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Business portfolio continued
c.
Financial performance of acquired businesses
2020
Revenue
Net profit after income tax
Galaxy Funerals
$’000
Family Pet Care
Pty Limited
$’000
Pets in Peace
$’000
1,670
484
2,360
238
420
213
Total
$’000
4,450
935
If all the acquisitions had occurred on 1 January 2020, consolidated revenue and profit after tax for the year ended 31 December 2020 would have
increased by approximately $25,065,000 and $3,495,000, respectively.
d. Total purchase consideration – cash flows
2020
Galaxy Funerals
$’000
Family Pet Care
Pty Limited
$’000
Pets in Peace
$’000
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
(Broulee Memorial Gardens)
Net cash outflows – investing activities
591
-
32,806
(364)
5,130
-
Total
$’000
38,527
(364)
1,918
500
40,581
*
Acquisition-related costs totalling $1,918,000 (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.
B. Acquisitions for the year ended
31 December 2019
C. Fair value measurement – contingent
consideration
For all three acquisitions settled during the prior year ended 31
December 2019, the accounting for all of them has been finalised
during 2020. There have been no material changes to the financial
information disclosed for each acquisition. Refer to 2019 Annual
Report for further details of those acquisitions.
For some of the businesses acquired, consideration paid/
payable consists contingent component (classified as contingent
consideration as shown on face of the consolidated balance sheet)
pending for the achievement of the agreed financial performance of
the acquired businesses. The contingent consideration are measured
and disclosed at fair value. This section provided details on how fair
value is determined, including the valuation technique (only Level 3:
Unobservable inputs for the contingent consideration) and inputs
used and the movement for the financial period.
Level 3
Contingent consideration – current
Contingent consideration – non-current
2020
$’000
9,265
7,909
17,174
2019
$’000
94
800
894
InvoCare Annual Report 2020 | 110
I.
Valuation techniques for fair value measurements
categorised within level 3
The contingent consideration arose on the business combination
(refer to earlier sections within this note). The fair value was
determined using an independent expert and is estimated based
on a multiple of forecast earnings before interest, tax, depreciation
and amortisation (EBITDA) of the acquired business over a two year
period. Any settlement of contingent consideration will be in the form
of cash. Any variation at the time of settlement will be recognised as
income or expense in profit or loss.
II. Critical accounting judgements, estimates
and assumptions – fair value of contingent
consideration
The Group’s contingent consideration liability is measured at fair
D. Accounting policies for business combination
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.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair
values at the acquisition date. The excess of the cost of acquisition
over the fair value of the Group’s share of the identifiable net assets
acquired is recorded as goodwill. 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
value at the end of each reporting period. The information provided
identification and measurement of the net assets acquired.
below is about how the fair value of this financial liability is determined,
including the valuation technique and inputs used.
• • Fair value hierarchy: level 3
• • Valuation technique: the fair value is calculated based on a multiple
of forecast EBITDA of the business over a two year period
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
deferred consideration and the final amount payable are remeasured
through the statement of comprehensive income.
• • Significant unobservable inputs: forecast EBITDA of the business
The present value of contingent consideration is classified as a
and the discount rate
• • Relationship of unobservable inputs to fair value: the estimated fair
financial liability and is subsequently remeasured to fair value with
changes in fair value recognised in profit or loss.
value would increase/decrease if the forecast EBITDA or discount
The acquisition-related costs are recorded in the statement of
rate were higher/lower
comprehensive income.
III. Level 3 – Contingent consideration
Movements in level 3 – contingent consideration during the current
and previous financial year are set out below.
Balance at 1 January
2020
$’000
2019
$’000
894
1,394
Contingent consideration relating to business
combinations
16,780
500
Payments during the financial year
(500)
(1,000)
Balance at 31 December
17,174
894
The carrying value of contingent consideration might be impacted by
the changes in discount rate or the forecast EBITDA of the businesses
acquired during the financial year. The impact to the carrying value for
the following unobservable inputs are as follows:
• • Profitability adjustments to EBITDA: a 5% decrease in the
profitability per year over the two year period would decrease the
contingent consideration by $839,000
InvoCare Annual Report 2020 | 111
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Business portfolio continued
Note 19. Interests in subsidiaries
A. Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2020. 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
InvoCare Australia Pty Limited
Bledisloe Australia Pty Limited
InvoCare PetCare Limited
Family Pet Care Pty Limited
InvoCare New Zealand Limited
William Morrison Funeral Director*
Singapore Casket Company (Private) Limited
Country of
incorporation
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Singapore
Ownership interest held
2020
%
100
100
100
100
100
-
100
2019
%
100
100
-
-
100
100
100
* On 31 December 2020, William Morrison Funeral Director was amalgamated into InvoCare New Zealand Limited.
Shares in subsidiaries are carried at cost and relate to InvoCare
Limited’s ownership interest in InvoCare Australia Pty Limited,
InvoCare PetCare Pty Limited, Family Pet Care 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 PetCare Pty Limited,
Family Pet Care Pty Limited, InvoCare (Singapore) Pty Limited and
Bledisloe Australia Pty Ltd have been granted relief from the necessity
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
to prepare financial reports in accordance with ASIC Corporations
One subsidiary, Macquarie Memorial Park Pty Limited, has
Instrument 2016/785 issued by the Australian Securities &
Investments Commission. For further information refer to Note 23.
non-controlling interests of 16.86% (2019: 16.86%). During the
year dividends totalling $Nil were paid to non-controlling interests
(2019: $121,000).
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.
InvoCare Annual Report 2020 | 112
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 18.D).
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.
III. Employee share trust
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.
InvoCare Annual Report 2020 | 113
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
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.
The obligations under share-based payment arrangements are
settled by either issuing new ordinary shares in the Company or
acquiring ordinary shares of the Company on market. Overseas
participants receive cash equivalent to the value of the equity awarded
that vests.
Trading in the Company’s ordinary shares awarded under the share-
based remuneration arrangements is governed by the Company’s
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.
Four plans are currently in operation. They include:
• • A plan which 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
• • Three plans which are only available to nominated employees:
• Long-term Incentive Plan (LTIP) – 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 vest when employment condition is met
• Service Based Equity Plan (SEP) – in the form of rights or cash
equivalent, they will vest if the employment condition is met
InvoCare Annual Report 2020 | 114
A. Exempt Employee Share Plan
• • Performance hurdle(s):
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
• For 2016 to 2019 grants: only compound annual growth (EPS
CAGR) target: Normalised EPS b growth above the base year.
Vesting of options and performance rights is conditional on
meeting a minimum level of return on invested capital (ROIC a)
$1,000 worth of InvoCare Limited shares through a salary sacrifice
• For grants from 2020 onwards: 50% grant on EPS CAGR target
arrangement as permitted by Australian Taxation Legislation.
and 50% grant on ROIC target
During 2020, 351 employees accepted the offer and at
31 December 2020 a further $185,000 was remaining to be
collected via payroll deductions.
• • Vesting scale:
• For 2016 and 2017 grants, only EPS CAGR target: Below 7%
EPS CAGR: Nil; At 7%: 30%; Between 7% and 12%: straight
line pro-rata vesting between 30%-100%; At or above 12%:
B. Long-term Incentive Plan
100%
LTIP was introduced during 2016. The plan permits settlement in
• For 2018 and 2019 grants, only EPS CAGR target: Below 8%
either equity or cash, at the Board’s discretion. The plan provides
EPS CAGR: Nil; At 8%: 30%; Between 8% and 12%: straight
options and performance rights to senior management team, so
line pro-rata vesting between 30%-100%; At or above 12%:
employees are incentivised to maximise shareholder value in the
100%
longer term.
The key terms and conditions of this plan:
• • In the form of options and performance rights to be granted as
approved by the Board
• • Both options and performance rights are granted for nil
consideration
• For grants from 2020 two performance target (50% EPS CAGR
and 50% ROIC): Below 6% EPS CAGR: Nil; At 6% EPS CAGR:
30%; Between 6% and 10% EPS CAGR: straight line pro-rata
vesting between 30%-100%; At or above 10% EPS CAGR:
100%; Below 10% ROIC: Nil; At 10% ROIC: 30%; Between 10%
and 12% ROIC: straight line pro-rata vesting between
30%-100%; At or above 12% ROIC: 100%
• • Allocation between options and performance rights is:
• • Dividend entitlement:
• Set by the Board for senior management team in the ratio of
75%:25% for options and performance rights, respectively
• For other participants in the ratio of 50%:50% based on the
contractual arrangement or election
• From 2020 grant onwards, the ratio between options and
performance rights are based on election by all participants
• • Upon vesting:
• For 2016 to 2019 grants: Not entitled to any dividends
• For grants from 2020 onwards: performance rights entitled
to dividends in the form of DRP and only become vested and
exercisable into InvoCare shares should performance hurdles of
performance rights vest at the performance testing time
• • Not entitled to voting rights during the vesting period
• • Upon termination of employment, all unvested options and
• For Australian participants, each option (after paying the options
performance rights will be forfeited
price) and performance right entitle the participant to subscribe
for one InvoCare ordinary share
• For overseas participants, each option (after paying the options
price) and performance right entitle the participant to receive
• • 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 circumstances
a ROIC means return on invested capital and is calculated by dividing
cash equivalent value of one InvoCare ordinary share at the
the operating earnings by the average invested capital
market value at date of vesting
• • Performance testing timing:
• 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 2018 and 2019 grants, 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
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. For
2020 grant onwards, EPS is calculated based on operating earnings
(normalised for non-operating items)
The fair value of the options and performance rights at grant date is
estimated using Black-Scholes Pricing model. The model takes into
account the exercise price, the term of the option, the share price at
• For grants from 2020 onwards, the grant has only one test in the
grant date and expected price volatility of the underlying share, the
third year anniversary following the grant year
expected dividend yield and the risk-free interest rate for the term of
the option.
InvoCare Annual Report 2020 | 115
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Other statutory disclosures continued
The following information related to the options and performance rights issued under the LTIP.
Grant date
Expiry date
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
1/03/2020
1/03/2028
Performance rights
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
1/03/2020
1/03/2035
3/08/2020
1/08/2035
Fair value at
grant date
Balance at the
start of the year
Number
Granted
Number
Vested
Number
Lapsed
Number
Balance at the
end of the year
Number
$2.40
$2.40
$2.93
$2.93
$2.78
$2.51
$0.58
$12.08
$12.08
$14.06
$14.06
$13.91
$12.96
$9.70
$9.70
363,842
20,946
384,779
16,221
605,974
795,028
-
2,186,790
34,904
2,983
37,321
3,380
55,494
70,089
-
-
-
-
-
-
-
-
513,820
513,820
-
-
-
-
-
-
105,068
17,107
(2,591)
-
-
-
-
-
-
-
-
-
-
-
(15,936)
-
361,251
20,946
384,779
16,221
605,974
779,092
513,820
(2,591)
(15,936)
2,682,083
(11,946)
(213)
-
-
-
-
-
-
-
-
-
-
-
(2,766)
-
-
22,958
2,770
37,321
3,380
55,494
67,323
105,068
17,107
311,421
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2020 and was $11.10
(2019: $14.08).
204,171
122,175
(12,159)
(2,766)
InvoCare Annual Report 2020 | 116
C. Deferred Employee Share Plan
D. Service Based Equity Plan
This plan, introduced in 2007, is settled by the transfer of InvoCare
The Service Based Equity Plan (SEP) introduced in 2020 is settled by
ordinary shares to participants upon vesting. The plan is used to
the transfer of InvoCare ordinary shares to participants upon vesting.
recognise, reward and retain key talent in critical roles at the middle
The plan is used to recognise, reward and retain key talent in critical
management level. Eligible employees participate in the plan based
roles at the middle management level. Eligible employees participate
on nomination only.
in the plan based on nomination only.
Prior to 2015, the senior management who participated in this plan
The key terms and conditions of this plan include:
were required to meet both performance and employment conditions
in order for the shares to vest. The last Tranche, being Tranche 3 of the
2015 grant fully vested as a result of performance testing performed
• • Granted in the form of rights as approved by the Board
• • Rights are granted for nil consideration
at the end of February 2020. Unvested grants from 2016 onwards
• • To vest, the participant must meet ongoing employment conditions
remain in place with employment conditions only for vesting.
• • Each grant of rights is divided into six equal tranches
Due to the impact of COVID-19, the Board determined there would be
• • The vesting date of the six tranches are every six months from the
no grants under the DESP for 2020 other than the commitments due
grant date
to employment contractual requirements.
• • Entitled to receive any dividends that may become payable during
The key terms and conditions of this plan include:
the vesting period and are payable as additional shares only on
• • Granted in the form of shares as approved by the Board
• • Shares are granted for nil consideration
• • To vest, the participant must meet ongoing employment conditions
• • Each grant of shares is divided into three equal tranches
• • The vesting date of the three tranches are:
date of vesting
• • Dividend entitlement will be calculated and converted into the
equivalent number of rights based on the Dividend Reinvestment
Plan rules
• • Upon vesting:
• For Australian participants, each right entitles the participant to
• Tranche 1 – completion of 36 months employment from
subscribe for one InvoCare ordinary share
grant date
• For overseas participants, each right entitles the participant to
• Tranche 2 – completion of 48 months employment from
receive cash equivalent value of one InvoCare ordinary share at
grant date
the market value at date of vesting
• Tranche 3 – completion of 60 months employment from
• • Upon termination of employment, all unvested rights and any
grant date
cumulative dividend (in the form of rights) will be forfeited
• • Entitled to receive any dividends that may become payable on the
shares during the vesting period
• • Entitled to voting rights of the shares during the vesting period
• • Upon termination of employment, all unvested shares will be
forfeited
InvoCare Annual Report 2020 | 117
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Other statutory disclosures continued
The following information relates to the rights issued under the SEP and shares held in the share plan trust under DESP.
Grant date
Expiry date
Fair value at
grant date
Balance at the
start of the year
Number
Granted
Number
Vested
Number
Lapsed
Number
Balance at the
end of the year
Number
Rights - ongoing employment condition only
1/09/2020
1/09/2035
19/10/2020
1/09/2035
$9.70
$10.50
Shares - ongoing employment condition only
1/03/2015
1/03/2020
1/03/2016
1/03/2031
1/03/2017
1/03/2032
1/03/2018
1/03/2028
1/03/2019
21/02/2029
1/03/2020
1/03/2035
15/06/2020
1/07/2035
$13.74
$12.08
$14.06
$13.91
$14.46
$10.70
$11.10
Shares - performance and ongoing employment conditions
1/01/2015
1/01/2030
22/02/2015
22/02/2025
31/03/2015
31/03/2030
23/08/2018
23/08/2028
$13.74
$13.74
$13.74
$13.74
-
-
-
135,948
14,000
149,948
117
3,367
7,665
13,136
29,617
-
-
53,902
10,866
1,358
5,804
1,354
19,382
-
-
-
-
-
1,758
30,000
31,758
-
-
-
-
-
-
-
-
(117)
(3,367)
(3,888)
(4,277)
-
-
-
-
-
-
-
-
(115)
(574)
(553)
-
-
(11,649)
(1,242)
(10,864)
(1,358)
(5,804)
(1,354)
(19,380)
(2)
-
-
-
(2)
135,948
14,000
149,948
-
-
3,662
8,285
29,064
1,758
30,000
72,769
-
-
-
-
-
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2020 and was $11.10
(2019: $14.08).
Note 21. Related party transactions
A. Key management personnel compensation
B. Parent entity
2020
$
2019
$
The ultimate parent entity within and for the Group is InvoCare Limited.
Short-term employee benefits
3,330,600 3,316,765
Post-employment benefits
156,079
160,227
Other long-term benefits
Termination benefits
Share based payments
(101,930)
29,108
428,909
-
C. Transactions with subsidiaries
All transactions that have occurred among the subsidiaries within the
Group have been eliminated for consolidation purposes.
320,490
(455,602)
D. Transactions with other related parties
4,134,148 3,050,498
The contributions to superannuation funds on behalf of employees are
disclosed in Note 5.E.
InvoCare Annual Report 2020 | 118
Note 22. Parent entity information
A. Summary financial information
C. Contingent liabilities
The financial information provided in the table below is only for
Other than the guarantees as disclosed in section B above, there were
InvoCare Limited, the parent entity of the Group.
no unrecognised contingent liabilities as at 31 December 2020 and
2020
$’000
2019
$’000
31 December 2019.
Statement of comprehensive income
D. Capital commitment – property, plant and
Profit after income tax
59,662
66,079
equipment
Total comprehensive income
61,279
65,024
The parent entity has no capital commitments for the acquisition
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Equity
44,936
2,015
866,746
653,989
1,582
2,353
165,779
256,760
of property, plant or equipment at 31 December 2020 and
31 December 2019.
E. Tax consolidation group
InvoCare Limited (the head entity) and its wholly-owned Australian
subsidiaries implemented the tax consolidation legislation from
1 January 2004.
Contributed equity
497,005
219,826
On adoption of the tax consolidation legislation, the entities in the tax
Share-based payments reserve
3,296
2,055
Cash flow hedges reserve
(359)
(1,976)
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
Foreign currency reserve
1,080
1,080
entity.
Retained profits
Total equity
199,945
176,244
700,967
397,229
B. Guarantees entered into by the parent entity
The parent entity provided the following guarantees during the year
ended 31 December 2020 and 31 December 2019:
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,
• • Bank guarantees given for leased premises of subsidiaries to a
which is issued as soon as practicable after the end of each financial
maximum of $2,870,000 (2019: $3,261,000)
year. InvoCare Australia Pty Limited, as permitted by the tax funding
• • 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
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
InvoCare Annual Report 2020 | 119
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Other statutory disclosures continued
Note 23. Deed of cross guarantee
A. Consolidated statement of comprehensive
InvoCare Limited, InvoCare Australia Pty Limited and InvoCare
(Singapore) Pty Limited entered into a Deed of Cross Guarantee
on 11 December 2006 under which each company guarantees the
debts of the others. Effective from 15 June 2011, Bledone Pty Ltd
and Bledisloe Australia Pty Ltd became parties to this Deed of Cross
Guarantee. Effective from 19 February 2021, InvoCare PetCare Pty
Limited and Family Pet Care Pty Limited became parties to this Deed
of Cross Guarantee. By entering into the deed, the wholly-owned
income of the Closed Group
2020
$’000
2019
$’000
Revenue from continuing operations
387,544
400,261
Finished goods, consumables and funeral
disbursements
(96,351)
(95,930)
Employee benefits expense
(143,212)
(132,503)
subsidiaries have been relieved from the requirement to prepare a
Advertising and public relations expenses
(11,921)
(9,106)
Occupancy and facilities expenses
(18,985)
(14,741)
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
Motor vehicle expenses
Technology
the ASIC Corporations Instrument, and as there are no other parties to
Other expenses
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 2020 of
the Closed Group.
Depreciation, impairment and amortisation
expenses
Impairment of loss on intangibles
Impairment reversal of cemetery land
Finance costs
Interest income
(8,125)
(7,066)
(10,951)
(10,795)
(18,811)
(11,087)
79,188
119,033
(34,630)
(29,176)
(6,175)
6,000
-
-
(38,573)
(17,959)
1,539
1,092
Net gain on undelivered pre-paid contracts
2,691
45,550
Acquisition related costs
Inter-segment revenue
(1,918)
(1,984)
1,317
1,810
Net gain on disposal of non-current assets
7,520
2,189
Profit before income tax
Income tax expense
16,959
120,555
(7,296)
(29,827)
Net profit after income tax for the year
9,663
90,728
Other comprehensive income
Items that may be reclassified to profit and loss
Changes in fair value of cash flow hedges,
net of tax
(1,240)
(1,055)
Total realised loss on early settlement of
interest rate swaps reclassified to profit or loss
1,611
(1,055)
Net changes to cash flow hedges, net of tax
371
(1,055)
Changes in foreign currency translation
reserve, net of tax
(1,595)
(1,248)
Other comprehensive income for the year,
net of tax
(1,224)
(2,303)
Total comprehensive income for the year,
net of tax
8,439
88,425
InvoCare Annual Report 2020 | 120
B. Summary of movements in consolidated
retained profits of the Closed Group
2020
$’000
2019
$’000
Current liabilities
Trade and other payables
Retained profits as at 1 January
193,201
144,401
Contingent consideration
Profit after income tax for the year
9,663
90,728
Lease liabilities
Dividends paid
(35,432)
(41,928)
Derivative financial instruments
Retained profits as at 31 December
167,432
193,201
Pre-paid contract liabilities
Deferred revenue
2020
$’000
2019
$’000
51,482
52,865
9,171
-
16,786
11,418
512
735
44,532
48,715
28,627
34,909
C. Consolidated balance sheet of the
Provision for employee benefits
15,463
13,626
Closed Group
Current assets
Cash and cash equivalents
107,219
7,920
Trade receivables
Other receivables
Inventories
15,894
35,172
15,041
7,576
40,000
40,688
Total current liabilities
Non-current liabilities
Contingent consideration
Borrowings
Lease liabilities
166,573
162,268
7,909
800
199,285
295,228
121,252
114,632
Derivative financial instruments
-
2,088
Pre-paid contract funds under management
50,268
57,551
Deferred tax liabilities
35,951
35,766
Asset held for sale
Deferred selling costs
Deferred contract assets
Total current assets
Non-current assets
2,333
3,981
3,644
4,481
1,541
2,409
235,940
159,778
Pre-paid contract liabilities
496,624
476,498
Deferred revenue
69,391
69,579
Provision for employee entitlements
2,444
5,528
Total non-current liabilities
932,856 1,000,119
1,099,429 1,162,387
663,291
405,475
497,005
219,826
(1,146)
(7,552)
167,432
193,201
663,291
405,475
Total liabilities
Trade and other receivables
64,042
62,132
Net assets
Shares in subsidiaries
246,778
246,778
Property, plant and equipment
423,397
353,630
Right of use asset
118,667
121,784
Pre-paid contract funds under management
562,863
561,837
Intangible assets
Deferred selling costs
Deferred contract assets
95,357
43,682
13,151
14,201
2,525
4,040
Total non-current assets
1,526,780 1,408,084
Total assets
1,762,720 1,567,862
Equity
Contributed equity
Reserves
Retained profits
Total equity
InvoCare Annual Report 2020 | 121
Performance Review12Directors’ Report3Financial Report4Other Information
Financial Report
Notes to the consolidated financial statements
Other statutory disclosures continued
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. 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 $207,425,000 as outlined in Note 13.E.,
or by on-demand repayment of intercompany advances.
A. Audit services
PricewaterhouseCoopers
– Australian firm
2020
$
2019
$
Audit and review of financial reports
525,121
450,621
PricewaterhouseCoopers
– non-Australian firm
Audit and review of financial reports
22,443
24,788
Non-PricewaterhouseCoopers
– Singaporean firm
Audit and review of financial reports
32,152
32,743
Total remuneration for audit services
579,716
508,152
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
22,400
29,050
11,500
58,500
-
7,250
49,033
35,687
1,633
-
Other services
11,476
12,389
Total remuneration for non-audit services
96,042
142,876
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.
InvoCare Annual Report 2020 | 122
Note 26. Other accounting policies
IV. 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 are
usually paid within 60 days of recognition.
The Group has adopted all of the new or amended Accounting
Standards and Interpretations issued by the Australian Accounting
V. Borrowings
Standards Board (AASB) that are mandatory for the current reporting
Borrowings are initially recognised at fair value, net of transaction
period.
• • Conceptual Framework for Financial Reporting and AASB 2019-1
Amendments to Australian Accounting Standards–References to
the Conceptual Framework
B. Other accounting policies applicable
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
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
effective interest rate method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.
VI. 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:
settlement of such transactions and from the translation at year end
• • Hedges of the risks associated with the cash flows of recognised
exchange rates of monetary assets and liabilities denominated in
assets and liabilities and highly probable forecast transactions
foreign currencies are recognised in the income statement, except
(cash flow hedges)
when they are deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges or are attributable to part of the net
• • Hedges of a net investment in a foreign operation
The Group documents at inception the relationship between hedging
instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions.
The Group also documents its assessment of whether the derivatives
that are used in hedging transactions have been, and will continue to
be, highly effective in offsetting changes in fair values or cash flows or
hedged items.
The fair value of interest rate swap contracts is calculated as the
present value of the estimated future cash flows. The 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.
investment in a foreign operation.
II. Inventories
Inventories comprising of funeral merchandise and memorialisation
property items in the cemeteries and crematoria and pets cremations
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.
III. Deferred contract assets
Deferred contract assets represent items to be delivered related to the
pre-2018 memorial product contracts. These contract assets will be
unwind to cost of goods sold as the performance obligations of these
contracts are met.
InvoCare Annual Report 2020 | 123
Performance Review12Directors’ Report3Financial Report4Other Information Financial Report
Notes to the consolidated financial statements
Other statutory disclosures continued
Hedges that meet the criteria for hedge accounting are accounted for
VII. Employee benefits
as follows:
a. Cash flow hedges
a. Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits and
The effective portion of changes in the fair value of derivatives that are
annual leave expected to be settled within 12-months of the reporting
designated and qualify as cash flow hedges is recognised in equity in
date are recognised in other payables and provision for employee
the hedging reserve. The gain or loss relating to the ineffective portion
benefits in respect of employees’ services up to the reporting date and
is recognised immediately in the statement of comprehensive income
are measured at the amounts expected to be paid when the liabilities
within finance costs.
are settled, including appropriate on-costs.
Amounts accumulated in equity are recycled in the statement of
b. Long service leave
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.
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.
When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately
c. Bonus plans
transferred to the statement of comprehensive income.
The Group recognises a liability in other payables and an expense
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
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
on the hedging instrument relating to the effective portion of the hedge
• • The amounts to be paid are determined before the time of
are recognised directly in equity while any gains or losses relating to
completion of the financial report
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.
• • Past practices give clear evidence of a constructive obligation
VIII. New Accounting Standards and Interpretations
not yet mandatory or early adopted
There are no Australian Accounting Standards and Interpretations
that have recently been issued or amended but are not yet mandatory,
that have been early adopted by the Group for the annual reporting
period ended 31 December 2020.
InvoCare Annual Report 2020 | 124
Financial Report
Directors’ declaration
In the Directors’ opinion:
• • The financial statements and Notes 1 to 26 are in accordance with
the Corporations Act 2001, including:
• Complying with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting
requirements
• Giving a true and fair view of the Company’s and the Group’s
financial position as at 31 December 2020 and of their
performance for the financial year ended on that date
• • There are reasonable grounds to believe that the Company will be
able to pay its debts as and when they become due and payable
• • 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 73 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 Chairman
Sydney 24 February 2021
InvoCare Annual Report 2020 | 125
Performance Review12Directors’ Report3Financial Report4Other Information 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. 126Independent 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 2020 and of itsfinancial 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: ●the consolidated balance sheet as at 31 December 2020●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 significant accounting policiesand other explanatory information●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 & 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. Performance Review12Directors’ Report3Financial Report4Other Information127 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 ●For the purpose of our auditwe used overall Group materiality of $3.3 million,which representsapproximately 5% of theGroup’s average profit beforetax of the past three yearsadjusted for impairment.●We applied this threshold,together with qualitative considerations, to determinethe scope of our audit and the nature, timing and extent ofour audit procedures and toevaluate the effect ofmisstatements on the financialreport as a whole.●We chose Group profit beforetax because, in our view, it isthe benchmark against whichthe performance of the Group is most commonly measured.Due to fluctuations in profitand loss from year to year, wechose a three year average.Impairment is adjusted as it isan infrequently occurring itemimpacting the consolidatedstatement of comprehensiveincome.●We selected 5% which iswithin the range of acceptablequantitative profit related materiality thresholds.●Our audit focused on wherethe Group made subjectivejudgements; for example,significant accountingestimates involvingassumptions and inherentlyuncertain future events.●The Group comprises businesses operatingpredominately in Australia, New Zealand and Singaporewith the most financiallysignificant operations beingAustralia.●We focused our audit on thefinancial information of theAustralian operations giventheir financial significance tothe Group.●We performed specific risk-focused audit procedures overthe Singapore and NewZealand operations.●Amongst other relevant topics,we communicated the followingkey audit matters to the Auditand Risk Committee:−Estimated recoverableamount of goodwill for theNew Zealand operations−Accounting for pre-paidfuneral contracts●These are further described inthe Key audit matters section of our report. 128 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 operations Refer to note 12 Under Australian Accounting Standards, the Group is required to test goodwill annually for impairment, irrespective of whether there are indications of impairment. This assessment is inherently complex and judgemental as the Group is required to: ●forecast the operational cash flows of the cashgenerating units of the Group●determine discount rates and terminal growthrateswhich are used in the discounted cash flow model used to assess impairment (the model). The Group recognised a $19.3 million goodwill impairment charge relating to New Zealand operations in the year ended 31 December 2020. We considered this a key audit matter because significant judgement is required by the Group in estimating the recoverable amount of goodwill relating to the New Zealand operations. We focused our efforts on developing an understanding and testing the overall calculation and methodology of the Group’s impairment assessment. In obtaining sufficient audit evidence, our procedures included, amongst others: ●assessing whether the cash generating units(CGUs) to which goodwill is allocated areconsistent with our knowledge and understandingof New Zealand operations and internal reporting●developing an understanding of how the Groupidentified the relevant methods, assumptions orsources of data, and the need for changes in them,that are appropriate for determining therecoverable amount in the context of theAustralian Accounting Standards ●evaluating whether judgements made in selectingthe method, significant assumptions and data fordetermining the estimate give rise to indicators ofpossible bias by the Group●comparing the cash flow forecasts to the Group’smost up-to-date budgets●assessing the Group’s historical ability to forecastfuture cash flows by comparing budgets withreported actual results for the past year●testing the mathematical calculations within themodel●comparing the terminal growth rate applied in themodel to external information sources●evaluating the reasonableness of the disclosuresagainst the requirements of Australian AccountingStandards.PwC valuations experts assisted us in performing these procedures where appropriate. Performance Review12Directors’ Report3Financial Report4Other Information129 Key audit matter How our audit addressed the key audit matter Accounting for pre-paid funeral contracts Refer to note 10 The Group enters into pre-paid funeral contracts whereby it agrees 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 pre-paid funeral contract, the Group records an asset for the value of the funds invested (funds under management) and a liability to deliver the services. As at 31 December 2020, the Group had recorded $613.1 million of funds under management and $541.3 million of contract liabilities. We considered pre-paid funeral contracts to be a key audit matter due to the: ●size of the asset and liability balances●significant financing component within thecontracts, as a result of significant time differencesthat may arise between receipt of cash fromcustomers and the subsequent recognition ofrevenue on the delivery of services (redemptiondate).For the asset value invested, we performed the following procedures amongst others: ●agreeing a sample of balances recorded by theGroup to statements and confirmations receivedfrom independent custodians●testing the valuation of the invested funds undermanagement by comparing a sample of underlyinginvestments to relevant unit prices using marketpricing data and custodian confirmations. For the liability recognised, we performed the following procedures amongst others: ●comparing the date and value of a sample ofcontracts to that recorded by the Group●assessing the reasonableness of the significantfinancing component recognised during the yearby comparing the amount to our own calculations●selecting a sample of redeemed contracts(recognised revenue) to assess whether theGroup’s performance obligation under the pre-paid funeral contracts had been satisfied. Thisincluded comparing the relevant original contractsto service delivery documents and investmentreturns●evaluating the reasonableness of the disclosures against the requirements of Australian AccountingStandards.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 2020, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the director's report. We expect the remaining other information to be made available to us after the date of this auditor's report. Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or 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. When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take. 130 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. 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 36 to 59 of the directors’ report for the year ended 31 December 2020. In our opinion, the remuneration report of InvoCare Limited for the year ended 31 December 2020 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 Sydney Partner 24 February 2021 MW Chiang Other Information
Shareholder Information
As at 24 March 2021
The following information is presented in compliance with ASX Listing Rules 4.10
(as relevant). The information is current as at 24 March 2021.
1. Corporate Governance Statement
The 2020 Corporate Governance Statement can be found on the Company’s website at
www.invocare.com.au/investor-relations/.
2. Securities on issue
Shares and options as at 24 March 2021
Ordinary shares on issue
Unquoted options on issue
3. Voting rights
Number
144,060,733
2,682,083
For 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.
For unquoted options – No voting rights apply unless and until the unquoted options are
converted to fully paid ordinary shares.
4. 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
73,905,231
19,841,791
14,732,703
29,172,320
6,408,688
144,060,733
15,451
51.30
13.77
10.23
20.25
4.45
100.00
48
957
2,063
12,347
13,883
29,298
732
InvoCare Annual Report 2020 | 132
5. Top 20 registered shareholders
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
BNP Paribas Noms Pty Ltd
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