FY21 Annual Report
Honouring life,
celebrating memories
for generations
About this report
InvoCare’s 2021 Annual Report (‘the report’) is the primary
References in this report to a ‘year’ are to the financial year ended
statutory and regulatory reporting disclosure of InvoCare Limited
31 December 2021 (previous corresponding period 31 December
and its subsidiary companies’ operations, activities and financial
2020) unless otherwise stated. All dollar figures are expressed in
performance. In this report references to ‘InvoCare’, ‘the Company’,
Australian Dollars (AUD) unless otherwise stated.
‘the Group’, ‘we’, ‘us’ and ‘our’ refer to InvoCare Limited
(ABN 42 096 437 393), unless otherwise stated.
References to AASB refer to the Australian Accounting Standards
Board and IFRS refers to International Financial Reporting
This report comprises information about our activities, strategy,
Standards. There are references to IFRS and non-IFRS financial
our financial and non-financial performance, risk management,
information in this report. Non-IFRS financial measures are those
remuneration and our financial statements. The financial statements
not defined or specified under any relevant accounting standard and
are structured to provide prominence to the disclosures that are
may not be directly comparable with other companies’ information.
considered most material and relevant to the user’s understanding
Non-IFRS financial measures are used to enhance the comparability
of the operations, results and financial position.
of information between reporting periods and should be considered
in addition to, and not a substitute for, IFRS financial information
and measures.
A disclosure is considered material if for example:
The dollar amount is significant in size (quantitative 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
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 2021:
Investor Presentation
Sustainability Report
Our corporate reporting documentation is available for download on the
InvoCare Investor Relations page: www.invocare.com.au/investor-relations
InvoCare|Positive recovery & momentum in a year of disruption2021FullYearResults28February2022FY21 Sustainability ReportPeople Place Planet Contents
InvoCare Limited
ABN 42 096 437 393
Section 1 – Overview
InvoCare at a glance
2021 performance highlights
2021 sustainability highlights
Chairman’s message
Our purpose, vision and values
Our strategic priorities
Chief Executive Officer’s message
Executive Leadership Team
Section 2 – Operating and financial review
Financial review
Our businesses: Operating review
Outlook
Reconciliation of financial information
Section 3 – Governance & Directors’ report
Board of Directors
Directors’ report
Auditor’s independence declaration
Risks and uncertainties
Remuneration report - audited
Section 4 – Consolidated financial statements
Consolidated financial statements
Notes to the consolidated financial statements
Section 5 – Signed reports
Directors’ declaration
Independent auditor’s report
Section 6 – Shareholder and other information
Five year financial history
Shareholder information
Glossary
Corporate directory
InvoCare Annual Report 2021 3
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141
144
146
Overview12Operating & financial review3Governance & Directors’ report654Shareholder and other informationSigned reportsConsolidated financial statements InvoCare is a leading provider of funerals, burials and cremations in
Australia, New Zealand, and Singapore and operates private memorial
parks and crematoria in Australia and New Zealand. It is also a leading
provider of pet cremation services in Australia.
InvoCare at a glance
45,781
FUNERAL CASES
24,504
CREMATIONS
AND BURIALS
87,440
PET CREMATIONS
2025 Strategy
Objectives
Customer led,
people
empowered
Be customer-centric in
everything we do
Operational
excellence
Optimise our foundations to
drive sustainable returns
Stronger
core growth
Excel in servicing customer
needs and grow share of
market value
2025 Ambitions
Trusted by client families and
communities
Great place to work
Key measure of success
Outstanding NPS
High engagement and retention
Pre-need
Planning
At need
Funeral
Offering
products and
services along
the customer’s
lifetime
journey
InvoCare Annual Report 2021 4
+80.1
NPS
c. 1,900
EMPLOYEES
336
LOCATIONS
An exceptional result
Full time equivalent
New growth
platforms
Innovate and diversify
to expand addressable
market and meet future
customer needs
Sustainable
leadership
Lead company and
industry to more
sustainable outcomes
29%
29%
5%
Funerals
59%
Australia
84%
Operating
EBITDA
42%
42%
Recognised industry leader and
partner of choice
Creating value for
all stakeholders
Sustainability commitments
EPS growth and satisfactory ROCE
Pet
Cremations
4%
5%
Sing
24%
7%
NZ
9%
24%
Cemeteries & Crematoria
37%
At need
Funeral
Post need
Memorialisation
InvoCare Annual Report 2021 5
2021 performance highlights
Positive momentum on key measures of success
Strong delivery and positive performance against all key scorecard measures
Customer
and team
Operational
excellence
Growth:
Operational
Growth:
Financiala
Sustainable
leadership
NPS
+80.1
1.1 on PCP
LTIFR
9.8
22% on PCP
OPERATING
LEVERAGE
2.1x
Return to positive
FUNERAL CASE
VOLUMES
45,781
2.2% on PCP
OPERATING
REVENUE
$527.1m
11% on PCP
SUSTAINABILITY
REPORT
‘Leading’
ACSI rating
DEBT LEVERAGE
RATIO
FUNERAL CASE
AVERAGEb
OPERATING
EBITDA
1.2x
0.1x on PCP
$8,156
3.8% on PCP
$125.5m
22% on PCP
CASHFLOW
CONVERSION
MEMORIALISATION
REVENUE
OPERATING
EBIT
105%
5 ppts on PCP
+9.7%
On PCP sales
$77.8m
36% on PCP
ROCE
11.2%
2.4 ppts on PCP
OPERATING
EPS
31.6¢
51% on PCP
PET CREMATION
CASE VOLUME
87,440
501% on PCP
NB Definition of terms and measures used in this report included in the glossary on page 144 and 145
a For reconciliation of operating to statutory results see page 34
b Group gross funeral case average, including disbursements
InvoCare Annual Report 2021 6
2021 sustainability highlights
InvoCare’s inaugural materiality assessment identified the Environmental, Social and Governance (ESG)
issues relevant to our operations, which are focused on three key themes, People, Place and Planet.
Below are some key sustainability highlights and achievements for the year, with further details provided in
the Group’s 2021 Sustainability Report available for download at www.invocare.com.au/investor-relations.
Planet
Sustainable product and service
options continued to develop,
catering for client interest in eco-
friendly offerings and targeting
potential reduction of environmental
impact from our operations.
Solar panel installation was
completed at our Malaga operations
centre in Western Australia.
Electric vehicle trials are under way
in Australia and New Zealand.
People
Health and Safety Strategy
launched, aimed at developing and
delivering innovative, sustainable
interventions that promote team
member safety and reduce injury,
illness and fatal risk.
LTIFR decreased 22% from 2020.
Training and development
enhanced online, building
leadership bench strength and skills.
Place
Inclusive funerals offering
expanded to reflect diversity of our
local communities, including a new
location for Galaxy Funerals in
Burwood, NSW.
Ongoing capital investment in
asset revitalisation, operational
workflows and shared services
including new facilities in Albion Park
Rail, Cairns, Tullamarine, and Victor
Harbor.
Design and implementation of our
Evolve Frontline Management
Development Program, with over
50 participants completing the
program in 2021.
Memorial parks welcomed
community commemoration events
for Father’s Day and ANZAC Day,
adapting the approach to these due
to COVID restrictions.
Our customer experience continued
to improve with a leading +80.1 NPS
and we partnered with Memories
to offer client families an innovative
digital way to honour and celebrate
loved ones.
On White Ribbon Day we promoted
caring and respect, with local events
and a moving tribute from our White
Ladies in Sydney’s Martin Place.
Launched a partnership with Violet,
a not-for-profit working to reduce
regretful outcomes in the last stage
of life for Australians, caregivers and
families.
InvoCare Annual Report 2021 7
OverviewShareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review654321 Chairman’s message
Dear fellow shareholder,
On behalf of the Board, thank you for your continued
support during the year. In 2021, we welcomed Olivier
Chretien as our new Managing Director & CEO. Olivier
has certainly hit the ground running and alongside his
refreshed Executive Leadership Team we have reset our
strategic vision for the next 5 years, embarked on a bold
change agenda, delivered growth, returned the business
to positive operating leverage, and maintained our
strong balance sheet and cash conversion, all against
the backdrop of another year of COVID-driven disruption
to our industry.
The Board would also like to extend our thanks and
gratitude to our employees. In 2021, our teams across
our Funerals, Cemeteries & Crematoria and Pet
Cremation businesses, as well as our support office
teams, have continued to step up to the significant
challenge of the COVID pandemic (COVID). Their
resilience, agility, and commitment to high standards
of service and safety has been recognised by our client
families, with the Group achieving a record Net Promoter
Score (NPS) of +80.1, an exceptional result. At the
same time, we have seen a material improvement in the
Group’s safety outcomes with LTIFR dropping 22% to
9.8 for the year.
The Board is confident about
the strength of the business...with
future growth supported by both
population growth and ageing
,,
trends in its markets,,
Impact of COVID
A year ago, I reported to you that 2020 had been a year of
unprecedented challenge, and that our people were truly able to live
our mission to support families at the most pivotal time of their lives.
In 2021 our flexible COVID response plan is now embedded in the
business and continues to serve us well. After near ‘normal’ operating
conditions in most of our markets for much of the first half of the year,
the arrival of the Delta variant in June and Omicron variant in December
led to a tougher second half to navigate across our geographies.
InvoCare Annual Report 2021 8
Our teams dealt with various forms of lockdown and restrictions in
all our key markets. Our memorial parks experienced dramatically
reduced foot traffic and memorialisation revenue momentum, while
our funeral teams managed the impacts of bans on funerals that
spanned from seven days in South Australia to four weeks in Auckland
at the peak of the various outbreaks, and the navigation of various
government restrictions on attendee limits, vaccine mandates for
mourners and the overall general fatigue of our workforce.
Ongoing global supply chain disruptions have impacted some input
costs, and, like many companies, we have seen high levels of COVID-
related absenteeism impacting our operations. While restrictions have
now been lifted in all markets, supply chain and absenteeism issues are
expected to persist at least for some of Q1 2022.
Despite these challenges, customer satisfaction, measured by NPS,
has grown, we maintained our strategic momentum and we’ve
delivered solid earnings growth and strong cash conversion. We
attribute this to the quality of our teams and the advantages that our
breadth of brands, market positions and diversity of operations brings.
We have also observed clear customer trend shifts during this second
year of the pandemic. The sudden rise in direct cremations is likely to
return to normal levels, whilst the demand for digital products and tools
has been accelerated in the past year. We have seen an increase in the
desire for live streaming of services and for digital tools to allow families
to plan more of a funeral service from their home, reducing the need for
multiple face to face interactions between funeral arrangers and client
People, Place, Planet – our enhanced
sustainability commitments
During the year the Group reset its purpose – ‘Honouring life,
celebrating memories for generations’ - and our strategy, taking a
longer term view out to 2025. As I outlined to you in our 2020 AGM held
in May of last year, the fifth pillar of this strategy is our commitment to
industry leadership in sustainability, which has led to a redoubling of
our efforts in this space.
The Board, alongside the Executive Leadership Team, has increased
focus and investment in our Environment, Social and Governance
(ESG) goals and our Sustainability strategy and its programs. This
commenced with the appointment of a dedicated member of our
Executive Leadership Team, Grace Westdorp, responsible for Safety &
Sustainability, in March 2021.
We conducted a materiality assessment during the year as part of
the new Sustainability Strategy, sharpening our focus on the priority
areas where we think we can make a real difference and theming them
around three key areas of People, Place and Planet.
This strategy was officially launched in early 2022 and we recognise
both the huge opportunities and the substantial challenges that go
hand-in-hand with achieving genuine ESG progress in our business
— an international footprint, hundreds of premises and facilities,
large vehicle fleets, energy-intensive operations, a diverse workforce
with considerable safety responsibilities and our commitments to
families. These trends have influenced our strategic priorities.
community.
InvoCare Annual Report 2021 9
Chairman’s message
continued
FY21 financial results and capital management
Outlook
InvoCare reported statutory revenue of $532.5 million for the year, an
The Board is confident about the strength of the business,
increase of 11% on the prior corresponding period (PCP) and a
notwithstanding the short-term impact of supply chain disruptions
return to statutory profit after tax attributed to shareholders of
and absenteeism related to COVID, with future growth supported by
$80.2 million for the year, a strong turnaround from the $11.5 million
both population growth and ageing trends in its markets. The refreshed
restated reported loss in the PCP. Recovery in the key value drivers
Executive Leadership Team, led by our CEO, Olivier Chretien, the reset
of core operating earnings, a strong performance of the new Pet
strategy and the momentum achieved in this first year we believe sets
Cremations business, as well as a robust recovery in the mark-to-
the Company up well for its next phase in meeting the evolving needs
market (MTM) valuation of Pre-paid Funds Under Management
of our client families and our aim of delivering predictable and growing
(FUM) have driven this growth in Reported Profit.
returns to our shareholders.
Bart Vogel
Chairman
Sydney
The Group delivered an Operating Earnings Per Share (EPS) of
31.6 cents, 51% above the PCP. This strong growth in earnings
and continued strong cash conversion has enabled the Board to
determine a final fully franked dividend of 11.5 cents per share, which
brings the full year dividend to 21.0 cents per share, an increase
of 68% in our distributions to shareholders. The resulting dividend
payout ratio of 66% reflects an appropriately prudent approach to
capital management given the opportunities for investment in growth
initiatives set out in our strategy.
Board changes
In April 2021 the Board announced the retirement of Jackie McArthur
as a Non-Executive Director of the Company. Jackie had been on the
Board since 2018 and provided invaluable insight and contributions to
both the Board and to the Audit, Risk & Compliance and Nomination
Committees, both of which she was a member.
In May 2021, the Board announced the appointment of Kim Anderson
as a Non-Executive Director and Chair of the People, Culture &
Remuneration Committee. Kim is an experienced ASX listed company
director with more than 30 years’ experience in senior executive roles
in a range of companies and she brings extensive digital business
experience to the Board.
In November 2021, the Board announced the appointment of Kee
Wong as a Non-Executive Director of the Company. Kee’s technology
industry experience and entrepreneurial background add real diversity
to our Board, and his tenure as an ASX listed company director is
evident in his contribution to our deliberations.
Both new directors complement the Board’s depth and diversity of
knowledge on-hand to support the Company in this next phase of
our strategy with the aim of driving long term, sustainable growth. We
look forward to introducing Kee to our shareholders at our upcoming
Annual General Meeting where he will be put forward for election.
The Group delivered an Operating Earnings Per Share
(EPS) of 31.6 cents, 51% above the PCP. ,,
,,
InvoCare Annual Report 2021 10
Our purpose, vision and values
‘Honouring life,
celebrating memories
for generations’
Our purpose is in ‘honouring life, celebrating memories
for generations’, which reflects that, with our team,
breadth of offering and strategic assets, InvoCare is
uniquely positioned to service our customers’ needs
along their lifetime journey.
Our vision is: ‘To be entrusted with all lives, as a respected
pillar of our communities and a leader in our field’.
Garnering community trust in our brands, having offerings
that cater to the diversity of our markets and being a
valued leader within the death care sector is fundamental
to our long-term success and the creation of shareholder
value.
Underpinning the achievement of our strategic objectives
and the culture of InvoCare are our CARES values:
Collaboration: We respect one another and achieve
more by working together
Accountability: We always act with integrity, through
honesty, fairness and accountability
Responsiveness: We put our clients and community
first, by listening, anticipating, supporting and
actioning, to exceed their expectations
Excellence: We continuously improve the way we do
business through innovation, creativity and flexibility
Safety: We keep everyone safe, everywhere and
every day
InvoCare Annual Report 2021 11
OverviewShareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review654321 Our strategic priorities
In May 2021, InvoCare announced to shareholders its reset strategy to 2025, which is designed to deliver on our purpose and vision.
In resetting the strategy, an opportunity was identified to first, extract greater value from the business that InvoCare has today and leverage the
investments made in the past five years, and then, use this as a strong and sustainable foundation for growth. There are five pillars to the strategy, the
objectives, and ambitions for 2025 are outlined below:
Objectives
Customer led,
people empowered
Operational
excellence
Stronger
core growth
New growth
platforms
Sustainable
leadership
Be customer-centric in
everything we do
Optimise our
foundations to drive
sustainable returns
Excel in servicing
customer needs and
grow share of market
value
Innovate and diversify
to expand addressable
market and meet
future customer needs
Lead company and
industry to more
sustainable outcomes
2025
Ambitions
Trusted by client families
and communities
Great place to work
Recognised industry
leader and partner of
choice
Creating value for all
stakeholders
Key measure of
success
Outstanding NPS
High engagement and
retention
Sustainability commitments
EPS growth and
satisfactory ROCE
Despite the disruption caused by COVID-19 pandemic (COVID),
the Group is making excellent progress in executing on this strategy,
with the past year focused on building stronger foundations
for the future.
A description of these strategic priorities and
some Group-level achievements in the year
are included below. At a divisional level,
detailed strategies are developed
specific to the opportunities to
improve each of our individual
businesses within these five
strategic pillars and these
are discussed in further
detail in the respective
performance summaries
starting on page 24.
InvoCare Annual Report 2021 12
Simplicity Funerals
Maclean NSW
Customer led, people empowered
Stronger core growth
This first pillar is about being customer-centric in everything that we
Each business will be focusing on its share of value by expanding the
do and empowering our frontline teams. By better engaging and
range of services offered to client families – rather than focusing on
empowering our people we can maintain our exceptional Net Promoter
market share in volume (i.e. cases) alone. This includes a renewed
Score (NPS) and expand customer advocacy, while building a great,
focus on pre-paid funerals to underwrite future long-term growth in the
safe, and inclusive place to work.
Funeral services business.
With a high proportion of sales driven through referrals, InvoCare
Further details on what this strategic objective means for each of our
prides itself on constantly working to raise the quality of its service
businesses and key achievements are located further in this report.
standards, as reflected in the NPS, which is +80.1 at the end of 2021,
exceeding the target set for the year.
InvoCare’s ‘Your Say’ employee engagement survey was conducted
in the first half of 2021. The new-look survey received over 7,000
comments, provided baseline data about the employee experience
and enabled benchmarking against similar-sized organisations and
industries. Insights from the survey have been cascaded across the
business, with teams building action plans in support of the feedback
provided.
One of our first actions in response to feedback was the
announcement of a new paid parental leave scheme for Australian
and New Zealand employees supporting both primary and secondary
carers, another component in our emerging diversity, equality and
inclusion strategy.
Operational excellence
This pillar considers the Group’s operating model, network
performance, costs and capital discipline. The Group has focused
on rejuvenating its funeral facilities as part of the network and brand
optimisation (NBO) facilities upgrade program in recent years, a
program that is due for completion in the next 12 months and which
will then transition to longer term network project plans. The Group
will now focus on execution of a more streamlined operating model to
extract efficiencies. The Group has also started developing its use of
New growth platforms and innovation
The fourth strategic pillar aims at expanding the Group’s addressable
market through adjacencies and harnessing the potential of innovation
to drive new sources of growth and efficiency. This includes expanding
the pet cremations business and positioning the Group to create value
for customers along their lifetime journey.
The Group has established an Innovation Hub to develop, support
and nurture an innovation culture. The hub is a platform for InvoCare
to connect with start-ups, researchers, not-for-profits and other
partners to bring innovation to the sector. Through the hub, we have
already made an investment in Memories Group Limited (Memories),
an innovative digital legacy platform, and partnered with The Violet
Initiative, an organisation that has the aim of helping carers talk about
and prepare for the death of a loved one.
Sustainable leadership
Finally, the fifth pillar is InvoCare’s commitment to sustainable industry
leadership. The Group is redoubling its efforts on sustainability, which,
in addition to broader environmental and sustainability goals, involves
a clear focus on safety and operational standards of care. Furthermore,
our people are fundamental to customer advocacy and the Group
continues its focus on diversity and talent development.
information technology (IT) to enhance our customer service offerings
InvoCare now has an overarching Health and Safety Strategy, aimed
via digital platforms.
The Group undertook a debt refinancing, which completed in
September 2021. This is a key step to ensuring the Group has access
to a flexible funding arrangement that will support the execution of the
five-year strategy. Its nature as a revolving cash advance facility is also
intended to bring further discipline to the Group’s cash management
activities and minimise finance costs.
at developing and delivering innovative, sustainable interventions that
promote team member peak performance and reduce injury, illness
and fatal risk. Since growing our Safety and Injury Management teams,
and introducing clearer targets and safety management plans, we
have made great progress in reducing our Lost Time Injury Frequency
Rate (LTIFR) by 22% in a year to 9.8.
InvoCare’s inaugural materiality assessment this year identified
the environmental, social and governance (ESG) issues relevant to
our operations, gave us an understanding of what matters to our
stakeholders, and laid the foundations of our new organisation-wide
Sustainability Strategy that fits within this fifth pillar, ‘Sustainable
leadership’. This assessment process has reframed our ESG focus
into three themes, ‘People, Place and Planet’. As the Sustainability
Strategy is multi-year, some of our activities and evaluation processes
under each theme are still in development. Further detail provided in
the Group’s 2021 Sustainability Report.
InvoCare Annual Report 2021 13
OverviewShareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review654321 Chief Executive Officer’s message
Dear Shareholder,
This report marks the first year of my tenure as Managing Director & CEO
of InvoCare and as our Chairman noted, it has been characterised by
positive recovery and momentum, in another year contextualised
by COVID-driven disruption.
Acknowledgements
Travel restrictions allowing, I have spent much of this year meeting with our
teams across our countries and regions. I recall my comments this time last
year, and from the site visits I’ve done and employees I have met with, I continue
to be extremely proud of our teams. Without a doubt, they live our CARES
values everyday through their professionalism, extraordinary resilience, and
commitment to a single-minded service ethos ensuring the best possible care
to client families at all times.
Echoing Bart’s message, I would like to thank all our employees in Australia,
New Zealand and Singapore for their tireless support of each other and our
client families. I also wish to thank my Executive Leadership Team for their
dedication and support in my first year at the helm. They have led their teams to
deliver a year of strong earnings recovery and positive strategic momentum.
Our performance
I joined InvoCare because I was inspired by its people, values, and the
opportunity benefit the community. In May 2021 we launched our reinvigorated
Purpose and Strategy. Our Purpose - Honouring life, celebrating memories for
generations - reflects the expanded role we play in meeting the needs of our
client families and I believe there are still many more opportunities to improve
and expand our services to client families and the community.
When we launched our five-pillar strategy in May we highlighted the key
measures that will demonstrate our success in delivering on our strategic
ambitions. These include continuing to deliver a very high NPS, ensuring high
levels of employee engagement and being recognised as a trusted industry
leader and preferred partner; and finally if we do all of these things well, we
will deliver our key financial measures of success being sustained growth in
earnings per share and a satisfactory enterprise return on capital employed.
In my recent presentation of the 2021 results to investors I was pleased to
report positive performance against all these key performance indicators,
including increased customer satisfaction and material improvement in safety
outcomes, strong operational and financial growth outcomes, whilst continuing
to maintain our strong balance sheet and levels of cash conversion.
The Group has successfully navigated another COVID-disrupted year with
recovery in the key drivers of value: funeral case average (up 3.8%) and
funeral case volume (up 2.2%); continued growth in memorialisation sales
in the Australian Cemeteries & Crematoria business (up 9.7%); and a strong
contribution from the upscaled Australian Pet Cremations business. As a
result, operating revenue increased 11% to $527.1 million. Controlling cost
growth has been a particular feature across the year and is reflected in some
of the improved profit metrics, including 22% growth in Operating EBITDA to
$125.5 million and a return to positive operating leverage of 2.1x. Pleasingly, we
saw positive momentum continuing in our key financial measures of success
with Operating EPS up 51% to 31.6 cents and our enterprise return on capital
employed up 2.4 percentage points to 11.2%
InvoCare Annual Report 2021 14
FY21 achievements
Outlook
Operating conditions may have been disrupted, particularly in the
We are confident about the near and long-term potential of the
second half, but the strategic momentum during the year was pleasing,
business, however we do not know how the impact of the next stage
and the Group achieved some important foundational strategic
of the pandemic will play out on supply chain, workforce and customer
initiatives, which are key to supporting future business growth:
demand, as well as the ongoing government response.
Customer led, people empowered
Exceeding NPS of +80, successfully onboarding
new talent in key strategic areas of the
business and conducting a new look employee
engagement survey, which led to new initiatives to
ensure InvoCare is a great place to work
Population and ageing trends in our markets support future growth,
with reported deaths beginning to rise in Australia and New Zealand
after COVID-driven reductions in the prior year. Pet ownership is
growing in Australia, and as we move into the growth phase of our
strategy, I am confident that we do so on more solid foundations.
This year demonstrated that our team and strategy can create
meaningful strategic momentum. I am positive about the long-term
potential and growth outlook for InvoCare – and our ability to build a
great place to work and a more efficient, innovative and sustainable
company, that delivers satisfactory returns to shareholders.
Operational excellence
Finally, I too would like to thank all our shareholders for their ongoing
support.
Implementing an enhanced Enterprise Reporting
Platform (ERP) system in Funerals and selecting a
new ERP system for Cemeteries & Crematoria to
be implemented in 2022; successfully completing
our debt refinancing; and improving capital
investment discipline across the Group.
Olivier Chretien
Managing Director & Chief Executive Officer
Sydney
Stronger core growth
Completing 40 network projects including four
best-in-class shared service centres to build
operational efficiencies and completing a new long-
term Funerals network optimisation plan, as well as
master plans for select key memorial parks.
New growth platforms
Commencing the Group’s new digital and
innovation journey with the establishment of an
innovation hub, investing and partnering with
digital legacy business Memories, going live with
a first stage customer digital self-serve portal
and pet cremations e-commerce offering; and
signing key commercial agreements across our
businesses.
Sustainable leadership
Investing in and increasing focus on safety,
reducing our LTIFR by 22% in the year to 9.8;
partnering with Violet, a Not-for-Profit providing
support through the last stage of life; conducting
an inaugural environmental, social and
governance (ESG) materiality assessment and
establishing the Group’s enhanced sustainability
strategy: ‘People, Place, Planet’.
InvoCare Annual Report 2021 15
OverviewShareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review654321 Executive
Leadership
Team
Olivier Chretien
Chief Executive
Officer
Adrian Gratwicke
Chief Financial
Officer
Heidi Aldred
General Counsel /
Company Secretary
Lynne Gallucci
Executive General Manager
– Australian Funerals
Steve Nobbs
Executive General Manager
– Cemeteries & Crematoria
Tim Higgins *
Executive General Manager
– International, Strategy & Innovation
Victoria Doidge
Executive General Manager
– Customer
Amanda Tober
Executive General Manager
– Human Resources
Grace Westdorp
Executive General Manager
– Health, Safety & Sustainability
Fergus Kelly
Executive General Manager
– Stakeholder Engagement
InvoCare Annual Report 2021 16
* Tim Higgins was promoted to Executive
Leadership Team as at 1 January 2022.
Section 2
Operating and
financial review
* Tim Higgins was promoted to Executive
Leadership Team as at 1 January 2022.
InvoCare Annual Report 2021 17
Financial review
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:
Generating long term shareholder returns
InvoCare seeks to deliver sustainable shareholder returns through
earnings per share (EPS) and dividend growth which, if delivered,
should support share price performance.
Financial discipline – Focus on cost control and efficiency to drive
The Board determined a fully franked final dividend of 11.5 cents per
positive operating leverage
Portfolio management – Act decisively on the allocation of capital
and managing returns from investments
Balance sheet strength – Maintain funding flexibility and disciplined
capital management to support growth aspirations
share, increasing full year dividends to 21.0 cents, representing a
dividend payout ratio of 66% of Operating EPS, within the Group’s
preferred payout range.
2021
cents
Restated
2020
cents
Movement
%
56.1
(8.6)
752.3
Cash flow generation – Pursue working capital efficiency and
realisation of profits into cash to reinvest in the business
Basic earnings per share
(EPS)
The Group’s performance in these areas during the year is set out on
the following pages. The prior corresponding period (PCP) is the year
ended 31 December 2020.
Impact of IFRIC guidance on accounting for
software-as-a-service contracts (SaaS)
Operating EPS
31.6
20.9
51.2
Interim dividend
Final dividend
9.5
11.5
5.5
7.0
72.7
64.3
Total dividend (full year)
21.0
12.5
68.0
Following clarifying guidance issued by the IFRS Interpretations
Dividend payout ratio (%)
66%
60%
6 ppts
Committee (IFRIC) in April 2021, the Group has adopted a change in
its accounting policy in relation to the treatment of configuration and
customisation costs incurred in implementing SaaS arrangements.
This change in accounting policy is to be applied retrospectively
resulting in the need to restate the comparative financial statements
for the year ended 31 December 2020. The impact of the change in
accounting is therefore reflected in the restated financial results for the
year ended 31 December 2020 presented on relevant pages of this
report.
Profit performance for the year
The Group delivered Operating net profit after tax of $45.1 million in
the year ended 31 December 2021 (FY21), a 61% improvement on the
PCP driven by an increase in funeral case average in Australia and New
Zealand, continued growth in memorialisation sales in the Group’s
Cemeteries & Crematoria business, a strong contribution from the
pet cremations businesses acquired in the second half of 2020 and
Further details on the impact of the change in accounting policy are
disciplined cost control.
included in Note 12 of the financial statements.
This strong recovery in profits came despite COVID disruptions
experienced in the second half of 2021. Until June, Australia and New
Zealand had controlled community transmission of COVID, allowing
for an easing in government-imposed restrictions on funeral attendee
limits and travel in most markets. The emergence of the Delta strain in
June and the Omicron strain in December resulted in the reinstatement
of these restrictions causing tougher operating conditions for some of
our businesses in that period.
Reported profit for the year attributable to shareholders of $80.2 million
reflects the strong recovery in operating earnings as well as the benefit
of a net $44.1 million gain arising from the mark-to-market accounting
for pre-paid funeral contracts with a $64.7 million unrealised gain on
the revaluation of pre-paid funds under management (FUM) offset by a
$20.6 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 the estimated change in costs to
fulfil the contracts. Further details are provided in the Pre-paid funerals
section later in this report.
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.
InvoCare Annual Report 2021 18
metrics:
Revenue
Expenses
EBITDA
Operating EBITDA, EBIT and net profit after income tax exclude the
The operating revenue result reflects recovery in key value drivers
following items:
The financial impacts of the pre-paid funerals business
with a return to pre-COVID funeral case average (when conditions
allowed) in Australia and New Zealand, 2.2% growth in funeral case
volumes, and continued growth in memorialisation sales in the Group’s
Other non-operating activities, including asset sale gains/losses,
impairment gains/losses, accounting for SaaS arrangements
Cemeteries & Crematoria businesses. In addition, acquisitions
executed in second half (H2) of 2020 contributed $26.7 million to the
expensed as incurred and restructuring costs, as relevant
increase, with the acquired pet cremations businesses delivering over
Net finance costs associated with the pre-paid funerals business
The income tax effect of the above items
78,000 private cremations in the year, exceeding expectations.
Cost control and a focus on operating expenses (OPEX) to sales
% has continued in the year, as reflected in some of the improved
A reconciliation of operating to statutory financial results is included on
profit metrics. $19.3 million of the $27.9 million increase in operating
page 34.
Set out in the table below is the operating result and key performance
2021
$’000
Restated
2020
$’000
Movement
%
527,096
476,249
10.7
expenses is driven by the inclusion of the H2 2020 acquisitions. The
underlying $8.6 million increase in operating expenses includes
increases in ‘finished goods, consumables and funeral disbursements’
reflecting increased sales activity and growth in employee expenses.
The strong financial performance has driven higher sales incentives in
the Cemeteries & Crematoria business and an increase in accruals for
both short-term and long-term incentives for employees compared
to the PCP. The Group has also experienced wage inflation and
undertaken capability investments in our field support (safety,
(401,619)
(373,684)
(7.5)
marketing and HR in particular) and IT teams to reflect the strategic
focus of the business. Offsetting this, cost savings have been achieved
125,477
102,565
22.3
in advertising, and other expenses, including professional fees.
Depreciation and amortisation
(47,759)
(42,553)
(12.2)
Pre-paid technology
expenses
(654)
(750)
12.8
Business acquisition costs
(743)
(1,918)
61.3
Net gain on lease
modifications/terminations
1,517
-
-
EBIT
77,838
57,344
35.7
Net finance costs
(15,262)
(20,484)
25.5
Profit before income tax
62,576
36,860
69.8
Depreciation and amortisation expense increased $5.2 million or
12% on the PCP driven by the impact of capital investment in the
current and prior year and a one-off $1.1milion adjustment arising from
the acceleration of depreciation on leasehold improvement assets
following the relocation of the North Sydney Support Office as reported
in the half year ended 30 June 2021 (HY21).
Net finance costs have declined reflecting primarily the benefit of lower
borrowings in the year and an improved leverage ratio reducing the
interest rate margin charged by our banks. The decrease also reflects
the cycling of a $2.1 million charge in the PCP for the early exit of an
interest rate hedge and the benefit from a $1.1 million foreign exchange
rate gain on the retranslation of New Zealand dollar denominated
debt which is drawn down in Australia post the debt refinancing
Income tax expense
(17,320)
(8,699)
(99.1)
arrangement.
The movement in income tax expense reflects improved profit
performance but also the corresponding movement in deferred tax
liabilities associated with the net revaluation gain on pre-paid FUM.
Non-controlling interests
(113)
(167)
32.3
Operating net profit after
income tax attributable to
equity holders of InvoCare
Limited
Operating EPS (cents per
share)
45,143
27,994
61.3
31.6
20.9
51.2
OPEX to sales %*
52%
53%
(1 ppts)
EBITDA margin (%)
24%
22%
2 ppts
EBIT margin (%)
15%
12%
3 ppts
*
For calculating OPEX to sales %, OPEX represents operating
expenses excluding finished goods, consumables and funeral
disbursements costs
InvoCare Annual Report 2021 19
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1
Financial review
continued
Portfolio management
Balance sheet
Decisive action to invest, restructure or divest non-core operations
InvoCare continues to maintain a strong balance sheet with a
while fulfilling the Group’s investment and strategic priorities is vital to
disciplined focus on working capital management. The Group’s capital
managing InvoCare’s portfolio of operations.
employed excluding net debt items is comprised of the following.
Acquisitions were limited to the Pet cremations business during
the year with the acquisition of the business assets of a small pet
cremations business in metro Sydney in H1 and, more materially, the
business assets of Pets at Peace Central West New South Wales in H2,
both made with the aim of continuing to expand the national footprint
of the Pet cremations business.
In H2 the Group invested in and signed a commercial partnership
Total capital employed at reporting date
2021
$’000
Restated
2020
$’000
Movement
%
Trade and other receivables
80,630
78,177
3.1
6.2
with an Australian digital memorialisation start-up, Memories. Our
Inventories
46,866
44,117
$4.1 million investment, for a 9.6% stake recognised our strategic
contribution and the potential of the commercial partnership.
The Group disposed of four locations, three in Australia and one in New
Zealand for combined proceeds of $10.8 million giving rise to a net gain
on disposal of non-current assets recognised through non-operating
profit of $6.5 million. These disposals are a consequence of the
Network Optimisation review conducted in the year.
Trade and other payables
(69,226)
(60,514)
(14.4)
Net working capital
58,270
61,780
(5.7)
Property, plant and equipment
494,454
464,277
Intangibles
226,913
225,386
6.5
0.7
Net pre-paid funds under
management/contract
liabilities
109,435
71,822
52.4
Deferred selling costs
35,755
37,712
(5.2)
Deferred contract assets
1,963
4,066
(51.7)
Net right of use asset and
lease liabilitiesa
(12,646)
(11,346)
(11.5)
Deferred revenue
(127,959)
(137,718)
7.1
Net tax items
(47,095)
(26,301)
(79.1)
Other itemsb
(13,515)
(29,340)
53.9
Total capital employed
725,575
660,338
9.9
Net debt
Net assets
(144,654)
(137,468)
(5.2)
580,921
522,870
11.1
Average working capital % of
salesc
11.4%
13.5%
(2.1 ppts)
ROCE %d
11.2%
8.8%
2.4 ppts
a
b
c
Excludes certain finance leases which are considered ‘debt-like’ and
included in net debt balance
Includes assets held for sale, other financial assets, derivative financial
instruments, pre-paid technology assets, provisions for employee
entitlements and contingent considerations
Represents the average working capital for the reporting period
(average of opening and closing) divided by revenue for the same
period
d
ROCE = Operating EBIT divided by (average Total equity + average
Net debt)
InvoCare Annual Report 2021 20
A strong sales result in the fourth quarter and disciplined working
As part of the reset of the Group’s strategy to 2025, a review of the
capital management has driven an improvement in working
Group’s financing structure and tenor of the Group’s debt facilities was
capital relative to 31 December 2020. This and the improved sales
undertaken. On 27 August 2021, InvoCare successfully amended and
performance have also driven a 2.1 ppts improvement in average
extended its Syndicated Debt Facility. Under the amendment, agreed
working capital % of sales to 11.4%.
with syndicated lenders, InvoCare:
The business has continued to invest capital in property, plant and
equipment arising primarily from the Network Optimisation program,
Repaid the fully drawn A$67.5 million, NZ$50.0 million and
S$35.0 million Facility A Term Loans on 23 September 2021
and increases in intangibles arising from the continued capitalisation
and this term facility was subsequently cancelled
of IFRIC compliant software development costs, driving an increase
in both compared to December 2020, net of depreciation and
amortisation.
As disclosed in Note 12, the change in accounting policy gives rise to
the recognition of a new class of asset with $8.6 million recognised
Increased the limit of its Facility B, Multi-Currency Revolving Cash
Advance facility from A$200.0 million to A$275.0 million
Extended the tenor of Facility B to the end of August 2024
(the facility was previously due to expire in February 2023)
as pre-paid technology assets at the end of the year, which will be
A simplified and more favourable common pricing grid was agreed
unwound through Operating EBIT over the period of the software
with syndicate lenders.
service.
At 31 December 2021, the Group had access to $382.4 million of loan
The favourable mark-to-market revaluation of pre-paid FUM in the
facilities as follows:
year is the largest movement in capital employed, driving the increase
in net pre-paid FUM/contract liabilities. It is also the main driver of a
$20.8 million increase in net deferred tax balances (from an increase in
A ten-year $100.0 million Note Purchase Agreement with Metlife,
fully drawn and due for repayment in February 2028
deferred tax liabilities associated with the pre-paid FUM balances).
A three-year $275.0 million Syndicated Debt Facility Agreement
Despite a 10% increase in total capital employed, the Group’s ROCE
has improved, increasing 2.4 ppts to 11.2% compared to the restated
year ended 31 December 2020. This reflects the strong growth in
Operating EBIT, up 36% to $77.8 million.
Net debt at reporting date
2021
$’000
Restated
2020
$’000
Movement
%
Cash and cash equivalents
53,630
118,781
(54.8)
supported by a panel of lenders providing available funds through a
Multi-Currency Revolving Cash Advance facility due for repayment
in August 2024. $91.4 million of this was drawn at reporting date
A one-year $7.4 million working capital overdraft facility provided
by transactional banker, ANZ. $Nil drawn at reporting date
The financial covenant ratios applicable to 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
Borrowings
(188,843)
(246,039)
23.2
be no greater than 3.5 times
Interest cover ratio (being adjusted Operating EBITDA to net
interest adjusted to remove interest related to AASB 16 Leases)
must be greater than 3.0 times
The above ratios continued to be met as of 31 December 2021.
Finance lease liabilities
(9,441)
(10,210)
7.5
Net debt
(144,654)
(137,468)
(5.2)
Total shareholders’ equity
580,921
522,870
11.1
Leverage ratio (times)
Interest cover ratio (times)
1.2
15.8
1.3
8.3
0.1
7.5
Strong growth in earnings and subsequent cash generation was used
to pay down debt but funding the capital investments of the Group
including the $4.1 million investment in Memories has driven a 5.2%
increase in net debt as at 31 December 2021 to $144.7 million. Despite
this, the growth in earnings has driven a further improvement in the
Group’s debt metrics.
InvoCare Annual Report 2021 21
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Financial review
continued
Cash flows
InvoCare aims to use cash generated from operations to pay down
borrowings, fund capital expenditure and acquisitions and distribute
dividends to shareholders.
Abridged cash flow statement
2021
$’000
Restated
2020
$’000
Movement
%
Operating EBITDA
125,477
102,565
22.3
Net change in working capital
(23,747)
(14,711)
(61.4)
Net finance costs paid
(14,219)
(17,046)
16.6
Tax paid
(9,771)
(14,424)
32.3
Operating cash flows
77,740
56,384
37.9
The Group ended the period with cash on hand of $53.6 million.
Stronger sales in the year, disciplined focus on cash collections and
a reduction in finance costs paid has led to growth in operating cash
flows of 38%. This has also led to improved cash conversion as more
earnings were converted into cash.
Net investing cash outflows for the year of $38.9 million includes
proceeds of $10.8 million from the disposal of certain properties as
part of our ongoing portfolio management activities, $4.1 million
investment in Memories made as part of the New Growth Platform
strategic pillar and $12.6 million primarily related to the payment of
deferred acquisition considerations following strong year 1 financial
performance of businesses acquired in H2 2020.
Capital expenditure (CAPEX) of $62.7 million included $30.9 million
of facilities related investment expenditure involving the delivery of
40 projects and $8.0 million of IT and digital related projects. The
remainder relates primarily to annual maintenance CAPEX of the
Group’s facilities and other plant and equipment purchases.
Acquisitions
(16,716)
(40,581)
58.8
Net financing cash flows includes the impact of the $59.7 million
Divestments/sale of assets
11,180
11,908
(6.1)
Capital expenditure
(62,703)
(60,952)
(2.9)
repayment of debt facilities following the debt refinancing, $23.8 million
from the payment of the 2020 final dividend and 2021 interim dividend
collectively and $20.2 million from the payment of principal elements
of the Group’s leased assets, being property, equipment and motor
Net funds from pre-paid
contracts
29,306
12,857
127.9
vehicles.
Investing cash flows
(38,933)
(76,768)
49.3
Dividends paid
(23,766)
(29,514)
19.5
Equity raise (net of issue costs)
-
270,875
(100.0)
Net draw down/repayment of
borrowings
(59,680)
(106,761)
44.1
Net lease payments
(20,196)
(11,599)
(74.1)
Other
(117)
(3,184)
96.3
Financing cash flows
(103,759)
119,817
(186.6)
Change in cash held
(64,952)
99,433
(165.3)
Cash conversion %*
105%
100%
5 ppts
Free cash flows*
54,167
54,490
(0.6)
*
Cash conversion % and Free cash flows are calculated as per tables
on opposite page.
InvoCare Annual Report 2021 22
Cash conversion % calculation
2021
$’000
Restated
2020
$’000
Operating cash flows
77,740
56,384
Add back: Net finance costs paid
14,219
17,046
Add back: Tax paid
9,771
14,424
Net funds from pre-paid contracts
29,306
12,857
Other cash flows related to pre-paid
contracts
877
1,429
Ungeared, tax free operating cash flows
131,913
102,140
Operating EBITDA
125,477
102,565
Cash conversion %
105%
100%
The cash 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 consolidated financial
statements and notes to the financial statements and follows the
recognition requirements of Australian Accounting Standards.
Free cash flows calculation
2021
$’000
Restated
2020
$’000
Operating cash flows
77,740
56,384
Interest paid
14,521
17,419
CAPEX - maintenance
(23,823)
(14,398)
CAPEX - investment - platform
(14,271)
(4,915)
Free cash flows
54,167
54,490
InvoCare Annual Report 2021 23
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Our businesses: Operating review
Funeral services – Australia
We are a leading provider of at need funeral services
in Australia and are privileged to deliver over 37,000
funerals annually for Australian families from our diverse
footprint of over 235 locations including funeral homes,
shop fronts and shared service centre facilities in
metropolitan capital cities and regional towns across
the country.
Our three national brands (White Lady, Simplicity and Value Cremations)
and our 60+ regional and local brands are well respected and valued for
their long-standing local heritage and contribution to their community. The
breadth of our brand portfolio is a key strength and competitive advantage
allowing us to cater for all types of client families and customer preferences
from simple, direct cremations to high service funeral and memorial services.
Our team of over 1,000 put client families at the centre of everything that
they do, being there to support them at pivotal and testing times in their lives.
They have achieved industry leading net promoter scores (NPS) through
their compassion, exceeding expectations, delivering outstanding service
and by setting the highest standards in safety and transparent business
practice.
Our ambition is to be the first-choice funeral service provider in Australia,
renowned for our quality of service and choice of brands and people. We
drive loyalty and advocacy from our client families and must deliver this
proposition through fit-for-purpose facilities and trusted team members.
NPS
+80.4
1.4 on PCP
LTIFR
11.1
22% on PCP
FUNERAL CASE
VOLUMES
37,193
2% on PCP
InvoCare Annual Report 2021 24
Our performance
The benefits of our diverse footprint, breadth of brands and positive
Key performance indicators
2021
2020 Movement
strategic momentum established in the year were evident in the strong
recovery in earnings of the Australian funerals business with a return to pre-
COVID funeral case average despite various disruptions across the states
of Australia at varying times of the year. Operating revenue has grown in all
markets with a 4.7% increase in funeral case average, and 2% growth in
funeral case volumes, in particular from Queensland and Victoria.
As restrictions on funeral attendees were eased, the ‘gathering’ element of
funerals has regained its importance with increased spend on higher service
funerals and memorials, sales growth driven by our key local and higher
service brands such as White Lady Funerals. Simplicity branded locations
have also seen strong growth, a brand which has benefitted from several
digital strategic initiatives this year and a refresh of its visual brand identity.
A strong focus on controlling costs has meant that this top line growth has
been realised in earnings with a 5 ppts improvement in OPEX to sales % to
42%, Operating EBITDA up 29% to $80.5 million and a return to positive
operating leverage.
Funeral case average ($)
8,249
7,882
4.7%
Operating revenue ($’000)
311,016
292,282
6.4%
Operating EBITDA ($’000)
80,521
62,512
29%
EBITDA margin %
26%
21%
5 ppts
Operating leverage
4.5x
(3.8x)
8.3x
OPEX to sales %
42%
47%
(5 ppts)
Capital expenditure ($’000)
34,702
42,325
(18%)
Y
G
E
T
A
R
T
S
Customer
led, people
empowered
Operational
excellence
Key achievements
Focus for coming year
Delivered improved customer experience,
NPS +1.4 points to +80.4
Maintain customer-centric focus
Your Say action plan execution
Your Say action plan in place
Four EBA’s negotiated
>15,000 hours of learning & development
Evolve Leadership program launched
Capability and leadership development
Talent acquisition & retention
Delivered four shared service centres
Workforce planning implementation
Go-live of ERP platform enhancement
project (Compass 2.0), to improve
functionality for funeral arrangers
Completed Phase 1 of Network Optimisation
review
Further ERP enhancements for co-ordination
activities
3 - 8 shared service centre projects for
completion, subject to DA approvals and no
construction delays
Stronger core
growth
Delivered 31 network projects
Brand value proposition refresh for Value
Cremations and Simplicity brands
Launched Phase 1 of Inclusive Funerals
program
Transition to long term network plan to prioritise
future investment and fill remaining gaps in
clusters and regions
Improve customer relationship management and
lead capture
Product and service range expansion
Strategic review of Pre-paid funerals
New growth
platforms
& innovation
Go-live of Customer Services Portal
to provide self-serve services
Investment in Memories and
established commercial partnership
Further roll out of digital planning tools to improve
customer experience across our brands
Embed Memories product
Expand partnerships
Sustainable
leadership
22% reduction in LTIFR to 11.1
Solar panel installation program commenced
Ongoing commitment to improve safety
performance
Sustainability strategy
Fleet strategy
InvoCare Annual Report 2021 25
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Our businesses: Operating review
continued
Cemeteries & Crematoria – Australia
The Australian Cemeteries & Crematoria business
is a leading independent operator of cemeteries
and crematoria, overseeing 15 cemeteries
and memorial parks in New South Wales and
Queensland spanning nearly 300 hectares of
open space with long remaining useful lives and a
network of over 20 cremators.
Our team of nearly 300 put client families at the centre of everything
that they do, and we are honoured to support over 23,000 client
families annually with their ‘at need’ and ‘post need’ requirements
with a wide range of memorial products and services. The business
conducts nearly 3,000 burials and over 20,000 cremations annually
with the parks and facilities also available for funerals, memorials, and
community events.
We engage with all funeral directors, InvoCare and independent
alike and client families from all community groups and religious
backgrounds through our non-denominational memorial parks.
Our core focus is on ensuring we develop and maintain beautiful places
for the committal and ongoing care of the deceased in their final resting
place and for the communities in which they are located.
NPS
+74.2
1.9 on PCP
LTIFR
14.6
59% on PCP
BURIALS VOLUME
2,948
9.8% on PCP
CREMATION VOLUME
20,171
0.8% on PCP
InvoCare Annual Report 2021 26
Our performance
Key performance indicators
2021
2020 Movement
The Australian Cemeteries & Crematoria business continues to deliver
Operating revenue ($’000)
127,602
119,988
6.3%
strong growth in memorialisation sales, up 9.7% on the PCP. Despite a
strong first half, growth momentum was stalled in the third quarter with
Operating EBITDA ($’000)
61,411
56,996
7.7%
EBITDA margin %
48%
48%
0 ppts
Operating leverage
1.2x
(8.2x)
9.4x
OPEX to sales %
38%
35%
3 ppts
Capital expenditure ($’000)
7,446
3,171
135%
the lockdowns in New South Wales as several of our key parks were in
local government areas (LGAs) of concern, significantly reducing foot
traffic. The easing of COVID restrictions saw a return of client families
back to the major metropolitan parks, helping to stimulate and close
out deferred sales. The return to more traditional service levels has also
seen a 10% increase in burials in the year, while cremations remained
relatively stable. This sales growth combined with the growth in
memorialisation drove an overall increase in Operating revenue of 6.3%
(or $7.6 million) against the PCP.
Associated sales incentives expense growth and an increased focus
on safety and compliance as well as park grounds maintenance have
tempered the impact of top line growth, resulting in 3 ppts increase in
OPEX to sales % to 38% and only 7.7% growth in Operating EBITDA to
$61.4 million.
AASB 15 deferred revenue and cost unwinds contributed $18.8
million to Operating revenue and $14.2 million to Operating EBITDA
respectively (FY20: $20.3 million and $15.3 million).
Y
G
E
T
A
R
T
S
Key achievements
Focus for coming year
Customer
led, people
empowered
Delivered improved customer experience,
NPS +2 points to record +74
Your Say action plan in place
Completed restructure of parks leadership
team
Maintain customer-centric focus
Talent acquisition & retention
Your Say action plan execution
Capability and leadership development
Operational
excellence
Cremator training/certification program
developed and launched
Implement new ERP
National cremator network expansion
Completed review of ERP options
Stronger core
growth
Design work commenced on major
metropolitan parks
Master plans for major metropolitan parks
Expansion of multicultural offering
New growth
platforms
& innovation
Multi-year burial reservation agreements
signed with local community groups
Continued growth in community burial reservation
agreements
Memorialisation services expansion
Sustainable
leadership
Increased safety focus but disappointing
59% increase in LTIFR to 14.6
Ongoing commitment to improve safety
performance
Electric vehicle trial underway, with 20 added
to the fleet
Feedback drafted and provided to CCNSW
on their proposed Interment Industry
Scheme
Sustainability strategy
Investigation of alternative cremator fuel sources
Proactive stakeholder engagement
InvoCare Annual Report 2021 27
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Our businesses: Operating review
continued
Pet cremations
Established in 2019, Australia’s only national pet
cremations business operates from 16 locations
across five states, providing over 87,000 private
cremations annually and offers a wide range of
memorial products.
Being the best in class operationally is a priority for the business.
Working closely with veterinary clinics and client families, our
growing team of over 170 uses state-of-the-art tracking technology
to provide assurances to grieving families and veterinary clinics as to
what stage of the cremation process their pet is in.
PET CREMATION
VOLUME
87,440
501% on PCP
PET CASE AVERAGE
$338
7% on PCP
InvoCare Annual Report 2021 28
Our performance
The pet cremations business in Australia continued to grow with strong
contribution from the two acquired businesses driving the significant
increase in Operating revenue and Operating EBITDA.
Key performance indicators
2021
2020 Movement
Operating revenue ($’000)
29,613
4,642
538%
Operating EBITDA ($’000)
6,973
502
1,289%
EBITDA margin %
24%
11%
13 ppts
Operating leverage
2.4x
(0.3x)
2.7x
OPEX to sales %
57%
69%
(12 ppts)
Capital expenditure ($’000)
2,127
1,119
90%
Y
G
E
T
A
R
T
S
Key achievements
Focus for coming year
Customer
led, people
empowered
Established national business
unit with National Leader
Your Say action plan in place
Maintain customer-centric focus
Talent acquisition & retention
Your Say action plan execution
Capability and leadership development
Operational
excellence
Investments were made in two new pet
cremators
Integration of IT and operating platforms
nationally
Stronger core
growth
National veterinary supplier agreements
Continued growth in veterinary supplier
agreements
New growth
platforms
& innovation
NSW e-commerce site launched
2 bolt-on acquisitions
Expand range of products & services and
e-commerce capabilities
Consolidate and scale pet cremations operations
Sustainable
leadership
Safety plans established
Ongoing commitment to improve safety
performance
Sustainability strategy
Review of alternative to cremation methods
InvoCare Annual Report 2021 29
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Our businesses: Operating review
continued
International
InvoCare is a leading provider of funeral and related services
in New Zealand and Singapore.
Through its 48 locations (including two memorial parks and crematoria) and 24 locally trusted brands,
our dedicated team of over 200 proudly serves the funeral and memorialisation needs of nearly 7,000 client families
across New Zealand annually.
Our Singapore operations are a leading provider of funeral services in the Singaporean market with two main locations
including a six storey specially designed property with 13 newly renovated funeral parlours on Lavender St in the central
region of Singapore. Our dedicated team of nearly 70 offer over 1,700 client families a wide variety of pre, at and post need
funeral services annually.
Our performance: New Zealand
Like the Australian funeral services business, the New Zealand
Key performance indicators
2021
2020 Movement
business has experienced recovery in case average to pre-COVID
levels when conditions allowed, and this growth was a key driver of
the 2.9% increase in Operating revenue on the PCP. The improved
case average, from a return to higher service funerals when conditions
allowed, and growth in catering revenue was tempered in the second
half of 2021 with New Zealand split across alert levels with varying
restrictions. Auckland, our largest market, was heavily impacted, with
four weeks of no funerals, then capped at 10 people gatherings. All
New Zealand has now moved to the COVID Protection Framework,
also known as the traffic light system, from the beginning of December.
A tight control of costs has led to improved cost base efficiency metrics
and margins and a return to positive operating leverage, with Operating
EBITDA increasing 26% to $11.1 million.
Funeral case average ($)
7,003
6,775
3.4%
Operating revenue ($’000)
53,486
51,990
2.9%
Operating EBITDA ($’000)
11,098
8,778
26%
EBITDA margin %
21%
17%
4 ppts
Operating leverage
9.2x
(3.9x)
13.1x
OPEX to sales %
50%
52%
(2 ppts)
Capital expenditure ($’000)
5,241
4,765
10%
All figures disclosed are in Australian Dollars.
NPS
+87.6
1.3 on PCP
LTIFR
10.5
39% on PCP
FUNERAL CASE VOLUMES
6,859
1.2% on PCP
InvoCare Annual Report 2021 30
Our performance: Singapore
The contribution of Singapore earnings in Australian dollars to the
Group in FY21 has been impacted by the depreciation of the
Singapore dollar below AUD$1 equivalent for most of the period.
On a local currency basis, Operating revenue for the Singaporean
business increased 4.6% to S$19.1 million (declined 2.6% on an Australian
dollar basis). Whilst the Singaporean funerals market continues to be negatively
impacted by prolonged funeral attendance restrictions as Singapore
experiences another wave of COVID infections, the introduction of packages for
client families has proved successful.
The Singapore police contract won at the beginning of the second half of 2021 has also
been successfully implemented, contributing 110 cases in the second half. This uptick in
volume as well as increase in direct cremations, a number of which were COVID deaths, are at
a lower case average and higher cost to serve, which continues to dampen Singapore funeral case
average, down 4% on 2020 (on a local currency basis) and has driven the decline in Operating EBITDA
as the business ramped up workforce capacity to manage the increased case volumes.
Key performance indicators
2021
2020 Movement
Funeral case average ($)
10,732
12,042
(11%)
Operating revenue ($’000)
18,907
19,404
(2.6%)
Operating EBITDA ($’000)
8,338
9,392
(11%)
EBITDA margin %
44%
48%
(4 ppts)
Operating leverage
(4.4x)
(0.6x)
(3.8x)
OPEX to sales %
35%
31%
4 ppts
Capital expenditure ($’000)
378
317
19%
All figures disclosed are in Australian Dollars.
FUNERAL CASE VOLUMES
1,729
12% on PCP
Y
G
E
T
A
R
T
S
Key achievements
Focus for coming year
Customer
led, people
empowered
Lifted community engagement with
outstanding NPS delivered in NZ of +87.6
Your Say action plans in place
Maintain customer-centric focus
Talent acquisition & retention
Your Say action plan execution
Capability and leadership development
Operational
excellence
Migration of ringfenced business
in NZ to common ERP completed
NZ ERP enhancements to be implemented
Stronger core
growth
5 NBO projects delivered in NZ
Expanded spa and floral service
offerings deployed in Singapore
Transition to long term network plan to prioritise future
investment and fill remaining gaps in clusters
Product and service range expansion
New growth
platforms
& innovation
Sustainable
leadership
Successful tender of Singapore police contract
Execution of Singapore Police contract
Signed Memories Reseller agreement inclusive of
NZ and Singapore territories
Roll out of digital planning tools to improve customer
experience across our brands in NZ
Expand exposure to larger metropolitan markets in NZ
39% reduction in LTIFR to 10.5 in NZ
Ongoing commitment to improve safety performance
Sustainability strategy
InvoCare Annual Report 2021 31
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Our businesses: Operating review
continued
Other businesses
Pre-paid funerals
Support costs
Our pre-paid funerals (pre-need) business allows clients to pre-pay for
Supporting the business operations are key
selected future funeral services through our national network of funeral
functions and capabilities that are recognised
locations.
separately from the main business units.
The benefit of InvoCare pre-paid funerals are that they allow clients to
Group Support Corporate are those corporate functions
plan and pay in advance for tomorrow’s funeral at today’s prices with
that support all operations, Australian and International,
no additional fees when the pre-paid contract is redeemed. Contracts
primarily Finance, Group Human Resources (HR), Legal
can be paid all at once or in instalments over 36 months and are
& Compliance, listed company costs and the offices of the
redeemable at any of InvoCare’s branded locations across Australia.
CEO and CFO. Such costs increased by $1.2 million in the
Pre-paid funerals are generally also exempt from pension entitlement
year to $23.0 million driven by capability investments made in
tests in Australia (although independent financial advice should be
stakeholder engagement, Enterprise Project Management and
sought) and payments are held securely predominantly by The Over
compliance to support strategy execution and an increase in the
Fifty’s Guardian Friendly Society. These funds are independently
cost of incentives (short and long term) reflecting improved financial
invested and managed over the life of the contract and funds are only
performance of the Group compared to the PCP. These increases
released to the funeral home on redemption.
have been partially offset by savings in Senior Management transition
costs incurred in the PCP following the change in CEO and CFO.
The costs of the in-house IT support team and centralised technology
Key performance indicators
2021
2020 Movement
Unrealised gain on
pre-paid contract funds under
management ($’000)
Changes pre-paid contract
liabilities due to significant
financing ($’000)
64,697
3,659 1,668.2%
costs such as the software licence fees for Microsoft and Oracle
(20,612)
(20,277)
(1.7%)
platforms are included in Group Support IT. Such costs increased by
$3.4 million in the year to $10.6 million due to the impact of capability
investments in the IT team, including the appointment of a Chief
Information Technology Officer (CITO) and general increase in software
The key financial statement impact of this business on the Group profit
licence expense driven by the ERP roll out and increasing digital
and loss is the movements from the revaluation of pre-paid FUM and
investments in the current and prior year.
Field Support are those functions that directly support the Australian
operations including marketing, field HR support, Safety &
Sustainability, Procurement and Property & Facilities teams. Capability
investment in field safety and HR support teams and in marketing, has
driven a $2.8 million increase in such costs in the year.
pre-paid contract liabilities, the results of which are captured as non-
operating profit and loss items.
PRE-PAID %
OF AT NEED FUNERALS
PRE-PAID CONTRACT
VOLUMES SOLD
13.9%
0.3% ppts on PCP
4,195
0.5% on PCP
Continuing the trend from half year, pre-paid funds under management
values have continued to grow over the second half with strong equity
and property value returns resulting in a net $44.1 million accounting
gain for the year compared with the COVID impacted net $16.6 million
accounting loss recognised in the prior year.
The current model of our pre-paid funeral business relies heavily on
our team’s ability to speak directly to customers in locations such as
aged care homes. With COVID lockdowns in the second half and the
recent Omicron outbreak severely limiting our ability to have these
conversations, we have seen pre-paid contract sales volumes hold
relatively flat on the prior year and not keep pace with redemptions.
This highlights the need to accelerate our strategic review of the
business, including the role of digital in capturing further sales
opportunities.
InvoCare Annual Report 2021 32
Outlook
The impact that COVID continues to have on our
workforce, supply chain, operations, and client
families is difficult to predict and presents an
ongoing risk through 2022.
Notwithstanding these short-term headwinds,
the Group remains confident about the near and
long-term potential of the business. Population
and ageing trends in our markets support future
growth, with mortality rates tracking back to
long term trends in Australia and New Zealand
after COVID-attributed reductions in the prior
year; pet ownership is growing in Australia; and
the foundational strategic initiatives achieved in
the first year of our 5-year strategy have created
positive momentum.
InvoCare Annual Report 2021 33
Shareholder and other informationSigned reportsConsolidated financial statementsGovernance & Directors’ report6543Operating & financial review2Overview1 Reconciliation of financial information
InvoCare’s results are reported under Australian Accounting Standards. 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.
InvoCare 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. Accounting standards require 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 InvoCare’s core 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.
Revenue
Expenses*
EBITDA
2021
Non-
operating
results
Operating
results
Restated 2020
Statutory
results
Operating
results
Non-
operating
results
Statutory
results
$’000
$’000
$’000
$’000
$’000
$’000
527,096
5,357
532,453
476,249
1,403
477,652
(401,619)
(5,860)
(407,479)
(373,684)
(6,350)
(380,034)
125,477
(503)
124,974
102,565
(4,947)
97,618
Depreciation and amortisation
(47,759)
(7)
(47,766)
(42,553)
(12)
(42,565)
SaaS arrangements
Business acquisition costs
(654)
(743)
(4,594)
(5,248)
(750)
(10,376)
(11,126)
-
(743)
(1,918)
-
(1,918)
Net gain/(loss) on pre-paid contracts
-
44,085
44,085
Net gain on lease modifications/terminations
Asset sales gain
Net impairment gain/(loss) on non-current assets
1,517
-
-
-
6,530
4,000
1,517
6,530
4,000
-
-
-
-
(16,618)
(16,618)
-
-
7,383
7,383
(13,324)
(13,324)
EBIT
Net finance costs
77,838
49,511
127,349
57,344
(37,894)
19,450
(15,262)
(1,225)
(16,487)
(20,484)
(3,386)
(23,870)
Income tax (expense)/benefit
(17,320)
(13,271)
(30,591)
(8,699)
1,744
(6,955)
Non-controlling interests
(113)
-
(113)
(167)
-
(167)
Net profit/(loss) after income tax attributable
to equity holders of InvoCare Limited
EPS (cents per share)
OPEX to sales %
EBITDA margin (%)
EBIT margin (%)
45,143
35,015
80,158
27,994
(39,536)
(11,542)
31.6
52%
24%
15%
24.5
56.1
52%
23%
24%
20.9
(29.5)
53%
22%
12%
(8.6)
54%
20%
4%
* SaaS arrangements is regrouped from expenses before EBITDA as a separate line item in the table above in Non-operating results.
The table above summarises the key reconciling items between net profit after tax attributable to InvoCare’s equity holders and Operating EBITDA and
EBIT. The Operating EBITDA and EBIT information included in the table above has not been subject to any specific audit or review procedures by the
auditor but has been extracted from the accompanying financial report.
As well as impairments, recognition of SaaS arrangement expensed as incurred, and gains or losses arising from disposals of assets, items included
in the non-operating column also 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
this business.
The Directors also consider that the presentation of all activities related to the mark-to-market fair value movements in the independently controlled
funds under management and pre-paid contract liabilities as non-operating in nature and therefore these are also excluded from Operating EBIT and
Operating profit after income tax. This is considered to provide a better reflection of InvoCare’s 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 related
assets and liabilities.
InvoCare Annual Report 2021 34
Section 3
Governance &
Directors’ report
InvoCare Annual Report 2021 35
Board of Directors
Bart Vogel BCom (Hons), FCA, FAICD
Independent Non-Executive Chairman
Bart Vogel was appointed to the InvoCare Board of Directors on 1 October 2017, and as
Chairman of the board from 1 October 2018.
Bart’s career includes 20 years in the management consulting industry, as a partner with
Deloitte Consulting, A.T. Kearney and Bain & Company, focused on the technology and
services sectors. In his consulting roles, Bart has spent extensive time working in global
markets with multinational corporates and government bodies. He also spent 13 years in
senior executive roles at Asurion Australia, Spherion Limited and as the Asia Pacific leader of
Lucent Technologies.
Bart is a director of listed companies, Infomedia Ltd (ASX: IFM) (serves as chairman) and
Macquarie Telecom Limited (ASX: MAQ). He is also a director of BAI Communications and of
the Children’s Cancer Institute Australia and was a director of Salmat Limited (delisted on
3 September 2020).
Olivier Chretien MEng, MBA, GAICD
Managing Director and Chief Executive Officer
Olivier Chretien was appointed as Managing Director and Chief Executive Officer effective
from 1 January 2021 and to the InvoCare Board of Directors on 4 January 2021.
Olivier was previously Group Chief Strategy Officer with Ramsay Health 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.
Prior to this, Olivier spent 12 years with Wesfarmers. His last role was managing director,
Business Development for the Group, where he was also a director of the retail divisional
Boards (Coles, Bunnings, Kmart, Officeworks). He was previously the managing director of
the Wesfarmers Industrial & Safety division for 7 years, with more than 4,000 employees and
250 locations across Australia, New Zealand, China, Indonesia and the United Kingdom.
Prior to Wesfarmers, he spent 9 years with Boston Consulting Group in France and Australia,
consulting to clients in the pharmaceuticals and travel & tourism services industries. He
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 2021 36
Kim Anderson BA, PGDip
Independent Non-Executive Director
Kim Anderson was appointed to the InvoCare Board of Directors on 11 May 2021.
Kim is the Chair of the People, Culture & Remuneration Committee.
Kim has more than 30 years of experience as a chief executive officer and senior executive in
a range of media companies including Southern Star Entertainment, PBL and Ninemsn and
Reading Room Inc (bookstr.com) of which she was chief executive officer and founder.
Kim is a director of listed companies, Infomedia Ltd (ASX: IFM), carsales.com Limited (ASX:
CAR), Marley Spoon (ASX: MMM). She is also the director of the Sax Institute, a national
leader in promoting the use of research evidence in health policy. She is a former Fellow of the
University of Sydney Senate. Kim was a director of WPP AUNZ Ltd until the completion of its
takeover by WPP PLC in April 2021.
Richard Davis BEc
Independent Non-Executive Director
Richard Davis was appointed to the InvoCare Board of Directors on 21 February 2012.
Richard previously retired as InvoCare’s Chief Executive Officer and Managing Director on
31 December 2008 after 20 years with InvoCare. For the majority of that time, he held the
position of Chief Executive Officer and successfully initiated and managed the growth of
the business through a number of ownership changes and over 20 acquisitions, including
Singapore Casket Company (Private) Limited, the Company’s first international acquisition.
Richard is the chairman of listed companies, Australian Vintage Limited (ASX: AVG) and
Monash IVF Group Limited (ASX: MVF). Richard is also serving as chairman of Singapore
Casket Company (Private) Limited.
Megan Quinn GAICD
Independent Non-Executive Director
Megan Quinn was appointed to the InvoCare Board of Directors on 1 October 2018.
Megan is internationally regarded as a disruption, transformation, marketing, retail and
business expert and is invited to speak and consult on service, innovation, creativity, strategy,
building a global brand, business excellence and customer experience for companies,
conferences and media outlets around the world. Named a global game changer and one
of Australia’s most powerful women in retail, Megan was a co-founder of the world’s premier
online luxury fashion retailer, NET-A-PORTER. She is focused on generating resonance, trust
and sustainable growth.
Megan is a director of listed companies, City Chic Collective Limited (ASX: CCX) and Reece
Limited (ASX: REH). Having previously served on the board and national committee of UNICEF
Australia, she is a keen advocate for the Rights of the Child and is a passionate ambassador of
Fitted For Work.
InvoCare Annual Report 2021 37
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 Board of Directors
continued
Keith Skinner BCom, FCA, GAICD
Independent Non-Executive Director
Keith Skinner was appointed to the InvoCare Board of Directors on 1 September 2018.
Keith is the Chair of Audit, Risk & Compliance Committee.
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 Restructuring Services division, and was appointed a partner in 1986. He
was a leading practitioner for company turnarounds for over a decade, before becoming chief
operating officer of Deloitte Australia in 2001. Keith was also a member of the Deloitte Global
Board from 2013 to 2015.
Since retirement from Deloitte in 2015, Keith has been a director of a number of public and
private organisations. Currently he is a director of Emeco Holdings Limited (ASX: EHL). He
has been a board member for the North Sydney Local Health Board and the not for profit
organisation Lysicrates Foundation. He has also been Independent Chair of the Audit and
Risk Committee of the Australian Digital and Health Agency and has consulted to a number of
organisations on strategy execution, restructuring and operational improvement.
Kee Wong BEng (Hons), MBA, GradDipComp (Distinction), FAICD
Independent Non-Executive Director
Kee Wong was appointed to the InvoCare Board of Directors on 1 November 2021.
Kee is an entrepreneur with a background and qualifications in Engineering, Information
Technology and Business. He has started several businesses and was the founder and
managing director of e-Centric Innovations, a management and technology consulting
company that provides strategic advice and systems integration services in e-business and
IT for large enterprises and government in Australia, New Zealand, the United States and
South East Asia. Kee has made investments across a number of industries which include
technology, services, retail, food and beverage, trading and property. Prior to his career as
an entrepreneur Kee’s career included experience in IT and management consulting and he
was a senior executive at IBM running part of its e-business group in the Asia Pacific region,
including Australia and New Zealand.
Kee is director of listed company, carsales.com Limited (ASX: CAR). He is director of the
Australian Energy Market Operator, the Institute of Company Directors and Breakthrough
Victoria Pty Ltd. Amongst previous board positions, he was chairman of the Australian
Information Industry Association (AIIA), a deputy chairman of Asialink and a director of
LaunchVic. Kee is Adjunct Professor of Engineering and IT at La Trobe University. He was
awarded a Fellow of Monash University in 2010 and Distinguished Alumni in 2014.
Company Secretary
Heidi Aldred BEc, LLB
Heidi Aldred was appointed as Company Secretary on 15 March 2019. Heidi, a qualified
lawyer, has over 20 years experience in secretarial 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 2021 38
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 2021, along with the independent audit report.
Company overview and principal activities
InvoCare Limited (listed on the Australian Securities Exchange, ASX:
IVC), head quartered in Sydney, is a leading provider of funeral services
in Australia, New Zealand and Singapore, and operates private
memorial parks and crematoria in Australia and New Zealand. It is also
a leading provider of pet cremation services in Australia.
Operating and financial review
Details of operating and financial review, which can be found on pages
18 to 34 of this 2021 Annual Report, forms part of the Directors’ report
for the financial year ended 31 December 2021.
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 unless otherwise stated:
Name
Bart Vogel
Olivier Chretien
Kim Anderson
Richard Davis
Megan Quinn
Keith Skinner
Kee Wong
Role
Chairman
Date of appointment/resignation
Managing Director and Chief Executive Officer
Appointed 4 January 2021
Independent Non-Executive Director
Appointed 11 May 2021
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Appointed 1 November 2021
Former Directors retired/resigned during the financial year
Martin Earp
Jackie McArthur
Robyn Stubbs
Chief Executive Officer and Managing Director
Resigned 4 January 2021
Independent Non-Executive Director
Retired 28 May 2021
Independent Non-Executive Director
Resigned 1 February 2021
InvoCare Annual Report 2021 39
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 Directors’ report
continued
Directorship of other listed companies
Directorship of other listed companies held by the Directors in the three years preceding the end of the financial year are as follows.
Name
Bart Vogel
Olivier Chretien
Kim Anderson
Richard Davis
Megan Quinn
Keith Skinner
Kee Wong
Company
Period of Directorship
Macquarie Telecom Limited
Infomedia Ltd
Salmat Limited
None
carsales.com Limited
Marley Spoon AG
Infomedia Ltd
WPP AUNZ Ltd
Australian Vintage Ltd
Monash IVF Group Limited
City Chic Collective Limited
Reece Limited
Emeco Holdings Limited
carsales.com Limited
Since 2014
Since 2015
From May 2017 to November 2019
Since 2010
Since 2018
Since 2020
From November 2010 to April 2021
Since 2009
Since 2014
Since 2012
Since 2017
Since 2017
Since 2018
Particulars of the Directors’ qualifications and experience are set out under Board of Directors on pages 36 to 38.
InvoCare Annual Report 2021 40
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 2021, and the number of meetings attended by each Director were as follows.
Board
Audit, Risk & Compliance
Committeee
People, Culture &
Remuneration Committeee
Nomination
Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Name
Bart Vogel
Olivier Chretiena
Kim Andersona
Richard Davis
Megan Quinn
Keith Skinner
Kee Wonga
12
12
9
12
12
12
2
12
12
9
12
12
12
2
3
-
-
1
3
4
1
Former Directors retired/resigned during the financial year b,c
Jackie McArthurb
4
4
2
3
-
-
1
2
4
1
2
5
-
3
4
5
-
-
-
5
-
3
4
5
-
-
-
1
-
-
1
1
1
-
1
1
-
-
1
1
1
-
1
a
b
c
d
e
Olivier Chretien, Kim Anderson and Kee Wong appointed 4 January 2021, 11 May 2021 and 1 November 2021, respectively. The number
of meetings they attended only contained those held when they are eligible to attend after the date of their appointment as a Director.
Jackie McArthur retired effective 28 May 2021. The number of meetings she attended only contained those held when she was eligible to
attend before the effective date of retirement.
Martin Earp, the former Chief Executive Office and Managing Director resigned as Director on 4 January 2021. Robyn Stubbs resigned
effective 1 February 2021. As there was no meeting held before their resignation date in 2021, they are not included in the above meetings
of Directors table.
Investment Committee ceased its operation from 31 March 2021. There was no meeting held from 1 January to 31 March 2021.
Changes were made to committee memberships effective 1 November 2021. Therefore, the number of meetings the committee members
attended only contained those held when they were eligible to attend.
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.
Significant changes in the state of affairs
The significant changes in the state of affairs during the financial year were as follows:
On 11 August 2021, InvoCare announced a strategic investment and commercial partnership with a global market leader in digital
memorisation, Memories Group Limited, to offer customer-focused online memorial products to InvoCare’s client families
On 27 August 2021, InvoCare entered into binding documentation to amend and extend its Syndicated Debt Facility resulting in the
repayment of $59,680,000 of the debt facilities
Other than the matters as stated above, there were no other significant changes in the state of affairs of InvoCare during the financial year.
InvoCare Annual Report 2021 41
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 Directors’ report
continued
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 2021 are set out in Note 4.
services provided during the financial year by the auditor are outlined in
Subsequent events
Other than the Board determined a final dividend of 11.5 cents per
share, fully franked, there have been no other matter or circumstance
arising since 31 December 2021 that has significantly affected
Note 27 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.
InvoCare’s operations, results or state of affairs, or may do so in future
The Directors are of the opinion that the services as disclosed in Note
financial years.
27 to the financial statements do not compromise the external auditor’s
independence requirements of the Corporations Act 2001 for the
Indemnification and insurance of officers
following reasons:
To the extent permitted by law, InvoCare has indemnified the Directors
and executives of InvoCare for liability, damages and expenses
incurred, in their capacity as a Director or an executive, for which they
may be held personally liable, except where there is a lack of good faith.
During the financial year, InvoCare 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
InvoCare is committed to the protection of the environment, the
health and safety of its employees, customers and the general public,
as well as compliance with all applicable environmental laws, rules
and regulations in the jurisdictions in which InvoCare operates its
business. The Group is subject to environmental regulation in respect
of its operations, including some regulations covering the disposal
of mortuary and pathological waste and the storage of hazardous
materials. InvoCare has appropriate risk management systems in
place at its locations.
All non-audit services have been reviewed and approved to ensure
that they do not impact the integrity and objectivity of the auditor;
and
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
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
There have been no claims during the year and the Directors believe
the “rounding off” of amounts in the Directors’ report and financial
InvoCare has complied with all relevant environmental regulations and
report. Amounts in the Directors’ report and financial report have
holds all relevant licences.
Corporate governance
been rounded off to the nearest thousand dollars (where rounding is
applicable) in accordance with that instrument.
InvoCare and the Board of Directors are committed to achieving and
demonstrating the highest standards of corporate governance. The
This report is made in accordance with a resolution of Directors,
Board adopts a continuance improvement approach and regularly
pursuant to section 298(2)(a) of the Corporations Act 2001.
reviews corporate governance and reporting practices. For 2021,
InvoCare’s Corporate Governance Statement will be published at the
time of publication of the 2021 Annual Report.
On behalf of the Directors on 28 February 2022.
The 2021 InvoCare Corporate Governance Statement
is available on the InvoCare website at:
www.invocare.com.au/investor-relations/corporate-governance
Bart Vogel
Chairman
Sydney
InvoCare Annual Report 2021 42
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
28 February 2022
The Board of Directors
InvoCare Limited
Level 5, 40 Mount Street
North Sydney NSW 2060
Dear Board Members
AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo IInnvvooCCaarree LLiimmiitteedd
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration
of independence to the directors of InvoCare Limited.
As lead audit partner for the audit of the financial statements of InvoCare Limited for the year ended
31 December 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Sandeep Chadha
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
43
InvoCare Annual Report 2021 43
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Risk culture and risk management practices is a critical enabler to
InvoCare’s sustainable, long term value creation and protection.
Risk culture
Underpinning our risk culture is the adoption of the ‘3 lines of
accountability’ model. This model clearly articulates organisation-wide
roles and responsibilities in relation to the management of risk.
BUSINESS – 1st Line
Business Operations
Generate risk exposures and are accountable for:
Identifying, assessing and managing risks on an
ongoing basis;
Our approach to risk management
Our risk management approach continually evolves as we identify,
assess, mitigate, and monitor both financial and non-financial risks that
may impact our ability to achieve our strategic objectives.
Our focus on risk management is anchored to ISO31000 principles to
ensure robust foundations support our processes and procedures and
in so doing this allows the Board to fulfil its governance responsibilities
by making a balanced assessment of the operation of the risk
management process. Risks are identified and assessed through
workshops with senior leaders of the business on a cyclical basis and
monitored constantly. Mitigating actions and controls are designed to
limit the impact or likelihood of key risks occurring.
Taking risks that fall within lnvoCare’s risk appetite;
Risk appetite
Risk appetite is the level of risk the Group is willing to take to achieve its
strategic objectives and is set by the Board. Risk appetite is reviewed
at least annually to ensure it reflects the risks the Board is willing to
accept in pursuit of InvoCare’s strategic objectives.
The Board looks at the Group’s appetite to risk across the following risk
classes.
Market/Strategic
Business Disruption
Financing
Operations
Regulatory Compliance
Culture & Conduct
Information Technology
Fraud
Sourcing
Safety
People
Funds under Management
Change Management
Those risk classes that contain risks assessed as High or Extreme are
included in the following tables.
and
Maintenance and operation of the internal controls
framework to mitigate key risks.
RISK & COMPLIANCE – 2nd Line
Risk & Compliance
Where relevant support the business in their risk
management activities and are accountable for:
Providing independent oversight, challenge and
reporting on the adequacy and effectiveness of the
way the business manages risk; and
Setting policies related to their remit, monitoring
application of policies and advising the business on
risk mitigations
BUSINESS ASSURANCE - 3rd Line
Internal Audit
Independent assurance function accountable for:
Providing objective assurance over the
effectiveness of internal control systems and risk
management processes;
The internal audit plan, which is driven from the risk
management framework and aligned to auditable
elements of lnvoCare’s principal risks
InvoCare Annual Report 2021 44
Key risks
The table below highlights the most significant key risks facing
During 2021 we continued with our COVID health and safety protocols,
InvoCare and their alignment to our five strategic pillars. Also included
which allowed us to continue operating and ensured the safety of
in the table below are the high-level mitigation activities we have in
our people, client families, suppliers, and contractors. We have
place.
COVID has created unprecedented challenges for our businesses,
further highlighting the importance of having an effective
understanding of, and ability to respond quickly to, changing and
emerging risks. Throughout the pandemic we have continued to
provide our services, despite ever-changing operating environments.
also observed some changes in client family behaviours during the
pandemic, with digital playing a greater role in the funeral planning and
service. Foot traffic through our parks has also been directly impacted
by lockdowns. The reset strategic priorities we announced in May
2021 address these and other shifting dynamics in the market (both
positive and negative).
However, COVID remains a risk for InvoCare and we continue to
In assessing which risks should be classified as key, we assess the
respond to the emerging health and safety threats the pandemic
probability of the risk materialising and the financial or strategic impact
presents and the impact it may have on our execution of strategy.
of the risk. Where risks link to the five strategic pillars, this is set out in
the following table through reference to the following symbols:
Customer led
people empowered
Operational
excellence
Stronger
core growth
New growth
platforms
Sustainable
leadership
Risk description
Safety
Risk management/mitigation
Appointment of Executive General Manager Health, Safety & Sustainability role
The risk of not adequately protecting the wellbeing
to the Executive Leadership Team
and safety of our staff, customers, vendors and
‘Safety’ added to the InvoCare CARES values to elevate prominence and
visitors.
importance
Increased COVID related health and safety risks
Risk-based safety programmes; workplace inspections
result in additional steps to keep our staff, visitors,
and client families safe, and the increased costs
Safety metrics reported monthly by business
of operating, including rise in absenteeism from
COVID-19 Taskforce in place
requirements to isolate and/or recovery from illness.
Implementation of real-time safety incidents and reporting platform
People
Ongoing implementation of leadership development strategies, including
The risk of having impactful talent gaps through
‘Evolve’ and ‘Aspire’ programs
insufficient and/or ineffective recruitment, training
Appointment of business unit dedicated talent acquisition business partners
and retention programs and practices. Resulting
in resourcing gaps, and/or capability gaps, which
negatively impact the businesses ability to operate
External review of talent acquisition operating model to ensure current and
future state readiness
and protect vital industry knowledge and intellectual
Bi-annual talent management and succession planning for key executive roles
property.
and/or critical roles
Appropriate incentives and career development opportunities
Development of Employment brand and Employee Value Proposition
Business continuity
Infectious disease procedure in place
The risk that a pandemic/epidemic impacts
Disaster recovery plan (DRP) in place to manage IT risks
InvoCare’s strategic objectives or ability to deliver the
full breadth of its services (including spike in deaths to
Business Continuity plans routinely refined and amended
unserviceable levels, impacts to workforce, mortuary
Establishment of a COVID-19 Taskforce
capacity, inability to work in certain locations,
health and wellbeing of our staff, inability to travel,
government-imposed restrictions on funeral service
attendance, social distancing and isolation rules).
Investment in remote working and deployment of enhanced AV streaming
capabilities
InvoCare Annual Report 2021 45
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Risks and uncertainties
continued
Risk description
Risk management/mitigation
Information technology
IT strategy in place including IT Architecture Roadmap
The risk that cyber-attack or IT system failure causes
Significant step up in IT security & risk including fit-for-purpose security
operational disruption, personal and sensitive data
capability, controls, processes and technology and enhanced capability and
loss, financial loss and reputation damage.
resources
Investment in PC refresh program
Independent cyber maturity assessment review conducted, and prioritised
actions identified
Cyber insurance policy
Specific training to improve internal understanding and communication of cyber
risks
Proactive monitoring for breaches
Regulatory compliance
Appointment of Executive General Manager Stakeholder Management role to
The risk that changes in regulation impact InvoCare’s
the Executive Leadership Team
economics (including increased compliance costs,
Consumer Act training for employees
price pressure).
Group Legal & Compliance team in place, who oversee business compliance
The risk that regulatory compliance obligations are
not known, recorded or monitored which could result
in financial penalties/fines, reputation damage or
Where appropriate, specialist external legal advisers engaged to support
Continued investment in the management of compliance, including digital
business disruption.
Financial
solutions and an ERM system
Short, medium and long term tenor financing in place
The risk that InvoCare cannot meet its financial
Syndicated lender group providing diversity
obligations and the risk that capital/funding
constraints impact the ability to capitalise on
opportunities.
Maintain strong relationships with banking partners and investors
Monthly reporting of financial metrics to the Board and Executive Leadership
Team
Business unit performance reviews and monitoring against budget and
forecasts
Monitoring of debt covenants and monthly cashflow statements and weekly
cash forecasts
Market, strategic & competition
Routine market analysis of consumer preferences and competitor activity and
The risk of market disruption by existing or new
environment
competitor impacting market share, case average,
Diverse brand portfolio
resource migration and increase labour costs.
The risk that InvoCare responds at a slower pace
to changing customer preferences/needs, and/or
technology advancements than our competitors
impacting case averages and market share.
Robust balance sheet and financial capacity to respond to challenges
Establishment of an innovation hub
Robust annual strategic planning process
Operational
Adopting a national, centralised approach to the storage of historical unclaimed
The risk of unauthorised access to the deceased or
and long term cremated remains
cremated remains.
Appointment of National Accreditation Manager - Funerals
The risk that cremated remains, deceased valuables
National Funeral Home Accreditation Program that encompasses deceased
or pre-paid paper records are destroyed or lost.
identification and receipting of client valuables
The risk that customer complaints are not addressed
Activation of paper records digitisation strategy
adequately.
Relaunch of the customer feedback platform with improved functionality
including severity ratings and escalation
Customer Feedback training developed and rolled out (annually) to front line
team members
InvoCare Annual Report 2021 46
Market disruption by emerging risks
InvoCare continues to monitor for emerging risks through our risk management processes and procedures. The key areas where additional risk is
appearing, all of which are extensions of risks already identified in our risk taxonomy, are as follows:
Risk description
Risk management/mitigation
Proposed Interment Industry Scheme
Appointment of Executive General Manager Stakeholder Management role to
Cemeteries and Crematoria NSW (CCNSW) have
Executive Leadership Team
proposed to regulate the operations of funeral
Proactive engagement with CCNSW and InvoCare has issued a formal
services providers in the State of NSW by way of an
submission to the draft regulation
Interment Industry Scheme.
Concerns have been raised as to the unintended
Members of InvoCare’s senior management are members of the CCNSW
Industry Consultation Group (ICG). All proposed changes are tabled with
consequences of the scheme, including a
the ICG to ensure industry feedback is addressed before implementation/
prospective approach to addressing perpetual care
legislation eventuates
obligations, and the potential negative impact on
consumers.
Climate change
Like all businesses, InvoCare faces climate change
risks. We have committed to identifying, assessing
and formalising plans to address a pathway forward
and these are outlined in our 2021 Sustainability
Report.
Appointment of Executive General Manager Health, Safety & Sustainability role
to Executive Leadership Team
Sustainability Materiality Assessment review undertaken
Developed a Sustainability Strategy utilising the three themes – People, Place,
Planet
InvoCare Annual Report 2021 47
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Remuneration report – audited
Message from the Chair of the People, Culture & Remuneration Committee
On behalf of the Board, I am pleased to present
the Remuneration Report for FY21.
People and culture highlights
Throughout the pandemic, our vision and values have guided our
FY21 has been a year of transition, with the appointment of our new
decision making and actions. The Company has taken a holistic
CEO Olivier Chretien, creating opportunity for change. The passion,
approach to talent attraction and retention with core improvements to
dedication and resilience of our people responding to the ongoing
our employee value proposition. This has included:
impacts of COVID is greatly appreciated. They have continued to
maintain a clear focus on supporting our client families, employees and
communities in a challenging environment.
The People, Culture & Remuneration (PCR) Committee has
oversight of InvoCare’s people strategy, culture and key human
resources practices. InvoCare’s remuneration framework is an
Supporting our people through COVID with wellbeing initiatives
Commencing a review in FY22 of key talent retention and attraction
practices, including the use of equity plans, and employee benefits
and recognition programs, to remain competitive and increase our
attractiveness as an employer
integral component of our people strategy and values. This report
Launching our new Frontline Management development program
highlights the link between remuneration and corporate performance
(Evolve) to strengthen our frontline managers capabilities to
and provides detailed information on the remuneration for Key
support the execution of our strategic business priorities, and offer
Management Personnel (KMP).
our people career pathways, retaining industry expertise
Executive remuneration framework review
During FY21, the Board reviewed the appropriateness of the
remuneration framework and incentive structures and identified
opportunities to simplify and better align them with the Group’s new
5-year strategy.
Core elements of the current remuneration framework and incentive
structures for FY21 and FY22 remain the same as previous years.
In order to better align with the 5-year strategy, the Board approved
several amendments to the Long Term Incentive (LTI) plan design. This
included moving from measuring return on invested capital (ROIC) to
Conducting an externally benchmarked annual employee
engagement survey to seek feedback and identify areas for
improvement. The importance of engaging our people and
developing the talent required to deliver on our strategic priorities is
reflected in an employee engagement measure being included as
part of our key performance indicators (KPIs) in FY22
Introducing a paid parental leave policy to retain our talent and
improve return from parental leave
Creating a safer working environment and investing in
improvements in our workplace practices, to reduce injuries to our
people
return on capital employed (ROCE) which is a more relevant operating
More detail on our people strategy and its support of the Group’s
measure. That portion of the equity grant awarded in the form of
options, was removed and replaced with performance rights, to
performance can be found in InvoCare’s Sustainability Report.
simplify the plan. The 12-month holding period (additional to and post
the three-year vesting period) was also removed. It was considered
Looking ahead
that the clawback policy outlined in the LTI plan rules is sufficient to
The Board will continue to review and make improvements to the
allow recovery of any vested equity in relevant circumstances.
remuneration framework to ensure executive remuneration outcomes
The Short Term Incentive (STI) plan has also been amended to create
are aligned and balanced with the strategy and shareholder outcomes.
better alignment with comparable market practices for ASX listed
We welcome your feedback on our FY21 Remuneration Report.
companies, with the 12-month deferral quantum being decreased
from 50% to 25%.The minimum threshold of $150,000 has been
maintained and the minimum deferral amount has been set at $12,500.
In assessing the results for FY21 STI outcomes, the Board did not
make any adjustments, that is, no negative or positive discretion
was applied.
Kim Anderson
Chair of the People, Culture
& Remuneration Committee
,,
We appreciate the exceptional effort made by our employees during
a very difficult year. Their response embodies InvoCare’s values, purpose
and the client families and communities we serve.
,,
InvoCare Annual Report 2021 48
Contents
1 Key Management Personnel
2 Remuneration framework
3 Executive KMP remuneration
4 Non-Executive Director remuneration
5 Additional information
49
50
56
65
67
1 Key Management Personnel
Changes to KMP
The Key Management Personnel (KMP) are those persons who have
the authority and responsibility for planning, directing and controlling
the activities of the Group or a major operation within the Group as
shown in the tables below.
Independent Non-Executive Directors (NED)
Name
Role
Date of
appointment
During FY21, InvoCare had the following KMP changes:
Olivier Chretien - appointed to the position of Chief Executive
Officer effective 1 January 2021 and Managing Director
effective 4 January 2021
Martin Earp – resigned as Managing Director effective 4 January
2021 and ceased as an Executive KMP effective 31 December
2020 (as disclosed in the 2020 Remuneration Report)
Bart Vogel
Chairman of the Board
1 October 2017
Robyn Stubbs – resigned as Non-Executive Director
Kim Anderson
Non-Executive Director
11 May 2021
effective 1 February 2021
Kim Anderson – appointed as new Non-Executive Director
Richard Davis
Non-Executive Director
21 February 2012
effective 11 May 2021
Megan Quinn
Non-Executive Director
1 October 2018
Jackie McArthur – retired as Non-Executive Director
effective 28 May 2021
Keith Skinner
Non-Executive Director
1 September 2018
Kee Wong – appointed as new Non-Executive Director
effective 1 November 2021
Kee Wong
Non-Executive Director
1 November 2021
Executive Key Management Personnel (Executive KMP)
Name
Role
Date of
appointment
Olivier Chretien
Chief Executive Officer (CEO) 1 January 2021
Adrian Gratwicke Chief Financial Officer (CFO)
3 August 2020
The Board has determined that Executive KMP are those listed in the
above table, as they have responsibility for planning, directing and
controlling a substantial part of the operations of InvoCare, as reflected
in InvoCare’s Delegation of Authority Policy.
InvoCare Annual Report 2021 49
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continued
2 Remuneration framework
I
Remuneration principles aligned to our strategic priorities
The remuneration framework is designed to support InvoCare’s strategic priorities. A clear set of principles that guide the remuneration design and
outcomes with delivery of the Group’s strategy, rewarding long term sustainable success aligned with shareholders’ interest, and encouraging
behaviours reflective of InvoCare’s values.
a Strategic priorities
Purpose
Honouring life, celebrating memories for generations.
Vision
To be entrusted with all lives, as a respected pillar of the communities and a leader in the field
Strategy
Customer led;
people empowered
Operational
excellence
Stronger
core growth
New growth
platforms
Sustainable
leadership
b Remuneration principles
Balance short-term
Measure
Rewards the
Fair and market
Rewards aligned
and long-term
performance at a
achievement of
competitive to
with the consistent
performance to
level aligned with
short-term and
attract, retain and
demonstration
drive value creation
driving accountability
long-term goals
motivate talent
and promotion of
Simple and
transparent
and sustainable
for the delivery of
outcomes
business objectives
aligned with
sustainable
shareholder
outcomes
II Executive remuneration structure
InvoCare’s values
InvoCare’s executive remuneration framework and the operation of each element, as it applies to the Executive KMP, is detailed below.
CEO – Target pay mix
CFO - Target pay mix
29%
6%
42%
Fixed
remuneration
Share based
remuneration
STI –
Restricted shares
STI – Cash
29%
5%
42%
Fixed
remuneration
Share based
remuneration
STI –
Restricted shares
STI – Cash
23%
24%
InvoCare Annual Report 2021 50
Total fixed remuneration (TFR)
TFR is guaranteed base salary inclusive of superannuation and any other salary sacrificed benefits including fringe
benefits tax if applicable e.g. motor vehicle.
TFR is targeted at the median of the market for expected performance with the opportunity to earn above median
TFR
remuneration for exceptional performance.
TFR is benchmarked to be competitive to attract and retain experienced individuals to drive InvoCare’s strategy.
Changes to TFR are linked to a combination of rewarding high performance, and the capacity to pay.
Short term incentive (STI)
STI is awarded for achievement of pre-determined financial and non-financial objectives. This variable element of
remuneration constitutes part of a market competitive total remuneration package and aims to provide an incentive
to deliver on annual business plans that will lead to sustainable returns for shareholders.
The STI plan has been developed to reinforce InvoCare’s values and behaviours, while supporting a commercial
mindset and alignment to business objectives.
STI
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 (held in trust for 12 months). The STI deferral component aids in KMP
retention and aligns with market best practice.
The target STI award offered in 2021 was 70% of TFR for the CEO and the CFO. The Board approved amendments
to the 2021 STI plan deferral component to ensure alignment with comparable market capped sized companies.
The STI deferral quantum applies to outcomes that are greater than $150,000 with a minimum deferral of $12,500.
The deferral amount has been decreased from 50% to 25%.
Performance period
The Group’s financial year is from 1 January to 31 December.
Award opportunity
In 2021 the target STI as a percentage of TFR was 70% for the CEO and CFO.
STI outcomes are directly linked to both individual and Group performance against KPIs. The Board has focused
the Executive KMP on the following performance measures:
Key performance indicators
(KPIs)
Financial performance
Customers
People
Safety
Personal project objective
Relationship between
performance scales and
outcome
For further details of 2021 STI outcome refer to Section V below.
Performance scales
Below threshold
Between threshold and target:
STI outcome
0% paid
0% (EBITDA) - 50% (other KPIs) earned on achievement
of threshold increasing on a straight-line basis to 100%
For the Group EBITDA, threshold is 90% of target
for target level performance
Target
100% paid
Maximum – for financial components only
a straight-line basis to 150% earned on achievement of
100% earned at target level performance, increasing on
maximum level performance.
Over achievement of KPIs
An over achievement payment is available on the financial KPIs of the STI and is capped at 150%.
Is there a gate to over
achievement?
Are non-financial components
capped?
Access to over achievement for all financial components is dependent on the Group achieving the EBITDA target.
Non-financial components are capped at 100% payment.
What are the plan features of
the deferral?
25% of any STI award that exceeds $150,000 will be deferred (subject to a minimum deferral of $12,500) and will be
paid in the form of restricted shares. The shares will be held in trust for 12 months.
InvoCare Annual Report 2021 51
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continued
Short term incentive (STI)
There is a one-year deferral period from grant.
STI deferral
The number of shares to be granted will be calculated by dividing the deferred STI amount by the volume weighted
average price (VWAP) transacted for the first 10 days of the trading window immediately after the announcement of
InvoCare’s ASX annual financial results for the STI performance year.
Cash STI is payable in the first quarter of each year after the announcement of InvoCare’s ASX annual financial
STI payment
results for the previous year ended 31 December.
For deferred STI, restricted shares will be allocated in the first trading window following the release of the financial
results of each year after the VWAP price is determined as described in STI deferral item above.
All financial performance data relating to the plan is subject to external audit.
Potential participants may be disqualified from all or part of the plan if their annual performance is determined to be
below the “on track” rating category in the performance management practices. Should a dispute arise regarding a
Disqualification provisions
potential disqualification, eligibility will be at the discretion of the CEO, or the Board for the CEO.
InvoCare reserves the right to suspend or alter 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.
Board discretion
Leadership Team (ELT). The guiding principle will be to ensure fairness in assessing STI outcome and alignment
Board discretion (either negative or positive) may be applied to STI outcomes for the Executive KMP and Executive
with shareholder interests.
Cessation of employment
the Company for any reason other than cause, the Board may consider the executive a ‘good leaver’ and use its
In the event of cessation of employment due to resignation or dismissal for cause, all entitlements in relation to
the performance period, and any deferral, are forfeited. Where an Executive KMP’s employment is terminated by
discretion to pay all or part of the award. A good leaver will generally be determined by the Board (or its delegate) at
the time of cessation of employment having regard to the circumstances at that time.
Long term incentive (LTI)
InvoCare’s remuneration structure aims to align long term incentives for Executive KMPs and other senior
executives with outcomes for shareholders to ensure participants are rewarded in line with economic value
created.
LTI awards are currently granted in the form of performance rights.
Executive KMP participated in the 2020 and/or 2021 grants of the LTI plan.
The following graphic provides a detailed timeline of the 2021 LTI grant throughout its vesting lifecycle. Further
details comparing the features of 2021 and 2020 and prior terms and conditions of the LTI plan are provided in
the table below.
FY20 initial
performance period
Grant of performance
rights March 2021
Baseline
Performance period
Vesting and
exercisable
March 2024
FY20
FY21
FY22
FY23
FY24
Jan
Dec Jan
Dec Jan
Dec Jan
Dec Jan
Dec
Purpose of the
LTI plan
Participation
The LTI Plan aims to attract, retain and reward high performing executives who contribute to the overall medium
and long term success of InvoCare.
Participation is limited to Executive KMP and selected senior management positions by invitation and as
approved by the Board.
Size of LTI award grant
The 2021 LTI target opportunity was 70% of TFR for the Executive KMP.
Grant calculation
transacted for the first 10 days of the trading window immediately after the announcement of InvoCare’s ASX
The number of performance rights granted will be calculated by dividing the LTI dollar value by the VWAP
annual financial results for the LTI initial performance year (baseline).
InvoCare Annual Report 2021 52
Long term incentive (LTI)
2020
2021
Participants were able to choose a mix of options and
To simplify the LTI plan design, only performance rights
performance rights but were limited to the following
were granted.
Plan features
combinations:
100% of either options or performance rights
50% each of options and performance rights
25% of one, and 75% of the other
The performance hurdles for the 2020 LTI plan were:
The performance hurdles for the 2021 LTI plan were:
Continued employment condition
Continued employment condition
Two financial performance hurdles:
Two financial performance hurdles:
50% weighting on compound annual growth rate
Performance
hurdles
(CAGR) in normalised EPS
50% weighting on average ROIC
50% weighting on CAGR in normalised EPS
50% weighting on an average ROCE
Detailed definitions of CAGR, EPS and ROCE can be
EPS is calculated based on the operating EPS
found in the glossary (pages 144 and 145).
adjusted to reflect constant currency.
ROIC in each year is calculated based on operating
EBIT divided by the average invested capital.
The LTI plan was subject to a 12 month restriction
The 12 month LTI plan restriction period after the three
period after the three year vesting period.
year vesting period was removed.
Restriction
period
Changes
to the LTI
Plan
Performance
and vesting
periods
Performance
conditions
Why were
these measures
chosen?
The Board believes that the conditions pertaining to
malus and clawback policies within the LTI plan rules
are sufficient to allow the Board to recover any vested or
unvested performance rights in certain circumstances.
Performance is measured over three years.
Performance is measured over three years.
Vesting of the options and performance rights are
Vesting of performance rights are tested at the end of this
tested at the end of this three-year period, subject to a
three-year period. There is no restriction period.
further 12 months restriction period.
It also permits for malus in the event of governance
It also permits for malus in the event of governance
concerns and Board discretion to be applied
concerns and Board discretion to be applied
if performance is impacted by events outside
if performance is impacted by events outside
management’s control.
management’s control.
50% on EPS
6% to 10% CAGR in EPS results in 30% to 100%
50% on EPS
10% to 15% CAGR in EPS results in 30% to 100% of
of LTI vesting in straight line
LTI vesting in straight line
50% on ROIC
10% to 12% average ROIC over the three year
period results in 30% to 100% of LTI vesting in
50% on ROCE
10% to 12% average ROCE over the three year period
results in 30% to 100% of LTI vesting in straight line
straight line
CAGR of normalised EPS was selected as the most
CAGR of normalised 2020 EPS.
ROCE was selected in line with the new 5 year strategic
plan as it is a more relevant measure of effective capital
deployment at the enterprise level.
suitable and reliable measure of organisational
performance, based on independent advice and
analysis by the Board. The reasons for this conclusion
include:
InvoCare is a unique and relatively stable business
EPS growth is aligned with InvoCare’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
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continued
Long term incentive (LTI)
Dividends or voting rights
period. The number of additional rights granted are calculated by the number of performance rights times the
There are no voting rights attached to the performance rights awarded. In accordance with the plan rules,
performance rights are entitled to dividends, if determined by the InvoCare Board, during the performance
Cessation of employment
dividend paid per share divided by the dividend reinvestment plan VWAP price. These additional rights granted –
dividend entitlement will only be payable as additional shares on date of vesting of the original grant.
For LTI to vest, the executive must be employed at the date of vesting unless determined to be a good leaver.
If the Board determines that an executive is a good leaver, and providing the participant has been in continuous
employment with InvoCare for at least three years, the Board may at its discretion allow unvested LTI grants to
continue to remain on foot and vest subject to the original terms and performance conditions attached to the
relevant grants, regardless of whether the participant remains employed by InvoCare at the relevant vesting time.
Otherwise all unvested LTI equity 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.
Change in control
appropriate for the unvested LTI to continue on foot, the Board has the discretion to determine the extent to
In the event of a change in control or other circumstances where the Board determines it is not practical or
which all or part of any unvested LTI may vest and the specific performance tests to be applied.
Payments or vesting related to performance conditions associated with an LTI are subject to a clawback policy.
The Group will seek to clawback all or part of an executive’s incentives that have already been paid to ensure the
executive has not been inappropriately rewarded in circumstances including:
Clawback policy
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
Board discretion (either negative or positive) may be applied to LTI outcomes for the Executive KMP and ELT.
The guiding principle will be to ensure fairness in assessing LTI vesting outcome and alignment with shareholder
Board discretion
interests.
Any Board discretion applied will be disclosed at the latest when vesting occurs.
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,
InvoCare Share Trading Policy
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 2021 54
III. Remuneration governance framework
Board of Directors
Ensuring the Group’s remuneration
framework is aligned with the Group’s
purpose, core values, strategic objectives
and risk appetite.
Approving Non-Executive Directors and
People, Culture &
Remuneration Committee
Approving the Group’s overall
remuneration policy and process.
Reporting to the Board on corporate
culture within the Group and making
Executive KMP remuneration.
recommendations to the Board regarding
Management
Implementing of remuneration policies
and practices.
Providing information relevant to
remuneration decisions to assist the
PCR Committee to review and make
recommendations to the Board with
Monitoring Executive KMP and the ELT
performance and implementation of the
Group’s objectives against measurable
and qualitative indicators.
Ensuring a succession and leadership
and development plans are in place for
the ELT.
Ensuring the culture of the Company
reflects the values and purpose of the
Company as outlined in the strategic plan
and vision for the Company.
corporate governance policies to support
respect to remuneration arrangements.
Providing information to the PCR
Committee in relation to the design and
implementation of the remuneration
strategy and structure.
Ensuring that diversity and equality
are reflected in the remuneration of all
employees.
a strong corporate culture.
Reviewing and recommending to the
Board arrangements for the Executive
KMP and the ELT in relation to their
terms of employment, remuneration
and incentives (including performance
targets).
Reviewing and recommending to the
Board the remuneration arrangements for
the Chair and Non-Executive Directors of
the Board.
The PCR Committee Charter is available
on InvoCare’s website.
Independent 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.
During 2021, the PCR Committee commissioned an external consultancy group to assist in the review of InvoCare’s remuneration practices. No
remuneration recommendations as defined by the Corporations Act 2001 were provided by the external consultancy group.
InvoCare Annual Report 2021 55
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continued
3 Executive KMP remuneration
The table below provides a snapshot of the remuneration outcomes for the Executive KMP for FY21.
TFR
STI outcome
LTI outcome
There was no KMP increase effective 1 January
The average STI outcome for the 2021 year
The current Executive KMP did not participate in
2021.
for Executive KMP was 93% based on their
LTI grants that were tested in FY21.
The CFO received a 7.4% increase to TFR
balanced scorecard.
effective 1 July 2021.
For further details of 2021 STI outcome, refer to
Section V.
I
InvoCare’s performance and remuneration outcomes
a Group financial performance
One of the key principles of the Company’s remuneration framework is to align Executive KMP remuneration outcomes with Company performance.
This section provides a summary of the Company’s five year financial performance outcomes and the link to remuneration outcomes over this period.
Remuneration performance measures
NPAT $m
105
NPAT & EPS trends
90
75
60
45
30
15
0
FY20
EPS ¢
105
90
75
60
45
30
15
0
175
150
125
100
75
50
25
0
Operating profit trends ($m)
144.4
124.3
119.0
63.5
49.5
59.2
125.5
102.6
45.1
28.0
FY17
FY18
FY19
FY21
FY17
FY18
FY19
FY20
FY21
Reported NPAT $m
Basic EPS ¢
Operating EPS ¢
Operating NPAT
Operating EBIT
Operating EBITDA
Footnotes to the graphs above
a The Group has changed its accounting policy for software-as-a-service arrangements (SaaS arrangements). Refer to Note 12 for further details.
b Operating EBIT was a financial performance indicator only reported from 2018 onwards, no comparative was provided for 2017 in the graph above.
Other performance metrics
DPS ¢
Ordinary dividend (full year)
Ratio %
Share price at 31 December ($)
50
40
30
20
10
0
46.0
41.0
37.0
90
80
70
60
50
20
15
10
5
0
21.0
12.5
16.1
13.2
11.5
11.8
10.3
FY17
FY18
FY19
FY20
FY21
FY17
FY18
FY19
FY20
FY21
Dividend per share ¢
Dividend payout ratio %
Price per share $
InvoCare Annual Report 2021 56
Five year incentive outcomes
Payout % of STI to CEO
Average payout % of STI
to other Executive KMP
LTI vesting outcome (% of maximum)
2021
93%
93%
N/A*
2020
27%
27%
66%
2019
62%
57%
-
2018
32%
35%
33%
2017
69%
67%
33%
*
During FY21, there was no LTI held by the current Executive KMP that was due for a vesting test.
b 2021 STI outcome
The table below sets out the targets and outcomes for the Executive KMP for the financial year. It should be noted that outcomes were directly and
indirectly impacted by the COVID. For details of achievements and dollar value of STI awarded for FY21, refer to Section V.
Key performance indicators
2021 performance targets
Weight
2021 performance outcome
Group EBITDA
Financial
Group case volume
Customer
People
Safety
Personal
Personal financial objective
Net promoter score (NPS)
Employee turnover < 12-month tenure
Lost time injury frequency rate (LTIFR)
Workplace inspections
Project objective
30%
10%
10%
10%
10%
15%
5%
10%
Target was partially met
Target was met
Target was met
Target was met
Target was partially met
Target was met
Target was partially met
Target was met
c 2021 LTI outcome
The current Executive KMP did not participate in LTI grants that were tested in FY21.
InvoCare Annual Report 2021 57
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continued
II CEO 2021 remuneration details
The remuneration of the CEO places a considerable portion of his remuneration at risk to align with both the Group’s performance and shareholder
outcomes. The maximum, at target and actual remuneration outcomes 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 including TFR, STI (achieved at 100% for both financial and non-financial targets reflecting
both cash and restricted shares components) and LTI awarded at 100% in accordance with performance and employment conditions).
2021 CEO maximum, target and actual take home
Maximum
Target
Actual
take home
38.8%
26.9% 7.1%
27.2% $2,639,375
41.6%
23.4% 5.8%
29.2% $2,460,000
65.7%
34.3% $1,566,780
$
0
300,000
600,000
900,000
1,200,000
1,500,000
1,800,000
2,100,000
2,400,000
2,700,000
Fixed remuneration
STI – Cash
STI – Restricted shares
Share-based payments
2021 CEO remuneration breakdown
TFR
STI
LTI
TFR of $1,025,000 per annum.
No increase to TFR in FY21.
Target STI of $717,500 (70% of TFR). The STI was based on the following performance measures:
Financials
Customer
People
Safety
Personal project objective
For further detail on STI outcomes refer to Section V below.
Target LTI of $717,500 (70% of TFR).
Sign-on incentive
$400,000 in the form of 34,782 share rights granted under the InvoCare Employee Share Plan (ESP),
subject to a continuous employment condition of two years (vesting on 1 January 2023).
InvoCare Annual Report 2021 58
III CFO 2021 remuneration details
The remuneration of the CFO places a considerable portion of his remuneration at risk to align with both the Group’s performance and shareholder
outcomes. The maximum, at target and actual remuneration outcomes for the CFO 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 including TFR, STI (achieved at 100% for both financial and non-financial targets reflecting
both cash and restricted shares components) and LTI awarded at 100% in accordance with performance and employment conditions)
2021 CFO maximum, target and actual take home
Maximum
38.7%
28.4% 6.7%
26.2% $1,806,875
Target
41.7%
24.9% 5.3%
28.1% $1,680,000
Actual
take home
58.4%
32.3% 9.3% $1,213,602
$
0
300,000
600,000
900,000
1,200,000
1,500,000
1,800,000
2,100,000
Fixed remuneration
STI – Cash
STI – Restricted shares
Share-based payments
2021 CFO remuneration breakdown
TFR
STI
LTI
TFR of $725,000 per annum at 31 December 2021.
The CFO received a 7.4% increase to TFR effective 1 July 2021.
Target STI of $507,500 (70% of TFR at 31 December 2021). The STI was based on the following performance
measures:
Financials
Customer
People
Safety
Personal project objective
For further detail on STI outcomes refer to Section V below.
Target LTI of $472,500 (70% of TFR at 1 January 2021 and does not reflect the TFR increase effective
1 July 2021).
InvoCare Annual Report 2021 59
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continued
IV Actual reported remuneration outcomes – Executive KMP
This section provides details of the cash and value of other benefits received by Executive KMP. This is a voluntary disclosure to provide shareholders
with increased clarity and transparency in relation to Executive KMP remuneration.
Actual remuneration in the table below represents the pre-tax amounts received by each Executive KMP in 2021 and 2020. This consists of cash
salary, non-monetary benefits, STI paid in cash and vested share-based payments exercised or exercisable. Refer to table notes below for further
details on how these amounts were determined.
In assessing the financial results for 2021 STI outcomes, the Board did not make any adjustments, that is, neither negative nor positive discretion
was applied.
Executive KMP remuneration details – actual pre-tax received
Short-term employee
benefits
Post-employment
benefits
Long-term
benefits
Cash
salary1
Short term
incentive-
cash2
Non-
monetary
benefits1
Super-
annuation1
Termina-
tion
payments
Long
service
leave
accruals
Olivier Chretien
Appointed
1 January 2021
$
$
$
$
2021
1,000,000
537,795
3,985
25,000
Adrian Gratwicke
2021
680,353
391,367
3,985
24,597
Appointed
3 August 2020
Table notes:
2020
272,211
63,652
1,949
10,847
$
-
-
-
$
-
-
-
Share-
based
payments
Share-
based
payments
vested3,4
$
Total
$
-
1,566,780
113,300
1,213,602
-
348,659
1
2
Cash salary, non-monetary benefits and superannuation represents actual amounts received during the financial year. Cash salary excludes the
movement of annual leave accruals.
STI awarded based on 2021 and 2020 achievement of performance targets and payable in cash (FY20) or a mix of cash and restricted shares (FY21).
For FY21, 25% of the STI awarded that exceeds $150,000 is subject to deferral and has been paid in the form of restricted shares. The shares will be held
in trust for 12 months. The 2021 deferred STI will be granted in the next financial year, so no value was included in the total actual remuneration received
in the table above.
3 For the financial year ended 31 December 2021, no LTI grants for current Executive KMP were eligible for testing.
4
Adrian Gratwicke received a portion of the sign-on incentive grant as InvoCare’s shares during FY21 in accordance with the vesting rules of this grant.
The value of the 10,000 shares received noted in the table above was based on the 12-month VWAP of InvoCare shares for the financial year ended
31 December 2021 times the number of vested and exercised sign-on incentive shares. The 12-month VWAP was $11.33.
V STI outcomes – Executive KMP
The table below provides details of each Executive KMP’s STI measures, the level of achievement and the financial outcome for the financial year
ended 31 December 2021.
Target STI
potentiala
Performance
target overall
achievement
Actual STI
awarded as a
% of target STI
potential
$
717,500
507,500
%
93
93
%
93
93
Actual STI awarded
Cash
Deferred STIb
$
$
Total
$
537,795
129,265
667,060
391,367
80,456
471,823
STI forfeited
as a % of target
STI potential
%
7
7
Executive KMP
Olivier Chretien
Adrian Gratwicke
Footnotes:
a Target STI potential and actual STI awarded is based on the total fixed remuneration as at 31 December 2021.
b The 2021 deferred STI awarded will be granted as shares in the financial year ending 31 December 2022.
InvoCare Annual Report 2021 60
VI Reported remuneration – Executive KMP remuneration details – statutory basis
The table below discloses the remuneration for Executive KMP calculated in accordance with statutory requirements and Australian accounting
standards. Refer to table notes for the relevant statutory and accounting requirements.
Short-term employee
benefits
Post-employment
benefits
Long-term
benefits
Cash
salary1
Short term
incentive-
cash2
Non-
monetary
benefits3
Super-
annuation4
Termina-
tion
payments
Long
service
leave
accruals5
Share-
based
payments
Shares,
share
rights and
perform-
ance
rights6
Olivier Chretien
Appointed
1 January 2021
$
$
$
$
2021
1,058,415
537,795
3,985
25,000
Adrian Gratwicke
2021
675,563
391,367
3,985
24,597
2020
297,365
63,652
1,949
10,847
Appointed
3 August 2020
Footnotes:
a
The remuneration mix for the Executive KMP based on the
remuneration details in table above are:
Olivier Chretien: 52% fixed and 48% at-risk
Adrian Gratwicke: 49% fixed and 51% at-risk (2020: 61% fixed
and 39% at-risk)
b
For the following former Executive KMP ceased during the financial
year ended 31 December 2020, their total remuneration was:
Martin Earp (ceased as Executive KMP effective 31 December
2020): $1,143,930. Mr Earp resigned as Director effective
4 January 2021. As 1 to 3 January 2021 are public holidays
or weekend, Mr Earp provided no service as Director and no
remuneration is paid/payable for these days when he was holding
the office as Director
Damien MacRae (ceased as Executive KMP effective
31 December 2020): $1,196,041
Josée Lemoine (ceased as Executive KMP effective 3 August
2020): $354,443
$
$
Total
$
5,556
464,363
2,095,114
5,062
350,017
1,450,591
1,499
137,018
512,330
$
-
-
-
Table notes:
1
2
3
4
5
6
The total cost of cash salary and leave accruals, including annual
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.
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 awarded and forfeited are
set out in Section V above of this Remuneration Report.
The 2021 deferred STI awarded, as disclosed in Section V above,
will be granted in the next financial year, so no value was included in
the total remuneration in the table above.
Non-monetary benefits represent the costs to the Group, including
any fringe benefits tax, for the provision of car parking and other items.
Superannuation contributions are paid in line with legislative
requirements.
Long service leave accruals are determined in accordance with
Accounting Standard, AASB 119 Employee Benefits.
The share-based payments value in the table represents the amount
of sign-on incentive (in the form of shares or share rights), deferred
STI and LTI (in the form of unvested 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, share rights
or performance rights will vest, or be forfeited, in future financial years.
Section VII below provides the further information and breakdown of
share-based payments.
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Remuneration report – audited
continued
VII Breakdown of share-based payments – Executive KMP
Deferred STI
in the form of
sharesa
Sign-on
incentive in
the form of
shares
Sign-on
incentive in
the form of
share rights
LTI in the
form of
perform-
ance rights
Total
share-based
payments
$
-
-
-
$
-
143,509
108,008
$
$
$
212,652
251,711
464,363
-
-
206,508
350,017
29,010
137,018
2021
2021
2020
Olivier Chretien
Appointed
1 January 2021b
Adrian Gratwicke
Appointed
3 August 2020 c,d
Footnotes:
a
b
c
d
The 2021 deferred STI awarded, as disclosed in Section V above, will be granted in the financial year ending 31 December 2022 and there is a one-year
deferral period from grant, so no value was recognised for FY21.
Olivier Chretien received a sign-on incentive grant in the form of share rights. They will vest on 1 January 2023 provided that Mr Chretien meets the
continuous employment condition at the date of vesting.
Adrian Gratwicke received a sign-on incentive grant in the form of shares held in trust. One third each of the total number of shares granted will vest
on 1 July 2021, 2022 and 2023 respectively provided that Mr Gratwicke meets the continuous employment condition at each vesting date.
Adrian Gratwicke was appointed 3 August 2020. The share-based payments for FY20 were only recognised for the period from the date commenced
as Executive KMP to 31 December 2020. For FY21, his share-based payments were recognised for the full financial year.
a 2020 sign-on incentive grant under the Deferred Employee Share Plan
As part of his appointment as CFO during August 2020, Adrian Gratwicke received a one-off sign-on incentive in the form of 30,000 InvoCare’s 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. The table below provides details of the grant date fair value and maximum value for the sign-on incentive granted.
Grant date fair value and maximum value for sign-on incentive
Executive KMP
Grant date
Grant date fair
value per sign-on
incentive
Number
of shares
granted
Vesting
period
Maximum value
to be recognised
from grant date
Sign-on incentive –
shares granted under
DESP
Adrian Gratwicke
15/06/2020
11.10
30,000
$
15 June 2020
to
1 July 2023
$
333,000
b 2021 sign-on incentive grant under the Employee Share Plan
As part of his appointment as CEO, Olivier Chretien received a one-off sign-on incentive of $400,000 in the form of 34,782 share rights through
the InvoCare Employee Share Plan (ESP), which was approved at the 2020 Annual General Meeting. The number of share rights are calculated by
the value of the sign-on incentive divided by the value of a “Share” determined by the VWAP of InvoCare shares traded in the last 10 trading days
immediately before Mr Chretien’s commencement date as CEO on 1 January 2021, being $11.50. The share rights will vest on 1 January 2023, two
years after Mr Chretien’s appointment date of 1 January 2021, provided that he is still employed by InvoCare on 1 January 2023 and the applicable
vesting conditions are met as described in the ESP rules. The table below provides details of the grant date fair value and maximum value for the sign-
on incentive granted.
Sign-on incentive –
shares granted under
ESP
Executive KMP
Grant date
Grant date fair
value per sign-on
incentive
Number of
share rights
granted
Vesting
period
Maximum value
to be recognised
from grant date
Olivier Chretien
18/11/2020
11.57
34,782
$
18 November 2020
to
1 January 2023
$
402,428
InvoCare Annual Report 2021 62
c LTI plan
The Executive KMP were granted LTI in the form of performance rights under the LTI Plan (LTIP).
The key terms and conditions of the LTI granted are disclosed in Note 22 Share-based remuneration Section B and C.
The table below summarises the performance to date for the LTI grants under the LTIP since 2020 which impact remuneration in the current or a future
financial year. Neither 2020 nor 2021 performance rights granted are due for vesting test during the financial year ended 31 December 2021.
Grant/Tranche
Performance
hurdle*
Performance
test date
EPS baseline
for CAGR
measure
Testing of
unvested
rights
Vesting
outcome
%
2020
grant
One
tranche,
two
performance
hurdles
2021
grant
One
tranche,
two
performance
hurdles
50% of
2020
grant
50% of
2020
grant
50% of
2021
grant
50% of
2021
grant
30% vesting at 6% CAGR EPS
100% vesting at 10% CAGR EPS
Pro rata vesting in between 6% and 10%
CAGR EPS
0% vesting if less than 6% CAGR EPS
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
30% vesting at 10% CAGR EPS
100% vesting at 15% CAGR EPS
Pro rata vesting in between 10% and 15%
CAGR EPS
0% vesting if less than 10% CAGR EPS
30% vesting at 10% ROCE
100% vesting at 12% ROCE
Pro rata vesting in between 10% and 12%
ROCE
0% vesting if less than 10% ROCE
March 2023
46.9 ¢
N/A
N/A
March 2023
N/A
N/A
March 2024
24.0 ¢
N/A
N/A
March 2024
N/A
N/A
*
The performance targets are three-year compound annual growth rate (CAGR) in normalised EPS growth and average return on invested capital
(ROIC)/return on capital employed (ROCE) from 1 January of grant year.
d Grant date fair value and maximum value for LTI grants
The table below provides the grant date 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.
Fair value and maximum value for LTI grants
Executive KMP
Grant date
Olivier Chretien
18/11/2020
Grant date fair
value per LTIa
$
11.57
Number
of LTI
granted
Performance
period
Maximum value
to be recognised
from grant date
63,777
1 January 2021 to
31 December 2023
Performance rights
granted under LTIPa
Adrian Gratwicke
15/06/2020
9.70
17,107
15 June 2020 to
3 August 2023b
01/01/2021
11.57
42,000
1 January 2021 to
31 December 2023
Footnotes:
a The grant date fair value of the performance rights granted under LTIP was determined using Black-Scholes valuation methodology.
b
The performance hurdles for the 2020 grant to Adrian Gratwicke are based on the 3-years financial outcomes from 1 January 2020 to 31 December
2022 in line with the plan rules. The performance period for this grant 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). The vesting date will be on 3 August 2023, that is, three-year period
effective 3 August 2020, his employment commencement date.
InvoCare Annual Report 2021 63
$
737,900
165,938
485,940
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 4 Non-Executive Director remuneration
The following table outlines the Non-Executive Directors (NEDs) fee policy and changes introduced for 2022.
Maximum aggregate fees
approved by shareholders
Contracts
Non-Executive Directors’ base fee for services as Directors is determined within an aggregate Directors’ fee pool
cap, which is periodically approved by shareholders. At the date of this report, the pool cap is $1,250,000, being
the amount approved by shareholders at the AGM held on 22 May 2015.
Upon appointment to the Board, NEDs receive a letter of appointment which summarises the Board policies and
terms, including remuneration, relevant to the office of Director.
The Board reviews NED fees annually, taking into account the size and scope of InvoCare’s activities and general
industry practice. This ensures the Group can attract and retain suitably skilled, experienced and committed
individuals to serve on the Board and remunerate them appropriately for their time and expertise, and for their
responsibilities and liabilities as public company Directors. NEDs are entitled to be reimbursed for all reasonable
costs and expenses incurred by them in performing their duties.
NED fee changes FY21
There were no changes to the Board base fees in 2021.
Non-Executive Director
fee reviews
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 (ARC) Committee to the Chair of the
PCR Committee and the Chair of the Investment Committee. It should be noted that the Investment Committee
was dismantled effective 31 March 2021, with no meeting in 2021, and accountabilities transferred to the ARC
Committee and the Board.
NED fee changes FY22
The Board base fees and committee fees remain unchanged.
The table following details the 2021 base and committee fees. The aggregation of Board and committee fees for
2021 remain below the pool cap of $1,250,000.
NED’s base fees exclude any remuneration determined by the Directors where a Director performs additional
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.
There have been no additional payments made to Directors in 2021.
The fees set out in the table below include superannuation contributions in accordance with relevant statutory
requirements.
NEDs may receive options as part of their remuneration, subject only to shareholder approval. No options are
held by any NED at the date of this report.
Additional or
special duties
Superannuation
Equity participation
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 Section 5.
Post employment benefits
NEDs are not entitled to any compensation on cessation of appointment.
InvoCare Annual Report 2021 65
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 Remuneration report – audited
continued
Non-Executive Director fees (inclusive of superannuation)
Board/Committee
Role
Board base fee
Chairman
Non-Executive Directors
Audit, Risk & Compliance Committee
Investment Committeea
People, Culture & Remuneration Committee
Chairman
Chairmanb
Chairmanb
Total
Footnotes:
From 1 January 2021
Per role
$
Total
$
285,691
285,691
142,840
714,200
11,560
11,560
11,560
11,560
11,560
11,560
1,034,571
a
b
Investment Committee dismantled effective 31 March 2021.
The Chair Committee fee structure was aligned from 1 January 2021 to $11,560 per annum for all committees – previously it was only the Chair of the
Audit, Risk & Compliance Committee on a higher fee structure.
Reported remuneration – Non-Executive Directors – statutory basis
The table below discloses the remuneration for the Non-Executive Directors calculated in accordance with statutory requirements and Australian
Accounting Standards.
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. For any Directors who resigned or retired during the financial year, their remuneration has been pro-rated to the date of resignation or retirement.
Non-Executive Directors remuneration details
Short-term employee
benefits
Post-employment benefits
Board and committee fees
Superannuation
Bart Vogel
Kim Anderson, appointed 11 May 2021
Richard Davis
Megan Quinn
Keith Skinner
Kee Wong, appointed 1 November 2021
2021
2020
2021
2021
2020
2021
2020
2021
2020
2021
Former Non-Executive Directors retired/resigned during the financial year
Jackie McArthur, retired 28 May 2021
Robyn Stubbs, resigned 1 February 2021
2021
2020
2021
2020
$
263,060
240,535
90,325
132,790
119,577
130,151
119,577
140,684
129,254
21,642
54,353
119,577
11,750
119,577
InvoCare Annual Report 2021 66
$
Total
$
22,631
285,691
21,348
261,883
8,932
99,257
12,940
145,730
11,420
130,997
12,689
142,840
11,420
130,997
13,716
154,400
12,279
141,533
2,164
23,806
5,164
59,517
11,420
130,997
1,116
12,866
11,420
130,997
5 Additional information
The table below summarises the movement in holdings of InvoCare ordinary shares during the year and the balance at the end of the financial year,
both in total and held indirectly by related parties of the KMP.
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 2021
Grant as
compensation
Exercise of
vested share-
based payments
during 2021
Net other
changes during
2021
Total shares
held directly
and indirectly
as at
31 December
2021a
Number
Number
Number
Number
Number
19,343
-
160,000
-
3,968
-
-
-
4,480
7,905
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,000
-
-
-
10,079
19,343
10,079
(40,000)
120,000
-
-
-
-
3,968
-
15,850
15,850
(4)
-
-
9,996
4,480
7,905
Bart Vogel
Kim Andersonb
Richard Davis
Megan Quinn
Keith Skinner
Kee Wong b
Olivier Chretienb
Adrian Gratwicke
Jackie McArthur c
Robyn Stubbsc
Non-Executive
Directors
Executive KMP
Former KMP
ceased during
the financial year
Footnotes:
a
b
c
Shares held indirectly are included in the column headed Total shares held at 31 December 2021. 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.
For KMP who commenced during FY21, the balance as at 1 January 2021 is shown as no shares.
The KMP are Kim Anderson, Kee Wong and Olivier Chretien.
For KMP ceased during FY21, movement of shares are only recorded
till their effective date ceased as KMP. The KMP are Jackie
McArthur and Robyn Stubbs.
InvoCare Annual Report 2021 67
Shareholder and other informationSigned reportsConsolidated financial statementsOperating & financial review6542Governance & Directors’ reportOverview13 InvoCare Annual Report 2021 68
Section 4
Consolidated
financial statements
InvoCare Annual Report 2021 69
Consolidated financial statements
This is the financial report of InvoCare Limited (the Company)
and its subsidiaries (together referred to as InvoCare or the Group).
InvoCare Limited (ABN 42 096 437 393) is a listed public company
limited by shares, incorporated and domiciled in Australia.
Its registered office and principal place of business is:
Level 5, 40 Mount 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
28 February 2022. The Directors have the power to amend and reissue
the financial report.
About this report
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
Notes to the consolidated financial statements
Key performance metrics
Note 1. Operating segments
Note 2. Revenue
Note 3. Earnings per share
This financial report’s disclosures are split into five distinct groups to
Note 4. Dividends
enable better understanding of how the Group has performed.
Note 5. Significant profit and loss items
Accounting policies and critical accounting judgements applied in the
Note 6. Income tax
preparation of the financial statements are shown together with the
related accounting balance and where the financial statement matter
Note 7. Cash flow information
is disclosed.
Significant assets and liabilities
Note 8. Trade receivables
Note 9. Pre-paid contracts
Note 10. Deferred revenue and selling costs
Note 11. Non-current operating assets
Note 12. Intangibles
Note 13. Pre-paid technology assets
Capital and risks
Note 14. Financial risk management
Note 15. Contributed equity
Note 16. Contingencies
Note 17. Commitments
Note 18. Events after reporting period
Business portfolios
Note 19. Business combinations
Note 20. Interests in subsidiaries
Note 21. Other financial assets
Other statutory disclosures
Note 22. Share-based remuneration
Note 23. Related party transactions
Note 24. Parent entity information
Note 25. Deed of cross guarantee
Note 26. Economic dependence
Note 27. Remuneration of auditors
Note 28. Other accounting policies
InvoCare Annual Report 2021 70
70
71
72
73
74
75
77
77
77
79
81
82
83
84
87
89
89
90
93
95
99
104
105
105
113
114
115
115
116
116
118
119
120
120
124
125
126
128
128
129
INVOCARE LIMITED AND SUBSIDIARIES
Consolidated financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2021
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
Loss on disposal of a business
Finance costs
Interest income
Net gain/(loss) on undelivered pre-paid contracts
Acquisition related costs
Net gain on lease modifications/terminations
Net gain on disposal of non-current assets
Profit/(loss) before income tax
Income tax expense
Net profit/(loss) after income tax from continuing activities
Net profit/(loss) 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 for the year, net of tax
Notes
2
5
12
11
9
6
2021
$’000
532,453
(128,827)
(196,064)
(17,095)
(23,983)
(7,860)
(18,925)
(19,973)
119,726
(47,766)
-
4,000
(278)
(17,474)
987
44,085
(743)
1,517
6,808
110,862
(30,591)
80,271
80,271
Restated
2020
$’000
477,652
(122,503)
(174,764)
(17,725)
(22,533)
(7,484)
(23,862)
(22,289)
86,492
(42,565)
(19,324)
6,000
-
(24,929)
1,059
(16,618)
(1,918)
-
7,383
(4,420)
(6,955)
(11,375)
(11,375)
763
(320)
-
763
(2,082)
(1,319)
2,419
2,099
(1,091)
1,008
Total comprehensive income/(loss) for the year, net of tax
78,952
(10,367)
Profit/(loss) is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Total comprehensive income/(loss) for the year is attributable to:
Equity holders of InvoCare Limited
Non-controlling interests
Earnings per share for profit/(loss) attributable to the ordinary equity
holders of InvoCare Limited
Basic earnings per share
Diluted earnings per share
3
3
80,158
113
80,271
78,839
113
78,952
2021
cents
56.1
56.0
(11,542)
167
(11,375)
(10,534)
167
(10,367)
2020
cents
(8.6)
(8.6)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
50
InvoCare Annual Report 2021 71
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Consolidated financial statements
Consolidated balance sheet
As at 31 December 2021
Assets
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Pre-paid contract funds under management
Assets held for sale
Pre-paid technology assets
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
Intangibles
Pre-paid technology assets
Deferred selling costs
Deferred contract assets
Total non-current assets
Total assets
Liabilities
Current liabilities
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
Non-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
Equity
Contributed equity
Reserves
Retained profits
Parent entity interests
Non-controlling interests
Total equity
Notes
7
8
9
13
10
8
21
11
11
9
12
13
10
19
11
9
10
19
14
11
6
9
10
15
2021
$’000
53,630
42,451
14,703
46,866
52,959
89
582
6,244
1,811
219,335
23,849
578
4,072
494,454
153,315
596,916
226,913
8,019
29,511
152
1,537,779
1,757,114
69,226
6,282
20,671
76
5,739
44,437
34,076
17,133
197,640
-
188,843
154,731
-
42,307
496,003
93,883
2,786
978,553
1,176,193
580,921
497,780
10,865
70,857
579,502
1,419
580,921
Restated
2020
$’000
118,781
38,757
13,710
44,117
50,268
2,788
637
3,644
1,541
274,243
29,445
670
4
464,277
144,368
562,863
225,386
4,655
34,068
2,525
1,468,261
1,742,504
60,514
9,265
19,465
600
1,874
44,685
28,632
16,613
181,648
7,909
246,039
146,459
548
28,832
496,624
109,086
2,489
1,037,986
1,219,634
522,870
497,005
9,977
14,465
521,447
1,423
522,870
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
51
InvoCare Annual Report 2021 72
INVOCARE LIMITED AND SUBSIDIARIES
Consolidated financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2021
Attributable to equity holders of InvoCare Limited
Contri-
buted
equity
$’000
497,005
Share-
based
payment
reserve
$’000
3,296
Foreign
currency
translation
reserve
$’000
7,436
Hedging
reserve
$’000
(755)
Retained
profits
$’000
14,465
Non-
controlling
interests
$’000
1,423
Total
equity
$’000
522,870
-
-
-
-
468
(468)
307
-
-
497,780
2,675
5,503
763
(2,082)
80,158
113
78,952
-
-
-
-
8
-
-
-
(23,766)
(117)
(23,883)
-
-
-
-
-
307
-
5,354
-
70,857
-
1,419
2,675
580,921
219,826
-
2,055
-
(2,854)
-
8,527
-
68,169
(6,730)
1,256
-
296,979
(6,730)
219,826
2,055
(2,854)
8,527
61,439
1,256
290,249
-
-
-
-
48
(16)
5,918
270,862
-
-
351
2,099
(1,091)
(11,542)
167
(10,367)
-
-
-
-
-
-
-
-
(29,514)
-
(5,918)
-
-
-
-
-
(29,514)
32
-
270,862
351
-
497,005
1,257
3,296
-
(755)
-
7,436
-
14,465
-
1,423
1,257
522,870
2021
Balance at 1 January 2021
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
Transfer of shares from treasury
shares for grant of shares through
the InvoCare Exempt Share Plan
Trust
Employee shares – value of
services
Balance at 31 December 2021
Restated 2020
Balance at 1 January 2020
Change in accounting policy
Restated balance at the beginning
of the year
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 treasury
shares for grant of shares through
the InvoCare Exempt Share Plan
Trust
Employee shares – value of
services
Balance at 31 December 2020
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
52
InvoCare Annual Report 2021 73
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Consolidated financial statements
Consolidated statement of cash flows
For the year ended 31 December 2021
Cash flows from operating activities
Receipts from customers (including GST)
Payments to suppliers and employees (including GST)
Other revenue
Interest received
Finance costs
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Purchase of subsidiaries and other businesses including acquisition costs, net of
cash acquired
Proceeds from sale of subsidiaries and other businesses,
net of restructuring costs
Purchase of property, plant and equipment and intangibles
Purchase of other financial assets
Payments to funds under management for pre-paid contract sales
Receipts from funds under management for pre-paid contracts service delivered
Net cash flows from investing activities
Cash flows from financing activities
Share capital issue, net of transaction costs
Payments for share option vested and exercised
Proceeds from borrowings
Repayment of borrowings
Payment for early settlement of interest rate swaps
Principal elements of lease payments
Dividends paid to InvoCare Limited equity holders
Dividends paid to non-controlling interests in subsidiaries
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
2021
$’000
534,372
(440,669)
8,027
101,730
302
(14,521)
(9,771)
77,740
Restated
2020
$’000
505,716
(429,054)
11,192
87,854
373
(17,419)
(14,424)
56,384
10,788
11,908
(12,648)
(40,581)
392
(62,703)
(4,068)
(26,599)
55,905
(38,933)
-
-
-
(59,680)
-
(20,196)
(23,766)
(117)
(103,759)
(64,952)
118,781
(199)
53,630
-
(60,952)
-
(32,169)
45,026
(76,768)
270,875
(69)
5,000
(111,761)
(3,115)
(11,599)
(29,514)
-
119,817
99,433
19,560
(212)
118,781
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
53
InvoCare Annual Report 2021 74
Basis of preparation
InvoCare Annual Report 2021 75
INVOCARE LIMITED AND SUBSIDIARIES Basis of preparation 54 This consolidated financial report is a general purpose financial report which: • Has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards (AASBs) and Interpretations adopted by the Australian Accounting Standards Board, as appropriate for for-profit oriented entities and the Australian Securities Exchange (ASX) Listing Rules • Complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board • Is presented in Australian dollars ($) which is the functional currency 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: • Included in the relevant notes to which the policies relate, while other significant accounting policies are discussed in Note 28: 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 28: Other accounting policies – New and revised accounting standards and interpretations not yet mandatory or early adopted Critical accounting estimates and judgements The preparation of a financial report that complies with AASBs requires management to make judgements, estimates and assumptions. This can affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to estimates are recognised prospectively. The significant accounting policies highlight information about accounting judgements in applying accounting policies that have the most significant effects on reported amounts and further information about estimated uncertainties that have a significant risk of resulting in material adjustments within the next financial year. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed within the notes following the financial information of those transactions or activities. The key ones are: • Note 2 Revenue – recognition of deferred revenue on pre-paid funerals and plaque and miscellaneous merchandise sales on pre-paid cemeteries and crematorium and significant financing • Note 9 Pre-paid contracts – fair value measurements on pre-paid funds under management • Note 11 Non-current operating assets – estimated impairment of non-financial assets and the determination of the lease term • Note 12 Intangibles – assumptions used in the impairment testing on intangibles Note 13 Pre-paid technology assets – determination whether configuration and customisation services are distinct from the SaaS access The on-going COVID-19 pandemic (COVID) has not significantly increased the estimation uncertainty in the preparation of the consolidated financial statements. A thorough consideration of potential COVID impacts on carrying values of assets and liabilities, contracts and potential 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. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Basis of preparation
continued
InvoCare Annual Report 2021 76
INVOCARE LIMITED AND SUBSIDIARIES Basis of preparation 55 Comparatives Where necessary, comparatives have been reclassified, repositioned and restated for consistency with current year disclosures. The following disclosures have been changed during the current year: • Note 1 Operating segments – identifiable reportable segments are updated to align with the latest discrete financial information reported to the Chief Operating Decision Maker and the Board of Directors Note 12 Intangibles – adjusted certain capitalised software due to the change in accounting policy in adopting the International Financial Reporting Standards Interpretation Committee (IFRIC) decision Configuration and Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) Restated 2020 comparatives In April 2021, the IFRIC decision Configuration or Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) which considers whether an intangible asset can be recognised in relation to configuration or customisation of application software. The financial impact and additional disclosures required are provided in Note 12 Intangibles. This change in accounting policy is to be applied retrospectively resulting in the need to restate the comparative financial statements for the year ended 31 December 2020. The impact of the change in accounting policy is therefore reflected in the restated financial statements and notes presented on relevant pages of this report. 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. Notes to the consolidated financial statements
InvoCare Annual Report 2021 77
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 56 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 Note 5. Significant profit and loss items Note 2. Revenue Note 6. Income tax Note 3. Earnings per share Note 7. Cash flow information Note 4. Dividends Note 1. Operating segments A. Identification of reportable segments During the second half of this financial year ended 31 December 2021, the Group re-organised its reportable segments into the following: • Australia – Funeral services • Australia – Cemeteries & Crematoria • Australia – Pet cremations • New Zealand • Singapore Other/unallocated These reportable segments are based on the recent changes in 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 products sold or services provided in Australia and other countries where their products and services are mainly related to the provision of Funeral services. Discrete financial information about each of these operating segments is reported to CODM and the Board of Directors regularly. The CODM reviews Group and segment performance using, among other key financial and non-financial measures, Operating EBITDA (for each reportable segment) and Operating EBIT (only on consolidated group). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. As the changes in the reportable segments occurred in second half of this financial year ended 31 December 2021, comparative information are re-organised and disclosed to align with the current reporting period’s disclosure for consistency purposes. INVOCARE LIMITED AND SUBSIDIARIES Basis of preparation 55 Comparatives Where necessary, comparatives have been reclassified, repositioned and restated for consistency with current year disclosures. The following disclosures have been changed during the current year: • Note 1 Operating segments – identifiable reportable segments are updated to align with the latest discrete financial information reported to the Chief Operating Decision Maker and the Board of Directors Note 12 Intangibles – adjusted certain capitalised software due to the change in accounting policy in adopting the International Financial Reporting Standards Interpretation Committee (IFRIC) decision Configuration and Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) Restated 2020 comparatives In April 2021, the IFRIC decision Configuration or Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) which considers whether an intangible asset can be recognised in relation to configuration or customisation of application software. The financial impact and additional disclosures required are provided in Note 12 Intangibles. This change in accounting policy is to be applied retrospectively resulting in the need to restate the comparative financial statements for the year ended 31 December 2020. The impact of the change in accounting policy is therefore reflected in the restated financial statements and notes presented on relevant pages of this report. 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. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
B. Reportable segments information
2021
Segment revenuea
Segment expensesb
Segment EBITDA
Depreciation and amortisation
Net gain on lease
modifications/terminations
Business acquisition costs
Net gain on prepaid contracts
SaaS arrangements
Net impairment gain of
non-current assets
Asset sales gain
EBIT
Net finance costs
Income tax expense
Non-controlling interest
Net profit after income tax
Restated 2020
Segment revenuea
Segment expensesb
Segment EBITDA
Depreciation and amortisation
Business acquisition costs
Net loss on prepaid contracts
SaaS arrangements
Net impairment loss of
non-current assets
Asset sales gain
EBIT
Net finance costs
Income tax expense
Non-controlling interest
Net loss after income tax
Australia
Cemeteries
&
Crematoria
$’000
Pet
cremations
$’000
127,602
(66,191)
61,411
(5,741)
29,613
(22,640)
6,973
(1,884)
Funeral
services
$’000
311,016
(230,495)
80,521
(26,353)
New
Zealand
$’000
53,486
(42,388)
11,098
(5,730)
Singapore
$’000
Other/
unallocated
$’000
18,907
(10,569)
8,338
(1,224)
(8,171)
(35,196)
(43,367)
(6,834)
236
-
-
(22)
-
1,303
292,282
(229,770)
62,512
(24,021)
119,988
(62,992)
56,996
(5,779)
4,642
(4,140)
502
(803)
51,990
(43,212)
8,778
(5,362)
19,404
(10,012)
9,392
(1,187)
(10,654)
(29,908)
(40,562)
(5,413)
Total
$’000
532,453
(407,479)
124,974
(47,766)
1,517
(743)
44,085
(5,248)
4,000
6,530
127,349
(16,487)
(30,591)
(113)
80,158
477,652
(380,034)
97,618
(42,565)
(1,918)
(16,618)
(11,126)
(13,324)
7,383
19,450
(23,870)
(6,955)
(167)
(11,542)
a Other/unallocated balance includes Non-operating activities’ revenue and intersegment eliminations.
b
Segment expenses excludes SaaS arrangements
The table below provided the reconciliation of the reportable segments’ operating EBITDA to the segment EBITDA as disclosed in the
tables above.
Operating activities:
Australia - Funeral services
Australia - Cemeteries & Crematoria
Australia - Pet cremations
New Zealand
Singapore
Support costs
Operating EBITDA
Non-operating activities - EBITDA
Segment EBITDA
2021
$'000
2020
$'000
80,521
61,411
6,973
11,098
8,338
(42,864)
125,477
(503)
124,974
62,512
56,996
502
8,778
9,392
(35,615)
102,565
(4,947)
97,618
C. Accounting policy for segment reporting
Operating EBITDA is reconciled to profit after tax as disclosed on the consolidated statement of comprehensive income.
57
InvoCare Annual Report 2021 78
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
Note 2. Revenue
A. Disaggregation of revenue from contracts with customers
The tables below provide detailed disaggregation of revenue derived by the Group.
2021
Funeral services
Cemeteries & Crematoria
Pet cremations
Rent
Sundry revenue
Total revenue from continuing operations
2020
Funeral services
Cemeteries & Crematoria
Pet cremations
Rent
Sundry revenue
Total revenue from continuing operations
Australia
$’000
301,401
127,060
29,658
458,119
248
1,693
460,060
278,699
119,463
4,646
402,808
411
3,039
406,258
Singapore New Zealand
$’000
50,277
2,408
-
52,685
158
643
53,486
$’000
18,555
-
-
18,555
146
206
18,907
18,593
-
-
18,593
29
782
19,404
48,004
2,212
-
50,216
121
1,653
51,990
Total
$’000
370,233
129,468
29,658
529,359
552
2,542
532,453
345,296
121,675
4,646
471,617
561
5,474
477,652
InvoCare’s New Zealand and Singapore businesses were eligible for government subsidies during periods of government restrictions.
The government subsidies were recognised as sundry revenue during the financial year ended 31 December 2021 and 31 December
2020.
B. Critical accounting judgements, estimates and 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 price as if the customer had paid the consideration
at the time when the services are performed or the goods delivered).
II. Timing of recognition of deferred plaque and miscellaneous merchandise revenue
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 $56,403,000 at
31 December 2021 (2020: $54,267,000).
The 15 year period is based on a periodically updated actuarial assessment of the average period between a customer entering into a
pre-paid funeral plan (included within pre-paid contract liabilities on the balance sheet) 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 revenue.
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 $3,314,000 (2020: $3,500,000) or decrease by $1,657,000 (2019: $1,700,000).
58
InvoCare Annual Report 2021 79
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 80
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 59 C. Accounting policy – revenue recognition The Group derives its revenue from the transfer of goods and services on delivery of the underlying good or service. The Group predominately generates revenue through the following streams: I. Funeral services, including pre-paid funerals, burial and crematorium services II. Cemetery and crematorium memorial products (‘memorial products’) Each of the above goods and services delivered or to be delivered to the customers are considered separate performance obligations even though for some situations they may be governed by a single legal contract with the customer. Refer to Note 9 Pre-paid contracts and Note 10 Deferred revenue and selling costs for further explanation of how pre-paid funerals, burial and crematorium services contracts impact revenue recognition of InvoCare. 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. Revenue relating to unperformed pre-paid funeral services contracts are deferred (included within pre-paid contract liabilities on the balance sheet). 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. II. Cemetery and crematorium memorial products (‘memorial products’) Revenue relating to undelivered memorials and merchandise are deferred (included within deferred revenue on the balance sheet) until delivered or made ready for use. 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 the interment right and associated memorial passes to the customer. Pre-2018 memorial product contracts For memorial product contracts entered into with customers prior to 1 January 2018, the customer gains control of the interment right on full and final settlement. Post-2018 memorial product contracts For contracts entered into from 1 January 2018, the customer gains control of the interment right at contract inception, thereby allowing revenue to be recognised on delivery. Headstone/monument/gardens – In a memorial products contract, a customer purchases a memorial, such as headstone/heritage garden/monument, to be installed on the interment site. The memorial may be 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. Minor items such as plaques, ash containers and vases where actual deliveries are not individually tracked are released to revenue over 15 years. INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
Note 3. Earnings per share
A. Reported period value
Basic earnings per share
Diluted earnings per share
Operating earnings per share
2021
cents
56.1
56.0
31.6
Restated
2020
cents
(8.6)
(8.6)
20.9
InvoCare determines the dividends to be paid for any financial periods from Operating earnings after tax. Operating earnings is derived
from basic earnings after excluding the impact of significant items such as material impairments, asset sales gains/losses and costs of
restructuring operations. Operating earnings 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. This
is a financial measure which is not prescribed by Australian Accounting Standards and represents the earnings prepared under
Australian Accounting Standards adjusted for specific items as per the table below from the statement of comprehensive income.
B. Reconciliation of earnings used in calculating earnings per share
Net profit/(loss) after income tax
Less: Non-controlling interests
Net profit/(loss) after income tax attributable to InvoCare Limited's equity holders
for calculating statutory basic and diluted earnings per share
2021
$’000
80,271
(113)
Restated
2020
$’000
(11,375)
(167)
80,158
(11,542)
Net profit/(loss) after income tax attributable to InvoCare Limited's equity holders for calculating
statutory basic earnings per share
80,158
(11,542)
Less: Non-operating activities results
Non-operating EBITDA
Net (gain)/loss on pre-paid contracts before income tax
Depreciation and amortisation
SaaS arrangements
Impairment (gain)/loss on non-current assets
Asset sales gain before income tax
Net finance costs
(Profit)/loss before income tax on non-operating activities
Income tax expense/(benefit) on non-operating activities
Net (profit)/loss after income tax on non-operating activities
503
(44,085)
7
4,594
(4,000)
(6,530)
1,225
(48,286)
13,271
(35,015)
4,947
16,618
12
10.376
13,324
(7,383)
3,386
41,280
(1,744)
39,536
Operating earnings after income tax for calculating operating earnings per share
45,143
27,994
C. Weighted average number of shares used in calculating basic and diluted earnings per share
Weighted average number of shares used in calculating basic
and operating earnings per share
Adjustments for calculation of diluted earnings per share:
Share options and rights*
Weighted average number of shares used in calculating diluted earnings per share
2021
Number
’000
2020
Number
’000
142,946
133,927
251
143,197
-
133,927
*
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.
60
InvoCare Annual Report 2021 81
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 59 C. Accounting policy – revenue recognition The Group derives its revenue from the transfer of goods and services on delivery of the underlying good or service. The Group predominately generates revenue through the following streams: I. Funeral services, including pre-paid funerals, burial and crematorium services II. Cemetery and crematorium memorial products (‘memorial products’) Each of the above goods and services delivered or to be delivered to the customers are considered separate performance obligations even though for some situations they may be governed by a single legal contract with the customer. Refer to Note 9 Pre-paid contracts and Note 10 Deferred revenue and selling costs for further explanation of how pre-paid funerals, burial and crematorium services contracts impact revenue recognition of InvoCare. 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. Revenue relating to unperformed pre-paid funeral services contracts are deferred (included within pre-paid contract liabilities on the balance sheet). 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. II. Cemetery and crematorium memorial products (‘memorial products’) Revenue relating to undelivered memorials and merchandise are deferred (included within deferred revenue on the balance sheet) until delivered or made ready for use. 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 the interment right and associated memorial passes to the customer. Pre-2018 memorial product contracts For memorial product contracts entered into with customers prior to 1 January 2018, the customer gains control of the interment right on full and final settlement. Post-2018 memorial product contracts For contracts entered into from 1 January 2018, the customer gains control of the interment right at contract inception, thereby allowing revenue to be recognised on delivery. Headstone/monument/gardens – In a memorial products contract, a customer purchases a memorial, such as headstone/heritage garden/monument, to be installed on the interment site. The memorial may be 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. Minor items such as plaques, ash containers and vases where actual deliveries are not individually tracked are released to revenue over 15 years. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 82
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 61 Note 4. Dividends A. Dividends paid Cents per share Total amount Tax rate for franking credit Percentage franked 2021 $’000 % % Dividends on InvoCare Limited's ordinary shares 2021 interim dividend 9.5 13,684 30 100 2020 final dividend 7.0 10,082 30 100 23,766 2020 2020 interim dividend 5.5 7,894 30 100 2019 final dividend 23.5 27,538 30 100 35,432 B. Dividends determined and not recognised at year end On 28 February 2022, the Directors determined a final dividend of 11.5 cents per share, fully franked, to be paid on 8 April 2022. 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 the directors) calculated over the pricing period (which is at least five trading days) as determined by the directors for each dividend payment date. The Company’s DRP operates by acquiring shares on market. Election notices for participation in the DRP in relation to this final dividend must be received by 7 March 2022. C. Franking credits 2021 2020 $’000 $’000 As at 31 December 32,588 35,133 Franking credits available for subsequent financial years include: • Franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date • Any franking debits that will arise from the payment of dividends recognised as a liability at the reporting date Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date D. Accounting policy for dividends Dividends are recognised when determined during the financial year. INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
Note 5. Significant profit and loss items
The table below provides further details on significant profit and loss items as reported in the consolidated statement of
comprehensive income.
A. Finance costs
Interest paid and payable
Interest expense: customer advance payments
Interest expense on lease liabilities
Other finance costs
Realised loss on early settlement of interest rate swaps
Interest expense on pre-paid contracts
B. Depreciation, amortisation and impairment of non-current assets
Buildings
Property, plant and equipment
Right of use assets
Total depreciation
Cemetery land
Leasehold land and buildings
Leasehold improvements
Brand names
Capitalised software
Amortisation of non-current assets
Total depreciation and amortisation
Impairment of non-current assets
Cemetery land impairment reversal
Impairment loss on intangibles
Impairment (gain)/loss on intangibles
Total depreciation, amortisation and impairment
C. Impairment loss – financial assets
Trade receivables
D. Leases expense
Expense relating to short term leases
Expense relating to leases of low value assets not included in short term leases
E. Lease modifications and terminations impact
Net gain on lease modifications/terminations
Additional accelerated depreciation expense
Net gain on lease modifications/terminations
F. Employee benefits expense
Defined contribution superannuation expense
Share-based payments expense
G. SaaS arrangements
SaaS arrangements expensed as incurred
Pre-paid technology expenses
Accelerated unwind of pre-paid technology assets
2021
$’000
7,588
2,096
5,718
2,072
-
17,474
20,612
5,957
16,123
17,331
39,411
390
141
4,503
1,197
2,124
8,355
Restated
2020
$’000
11,122
3,232
5,297
3,156
2,122
24,929
20,277
5,927
13,723
16,384
36,034
445
141
2,642
1,457
1,846
6,531
47,766
42,565
(4,000)
-
(4,000)
43,766
(6,000)
19,324
13,324
55,889
1,599
3,598
484
730
1,214
1,517
(1,079)
438
936
905
1,841
-
-
-
12,194
2,894
10,993
1,192
4,170
654
424
5,248
7,184
750
3,192
11,126
H. Accounting policies
The accounting policies on the above specified expenses are located in the notes where the assets or liabilities are disclosed other
than defined contribution superannuation expense disclosed below.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred.
62
InvoCare Annual Report 2021 83
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
Note 6. Income tax
A. Income tax expense
Current tax
Deferred tax
(Over)/under provided in prior years
Income tax expense
B. Reconciliation of income tax expense to prima facie tax payable
Profit/(loss) before income tax
Prima facie tax at 30% (2020: 30%) on profit/(loss) before income tax
Tax effect of amounts which are not deductible/(taxable)
in calculation of taxable income:
Effect of foreign tax rate differences
Acquisition costs
Capital gains not subject to tax as offset against capital losses
Impairment loss on intangibles
Non-deductible interest expense
Effect of interest rate swap settlement
Other items (net)
(Over)/under provision in prior years
Income tax expense attributable to continuing operations
2021
$’000
18,155
14,331
(1,895)
30,591
Restated
2020
$’000
7,232
(1,537)
1,260
6,955
110,862
(4,420)
33,259
(1,326)
(931)
250
(1,604)
-
199
-
1,313
32,486
(1,895)
30,591
(192)
465
(405)
5,850
232
1,005
66
5,695
1,260
6,955
C. Tax expense relating to items of other comprehensive income
Cash flow hedges
311
880
D. Deferred tax liability
The deferred tax liability balances comprised temporary differences attributable to:
Amounts recognised in profit and loss:
Cemetery land
Property, plant and equipment
Deferred selling costs
Prepayments and other
Pre-paid technology assets
Brand names
Capitalised software
Pre-paid contracts
Provisions
Receivables
Accruals and other
Deferred revenue
Leased assets
Amounts recognised directly in equity:
Cash flow hedge reserve
The net movement in the deferred tax liability is as follows:
Balance at the beginning of the year
Net charge/(credit) to statement of comprehensive income – current period
Net credit to statement of comprehensive income – prior periods
Amounts recognised directly in equity
Additions from business combinations
Effect of movements in exchange rates
Balance at the end of the year
32,180
5,774
10,727
410
2,708
1,534
(6,726)
32,828
(6,877)
(2,125)
(7,797)
(13,769)
(6,539)
(21)
42,307
28,832
14,331
(2,505)
311
-
1,338
42,307
30,750
3,831
11,938
485
1,588
2,408
(6,272)
21,777
(6,480)
(1,923)
(3,027)
(19,318)
(6,593)
(332)
28,832
31,942
(1,537)
(1,939)
880
544
(1,058)
28,832
63
InvoCare Annual Report 2021 84
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
E. Tax losses
The Australian Group has nil capital losses (2020: nil) available to offset against capital gains in future years.
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 currently classified as a medium business and elected to adopt TTC. InvoCare
has formally submitted to the Board of Tax to be added as a signatory to the TTC.
Income tax expense on reported profit of the Group was $30,591,000 (2020: $6,955,000), representing an effective rate of 29.3%
(2020: 38.1%). 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 intangibles
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
Technology expenses capitalised for tax
Property, plant and equipment temporary differences
Deferred revenue subject to tax in prior years
Deferred selling expenses
Provisions
Accruals
Share based payments
Other items
Current income tax paid or payable
Current income tax paid ratea,b
Current year income tax expensec
Effective tax ratea,d
Prior period tax adjustments
Australia
Group
2021
$'000
108,050
Restated
2020
$'000
16,678
2021
$'000
110,862
Restated
2020
$'000
(4,420)
32,415
5,003
32,328
(1,518)
241
(1,620)
-
(1,168)
-
23
(11,282)
-
(1,200)
196
(1,834)
(4,591)
460
165
2,832
761
(147)
15,251
465
(517)
-
(2,478)
-
165
6,655
895
(1,800)
2,423
(3,914)
(4,540)
890
1,075
326
(227)
1,358
5,779
250
(1,604)
-
-
175
51
(11,282)
-
(1,200)
196
(2,273)
(4,591)
460
232
2,861
761
312
16,676
465
(405)
5,411
-
232
194
6,655
895
(1,800)
2,423
(4,075)
(4,540)
1,054
1,129
356
(227)
983
7,232
14.1%
34.7%
15.0%
29.1%
30,766
4,137
32,486
5,695
28.5%
24.8%
29.3%
38.1%
(2,029)
1,427
(1,895)
1,260
a
2020 Group current income tax paid rate and effective tax rate disclosed above are calculated after removing the impact of the
New Zealand group loss before tax of $21,026,000, which is largely attributable to the impairment loss on intangibles of
$19,324,000; and adjusting for the impact of the remaining New Zealand loss and Hong Kong loss on the respective rate
b Calculated as the current income tax paid or payable divided by the profit before income tax, subject to footnote a above
c Current year tax expense excludes prior period tax adjustments
d Calculated as the current year income tax expense divided by the profit before income tax, subject to footnote a above
64
InvoCare Annual Report 2021 85
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 86
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 65 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 receives a regular report on the Group’s tax compliance. Tax planning initiatives are not implemented until they receive approval from the Committee. Tax risks and opportunities are rated according to their potential impact which determines whether management or the Committee has the delegated authority to resolve the matter. During 2021, $1,459,294 of capital gains were realised on the sale of land and buildings. The Group has a limited number of international related party arrangements in place. They are: • An Australian subsidiary receives dividends from Singapore Casket Company, which is resident in Singapore • The New Zealand group is charged management fees, based on time spent, for management, administration, accounting and other services provided by the Australian operation Loans from the Australian group to subsidiaries outside Australia are made occasionally under documented loan agreements. A loan of NZ$50,000,000 was made by InvoCare Limited to InvoCare Holdings New Zealand Limited on 23 September 2021 In addition to income tax paid, the Australian group paid the following types of taxes and fees during 2021: • Payroll tax of $5,588,000 (2020: $6,779,000) • Fringe benefits tax of $1,480,000 (2020: $1,791,000) • Land tax on owned buildings of $5,159,000 (2020: $5,360,000), to various state governments Council and water rates paid to various authorities of $3,228,000 (2020: $3,330,000) 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. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Deferred tax balances are presented as non-current assets/liabilities on the balance sheet. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised in equity. InvoCare Annual Report 2021 87
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Key performance metrics 66 Note 7. Cash flow information A. Reconciliation of cash flows from operations with net profit after income tax Restated 2021 2020 $’000 $’000 Net profit/(loss) from ordinary activities after income tax 80,158 (11,542) Adjustments for non-cash items in (loss)/profit from ordinary activities Depreciation and amortisation 47,766 42,565 Pre-paid technology expenses 654 750 Impairment loss on intangibles - 19,324 Accelerated unwind of pre-paid technology assets 424 3,192 Impairment reversal on cemetery land (4,000) (6,000) Share-based payments expense 2,894 1,192 Loan establishment costs 964 890 Net gain on disposal of property, plant and equipment (6,808) (7,382) Unrealised (gain)/loss on pre-paid contracts (44,085) 16,618 Other pre-paid contract movements 20,564 15,749 Interest expense: customer advance payments 2,096 3,232 Other non-cash deferred revenue/deferred selling costs movements (30,082) (26,120) Foreign exchange gain (1,069) - Loss on disposal of business 278 - Non-cash interest expense on interest rate swaps 839 - Gain on lease modifications/terminations (1,517) - Business acquisition costs classified in investing activities 743 1,918 Changes in assets and liabilities, net of the effects of purchase and disposal of subsidiaries (Increase)/decrease in trade and other receivables 1,001 (1,117) (Increase)/decrease in inventories (2,773) (11) (Increase)/decrease in deferred contract assets 2,104 2,383 (Increase)/decrease in deferred selling expenses 1,956 2,217 Increase/(decrease) in trade and other payables (2,795) (780) Increase/(decrease) in deferred revenue (9,758) (1,583) Increase/(decrease) in income taxes payable 3,866 1,061 Increase/(decrease) in deferred taxes 13,476 (2,565) Increase/(decrease) in provisions 844 2,393 Net cash flows from operating activities 77,740 56,384 B. Non-cash investing and financing activities Non-cash investing and financing activities for the current and prior financial years are: • Dividends satisfied by the issue of shares under the dividend reinvestment plan of $Nil as shares are bought on market (2020: $5,918,000) Performance rights and shares issued to employees under the Employee Share Trusts Plan and employee share scheme for no cash consideration. C. Net debt reconciliation The tables set out below provide an analysis of net debt and the movements in net debt for the current and last financial year. Cash and cash equivalents Borrowings Lease liabilities Net debts 2021 $’000 $’000 $’000 $’000 Net debt as at 1 January 2021 118,781 (246,039) (165,924) (293,182) Cash flows (64,952) 59,680 20,196 14,924 Additions through business combinations - - (237) (237) Additions/variations - - (30,218) (30,218) Surrender/terminations - - 7,197 7,197 Interest expense on lease liabilities - - (5,718) (5,718) Foreign exchange adjustments (199) (2,484) (698) (3,381) Net debt as at 31 December 2021 53,630 (188,843) (175,402) (310,615) 2020 Net debt as at 1 January 2020 19,560 (357,189) (162,901) (500,530) Cash flows 99,433 106,761 11,599 217,793 Additions/variations - - (9,631) (9,631) Interest expense on lease liabilities - - (5,297) (5,297) Foreign exchange adjustments (212) 4,389 306 4,483 Net debt as at 31 December 2020 118,781 (246,039) (165,924) (293,182) Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
D. Cash conversion ratio
The cash conversion ratio is one of the key cash performance metrics of the Group, refer to the table below for detail calculation.
Operating cash flows
Add back: Net finance costs paid
Add back: Tax paid
Net funds from pre-paid contracts
Other cash flows related to pre-paid contracts
Ungeared, tax free operating cash flows
Operating EBITDA
Cash conversion %
2021
$’000
77,740
14,219
9,771
29,306
877
131,913
Restated
2020
$’000
56,384
17,046
14,424
12,857
1,429
102,140
125,477
102,565
105%
100%
The conversion ratio calculation and the line items as shown in the table below are all non-IFRS information. However, all financial data
is based on the information disclosed in the audited financial statements and notes to the financial statements of InvoCare and follow
the recognition requirements of Australian Accounting Standards. Although the adoption of AASB 15 and AASB 16 have significant
financial impacts on the Group, they have had no cash impact.
E. Cash and cash equivalents
Cash on hand
Cash at bank
2021
$’000
99
53,531
53,630
2020
$’000
126
118,655
118,781
Cash at bank is non-interest bearing as at 31 December 2020 and 2021. Therefore, the weighted average interest rate for cash at bank
is rounded to zero for both 2020 and 2021.
67
InvoCare Annual Report 2021 88
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Key performance metrics
D. Cash conversion ratio
Operating cash flows
Add back: Net finance costs paid
Add back: Tax paid
Net funds from pre-paid contracts
Other cash flows related to pre-paid contracts
Ungeared, tax free operating cash flows
Operating EBITDA
Cash conversion %
Cash on hand
Cash at bank
The conversion ratio calculation and the line items as shown in the table below are all non-IFRS information. However, all financial data
is based on the information disclosed in the audited financial statements and notes to the financial statements of InvoCare and follow
the recognition requirements of Australian Accounting Standards. Although the adoption of AASB 15 and AASB 16 have significant
financial impacts on the Group, they have had no cash impact.
E. Cash and cash equivalents
Cash at bank is non-interest bearing as at 31 December 2020 and 2021. Therefore, the weighted average interest rate for cash at bank
is rounded to zero for both 2020 and 2021.
2021
$’000
77,740
14,219
9,771
29,306
877
Restated
2020
$’000
56,384
17,046
14,424
12,857
1,429
131,913
102,140
125,477
102,565
105%
100%
2021
$’000
99
53,531
53,630
2020
$’000
126
118,655
118,781
The cash conversion ratio is one of the key cash performance metrics of the Group, refer to the table below for detail calculation.
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 cemeteries and crematoria business. These assets and liabilities are disclosed in:
Note 8. Trade receivables
Note 9. Pre-paid contracts
Note 11. Non-current operating assets
Note 12. Intangibles
Note 10. Deferred revenue and selling costs
Note 13. Pre-paid technology assets
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
Note 8. Trade receivables
Current
Trade receivables
Less: loss allowance
Non-current
Trade receivables
Less: loss allowance
2021
$’000
49,565
(7,114)
42,451
23,849
-
23,849
2020
$’000
45,230
(6,473)
38,757
29,445
-
29,445
A. Loss allowance
The ageing of the impaired trade receivables provided for above are as follows:
Expected credit loss rate
Carrying amount
Allowance for expected
credit losses
Forward aged (12 - 60 months contracts)
Current
Over 30 days past due
Over 60 days past due
Over 90 days past due
2021
%
-
0.2
1.5
10.5
49.9
2020
%
-
0.2
1.5
10.5
39.5
2021
$’000
38,887
14,738
3,978
2,194
13,617
73,414
2020
$’000
36,482
13,718
5,765
3,535
15,175
74,675
The movements of loss allowance of trade receivables are as follows:
As at 1 January
Loss allowance recognised during the year
Receivables written off as uncollectable
As at 31 December
2021
$’000
-
29
60
230
6,795
7,114
2021
$’000
6,473
1,289
(648)
7,114
2020
$’000
-
27
86
371
5,988
6,473
2020
$’000
3,675
3,667
(869)
6,473
67
68
InvoCare Annual Report 2021 89
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
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.
Trade receivables are usually due for settlement no more than 30 days from the date of recognition, except where extended payment
terms (up to a maximum of 60 months) have been made available on cemetery 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
The Group has applied 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.
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.
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 2021, the Group’s loss allowance on trade receivables
has been increased with all of the increase related to the Cemeteries & Crematoria 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. 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 2021, however
as collection of older trade receivables remains challenging, an increase in the provision is required.
Note 9. Pre-paid contracts
This note provides details on the movements for the pre-paid contract funds under management and liabilities arising from the sales of
pre-paid funeral services for the year ended 31 December 2021 with the comparative information for the year ended 31 December
2020.
What happens when a pre-paid contract is signed
A pre-paid contract is a three-way agreement whereby the Group agrees to deliver to a customer a specified funeral service at a future
date, usually greater than one year but which could be more than 20 years after the signing of the pre-paid contract.
Pre-paid contracts are either paid in full or via instalments for a period as specified in the contract. The cash received (funds) from the
customer is then passed to independently managed trusts to be invested. The Group is the ultimate beneficiary to the invested funds
of the pre-paid contracts, that is, the total future value of the invested funds (including the investment returns, either gains or losses),
but only receives those funds once the Group has demonstrated it has performed the funeral services.
Part of the initial pre-paid contract relates to an administration fee (usually 10% of the contract value). The administration fee is unable
to be recognised as revenue at the date of signing the contract as not all of the conditions of the contract have been performed or
delivered at that point. Therefore, the administration fee is deferred and recognised as a liability on the balance sheet (disclosed in
Note 10 Section A Deferred revenue). Similarly, any commission paid to pre-paid funeral salespersons is also deferred as a deferred
selling cost as an asset on the balance sheet (disclosed in Note 10 Section B Deferred selling costs).
Sale of new pre-paid contracts (listed in the movement table in Section B and C below) represents cash received from customers for
new pre-paid contracts sold during the period. The sale of new pre-paid contracts increases both the pre-paid contract funds under
management and pre-paid contract liabilities and represents the value of the remaining 90% of the pre-paid contracts after the deferral
of the 10% administration fee as deferred revenue.
What happens during the periods when pre-paid contracts remain undelivered
Australian Accounting Standards require InvoCare to update the carrying value of the pre-paid contract funds under management and
pre-paid contract liabilities, including the need to account for the time value of money.
InvoCare uses asset statement reports issued by the trusts to revalue the pre-paid contract funds under management to reflect the
current fair value of the invested funds. Such an adjustment may give rise to unrealised gains or losses on these assets. Due to the
volatility of such movements, and because these unrealised movements are ‘non-cash revaluations’, the unrealised gains or losses are
excluded from the Group’s Operating earnings and disclosed within Non-operating earnings.
69
InvoCare Annual Report 2021 90
InvoCare Annual Report 2021 91
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 70 By entering a pre-paid contract, the customer is benefiting from the ability to lock in the price of their future funeral service at today’s price. The Group receives payment from customers for pre-paid contracts prior to the transfer of the promised goods or services to the customer. As the period between receipt of the consideration and the transfer of the goods or services can exceed one year, the Group adjusts deferred revenue and pre-paid contract liabilities using a discount rate. The Group determines the discount rate that best reflects the current price the customers would have paid (that is the cash selling price as if the customer had paid the consideration at the time when the services are performed or the goods delivered). These adjustments to increase deferred revenue and pre-paid contract liabilities are recognised as finance costs. These financing components are included in the following two items in Note 5 Section A Finance costs: • Interest expense pre-paid contracts – this finance cost is recognised as an increase in pre-paid contract liabilities - Increase due to significant financing as set out in Section C below Interest expense: customer advance payments – this finance cost is reflected as an increase in administration fee in the deferred revenue – Recognition of financing costs on customer advance payments as set out in Note 10 Section A Deferred revenue under Funeral services movement for the period What happens when a pre-paid contract is delivered When the funeral service is delivered, the corresponding amount of deferred revenue relating to the administration fee is released to the income statement, disclosed as Non-operating revenue. Operating revenue – funeral services is recognised in the statement of comprehensive income with the corresponding pre-paid contract liabilities reduced accordingly (being the initial contract value plus the increases in the liability relating to the financing components recognised since contract inception). Once the services have been delivered, the fair value of the pre-paid contract is redeemed from the trusts and the Group receives the cash. The Group’s right to redeem the invested funds only becomes unconditional when the Group demonstrates it has delivered the services specified in the pre-paid contract with the customer. The following diagram details the key activities throughout the life cycle of a pre-paid contract and how these activities are recognised within the pre-paid contract funds under management, pre-paid contract liabilities and deferred revenue for administration fees (disclosed in Note 10 Section A Deferred revenue). Life cycle of a pre-paid funeral contract Financial impact at reporting dates before service delivery Activities/ Financial impact Customer payments - cash received Finance costs Revaluation of FUM* Funeral service delivered Pre-paid FUM redemptions - cash received Balance sheet impact Admin fees (10%) (Note 10) ↑↑ Deferred revenue (Note 10) ↑↑ Deferred revenue (Note 10) N/A ↓↓ Deferred revenue (Note 10) N/A Funds for pre-paid funeral services (90%) ↑↑ Pre-paid FUM ↑↑ Pre-paid contract liabilities ↑↑ Pre-paid contract liabilities ↑↑/↓↓ Pre-paid FUM N/A ↓↓ Pre-paid FUM ↓↓ Pre-paid contract liabilities Profit and loss impact Admin fees (10%) N/A Finance costs - Admin fee N/A Non-operating revenue - Admin fee N/A Funds for pre-paid funeral services (90%) N/A Finance costs - Customers advance payments Unrealised gain/loss on pre-paid FUM N/A Non-operating revenue - Net gain/loss on pre-paid FUM redemptions Revenue - At-need funeral services N/A N/A N/A Operating revenue - Funeral services N/A Cash flows impact Admin fees (10%) ↑↑ InvoCare bank account N/A N/A N/A N/A Funds for pre-paid funeral services (90%) ↑↑ Trust funds bank account N/A N/A N/A ↓↓ Trust funds bank account ↑↑ InvoCare bank account * FUM = Funds under management Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
A. Statement of comprehensive income impact of undelivered pre-paid contracts
Unrealised gain on pre-paid contract funds under management
Change in pre-paid contract liabilities due to significant financing
Net gain/(loss) on undelivered pre-paid contracts
B. Movements in pre-paid contract funds under management
Balance as at 1 January
Sale of new pre-paid contracts
Initial recognition of contracts pre-paid by instalment
Redemption of pre-paid contract funds following service delivery
Movement due to business combinations
Increase in fair value of pre-paid contract funds under management
Balance at reporting date
Current
Non-current
Balance at reporting date
C. Movements in pre-paid contract liabilities
Balance as at 1 January
Sale of new pre-paid contracts
Initial recognition of contracts pre-paid by instalment
Decrease following delivery of services
Movement due to business combinations
Increase due to significant financing
Balance at reporting date
Current
Non-current
Balance at reporting date
2021
$’000
64,697
(20,612)
44,085
2021
$’000
613,131
25,715
2,734
(56,402)
-
64,697
649,875
52,959
596,916
649,875
2021
$’000
541,309
25,715
2,734
(49,930)
-
20,612
540,440
44,437
496,003
540,440
2020
$’000
3,659
(20,277)
(16,618)
2020
$’000
619,389
32,169
3,908
(45,026)
(968)
3,659
613,131
50,268
562,863
613,131
2020
$’000
525,383
32,169
3,908
(39,460)
(968)
20,277
541,309
44,685
496,624
541,309
D. Classification of pre-paid funds under management and liabilities
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 contract redemptions.
E. Critical accounting judgements, estimates and assumptions
I. Fair value measurements – Pre-paid contract funds under management
The fair values of the pre-paid contract funds under management are recognised and measured based on inputs that require
judgements 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 consistent over the past five years.
F. Accounting policies for pre-paid contracts
The Group records the value of the invested funds as an asset and revalues the invested funds to fair value at the end of each
reporting period. The Group initially recognises a liability equal to the value of the undelivered service associated with 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.
71
InvoCare Annual Report 2021 92
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
Note 10. Deferred revenue and selling costs
This note provides details on the movements for the deferred revenue and deferred selling costs arising from the sales of pre-paid
funeral, cremation and burial contracts and undelivered memorials and merchandise for the year ended 31 December 2021 with the
comparative information for the year ended 31 December 2020.
The movements are disclosed according to the activities performed to align with the disclosure in Note 2 Revenue.
A. Deferred revenue
I. Cemeteries & Crematoria
For the Cemeteries & Crematoria business, deferred revenue represents the undelivered contractual obligations relating to burial,
cremation and memorial services/merchandise products.
The transfer of control of these distinct performance obligations determines when revenue should be recognised.
Billing and collection of the pre-paid contracts can be immediate and in full upon contract signing. However, most pre-paid contracts
are paid via instalments over a period of up to five years (although the payment periods do vary).
The following diagram details the key activities throughout the life cycle of a pre-paid Cemeteries & Crematoria contract and how these
activities are recognised within deferred revenue.
Life cycle of a prepaid Cemeteries & Crematoria contract
Customer
payments
- by instalments
Finance costs*
Customer
payments
- by instalments
Finance costs*
Services/goods
delivered
Repeated activities until
services/goods delivered
↑↑ Deferred revenue ↑↑ Deferred revenue
↑↑ Deferred revenue ↑↑ Deferred revenue ↓↓ Deferred revenue
N/A
Finance costs
- Customers
advance payments
N/A
Finance costs
- Customers
advance payments
Operating revenue
- Cemeteries &
Crematoria
↑↑ InvoCare bank
account
N/A
↑↑ InvoCare bank
account
N/A
N/A
Activities/
Financial impact
Balance sheet impact
Cemeteries &
Crematoria
services/goods
Profit and loss impact
Cemeteries &
Crematoria
services/goods
Cash flows impact
Cemeteries &
Crematoria
services/goods
*
This represents the Australian Accounting Standards requirement to account for the time value of money.
II. Funeral services – Pre-paid funeral contracts
For the Funeral services business, detailed descriptions of what happens during the life cycle of a pre-paid funeral contract are
provided in Note 9 Pre-paid contracts above. The movement table below provides the financial impact of the administration fee of the
pre-paid funeral contracts for the year ended 31 December 2021 with the comparative information for the year ended 31 December
2020.
72
InvoCare Annual Report 2021 93
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
III. Deferred revenue movement
Balance as at 1 January
Add/(less): Changes during the period
Cash received from customer instalment
payments
Revenue recognised on service delivery
during the period
Revenue deferred during the period:
Revenue deferred
Recognition of financing costs on customer
advance payments
Balance at reporting date
Current
Non-current
Balance at reporting date
Cemeteries
&
Crematoria
$’000
100,276
2021
Funeral
services
$’000
37,442
Cemeteries
&
Crematoria
$’000
103,507
Total
$’000
137,718
2020
Funeral
services
$’000
35,794
Total
$’000
139,301
5,560
-
5,560
9,938
-
9,938
(21,436)
(3,277)
(24,713)
(19,844)
(2,667)
(22,511)
4,057
3,241
7,298
4,720
3,038
7,758
871
89,328
30,763
58,565
89,328
1,225
38,631
2,096
127,959
1,955
100,276
1,277
37,442
3,232
137,718
3,313
35,318
38,631
34,076
93,883
127,959
28,632
71,644
100,276
-
37,442
37,442
28,632
109,086
137,718
B. Deferred selling costs
Deferred selling costs in relation to both Cemeteries & Crematoria and Funeral services businesses represent selling commissions and
directly related fulfillment costs which are deferred and recognised as cost of sales in line with the reversal of the related deferred
revenue of those businesses (that is, upon delivery/performance of the underlying services/goods).
The movement table below provides the financial impact of selling costs arising from the sales of pre-paid funeral, cremation and
burial contracts and undelivered memorials and merchandise for the year ended 31 December 2021 with the comparative information
for the year ended 31 December 2020.
Balance as at 1 January
Add/(less): Changes during the period
Selling costs recognised in profit and loss
related to service delivery during
the period
Selling costs deferred on sales during the
period
Balance at reporting date
Current
Non-current
Balance at reporting date
Cemeteries
&
Crematoria
$’000
17,179
2021
Funeral
services
$’000
20,533
Cemeteries
&
Crematoria
$’000
19,265
Total
$’000
37,712
2020
Funeral
services
$’000
20,663
Total
$’000
39,928
(2,435)
(287)
(2,722)
(2,605)
(130)
(2,735)
765
15,509
4,571
10,938
15,509
-
20,246
1,673
18,573
20,246
765
35,755
6,244
29,511
35,755
519
17,179
3,644
13,535
17,179
-
20,533
-
20,533
20,533
519
37,712
3,644
34,068
37,712
C. Accounting policies
I. Deferred revenue
Revenue relating to undelivered memorials and merchandise are deferred until delivered or made ready for use.
II. 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.
73
InvoCare Annual Report 2021 94
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
III. Deferred revenue movement
Cemeteries
&
Crematoria
$’000
100,276
2021
Funeral
services
$’000
37,442
Cemeteries
&
Crematoria
$’000
103,507
Total
$’000
137,718
2020
Funeral
services
$’000
35,794
Total
$’000
139,301
5,560
-
5,560
9,938
-
9,938
(21,436)
(3,277)
(24,713)
(19,844)
(2,667)
(22,511)
4,057
3,241
7,298
4,720
3,038
7,758
871
89,328
30,763
58,565
89,328
1,225
38,631
2,096
127,959
1,955
100,276
1,277
37,442
3,232
137,718
3,313
35,318
38,631
34,076
93,883
127,959
28,632
71,644
100,276
-
37,442
37,442
28,632
109,086
137,718
Balance as at 1 January
Add/(less): Changes during the period
Cash received from customer instalment
payments
Revenue recognised on service delivery
Revenue deferred during the period:
during the period
Revenue deferred
Recognition of financing costs on customer
advance payments
Balance at reporting date
Current
Non-current
Balance at reporting date
B. Deferred selling costs
Deferred selling costs in relation to both Cemeteries & Crematoria and Funeral services businesses represent selling commissions and
directly related fulfillment costs which are deferred and recognised as cost of sales in line with the reversal of the related deferred
revenue of those businesses (that is, upon delivery/performance of the underlying services/goods).
The movement table below provides the financial impact of selling costs arising from the sales of pre-paid funeral, cremation and
burial contracts and undelivered memorials and merchandise for the year ended 31 December 2021 with the comparative information
for the year ended 31 December 2020.
Cemeteries
&
Crematoria
$’000
17,179
2021
Funeral
services
$’000
20,533
Cemeteries
&
Crematoria
$’000
19,265
Total
$’000
37,712
2020
Funeral
services
$’000
20,663
Total
$’000
39,928
(2,435)
(287)
(2,722)
(2,605)
(130)
(2,735)
765
15,509
4,571
10,938
15,509
-
20,246
1,673
18,573
20,246
765
35,755
6,244
29,511
35,755
519
17,179
3,644
13,535
17,179
20,533
-
-
20,533
20,533
519
37,712
3,644
34,068
37,712
Balance as at 1 January
Add/(less): Changes during the period
Selling costs recognised in profit and loss
related to service delivery during
Selling costs deferred on sales during the
the period
period
Balance at reporting date
Current
Non-current
Balance at reporting date
C. Accounting policies
I. Deferred revenue
II. Deferred selling costs
service is delivered.
Revenue relating to undelivered memorials and merchandise are deferred until delivered or made ready for use.
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
73
InvoCare Annual Report 2021 95
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 74 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 Cemetery land Freehold land Buildings Leasehold land and buildings Leasehold Improve- ments Plant and equip- ment Total 2021 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Composition as at 31 December 2021 Cost 122,754 102,082 265,366 4,534 40,736 175,480 710,952 Accumulated depreciation/amortisation (9,958) - (80,323) (3,972) (11,333) (105,613) (211,199) Accumulated impairment (5,299) - - - - - (5,299) Net book value 107,497 102,082 185,043 562 29,403 69,867 494,454 Movement for the year ended 31 December 2021 Opening net book value 103,712 100,478 172,959 703 24,386 62,039 464,277 Additions 196 560 22,312 - 6,694 24,005 53,767 Additions through business combinations - - - - - 102 102 Disposals (34) (1,152) (1,985) - (422) (917) (4,510) Depreciation/amortisation charge (390) - (5,957) (141) (4,503) (16,123) (27,114) Impairment reversal 4,000 - - - - - 4,000 Effect of movement in exchange rates 13 706 (227) - 5 735 1,232 Transfers to/(from) held for sale - 1,490 (2,059) - 3,243 26 2,700 Closing net book value 107,497 102,082 185,043 562 29,403 69,867 494,454 2020 Composition as at 31 December 2020 Cost 122,579 100,478 246,480 4,534 33,574 160,000 667,645 Accumulated depreciation/amortisation (9,568) - (73,521) (3,831) (9,188) (97,961) (194,069) Accumulated impairment (9,299) - - - - - (9,299) Net book value 103,712 100,478 172,959 703 24,386 62,039 464,277 Movement for the year ended 31 December 2020 Opening net book value 97,094 102,503 148,459 844 20,187 57,868 426,955 Additions 1,146 515 32,478 - 6,310 15,939 56,388 Business combinations - - - - 668 1,697 2,365 Disposals - (2,670) (2,090) - (102) 408 (4,454) Depreciation/amortisation charge (445) - (5,927) (141) (2,642) (13,723) (22,878) Impairment reversal 6,000 - - - - - 6,000 Effect of movement in exchange rates (83) (1,671) (1,177) - (35) (150) (3,116) Transfers to held for sale - 1,801 1,216 - - - 3,017 Closing net book value 103,712 100,478 172,959 703 24,386 62,039 464,277 Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 96
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 75 I. Assets in the course of construction The carrying amounts of assets disclosed above include the following expenditure recognised in relation to property, plant and equipment which is in the course of construction. 2021 2020 $’000 $’000 Cemetery land improvements - 31 Freehold buildings 7,754 6,945 Leasehold improvements 548 574 Plant and equipment 2,049 696 Total assets in the course of construction 10,351 8,246 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. In 2017, the Allambe Gardens Memorial Park was impaired due to a 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. 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. In 2021 the Allambe Gardens Memorial Park continued to deliver improved results allowing for a reversal of $4,000,000 of the previous impairment to be recognised at 31 December 2021 (2020: $6,000,000). 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% (2020: 2.5%) in revenue and 2.0% (2020: 2.0%) 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% (2020: 9.2%), reflecting the risk estimates for the business as a whole. III. Asset held for sale Asset held for sale represents property identified as surplus to the Group’s requirements. 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 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 I. Right of use assets Properties Equipment Motor vehicles Total 2021 $’000 $’000 $’000 $’000 Composition as at 31 December 2021 Cost 172,530 621 18,456 191,607 Accumulated depreciation (30,974) (308) (7,010) (38,292) Net book value 141,556 313 11,446 153,315 Movement for the year ended 31 December 2021 Opening net book value 133,179 356 10,833 144,368 Additions 23,680 - 4,249 27,929 Additions through business combinations 237 - - 237 Lease modifications/terminations (2,435) - - (2,435) Depreciation (13,652) (43) (3,636) (17,331) Effect of movement in exchange rates 547 - - 547 Closing net book value 141,556 313 11,446 153,315 InvoCare Annual Report 2021 97
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 76 Properties Equipment Motor vehicles Total 2020 $’000 $’000 $’000 $’000 Composition as at 31 December 2020 Cost 156,103 721 14,480 171,304 Accumulated depreciation (22,924) (365) (3,647) (26,936) Net book value 133,179 356 10,833 144,368 Movement for the year ended 31 December 2020 Opening net book value 129,359 425 14,217 144,001 Additions 9,309 27 130 9,466 Additions through business combinations 6,978 - - 6,978 Depreciation (12,774) (96) (3,514) (16,384) Effect of movement in exchange rates 307 - - 307 Closing net book value 133,179 356 10,833 144,368 II. Lease liabilities on related right of use assets 2021 2020 $’000 $’000 Current 20,671 19,465 Non-current 154,731 146,459 Balance as at 31 December 175,402 165,924 C. Critical accounting judgements, estimates and assumptions I. Estimated impairment of non-financial assets The Group annually considers if events or changes in circumstances indicate that the carrying value of non-financial assets may not be 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 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 terminated). The Group has assessed it is reasonably certain that it will exercise its option to renew all leases. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the Group. D. Accounting policies I. Property, plant and equipment Property, plant and equipment are carried at historical cost less depreciation or amortisation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs, maintenance, and minor renewals are charged to the 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 The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the 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. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 98
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 77 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 the following lease payments: • Fixed payments (including in-substance fixed payments), less any lease incentives receivable • Amounts expected to be payable by the Group under residual value guarantees • Exercise price of a purchase option if the Group is reasonably certain to exercise that option Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right of use assets are measured at cost comprising the following: • 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 LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
Note 12. Intangibles
2021
Composition as at 31 December 2021
Cost
Accumulated amortisation
Impairment
Net book value
Movement for the year ended 31 December 2021
Opening net book value
Additions
Additions through business combinations
Finalisation of prior period acquisitions
Amortisation charge
Effect of movement in exchange rates
Closing net book value
Restated 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
Additions through business combinations
Amortisation charge
Impairment loss
Effect of movement in exchange rates
Closing net book value
Goodwill
$’000
Brand
name
$’000
Capitalised
software
$’000
257,386
-
(43,518)
213,868
212,706
-
324
289
-
549
213,868
256,066
-
(43,360)
212,706
182,469
-
51,676
-
(19,324)
(2,115)
212,706
19,847
(14,615)
-
5,232
21,277
(13,464)
-
7,813
6,399
30
-
-
(1,197)
-
5,232
6,281
3,656
-
-
(2,124)
-
7,813
19,748
(13,349)
-
6,399
18,374
(12,093)
-
6,281
6,465
-
1,491
(1,457)
-
(100)
6,399
6,002
1,767
366
(1,846)
-
(8)
6,281
Total
$’000
298,510
(28,079)
(43,518)
226,913
225,386
3,686
324
289
(3,321)
549
226,913
294,188
(25,442)
(43,360)
225,386
194,936
1,767
53,533
(3,303)
(19,324)
(2,223)
225,386
A. Impairment test
Impairment tests are performed annually, or more frequently if events or circumstances indicate that the carrying amount may not be
recoverable.
The reorganisation of the Group’s Australian-based operations (Funerals, Cemeteries & Crematoria and Pet Cremations) has altered
the composition of the cash generating units (CGU) to which goodwill has been previously allocated. The Group has apportioned the
goodwill to the three Australian-based operations based on the relative values of the recoverable amounts of each CGU.
New Zealand and Singapore operations are separate CGUs and the associated goodwill arising from their acquisition has 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 both the lines of
business within Australia and for the international operations, the CGUs within a country of operation. The recoverable amounts of the
Funerals, Cemetery & Crematoria, Pet Cremations, New Zealand and Singapore CGUs are based on value-in-use calculations. These
calculations use cash flow projections based on approved financial estimates covering a five year period. Cash flows beyond the five
year period have been extrapolated using estimated growth rates. The assessment also considered the reasonable possible long term
shift in key assumptions which may potentially cause an impairment to arise.
Funeral services
Cemeteries & Crematoria
Pet cremations
Singapore operations
New Zealand operations
Total goodwill
2021
$'000
100,273
24,729
46,896
14,936
27,034
213,868
78
InvoCare Annual Report 2021 99
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 100
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 79 I. Goodwill a. Impairment of New Zealand CGU Sensitivity analysis indicates headroom exists in the value-in-use calculation for the New Zealand CGU compared to the carrying value of goodwill for the period ended 31 December 2021. The New Zealand CGU was impaired by $19,324,000 in the period ended 31 December 2020. b. Sensitivity – New Zealand CGU The New Zealand CGU is particularly sensitive to a reasonable possible change in the key assumptions of terminal growth rate and post-tax weighted average cost of capital used to discount the future cash flows. For 2021, if the terminal growth rate decreased by 0.5% and post-tax weighted average cost of capital increased by 0.3% an additional impairment of $1,824,000 would be recognised, while other assumptions are held constant. For 2020, a decrease in the terminal growth rate by 0.5% would have resulted in an additional impairment of $4,800,000. Alternatively, an increase in the post-tax weighted average cost of capital by 0.3% would have resulted in an additional impairment of $3,789,000. c. Key assumptions used for value-in-use calculations Budgeted cash flows have been based on past performance and expectations for the future. The growth rates of 2.5% (2020: 2.5%) in revenue, 2.0% (2020: 2.0%) in expense and 1.0% (2020: 1.0%) in volume growth projections are not inconsistent with historical trends and forecasts included in reports prepared by market analysts. In the calculation of the terminal value, the long term annual growth rate of the real gross domestic product (GDP) of the country is used as a basis for the terminal growth rate. For goodwill, these assumptions are based on the CGU to which the goodwill is attributed. The pre-tax discount rate used for assessing the carrying value of goodwill in each CGU was as follows: 2021 2020 % % Funeral services 9.2 9.2 Cemeteries & Crematoria 9.2 9.2 Pet cremations 9.2 9.2 Singapore operations 9.2 9.2 New Zealand operations 10.0 10.0 These discount rates reflect the risk estimates for each business as a whole. Sensitivity analysis indicates significant headroom exists in the value-in-use calculations for Australian based operations 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 any of these CGUs. B. Changes in accounting policies – capitalised software IFRIC agenda decision Configuration or Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) In April 2021, the IFRS interpretation committee published agenda decision Configuration or Customisation Costs in a Cloud Computing Arrangement (AASB 138 Intangible Assets) (‘IFRIC interpretation’) which considers whether an intangible asset can be recognised in relation to configuration or customisation of application software. The Group has identified several assets that have configuration or customisation costs included in the asset’s cost base. These assets at 31 December 2021 had a written down value of $29,141,000 (31 December 2020: $20,172,000). The decision sets out options for accounting for costs incurred for customisation of cloud computing arrangements: • the customer recognises the costs as an expense when it receives the configuration or customisation services • if the contract to deliver the configuration or customisation services to the customer is with the supplier of the application software (including cases in which the supplier subcontracts services to a third party), the customer determines when the supplier of the application software performs those services in accordance with the contract to deliver them as follows: • if the services the customer receives are distinct, then the customer recognises the costs as an expense when the supplier configures or customises the application software • if the services the customer receives are not distinct (because those services are not separately identifiable from the customer’s right to receive access to the supplier’s application software), then the customer recognises the costs as an expense when the supplier provides access to the application software over the contract term • if the contract to deliver the configuration or customisation services to the customer is with a third-party supplier, the customer determines when the third-party supplier performs those services in accordance with the contract to deliver them. In applying these requirements, the customer recognises the costs as an expense when the third-party supplier configures or customises the application software if the customer pays the supplier of the configuration or customisation services before receiving those services, it recognises the prepayment as an asset. Refer to Note 13 for the accounting policy adopted by the Group for customisation and configuration services which are pre-paid. InvoCare Annual Report 2021 101
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 80 The Group has considered the impact of the accounting policy change on the results reported in the current and comparative reporting periods. The Group has retrospectively adjusted the carrying values of intangibles – capitalised software. As at 31 December 2020 the impact of this change in accounting policy was: Impact on the consolidated balance sheet: • a decrease in capitalised software of $18,129,000 (2019: $15,789,000) • recognition of pre-paid technology assets of $5,292,000 (2019: $6,174,000), refer to Note 13 • decrease in deferred tax liabilities of $3,807,000 (2019: $2,885,000) a decrease in retained earnings of $9,030,000 (2019: $6,730,000) Impact on the consolidated statement of comprehensive income: • an increase in technology expenses of $11,126,000 • decrease in amortisation expense of capitalised software of $1,727,000 • a decrease in the impairment loss on intangibles of $6,176,000 a decrease in tax expense of $923,000 I. Impact on consolidated statement of comprehensive income For the year ended 31 December 2020 Adjustments As for IFRIC previously agenda As reported decision restated Notes $’000 $’000 $’000 Technology expenses [A] (12,736) (11,126) (23,862) Depreciation and amortisation expenses [A] (44,292) 1,727 (42,565) Impairment loss on intangibles [B] (25,500) 6,176 (19,324) Loss before income tax (1,197) (3,223) (4,420) Income tax expense (7,878) 923 (6,955) Net loss after income tax from continuing activities (9,075) (2,300) (11,375) Net loss after income tax for the year (9,075) (2,300) (11,375) Total comprehensive loss for the year, net of tax (8,067) (2,300) (10,367) Loss is attributable to: Equity holders of InvoCare Limited (9,242) (2,300) (11,542) Non-controlling interests 167 - 167 (9,075) (2,300) (11,375) Total comprehensive loss for the year is attributable to: Equity holders of InvoCare Limited (8,234) (2,300) (10,534) Non-controlling interests 167 - 167 (8,067) (2,300) (10,367) cents cents cents Earnings per share for profit/(loss) attributable to the ordinary equity holders of InvoCare Limited Basic earnings per share (6.9) (1.7) (8.6) Diluted earnings per share (6.9) (1.7) (8.6) Operating earnings per share 20.4 0.5 20.9 [A] Adoption of IFRIC interpretation decreases depreciation and amortisation expenses by $1,727,000 and increases technology expenses by $11,126,000. [B] Due to the earlier expensing of capitalised software and the reclassification of pre-paid technology assets upon adoption of the IFRIC interpretation, the impairment loss on intangibles is decreased by $6,176,000 and an expense for the acceleration of the unwind of pre-paid technology assets of $3,192,000 is recognised within the $11,126,000 adjusted technology expenses. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
II. Impact on consolidated balance sheet
As at 31 December 2020
Adjustments
for IFRIC
agenda
decision
$’000
5,292
(18,129)
3,807
-
(9,030)
As
previously
reported
$’000
-
243,515
(32,639)
321,024
531,900
23,495
508,405
531,900
(9,030)
-
(9,030)
As
restated
$’000
5,292
225,386
(28,832)
321,024
522,870
14,465
508,405
522,870
As at 31 December 2019
Adjustments
for IFRIC
agenda
decision
$’000
6,174
(15,789)
2,885
-
(6,730)
As
previously
reported
$’000
-
210,724
(34,826)
121,081
296,979
68,169
228,810
296,979
(6,730)
-
(6,730)
As
restated
$’000
6,174
194,935
(31,941)
121,081
290,249
61,439
228,810
290,249
Pre-paid technology assets
Intangibles
Deferred tax liabilities
Other net assets/(liabilities)
Net assets
Retained earnings
Other equity balances
Total equity
III. Impact on consolidated statement of cash flows
Amendments to AASB 138 have no impacts on the total cash flows for the year ended 31 December 2020 or cash and cash
equivalents at the end of the same period.
Cash outflows related to operating activities increased as operational expenses for SaaS arrangements are no longer recognised as
payments for intangibles. Line items that were not affected by the change in accounting policy have not been included below.
The difference between the technology expenses of $11,126,000 and the operating cash flows of $7,184,000 relate to the non-cash
acceleration of the unwind of the pre-paid technology assets. In 2020, the additional expenses were included within the impairment of
capitalised software and depreciation and amortisation expenses.
For the year ended 31 December 2020
Adjustments
for IFRIC
agenda
decision
$’000
As
previously
reported
$’000
As
restated
$’000
Cash flows from operating activities
Payments to suppliers and employees (including GST)
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment and intangibles
Net cash flows from investing activities
Net increase in cash and cash equivalents
Cash conversion
(421,870)
63,568
(7,184)
(7,184)
(429,054)
56,384
(68,136)
(83,952)
99,433
107%
7,184
7,184
(60,952)
(76,768)
-
99,433
100%
81
InvoCare Annual Report 2021 102
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Significant assets and liabilities
C. Critical accounting judgements, estimates and assumptions
I. Key assumptions applied in determining recoverable amount
The Group annually considers if events or changes in circumstances indicate that the carrying value of goodwill or cash-generating
units may not be recoverable. Similarly, at each reporting date, cash-generating units that suffered a previous impairment are
reviewed for possible reversals of the impairment. The recoverable amounts are determined based on value-in-use calculations which
require the use of assumptions. Refer to section C. above for details of these assumptions and the potential impact to changes to the
assumptions.
II. Capitalisation of configuration and customisation costs in SaaS arrangements
In implementing SaaS arrangements, the Group has developed software code that either enhances, modifies or creates additional
capability to the existing owned software. This software is used to connect with the SaaS arrangement cloud-based application.
Judgement has been applied in determining whether the changes to the owned software meet the definition of and recognition criteria
for an intangible asset in accordance with AASB 138 Intangible Assets.
During the financial year, the Group recognised $3,189,000 (2020: $1,246,000) as intangible assets in respect of customisation and
configuration costs incurred in implementing SaaS arrangements.
D. Accounting policies
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
reversed if the related assets subsequently increases in value.
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).
82
InvoCare Annual Report 2021 103
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 104
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 83 Note 13. Pre-paid technology assets 2021 2020 $’000 $’000 Balance at 31 December Current 582 637 Non-current 8,019 4,655 Balance at 31 December 8,601 5,292 Movement for the year Opening balance at 1 January 5,292 6,173 Additions 4,387 3,061 Less: Amounts recognised within the consolidated statement of comprehensive income Pre-paid technology expenses (654) (750) Accelerated unwind (424) (3,192) Closing balance at 31 December 8,601 5,292 A. Critical accounting judgements, estimates and assumptions Determination whether configuration and customisation services are distinct from the SaaS access Costs incurred to configure or customise the cloud provider's application software are recognised as operating expenses when the services are received. In a contract where the cloud provider provides both the SaaS configuration and customisation, and the SaaS access over the contract term, judgement has been applied to determine whether these services are distinct from each other or not, and therefore, whether the configuration and customisation costs incurred are expensed as the software is configured or customised (i.e. upfront), or over the SaaS contract term. Specifically, where the configuration and customisation activities significantly modify or customise the cloud software, these activities will not be distinct from the access to the cloud software over the contract term. Judgement has been applied in determining whether the degree of customisation and modification of the cloud-based software that would be deemed significant. During the financial year, the Group recognised $3,963,000 (net of accelerated unwind of pre-paid technology assets of $424,000) (2020: $3,060,000) as prepayments in respect of configuration and customisation activities undertaken in implementing SaaS arrangements which are considered not to be distinct from the access to the SaaS application software over the contract term. B. Accounting policies Software-as-a-Service (SaaS) arrangements SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. As such the Group does not receive a software intangible asset at the contract commencement date. A right to receive future access to the supplier’s software does not, at the contract commencement date, give the customer the power to obtain the future economic benefits flowing from the software itself and to restrict others’ access to those benefits. The following outlines the accounting treatment of costs incurred in relation to SaaS arrangements: Recognise as an operating expense over the term of the service contract (pre-paid technology expenses), which is typically 3 – 10 years • Fee for use of application software • Customisation costs Recognise as an operating expense as the service is received (SaaS arrangement expensed as incurred) • Configuration costs • Setting up of standard functionality of the system • Data conversion and migration costs • Testing costs Training costs Costs incurred for the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of and recognition criteria for an intangible asset are recognised as capitalised software assets. Refer to Note 12 for an outline of accounting for intangible assets. InvoCare Annual Report 2021 105
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Significant assets and liabilities 83 Note 13. Pre-paid technology assets 2021 2020 $’000 $’000 Balance at 31 December Current 582 637 Non-current 8,019 4,655 Balance at 31 December 8,601 5,292 Movement for the year Opening balance at 1 January 5,292 6,173 Additions 4,387 3,061 Less: Amounts recognised within the consolidated statement of comprehensive income Pre-paid technology expenses (654) (750) Accelerated unwind (424) (3,192) Closing balance at 31 December 8,601 5,292 A. Critical accounting judgements, estimates and assumptions Determination whether configuration and customisation services are distinct from the SaaS access Costs incurred to configure or customise the cloud provider's application software are recognised as operating expenses when the services are received. In a contract where the cloud provider provides both the SaaS configuration and customisation, and the SaaS access over the contract term, judgement has been applied to determine whether these services are distinct from each other or not, and therefore, whether the configuration and customisation costs incurred are expensed as the software is configured or customised (i.e. upfront), or over the SaaS contract term. Specifically, where the configuration and customisation activities significantly modify or customise the cloud software, these activities will not be distinct from the access to the cloud software over the contract term. Judgement has been applied in determining whether the degree of customisation and modification of the cloud-based software that would be deemed significant. During the financial year, the Group recognised $3,963,000 (net of accelerated unwind of pre-paid technology assets of $424,000) (2020: $3,060,000) as prepayments in respect of configuration and customisation activities undertaken in implementing SaaS arrangements which are considered not to be distinct from the access to the SaaS application software over the contract term. B. Accounting policies Software-as-a-Service (SaaS) arrangements SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. As such the Group does not receive a software intangible asset at the contract commencement date. A right to receive future access to the supplier’s software does not, at the contract commencement date, give the customer the power to obtain the future economic benefits flowing from the software itself and to restrict others’ access to those benefits. The following outlines the accounting treatment of costs incurred in relation to SaaS arrangements: Recognise as an operating expense over the term of the service contract (pre-paid technology expenses), which is typically 3 – 10 years • Fee for use of application software • Customisation costs Recognise as an operating expense as the service is received (SaaS arrangement expensed as incurred) • Configuration costs • Setting up of standard functionality of the system • Data conversion and migration costs • Testing costs Training costs Costs incurred for the development of software code that enhances or modifies, or creates additional capability to, existing on-premise systems and meets the definition of and recognition criteria for an intangible asset are recognised as capitalised software assets. Refer to Note 12 for an outline of accounting for intangible assets. INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 84 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 14. Financial risk management Note 17. Commitments Note 15. Contributed equity Note 18. Events after reporting period Note 16. Contingencies Note 14. 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 – interest rate The risk that the value of a financial asset or liability or cash flow associated with the financial asset or liability will fluctuate due to changes in market interest rates • Financial assets: mainly cash at bank • Financial liabilities: mainly borrowings, pre-paid contract liabilities, lease liabilities Further information for interest rate risk exposure and hedging effectiveness is provided in section A below • Fixed interest rate borrowings • Derivative financial instruments, mainly interest rate swaps Speculative trading is not permitted Market risk – foreign currency The risk in local currency terms that the value of a financial commitment or a recognised asset or liability, will fluctuate due to changes in foreign currency exchange rates • Foreign currency earnings • Net investments in foreign operations • Foreign currency borrowings Further information on foreign currency risk exposures is provided in section B below • Physical financial instruments, including natural hedges from matching foreign assets and liabilities Speculative trading is not permitted Market risk – price The risk that the investment returns of funds under management on pre-paid contracts impact future income • Investment returns of the funds under management of pre-paid contracts • 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 • Maintain Board representation in OFGFS Monitor the investment strategy of OFGFS and the investment assets mix Credit risk The risk that a counterparty will not be able to meet its obligations in respect of a financial instrument, resulting in a financial loss to the Group • Recoverability of receivables • Recoverability of other financial assets and cash deposits Further information on credit risk exposures is detailed in section D below • The Group’s policy is to only deal with banks and financial institutions with minimum independent credit ratings • Operations of the Group results in no concentration of customers in any particular region or sector Enhanced alternative payment methods for customers in regional areas Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 106
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 85 Risk identified Definition Exposures Management of exposures Liquidity risk The risk of having insufficient funds to settle financial liabilities as and when they fall due • Insufficient levels of committed credit facilities • Settlement of financial liabilities Further information on liquidity risk exposures is detailed in section E below • Maintaining sufficient levels of cash and committed credit facilities to meet financial commitments and working capital requirements Timely review and renewal of credit facilities The Group holds the following financial assets and liabilities. 2021 2020 $’000 $’000 Financial assets Cash and cash equivalents 53,630 118,781 Trade receivables 66,300 68,202 Pre-paid contract funds under management 649,875 613,131 Other financial assets 4,072 4 773,877 800,118 Financial liabilities Trade and other payables 69,226 60,514 Contingent considerations 6,282 17,174 Borrowings 188,843 246,039 Lease liabilities 175,402 165,924 Derivative financial instruments 76 1,148 439,829 490,799 A. Interest rate risk exposure (cash flow and fair value) The Group’s main interest rate risk arises from long term bank borrowings. Bank borrowings are typically 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 limit its exposure to adverse fluctuations in interest rates, which could erode the Group’s profitability and adversely affect shareholder value. The Group reviews interest rate risk exposure on an ongoing basis (at least once each quarter) or whenever a major change in borrowing levels is anticipated. The review includes a reference to ongoing cash flow forecasts and considers future mergers, acquisitions, divestments, capital management and capital expenditure as appropriate. Recommendations in relation to interest rate hedging are provided to the Chief Financial Officer for approval, as required. When applicable, the Group manages interest rate exposure generally by entering into interest rate swap contracts under which it receives interest at variable rates and pays interest at fixed rates. In addition to swaps, the Group has 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 by fixing the interest rate for core level of debt. The interest rate swaps position and the coverage on outstanding bank borrowings as at end of the financial years are set out in the table below. 2021 2020 % % Bank borrowingsa Effective average interest rate as at 31 December 3 3 Interest rate swaps position as at 31 December Weighted average fixed interest rate payable 2.27 2.49 Weighted average variable interest rate receivable 0.61 0.12 Interest rate swaps coverage on outstanding bank borrowings Australia - 39 New Zealand 33 40 Singaporeb Nil Nil Combined Australia and New Zealand 15 30 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. INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 86 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 were 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 The following variable rate bank borrowings and interest rate swap contracts are outstanding at the reporting date. 2021 2020 Weighted average interest rate Balance Weighted average interest rate Balance % $'000 % $'000 Variable borrowings 1.76 91,412 2.71 114,308 Interest rate swaps (notional principal) 2.27 (14,114) 2.49 (44,723) Net exposure to cash flow interest rate risk 77,298 69,585 The notional principal amounts and swap liability periods of expiry of the interest rate swap contracts are as follows. Nominal value Swap liability 2021 2020 2021 2020 $’000 $’000 $’000 $’000 Less than one year 14,114 30,681 76 600 One to two years - 14,042 - 548 14,114 44,723 76 1,148 These contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. As a consequence, the Group is exposed to interest rate risks on that portion of total borrowings not swapped to fixed rates and to potential movements in the margin due to changes in the Group’s leverage ratio. Where possible, borrowings are made in the same country as the operation being funded to provide a natural hedge against currency volatility. Where this is not possible, other techniques, such as foreign currency bank accounts, are used to mitigate the profit and loss volatility due to currency movements. Due to the use of floating to fixed interest rate swaps, the Group has fixed interest commitments and the changes in the fair value of the future cash flows of these derivatives are recognised in equity to the extent that the derivative remains effective in accordance with AASB 9 Financial Instruments. The interest rate swap contracts were all judged to be effective at 31 December 2021 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. InvoCare Annual Report 2021 107
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 85 Risk identified Definition Exposures Management of exposures Liquidity risk The risk of having insufficient funds to settle financial liabilities as and when they fall due • Insufficient levels of committed credit facilities • Settlement of financial liabilities Further information on liquidity risk exposures is detailed in section E below • Maintaining sufficient levels of cash and committed credit facilities to meet financial commitments and working capital requirements Timely review and renewal of credit facilities The Group holds the following financial assets and liabilities. 2021 2020 $’000 $’000 Financial assets Cash and cash equivalents 53,630 118,781 Trade receivables 66,300 68,202 Pre-paid contract funds under management 649,875 613,131 Other financial assets 4,072 4 773,877 800,118 Financial liabilities Trade and other payables 69,226 60,514 Contingent considerations 6,282 17,174 Borrowings 188,843 246,039 Lease liabilities 175,402 165,924 Derivative financial instruments 76 1,148 439,829 490,799 A. Interest rate risk exposure (cash flow and fair value) The Group’s main interest rate risk arises from long term bank borrowings. Bank borrowings are typically 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 limit its exposure to adverse fluctuations in interest rates, which could erode the Group’s profitability and adversely affect shareholder value. The Group reviews interest rate risk exposure on an ongoing basis (at least once each quarter) or whenever a major change in borrowing levels is anticipated. The review includes a reference to ongoing cash flow forecasts and considers future mergers, acquisitions, divestments, capital management and capital expenditure as appropriate. Recommendations in relation to interest rate hedging are provided to the Chief Financial Officer for approval, as required. When applicable, the Group manages interest rate exposure generally by entering into interest rate swap contracts under which it receives interest at variable rates and pays interest at fixed rates. In addition to swaps, the Group has 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 by fixing the interest rate for core level of debt. The interest rate swaps position and the coverage on outstanding bank borrowings as at end of the financial years are set out in the table below. 2021 2020 % % Bank borrowingsa Effective average interest rate as at 31 December 3 3 Interest rate swaps position as at 31 December Weighted average fixed interest rate payable 2.27 2.49 Weighted average variable interest rate receivable 0.61 0.12 Interest rate swaps coverage on outstanding bank borrowings Australia - 39 New Zealand 33 40 Singaporeb Nil Nil Combined Australia and New Zealand 15 30 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. INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 86 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 were 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 The following variable rate bank borrowings and interest rate swap contracts are outstanding at the reporting date. 2021 2020 Weighted average interest rate Balance Weighted average interest rate Balance % $'000 % $'000 Variable borrowings 1.76 91,412 2.71 114,308 Interest rate swaps (notional principal) 2.27 (14,114) 2.49 (44,723) Net exposure to cash flow interest rate risk 77,298 69,585 The notional principal amounts and swap liability periods of expiry of the interest rate swap contracts are as follows. Nominal value Swap liability 2021 2020 2021 2020 $’000 $’000 $’000 $’000 Less than one year 14,114 30,681 76 600 One to two years - 14,042 - 548 14,114 44,723 76 1,148 These contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. As a consequence, the Group is exposed to interest rate risks on that portion of total borrowings not swapped to fixed rates and to potential movements in the margin due to changes in the Group’s leverage ratio. Where possible, borrowings are made in the same country as the operation being funded to provide a natural hedge against currency volatility. Where this is not possible, other techniques, such as foreign currency bank accounts, are used to mitigate the profit and loss volatility due to currency movements. Due to the use of floating to fixed interest rate swaps, the Group has fixed interest commitments and the changes in the fair value of the future cash flows of these derivatives are recognised in equity to the extent that the derivative remains effective in accordance with AASB 9 Financial Instruments. The interest rate swap contracts were all judged to be effective at 31 December 2021 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. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Capital and risks
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.
Foreign currency risks arise from recognised assets and liabilities that are denominated in a currency other than the Group’s functional
currency, the Australian dollar. The major foreign currency risk relates to the investments in subsidiaries in New Zealand and
Singapore. This exposes the Group to foreign currency risk on the assets and liabilities.
Borrowings have been made by the Group in New Zealand and Singapore dollars to provide a natural hedge against the risk of
changes in exchange rates in New Zealand and Singapore. The borrowings are therefore a hedge of the net investment in the foreign
subsidiaries.
The Group has no significant unhedged foreign exchange exposures at 31 December 2021. 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.
Borrowings
Derivatives
New Zealand dollars
Singapore dollars
2021
$’000
46,000
81
2020
$’000
50,000
678
2021
$’000
30,000
-
2020
$’000
35,000
-
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 9. There are a several trusts in existence with various investment profiles.
Accordingly, the Group’s future income is sensitive to the price risk relating to the investment returns of these funds under
management.
These funds are invested in a range of asset classes with different price risk variables including cash, fixed interest, Australian and
international equities, hybrids and direct and indirect property. The return on these funds (net of the increase in the liability to deliver
the future services) are recognised as net gain/loss on undelivered pre-paid contracts in the statement of comprehensive income.
Refer to Note 9 Pre-paid contracts for the profit and loss impact of the pre-paid funds under management and the pre-paid contract
liabilities for the year ended 31 December 2021.
90% 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 are 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 principal 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 normally exceeding redemptions in a typical year. The fund
can therefore take a long-term view on its investment horizon and absorb short term fluctuations in returns caused by market volatility.
87
InvoCare Annual Report 2021 108
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Capital and risks
The asset allocation at reporting date of pre-paid contract funds under management is as follows.
Equities
Property
Cash and fixed interest (includes hybrid securities)
2021
%
43
26
31
2020
%
40
28
32
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 2021 and 31 December 2020 the following changes in investment returns are
reasonably probable.
Asset class
Equities (plus or minus 10%)
Property (plus or minus 3%)
Cash and fixed interest (no price risk)
2021
2020
Increase
$'000
Decrease
$'000
Increase
$'000
Decrease
$'000
24,093
4,367
-
28,460
(24,093)
(4,367)
-
(28,460)
20,819
4,305
-
25,124
(20,819)
(4,305)
-
(25,124)
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 A 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-interesting 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 and pet cremation 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 2021. 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 include amongst others, the failure of
the debtor to engage in a repayment plan with the Group. Once all attempts to recover the debt have been exhausted, then a debt is
considered to be in default and written off. Subsequent recoveries of amounts previously written off are credited against sundry
revenue in the consolidated statement of comprehensive income.
88
InvoCare Annual Report 2021 109
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 110
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 89 E. Liquidity risk exposure Prudent liquidity management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the relatively stable nature of the Group’s business, management aims to maintain a large portion of committed credit lines on a long term basis. As part of the reset of the Group’s strategy to 2025, a review of the Group’s financing structure and tenor of the Group’s debt facilities was undertaken. On 27 August 2021, InvoCare successfully entered into binding documentation to amend and extend its Syndicated Debt Facility. Under the amendment, agreed with syndicated lenders, InvoCare: • Repaid the fully drawn A$67,500,000, NZ$50,000,000 and S$35,000,000 Facility A Term Loans on 23 September 2021 and this term facility is subsequently cancelled • Increased the limit of its Facility B, Multi-Currency Revolving Cash Advance facility from A$200,000,000 to A$275,000,000 • Extended the tenor of Facility B to the end of August 2024 (the facility was previously due to expire in February 2023) Agreed a simplified and more favourable common pricing grid with syndicate lenders From 27 August 2021, the Group had access to $382,440,000 of loan facilities as follows: • $100,000,000 Note Purchase Agreement with MetLife, fully drawn at 31 December 2021 and due for repayment in February 2028 $275,000,000 Syndicated Debt Facility Agreement supported by ANZ, Westpac, Mizuho and SMBC providing available funds through a Multi-Currency Revolving Cash Advance facility, with a tenor of three years to the end of August 2024 This $275,000,000 debt facility is currently drawn as follows: A$17,500,000, NZ$46,000,000 and SG$30,000,000. The financial covenant ratios included on the debt facilities 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 and other initiatives). The covenant target ratios are as follows: • Leverage ratio (being net debt to adjusted Operating EBITDA) must be no greater than 3.5 times Interest cover ratio (being adjusted Operating EBITDA to net interest adjusted to remove interest related to AASB 16 Leases) must be greater than 3.0 times The above ratios continued to be met as of 31 December 2021. As at 31 December 2021, the details of the facilities available, drawn down, unused by facility are disclosed in the table below. 2021 2020 $’000 $’000 Total facilities available Working capital facility - expiring within one year 7,440 7,440 Unsecured loan facility - expiring in two to five years 375,000 448,702 382,440 456,142 Drawn down at reporting date Working capital facility - expiring within one year - - Unsecured loan facility - expiring in two to five years 191,412 248,717 191,412 248,717 Unused at reporting date Working capital facility - expiring within one year 7,440 7,440 Unsecured loan facility - expiring in two to five years 183,588 199,985 191,028 207,425 Long-term borrowings outstanding at reporting date Unsecured loan facility 191,412 248,717 Less: Loan establishment costs (2,569) (2,678) 188,843 246,039 InvoCare Annual Report 2021 111
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 89 E. Liquidity risk exposure Prudent liquidity management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the relatively stable nature of the Group’s business, management aims to maintain a large portion of committed credit lines on a long term basis. As part of the reset of the Group’s strategy to 2025, a review of the Group’s financing structure and tenor of the Group’s debt facilities was undertaken. On 27 August 2021, InvoCare successfully entered into binding documentation to amend and extend its Syndicated Debt Facility. Under the amendment, agreed with syndicated lenders, InvoCare: • Repaid the fully drawn A$67,500,000, NZ$50,000,000 and S$35,000,000 Facility A Term Loans on 23 September 2021 and this term facility is subsequently cancelled • Increased the limit of its Facility B, Multi-Currency Revolving Cash Advance facility from A$200,000,000 to A$275,000,000 • Extended the tenor of Facility B to the end of August 2024 (the facility was previously due to expire in February 2023) Agreed a simplified and more favourable common pricing grid with syndicate lenders From 27 August 2021, the Group had access to $382,440,000 of loan facilities as follows: • $100,000,000 Note Purchase Agreement with MetLife, fully drawn at 31 December 2021 and due for repayment in February 2028 $275,000,000 Syndicated Debt Facility Agreement supported by ANZ, Westpac, Mizuho and SMBC providing available funds through a Multi-Currency Revolving Cash Advance facility, with a tenor of three years to the end of August 2024 This $275,000,000 debt facility is currently drawn as follows: A$17,500,000, NZ$46,000,000 and SG$30,000,000. The financial covenant ratios included on the debt facilities 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 and other initiatives). The covenant target ratios are as follows: • Leverage ratio (being net debt to adjusted Operating EBITDA) must be no greater than 3.5 times Interest cover ratio (being adjusted Operating EBITDA to net interest adjusted to remove interest related to AASB 16 Leases) must be greater than 3.0 times The above ratios continued to be met as of 31 December 2021. As at 31 December 2021, the details of the facilities available, drawn down, unused by facility are disclosed in the table below. 2021 2020 $’000 $’000 Total facilities available Working capital facility - expiring within one year 7,440 7,440 Unsecured loan facility - expiring in two to five years 375,000 448,702 382,440 456,142 Drawn down at reporting date Working capital facility - expiring within one year - - Unsecured loan facility - expiring in two to five years 191,412 248,717 191,412 248,717 Unused at reporting date Working capital facility - expiring within one year 7,440 7,440 Unsecured loan facility - expiring in two to five years 183,588 199,985 191,028 207,425 Long-term borrowings outstanding at reporting date Unsecured loan facility 191,412 248,717 Less: Loan establishment costs (2,569) (2,678) 188,843 246,039 INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 90 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. Less than one year Two to three years More than three years Total 2021 $’000 $’000 $’000 $’000 Trade and other payables 69,226 - - 69,226 Contingent considerations 6,282 - - 6,282 Lease liabilities 20,855 36,454 167,000 224,309 Borrowings - 91,412 100,000 191,412 Derivatives 76 - - 76 2020 $’000 $’000 $’000 $’000 Trade and other payables 60,514 - - 60,514 Contingent considerations 9,265 7,909 - 17,174 Lease liabilities 19,465 36,486 109,973 165,924 Borrowings - 148,717 100,000 248,717 Derivatives 600 548 - 1,148 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 Level 2 The fair value is calculated based on the number 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. Not applicable Not applicable Derivative financial instruments Level 2 The fair value is calculated as the present value of the estimated future cash flows based on observable yield curves Not applicable Not applicable Contingent consideration Level 3 The fair value is calculated based on the contracted terms of performance measures, eg revenue, EBITDA or net profit Forecast performance measures per the contracts The estimated fair value would increase/decrease if the forecast performance measures per the contracts were higher/lower. Refer to Note 19C for further details There were no transfers between levels during the reporting period. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Capital and risks
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.
Interest rate risk
-100 basis point
+100 basis point
Carrying
value
$’000
Profit/
(loss)
$’000
Equity
$’000
Profit/
(loss)
$’000
Equity
$’000
Foreign exchange risk
-10%
Profit/
(loss)
$’000
Equity
$’000
+10%
Profit/
(loss)
$’000
Equity
$’000
2021
Financial assets
Cash and cash
equivalents
Trade receivables
Pre-paid contract
funds under
management
Other financial
assets
Financial liabilities
Trade and other
payables
Contingent
considerations
Lease liabilities
Borrowings
Derivatives
Total increase/
(decrease)
2020
Financial assets
Cash and cash
equivalents
Trade receivables
Pre-paid contract
funds under
management
Other financial
assets
Financial liabilities
Trade and other
payables
Contingent
considerations
Lease liabilities
Borrowings
Derivatives
Total increase/
(decrease)
-
-
-
-
-
-
-
98
-
98
-
-
-
-
-
-
-
-
-
-
-
-
(131)
131
-
-
-
-
-
-
53,630
66,300
(375)
-
649,875
(4,529)
-
-
4,072
(69,226)
(6,282)
(175,402)
(188,843)
(76)
-
-
-
-
-
375
-
4,529
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
(22)
-
-
(1,241)
-
-
-
-
102
-
-
1,241
-
-
-
-
(102)
-
-
(120)
-
(6,145)
102
6,145
(102)
(120)
-
118,781
68,202
(831)
-
613,131
(188)
4
(60,514)
(17,174)
(165,924)
(246,039)
(1,148)
-
-
-
-
(888)
-
-
-
-
-
-
-
-
-
626
831
-
188
-
-
-
-
888
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(626)
-
-
(179)
-
-
-
(520)
520
-
-
147
-
-
-
(1,114)
1,114
(1,907)
626
1,907
(626)
(179)
-
147
-
91
InvoCare Annual Report 2021 112
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Capital and risks
Note 15. Contributed equity
Ordinary shares - fully paid
Treasury shares - fully paid
A. Ordinary shares
Movement during the year
Balance as at 1 January
Shares issued for Dividend Reinvestment Plan
Shares issued for Institutional Placement and Share Purchase Plan,
net of transaction costs
Balance at reporting date
2021
Number
'000
144,061
(1,086)
142,975
2021
Number
'000
144,061
-
-
144,061
2020
Number
'000
144,061
(1,175)
142,886
2020
Number
'000
117,185
527
26,349
144,061
2021
2020
$’000
511,293
(13,513)
497,780
$’000
511,293
(14,288)
497,005
2021
2020
$’000
$’000
511,293
-
-
511,293
234,513
5,918
270,862
511,293
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 (DRP) 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. The ordinary shares to be
transferred to the DRP participants would either be by acquiring shares on market or issuing new shares as determined by the Board
of Directors for each dividend payable.
B. Treasury shares
Movement during the year
Balance as at 1 January
Disposal of shares - vested share rights/options
Disposal of shares - transfer to Exempted Employee Share Plan's
participants
Balance at reporting date
2021
Number
'000
2020
Number
'000
2021
2020
$’000
$’000
(1,175)
61
28
(1,086)
(1,225)
19
31
(1,175)
(14,288)
468
307
(13,513)
(14,687)
48
351
(14,288)
Treasury shares are shares in InvoCare Limited that are held by the InvoCare Deferred Employee Share Plan Trust and Employee
Share Plan Trust for the purpose of issuing shares under the InvoCare Deferred Employee Share Plan and InvoCare Employee Share
Plan, as set out in Note 22.
92
InvoCare Annual Report 2021 113
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 114
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Capital and risks 93 C. Capital management The Group’s capital management objectives and strategies seek to maximise total shareholder returns, while maintaining a capital structure with acceptable debt and financial risk. The capital management goals can be broadly described as: • Manage the amount of equity and the expectation of returns – including dividend distribution policy, dividend reinvestment and share buy-back policies • Maintain debt and gearing that is prudent, cost effective, supports operational needs and provides flexibility for growth and development Avoid excessive exposure to interest rate fluctuations and debt refinancing risk Balance asset maintenance with growth focused investment 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 2021, basic EPS was 56.1 cents (2020: (8.6) cents). Operating EPS, which excludes restructuring costs, gains and losses on the disposal or impairment of non-current assets and on undelivered pre-paid contracts, non-controlling interests, disposal of subsidiaries and SaaS costs expensed as incurred, was 31.6 cents (2020: 20.9 cents). Importantly, senior management of the Group have long-term incentives linked to EPS growth, thus aligning employee and shareholder interests. The Group’s aim is to deliver stable, predictable, growing returns to shareholders represented by compound annual growth in Operating EPS in the low to mid-teens through the cycle. • Maintaining a minimum ordinary dividend payout ratio of between 60% to 80% of operating earnings after tax. The aggregate of the interim and final 2021 dividends represents a payout ratio of 66% (2020: 60%) 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: • Leverage ratio (being net debt to adjusted Operating EBITDA) must be no greater than 3.5 times • Interest cover ratio (being adjusted Operating EBITDA to net interest adjusted to remove interest related to AASB 16 Leases) must be greater than 3.0 times • Maintaining an optimal leverage ratio: The optimal capital structure, which has the lowest cost of capital, is indicatively at a leverage ratio (i.e. Net debt/Adjusted operating EBITDA) of no higher than a range between 2.0 times and 2.5 times through the cycle with an interest cover ratio of greater than 4.0 times. A liquidity buffer of at least $10 million should be maintained. Where the capacity exists, debt financing will be used for small acquisitions and capital expenditure. In the absence of opportunities to invest in growing the business, the Group will consider applying excess debt capacity to make returns to shareholders. Managing refinancing risk: 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. When allocating capital to drive strategic outcomes, those investment opportunities will be assessed in line with portfolio management criteria depending on the type of opportunity and will be aimed at delivering an enterprise Return on Capital Employed of greater than 12% by 2025. Recurring maintenance CAPEX will approximate depreciation & amortisation (excluding the AASB 16 impact of leases), this in turn will sustain our asset base for the long term. D. Accounting policy for ordinary shares 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 16. Contingencies There were no unrecognised contingent assets as at 31 December 2021 and 31 December 2020. The Group had the following guarantees which are determined to be contingent liabilities at 31 December 2021: • Bank guarantees given for leased premises of subsidiaries to a maximum of $3,289,000 (2020: $2,870,000) Deed of cross guarantee entered into by a number of the Group’s entities. Refer to Note 24 for further details of bank guarantees entered into by the parent entity. INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Capital and risks
Note 17. Commitments
As at reporting date, the Group has the following capital and other commitments which are not recognised as liabilities.
A. Capital commitments
Contracted and conditionally contracted - within one year
Building extensions and refurbishments
Leasehold improvements
Plant and equipment purchases
B. Other commitments
Documentary letters of credit - within one year
2021
$'000
2020
$'000
2,780
-
5,053
301
1,112
511
169
104
C. Lease commitments
The Group leases premises, motor vehicles and sundry office equipment under 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 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
2021
$'000
669
-
669
2020
$'000
669
137
806
Note 18. Events after reporting period
Other than the dividend determined as disclosed in Note 4, no other matter or circumstance has arisen since 31 December 2021 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.
94
InvoCare Annual Report 2021 115
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 116
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Business portfolios 95 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 19. Business combinations A. Acquisition for the year ended 31 December 2021 During the year ended 31 December 2021, the Group acquired the business assets of Pets at Peace Central West, a pet cremation business operating in the Central West region of New South Wales. A summary of the purchase consideration, goodwill and identifiable assets and liabilities acquired for the acquisition is as follows: • Total consideration, only paid in cash: $450,000, with net cash outflow: $423,000 • Fair value of assets and liabilities acquired: • Inventories: $24,000 • Property, plant and equipment: $102,000 • Right of use assets: $237,000 • Lease liabilities: $(181,000) • Provision for employee entitlements: $(27,000) • Other liabilities: $(56,000) Goodwill: $324,000 The accounting for this acquisition is provisional as at 31 December 2021. The goodwill recognised is attributable to the location, workforce and the profitability of the acquired business. 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. Revenue and profit after tax for the period from the acquisition date are $53,000 and $10,000, respectively. If the acquisition had occurred on 1 January 2021, consolidated revenue and profit after tax for the year ended 31 December 2021 would have increased by approximately $800,000 and $82,000, respectively. Acquisition costs incurred during the year ended 31 December 2021are $743,000. B. Acquisition for the year ended 31 December 2020 For all 3 acquisitions settled during the prior year ended 31 December 2020, 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 2020 Annual Report for further details of those acquisitions. C. Fair value measurement – contingent consideration 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 provides 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. I. Valuation techniques for fair value measurements categorised within level 3 The contingent consideration arose on the business combination related to prior years’ acquisitions. 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. INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Business portfolios 96 II. Critical accounting judgements, estimates and assumptions - fair value of contingent consideration The Group’s contingent consideration liability is measured at fair value at the end of each reporting period. The information provided 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 • Significant unobservable inputs: forecast EBITDA of the business and the discount rate Relationship of unobservable inputs to fair value: the estimated fair value would increase/decrease if the forecast EBITDA or discount rate were higher/lower III. Level 3 – contingent consideration Movements in level 3 – contingent consideration during the current and previous financial year are set out below. 2021 2020 $’000 $’000 Balance at 1 January 17,174 894 Contingent consideration relating to business combinations - 16,780 Payments during the financial year (10,892) (500) Balance at 31 December 6,282 17,174 The contingent consideration is all due and payable within 12 months and is classified as a current liability on the Balance Sheet. Sensitivity analysis on fair value of contingent consideration 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 on EBITDA: a 5% decrease in the profitability of each acquired business over the remaining contingent consideration period (all are less than 12 months) would not result in a decrease in the contingent consideration. 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 identification and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of acquisition. Any variations in the initial estimates of deferred consideration and the final amount payable are remeasured through the statement of comprehensive income. The present value of contingent consideration is classified as a financial liability and is subsequently remeasured to fair value with changes in fair value recognised in profit or loss. The acquisition-related costs are recorded in the statement of comprehensive income. InvoCare Annual Report 2021 117
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Business portfolios 96 II. Critical accounting judgements, estimates and assumptions - fair value of contingent consideration The Group’s contingent consideration liability is measured at fair value at the end of each reporting period. The information provided 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 • Significant unobservable inputs: forecast EBITDA of the business and the discount rate Relationship of unobservable inputs to fair value: the estimated fair value would increase/decrease if the forecast EBITDA or discount rate were higher/lower III. Level 3 – contingent consideration Movements in level 3 – contingent consideration during the current and previous financial year are set out below. 2021 2020 $’000 $’000 Balance at 1 January 17,174 894 Contingent consideration relating to business combinations - 16,780 Payments during the financial year (10,892) (500) Balance at 31 December 6,282 17,174 The contingent consideration is all due and payable within 12 months and is classified as a current liability on the Balance Sheet. Sensitivity analysis on fair value of contingent consideration 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 on EBITDA: a 5% decrease in the profitability of each acquired business over the remaining contingent consideration period (all are less than 12 months) would not result in a decrease in the contingent consideration. 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 identification and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of acquisition. Any variations in the initial estimates of deferred consideration and the final amount payable are remeasured through the statement of comprehensive income. The present value of contingent consideration is classified as a financial liability and is subsequently remeasured to fair value with changes in fair value recognised in profit or loss. The acquisition-related costs are recorded in the statement of comprehensive income. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Business portfolios
Note 20. Interests in subsidiaries
A. Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2021. 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 Pty Limited
Family Pet Care Pty Limited
InvoCare New Zealand Limited
Singapore Casket Company (Private) Limited
Country of
incorporation
Australia
Australia
Australia
Australia
New Zealand
Singapore
Ownership interest held by
the Group
2021
%
100
100
100
100
100
100
2020
%
100
100
100
100
100
100
Shares in subsidiaries are carried at cost and relate to InvoCare Limited’s ownership interest in InvoCare Australia Pty Limited,
InvoCare PetCare Pty Limited, Family Pet Care Pty Limited, InvoCare (Singapore) Pty Limited, InvoCare New Zealand 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 to prepare financial reports in accordance with ASIC
Corporations Instrument 2016/785 issued by the Australian Securities & Investments Commission. For further information refer to
Note 25.
B. Significant restrictions
Other than those imposed by the legislative provisions in the respective country of incorporation, for the subsidiaries listed above, the
Group has no significant restriction on its ability to access or use assets and settle liabilities.
C. Subsidiaries with non-controlling interests (NCI)
One subsidiary, Macquarie Memorial Park Pty Limited, has non-controlling interests of 16.86% (2020: 16.86%). During the year
dividends totaling $117,000 were paid to non-controlling interests (2020: $Nil).
D. Employee share trust
The Group has formed a trust to administer the InvoCare Exempt Employee Share Plan, the Employee Share Plan and the InvoCare
Deferred Employee Share Plan.
97
InvoCare Annual Report 2021 118
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Business portfolios
Note 20. Interests in subsidiaries
A. Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2021. 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 Pty Limited
Family Pet Care Pty Limited
InvoCare New Zealand Limited
Singapore Casket Company (Private) Limited
Country of
incorporation
Australia
Australia
Australia
Australia
New Zealand
Singapore
Ownership interest held by
the Group
2021
%
100
100
100
100
100
100
2020
%
100
100
100
100
100
100
Shares in subsidiaries are carried at cost and relate to InvoCare Limited’s ownership interest in InvoCare Australia Pty Limited,
InvoCare PetCare Pty Limited, Family Pet Care Pty Limited, InvoCare (Singapore) Pty Limited, InvoCare New Zealand 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 to prepare financial reports in accordance with ASIC
Corporations Instrument 2016/785 issued by the Australian Securities & Investments Commission. For further information refer to
Note 25.
B. Significant restrictions
Other than those imposed by the legislative provisions in the respective country of incorporation, for the subsidiaries listed above, the
Group has no significant restriction on its ability to access or use assets and settle liabilities.
C. Subsidiaries with non-controlling interests (NCI)
One subsidiary, Macquarie Memorial Park Pty Limited, has non-controlling interests of 16.86% (2020: 16.86%). During the year
dividends totaling $117,000 were paid to non-controlling interests (2020: $Nil).
D. Employee share trust
Deferred Employee Share Plan.
The Group has formed a trust to administer the InvoCare Exempt Employee Share Plan, the Employee Share Plan and the InvoCare
97
InvoCare Annual Report 2021 119
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Business portfolios 98 E. Accounting policies I. Subsidiaries Subsidiaries are all entities (including employee share trust) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. II. Consolidation of subsidiaries Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to Note 19.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 Employee Share Plan and InvoCare Deferred Employee Share Plan Trusts 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. Note 21. Other financial assets 2021 2020 $’000 $’000 Balance at 1 January 4 4 Addition in investment 4,068 - Balance at 31 December 4,072 4 A. Other financial assets Other financial assets consist mainly the Group’s investment in Memories Group Limited (Memories), a provider of secure digital memorialisation services. The Group’s investment represents 9.6% of Memories total equity. The investment is classified as a financial asset. B. Critical accounting judgements, estimates and assumptions Estimated impairment of financial assets The Group annually considers the loss allowance for financial assets based on assumptions about expected loss rates. The Group applies judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history and existing market conditions as well as forward-looking estimates at the end of each reporting period. C. Accounting policy Other financial assets are measured at fair value through profit and loss, less any expected credit loss. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
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. They include:
Note 22. Share-based remuneration
Note 26. Economic dependence
Note 23. Related party transactions
Note 27. Remuneration of auditors
Note 24. Parent entity information
Note 28. Other accounting policies
Note 25. Deed of cross guarantee
Note 22. 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 long-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 InvoCare’s ordinary shares awarded under the share-based remuneration arrangements is governed by the InvoCare’s
Share Trading Policy. The policy restricts employees from trading in InvoCare’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 InvoCare’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 Employee Share Plan Rules.
Four plans are currently in operation under the Company’s Employee Share Plan Rules. 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/or performance rights or cash equivalent, which will vest if the
performance and employment conditions are both met
Deferred Employee Share Plan (DESP) – in the form of shares or share appreciation rights (SARs) for overseas employees
which will vested when employment condition is met
Service Based Equity Plan (SEP) – in the form of rights or cash equivalent, which will vest if the employment condition is met
A. Exempt Employee Share Plan
Australian based permanent employees with more than six months service and a salary less than $180,000 per annum and casual staff
with more than two years service routinely working at least 40% of a full time equivalent are annually offered the opportunity to acquire
$1,000 worth of InvoCare Limited shares through a salary sacrifice arrangement as permitted by Australian Taxation Legislation. During
2021, 308 employees accepted the offer and at 31 December 2021 a further $166,000 was remaining to be collected via payroll
deductions.
99
InvoCare Annual Report 2021 120
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
B. Long-term Incentive Plan
LTIP was introduced during 2016. The plan permits settlement in either equity or cash, at the Board’s discretion. The plan provides
options and/or performance rights to senior management team and a selected group of critical roles within the Group, so employees
are incentivised to maximise shareholder value in the longer term.
Yes
Yes
2016
2015
Shares
Cash
$12.08
$2.40
Key terms and conditions of the LTIP
Grant year
Base year (financial year ended 31
December
Form of granta
Performance rights
Options
Form of settlement when exercising vested LTI
Australian participantsb
Overseas
Grant date fair value
Rights – grant date value
Options – grant date value
Dividend entitlementc
Performance rights
Performance hurdle(s) and vesting scale
CAGR in EPS targetd
Maximum (100% vesting)
Minimum (30% vesting)
Average ROIC targete
Maximum (100% vesting)
Minimum (30% vesting)
Average ROCE targetf
Maximum (100% vesting)
Minimum (30% vesting)
Number of tranches for the grant
Performance rights/options
Performance testing time for each tranche (T)
Feb-18
Feb-19
N/A
N/A
N/A
N/A
3
12%
7%
No
T1
T2 +
PY residue
T3 +
PY residue
Final
re-testing
All residue
Feb-20
Feb-21
Feb-22
Feb-23
Mar-23
Mar-24
2017
2016
Yes
Yes
Shares
Cash
$14.06
$2.93
2018
2017
Yes
Yes
Shares
Cash
$13.91
$2.78
2019
2018
Yes
Yes
Shares
Cash
$12.96
$2.51
2020
2019
Yes
Yes
Shares
Cash
$9.70
$2.14
2021
2020
Yes
N/A
Shares
Cash
$11.57
N/A
No
No
No
Yes
Yes
12%
7%
N/A
N/A
N/A
N/A
3
T1
T2 +
PY residue
T3 +
PY residue
Final
re-testing
All residue
12%
8%
N/A
N/A
N/A
N/A
2
10%
6%
12%
10%
NA
NA
1
15%
10%
N/A
N/A
12%
10%
1
12%
8%
N/A
N/A
N/A
N/A
2
T1
T2 +
PY residue
T1
T2 +
PY residue
Only one testing
Only one testing
a
b
c
Both options and performance rights are granted for nil consideration, they are not entitled to voting rights during the vesting
period
For each vested option and performance rights, upon exercise:
•
•
For Australian participants, each option (after paying the options exercise price) and performance right entitle the participant
to subscribe for one InvoCare ordinary share
For overseas participants, each option (after paying the options exercise price) and performance right entitle the participant
to receive cash equivalent value of one InvoCare ordinary share at the market value at date of exercise of the options and
performance rights
For those performance rights entitled to dividends, if determined and paid by InvoCare Board, during the performance period.
Additional performance rights will be granted to the participants of LTIP at the dividend payment date. The number of
performance rights granted are calculated by the number of share rights or performance rights times the dividend paid per share
divided by the dividend reinvestment plan VWAP price. These additional performance rights granted – dividend entitlement will
only be payable as additional shares on date of vesting of the originally granted performance rights
100
InvoCare Annual Report 2021 121
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
d 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)
e
For 2016 to 2019 grant, vesting of these grants is conditional on meeting a minimum level of ROIC as specified in the invitation,
being no LTI vesting will occur if the ROIC for the year does not exceed the weighted average cost of capital (WACC) in that year.
For the vesting test on the second anniversary (ie re-testing), the average of years one and two ROIC and WACC are to be used
ROIC means return on invested capital and is calculated by dividing the operating earnings by the average invested capital
f
g ROCE means return on capital employed and is calculated by dividing the operating earnings before interest and tax by the
average capital employed
h Upon termination of employment, all unvested options and performance rights will be forfeited unless Board approval is granted
for the “Good Leaver”
i
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
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 grant date and expected price volatility of the underlying
share, the expected dividend yield, the risk-free interest rate for the term of the option.
The following information related to the options and performance rights issued under the LTIP.
Fair
value at grant
date
Grant date
Expiry date
Options
1/01/2016
22/02/2016
1/01/2017
22/02/2017
1/01/2018
1/01/2019
1/03/2020
1/01/2026
22/02/2026
1/01/2027
22/02/2027
1/01/2028
1/01/2029
1/03/2028
Performance rights
1/01/2016
22/02/2016
1/01/2017
22/02/2017
1/01/2018
1/01/2019
1/03/2020
3/08/2020
1/01/2021
1/01/2026
22/02/2026
1/01/2027
22/02/2027
1/01/2028
1/01/2029
1/03/2035
1/08/2035
1/01/2036
$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
$11.57
Balance
at the
start of
the year
Number
449,094
20,946
413,565
16,221
623,232
789,956
513,820
2,826,834
32,477
2,770
43,320
3,380
58,943
69,208
105,068
17,107
-
332,273
Grant -
dividend
entitlements
Number
Granted
Number
Vested
Number
Lapsed
Number
Balance
at the
end of
the year
Number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284,872
284,872
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,443
242
2,279
3,964
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(174,924)
(20,946)
(154,786)
-
(13,822)
(25,466)
(16,062)
(406,006)
274,170
-
258,779
16,221
609,410
764,490
497,758
2,420,828
(32,477)
(2,770)
(13,739)
-
(2,762)
(4,419)
(7,145)
-
(6,197)
(69,509)
-
-
29,581
3,380
56,181
64,789
99,366
17,349
280,954
551,600
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2021 and was
$11.33 (2020: $11.10).
101
InvoCare Annual Report 2021 122
InvoCare Annual Report 2021 123
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Other statutory disclosures 102 C. Deferred Employee Share Plan This plan introduced in 2007 is settled by the transfer of InvoCare ordinary shares to participants upon vesting. This plan is for recognising, rewarding and retaining InvoCare’s key talent in critical roles in middle management level. Therefore, from 2016 onwards, this plan has only one vesting condition, being ongoing employment condition met at vesting dates. Eligible employees participate in this plan based on nomination only. The required ordinary shares can be purchased on market and held by the Employee Share Plan Trust or issue of new shares. This plan if in operation, grants normally occur in March following the previous full year results announcement. For new grants, the number of shares to be allocated to eligible employees is based on the volume weighted average price (VWAP) of InvoCare ordinary shares traded during the first 10 days of the trading window that immediately follows the announcement of the previous full year results. The key terms and conditions of this plan: • In the form of shares to be granted as approved by the Board • Shares are granted for nil consideration • The vesting condition is to meet ongoing employment condition • Each grant of shares is divided in three equal tranches • From 2021, the waiting period is shortened by 12 months for ongoing employment condition, the vesting date of the three tranches are: • Tranche 1 – completion of 12 months employment from grant date • Tranche 2 – completion of 24 months employment from grant date • Tranche 3 – completion of 36 months employment from grant date • Prior 2021, the waiting period for ongoing employment condition, the vesting date of the three tranches are: • Tranche 1 – completion of 24 months employment from grant date • Tranche 2 – completion of 36 months employment from grant date • Tranche 3 – completion of 48 months employment from grant date • Entitle to receive any dividends that may become payable on the shares during the vesting period • Entitle to voting rights of the shares during the vesting period • Upon vesting: • For Australian participants, vested shares will be transferred to the vested shares account of the participants • For overseas participants, each shares entitle the participant to receive cash equivalent value of one InvoCare ordinary share at the market value at date of vesting Upon termination of employment, all unvested shares will be forfeited D. Service Based Equity Plan The Service Based Equity Plan (SEP) introduced in 2020. SEP is for recognising, rewarding and retaining InvoCare’s key talent in critical roles in middle management level. This plan has only one vesting condition, being ongoing employment condition met at vesting dates. Eligible employees participate in this plan based on nomination only. The key terms and conditions of this plan: • In the form of rights to be granted as approved by the Board • Rights are granted for nil consideration • The vesting condition is to meet ongoing employment condition • Each grant of rights is divided in six equal tranches • For ongoing employment condition only rights, the vesting date of the six tranches is every six months from the grant date • These rights are entitled to dividends, if determined and paid by InvoCare Board, during the performance period. Additional rights will be granted to the participants of SBP at the dividend payment date. The number of rights granted are calculated by the number of share rights or performance rights times the dividend paid per share divided by the dividend reinvestment plan VWAP price. These additional rights granted – dividend entitlement will only be payable as additional shares on date of vesting of the originally granted rights • For each vested right, upon exercise: • For Australian participants, each right entitles the participant to subscribe for one InvoCare ordinary share • For overseas participants, each right entitles the participant to receive cash equivalent value of one InvoCare ordinary share at the market value at date of exercise Upon termination of employment, all unvested rights and any cumulated dividend (in the form of rights) will be forfeited Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
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
Rights - ongoing employment condition only
$9.70
$10.50
$11.57
$11.57
1/09/2035
1/09/2035
31/12/2035
3/05/2036
1/09/2020
19/10/2020
1/01/2021
3/05/2021
Shares - ongoing employment condition only
1/03/2017
1/03/2018
1/03/2019
1/03/2020
15/06/2020
1/03/2021
1/09/2021
1/03/2032
1/03/2028
21/02/2029
1/03/2035
1/07/2035
1/03/2031
1/09/2036
$14.06
$13.91
$14.46
$10.70
$11.10
$10.70
$11.10
Balance
at the
start of
the year
Number
135,948
14,000
-
-
149,948
3,662
8,285
29,064
1,758
30,000
-
-
72,769
Grant -
dividend
entitlements
Number
1,789
198
-
15
2,002
-
-
-
-
-
-
-
-
Granted
Number
-
-
34,782
2,000
36,782
-
-
-
-
-
12,000
34,421
46,421
Vested
Number
Lapsed
Number
(8,106)
-
-
-
(8,106)
(3,662)
(4,128)
(9,862)
-
(10,000)
-
-
(27,652)
(16,210)
-
-
-
(16,210)
-
(648)
(872)
-
-
-
-
(1,520)
Balance
at the
end of
the year
Number
113,421
14,198
34,782
2,015
164,416
-
3,509
18,330
1,758
20,000
12,000
34,421
90,018
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2021 and was
$11.33 (2020: $11.10).
Note 23. Related party transactions
A. Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share based payments
2021
$
2,671,110
49,597
10,618
-
814,380
3,545,705
2020
$
3,330,600
156,079
(101,930)
428,909
320,490
4,134,148
B. Parent entity
The ultimate parent entity within and for the Group is InvoCare Limited.
C. Transactions with subsidiaries
All transactions that have occurred among the subsidiaries within the Group have been eliminated for consolidation purposes.
D. Transactions with other related parties
The contributions to superannuation funds on behalf of employees are disclosed in Note 5.F.
103
InvoCare Annual Report 2021 124
InvoCare Annual Report 2021 125
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Other statutory disclosures 104 Note 24. Parent entity information A. Summary financial information The financial information provided in the table below is only for InvoCare Limited, the parent entity of the Group. 2021 2020 $’000 $’000 Statement of comprehensive income Profit after income tax 56,023 59,662 Total comprehensive income 56,382 61,279 Balance sheet Current assets 85 44,936 Total assets 897,139 866,746 Current liabilities 4,854 1,582 Total liabilities 160,574 165,779 Equity Contributed equity 497,780 497,005 Share-based payments reserve 5,503 3,296 Cash flow hedges reserve - (359) Foreign currency reserve 1,080 1,080 Retained profits 232,202 199,945 Total equity 736,565 700,967 B. Guarantees entered into by the parent entity The parent entity provided the following guarantees during the year ended 31 December 2021 and 31 December 2020: • Bank guarantees given for leased premises of subsidiaries to a maximum of $3,289,000 (2020: $2,870,000) Under the terms of a General Security Trust Deed executed on 16 February 2018 the parent entity, InvoCare Limited, and its material wholly-owned subsidiaries (the Guarantors) have individually guaranteed to the financiers the due and punctual payment in full of any liabilities or obligations provided under the terms of the Syndicated Facility Agreement and the Note Purchase Agreement both dated 16 February 2018. The Guarantors have also indemnified the financiers against any loss or damage suffered by the financiers arising from any failure by a borrower or any Guarantor to satisfy the obligations. C. Contingent liabilities Other than the guarantees as disclosed in section B above, there were no unrecognised contingent liabilities as at 31 December 2021 and 31 December 2020. D. Capital commitment – property, plant and equipment The parent entity has no capital commitments for the acquisition of property, plant or equipment at 31 December 2021 and 31 December 2020. E. Tax consolidation group InvoCare Limited (the head entity) and its wholly-owned Australian subsidiaries implemented the tax consolidation legislation from 1 January 2004. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing and funding agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned subsidiaries in the case of a default by the head entity. This agreement was updated on 5 June 2007 and provides that the wholly-owned subsidiaries will continue to fully compensate InvoCare Limited for any current tax payable assumed and be compensated by InvoCare Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to InvoCare Limited under the tax consolidation legislation. The amounts receivable or payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. InvoCare Australia Pty Limited, as permitted by the tax funding agreement, acts on behalf of InvoCare Limited for the purpose of meeting its obligations to make tax payments, or receive refunds, and reimburses, or is compensated by, that entity through the intercompany loan account for amounts of tax paid, or received, except for the tax allocated to that entity. F. Accounting policy applicable to parent entity The accounting policies of the parent entity are consistent with those of the Group, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
Note 25. Deed of cross guarantee
InvoCare Limited, InvoCare Australia Pty Limited and InvoCare (Singapore) Pty Limited entered into a Deed of Cross Guarantee on
11 December 2006 under which each company guarantees the debts of the others. Effective from 15 June 2011, Bledone Pty Ltd and
Bledisloe Australia Pty Ltd became parties to this Deed of Cross Guarantee. 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
subsidiaries have been relieved from the requirement to prepare a Financial Report and Directors’ Report under ASIC Corporations
Instrument 2016/785 issued by the Australian Securities & Investments Commission.
The above companies represent a “Closed Group” for the purposes of the ASIC Corporations Instrument, and as there are no other
parties to the Deed of Cross Guarantee that are controlled by InvoCare Limited, they also represent the “Extended Closed Group”.
Set out below is a consolidated statement of comprehensive income, summary of movements in consolidated retained profits and
consolidated balance sheet for the year ended 31 December 2021 of the Closed Group.
A. Consolidated statement of comprehensive income of the Closed Group
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
Other expenses
Depreciation and amortisation expenses
Pre-paid technology expenses
Impairment loss on intangibles
Reversal of impairment of cemetery land
Finance costs
Interest income
Acquisition related costs
Net gain on undelivered pre-paid contracts
Inter-segment revenue
Gain on lease termination
Net gain on disposal of non-current assets
Profit before income tax
Income tax expense
Net profit after income tax for the year
Other comprehensive income
Items that may be reclassified to profit and loss
Changes in fair value of cash flow hedges, net of tax
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 for the year, net of tax
Total comprehensive income for the year, net of tax
2021
$’000
Restated
2020
$’000
474,679
(101,256)
(164,393)
(11,235)
(20,151)
(9,152)
(16,761)
(17,417)
134,314
(37,965)
(654)
(424)
4,000
(34,372)
1,943
(743)
64,697
1,616
1,517
6,852
140,781
(27,230)
113,551
(359)
-
(359)
-
(359)
113,192
387,544
(96,351)
(143,212)
(11,921)
(18,985)
(8,125)
(18,134)
(18,811)
72,005
(32,903)
(750)
(3,191)
6,000
(38,573)
1,539
(1,918)
2,691
1,317
-
7,521
13,738
(6,373)
7,365
(1,240)
1,611
371
(1,595)
(1,224)
6,141
B. Summary of movements in consolidated retained profits of the Closed Group
Retained profits as at 1 January
Profit after income tax for the year
Dividends paid
Retained profits as at 31 December
158,414
113,551
(34,843)
237,122
186,481
7,365
(35,432)
158,414
105
InvoCare Annual Report 2021 126
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
C. Consolidated balance sheet of the Closed Group
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Pre-paid technology assets
Pre-paid contract funds under management
Asset held for sale
Deferred selling costs
Deferred contract assets
Total current assets
Non-current assets
Trade and other receivables
Shares in subsidiaries
Investment in business assets
Property, plant and equipment
Right of use asset
Pre-paid contract funds under management
Pre-paid technology assets
Intangible assets
Deferred selling costs
Deferred contract assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Contingent consideration
Lease liabilities
Derivative financial instruments
Current tax liabilities
Pre-paid contract liabilities
Deferred revenue
Provision for employee benefits
Total current liabilities
Non-current liabilities
Contingent consideration
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
Equity
Contributed equity
Reserves
Retained profits
Total equity
2021
$’000
Restated
2020
$’000
40,467
1,695
16,386
42,592
582
52,959
89
4,571
1,811
161,152
171,376
246,777
4,068
406,138
118,219
596,916
8,019
106,599
10,550
152
1,668,814
1,829,966
58,749
6,187
17,977
-
4,044
44,315
30,758
15,895
177,925
-
188,843
130,278
-
45,933
496,003
56,220
2,560
919,837
1,097,762
732,204
107,219
15,894
15,119
40,000
637
50,268
2,333
3,644
1,541
236,655
81,076
246,777
-
378,461
118,667
562,863
4,655
105,140
13,151
2,525
1,513,315
1,749,970
51,480
9,171
16,786
512
77
44,533
28,627
15,463
166,649
7,909
199,285
121,252
-
32,144
496,624
69,391
2,444
929,049
1,095,698
654,272
497,005
(1,923)
237,122
732,204
497,005
(1,147)
158,414
654,272
106
InvoCare Annual Report 2021 127
Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4
Notes to the consolidated financial statements
continued
INVOCARE LIMITED AND SUBSIDIARIES
Notes to the consolidated financial statements
Other statutory disclosures
Note 26. Economic dependence
The parent entity depends on dividend and interest income from, and management fees charged to, its subsidiaries to source the
payment of future dividends and fund its operating costs and debt service obligations as borrower under the bank loan facility
agreements. The parent entity’s financial position is sound. 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 $191,028,000
as outlined in Note 14.E., or by on-demand repayment of intercompany advances.
Note 27. Remuneration of auditors
During the year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the parent
entity, InvoCare Limited, its related practices and non-related audit firms.
A. Audit services
Deloitte Touche Tohmatsu (2020: PricewaterhouseCoopers) - Australian firm
Audit and review of financial reports
Deloitte Touche Tohmatsu (2020: PricewaterhouseCoopers) - non-Australian firm
Audit and review of financial reports
Non-Deloitte Touche Tohmatsu (2020: Non-PricewaterhouseCoopers) - Singaporean firm
Audit and review of financial reports
Total remuneration for audit services
B. Non-audit services
Deloitte Touche Tohmatsu (2020: PricewaterhouseCoopers) - Australian firm
Assurance services
Taxation services
Other services
Deloitte Touche Tohmatsu (2020: PricewaterhouseCoopers) - non-Australian firm
Taxation services
Other services
Non-Deloitte Touche Tohmatsu (2020: Non-PricewaterhouseCoopers) - Singaporean firm
Other services
Total remuneration for non-audit services
C. Non-audit services prior to appointment as auditors
Deloitte Touche Tohmatsu - Australian firm
Taxation services
Other services
Total remuneration for non-audit services
2021
$
2020
$
550,000
525,121
-
22,443
29,569
579,569
32,152
579,716
26,741
55,000
246,486
22,400
11,500
-
-
-
49,033
1,633
-
328,227
11,476
96,042
113,566
121,149
234,715
-
-
-
It is the Company’s policy to employ Deloitte Touche Tohmatsu on assignments additional to their statutory audit duties where Deloitte
Touche Tohmatsu’s 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 Deloitte Touche Tohmatsu is awarded assignments on a
competitive basis. It is the Company’s policy to seek competitive tenders for any major consulting projects.
107
InvoCare Annual Report 2021 128
InvoCare Annual Report 2021 129
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Other statutory disclosures 108 Note 28. Other accounting policies A. New or amended accounting standards and interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are mandatory for the current reporting period. In April 2021, the IFRS interpretation committee published agenda decision Configuration or customisation costs in a cloud computing arrangement (AASB 138 Intangible Assets) which considers whether an intangible asset can be recognised in relation to configuration or customisation of application software. The financial impact and additional disclosures required are provided in Note 12 Intangibles. 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 settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. II. Inventories Inventories comprising of funeral merchandise and memorialisation property items in the Cemeteries & Crematoria and Pets Cremation 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. IV. Trade and other payables Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which had not been settled at balance date. The amounts are unsecured and are usually paid within 60 days of recognition. V. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the 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: • Hedges of the risks associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges) 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. Hedges that meet the criteria for hedge accounting are accounted for as follows. Shareholder and other informationSigned reportsGovernance & Directors’ reportOperating & financial review6532Overview1Consolidated financial statements4 Notes to the consolidated financial statements
continued
InvoCare Annual Report 2021 130
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Other statutory disclosures 109 a. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income within finance costs. Amounts accumulated in equity are recycled in the statement of comprehensive income within finance costs in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income. b. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the statement of comprehensive income. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the statement of comprehensive income. VII. Employee benefits a. Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12-months of the reporting date are recognised in other payables and provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled, including appropriate on-costs. b. Long service leave The liability for long service leave is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, including appropriate on-costs. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. c. Bonus plans The Group recognises a liability in other payables and an expense for bonus plans when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: • There are formal terms in the plan for determining the amount of the benefit • The amounts to be paid are determined before the time of completion of the financial report Past practices give clear evidence of a constructive obligation 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 2021. Section 5
Signed
reports
InvoCare Annual Report 2021 131
INVOCARE LIMITED AND SUBSIDIARIES Notes to the consolidated financial statements Other statutory disclosures 109 a. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income within finance costs. Amounts accumulated in equity are recycled in the statement of comprehensive income within finance costs in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). When a hedging instrument expires, is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income. b. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in the statement of comprehensive income. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the statement of comprehensive income. VII. Employee benefits a. Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12-months of the reporting date are recognised in other payables and provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled, including appropriate on-costs. b. Long service leave The liability for long service leave is recognised in the provision for employee benefits and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date, including appropriate on-costs. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. c. Bonus plans The Group recognises a liability in other payables and an expense for bonus plans when there is no realistic alternative but to settle the liability and at least one of the following conditions is met: • There are formal terms in the plan for determining the amount of the benefit • The amounts to be paid are determined before the time of completion of the financial report Past practices give clear evidence of a constructive obligation 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 2021. Directors’ declaration
InvoCare Annual Report 2021 132
INVOCARE LIMITED AND SUBSIDIARIES Directors’ declaration 110 In the directors’ opinion: The financial statements and Notes 1 to 28 are in accordance with the Corporations Act 2001, including: •complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reportingrequirements•giving a true and fair view of the Company’s and the Group's financial position as at 31 December 2021 and of theirperformance for the financial year ended on that datethere 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 25 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 25 Basis of preparation on page 75 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 28 February 2022 Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to the members of InvoCare Limited
Opinion
We have audited the financial report of InvoCare Limited (the “Entity”), and its subsidiaries (the “Group”)
which(cid:3) comprises the consolidated (cid:271)(cid:258)(cid:367)(cid:258)(cid:374)(cid:272)(cid:286)(cid:3) (cid:400)(cid:346)(cid:286)(cid:286)(cid:410) as at 31 December 2021, the consolidated statement of(cid:3)
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for(cid:3)
the year then ended, and notes to the financial statements, including a summary of significant accounting policies,(cid:3)
and the declaration by the Directors.
In our opinion the accompanying financial report of the Group, is in accordance with the(cid:3)Corporations Act 2001,(cid:3)
including:
(cid:120)
(cid:120)
giving a true and fair view of the Group’s financial position as at 31 December 2021 and of its financial
performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
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 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.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the
Directors of the Entity, would be in the same terms if given to the Directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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 of the current period. These 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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
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InvoCare Annual Report 2021 133
Key Audit Matter and why it was considered to be a
matter of most significance in the audit
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How the Key Audit Matter was addressed in the audit
As disclosed in note 9, 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 (“customer”) 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 (pre-paid contract funds
under management) and a liability to deliver the services
(pre-paid contract liabilities).
For the pre-paid contract funds under management, we
performed the following procedures amongst others:
-
-
agreeing a sample of balances recorded by the
Group to statements and confirmations received
from independent custodians; and
testing the valuation of the invested funds under
management by comparing a sample of
underlying investments to relevant unit prices
using market pricing data and custodian
confirmations.
As at 31 December 2021, the Group had recorded $649.9
million of pre-paid contract funds under management
and $540.4 million of pre-paid contract liabilities.
We have considered pre-paid funeral contracts to be a
key audit matter due to the:
-
-
size of the asset and liability balances; and
judgement involved in determining whether the
pre-paid funeral contracts include a significant
financing component as well as the discount rate
used to account for the significant financing
component within the contracts, as a result of
significant time differences that may arise
between receipt of cash from customers and the
subsequent recognition of revenue on the
delivery of services (redemption date).
For the pre-paid contract liabilities, we performed the
following procedures amongst others:
-
-
reviewing management’s paper in determining
whether or not these pre-paid contract liabilities
include a significant financing component; and
developing an independent expectation using an
appropriate discount rate and applying it to the
movements in the year for new contracts and
redemptions to assess the reasonableness of the
significant
financing component recognised
during the year.
For both the pre-paid contract funds under management
and the pre-paid contract liabilities, we performed the
following procedures amongst others:
evaluating management’s processes and controls
in respect of pre-paid funeral contracts;
agreeing the date and value of a sample of
contracts entered into during the year to the
contract;
selecting a sample of redeemed contracts
(recognised revenue) to assess whether the
Group’s performance obligation under the pre-
paid funeral contracts had been satisfied. This
relevant original
included comparing
contracts to service delivery documents and
investment returns to the amounts received back
from the fund; and
evaluating the reasonableness of the disclosures
requirements of Australian
against
Accounting Standards, in particular assessing the
current and non current classification in line with
the allocation as determined by an independent
actuarial expert.
the
the
-
-
-
-
134
InvoCare Annual Report 2021 134
Other Information
The Directors are responsible for the other information. The other information comprises the information included
in the annual report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial report or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, 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.
The Directors’ Responsibilities for the Financial Report
The Directors of the Group 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 Group’s ability 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 this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and
maintain professional scepticism throughout the audit. We also:
(cid:120)
(cid:120)
(cid:120)
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Directors.
135
InvoCare Annual Report 2021 135
(cid:120)
(cid:120)
(cid:120)
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures,
and whether the financial report represents the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the financial report. We are responsible for the
direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit
opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with the Directors, we determine those matters that were of most significance in
the audit of the financial report of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 48 to 67 of the Directors’ report for the year
ended 31 December 2021.
In our opinion, the Remuneration Report of the Group, for the year ended 31 December 2021, complies with section
300A of the Corporations Act 2001.
136
InvoCare Annual Report 2021 136
Responsibilities
The Directors of the Group 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.
DELOITTE TOUCHE TOHMATSU
Sandeep Chadha
Partner
Chartered Accountants
Sydney, 28 February 2022
137
InvoCare Annual Report 2021 137
InvoCare Annual Report 2021 138
Section 6
Shareholder and
other information
InvoCare Annual Report 2021 139
Five year financial history
Operating revenue ($’000)
Operating EBITDA ($’000)
Restateda
2021
2020
2019
2018
2017
527,096
476,249
499,665
480,198
473,879
125,477
102,565
144,433
118,998
124,316
Operating EBITDA margin (%)
24%
22%
29%
25%
26%
Operating earnings after tax attributable to equity holders ($’000)
45,143
27,994
59,066
49,496
63,403
Operating earnings per share (cents)
31.6
20.9
51.7
45.2
57.9
Profit/(loss) after tax attributable to equity holders ($’000)
80,158
(11,541)
63,752
41,224
97,439
Basic earnings per share (cents)
Total dividend (full year) (cents per share)
56.1
21.0
(8.6)
12.5
55.8
41.0
37.8
37.0
88.8
46.0
Ungeared, tax free operating cash flow ($’000)
131,913
102,140
118,776
104,222
116,891
Cash conversion %
105%
100%
82%
88%
94%
Actual capital expenditure ($’000)
62,703
60,952
65,289
84,120
47,471
Net debt ($’000)
Interest cover ratiob (times)
Leverage ratiob (times)
Funeral homes (number)
Memorial parks (number)
Pet cremation sites (number)
144,654
137,468
349,968
393,469
227,547
15.8
1.2
278
17
16
8.3
1.3
277
17
13
10.1
2.4
280
17
N/A
9.6
3.3
255
16
N/A
13.8
1.8
228
16
N/A
a
The Group adopted a change in its accounting policies in relation to the treatment of configuration and customisation costs incurred in implementing
SaaS arrangements. The change in accounting policies is to be applied retrospectively resulting in the need to restate 2020 financial year data.
b Definition of these measures is included in the Glossary on page 144 and 145.
InvoCare Annual Report 2021 140
Shareholders information
As at 24 March 2022
The following information is presented in compliance with ASX Listing Rules 4.10 (as relevant). The information is current as at 24 March 2022.
1 Corporate Governance Statement
The 2021 Corporate Governance Statement can be found on the Company’s website at
www.invocare.com.au/investor-relations/corporate-governance.
2 Securities on issue
Shares and options as at 24 March 2022
Ordinary shares on issue
Unquoted options on issue
3 Voting rights
Number
144,060,733
1,533,680
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 into 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
81,194,224
17,490,224
13,319,953
26,364,616
5,691,716
144,060,733
11,650
56.36
12.14
9.25
18.30
3.95
100.00
0.01
41
852
1,861
11,197
12,248
26,199
685
InvoCare Annual Report 2021 141
Signed reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review5432Shareholder and other information6Overview1
Shareholders information
As at 24 March 2022 continued
5 Top 20 registered shareholders
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
Australian Foundation Investment Company Limited
Argo Investments Limited
National Nominees Limited
Milton Corporation Limited
BKI Investment Company Limited
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd
Netwealth Investments Limited
Australian Executor Trustees Limited
Solium Nominees (Australia) Pty Ltd
Mirrabooka Investments Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Navigator Australia Ltd
Djerriwarrh Investments Limited
NULIS Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd SIX SIS Ltd
Number of shares
Percentage %
20,839,505
14,480,136
10,676,105
9,440,386
3,512,442
2,743,277
2,545,530
2,050,914
1,638,974
1,573,195
1,052,645
1,013,911
1,003,558
948,594
886,608
506,776
495,458
454,000
439,294
428,708
14.47
10.05
7.41
6.55
2.44
1.90
1.77
1.42
1.14
1.09
0.73
0.70
0.70
0.66
0.62
0.35
0.34
0.32
0.30
0.30
Total for top 20
76,730,016
53.26
InvoCare Annual Report 2021 142
6 Substantial shareholders
The share balances in this table are extracted from substantial shareholder notices received by the Company.
Shareholders
Kuang Ming Investments Pte. Limited
State Street Corporation and subsidiaries
Number of shares
Voting power
Date of last notice
8,729,098
7,739,880
6.06%
2 June 2021
5.37%
10 March 2022
InvoCare Annual Report 2021 143
Signed reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review5432Shareholder and other information6Overview1
Glossary
Term
AFSL
Description
Australian Financial Services Licence
Average capital
employed
Average working
capital % of sales
Average of opening and closing capital employed
Average of opening and closing working capital divided by Operating revenue for a 12 month period
CAPEX
Capital expenditure
Capital employed
As used in ROCE % calculation. Calculated as Total equity + Net debt
Cash conversion % Ungeared, tax free operating cash flows divided by Operating EBITDA
COVID
COVID-19 pandemic
Dividend payout ratio Dividend per share divided by Operating EPS
EBITDA margin
Operating EBITDA divided by Operating revenue
EPS
ERP
Earnings per share, calculated as Reported profit/(loss) divided by weighted average number of shares
Enterprise Resource Planning, e.g. the main Oracle general ledger financial system used by the business
Free cash flow
Operating cash flow + interest paid less CAPEX - maintenance less CAPEX – investment – platform
Funeral case average Calculated as funeral gross revenue divided by funeral case volume
Funeral case volume Number of funeral services undertaken
FUM
IFRIC
Funds under management in the pre-paid funerals business
International Financial Reporting Interpretations Committee
Calculated as Operating EBITDA divided by Net finance costs excluding AASB 16 interest, merchant fees and interest on
Interest cover ratio
customer advance payments. Interest cover 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)
Investment CAPEX
CAPEX undertaken to expand existing operations or further growth prospects, includes platform investments (IT and Shared
Service Centre projects)
Leverage ratio
testing purposes uses an Adjusted EBITDA measure (primarily adjusted to include proforma earnings from acquisitions and
Calculated for disclosure purposes as Net debt divided by Operating EBITDA. Leverage calculation used for bank covenant
costs arising from restructuring initiatives). r12 measure uses rolling 12-month Operating EBITDA
LGA
LTIFR
Local government area
Lost time injury frequency rate
InvoCare Annual Report 2021 144
Term
Description
Maintenance CAPEX Recurring annual CAPEX required to maintain facilities
Memorialisation
revenue
MTM
NBO
Net debt
NPS
Revenue earned from the sale of memorials, plaques, burial plots etc. in the Cemeteries & Crematoria business
Mark-to-market
Network & Brand Optimisation program of projects as part of Protect & Grow Strategy
Cash and cash equivalents + Borrowings + Finance leases
Net Promoter Score, calculated based on customer feedback with Group score representative of Australia and New Zealand
only
Operating EBITDA
Operating earnings before interest, tax, depreciation & amortisation and business acquisition costs and SaaS arrangements
Operating EBIT
Operating earnings before interest and tax
Operating EPS
Operating net profit after tax divided by Weighted average number of shares
Operating leverage
Means the percentage growth in Operating EBITDA divided by the percentage growth in Operating revenue
Operating NPAT
Reported profit excluding non-operating items and associated tax
Operating revenue
Revenue for the Group excluding revenue earned from pre-paid funerals business
OPEX to sales %
Operating expenses divided by Operating revenue
PCP
Prior corresponding period
Pet case average
Pet cremations revenue divided by Pet cremation volume
Pet cremation volume The number of pet cremations conducted
Reported profit/(loss) Net profit/(loss) attributed to equity holders of InvoCare Limited
ROCE
ROCE %
SaaS
TRIFR
Return on capital employed
Calculated as Operating EBIT divided by Average capital employed
Software-as-a-Service
Total recordable injury frequency rate
Ungeared, tax free
cash flows
Calculated as operating cash flow excluding 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
Working capital
Inventories + Trade and other receivables - Trade and other payables
InvoCare Annual Report 2021 145
Signed reportsConsolidated financial statementsGovernance & Directors’ reportOperating & financial review5432Shareholder and other information6Overview1 Corporate directory
InvoCare Limited
ABN 42 096 437 393
ASX code: IVC
Bart Vogel
Chairman
Olivier Chretien Managing Director and Chief Executive Officer
Kim Anderson
Non-Executive Director
Directors
Richard Davis
Non-Executive Director
Megan Quinn
Non-Executive Director
Keith Skinner
Non-Executive Director
Kee Wong
Non-Executive Director
Company Secretary
Heidi Aldred
InvoCare Annual Report 2021 146
Registered office
Share registry
Level 5, 40 Mount Street
North Sydney NSW 2060
Telephone: 02 9978 5200
Facsimile: 02 9978 5299
www.invocare.com.au
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Toll free: 1300 854 911
Facsimile: 02 9287 0303
Stock exchange listing
InvoCare Limited is a company limited by shares that is incorporated and domiciled in Australia.
InvoCare Limited’s shares are listed on the Australian Securities Exchange only.
Auditors
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
invocare.com.au