FY2022 Annual Report
Honouring life,
celebrating memories
for generations
2
InvoCare Annual Report 2022
About this report
FY2022
Sustainability Report
PEOPLE
PLACE
PLANET
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 2022,
including:
Our corporate reporting documentation is available for download on the
InvoCare Investor Relations page: www.invocare.com.au/investor-relations
Investor Presentation
Sustainability Report
InvoCare’s 2022 Annual Report (‘the report’)
is the primary statutory and regulatory
reporting disclosure of InvoCare Limited
and its subsidiary companies’ operations,
activities and financial performance. In
this report references to ‘InvoCare’, ‘the
Company’, ‘the Group’, ‘we’, ‘us’ and ‘our’
refer to InvoCare Limited (ABN 42 096 437
393), unless otherwise stated.
This report comprises information about
our activities, strategy, our financial and
non-financial performance, risk management,
remuneration and our financial statements.
The financial statements are structured
to provide prominence to the disclosures
that are considered most material and
relevant to the user’s understanding of the
operations, results and financial position.
A disclosure is considered material if for
example:
○
Ú
The dollar amount is significant in size
(quantitative factor)
○
Ú
The Group’s results cannot be
understood without the specific
disclosure (qualitative factor)
○
Ú
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)
○
Ú
It relates to an aspect of the Group’s
operations that is important to its future
performance
References in this report to a ‘year’ are to
the financial year ended 31 December 2022
(previous corresponding period
31 December 2021) unless otherwise stated.
All dollar figures are expressed in Australian
Dollars (AUD) unless otherwise stated.
References to AASB refer to the Australian
Accounting Standards Board and IFRS
refers to International Financial Reporting
Standards. There are references to IFRS and
non-IFRS financial information in this report.
Non-IFRS financial measures are those not
defined or specified under any relevant
accounting standard and may not be
directly comparable with other companies’
information. Non-IFRS financial measures
are used to enhance the comparability of
information between reporting periods and
should be considered in addition to, and not
a substitute for, IFRS financial information
and measures.
InvoCare is committed to reducing the environmental footprint associated with the production of this annual
report and printed copies are only posted to shareholders who have elected to receive a printed copy.
Cover image
A surfing paddle-out, a floating memorial
held in the ocean. Photo credit, Jay Headley
Section 1 – Overview
2
InvoCare at a glance
4
2022 performance highlights
6
2022 sustainability highlights
7
Chairman’s message
8
Our purpose, vision, values and business
10
Our strategy to 2025
11
Chief Executive Officer’s message
14
Executive Leadership Team
16
Section 2 – Operating and financial review
17
Financial review
18
Operating review: Our businesses
24
Outlook
33
Reconciliation of financial information
34
Section 3 – Governance and Directors' Report
35
Board of Directors
36
Directors’ report
39
Auditor’s independence declaration
41
Risks and uncertainties
42
Remuneration report - audited
46
Section 4 – Consolidated financial statements
65
Consolidated financial statements
66
Notes to the consolidated financial statements
73
Section 5 – Signed reports
127
Directors’ declaration
128
Independent auditor’s report
129
Section 6 – Shareholders and other information 135
Five year financial history
136
Shareholders information
137
Glossary
140
Corporate directory
142
InvoCare Annual Report 2022
3
Overview
Operating and
financial review
Governance and
Directors’ report
Shareholders and
other information
Signed
reports
Consolidated
financial statements
Index
InvoCare Limited
ABN 42 096 437 393
4
InvoCare Annual Report 2022
InvoCare at a glance
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.
49,211
Funeral
cases
Funerals 61%
Pet
cremations
4%
Cemeteries & Crematoria
35%
Australia 82%
Singapore 7%
NewZealand 11%
Operating
EBITDA
Overview
InvoCare Annual Report 2022
5
25,922
Cremations
and burials
99,612
Pet
cremations
+82.9
Net Promoter
Score
An exceptional
result
c.2,000
Employees
324
Locations
6
InvoCare Annual Report 2022
2022 performance highlights
Served a record number of client families, supporting strong results
Customer
and Team
NPS
+82.9
🡑 2.8 on PCP
LTIFR
7.6
🡓 41% on PCP
TRIFR
30.6
🡓 14% on PCP
Employee
Engagement
64%
🡑 8 ppts on PCP
NB Definition of terms and measures used in this report included in the glossary on pages 140 - 141
1 For reconciliation of operating to statutory results see page 34
2 Group gross funeral case average, including disbursements
3 Normalised Cashflow Conversion after removing the impact of change in accounting policy for SaaS costs expensed as incurred
Operational
Excellence
OPEX % Sales
52%
—
Debt Leverage ratio r12
1.3x
🡑 0.1x on PCP
Cashflow
Conversion3
101%
🡓 7 ppts on PCP
Growth:
Operational
Funeral Case Volumes
49,211
🡑 8% on PCP
Funeral Case Average2
$8,536
🡑 5% on PCP
Memorialisation
Revenue
+4.3%
🡑 On PCP sales
Pet Cremation Case
Volumes
99,612
🡑 14% on PCP
Growth:
Financial 1
Operating Revenue
$588.5m
🡑 12% on PCP
Operating EBITDA
$136.1m
🡑 9% on PCP
Operating
EBIT
$84.6m
🡑 9% on PCP
Operating
EBIT Margin
14.4%
🡓 0.4 ppts on PCP
Sustainable
Leadership
Sustainability reporting
‘Comprehensive’
Assessed by ACSI
Operating EPS
35.1¢
🡑 11% on PCP
Full Year
Dividends
24.5¢
🡑 17% on PCP
ROCE r12
11.6%
🡑 0.4 ppts on PCP
InvoCare Annual Report 2022
7
Overview
2022 sustainability highlights
People
○
Ú
Our customer experience reached
+82.9 Net Promoter Score (NPS)
in Australia and New Zealand.
Recommendation Score from
customers in Singapore was 99.3%
positive
○
Ú
Focused attention to early
intervention injury management
principles and progression of the
Safety Strategic plan resulted in a
42% decrease in LTIFR and a
14% decrease in TRIFR
○
Ú
Our employee engagement for the
‘Your Say’ survey score
increased by a substantial 8% from the
previous year
○
Ú
Introduction of the Health First
initiative and a refresh of our
Employee Assistance Program,
offering unlimited use of an
extended network of physical and
psychological support for our team
members and their families
Place
○
Ú
95 defibrillators were installed at
79 funeral homes and other large
sites including Memorial Parks
○
Ú
A comprehensive digital roadmap was
established across the business and
cyber security tightened
○
Ú
Inclusive Funerals provided a
multilingual functionality, launched
for four key nationalities (Chinese,
Vietnamese, Khmer and Laotian)
on the Universal Chung Wah (UCW)
Funeral Directors website, allowing
users to view content in their first
language
○
Ú
Our commitment to community
engagement continued to strengthen
with the development of our new
Community Engagement framework
in 2022 which will be launched in early
2023
Planet
○
Ú
Introduced 32 hybrid vehicles
to our fleet, replacing petrol and
diesel vehicles
○
Ú
In our pet cremations business we
replaced seven cremators with more
energy efficient models
○
Ú
Construction of a sustainable funeral
home in Coburg incorporating 10%
improvement on thermal efficiency,
rooftop solar, energy efficient lighting,
5-star rated plumbing fixtures, water
efficient landscape design and below
ground rainwater harvesting tanks
servicing amenities
○
Ú
Supply Chain Code of Conduct was
established, increasing compliance
monitoring. As part of our supplier
auditing process, we mapped 1,000 of
our largest direct suppliers to identify
high-risk modern slavery suppliers
InvoCare’s Environmental, Social and Governance (ESG)
are focused on three key themes: People, Place and Planet.
8
InvoCare Annual Report 2022
Chairman’s message
Dear fellow shareholder
InvoCare is now two years into its reset strategy,
and I am proud of the team’s achievements in
the face of continued operational challenges
faced by the industry as a whole. Customer
satisfaction, measured by NPS, has
grown, employee engagement has
improved, injuries to our people have
nearly halved, and we have maintained
our strategic momentum whilst also
delivering solid earnings growth
and return on capital employed. We
attribute this to the quality of our teams
and the advantages that our breadth of
brands, market positions and diversity
of operations brings.
FY22 financial results and
capital management
InvoCare reported operating revenue of
$588.5 million for the year, an increase of
12% on the prior corresponding period (PCP)
and delivered continued growth in operating
earnings, with operating earnings before interest and
tax (EBIT) for the year ended 31 December 2022 (FY22)
up 9% to $84.6 million.
Despite solid operational growth, global equity market volatility
in the first half of the year has caused a net unrealised mark-to-
market loss on the revaluation of pre-paid funds under management
assets to be booked, driving a reported loss of $1.8 million for the
year. This is a point in time revaluation of our pre-paid funds under
management, which are independently managed. We note that
there remains material headroom between the pre-paid funds
under management assets and the associated pre-paid contract
liabilities on the Group’s balance sheet. The potential volatility in
this twice-yearly accounting revaluation is the reason we exclude
these outcomes from the Group’s operating earnings measures.
They also have no bearing on our ability to determine dividends to
shareholders, which are based on a dividend payout ratio applied to
operating earnings per share.
Continuing strategic momentum and strong recovery in key
fundamentals have delivered growth in the Group’s Operating
earnings per share (EPS) to 35.1 cents, 11% above the PCP. This
strong growth in earnings and above threshold cash conversion
has enabled the Board to determine a final fully franked dividend of
11 cents per share, which brings the full year dividend to 24.5 cents
per share, an increase of 17% in our distributions to shareholders
on the PCP. The resulting dividend payout ratio of 70% reflects
an appropriately prudent approach to capital management given
the opportunities for investment in growth initiatives set out in our
strategy.
In 2022, InvoCare continued
to build on its market leading
position in Australia, New
Zealand and Singapore. Our
ongoing investments in our
people, facilities, systems and
digital capabilities, as well as our
health and safety and operating
standards have delivered a
stronger, more resilient, and more
customer focused organisation.
InvoCare Annual Report 2022
9
Overview
Sustainability strategy – People, Place & Planet
Our commitments to our Environment, Social and Governance (ESG)
goals and five-year strategic plan continued to deepen during 2022,
cementing the foundations of our Sustainability Strategy.
For InvoCare, sustainability is a long-term commitment, and we want
to understand the full scope of our impact to ensure our targets and
goals for our core sustainability areas — People, Place and Planet
— are measurable and realistic. This approach is all about driving
genuine and lasting change across our operations. In 2022:
○
Ú
We continued to update and enhance our health, safety and
well-being practices with focused attention on early intervention
injury management, the introduction of our Health First initiative
and a refresh of our Employee Assistance Program
○
Ú
Our commitment to community engagement continued
to strengthen with work undertaken on our Community
Engagement framework, which is being launched in early 2023
○
Ú
We have deepened our understanding of the greenhouse
gas footprint of our business, so we are in the best position to
actively manage emissions reduction, with targets to be outlined
in our Sustainability Report next year
○
Ú
We have developed an approach to understand our modern
slavery risks among our major suppliers and the third-party value
chains in which they operate. We also developed our Supply
Chain Code of Conduct and have started to monitor compliance
Our plans to deliver our Sustainability Strategy and achieve our 2025
ambitions are continuing to drive exceptional service for our client
families and underpin the returns we generate for shareholders.
Acquisition offer
As advised to the ASX, on 7 March 2023, InvoCare received an
unsolicited, preliminary, non-binding indicative offer from TPG
Global LLC for the 100% acquisition of InvoCare by way of a scheme
of arrangement. On 27 March 2023, after due consideration, the
InvoCare Board unanimously concluded that the indicative offer
does not provide compelling value for InvoCare shareholders.
The Board will continue to monitor the evolving position and will
assess the merits of any offer according to what is in the best
interests of shareholders and communicate its response in line with
its continuous disclosure obligations. The Board recommends that
InvoCare shareholders take no action in relation to the Indicative
Proposal at this time.
InvoCare Board and governance
The Board composition remains the same as at the end of 2021
with no appointments or resignations to report during the year.
Our focus remains on ensuring InvoCare is a
successful, sustainable, long term business
InvoCare is a strong and growing business, and we are confident that
the investments made to date are setting the business up to take
advantage of the recovery to normal operating conditions. With a
growing and ageing population in all our markets, strategic assets as
well as our exposure to the entire customer lifecycle from pre-need, to
at-need and beyond, the Board and I are positive about the long-term
fundamentals of our business and are confident that the Group is well
placed to deliver near and long-term shareholder value.
I would like to take this opportunity to thank the InvoCare team, led by
CEO Olivier Chretien, for the way they have navigated another year
of challenging external conditions. On behalf of the Board, I would
also like to thank our shareholders and our many customers and client
families for their continued support. We served a record number of
client families this year and the Board is confident that InvoCare has
the right strategy in place to continue to do so into the future.
Yours sincerely,
Bart Vogel
Chairman
...the Board and I are positive about the long-term fundamentals of our business and are
confident that the Group is well placed to deliver near and long-term shareholder value.
10
InvoCare Annual Report 2022
Our purpose, vision, values and business
CARES
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
communities 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 everyday
OUR VALUES
Underpinning the
achievement of our
strategic objectives and the
culture of InvoCare are our
CARES values:
OUR BUSINESSES
Pre-need
Planning
At-need
Funeral
Post-need
Memoralisation
Pet cremations
Support
OUR PURPOSE
Honouring life,
celebrating
memories for
generations
Our purpose is in ‘honouring
life, celebrating memories for
generations’, reflecting that, with
our team, breadth of offerings,
and strategic assets, InvoCare
is uniquely positioned to service
our customers’ needs along their
life journey.
OUR VISION
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, our client families
and their pets, and being a
valued leader within the death
care sector is fundamental to
our long-term success and the
creation of shareholder value.
InvoCare Annual Report 2022
11
Overview
Our strategy to 2025
In May 2021, InvoCare announced to shareholders a refreshed strategy under the guidance of a new CEO
and management team to take it through to 2025. The strategy is designed to deliver on our purpose and
vision whilst staying true to our core values.
The refreshed strategy recognised the need for an initial foundational reset (‘Raising the Bar’) to enable
the Group to extract greater value from its core businesses and to better leverage the investments made in
the prior five years, and then, use this position for strong and sustainable growth. There are five pillars to the
strategy whose objectives and ambitions for 2025 are outlined below:
Customer-led
people empowered
Be customer-
centric in everything
we do
Trusted
by client
families and
communities
Outstanding
NPS
Great
place to
work
High engagement
and retention
Recognised
industry leader
and partner of
choice
Sustainability
commitments
Creating
value for all
stakeholders
EPS growth and
satisfactory ROCE
2025 ambitions
Phase 1: Raising the Bar
Operational
excellence
Optimise our
foundations to drive
sustainable returns
Stronger core
growth
Excel in servicing
customer needs and
grow share of market
value
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
12
InvoCare Annual Report 2022
Strong momentum
in strategy execution
continued during
the year. The Group’s
immediate focus
on ‘Raising the Bar’
involved working
on the business
foundations with a
focus on simplification,
standardisation and
automation with the
current year seeing this
phase of the strategy
substantially complete.
A description of our strategic priorities
and some Group-level achievements
in the year is included opposite. At a
divisional level, detailed strategies are
developed specific to the opportunities
to improve each of our businesses
within these five strategic pillars and
these are discussed in further detail in
the respective performance summaries
starting on page 24.
Customer-led,
people empowered
This first pillar is about being customer-
centric in everything we do and
empowering our frontline teams. By
better engaging and empowering our
people we can maintain our exceptional
Net Promoter Score (NPS) and expand
customer advocacy while building a great,
safe, and inclusive place to work.
Our primary focus remained the care and
service of our client families. This year
we launched our “WeCARE” enhanced
customer feedback platform; expanded
our national call centre, enabling it to
field 27% more calls than in the PCP; and
launched WeCare First Contact to assist
with our goal of ensuring no family goes
unsupported. With a high proportion of
sales driven through referrals, InvoCare
prides itself on constantly working to raise
the quality of its service standards, as
reflected in our NPS increasing to +82.9 at
the end of 2022, up 2.8 points on the PCP.
A second ‘Your Say’ employee
engagement survey was conducted in
the year, recording a pleasing increase in
response rate to 76%. The survey format
was consistent with that performed in 2021
allowing for a comparison of the employee
experience and benchmarking against
similar-sized organisations and industries.
Pleasingly Group employee engagement
increased 8 points to 64% and with over
3,000 comments, insights from the survey
have been cascaded across the business,
with our teams building targeted action
plans to address the feedback provided.
Operational
excellence
This pillar focuses on the Group’s
operating model, network performance,
costs, and capital discipline. The Group has
sought to rejuvenate its funeral facilities as
part of a comprehensive facility upgrade
program in recent years and now looks
to expand and optimise its network plans
ensuring it has the right location with the
right offer to service its chosen markets.
Increasingly, the Group will focus on the
implementation of a more streamlined
operating model to extract efficiencies
and enhance customer service and reach.
In 2022 we commenced the phased rollout
of our new Cemeteries & Crematoria
Enterprise Resource Planning (ERP)
system with 13 out of 15 memorial parks
transitioning onto the new system by the
end of the year and the final two parks
successfully transitioned in February 2023.
We also implemented a new Group payroll
system ahead of new workforce planning
tools, continued to invest in new shared
service centres with four delivered in the
year and ongoing process standardisation
and simplification continued. We also
brought forward the operational
integration of our three pet cremations
businesses to better enable faster and
more sustainable growth.
Our strategy to 2025
continued
InvoCare Annual Report 2022
13
Overview
Stronger
core growth
Each business focuses on securing its
share of available value in its chosen
markets by expanding the range of
services offered to client families – rather
than seeking to only grow market share
in volume (i.e. cases) alone. This includes
a renewed focus on pre-paid funerals to
underwrite future long-term growth in the
Funeral business.
In the second half of the year, we made a
targeted investment in our funeral network
in Victoria. Improvements were also made
to our brand value propositions, pricing,
and procurement strategy during the year.
We trialled new memorialisation product
ranges, upgraded key websites to improve
traffic conversion, and initiated a program
to optimise customer digital and phone
channels. To support longer-term growth
in our Cemeteries & Crematoria business,
we progressed with ‘Park as a Destination’
master planning for several memorial
parks.
Further details on what this particular
strategic objective means for each of our
businesses and key achievements are
located further in this report.
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 life journey.
We expanded our digital self-serve
capabilities as well as the breadth of
activities of our Group Innovation Hub,
including an investment in US-based
Parting Stone Incorporated (solidified
cremated remains). We increased the take
up of Memories digital memorialisation
across our network and rolled out carer
grief support training with our not-for-
profit partner Violet. Our businesses
continued to expand key commercial
agreements – including community
agreements in our memorial parks and
national vet network agreements. Finally,
we commenced rebuilding a pipeline of
potential merger and acquisition and
partnership opportunities.
Sustainable
leadership
Finally, the fifth pillar is InvoCare’s
commitment to sustainable
industry leadership. The Group is
enhancing its efforts on sustainability
through its ‘People, Place, Planet’
sustainability strategy, with our 2021
Sustainability Report being assessed as
‘Comprehensive’ by the Australian Council
of Superannuation Investors. Work is
underway to establish greenhouse gas
emissions and reduction opportunities.
Further details on the Group’s
Sustainability Strategy to be provided in
the Group’s 2022 Sustainability Report.
In addition to our broader environmental
and sustainability goals, this pillar also
involves a leadership focus on safety
and operational standards of care, and
on diversity and talent development, as
our people are fundamental to customer
advocacy. InvoCare has an overarching
Health and Safety Strategy, aimed at
developing and delivering innovative,
sustainable interventions that promote
team member peak performance and
reduce injury, illness and fatal risk. We have
grown our Safety and Injury Management
teams and introduced clearer targets and
safety management plans. This continued
investment and focus on safety saw the
Group’s LTIFR reduce by more than 40%
and TRIFR reduce by 14% on the PCP.
Finally, we continued to grow our two key
measures of long-term success, Operating
EPS (up 11% to 35.1 cents) and ROCE (up
0.4 ppts to 11.6%).
14
InvoCare Annual Report 2022
Chief Executive Officer’s message
Dear shareholders
I am pleased to report that in 2022 we have lifted our financial
performance while at the same time continued to improve our
service delivery to client families, our team engagement and
safety outcomes, as well as the quality of our processes, systems
and facilities.
Echoing Bart’s message, I would like to thank all our employees
in Australia, New Zealand and Singapore for their tireless service
to our client families. I also wish to thank my Executive Leadership
Team for their dedication and support navigating a year of record
demand for our services, delivering solid earnings growth and
importantly, positive strategic momentum.
The year started with an expectation of a “post COVID”
normalisation; we instead faced a number of disruptions to our
operations and operating margins, but nevertheless maintained
our long-term focus, investing in our businesses and platforms to
enable future growth.
Momentum in executing our strategy and
Group performance
We are two years into our five-year strategy. Over the past
12 months we have made significant progress in the initial phase
of our 5-year plan focused on ‘raising the bar’ operationally and
in simplifying our business foundations, which is now largely
complete. Operational efficiency programs will continue but the
team’s focus is increasingly shifting to profitable growth initiatives.
Importantly, we have continued to deliver on our key measures
of success.
Customer satisfaction increased to a record NPS of +82.9,
employee engagement lifted 8 points to 64%, and safety
outcomes improved significantly with total recordable injury
frequency rate (TRIFR) reducing 14% and lost time injury frequency
rate (LTIFR) reducing 41% on the previous year.
We maintained a strong balance sheet, and pleasingly, delivered
another year of growth in our key long-term financial measures of
success, with Operating EPS up 11% to 35.1 cents and our enterprise
return on capital employed (ROCE) up 0.4 points to 11.6%.
Many more client families needed us this year compared to the
years before, with some very strong peaks in demand at specific
times of the year. This has contributed to our businesses servicing a
record number of funeral client families in the year at over 49,000;
double digit growth in burial and cremations volumes in our memorial
parks to over 25,000; and just under 100,000 pet cremations were
performed. We also sold pre-paid funeral contracts to over
4,000 customers. As a result, Operating revenue increased 12%
to $588.5 million for the year.
Faced with tight labour markets and health-related absenteeism
particularly in the first half, the highly variable demand often
outstripped labour supply, and we have not always been able
to offer every family the funeral date of their choosing, or in some
of our larger locations in Australia, had the capacity to respond
to all demand while maintaining high service levels and safe,
efficient practices.
Additionally, inclement weather on the east coast of Australia for
most of the first half impacted our ability to construct memorials,
conduct timely burials and efficiently maintain our parks.
These two factors, combined with elevated employee vacancy
rates, meant more expensive labour resources (in the form of
overtime, contractors and casuals) were used to service demand
and undertake maintenance activities, which has impacted our cost
of doing business and thus operating leverage in the Australian
business this year.
Business highlights
Our funeral business in Australia served a record number of client
families, with growth coming from all markets and both local and
national brands. Demand for higher service funerals continued
and the benefits of our diverse footprint, breadth of brands and
increased product and service offerings has contributed to a
12% growth in Operating revenue and EBITDA on the PCP. The
business delivered these results while providing excellent service
to client families and improving training and safety outcomes for
employees. We continued targeted network investment, including
the acquisition of a funeral business in north-east Melbourne, the
enhancement or establishment of a further seven locations as well
as four shared service centres, and the successful transition of
all historic acquisitions onto the one IT platform. Significantly, the
business made great progress in its omnichannel strategy to deliver
broader and better services to client families, introducing much
enhanced functionalities and new services across our customer care
centre, websites and new digital channels.
Sales momentum in the east coast-based Cemeteries and
Crematoria business was disrupted in the first half with excess
rainfall severely limiting memorialisation sales and increasing cost
of doing business, but drier weather in the second half allowed for
some catch up in sales and memorialisation construction.
InvoCare Annual Report 2022
15
Overview
... we have lifted our financial performance while at the same time continued to
improve our service delivery to client families, our team engagement and safety
outcomes, as well as the quality of our processes, systems and facilities.
On a pre-AASB 15 basis, Operating revenue and EBITDA
increased 9% and 7% respectively on the PCP. The team
continued to expand its community engagement and invested in
cremator capacity, which is due for delivery in 2023. A number of
park masterplans were developed to make them a ‘destination’
with expanded sources of revenues into the future. Importantly,
the team implemented a new ERP system to deliver better
functionality for our teams, client families and funeral partners,
with all 15 parks migrated by February 2023.
Double digit growth in pet cremation volumes and continued
growth in the number of vets serviced has contributed to a
strong 19% growth in Operating revenue in our pet cremations
business. We took the step to operationally integrate all brands
into one national business to set it up for accelerated growth. This
initially led to an increase in costs in the first half as we invested
in capability to better manage the combined business, but
importantly allowed us to implement a national service, product
and pricing approach in the second half, that has driven benefits
in case average, up 7% on the PCP, and the business is well set up
for continued growth.
Pleasingly, we continued to see the trend in a return to full-service
farewells in our two international markets part way through
the year, following the lifting of gathering restrictions. This was
particularly evident in Singapore, which experienced a 23%
increase in funeral case average. Like Australia, New Zealand saw
a lift in demand to record levels as the country experienced the
impact of its loosening of restrictions and border controls and
an increase in COVID infection rates. Both countries delivered
double-digit growth in Operating revenue and the smaller size of
the operations also meant they had a greater latent capacity to
service additional volumes, delivering operating leverage above
one time and improved margins. This resulted in strong Operating
EBITDA growth in both businesses, with New Zealand up 30% and
Singapore up 21% on the PCP.
Additionally, our support teams made outstanding progress on
delivering better processes, systems and programs to support
the development of a greater place to work for our teams, and to
enable efficiency and growth strategies across our businesses,
as well as community and sustainability initiatives.
I continue to be extremely proud of our teams and the important work
they do for our communities. Without a doubt, they live our CARES
values everyday through their professionalism, extraordinary resilience,
and commitment to a single-minded service ethos always ensuring the
best possible care to client families.
Outlook
This initial phase of our strategy was a necessary one to set the business
up for long term success. I am confident that the investments made
to reset our business foundations have positioned us strongly to take
advantage of the recovery to normal operating conditions and the longer-
term outlook of a growing and ageing population in all our markets.
We can turn our attention to leveraging our assets, our market-leading
positions along the entire customer lifecycle and our balance sheet
capacity to increasingly focus on profitable organic and acquisitive
growth. I am confident in my team delivering on these objectives, to drive
near and long-term shareholder value.
Finally, I too would like to thank all our client families and shareholders
for their ongoing support.
Olivier Chretien
Managing Director & Chief Executive Officer
16
InvoCare Annual Report 2022
16
InvoCare Annual Report 2022
Victoria Doidge
Executive General Manager
– Customer
Lynne Gallucci
Executive General Manager
– Australian Funerals
Penny Lovett
Executive General Manager
– People and Culture
Steve Nobbs
Executive General Manager
– Cemeteries & Crematoria
Fergus Kelly
Executive General Manager
– Stakeholder Engagement
Adrian Gratwicke
Chief Financial
Officer
Grace Westdorp
Executive General Manager
– Health, Safety & Sustainability
Heidi Aldred
General Counsel /
Company Secretary
Tim Higgins
Executive General Manager
– International, Strategy & Innovation
Executive Leadership Team
Olivier Chretien
Chief Executive
Officer
SECTION 2
Operating and
financial review
18
InvoCare Annual Report 2022
Financial review
To grow earnings per share and
total shareholder returns, we seek
to complement the 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:
○
Ú
Financial discipline – Focus on cost control and efficiency to
drive positive operating leverage
○
Ú
Portfolio management – Act decisively on the allocation of
capital and managing returns from investments
○
Ú
Balance sheet strength – Maintain funding flexibility and
disciplined capital management to support growth aspirations
○
Ú
Cash flow generation – Pursue working capital efficiency and
realisation of profits into cash to reinvest in the business
The Group’s performance in these areas during the year is set out
on the following pages. The prior corresponding period (PCP) is the
year ended 31 December 2021.
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.
The Board determined a fully franked final dividend of 11.0 cents per
share, increasing full-year dividends to 24.5 cents, representing a
dividend payout ratio of 70% of Operating EPS, within the Group’s
preferred payout range.
2022
cents
2021
cents
Movement
%
Basic earnings per share (EPS)
(1.3)
56.1
(102.3)
Operating EPS
35.1
31.6
11.1
Interim dividend
13.5
9.5
42.1
Final dividend
11.0
11.5
(4.3)
Total dividend (full year)
24.5
21.0
16.7
Dividend payout ratio (%)
70%
66%
4 ppts
Profit performance for the year
Strong growth in funeral case volumes and burial and cremation
volumes, growth in funeral case average, incremental growth in
memorialisation sales in the Australian Cemeteries & Crematoria
business, and control of costs have driven record operating
earnings in the year. However, after accounting for a net loss on the
unrealised ‘mark-to-market’ revaluation of pre-paid funeral funds
under management (FUM), the Group delivered a reported net loss
after tax attributable to shareholders of $1.8 million. Unlike the PCP,
where equity markets generated a net revaluation gain, the volatility
in global equity markets in 2022 has led to an unrealised revaluation
loss of $55.6 million on these assets.
This volatility in accounting-driven mark-to-market revaluations of
undelivered pre-paid funeral contracts is why InvoCare considers
Operating earnings before interest, tax, depreciation, and
amortisation (Operating EBITDA) and Operating earnings before
interest and tax (Operating EBIT) as key performance measures.
Operating EBITDA, EBIT and net profit after income tax (NPAT)
exclude the following items:
○
Ú
The financial impacts of the pre-paid funerals business
○
Ú
Other non-operating activities, including asset sale gains/losses,
impairment gains/losses, accounting for SaaS arrangements
expensed as incurred, and restructuring costs, as relevant
○
Ú
Net finance costs associated with the pre-paid funerals business
○
Ú
The income tax effect of the above items
A reconciliation of operating to statutory financial results is included
on page 34.
InvoCare Annual Report 2022
19
Operating and
financial review
Set out in the table below are the operating result and key
performance metrics:
2022
$’000
2021
$’000
Movement
%
Revenue
588,535
527,096
11.7
Expenses
(452,420)
(401,619)
12.6
EBITDA
136,115
125,477
8.5
Depreciation and amortisation
(49,620)
(47,759)
3.9
Pre-paid technology expenses
(1,315)
(654)
101.1
Business acquisition costs
(1,005)
(743)
35.3
Net gain on lease
modifications/terminations
446
1,517
(70.6)
EBIT
84,621
77,838
8.7
Net finance costs
(14,272)
(15,262)
(6.5)
Profit before income tax
70,349
62,576
12.4
Income tax expense
(20,103)
(17,320)
16.1
Non-controlling interests
(95)
(113)
(15.9)
Operating net profit after
income tax attributable to
equity holders of InvoCare
Limited
50,151
45,143
11.1
Operating EPS (cents per share)
35.1
31.6
11.1
OPEX to sales %*
52%
52%
0 ppts
EBITDA margin (%)
23.1%
23.8%
(0.7 ppts)
EBIT margin (%)
14.4%
14.8%
(0.4 ppts)
* For calculating OPEX to sales %, OPEX represents operating
expenses excluding finished goods, consumables, and funeral
disbursements costs
The operating revenue result reflects growth in key value drivers
with 7% growth in funeral case volume in Australia and 11% growth in
New Zealand, 5% growth in Group funeral case average, 14% growth
in pet cremation volumes to just under 100,000 and double-digit
growth in cremation and burials at our memorial parks.
A timely, disciplined pricing strategy, strong sales volume, and
cost control are reflected in a steady OPEX to sales percentage
compared to the PCP. The $51 million (13%) increase in operating
expenses includes an $18 million increase in ‘finished goods,
consumables, and funeral disbursements’ reflecting increased
sales activity, and the frictional cost of staff shortages with a
$2 million increase in external mortuary ambulance costs, and
$27.8 million growth in employee expenses. Annualisation of
capability investments made in 2021, the impact of wage increases
(including Enterprise Bargaining Agreements), additional staff
onboarded to meet volume growth, and variable costs associated
with increased sales activity, such as overtime, have all contributed
to employee cost growth.
Depreciation and amortisation expense is $1.9 million higher than
the PCP driven by the impact of capital investment in the current
and prior years and a $1.6 million increase in AASB 16 related
depreciation, primarily from the impact of increased motor vehicle
leases including expansion of the pet cremation’s fleet.
The $1 million decline in net finance costs reflects the annualised
benefit of lower commitment fees payable on available debt facilities
following the refinancing undertaken in September 2021. The
new flexible revolving cash advance facility has also led to better
management of debt draw downs and has allowed for more efficient
management of interest paid. This is despite a nearly 2 percentage
points (ppts) increase in the Group’s weighted average cost of debt
over the year given the increases in cash rate (and subsequent
impact on BBSY). This cash rate increase has benefitted interest
income earned, which has increased $0.6 million on the PCP.
The movement in operating income tax expense reflects improved
operating profit performance, with the effective tax rate (ETR)
on operating earnings marginally increasing by 1 ppt to 29%.
The Group’s ETR is a blended rate reflecting differing tax rates in
Australia, New Zealand, and Singapore.
20
InvoCare Annual Report 2022
Portfolio management
Decisive action to invest, restructure or divest non-core operations
while fulfilling the Group’s investment and strategic priorities is vital
to managing InvoCare’s portfolio of operations.
Two acquisitions were made during the second half, the bolt-on
acquisition of Victorian funeral business William Matthews Funerals
for $2.6 million, and a strategic equity investment in Parting Stone
Incorporated ($1.8 million). The Group disposed of land and buildings
in one location in Victoria for proceeds of $1.8 million. This transaction
also gave rise to a net gain on the disposal of non-current assets of
$0.4 million, which has been recognised in Non-operating EBIT.
The decision was made at the end of 2021 to accelerate the
operational integration of the pet cremations businesses acquired
in H2 2020. To meet the heightened requirements for supporting a
national pet cremations business, the leadership structure has been
reviewed and some changes have been made to increase capability
and skillset to sustainably support the division on a national basis
over the long term. One-off costs associated with hiring that talent
and accelerating the integration have been included within the
$1.5 million of restructuring costs included within Non-operating
EBIT.
Balance sheet
InvoCare continues to maintain a strong balance sheet with a
disciplined focus on working capital management. The Group’s
capital employed excluding net debt items is comprised of the
following.
Total capital employed at the reporting date
2022
$’000
2021
$’000
Movement
%
Trade and other receivables
87,877
80,630
9.0
Inventories
45,463
46,866
(3.0)
Trade and other payables
(80,528)
(69,226)
16.3
Net working capital
52,812
58,270
(9.4)
Property, plant and equipment
526,141
494,454
6.4
Intangibles
233,045
226,913
2.7
Pre-paid technology assets
15,709
8,601
82.6
Net pre-paid funds under
management/contract liabilities
49,207
109,435
(55.0)
Deferred selling costs
34,927
35,755
(2.3)
Deferred contract assets
365
1,963
(81.4)
Net right of use asset and lease
liabilities a
(10,246)
(12,646)
19.0
Deferred revenue
(120,295)
(127,959)
6.0
Net tax items
(38,502)
(47,095)
18.2
Other items b
(15,239)
(22,116)
31.1
Total capital employed
727,924
725,575
0.3
Net debt
(182,708)
(144,654)
(26.3)
Net assets
545,216
580,921
(6.1)
Average working capital
% of sales c
9.4%
11.4%
(2 ppts)
ROCE % d
11.6%
11.2%
0.4 ppts
a Excludes certain finance leases which are considered ‘debt-like’ and
included in the net debt balance
b Includes assets held for sale, other financial assets, derivative
financial instruments, provisions for employee entitlements, and
contingent consideration
c 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 rolling 12 months / (average Total equity +
average Net debt)
Financial review
continued
InvoCare Annual Report 2022
21
Operating and
financial review
Increased sales activities towards the end of the year have driven an
increase in current and forward-aged debtors and trade and other
payables and accruals. In addition, an increase in capital expenditure
run rate, particularly due to the timing of progress payments for
various network projects and cremator purchases, has also driven an
increase in trade and other payables and contributed to a decrease
in working capital relative to 31 December 2021. This decline in net
working capital has also driven a 2.0 ppts improvement in average
working capital % of sales on a rolling 12-month (r12) basis to 9.4%.
The increase in property, plant, and equipment, and intangible assets
is primarily driven by capital expenditure additions in the year from
ongoing investment in maintaining our facilities and key strategic
platform and growth investments, including in the IT and digital
space. $2.6 million of goodwill recognised on the Funerals Australia
bolt-on acquisition is also a driver of the increase in intangible assets.
This has been partially offset by the impact of depreciation and
amortisation for the year.
Pre-paid technology assets were $15.7 million at year-end with the
increase driven primarily by spend associated with the ERP system
implementation for the Cemeteries & Crematoria business. These
assets will be unwound through Operating EBIT throughout the
period of the related software service.
The unfavourable mark-to-market revaluation of pre-paid funds
under management (FUM) in the year is the largest movement
in capital employed. Combined with the revaluation of pre-paid
contract liabilities to take into account the future cost of delivering
the service, this contributed to a $60.2 million decrease in net
pre-paid FUM/contract liabilities. This impact is partially offset by a
decrease in associated net deferred tax balances.
Deferred revenue has declined $7.7 million from December
2021 with drier conditions at the end of the year allowing for
memorialisation construction in the Cemeteries & Crematoria
business, although activity was constrained for much of the first half
of the year due to the inclement weather.
The decrease in Other items is driven primarily by $6.3 million of
payments of deferred acquisition consideration for businesses
acquired in prior years. Other items also include a $1.8 million
increase in other financial asset from the investment in Parting Stone
Incorporated.
The Group achieved ROCE of 11.6%, a 0.4 ppts increase on the
PCP. This reflects primarily the growth in Operating EBIT, up 8.7%
to $84.6 million as the impact of the decrease in net pre-paid
FUM/contract liabilities compared with capital investment increases
in assets has held average capital employed relatively flat.
Net debt at the reporting date
2022
$’000
2021
$’000
Movement
%
Cash and cash equivalents
31,659
53,630
(41.0)
Borrowings
(200,596)
(188,843)
6.2
Finance lease liabilities
(13,771)
(9,441)
45.9
Net debt
(182,708)
(144,654)
26.3
Total shareholders’ equity
545,216
580,921
(6.1)
Leverage ratio (times)
1.3
1.2
0.1
Interest cover ratio (times)
19.0
15.8
3.2
The Group ended the year with cash on hand of $31.7 million. See
the cash flow section below for further analysis of the $21.9 million
reduction compared to PCP. Of the $38.1 million increase in net
debt from December 2021, $4.3 million is attributed to an increase
in finance lease liabilities as the Group progressively replaces its
vehicle fleet. The remaining movement is from the net of $35 million
of drawdowns from the Syndicated Debt Facility during the year to
fund capital investments and other IT and digital-related projects,
$25.4 million of which was repaid by the end of the year as cash
generation improved, particularly in New Zealand.
On 31 December 2022, the Group had access to $382.4 million of
loan facilities, $202.1 million of which was drawn:
○
Ú
A ten-year $100.0 million Note Purchase Agreement with
MetLife, fully drawn and due for repayment in February 2028
○
Ú
A three-year $275.0 million Syndicated Debt Facility Agreement
supported by a panel of lenders providing available funds
through a Multi-Currency Revolving Cash Advance facility due
for repayment in August 2024. $102.1 million of this was drawn at
the reporting date
○
Ú
A one-year $7.4 million working capital overdraft facility
provided by transactional banker, ANZ. $Nil drawn at the
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 EBITDA basis (e.g. the inclusion of the
proforma earnings contributions from acquisitions and to adjust
for costs arising from restructuring initiatives). The covenant target
ratios are as follows:
○
Ú
Leverage ratio (being net debt to adjusted EBITDA) must be no
greater than 3.5 times
○
Ú
Interest cover ratio (being adjusted EBITDA to net interest
adjusted to remove interest related to AASB 16 Leases) must be
greater than 3.0 times
The above covenant ratios continued to be met as of
31 December 2022.
22
InvoCare Annual Report 2022
Cash flows
InvoCare aims to use the cash generated from operations to pay
down borrowings, fund capital expenditure and acquisitions and
distribute dividends to shareholders.
Abridged cash flow statement
2022
$’000
2021
$’000
Movement
%
Statutory EBITDA
132,748
124,974
6.2
SaaS arrangements
expensed as incurred
(13,395)
(4,170)
221.2
Net change in working capital
(29,050)
(19,074)
(52.3)
Net finance costs paid
(14,288)
(14,219)
(0.5)
Tax paid
(6,317)
(9,771)
35.3
Operating cash flows
69,698
77,740
(10.3)
Acquisitions
(11,599)
(16,716)
30.6
Divestments/sale of assets
1,845
11,180
(83.5)
Capital expenditure
(63,348)
(62,703)
(1.0)
Net funds from pre-paid contracts
29,769
29,306
1.6
Investing cash flows
(43,333)
(38,933)
(11.3)
Dividends paid
(36,153)
(23,883)
(51.4)
Net draw down/(repayment)
of borrowings
9,562
(59,680)
116.0
Net lease payments
(22,246)
(20,196)
(10.2)
Other
33
-
-
Financing cash flows
(48,804)
(103,759)
(53.0)
Change in cash held
(22,439)
(64,952)
(65.5)
Cash conversion %*
101%
108%
(7 ppts)
Free cash flows*
75,805
85,802
(11.7)
* Cash conversion % and Free cash flows are calculated as per the
tables below.
Statutory EBITDA grew 6% but the strong end to the year has led
to a $6.3 million increase in current and forward-aged debtors.
When combined with a $9.2 million increase in Software-as-a-
Service (SaaS) expenditure recorded within payments to suppliers
(primarily from the implementation of Cemeteries & Crematoria’s
new ERP), this has driven a 10% decline in operating cash flows and
cash conversion of 90%. Normalised cash conversion (calculated by
adding back the impact of SaaS expenditure) remains strong at 101%.
Net investing cash outflows for the year of $43.3 million include
a $6.3 million payment of deferred acquisition consideration of
businesses acquired in H2 2020, a $2.6 million bolt-on Funerals
Australia acquisition, and a $1.8 million investment in Parting Stone
Incorporated. Cash capital expenditure of $63.3 million in the year
has arisen mainly from Growth/Network projects (including various
construction projects, cremator purchases, and digital project
initiatives) and Platform investment-related projects (Shared
Service Centre construction and qualifying ERP implementation
and enhancement costs primarily). The remainder of the spending
relates primarily to recurring maintenance CAPEX of the Group’s
facilities and other plant and equipment and IT hardware purchases.
The Group has access to a revolving syndicated debt facility to fund
its operations and capital requirements. Net financing cash flows
include the drawdown of $35 million of such debt facilities during
the year with cash generated from operations used to repay
$25.4 million by the end of the year, particularly in New Zealand.
The dividends paid are the 2021 final dividend and the 2022
interim dividend.
Financial review
continued
InvoCare Annual Report 2022
23
Operating and
financial review
Cash conversion % calculation
2022
$’000
2021
$’000
Operating cash flows
69,698
77,740
Add back: Net finance costs paid
14,288
14,219
Add back: Tax paid
6,317
9,771
Add back: SaaS arrangements
expensed as incurred
13,395
4,170
Net funds from pre-paid contracts
29,769
29,306
Ungeared, tax free operating cash flows
133,467
135,206
Statutory EBITDA
132,748
124,974
Cash conversion %
101%
108%
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. Metric uses Statutory EBITDA as cashflows are on a total
Group basis (i.e. not split between operating and non-operating).
Reconciliation of operating to statutory earnings is included in the
reconciliation on page 34.
Free cash flows calculation
2022
$’000
2021
$’000
Operating cash flows
69,698
77,740
Net funds from pre-paid contracts
29,769
29,306
Interest paid
14,288
14,219
Cash CAPEX (recurring and platform only)
(37,950)
(35,463)
Free cash flows
75,805
85,802
24
InvoCare Annual Report 2022
Operating review: Funeral services – Australia
Our business
We are a leading provider of at-need funeral services in Australia and
are privileged to deliver over 39,000 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 portfolio of 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
to all types of client families and customer preferences, including
cultural and spiritual rites, direct cremations to high service funeral
and memorial services.
Our team of over 1,000 put client families at the centre of everything
they do, being there to support them at pivotal and testing times in
their lives. They continue to achieve industry-leading Net Promoter
Scores (NPS) with their compassion and expertise by, exceeding
expectations, delivering outstanding service, and 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 deliver this proposition through fit-for-purpose facilities and
trusted team members.
NPS
+84.6
🡑 4.2 points
LTIFR
7.5
🡓 32.4%
Funeral case volumes
(number)
39,848
🡑 7.1%
Our performance
The benefits of our diverse footprint, breadth of brands, increased
product and service offerings, and positive strategic momentum
continue to drive growth in the earnings of the Australian funerals
business. The business delivered record funeral case volumes and
the case average grew 4%, both of which drove a 12% increase in
operating revenue. Growth came from all markets particularly from
the east coast and from key local brands, such as Le Pine in Victoria,
George Hartnett Metropolitan in Queensland, and specific multi-
cultural brands, as well as national brands such as Simplicity and
White Lady Funerals.
The business has delivered record case volumes in the year, but
labour constraints driven by team illness during COVID outbreaks,
lack of access to experienced casual labour, and difficulty in hiring for
vacant roles have meant the business has not been able to efficiently
service all the volume available to it. The business has incurred
additional costs to deliver funeral services to client families, such as
InvoCare Annual Report 2022
25
Operating and
financial review
Strategy
Strategic priorities
Key achievements
Focus for the coming year
Customer-led,
people empowered
○
Ú
Delivered improved customer experience,
NPS improved by 4.2 points to +84.6
○
Ú
Launched enhanced ‘WeCARE’ customer
feedback tool
○
Ú
64% Employee Engagement Score in most
recent Your Say survey
○
Ú
Maintain customer-centric focus
○
Ú
Talent acquisition and retention
○
Ú
Capability and leadership development
Operational
excellence
○
Ú
Successful integration of remaining ringfenced
locations onto Compass ERP
○
Ú
4 shared service sites upgraded
○
Ú
Automation of pre-paid funeral sales process
○
Ú
Operational excellence project focusing on
Automation, Cost to Serve, and development of a
Target Operating Model
○
Ú
Coffin Range rationalisation and standardisation
project
○
Ú
3-5 shared service site projects to complete
Stronger core
growth
○
Ú
National Call Centre expanded
○
Ú
Strategic review of pre-paid funerals completed
○
Ú
Expanded product range, including on-line
○
Ú
7 strategic locations enhanced, 2 established
○
Ú
Omnichannel Customer Care, including Live Chat
○
Ú
Implement refreshed pre-paid funerals strategy
○
Ú
Product and service range expansion
○
Ú
Network optimisation strategy
New growth
platforms and
innovation
○
Ú
Acquired William Matthew Funerals
○
Ú
Increased uptake of Memories digital memorials
○
Ú
Expanded self-serve customer service portal
to 9 further brands
○
Ú
M&A
○
Ú
Expand partnerships
○
Ú
Build a differentiated digital and e-commerce
service offering
Sustainable
leadership
○
Ú
Reduction in LTIFR to 7.5
○
Ú
Mortuary Care Standards training developed
and launched
○
Ú
Energy-efficient building designs developed
○
Ú
Fleet strategy review
○
Ú
Energy efficient retrofit project
Key performance indicators
2022
2021
Movement
Funeral case average ($)
8,605
8,249
4.3%
Operating revenue ($’000)
347,229
311,016
11.6%
Operating EBITDA ($’000)
90,066
80,521
11.9%
EBITDA margin %
26%
26%
0 ppts
Operating leverage
1x
4.5x
(3.5x)
OPEX to sales %
41%
42%
(1 ppts)
Capital expenditure ($’000)
27,704
34,837
(20.5%)
the use of a third-party mortuary ambulance (up $2.0 million for the
year) and increased overtime and associated costs for staff.
Inflationary increases have been seen in some product lines, such as
coffins, but the business has seen benefits from its revised pricing
strategy taking a considered, quarterly approach to reviewing
product and package pricing. This, combined with disciplined
discretionary cost control, has meant that the top-line growth has
been realised in earnings with Operating EBITDA up 12% to
$90.1 million and positive operating leverage. It is noted that labour
costs make up approximately 70% of the business’ cost base and
the business has not yet had the benefit of improved rostering and
workforce planning tools to increase flexibility in its labour costs, a
strategic initiative that is expected to be progressed over the next
twelve months.
As noted in the prior year, the previous NBO program of property
projects has been completed with capital investment now targeted
based on the business’s network optimisation plan to fill gaps and
enhance key strategic locations. General refreshes of locations now
form part of Funerals recurring maintenance CAPEX. The reduction
in property-related projects is the key driver of the 21% decrease in
capital expenditure in the year.
26
InvoCare Annual Report 2022
Our business
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 340 put client families at the centre of
everything that they do, and we are honoured to support over
25,000 client families annually with their ‘at need’ and ‘post-need’
requirements with a wide range of memorial products and
services. The business conducts over 3,000 burials and over
22,000 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 supporting the memorialisation
needs of the communities in which they are located.
Operating review: Cemeteries & Crematoria – Australia
NPS
+70.6
🡓 3.6 points
LTIFR
7.9
🡓 52.1%
Cremations
(number)
22,568
🡑 11.9%
Burials
(number)
3,354
🡑 13.8%
Our performance
AASB 15 deferred revenue and cost unwinds contributed $17 million
to total operating revenue and $13.5 million to total Operating EBITDA
respectively (2021: $18.8 million and $14.2 million). This contribution
continues to decline as instalment payers complete their payment
plans. Arrangements are largely due to complete in FY2023.
The underlying Australian Cemeteries & Crematoria business has
benefited from increased market volumes with double-digit growth
in the number of burials and cremations conducted across the year
contributing $5.6 million to the 8.7% increase in underlying operating
revenue to $118.3 million (operating revenue excluding AASB 15
impact). Growth momentum in memorialisation revenue was
stalled in the first half with inclement weather significantly reducing
foot traffic to memorial parks and inhibiting the ability to construct
inventory. More sustained periods of drier conditions in the second
half saw construction restart and a return of client families back
to the major metropolitan parks, helping to close out and stimulate
deferred sales. Memorialisation sales ended the year up 4% on the PCP.
Associated sales incentives expense decline was more than offset
by activity-related increases and elevated park maintenance costs
resulting in a 1 ppt increase in OPEX to sales percentage excluding
AASB 15 to 43% and thereby restricting growth in Operating EBITDA
excluding AASB 15 to $50.3 million (up 6.6%).
A key Operational Excellence strategic initiative in the year has been
the roll-out of a new Cemeteries & Crematoria ERP system, which
had been implemented in 13 out of 15 memorial parks by the end
of the year. Those costs of implementation that met the criteria for
capitalisation are a key driver of the increase in capital expenditure
on the PCP. In addition, the expansion of the Group’s cremator
network has also continued with progress payments for the delivery
of 6 cremators due for delivery in 2023, and one cremator installed in
Lake Macquarie Memorial Park in the year.
Key performance indicators
2022
2021
Movement
Operating revenue ($’000) *
118,340
108,841
8.7%
Operating EBITDA ($’000) *
50,288
47,190
6.6%
EBITDA margin % *
42%
43%
(1 ppts)
Operating leverage *
0.8x
1.4x
(0.6x)
OPEX to sales % *
43%
42%
1 ppts
Capital expenditure ($’000)
12,844
7,311
75.7%
* Excludes AASB 15
InvoCare Annual Report 2022
27
Operating and
financial review
Strategy
Strategic priorities
Key achievements
Focus for the coming year
Customer-led,
people empowered
○
Ú
60% Employee Engagement score in the most
recent Your Say survey
○
Ú
Launched Funeral Director specific NPS survey
○
Ú
Maintain customer-centric focus
○
Ú
Talent acquisition and retention
○
Ú
Capability and leadership development
Operational
excellence
○
Ú
Scoped and implemented new ERP in 13 out of
15 parks
○
Ú
Investments were made in 6 new cremators,
1 installed during the year
○
Ú
ERP enhancements
○
Ú
Phased national cremator network expansion
Stronger core
growth
○
Ú
Design work commenced on major metropolitan
parks
○
Ú
Master plans for major metropolitan parks
○
Ú
Expansion of multicultural offering
New growth
platforms and
innovation
○
Ú
Multi-year burial reservation agreements signed
with local community groups
○
Ú
Continued growth in community burial
reservation agreements
○
Ú
Memorialisation services expansion
Sustainable
leadership
○
Ú
Increased safety focus resulting in a 52%
decrease in LTIFR to 7.9
○
Ú
Trial of robotic mowers undertaken
○
Ú
Ongoing feedback drafted and provided to
CCNSW on their proposed Interment Industry
Scheme
○
Ú
Ongoing commitment to improving safety
performance
○
Ú
Sustainability strategy
○
Ú
Investigation of alternative cremator fuel sources
and partnership opportunities
○
Ú
Proactive stakeholder engagement
28
InvoCare Annual Report 2022
Our business
Established in 2019, Australia’s only national pet cremations
business operates from 16 locations across five states,
providing over 99,000 private cremations annually and
offering 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 nearly 200 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.
Operating review: Pet cremations
NPS
+81
LTIFR
15.9
🡓 38.4%
Cremations
(number)
99,612
🡑 13.9%
Pet case
average
$361
🡑 6.5%
InvoCare Annual Report 2022
29
Operating and
financial review
Strategy
Strategic priorities
Key achievements
Focus for the coming year
Customer-led,
people empowered
○
Ú
59% Employee Engagement score in the most
recent Your Say survey
○
Ú
Established a national leadership team
○
Ú
Launched Vet NPS survey
○
Ú
Maintain customer-centric focus
○
Ú
Talent acquisition and retention
○
Ú
Capability and leadership development
Operational
excellence
○
Ú
Investments were made in 8 new modern, more
efficient pet cremators with 3 installed
○
Ú
Integration of IT and operating platforms
nationally
Stronger core
growth
○
Ú
National veterinary supplier agreements
○
Ú
Continued growth in veterinary supplier
agreements
New growth
platforms and
innovation
○
Ú
Expanded range of products and services
○
Ú
Consolidate and scale pet cremations operations
Sustainable
leadership
○
Ú
Increased safety focus resulting in 38% decrease
in LTIFR to 15.9
○
Ú
Ongoing commitment to improving safety
performance
○
Ú
Sustainability strategy
○
Ú
Review of alternative cremation methods and
partnership opportunities
Our performance
The pet cremations business in Australia continued double-digit
volume growth and alongside a consistent national service, product
and pricing model has driven a 19% increase in operating revenue to
$35.1 million.
At the end of 2021 it was decided to bring forward the national
integration of the three main pet cremations businesses. This was
executed in the first half and the business has experienced the
impact of that integration in its cost base ahead of expected sales
growth. Capability investment in national support roles and business
development resources, an increase in travel costs and an increase
in staffing levels and costs (FTE, temporary and overtime/fuel) to
service the increased cremation volumes have driven increases
in operating costs. This resulted in part from the much-delayed
addition of capacity from new cremators ordered in early 2021,
because of international supply chain challenges in transporting
them from overseas (investments in more efficient cremators also a
key driver of capital expenditure increase on the PCP). This increase
in cost base ahead of revenue growth has led to a 3 ppts increase in
OPEX to sales percentage and resulted in a lower level of growth in
Operating EBITDA of 2% to $7.1 million for the year.
Key performance indicators
2022
2021 Movement
Operating revenue ($’000)
35,138
29,613
18.7%
Operating EBITDA ($’000)
7,104
6,973
1.9%
EBITDA margin %
20%
24%
(4 ppts)
Operating leverage
0.1x
(33.4x)
33.5x
OPEX to sales %
60%
57%
3 ppts
Capital expenditure ($’000)
6,567
2,127
208.7%
30
InvoCare Annual Report 2022
Our business
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 in New Zealand 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 offers over 1,700 client families a wide variety of pre, at and post-need funeral services annually.
Operating review: International
Our performance: New Zealand
Our performance: Singapore
Like the Australian funeral services business, the New Zealand
business has experienced recovery in case volume to record levels
for the year and this growth was a key driver of the 17% increase in
operating revenue on the PCP. Case average grew 10% (on a local
currency basis) on the PCP with a return to higher service funerals
when conditions allowed as restrictions were eased at the end of Q2,
up until then indoor gatherings were restricted to less than 200.
Tight control of costs and the benefits from a revised pricing
strategy, taking a disciplined, progressive approach to reviewing
product and package pricing, has led to improved cost base
efficiency metrics and margins and a strong operating leverage of
1.8 times, with Operating EBITDA increasing 30% to $14.4 million.
The increase in capital expenditure for the New Zealand business
reflects investments in facilities including a property purchase in
Hamilton and shared service centre project in Papakura as part of its
network optimisation strategy.
Key performance indicators
2022
2021 Movement
Funeral case average ($)
7,503
7,003
7.1%
Operating revenue ($’000)
62,687
53,486
17.2%
Operating EBITDA ($’000)
14,440
11,098
30.1%
EBITDA margin %
23%
21%
2 ppts
Operating leverage
1.8x
9.1x
(7.3x)
OPEX to sales %
47%
50%
(3 ppts)
Capital expenditure ($’000)
8,118
5,241
54.9%
NB Figures included in the table above are the Australian dollar
equivalents.
The easing of restrictions on gatherings in Singapore from May has
allowed the business to deliver its full suite of offerings, and this is
reflected in the 23% growth in funeral case average (up 17% on a
local currency basis), with volumes in line with PCP. This has been
a key driver for the 19% increase in operating revenue compared
to the PCP. Combined with tight control of costs, which has driven
improved margins, Operating EBITDA has grown 21% to $10 million.
Key performance indicators
2022
2021 Movement
Funeral case average ($)
11,482
9,332
23.0%
Operating revenue ($’000)
22,510
18,907
19.1%
Operating EBITDA ($’000)
10,045
8,338
20.5%
EBITDA margin %
45%
44%
1 ppts
Operating leverage
1.1x
(4.3x)
5.4x
OPEX to sales %
34%
35%
(1 ppts)
Capital expenditure ($’000)
190
378
(49.7%)
NB Figures included in the table above are the Australian dollar
equivalents.
NPS
+89
🡑 1.4 points
LTIFR
7.3
🡓 30.5%
Funeral case volumes
(number)
7,628
🡑 11.2%
Funeral case volumes
(number)
1,735
🡑 0.3%
Customer
recommendation
99.3%
🡑 1.3 ppts
InvoCare Annual Report 2022
31
Operating and
financial review
Strategy
Strategic priorities
Key achievements
Focus for the coming year
Customer-led,
people empowered
○
Ú
Lifted community engagement with outstanding
NPS delivered in NZ of +89 and a customer
recommendation score above 99% in Singapore
○
Ú
70% Employee Engagement score in the
most recent Your Say survey in NZ and 74% in
Singapore
○
Ú
Talent acquisition and retention
○
Ú
Capability and leadership development
Operational
excellence
○
Ú
Migration of ringfenced business in NZ to ERP
completed
○
Ú
One shared service centre project completed
in NZ
○
Ú
Embed new ERP systems in NZ and Singapore
○
Ú
NZ fleet modernisation strategy
Stronger core
growth
○
Ú
Commenced major upgrade works across
Auckland and Christchurch markets and
acquired a new greenfield site in Hamilton
○
Ú
Expanded product and service range in
Singapore
○
Ú
Footprint expansion (greenfield and M&A)
New growth
platforms and
innovation
○
Ú
Execution of Singapore police contract
○
Ú
Digital and Multi-media
Sustainable
leadership
○
Ú
31% reduction in LTIFR to 7.3 in NZ
○
Ú
Ongoing commitment to improving safety
performance
○
Ú
Sustainability strategy
32
InvoCare Annual Report 2022
Our business
Our pre-paid funerals (pre-need) business allows clients to pre-pay
for selected future funeral services through our national network of
funeral locations.
The benefit of InvoCare pre-paid funerals is that they allow clients
to plan and pay in advance for tomorrow’s funeral at today’s prices
with no additional fees when the pre-paid contract is redeemed.
Contracts can be paid all at once or in instalments over 36 months
and are redeemable at any of InvoCare’s branded locations across
Australia. Pre-paid funerals are generally also exempt from pension
entitlement tests in Australia (although independent financial advice
should be sought) and payments are held securely predominantly
by The Over Fifty’s Guardian Friendly Society. These funds are
independently invested and managed over the life of the contract
and funds are only released to the funeral home on redemption.
Our performance
The key financial statement impact of this business on the Group
profit and loss is the movements from the revaluation of pre-paid
FUM and pre-paid contract liabilities, the results of which are
captured as non-operating profit and loss items.
The impact of deteriorating domestic and international equity
markets in the first half, and lack of recovery in the second half, has
been reflected in the accounting loss on revaluation of pre-paid FUM
values compared with a net gain recognised in the PCP.
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 the COVID outbreaks severely limiting our
ability to have these conversations, and turnover of pre-paid sales
consultants, we have seen pre-paid contract sales volumes decline
on the prior year and not keep pace with redemptions, which have
increased 9% on the PCP. Contract volumes sold varied by state with
marginal growth in NSW and 16% growth in Victoria on the PCP.
A strategic review of this business was undertaken in the year
with internal best practices rolled out now across all zones and
automation of pre-paid sales processes implemented. Capability
investment was made in pre-paid sales consultants and a new
General Manager of the business has been hired with the aim
of developing an enhanced go-to-market strategy when they
commence early in 2023, including the role of digital in capturing
further sales opportunities.
Key performance indicators
2022
2021 Movement
Unrealised (loss)/gain on
pre-paid contract funds under
management ($’000)
(33,724)
64,697
(152.1%)
Changes in provision for pre-paid
contract liabilities - significant
financing ($’000)
(21,887)
(20,612)
(6.2%)
Operating review: Other
Pre-paid contract
volumes sold (number)
4,008
🡓 4.5%
Pre-paid % of
at need funerals
14.1%
🡑 0.2 ppts
Other businesses – Pre-paid funerals
InvoCare Annual Report 2022
33
Operating and
financial review
Supporting the business operations are key functions and capabilities that
are recognised separately from the main business units.
Group Support Corporate are those corporate functions that support
all operations, Australian and International, primarily Finance, People &
Culture (HR), Legal & Compliance, listed company costs, and the offices
of the CEO and CFO. Such costs decreased by $3.8 million in the year
to $21.9 million driven primarily by the de-centralisation of such costs as
ERP software licence costs and share-based incentive costs into the cost
centre of the respective employee eligible for such payments, offset by
increased costs from annualisation of capability investments made in the
prior year.
The costs of the in-house IT support team and centralised technology
costs such as the software licence fees for Microsoft and Oracle
platforms are included in Group Support IT. Such costs have increased
by $7.3 million in the year to $14.1 million due to general increases in
software licence expense driven by the ERP rollout and increasing digital
investments in the current and prior period and the annualised impact of
capability investments in the IT team made in the prior year, including the
appointment of a Chief Information Technology Officer (CITO).
Field Support comprises those functions that directly support Australian
operations including marketing, field HR support, Safety & Sustainability,
Procurement and Property & Facilities teams. Annualisation of capability
investments, and investments in new capability to support strategy
execution, including digital marketing, have driven a $2.9 million increase
to $13.3 million.
Group
support
$21.9m
🡓 5.6%
IT
support
$14.1m
🡑 48%
Field
support
$13.3m
🡑 27.8%
Outlook
The Group has maintained momentum into
2023 with year-to-date performance in line with
expectations. Mortality rates are expected to
revert to long-term averages and the business is
maintaining an ongoing operational excellence
focus to offset continued pressures on the cost of
doing business.
We remain confident in InvoCare’s ability
to navigate short-term uncertainties, such
as fluctuating death rates, the economic
environment, and the impact of extreme weather
on our locations.
With a growing and ageing population, the
long-term fundamentals of our business remain
positive, and the Group is well placed to deliver
near and long-term shareholder value. Now
that we are well advanced on the reset of our
business foundations, we can turn our attention
to leveraging our market-leading positions and
balance sheet capacity to increasingly focus on
profitable organic and acquisitive growth.
Other businesses – Support costs
34
InvoCare Annual Report 2022
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.
2022
2021
Operating
results
$’000
Non-
Operating
results
$’000
Statutory
results
$’000
Operating
results
$’000
Non-
Operating
results
$’000
Statutory
results
$’000
Revenue
588,535
3,435
591,970
527,096
5,357
532,453
Expenses*
(452,420)
(6,802)
(459,222)
(401,619)
(5,860)
(407,479)
EBITDA
136,115
(3,367)
132,748
125,477
(503)
124,974
Depreciation and amortisation
(49,620)
(6)
(49,626)
(47,759)
(7)
(47,766)
SaaS arrangements
(1,315)
(13,395)
(14,710)
(654)
(4,594)
(5,248)
Business acquisition costs
(1,005)
-
(1,005)
(743)
-
(743)
Restructuring costs
-
(1,476)
(1,476)
-
-
-
Net gain/(loss) on pre-paid contracts
-
(55,611)
(55,611)
-
44,085
44,085
Net gain on lease modifications/terminations
446
-
446
1,517
-
1,517
Asset sales gain
-
533
533
-
6,530
6,530
Net impairment gain/(loss) on non-current assets
-
-
-
-
4,000
4,000
EBIT
84,621
(73,322)
11,299
77,838
49,511
127,349
Net finance costs
(14,272)
(1,157)
(15,429)
(15,262)
(1,225)
(16,487)
Income tax (expense)/benefit
(20,103)
22,519
2,416
(17,320)
(13,271)
(30,591)
Non-controlling interests
(95)
-
(95)
(113)
-
(113)
Net profit/(loss) after income tax attributable
to equity holders of InvoCare Limited
50,151
(51,960)
(1,809)
45,143
35,015
80,158
EPS (cents per share)
35.1
(36.4)
(1.3)
31.6
24.5
56.1
OPEX to sales %
52%
52%
52%
52%
EBITDA margin (%)
23%
22%
24%
23%
EBIT margin (%)
14%
2%
15%
24%
* SaaS arrangements are 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 arrangements 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 is non-operating 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.
SECTION 3
Governance and
Directors’ report
36
InvoCare Annual Report 2022
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 healthcare
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).
Board of Directors
InvoCare Annual Report 2022
37
Governance and
Directors’ report
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) and SiteMinder Limited
(ASX: SDR). 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
formerly a director of Marley Spoon (ASX:
MMM) and 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),
Reece Limited (ASX: REH) and The Lottery
Corporation Limited (ASX: TLC). 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.
38
InvoCare Annual Report 2022
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 - 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.
Board of Directors
continued
Board of Directors
Company Secretary
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.
Heidi Aldred
BEc, LLB
Company Secretary
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.
InvoCare Annual Report 2022
39
Governance and
Directors’ report
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 2022, along with the independent
auditor’s report.
Company overview and principal activities
InvoCare Limited (listed on the Australian Securities Exchange,
ASX: IVC), headquartered 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 17 to 34 of this 2022 Annual Report, forms part of the
Directors’ report for the financial year ended 31 December 2022.
Directors
The directors of InvoCare Limited at any time during or since the end
of the financial year are as follows. Directors were in office for the
entire period until otherwise stated:
Name
Role
Bart Vogel
Chairman
Olivier Chretien
Chief Executive Officer and Managing Director
Kim Anderson
Independent Non-Executive Director
Richard Davis
Independent Non-Executive Director
Megan Quinn
Independent Non-Executive Director
Keith Skinner
Independent Non-Executive Director
Kee Wong
Independent Non-Executive Director
Directorship of other listed companies
Directorship of other listed companies held by the directors in the
three years preceding the end of the financial year are as follows.
Name
Company
Period of directorship
Bart Vogel
Macquarie Telecom Ltd
Since 2014
Infomedia Ltd
Since 2015
Olivier Chretien
None
Kim Anderson
carsales.com Ltd
Since 2010
Marley Spoon AG
From 2018 to 2022
Infomedia Ltd
Since 2020
WPP AUNZ Ltd
From 2010 to 2021
SiteMinder Limited
Since 2022
Richard Davis
Australian Vintage Ltd
Since 2009
Monash IVF Group Ltd
Since 2014
Megan Quinn
City Chic Collective
Ltd (formerly known
as Specialty Fashion
Group Ltd)
Since 2012
Reece Ltd
Since 2017
The Lottery
Corporation Ltd
Since 2022
Keith Skinner
Emeco Holdings Ltd
Since 2017
Kee Wong
carsales.com Ltd
Since 2018
Particulars of the Directors’ qualification and experience are set out
under Board of Directors on pages 36 to 38.
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 2022, and the number of meetings attended by each director were as follows.
Board
Audit, Risk & Compliance
Committee
People, Culture & Remuneration
Committee
Name
Held
Attended
Held
Attended
Held
Attended
Bart Vogel
14
14
-
-
7
7
Olivier Chretien
14
14
-
-
-
-
Kim Anderson
14
14
-
-
7
7
Richard Davis
14
14
4
4
-
-
Megan Quinn
14
13
-
-
7
7
Keith Skinner
14
14
4
4
-
-
Kee Wong
14
14
4
4
-
-
40
InvoCare Annual Report 2022
Directors’ report
continued
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
There were no significant changes in the state of affairs of InvoCare
during the financial year.
Dividends
Details of dividends paid or determined by the Company during the
financial year ended 31 December 2022 are set out in Note 4.
Subsequent events
Other than the Board determined a final dividend of 11.0 cents
per share, fully franked, there have been no other matter or
circumstance arising since 31 December 2022 that has significantly
affected affect InvoCare’s operations, results or state of affairs, or
may do so in future financial years.
Indemnification and insurance of officers
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.
There have been no claims during the year and the directors believe
InvoCare has complied with all relevant environmental regulations
and holds all relevant licences.
Corporate governance
InvoCare and the Board of Directors are committed to achieving and
demonstrating the highest standards of corporate governance. The
Board adopts a continuance improvement approach and regularly
reviews corporate governance and reporting practices. For 2022,
InvoCare’s Corporate Governance Statement will be published at the
time of publication of the 2022 Annual Report.
The 2022 InvoCare Corporate Governance Statement is available
on the InvoCare website at:
www.invocare.com.au/investor-relations/corporate-governance
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit
services provided during the financial year by the auditor are outlined in
Note 26 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.
The Directors are of the opinion that the services as disclosed in
Note 26 to the financial statements do not compromise the external
auditor’s independence requirements of the Corporations Act 2001
for the following reasons:
○
Ú
All non-audit services have been reviewed and approved to ensure that
they do not impact the integrity and objectivity of the auditor
○
Ú
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 the
“rounding off” of amounts in the directors’ report and financial report.
Amounts in the directors’ report and financial report have been rounded
off to the nearest thousand dollars (where rounding is applicable) in
accordance with that instrument.
This report is made in accordance with a resolution of Directors,
pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the Directors on 27 February 2023.
Bart Vogel
Chairman
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
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
41
27 February 2023
The Board of Directors
InvoCare Limited
Level 5, 40 Mount Street
North Sydney NSW 2060
Dear Board Members
Auditor’s Independence Declaration to InvoCare Limited
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 2022,
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 faithfully
DELOITTE TOUCHE TOHMATSU
Sandeep Chadha
Partner
Chartered Accountants
42
InvoCare Annual Report 2022
Risks and uncertainties
Key business risks
Risk culture
Risk culture and risk management practices are
critical enablers to InvoCare’s sustainable, long
term value creation and protection.
Underpinning our risk culture is the
adoption of the 3 lines model. This
model articulates organisation-wide
accountability, and responsibilities
in relation to the management
and mitigation of our risks.
Our approach to risk management
Our risk management practices continually evolve as we identify,
assess, mitigate, and monitor both financial and non-financial risks
that may impact our ability to achieve our strategic objectives.
Our Risk Management Framework (RMF) is key to ensuring a
consistent approach when managing risk, and is made up of
systems, policies, procedures, and processes within the group that
manage our key risks.
When considering our risks, we assess the likelihood and impact
of a risk materialising and how this would impact our strategic plan
or our economics. Our risks are identified and assessed through
workshops with each of our business units annually, enabling our
management team the autonomy and authority to respond in an
agile and informed manner within the risk appetite set by the Board.
This approach allows the Board to fulfil its governance
responsibilities by making a balanced assessment of the operation
of our risk management processes.
Risk appetite
The risk appetite is set by the Board, outlining tolerances it is willing
to accept when achieving our strategic objectives. The risk appetite
is reviewed annually by the Board to ensure it reflects any new
emerging risks and, allows for increase or decrease in tolerances in
pursuit of InvoCare’s strategic objectives.
Key risks
The table below highlights the key risks facing InvoCare, how they
are mitigated at a high level and their alignment to our five strategic
pillars.
Our key risks are set out following our annual review process.
Our Business – 1st Line
Generate risk exposures
and is accountable for:
○
Ú
Identifying, assessing
and managing risks on
an ongoing basis
○
Ú
Taking risks that fall within
lnvoCare’s risk appetite
○
Ú
Maintenance and operation of the
internal controls framework to
mitigate key risks
Risk & Compliance – 2nd Line
Where relevant, support the business in their risk
management activities and is accountable for:
○
Ú
Providing independent oversight, challenge
and reporting on the adequacy and
effectiveness of the way the business manages
risk
○
Ú
Setting policies related to their remit,
monitoring application of policies and advising
the business on risk mitigations
Internal Audit – 3rd Line
Referred to as Business Assurance, this is an
independent assurance function accountable for:
○
Ú
Providing objective assurance over the
effectiveness of internal control systems and
risk management processes
○
Ú
The internal audit plan, which is driven from the
risk management framework and aligned to
auditable elements of lnvoCare’s principal risks
Strategic pillar
Customer-led,
people empowered
Operational
excellence
Stronger core
growth
New growth
platforms and
innovation
Sustainable
leadership
InvoCare Annual Report 2022
43
Governance and
Directors’ report
Risk description
Mitigants
Safety
Inadequately protecting the well-
being and safety of our people,
customers, vendors, and visitors.
Ongoing COVID-related health and
safety risks result in additional steps
to keep our staff, visitors, and client
families safe, and the increased
costs of operating, including the
risk of workforce unavailability from
requirements to isolate and/or
recover from illness.
○
Ú
Leadership commitment to a continual focus on safety
○
Ú
Risk-based safety programs incorporating governance, operational
excellence, physical and psychological health
○
Ú
Investment in equipment and design standards to mitigate risk
○
Ú
Monthly reporting and proactive Safety Calendar activities
○
Ú
Expanded Employee Assistance Program (EAP) covering health, well-being,
and personal safety for our people and their families
○
Ú
COVID-19 Taskforce continues to respond to evolving circumstances
People
Talent gaps through insufficient
and/or ineffective recruitment,
training, and retention programs and
practices.
○
Ú
Ongoing implementation of leadership development strategies, including
‘Evolve’ and ‘Aspire’ programs
○
Ú
External review of talent acquisition operating model to ensure current and
future state readiness
○
Ú
Upgraded systems; Remuneration, Recruitment & Talent Acquisition
○
Ú
Annual talent and succession planning for senior and critical roles
○
Ú
Appropriate incentives and career development opportunities
○
Ú
Refreshed enterprise Remuneration Framework
○
Ú
Appointment of new EAP provider
Business
continuity
Pandemic, epidemic, natural
disasters, technology outages,
and the impact this may have on
InvoCare’s ability to deliver our full
breadth of services and meet our
strategic objectives.
This can include a spike in deaths
to unserviceable levels, impacts to
the workforce, mortuary 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.
○
Ú
Infectious disease procedures in place
○
Ú
Establishment of a COVID-19 Taskforce
○
Ú
Disaster recovery plan (DRP) in place to manage IT risks
○
Ú
Executive accountability to ensure adequate plans are in place
○
Ú
Business Continuity plans are routinely refined and amended and external
experts appointed to support them
○
Ú
Investment in remote working and deployment of enhanced AV streaming
capabilities
Technology
Cyber-attacks or IT system failure
causes operational disruption,
personal and sensitive data loss,
financial loss, and reputation
damage.
○
Ú
IT strategy in place including IT Architecture Roadmap
○
Ú
Significant step up in IT security & risk including fit-for-purpose security
capability, controls, processes and technology
○
Ú
Strategic partnerships with key cybersecurity vendors and service providers
○
Ú
Independent cyber maturity assessment review conducted, and prioritised
actions identified
○
Ú
Annual review of cyber insurance policy
○
Ú
Specific training to improve internal understanding and communication of
cyber risks
44
InvoCare Annual Report 2022
Risk description
Mitigants
Regulatory
Changes in regulation that may
impact InvoCare’s economics or
the risk that regulatory compliance
obligations are not known, recorded
or monitored, which could result in
financial penalties/fines, reputation
damage, or business disruption.
○
Ú
Ongoing consumer law training for our people
○
Ú
Management and oversight of our regulatory obligations with compliance
mitigants in place
○
Ú
Where appropriate, specialist external legal advisers engaged to support
○
Ú
Continued investment in the management of compliance, including digital
solutions and an ERM system
○
Ú
Ongoing monitoring of regulatory change and utilising the digital platform
to assess impacts
Financial
InvoCare’s ability to meet its financial
obligations and the risk that capital/
funding constraints impact the ability
to capitalise on opportunities.
○
Ú
Short, medium, and long-term tenor financing in place
○
Ú
Syndicated lender group providing diversity in funding sources
○
Ú
Maintain strong relationships with banking partners and investors
○
Ú
Monthly reporting of financial metrics to the Board and Executive Leadership
Team
○
Ú
Business unit performance reviews and monitoring against budget and
forecasts
○
Ú
Monitoring of debt covenants, monthly cashflow statements and weekly cash
forecasts
Market,
strategic and
competition
Market disruption by existing or
new competitors and the risk that
InvoCare responds at a slower pace
to changing customer preferences/
needs or technology advancements,
impacting market share and case
average.
○
Ú
Routine market analysis of consumer preferences and competitor activity and
environment
○
Ú
Diverse brand portfolio
○
Ú
Strong balance sheet and financial capacity to respond to challenges
○
Ú
Establishment of an Innovation Hub
○
Ú
A robust annual strategic planning process
Operational
Unauthorised access to those in our
care and their valuables. Additionally,
failing to retain historical records and
respond to customer feedback.
○
Ú
Appointment of a National Accreditation Manager to embed the National
Accreditation Program of our funeral business, addressing the management
of those in our care
○
Ú
Enhanced security at our facilities, including CCTV and restricted user access
○
Ú
Customer feedback management tool (WeCARE) with reporting
○
Ú
Ongoing training of our people to ensure they are aware of how we manage
customer feedback
○
Ú
A centralised approach to the storage of historical unclaimed cremated
remains
Risks and uncertainties
continued
InvoCare Annual Report 2022
45
Governance and
Directors’ report
Market disruption by emerging risks
InvoCare continues to monitor 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
Mitigants
Proposed
Interment
Industry
Scheme
Cemeteries and Crematoria NSW
(CCNSW) have proposed to regulate
the operations of funeral services
providers in the State of NSW by way
of an Interment Industry Scheme.
Concerns have been raised as to the
unintended consequences of the
scheme, including a broad approach
to addressing perpetual care.
CCNSW has decided to postpone
some elements of the scheme for
further review in late 2023 due to
complexities and will seek further
consultation with the Industry
Consultation Group (ICG).
○
Ú
Proactive engagement with CCNSW and InvoCare has issued a formal
submission to the draft regulation
○
Ú
Members of InvoCare’s senior management are members of the CCNSW ICG.
All proposed changes are tabled with the ICG to ensure industry feedback is
addressed before implementation/ legislation eventuates
Climate change
and human
rights
More frequent and severe weather
events and longer-term shifts in
climate patterns could result in
InvoCare’s memorial parks being
impaired or our locations being
damaged, resulting in a potential loss
of revenue.
InvoCare’s financial performance
and reputation could also be
impacted by insufficient climate
commitments, insufficient financing
of new opportunities in renewable
energies and potentially partnering
with organisations that damage the
environment or violate human rights.
○
Ú
A sustainability strategic plan utilising the three themes – People, Place,
Planet, progressed initiatives in line with business strategic objectives and
ambitions
○
Ú
Greenhouse Gas baseline 2021 footprint
○
Ú
Decarbonisation roadmap and target setting in progress
○
Ú
Modern Slavery Statement completed annually, requirements of our vendors
and education of our teams undertaken
Consumer
behaviour
and market
segmentation
A change in consumer behaviour has
seen accelerated adoption of digital
channels, including self-serve and
eCommerce; and telehealth-style
virtual customer service following the
COVID-19 pandemic. Competitors
in our category are leveraging this
behaviour.
○
Ú
Strategic investment in our digital platforms to ensure customers have easier
access to relevant information
○
Ú
Development of digital self-serve and launch of a customer services portal
○
Ú
Investment in eCommerce capabilities and expansion of our National
Customer Care team capabilities
46
InvoCare Annual Report 2022
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 the year ended 31 December 2022 (FY22).
Executive remuneration framework review
During FY22, 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 FY22 remain the same as previous years however
as part of the Board’s review of the executive remuneration
framework, external benchmarking was undertaken, based on the
ASX 300 companies of similar size and revenue.
Minor changes have occurred in the STI below Executive KMP level
to simplify and reduce the number.
In addition, the Company has undertaken an extensive
benchmarking program across all levels of the Company to ensue
employees’ remuneration aligns with market practice, is fair,
consistent and transparent.
People and culture highlights
Our vision and values continue to guide our decision making
and actions. The Group has taken a holistic approach to talent
attraction and retention with improvements to our employee value
proposition. This has included:
○
Ú
Renewal of our purpose, vision and values
○
Ú
Launch of ‘We Care’ development program to strengthen our
frontline team’s capability to service the needs of client families
○
Ú
Commencement of the development of frontline capability
programs to enable our people to develop the capabilities to
support our strategic business priorities
○
Ú
Introduction of an externally benchmarked employee engagement
survey to seek feedback and identify areas for ongoing
improvement. This survey revealed a pleasing eight percentage
point improvement in employee engagement this year
○
Ú
Continuing to create a safer working environment and investing
in improvements to our workplace practices to continue to
reduce injuries to our people
○
Ú
Introduction of a new health and wellbeing program for all
InvoCare employees to provide support to our people to
manage their personal wellbeing
○
Ú
Investment in new capabilities to enable the delivery of our
strategic priorities
○
Ú
Introduction of new internal communication initiatives to
improve our approach to updating and informing our people and
improving employee engagement
FY22 has been another disruptive year as the business and our
people respond to the ongoing impacts of the pandemic, severe
weather events and a challenging economic environment.
Unprecedented levels of ‘excess deaths’ above historical averages
challenged our team’s capacity to meet demand in some locations
during peak months, while maintaining high service levels, safe
and efficient practice. High employment rates and time to fill roles
means we have had to ask more of our people and despite these
challenges, our people at all levels have continued to maintain a clear
focus on supporting our client families, employees and communities.
Their passion, dedication and resilience are to be commended.
The People, Culture & Remuneration (PCR) Committee has oversight
of InvoCare’s people strategy, culture and key people and culture
practices. InvoCare’s remuneration framework is an integral
component of our people strategy and values. This report highlights
the link between remuneration and corporate performance
and provides detailed information on the remuneration for Key
Management Personnel (KMP).
Company performance
Continuing from the previous year, the team has produced another
solid result for shareholders with operating revenue growth of 12%,
operating EBITDA growth of 9%, operating EPS growth of 11% and
ROCE growth of 0.4 points.
Remuneration outcomes
The Board’s approach to remuneration ensures alignment to both
shareholder outcomes and strategic objectives and the Board may
exercise discretion in relation to remuneration outcomes.
The FY22 remuneration outcomes for KMP are included in the
report. The Company’s performance has resulted in:
○
Ú
FY22 Short term incentive (STI): STI performed well against
a scorecard comprised of both financial and non-financial
objectives with the total average outcome for the KMP being
97% of target STI
○
Ú
Long term incentive (LTI): the 2019 and 2020 LTI grants were
tested with the audited financial results of FY22. The 2019 grant
failed to vest and no discretion was applied. For the 2020 LTI
grant, only the ROIC component vested at 33.7%. However,
the Board elected to use discretion in relation to the impact of
the capital raising which occurred during 2020 after the 2020
grant was made resulting in 100% vesting overall for the ROIC
component. Due to their limited tenure neither KMP participated
in the 2019 grant and only the CFO participated on a pro rata
basis in the 2020 grant
InvoCare Annual Report 2022
47
Governance and
Directors’ report
Looking ahead
The Board will continue to review and make improvements to
the remuneration framework to ensure executive remuneration
outcomes are aligned and balanced with the strategy and
sustainable shareholder outcomes.
We welcome your feedback on our FY22 Remuneration Report.
Kim Anderson
We appreciate the exceptional
effort made by our employees
during a very difficult year.
Their response embodies
InvoCare’s values and
purpose and our commitment
to the client families and
communities we serve
1. Key Management Personnel
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
Bart Vogel
Chairman of the Board
1 October 2017
Kim Anderson
Non-Executive director
11 May 2021
Richard Davis
Non-Executive director
21 February 2012
Megan Quinn
Non-Executive director
1 October 2018
Keith Skinner
Non-Executive director
1 September 2018
Kee Wong
Non-Executive director
1 November 2021
Executive Key Management Personnel (Executive KMP)
Name
Role
Date of
appointment
Olivier Chretien
Chief Executive Officer and
Managing Director (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.
Changes to KMP
There have been no changes to KMP during FY22.
Contents
1
Key Management Personnel
47
2 Remuneration framework
48
3 Executive KMP remuneration
53
4 Non-Executive Director remuneration 62
5 Additional information
64
48
InvoCare Annual Report 2022
29%
6%
23%
Total fixed
remuneration
Cash STI
Deferred STI
Share-based
remuneration
42%
29%
5%
24%
42%
2. Remuneration framework
2.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
and innovation
Sustainable
leadership
b. Remuneration principles
Principles
Balance short term
and long-term
performance
to drive value
creation and
sustainable
outcomes
Measure
performance at
a level aligned
with driving
accountability for
the delivery of
strategic business
objectives
Fair and market
competitive to
attract, retain and
motivate talent
Rewards aligned
with the consistent
demonstration
and promotion of
InvoCare’s values
Simple and
transparent
2.II. Executive remuneration structure
InvoCare’s executive remuneration framework and the remuneration mix for the Executive KMP, is detailed below, highlighting that the mix is
weighted to variable, performance-based remuneration (58%) for on target performance
Remuneration report - audited
continued
CEO – Target pay mix
CFO - Target pay mix
InvoCare Annual Report 2022
49
Governance and
Directors’ report
The details of the current structure are summarised below:
Total fixed remuneration (TFR)
TFR
TFR is inclusive of base salary, 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
remuneration for exceptional performance.
TFR is benchmarked to be competitive to attract and retain experienced individuals to drive delivery of 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
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.
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 Executive KMP retention
and aligns with market best practice.
The target STI award offered in 2022 was 70% of TFR for the CEO and the CFO. The STI deferral quantum applies to
outcomes that are greater than $150,000 with a minimum deferral of $12,500.
Performance period
The Group’s financial year is from 1 January to 31 December.
Award opportunity
In 2022 the target STI as a percentage of TFR was 70% for the CEO and CFO.
Key performance
indicators (KPIs)
STI outcomes are directly linked to both individual and Group performance against KPIs that contribute to long term
strategic outcomes. The Board has focused the Executive KMP on the following performance measures that are
weighted 50% to financial and 50% to non-financial outcomes, noting that the Strategic/personal project objectives may
be financial in nature:
○
Ú
Financial - Operating EBITDA performance
○
Ú
Customers
○
Ú
People
○
Ú
Safety
○
Ú
Strategic/personal project objectives
For further details of 2022 STI outcome refer to Section 3.V below.
Relationship between
performance scales
and outcome
EBITDA measures
Threshold
Target
Stretch
Percentage of target measure achieved
90%
100%
>100%
Percentage of target opportunity payable
0%
100%
Up to 150%
The amount payable is calculated in a straight line between threshold and target; and target and stretch.
Overachievement
of KPIs
An overachievement (stretch) payment is available on the financial KPIs of the STI and is capped at 150% of target STI
opportunity where 150% of the EBITDA target has been met. This payment requires the Group to achieve the EBITDA
target.
Non-financial
components
Non-financial components are capped at 100% payment.
50
InvoCare Annual Report 2022
Deferred STI
25% of any STI award that exceeds $150,000 will be deferred (subject to a minimum deferral of $12,500) which aligns with
shareholder interests and has an element of retention. Awards were provided in the form of restricted shares held in trust
for 12 months for grants up to and including FY21. From FY22 awards will be provided in the form of rights.
The number of awards to be granted will be calculated by dividing the deferred STI amount by the volume weighted
average price (VWAP) related to shares traded in the 10 days after the announcement of the financial year results.
STI payment
Cash STI is payable in the first quarter of each year after the announcement to the ASX of InvoCare’s annual financial
results for the previous year ended 31 December.
For deferred STI, the awards will be allocated in the first trading window following the release of the financial results of
each year.
Disqualification
provisions
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 “meets” rating category in the performance management procedures. Should a dispute arise regarding a potential
disqualification, eligibility will be at the discretion of the CEO, or, in the case of the CEO, the Board.
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 deferred STI in the event of fraud, malfeasance, dismissal for cause,
or other misconduct.
Board discretion
Board discretion (either negative or positive) may be applied to STI outcomes for the Executive KMP and ELT. The guiding
principle will be to ensure fairness in assessing STI outcomes and alignment with shareholder interests. No discretion has
been applied during FY22.
Cessation of
employment
In the event of cessation of employment due to resignation or dismissal for cause, all entitlements in relation to STI are
forfeited. Participants must be employed and not have resigned when payment is made. The Board has discretion to
determine alternative treatment for Executive KMP.
Long term incentive (LTI)
LTI
InvoCare’s remuneration structure aims to align long term incentives for Executive KMPs and other senior executives with
sustainable 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 that vest after 3 years, subject to meeting minimum
performance requirements. This encourages Executive KMP and other participants to consider long-term outcomes of
decisions and assists to retain participants.
Executive KMP participated in the 2021 and 2022 grants of the LTI plan and the CFO participated in the 2020 grants on a
pro rata basis.
The following provides a detailed timeline of the 2022 LTI grant throughout its vesting lifecycle. Further details comparing
the features of 2022 and 2021 and prior terms and conditions of the LTI plan are provided in the table below.
Purpose of the LTI plan The LTI Plan aims to attract, retain and reward high performing executives who contribute to the overall medium- and
long-term success of InvoCare and sustainable returns for shareholders.
Participation
Participation is limited to Executive KMP and selected senior executive leadership positions by invitation and as approved
by the Board.
Size of LTI award grant The 2022 LTI target opportunity was 70% of TFR for the Executive KMP ensuring significant alignment with shareholder
outcomes.
Grant calculation
The number of performance rights granted will be calculated by dividing the LTI dollar value by the VWAP related to
shares traded in the 10 days after the announcement of the financial year results.
Plan features
Performance rights were granted.
Remuneration report - audited
continued
FY21 initial
performance period
Grant of performance
rights March 2022
Performance test
February 2025
FY21
FY22
FY23
FY24
FY25
Jan
Dec Jan
Dec Jan
Dec Jan
Dec Jan
Dec
Performance period
Baseline
InvoCare Annual Report 2022
51
Governance and
Directors’ report
Performance hurdles
The performance hurdles for the 2022 LTI plan were:
○
Ú
Continued employment condition
○
Ú
Two financial performance hurdles:
○
Ú
50% weighting on CAGR in EPS
○
Ú
50% weighting on average ROCE
Detailed definitions of CAGR, EPS and ROCE can be found in the glossary (pages 140 and 141).
Performance and
vesting periods
Performance is measured over three years.
Performance rights are tested at the end of this three-year period to determine the extent the performance rights vest.
There is no restriction period.
It also includes malus provisions in the event of governance concerns and Board discretion to be applied if performance is
impacted by events outside management’s control.
Performance
conditions
50% on EPS
○
Ú
10% to 15% CAGR in EPS results in 30%
to 100% of LTI vesting in straight line
50% on ROCE
○
Ú
11% to 13% average ROCE over the three-year period
results in 30% to 100% of LTI vesting in straight line
Why were these
measures chosen?
CAGR of 2021 EPS.
CAGR of EPS was selected as the most suitable and reliable measure of organisational performance, based on
independent advice and analysis by the Board.
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.
Dividend or voting
rights
There are no voting rights attached to the performance rights awarded. In accordance with the plan rules, the
performance rights are entitled to dividends, if determined by the InvoCare Board, during the performance period in
the form of additional rights. The number of additional rights granted are calculated by the number of rights times the
dividend paid per share divided by the dividend reinvestment plan VWAP price. These additional rights granted will only
vest to the extent the original grant vests.
Cessation of
employment
For LTI to vest, the participants must be employed at the date of vesting unless determined to be a good leaver.
If the Board determines that a participant is a good leaver, the Board may at its discretion allow unvested LTI grants
to continue to remain on foot and vest subject to the original terms and conditions attached to the relevant grants,
regardless of whether the participant remains employed by InvoCare at the relevant vesting date. 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
In the event of a change in control or other circumstances where the Board determines it is not practical or appropriate
for the unvested LTI to continue on foot, the Board has the discretion to determine the extent to which all or part of any
unvested LTI may vest and the specific performance tests to be applied.
Clawback policy
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 a participant’s incentives that have already been paid to ensure the
participant has not been inappropriately rewarded in circumstances including:
○
Ú
A material misstatement or omission in the Group’s financial statements
○
Ú
Actions or inactions seriously damaging the Group’s reputation or putting the Group at significant risk; and/or
○
Ú
A material abnormal occurrence resulting in an unintended increase in the award
Board discretion
Board discretion (either negative or positive) may be applied to LTI outcomes for the Executive KMP and other
participants. The guiding principle will be to ensure fairness in assessing LTI vesting outcomes and alignment with
shareholder interests.
Any Board discretion applied will be disclosed at the latest when vesting occurs.
InvoCare Securities
Trading Policy
In accordance with InvoCare’s Securities Trading Policy, senior managers are prohibited from trading in the Company’s
shares other than during specified trading windows, or with approval in exceptional circumstances, provided they
do not possess inside information. In addition, senior managers are not permitted to enter into transactions with their
shareholding in the Company which operate to limit the economic risk of their shareholding (e.g., margin loans, hedging
or cap and collar arrangements), including limiting the economic risk of holdings of unvested entitlements associated with
LTI securities.
52
InvoCare Annual Report 2022
2.III. Remuneration governance framework
Remuneration report - audited
continued
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 Executive KMP remuneration.
Monitoring Executive KMP
and the ELT performance and
implementation of the Group’s
objectives against measurable and
qualitative indicators.
Ensuring succession, 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.
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
recommendations to the Board
regarding corporate governance
policies to support 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.
For further details, the PCR
Committee Charter is available on
InvoCare’s website.
Management
Implementing remuneration policies
and practices.
Providing information relevant to
remuneration decisions to assist
the PCR Committee to review and
make recommendations to the
Board with 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.
Independent remuneration advisors
From time to time, the PCR Committee engages external remuneration consultants to provide independent benchmarking data
and information on best practice aligned with community expectations.
During 2022, 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 2022
53
Governance and
Directors’ report
3. Executive KMP remuneration
The table below provides a snapshot of the remuneration outcomes for the Executive KMP for FY22.
TFR
STI outcome
LTI outcome
The CEO received a 7.3% increase to
TFR effective 1 January 2022.
The CFO did not receive an increase in
2022 but had received a 7.4% increase
to TFR effective 1 July 2021.
The average STI outcome for the 2022
year for Executive KMP was 97% based
on their balanced scorecard.
For further details of 2022 STI outcome,
refer to Section 3.V.
The CEO did not participate in LTI grants
that were tested based on the financial
results of FY22.
The CFO participated in the 2020 grants
that vested at 50% and the remainder
will lapse.
3.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
45.2
51.7
20.9
31.6
35.1
37.8
55.8
-8.6
-1.3
56.1
Basic EPS ¢
FY18
FY19
FY21
NPAT $m
EPS ¢
105
90
75
60
45
30
15
0
105
90
75
60
45
30
15
0
Reported NPAT $m
Operating EPS ¢
41.2
63.8
-11.5
80.1
-1.8
FY22
NPAT & EPS trends
FY20
$m
Operating EBIT
FY18
FY19
FY20
FY21
175
150
125
100
75
50
25
0
Operating NPAT
Operating EBITDA
119.0
49.5
144.4
59.1
102.6
28.0
125.5
45.1
FY22
136.1
50.2
Operating profit trends
Ratio %
DPS ¢
90
80
70
60
50
Dividend payout ratio %
FY18
FY19
FY20
FY21
50
40
30
20
10
0
Dividend per share ¢
37.0
41.0
12.5
21.0
FY22
24.5
Ordinary dividend (full year)
$
FY18
FY19
FY20
FY21
15
10
5
0
Price per share $
10.3
13.2
11.5
11.8
FY22
11.0
Share price at 31 December
Other performance metrics
54
InvoCare Annual Report 2022
Five year incentive outcomes
2022
2021
2020
2019
2018
Payout % of STI to CEO
96%
93%
27%
62%
32%
Average payout % of STI to other Executive KMP
98%
93%
27%
57%
35%
LTI vesting outcome (% of maximum)
N/A*
N/A
66%
-
33%
* The CFO held 17,107 performance rights granted in 2020 on a prorated basis that were tested based on the audited financial results of FY22. 50%
vested and the remaining 50% will lapse.
b. 2022 STI outcome
The table below sets out the targets and outcomes for the Executive
KMP for the financial year. For details of achievements and dollar
value of STI awarded for FY22, refer to Section 3.V.
Key
performance
indicators
2022
performance
targets
Weight
2022
performance
outcome
Financial
Group EBITDA
50%
Substantially
met
Customer
Net promoter score (NPS)
10%
Met
People
Employee engagement
score
10%
Met
Safety
Total recordable injury
frequency rate (TRIFR)
10%
Met
Personal
Strategic/personal project
objectives
20%
Substantially
met
Total
100%
Remuneration report - audited
continued
c. 2022 LTI outcome
The CFO held 17,107 performance rights related to the 2020 LTI
grant that were tested based on the audited financial results of FY22.
50% vested and the remaining 50% will lapse.
InvoCare Annual Report 2022
55
Governance and
Directors’ report
3.II. CEO 2022 remuneration details
The remuneration mix 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 deferred components) and LTI awarded at 100% in accordance with performance and employment conditions).
2022 CEO maximum, target and earned
2022 CEO remuneration breakdown
InvoCare uses external independent consultants to provide market data and benchmarking information, not advice, to the Board for Executive
KMP so the Board can determine an appropriate remuneration mix.
TFR
TFR of $1,100,000 per annum.
The CEO’s TFR was increased by 7.3% effective 1 January 2022.
The CEO’s remuneration is benchmarked to similar sized roles in the ASX300 as well as relativity to the previous
CEO’s remuneration mix and also considers the CEO’s level of remuneration in his previous role, prior to joining
InvoCare. EY have been engaged to provide market data in 2023.
STI
Target STI of $770,000 (70% of TFR). The STI was based on the following performance measures:
○
Ú
Financials
○
Ú
Customer
○
Ú
People
○
Ú
Safety
○
Ú
Strategic/personal project objectives
For further detail on STI outcomes refer to Section 3.V below.
LTI
Target LTI of $770,000 (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 which vested on 1 January 2023).
8%
Deferred STI
Maximum
Target
Earned
0
400,000
800,000
1,200,000
1,600,000
2,000,000
2,400,000
2,800,000
$
Share-based payments
TFR
Cash STI
39%
27%
7%
27%
$2,832,500
42%
23%
6%
29%
$2,640,000
60%
32%
$1,847,837
56
InvoCare Annual Report 2022
3.III. CFO 2022 remuneration details
The remuneration mix 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)
2022 CFO maximum, target and earned
Remuneration report - audited
continued
Maximum
Target
Earned
0
300,000
600,000
900,000
1,200,000
1,500,000
1,800,000
2,100,000
$
39%
27%
7%
27%
$1,866,875
42%
24%
5%
29%
$1,740,000
55%
31%
6%
8%
$1,345,627
Deferred STI
Share-based payments
TFR
Cash STI
2022 CFO remuneration breakdown
TFR
TFR of $725,000 per annum.
The CFO did not receive a TFR increase in FY22 but received a 7.4% increase to TFR effective 1 July 2021.
The CFO’s role is broader than a Finance function and reflects accountability for several functions across, Finance,
Procurement, Information Technology and Enterprise Program Management.
STI
Target STI of $507,500 (70% of TFR). The STI was based on the following performance measures:
○
Ú
Financials
○
Ú
Customer
○
Ú
People
○
Ú
Safety
○
Ú
Strategic/personal project objectives
For further detail on STI outcomes refer to Section 3.V below.
LTI
Target LTI of $507,500 (70% of TFR ).
InvoCare Annual Report 2022
57
Governance and
Directors’ report
3.IV. Reported remuneration outcomes – Executive KMP – actual basis
This section provides details of the cash and value of other benefits received/earned 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 earned by each Executive KMP in 2022 and 2021. This consists of cash
salary, non-monetary benefits, cash STI, and deferred STI earned for the relevant financial year (to be granted in the form of restricted shares or
rights in the following financial year) and vested share-based payments exercised or exercisable. Refer to footnotes below for further details on
how these amounts were determined.
In assessing the financial results for 2022 STI outcomes, the Board did not make any adjustments, that is, neither negative nor positive discretion
was applied.
Executive KMP remuneration details – earned (pre-tax)
Executive KMP
Cash salary
- includes
non-monetary
benefits a
$
Super-
annuation a
$
Cash STI b
$
Deferred STI b
$
Share-based
payments
vested and
exercised c
$
Total
earned
$
Olivier Chretien,
appointed 1 January
2021
2022
1,079,692
26,250
593,921
147,974
-
1,847,837
2021
1,003,985
25,000
537,795
129,265
-
1,696,045
Adrian Gratwicke,
appointed 3 August
2020
2022
706,546
27,500
411,845
87,281
112,500
1,345,672
2021
684,338
24,597
391,367
80,456
113,300
1,294,058
a Cash salary, cash dividends on restricted shares granted as sign-on incentive and FY21 deferred STI, non-monetary benefits and superannuation
represents actual amounts received during the financial year. Cash salary excludes the movement of annual leave accruals.
b STI awarded based on the amount payable is a mix of cash and deferred STI to be granted in the form of share-based payments.
For both FY21 and FY22, 25% of the STI awarded that exceeds $150,000 is subject to deferral and has been paid in the form of restricted shares/
rights. Deferred STI will be granted in the financial year following the STI performance year and will be vested in 12 months subject to a continuous
employment condition.
The 2021 deferred STI was granted on 1 January 2022 and vested on 1 January 2023.
The 2022 deferred STI will be granted in the financial year ending 31 December 2023.
The value of Deferred STI in the table above is presented on an earned basis for the relevant financial year.
c Adrian Gratwicke received a portion of the sign-on incentive grant as InvoCare’s shares during FY22 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 2022 times the number of vested and exercised sign-on incentive shares. The 12-month VWAP was $11.25.
3.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 2022
Executive KMP
Target STI
potential a
$
Performance
target overall
achievement
%
Actual STI
awarded as a
% of target STI
potential
%
Actual STI awarded
STI forfeited as
a % of target STI
potential
%
Cash
$
Deferred
STI b
$
Total
$
Olivier Chretien
770,000
96
96
593,921
147,974
741,895
4
Adrian Gratwicke
507,500
98
98
411,845
87,281
499,126
2
a Target STI potential and actual STI awarded is based on the total fixed remuneration as at 31 December 2022.
b The 2022 deferred STI awarded will be granted as rights in the financial year ending 31 December 2023.
58
InvoCare Annual Report 2022
3.VI. Reported remuneration – Executive KMP – 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.
Executive KMP
Short-term
employee benefits
Post-employment
benefits
Long-term
benefits
Share-based
payments
Total
$
Cash salary a
$
Short term
incentive-
cash b
$
Non-
monetary
benefits c
$
Super-
annuation d
$
Termina-
tion
payments
$
Long
service
leave
accruals e
$
Shares, share
rights and
perform-
ance rights f
$
Olivier Chretien,
appointed 1 January
2021
2022
1,113,159
593,921
4,497
26,250
-
8,870
751,187
2,497,884
2021
1,058,415
537,795
3,985
25,000
-
5,556
464,363
2,095,114
Adrian Gratwicke,
appointed 3 August
2020
2022
702,580
411,845
4,497
27,500
-
6,592
516,405
1,669,419
2021
675,563
391,367
3,985
24,597
-
5,062
350,017
1,450,591
The remuneration mix for the Executive KMP based on the remuneration details in the table above are:
○
Ú
Olivier Chretien: 46% fixed and 54% at-risk (2021: 52% fixed and 48% at-risk)
○
Ú
Adrian Gratwicke: 44% fixed and 56% at-risk (2021: 49% fixed and 51% at-risk)
a The total cost of cash salary, cash dividends on restricted shares granted as sign-on incentive and deferred STI and leave accruals. Leave accruals
include 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.
b 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 3.V above of this Remuneration Report.
The 2022 deferred STI awarded, as disclosed in Section 3.V above, will be granted in the next financial year, so no value was included in the total
remuneration in the table above.
c Non-monetary benefits represent the costs to the Group, including any fringe benefits tax, for the provision of car parking and other items.
d Superannuation contributions are paid in line with legislative requirements.
e Long service leave accruals are determined in accordance with Accounting Standard, AASB 119 Employee Benefits.
f 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 3.VII below provides the further information and breakdown of share-based payments.
3.VII. Breakdown of share-based payments – Executive KMP
Executive KMP
Deferred STI in the
form of shares a
$
Sign-on incentive in
the form of shares
$
Sign-on incentive
in the form of share
rights
$
LTI in the form of
performance rights
$
Total share-based
payments
$
Olivier Chretien,
appointed 1 January
2021b
2022
117,218
-
189,775
444,194
751,187
2021
-
-
212,652
251,711
464,363
Adrian Gratwicke,
appointed 3 August
2020 c
2022
82,271
63,399
-
370,735
516,405
2021
-
143,509
-
206,508
350,017
a The 2022 deferred STI awarded, as disclosed in Section 3.V above, will be granted in the financial year ending 31 December 2023 and there is a
12 month deferral period, vesting on 1 January 2024, so no value was recognised for FY22.
The value in the table represents the 2021 deferred STI awarded and granted in the form of restricted shares during 2022. The restricted shares
vested on 1 January 2023.
b Olivier Chretien received a sign-on incentive grant in the form of share rights that vested on 1 January 2023.
c 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.
Remuneration report - audited
continued
InvoCare Annual Report 2022
59
Governance and
Directors’ report
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
$
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 vested on 1 January 2023, two
years after Mr Chretien’s appointment date of 1 January 2021. 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
$
Olivier Chretien
18/11/2020
11.57
34,782
18 November 2020
to 1 January 2023
402,428
c. Deferred STI grant under the Employee Share Plan
Based on the 2021 STI outcome, a portion of the STI is required to be deferred. The deferred amount of STI is calculated based on 25% of the STI
awarded that exceeds $150,000. For the FY21 deferred STI, it has been granted in the form of restricted shares held in trust. The restricted shares
will vest in 12 months on 1 January 2023 subject to a continuous employment condition.
The table below provides the grant date fair value and the maximum potential value of deferred STI at grant date for the Executive KMP. If the
Executive KMP does not meet the continuous employment conditions, the maximum value of the deferred STI will be nil.
Grant date fair value and maximum value for Deferred STI grants
Executive KMP
Grant date
Grant date fair
value per LTI
$
Number of
LTI granted
Performance
period
Maximum value
to be recognised
from grant date
$
Olivier Chretien
23/12/2022
10.97
10,700
1 January 2022
to 1 January 2023
117,379
Adrian Gratwicke
2/05/2022
12.37
6,660
1 January 2022
to 1 January 2023
82,384
60
InvoCare Annual Report 2022
Remuneration report - audited
continued
d. LTI plan
The Executive KMP were granted LTI in the form of performance rights under the LTI Plan (LTI).
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 LTI since 2020 which impact remuneration in the current
or a future financial year.
The 2020 performance rights granted are tested based on the audited financial results of FY22 and vested at 50% with the remainder of the
grant lapsed.
The 2021 and 2022 performance rights granted were not due for testing during FY22.
Grant year/
Performance test date
Performance
hurdles a
EPS baseline
for CAGR measure
Threshold
Maximum
Vesting outcome
2020/
February 2023
Normalised EPS
ROIC
46.9 cents
6% CAGR
10% three year
average ROIC
10% CAGR
12% three year
average ROIC
0%
100%b
2021/
February 2024
EPS
ROCE
24.0 cents
10% CAGR
10% three year
average ROCE
15% CAGR
12% three year
average ROCE
N/A
2022/
February 2025
EPS
ROCE
31.6 cents
10% CAGR
11% three year
average ROCE
15% CAGR
13% three year
average ROCE
N/A
a The performance targets are three-year compound annual growth rate (CAGR) in normalised EPS/EPS growth and average return on invested
capital (ROIC)/return on capital employed (ROCE) from 1 January of grant year.
b The result includes the exercise of Board discretion in relation to the impact of the capital raising which occurred during 2020 after the 2020 grant
was made, otherwise 33.7% would have vested.
e. 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
Grant date
fair value per LTI a
$
Number of
LTI granted
Performance
period
Maximum value to be
recognised from grant
date
$
Olivier Chretien
18/11/2020
11.57
63,777
1 January 2021 to
31 December 2023
737,900
01/01/2022
10.90
63,741
1 January 2022 to
31 December 2024
694,777
Adrian Gratwicke
15/06/2020
9.70
17,107
15 June 2020 to
3 August 2023b
165,938
01/01/2021
11.57
42,000
1 January 2021 to
31 December 2023
485,940
01/01/2022
12.37
42,011
1 January 2022 to
31 December 2024
519,676
a The grant date fair value of the performance rights granted under LTI 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 2023 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).
InvoCare Annual Report 2022
61
Governance and
Directors’ report
f. Movement in share-based payments granted
The table below provides the movement of all share-based payments granted to the Executive KMP.
Grant
Executive KMP
Balance at 1
January 2022
Number
Granted
during 2022
Number
Grant -
dividend
entitlements
during 2022*
Number
Vested and
exercised
during 2022
Number
Lapsed
during 2022
Number
Balance at 31
December
2022
Number
Sign-on incentive - shares
granted under DESP
Adrian Gratwicke
20,000
-
-
(10,000)
-
10,000
Sign-on incentive - share
rights granted under ESP
Olivier Chretien
34,782
-
-
-
-
34,782
Performance rights granted
under LTIP
Olivier Chretien
64,281
63,741
2,302
-
-
130,324
Adrian Gratwicke
59,681
42,011
1,912
-
-
103,604
Deferred STI - shares
granted under ESP
Olivier Chretien
-
10,700
-
-
-
10,700
Adrian Gratwicke
-
6,660
-
-
-
6,660
* In accordance with the LTIP plan rules, performance rights are entitled to dividends, if determined and paid by InvoCare Board, during the
performance period. Additional performance rights will be granted to the participants of the LTIP at the dividend payment date. The number
of performance rights granted are calculated by the number of performance rights times the dividend paid per share divided by the dividend
reinvestment plan VWAP price. These additional performance rights granted as dividend entitlements rights will only vest as additional shares on
date of vesting and to the extent the original grant of performance rights vests.
3.VIII. Loans to Executive KMP
There were no loans at the beginning or at the end of the financial year ended 31 December 2022 to the Executive KMP. No loans were made
available to the Executive KMP during 2022.
3. IX. Executive KMP service agreement terms
The key employment terms are summarised below.
Executive KMP
Term of
agreement
Notice period (by
company or by
employee)
Post-employment
restraints
Termination benefits
Olivier Chretien
No expiry date
Six months
12 months
If there are any termination entitlements to be paid,
they will be limited by the current Corporations Act
2001 (Cth) or the ASX Listing Rules or both.
Adrian Gratwicke
No expiry date
Six months
12 months
If there are any termination entitlements to be paid,
they will be limited by the current Corporations Act
2001 (Cth) or the ASX Listing Rules or both.
62
InvoCare Annual Report 2022
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
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.
Contracts
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.
Non-Executive
Director fee reviews
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 FY22
There were no changes to the Board base fees in 2022.
NED fee changes FY23
The Board base fees were last increased in 2020 and the Committee fees were last increased in 2018. Given the
lapse in time the Board feels it reasonable and have agreed to the following increases effective 1 January 2023
which remains within the pool cap of $1,250,000.
Board Chairman: $290,000 (1.5%)
Base fees: $146,000 (2.2%)
Committee Chairman: $15,000 (29.8%)
The table following details the 2022 base and committee fees. The aggregation of Board and committee fees
for 2022 remain below the pool cap of $1,250,000.
Additional or special duties
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 2022.
Superannuation
The fees set out in the table below include superannuation contributions in accordance with relevant statutory
requirements.
Equity participation
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.
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.
Remuneration report - audited
continued
InvoCare Annual Report 2022
63
Governance and
Directors’ report
Non-Executive Director fees (inclusive of superannuation)
Board/Committee
Role
From 1 January 2022
From 1 January 2023
Per role
$
Total
$
Per role
$
Total
$
Board base fee
Chairman
285,691
285,691
290,000
290,000
Non-Executive Directors
142,840
714,200
146,000
730,000
Audit, Risk & Compliance
Committee
Chairman
11,560
11,560
15,000
15,000
People, Culture & Remuneration
Committee
Chairman
11,560
11,560
15,000
15,000
Total
1,023,011
1,050,000
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.
Total Non-Executive Directors remuneration
Short-term
employee benefits
Post-employment
benefits
Total
$
Board and
committee fees
$
Superannuation
$
Bart Vogel
2022
261,261
24,430
285,691
2021
263,060
22,631
285,691
Kim Anderson
Appointed 11 May 2021
2022
140,046
14,354
154,400
2021
90,325
8,932
99,257
Richard Davis
2022
129,561
13,279
142,840
2021
132,790
12,940
145,730
Megan Quinn
2022
129,561
13,279
142,840
2021
130,151
12,689
142,840
Keith Skinner
2022
140,046
14,354
154,400
2021
140,684
13,716
154,400
Kee Wong
Appointed 1 November 2021
2022
129,561
13,279
142,840
2021
21,642
2,164
23,806
64
InvoCare Annual Report 2022
Remuneration report - audited
continued
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 2022
Number
Grant as
compensation
Number
Exercise of vested
share-based
payments during
2022
Number
Net other
changes
during 2022
Number
Total shares held
directly and
indirectly as at
31 December 2022*
Number
Non-Executive
Directors
Bart Vogel
19,343
-
-
-
19,343
Kim Anderson
10,079
-
-
5,295
15,374
Richard Davis
120,000
-
-
-
120,000
Megan Quinn
-
-
-
-
-
Keith Skinner
3,968
-
-
4,000
7,968
Kee Wong
-
-
-
6,300
6,300
Executive
KMP
Olivier Chretien
15,850
10,700
-
-
26,550
Adrian Gratwicke
9,996
6,660
10,000
(5)
26,651
* Shares held indirectly are included in the column headed Total shares held at 31 December 2022. Total shares are held directly by the KMP and
indirectly by the KMP’s related parties, inclusive of domestic partner, dependents and entities controlled, jointly controlled or significantly influenced
by the KMP.
SECTION 4
Consolidated
financial
statements
66
InvoCare Annual Report 2022
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 27 February 2023.
The Directors have the power to amend and
reissue the financial report.
About this report
This financial report’s disclosures are split
into five distinct groups to enable better
understanding of how the Group has
performed. Accounting policies and critical
accounting judgements applied in the
preparation of the financial statements are
shown together with the related accounting
balance and where the financial statement
matter is disclosed.
Consolidated financial statements
67
Consolidated statement of comprehensive income
67
Consolidated balance sheet
68
Consolidated statement of changes in equity
69
Consolidated statement of cash flows
70
Basis of preparation
71
Notes to the consolidated financial statements
73
Key performance metrics
73
Note 1.
Operating segments
73
Note 2. Revenue
75
Note 3. Earnings per share
77
Note 4. Dividends
78
Note 5. Significant profit and loss items
79
Note 6. Income tax
80
Note 7. Cash flow information
84
Significant assets and liabilities
86
Note 8. Trade receivables
86
Note 9. Pre-paid contracts
87
Note 10. Deferred revenue and selling costs
90
Note 11. Non-current operating assets
92
Note 12. Intangibles
96
Note 13. Pre-paid technology assets
98
Capital and risks
99
Note 14. Financial risk management
99
Note 15. Contributed equity
107
Note 16. Contingencies
108
Note 17. Commitments
109
Note 18. Events after reporting period
109
Business portfolios
110
Note 19. Business combinations
110
Note 20. Interests in subsidiaries
111
Note 21. Other financial assets
112
Other statutory disclosures
113
Note 22. Share-based remuneration
113
Note 23. Related party transactions
117
Note 24. Parent entity information
118
Note 25. Deed of cross guarantee
119
Note 26. Remuneration of auditors
121
Note 27. Other accounting policies
122
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022
2021
Notes
$’000
$’000
Revenue from continuing operations
2
591,970
532,453
Finished goods, consumables and funeral disbursements
(148,953)
(130,385)
Employee benefits expense
(224,101)
(196,064)
Advertising and public relations expenses
(16,878)
(17,095)
Occupancy and facilities expenses
(25,643)
(23,983)
Motor vehicle expenses
(6,902)
(6,302)
Technology expenses
5
(31,786)
(18,925)
Other expenses
(19,669)
(19,973)
Depreciation and amortisation expenses
5
(49,626)
(47,766)
Impairment reversal on cemetery land
5
-
4,000
Finance costs
5
(17,018)
(17,474)
Interest income
1,589
987
Net (loss)/gain on undelivered pre-paid contracts
9
(55,611)
44,085
Acquisition related costs
(1,005)
(743)
Restructuring costs
(1,476)
-
Net gain on lease modifications/terminations
5
446
1,517
Net gain on disposal of non-current assets
533
6,530
(Loss)/profit before income tax
(4,130)
110,862
Income tax benefit/(expense)
6
2,416
(30,591)
Net (loss)/profit after income tax from continuing activities
(1,714)
80,271
Net (loss)/profit after income tax for the year
(1,714)
80,271
Other comprehensive (loss)/income
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges, net of tax
(8)
763
Changes in foreign currency translation reserve, net of tax
(2,594)
(2,082)
Other comprehensive (loss)/income for the year, net of tax
(2,602)
(1,319)
Total comprehensive (loss)/income for the year, net of tax
(4,316)
78,952
(Loss)/profit is attributable to:
Equity holders of InvoCare Limited
(1,809)
80,158
Non-controlling interests
95
113
(1,714)
80,271
Total comprehensive (loss)/income for the year is attributable to:
Equity holders of InvoCare Limited
(4,411)
78,839
Non-controlling interests
95
113
(4,316)
78,952
2022
2021
cents
cents
Earnings per share for (loss)/profit attributable to the ordinary equity
holders of InvoCare Limited
Basic earnings per share
3
(1.3)
56.1
Diluted earnings per share
3
(1.3)
56.0
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2022
67
Consolidated
financial statements
Consolidated balance sheet
As at 31 December 2022
2022
2021
Notes
$’000
$’000
Assets
Current assets
Cash and cash equivalents
7
31,659
53,630
Trade receivables
8
49,290
42,451
Other receivables
17,537
14,703
Inventories
45,463
46,866
Pre-paid contract funds under management
9
48,985
52,959
Assets held for sale
-
89
Pre-paid technology assets
13
2,278
582
Deferred selling costs
10
4,945
6,244
Deferred contract assets
204
1,811
Total current assets
200,361
219,335
Non-current assets
Trade receivables
8
20,410
23,849
Other receivables
640
578
Other financial assets
21
5,918
4,072
Property, plant and equipment
11
526,141
494,454
Right of use assets
11
158,447
153,315
Pre-paid contract funds under management
9
548,702
596,916
Intangibles
12
233,045
226,913
Pre-paid technology assets
13
13,431
8,019
Deferred selling costs
10
29,982
29,511
Deferred contract assets
161
152
Total non-current assets
1,536,877
1,537,779
Total assets
1,737,238
1,757,114
Liabilities
Current liabilities
Trade and other payables
80,528
69,226
Contingent considerations
-
6,282
Lease liabilities
11
21,475
20,671
Derivative financial instruments
-
76
Current tax liabilities
11,933
5,739
Pre-paid contract liabilities
9
45,174
44,437
Deferred revenue
10
26,216
34,076
Provision for employee entitlements
17,943
17,133
Total current liabilities
203,269
197,640
Non-current liabilities
Borrowings
14
200,596
188,843
Lease liabilities
11
160,989
154,731
Deferred tax liabilities
6
26,569
42,307
Pre-paid contract liabilities
9
503,306
496,003
Deferred revenue
10
94,079
93,883
Provision for employee entitlements
3,214
2,786
Total non-current liabilities
988,753
978,553
Total liabilities
1,192,022
1,176,193
Net assets
545,216
580,921
Equity
Contributed equity
15
498,786
497,780
Reserves
12,021
10,865
Retained profits
33,032
70,857
Parent entity interests
543,839
579,502
Non-controlling interests
1,377
1,419
Total equity
545,216
580,921
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
68
InvoCare Annual Report 2022
Consolidated financial statements
continued
Consolidated statement of changes in equity
For the year ended 31 December 2022
Attributable to equity holders of InvoCare Limited
Contri-
buted
equity
Share-
based
payment
reserve
Hedging
reserve
Foreign
currency
translation
reserve
Retained
profits
Non-
controlling
interests
Total
equity
2022
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Balance at 1 January 2022
497,780
5,503
8
5,354
70,857
1,419
580,921
Total comprehensive (loss)/income
for the year
-
-
(8)
(2,594)
(1,809)
95
(4,316)
Transactions with owners in
their capacity as owners:
Dividends paid (Note 4)
-
-
-
-
(36,016)
(137)
(36,153)
Employee share plan shares
exercised during the year
739
(706)
-
-
-
-
33
Transfer of shares from treasury
shares for grant of shares through
the InvoCare Exempt Share Plan
Trust
267
-
-
-
-
-
267
Employee shares – value of
services
-
4,464
-
-
-
-
4,464
Balance at 31 December 2022
498,786
9,261
-
2,760
33,032
1,377
545,216
2021
Balance at 1 January 2021
497,005
3,296
(755)
7,436
14,465
1,423
522,870
Total comprehensive income/(loss)
for the year
-
-
763
(2,082)
80,158
113
78,952
Transactions with owners in
their capacity as owners:
Dividends paid (Note 4)
-
-
-
-
(23,766)
(117)
(23,883)
Employee share plan shares
exercised during the year
468
(468)
-
-
-
-
-
Transfer of shares from treasury
shares for grant of shares through
the InvoCare Exempt Share Plan
Trust
307
-
-
-
-
-
307
Employee shares – value of
services
-
2,675
-
-
-
-
2,675
Balance at 31 December 2021
497,780
5,503
8
5,354
70,857
1,419
580,921
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
InvoCare Annual Report 2022
69
Consolidated
financial statements
Consolidated statement of cash flows
For the year ended 31 December 2022
2022
2021
$’000
$’000
Cash flows from operating activities
Receipts from customers (including GST)
608,443
534,372
Payments to suppliers and employees (including GST)
(525,376)
(440,669)
Other revenue
7,236
8,027
90,303
101,730
Interest received
775
302
Finance costs
(15,063)
(14,521)
Income tax paid
(6,317)
(9,771)
Net cash flows from operating activities
69,698
77,740
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
1,845
10,788
Purchase of subsidiaries and other businesses including acquisition costs, net of
cash acquired
(9,753)
(12,648)
Proceeds from sale of subsidiaries and other businesses, net of restructuring
costs
-
392
Purchase of property, plant and equipment, intangibles and pre-paid technology assets
(63,348)
(62,703)
Purchase of other financial assets
(1,846)
(4,068)
Payments to funds under management for pre-paid contract sales
(19,268)
(26,599)
Receipts from funds under management for pre-paid contracts service delivered
49,037
55,905
Net cash flows from investing activities
(43,333)
(38,933)
Cash flows from financing activities
Proceeds from share option vested and exercised
33
-
Proceeds from borrowings
35,000
-
Repayment of borrowings
(25,438)
(59,680)
Principal elements of lease payments
(22,246)
(20,196)
Dividends paid to InvoCare Limited equity holders
(36,016)
(23,766)
Dividends paid to non-controlling interests in subsidiaries
(137)
(117)
Net cash flows from financing activities
(48,804)
(103,759)
Net decrease in cash and cash equivalents
(22,439)
(64,952)
Cash and cash equivalents at the beginning of the year
53,630
118,781
Effects of exchange rate changes on cash and cash equivalents
468
(199)
Cash and cash equivalents at the end of the year
31,659
53,630
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
70
InvoCare Annual Report 2022
Consolidated financial statements
continued
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 27 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 27 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, plaque, memorials 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 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.
Going concern
The consolidated financial report is prepared on a going concern basis. As at 31 December 2022, the Group has a net current liabilities
of $2,908,000 (2021: net current assets of $21,695,000). The net current liabilities are mainly due to the fluctuation in working capital
this year.
Current and non-current split
The Group presents assets and liabilities in the consolidated balance sheet as current or non-current:
•
Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised
in, or intended for sale or use in, the course of the Group’s operating cycle (that is 12 months). All other assets are classified as
non-current.
Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the
Group’s operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non-
current where the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting
period.
InvoCare Annual Report 2022
71
Consolidated
financial statements
Basis of preparation
Comparatives
Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.
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:
•
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.
72
InvoCare Annual Report 2022
Basis of preparation
continued
Key performance metrics
Operating earnings before interest, tax, depreciation and amortisation (Operating EBITDA) is a key measure used to assess the
Group’s performance. This section of the Financial Report focuses on disclosure that enhances a user’s understanding of Operating
EBITDA.
Operating segment provides a breakdown of revenue and profit by the operational activity. The key line items of the consolidated
statement of comprehensive income along with their components provide detail behind the reported balances. Group performance will
also impact the earnings per ordinary share capital and dividend payout.
Finally, the cash flows reflect the core results of the Group’s capital management strategy and therefore the disclosure on these items
has been included in this section.
Note 1. Operating segments
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
The Group is organised into the following reportable segments (same as prior reporting periods):
•
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.
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.
InvoCare Annual Report 2022
73
Consolidated
financial statements
Notes to the consolidated financial statements
Key performance metrics
B. Reportable segments information
Australia
Funeral
services
Cemeteries
&
Crematoria
Pet
cremations
New
Zealand
Singapore
Other/
unallocated
Total
2022
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Segment revenuea
347,229
135,294
35,138
62,687
22,510
(10,888)
591,970
Segment expensesb
(257,163)
(71,521)
(28,034)
(48,247)
(12,465)
(41,792)
(459,222)
Segment EBITDA
90,066
63,773
7,104
14,440
10,045
(52,680)
132,748
Depreciation and amortisation
(28,913)
(6,095)
(2,439)
(5,632)
(1,480)
(5,067)
(49,626)
Net gain on lease
modifications/terminations
448
-
-
(2)
-
-
446
Acquisition related costs
(1,005)
Restructuring costs
(1,476)
Net loss on pre-paid contracts
(55,611)
SaaS arrangements
(14,710)
Asset sales gain
533
EBIT
11,299
Net finance costs
(15,429)
Income tax benefit
2,416
Non-controlling interests
(95)
Net loss after income tax
(1,809)
2021
Segment revenuea
311,016
127,602
29,613
53,486
18,907
(8,171)
532,453
Segment expensesb
(230,495)
(66,191)
(22,640)
(42,388)
(10,569)
(35,196)
(407,479)
Segment EBITDA
80,521
61,411
6,973
11,098
8,338
(43,367)
124,974
Depreciation and amortisation
(26,353)
(5,741)
(1,884)
(5,730)
(1,224)
(6,834)
(47,766)
Net gain on lease
modifications/terminations
236
-
-
(22)
-
1,303
1,517
Acquisition related costs
(743)
Net gain on pre-paid contracts
44,085
SaaS arrangements
(5,248)
Net impairment reversal of
non-current assets
4,000
Asset sales gain
6,530
EBIT
127,349
Net finance costs
(16,487)
Income tax expense
(30,591)
Non-controlling interests
(113)
Net profit after income tax
80,158
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.
2022
2021
$'000
$'000
Operating activities:
Australia - Funeral services
90,066
80,521
Australia - Cemeteries & Crematoria
63,773
61,411
Australia - Pet cremations
7,104
6,973
New Zealand
14,440
11,098
Singapore
10,045
8,338
Support costs
(49,313)
(42,864)
Operating EBITDA
136,115
125,477
Non-operating activities - EBITDA
(3,367)
(503)
Segment EBITDA
132,748
124,974
C. Accounting policy for segment reporting
Operating EBITDA is reconciled to profit after tax as disclosed on the consolidated statement of comprehensive income.
74
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Key performance metrics
Note 2. Revenue
A. Disaggregation of revenue
The tables below provide detailed disaggregation of revenue derived by the Group.
Australia
Singapore
New Zealand
Total
2022
$’000
$’000
$’000
$’000
Funeral services
334,741
22,403
59,507
416,651
Cemeteries & Crematoria
134,270
-
2,871
137,141
Pet cremations
35,141
-
-
35,141
504,152
22,403
62,378
588,933
Rent
261
24
129
414
Sundry revenue
2,360
83
180
2,623
Total revenue from continuing operations
506,773
22,510
62,687
591,970
2021
Funeral services
301,401
18,555
50,277
370,233
Cemeteries & Crematoria
127,060
-
2,408
129,468
Pet cremations
29,658
-
-
29,658
458,119
18,555
52,685
529,359
Rent
248
146
158
552
Sundry revenue
1,693
206
643
2,542
Total revenue from continuing operations
460,060
18,907
53,486
532,453
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 $56,704,000 at
31 December 2022 (2021: $56,403,000).
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 $3,718,000 (2021: $3,314,000) or decrease by $1,859,000 (2021: $1,657,000).
InvoCare Annual Report 2022
75
Consolidated
financial statements
Key performance metrics
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.
76
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Key performance metrics
Note 3. Earnings per share
A. Reported period value
2022
2021
cents
cents
Basic earnings per share
(1.3)
56.1
Diluted earnings per share
(1.3)
56.0
Operating earnings per share
35.1
31.6
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
2022
2021
$’000
$’000
Net (loss)/profit after income tax
(1,714)
80,271
Less: Non-controlling interests
(95)
(113)
Net (loss)/profit after income tax attributable to InvoCare Limited's equity holders
for calculating statutory basic and diluted earnings per share
(1,809)
80,158
Net (loss)/profit after income tax attributable to InvoCare Limited's equity holders for calculating
statutory basic earnings per share
(1,809)
80,158
Add/(less): Non-operating activities results
Non-operating EBITDA
3,367
503
Net loss/(gain) on pre-paid contracts before income tax
55,611
(44,085)
Depreciation and amortisation
6
7
SaaS arrangements
13,395
4,594
Restructuring costs
1,476
-
Impairment gain on non-current assets
-
(4,000)
Asset sales gain before income tax
(533)
(6,530)
Net finance costs
1,157
1,225
Loss/(profit) before income tax on non-operating activities
74,479
(48,286)
Income tax (benefit)/expense on non-operating activities
(22,519)
13,271
Net loss/(profit) after income tax on non-operating activities
51,960
(35,015)
Operating earnings after income tax for calculating operating earnings per share
50,151
45,143
C. Weighted average number of shares used in calculating basic and diluted earnings per share
2022
2021
Number
’000
Number
’000
Weighted average number of shares used in calculating basic
and operating earnings per share
143,014
142,946
Adjustments for calculation of diluted earnings per share:
Share options and rights*
-
251
Weighted average number of shares used in calculating diluted earnings per share
143,014
143,197
*
For the year ended 31 December 2022, the potential ordinary shares issued under the 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.
InvoCare Annual Report 2022
77
Consolidated
financial statements
Key performance metrics
Note 4. Dividends
A. Dividends paid
Cents
per share
Total amount
Tax rate for
franking credit
Percentage
franked
2022
$’000
%
%
Dividends on InvoCare Limited's ordinary shares
2022 interim dividend
13.5
19,450
30
100
2021 final dividend
11.5
16,566
30
100
36,016
2021
2021 interim dividend
9.5
13,684
30
100
2020 final dividend
7.0
10,082
30
100
23,766
B. Dividends determined and not recognised at year end
On 27 February 2023, the Directors determined a final dividend of 11.0 cents per share, fully franked, to be paid on 6 April 2023. 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 6 March 2023.
C. Franking credits
2022
2021
$’000
$’000
As at 31 December
34,567
32,588
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.
78
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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.
2022
2021
$’000
$’000
A. Finance costs
Interest paid and payable
7,929
7,588
Interest expense: customer advance payments
1,473
2,096
Interest expense on lease liabilities
6,029
5,718
Other finance costs
1,587
2,072
17,018
17,474
Interest expense on pre-paid contracts
21,887
20,612
B. Depreciation, amortisation and impairment of non-current assets
Buildings
6,319
5,957
Property, plant and equipment
17,496
16,123
Right of use assets
18,977
17,331
Total depreciation
42,792
39,411
Cemetery land
393
390
Leasehold land and buildings
141
141
Leasehold improvements
3,797
4,503
Brand names
887
1,197
Capitalised software
1,616
2,124
Amortisation of non-current assets
6,834
8,355
Total depreciation and amortisation
49,626
47,766
Impairment of non-current assets
Cemetery land impairment reversal
-
(4,000)
Impairment gain on non-current assets
-
(4,000)
Total depreciation, amortisation and impairment
49,626
43,766
C. Impairment loss – financial assets
Trade receivables
734
1,599
D. Leases expense
Expense relating to short term leases
19
484
Expense relating to leases of low value assets not included in short term leases
830
730
849
1,214
E. Lease modifications and terminations impact
Net gain on lease modifications/terminations
446
1,517
Additional accelerated depreciation expense
-
(1,079)
Net gain on lease modifications/terminations
446
438
F. Employee benefits expense
Defined contribution superannuation expense
14,276
12,194
Share-based payments expense
4,662
2,894
G. SaaS arrangements
SaaS arrangements expensed as incurred
13,395
4,170
Pre-paid technology expenses
1,315
654
Accelerated unwind of pre-paid technology assets
-
424
Total SaaS arrangements
14,710
5,248
Other technology expenses
17,076
13,677
Technology expenses
31,786
18,925
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.
InvoCare Annual Report 2022
79
Consolidated
financial statements
Key performance metrics
Note 6. Income tax
2022
2021
$’000
$’000
A. Income tax expense
Current tax
17,539
18,155
Deferred tax
(19,790)
14,331
Over provision in prior years
(165)
(1,895)
Income tax (benefit)/expense
(2,416)
30,591
B. Reconciliation of income tax expense to prima facie tax payable
(Loss)/profit before income tax
(4,130)
110,862
Prima facie tax at 30% (2021: 30%) on (loss)/profit before income tax
(1,239)
33,259
Tax effect of amounts which are not deductible/(taxable)
in calculation of taxable income:
Effect of foreign tax rate differences
(1,199)
(931)
Acquisition related costs
119
250
Capital gains not subject to tax as offset against capital losses
(157)
(1,604)
Non-deductible interest expense
218
175
Other items (net)
7
1,337
(2,251)
32,486
Over provision in prior years
(165)
(1,895)
Income tax (benefit)/expense attributable to continuing operations
(2,416)
30,591
C. Tax expense relating to items of other comprehensive income
Cash flow hedges
21
311
D. Deferred tax liability
The deferred tax liability balances comprised temporary differences attributable to:
Amounts recognised in profit and loss:
Cemetery land
32,197
32,180
Property, plant and equipment
6,075
5,774
Deferred selling costs
10,592
10,727
Prepayments and other
130
410
Pre-paid technology assets
(1,705)
2,708
Brand names
1,270
1,534
Capitalised software
(485)
(6,726)
Pre-paid contracts
14,757
32,828
Provisions
(7,172)
(6,877)
Receivables
(1,698)
(2,125)
Accruals and other
(8,702)
(7,797)
Deferred revenue
(8,900)
(13,769)
Leased assets
(9,790)
(6,539)
Amounts recognised directly in equity:
Cash flow hedge reserve
-
(21)
26,569
42,307
The net movement in the deferred tax liability is as follows:
Balance at the beginning of the year
42,307
28,832
Net (credit)/charge to statement of comprehensive income – current period
(19,790)
14,331
Net credit to statement of comprehensive income – prior periods
3,982
(2,505)
Amounts recognised directly in equity
21
311
Effect of movements in exchange rates
49
1,338
Balance at the end of the year
26,569
42,307
80
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Key performance metrics
E. Tax losses
The Australian Group has nil capital losses (2021: nil) available to offset against capital gains in future years.
The New Zealand Group has $435,000 carried forward tax losses (2021: nil) related to the tax return for the year ended 31 December
2020 (lodged in 2022). These losses will be utilised in the tax return for the year ended 31 December 2021 (due for lodgement
31 March 2023). Accordingly, a deferred tax asset of $122,000 has been recognised.
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. InvoCare is a signatory to the TTC (first report published for the financial year ended 31 December 2019) and for the
purpose of TTC, InvoCare is currently classified as a medium business.
Income tax benefit on reported loss of the Group was $2,416,000 (2021: income tax expense of $30,591,000 on reported profit),
representing an effective rate of 54.5% (2021: 29.3%). The current year Group effective tax rate reflects an effective tax rate on
operating profit of 28.8% and effective tax rate on non-operating loss of 30.2%. An analysis of tax paid, based on tax residency status,
for Australia and the Group in total, and a summary of the operating and non-operating analysis, is set out below.
Australia
Group
2022
2021
2022
2021
$'000
$'000
$'000
$'000
(Loss)/profit before income tax
(7,714)
108,050
(4,130)
110,862
Tax at nominal rate in relevant country
(2,314)
32,415
(2,438)
32,328
Increase/(decrease) due to non-temporary differences
Non-deductible acquisition related costs
119
241
119
250
Capital gains offset against capital losses or not subject to tax
(158)
(1,620)
(157)
(1,604)
Foreign exempt dividends
(2,672)
(1,168)
-
-
Non-deductible interest expense
-
-
218
175
Other items
(135)
898
7
1,337
Current year income tax (benefit)/expensec
(5,160)
30,766
(2,251)
32,486
Effective tax ratea,c
66.9%
28.5%
54.5%
29.3%
Prior period tax adjustments
66
(2,029)
(165)
(1,895)
Income tax (benefit)/expense
(5,094)
28,737
(2,416)
30,591
Increase/(decrease) due to temporary differences
Unrealised pre-paid contract funds under management gains and losses
18,068
(11,282)
18,068
(11,282)
Impairment of cemetery land
-
(1,200)
-
(1,200)
Technology expenses capitalised for tax
4,413
196
4,413
196
Property, plant and equipment temporary differences
(4,338)
(1,834)
(4,238)
(2,273)
Deferred revenue subject to tax in prior years
(3,972)
(4,591)
(3,972)
(4,591)
Deferred selling expenses
228
460
228
460
Provisions
292
165
306
232
Accruals
912
2,832
957
2,861
Share based payments
1,313
761
1,344
761
Leased assets timing differences
1,987
273
2,078
372
Other items
487
(1,295)
606
(60)
Current income tax paid or payable
14,230
15,251
17,539
17,962
Current income tax paid rateb,c
(184.5%)
14.1%
(424.8%)
15.0%
a
Calculated as the current year income tax (benefit)/expense divided by the (loss)/profit before income tax, subject to footnote c
below
b
Calculated as the current income tax paid or payable divided by the (loss)/profit before income tax, subject to footnote c below
c
2022 Australian and Group current income tax paid rate and effective tax rate disclosed above are explained below by
distinguishing between operating and non-operating, as the combination of operating profit and non-operating loss results in an
abnormal rate
InvoCare Annual Report 2022
81
Consolidated
financial statements
Key performance metrics
2022
Operating
Non-
operating
Total
Australia
Australia
$'000
$'000
$'000
Profit/(loss) before income tax
64,972
(72,686)
(7,714)
Tax at nominal rate
19,492
(21,806)
(2,314)
Non-temporary differences
(2,639)
(207)
(2,846)
Current year income tax expense
16,853
(22,013)
(5,160)
Effective tax rate
25.9%
30.3%
66.9%
Temporary differences
(2,706)
22,091
19,385
Current income tax paid or payable
14,147
78
14,225
Current income tax paid rate
21.8%
(0.1%)
(184.5%)
2022
Operating
Non-
operating
Total
Group
Group
$'000
$'000
$'000
Profit/(loss) before income tax
70,349
(74,479)
(4,130)
Tax at nominal rate in relevant country
21,105
(22,344)
(1,239)
Non-temporary differences
(837)
(175)
(1,012)
Current year income tax expense
20,268
(22,519)
(2,251)
Effective tax rate
28.8%
30.2%
54.5%
Temporary differences
(2,284)
22,074
19,790
Current income tax paid or payable
17,984
(445)
17,539
Current income tax paid rate
25.6%
0.6%
(424.8%)
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 2022, $448,000 of capital gains were realised on the termination of leases.
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$4,500,000 was made by InvoCare Limited to InvoCare Holdings New Zealand Limited on 20 October 2022
On 21 July 2022, the Group invested in $1,447,000 in Parting Stone Australia Pty Limited (Parting Stone), a joint venture
arrangement together with a US based partner (noting InvoCare does not control Parting Stone)
In addition to income tax paid, the Australian group paid the following types of taxes and fees during 2022:
•
Payroll tax of $8,401,000 (2021: $7,297,000)
•
Fringe benefits tax of $1,610,000 (2021: $1,480,000)
•
Land tax on owned buildings of $5,228,000 (2021: $5,159,000), to various state governments
Council and water rates paid to various authorities of $3,325,000 (2021: $3,228,000)
82
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Key performance metrics
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 2022
83
Consolidated
financial statements
Key performance metrics
Note 7. Cash flow information
A. Reconciliation of cash flows from operations with net profit after income tax
2022
2021
$’000
$’000
Net (loss)/profit from ordinary activities after income tax
(1,809)
80,158
Adjustments for non-cash items in (loss)/profit from ordinary activities
Depreciation and amortisation
49,626
47,766
Pre-paid technology expenses
1,315
654
Accelerated unwind of pre-paid technology assets
-
424
Impairment reversal on cemetery land
-
(4,000)
Share-based payments expense
4,662
2,894
Loan establishment costs
1,085
964
Net gain on disposal of property, plant and equipment
(533)
(6,808)
Unrealised loss/(gain) on pre-paid contracts
55,611
(44,085)
Other pre-paid contract movements
17,891
20,809
Interest expense: customer advance payments
1,473
2,096
Other non-cash deferred revenue/deferred selling costs movements
(27,433)
(30,057)
Foreign exchange gain
(1,074)
(1,069)
Loss on disposal of business
-
278
Non-cash interest expense on interest rate swaps
219
839
Non-cash interest income
(815)
(685)
Gain on lease modifications/terminations
(446)
(1,517)
Business acquisition costs classified in investing activities
1,005
743
Changes in assets and liabilities, net of the effects of purchase and
disposal of subsidiaries
(Increase)/decrease in trade and other receivables
(6,299)
1,001
(Increase)/decrease in inventories
1,297
(2,773)
(Increase)/decrease in deferred contract assets
1,598
2,104
(Increase)/decrease in deferred selling expenses
828
1,956
Increase/(decrease) in trade and other payables
(11,745)
(2,379)
Increase/(decrease) in deferred revenue
(7,664)
(9,759)
Increase/(decrease) in income taxes payable
5,243
3,866
Increase/(decrease) in deferred taxes
(15,738)
13,476
Increase/(decrease) in provisions
1,401
844
Net cash flows from operating activities
69,698
77,740
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
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
2022
$’000
$’000
$’000
$’000
Net debt as at 1 January 2022
53,630
(188,843)
(175,402)
(310,615)
Cash flows
(22,439)
(9,562)
22,246
(9,755)
Additions through business combinations
-
-
(2,045)
(2,045)
Additions/variations
-
-
(22,891)
(22,891)
Surrender/terminations
-
-
2,106
2,106
Interest expense on lease liabilities
-
-
(6,029)
(6,029)
Foreign exchange adjustments
468
(2,191)
(449)
(2,172)
Net debt as at 31 December 2022
31,659
(200,596)
(182,464)
(351,401)
2021
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)
84
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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.
2022
2021
$’000
$’000
Operating cash flows
69,698
77,740
Add back: Net finance costs paid
14,288
14,219
Add back: Tax paid
6,317
9,771
Add back: SaaS arrangements expensed as incurred
13,395
4,170
Net funds from pre-paid contracts
29,769
29,306
Ungeared, tax free operating cash flows
133,467
135,206
Statutory EBITDA
132,748
124,974
Cash conversion %
101%
108%
The conversion ratio calculation and the line items as shown in the table above are all non-IFRS information. However, all financial data
is based on the information disclosed in the audited financial statements and notes to the financial statements of InvoCare and follow
the recognition requirements of Australian Accounting Standards.
E. Cash and cash equivalents
2022
2021
$’000
$’000
Cash on hand
88
99
Cash at bank
31,571
53,531
31,659
53,630
Cash at bank is non-interest bearing as at 31 December 2021 and 2022. Therefore, the weighted average interest rate for cash at bank
is rounded to zero for both 2021 and 2022.
InvoCare Annual Report 2022
85
Consolidated
financial statements
Significant assets and liabilities
This section contains the key assets and liabilities in relation to the three main streams of businesses, being funeral business (at-need
and pre-need) and the cemeteries and crematoria business. These assets and liabilities are disclosed in:
Note 8. Trade receivables
Note 11. Non-current operating assets
Note 9. Pre-paid contracts
Note 12. Intangibles
Note 10. Deferred revenue and selling costs
Note 13. Pre-paid technology assets
Note 8. Trade receivables
2022
2021
$’000
$’000
Current
Trade receivables
55,999
49,565
Less: loss allowance
(6,709)
(7,114)
49,290
42,451
Non-current
Trade receivables
20,410
23,849
Less: loss allowance
-
-
20,410
23,849
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
2022
2021
2022
2021
2022
2021
%
%
$’000
$’000
$’000
$’000
Forward aged (12 - 60 months contracts)
-
-
48,211
38,887
-
-
Current
0.2
0.2
11,667
14,738
23
29
Over 30 days past due
1.5
1.5
2,719
3,978
41
60
Over 60 days past due
10.5
10.5
1,736
2,194
182
230
Over 90 days past due
53.5
49.9
12,076
13,617
6,463
6,795
76,409
73,414
6,709
7,114
The movements of loss allowance of trade receivables are as follows:
2022
2021
$’000
$’000
As at 1 January
7,114
6,473
Loss allowance recognised during the year
841
1,289
Receivables written off as uncollectable
(1,246)
(648)
As at 31 December
6,709
7,114
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.
86
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
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 2022 with the comparative information for the year ended 31 December
2021.
From 1 January 2023, AASB 17 Insurance Contracts is applicable to the Group’s pre-paid contracts and will impact their recognition
and measurement, refer to Note 27 Other accounting policies, for further details.
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.
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
InvoCare Annual Report 2022
87
Consolidated
financial statements
Significant assets and liabilities
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 statement of comprehensive income, 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
88
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
A. Statement of comprehensive income impact of undelivered pre-paid contracts
2022
2021
$’000
$’000
Unrealised (loss)/gain on pre-paid contract funds under management
(33,724)
64,697
Change in pre-paid contract liabilities due to significant financing
(21,887)
(20,612)
Net (loss)/gain on undelivered pre-paid contracts
(55,611)
44,085
B. Movements in pre-paid contract funds under management
2022
2021
$’000
$’000
Balance as at 1 January
649,875
613,131
Sale of new pre-paid contracts
19,268
25,715
Initial recognition of contracts pre-paid by instalment
7,649
2,734
Redemption of pre-paid contract funds following service delivery
(49,037)
(56,402)
Movement due to business combinations
3,656
-
(Decrease)/increase in fair value of pre-paid contract funds under management
(33,724)
64,697
Balance at reporting date
597,687
649,875
Current
48,985
52,959
Non-current
548,702
596,916
Balance at reporting date
597,687
649,875
C. Movements in pre-paid contract liabilities
2022
2021
$’000
$’000
Balance as at 1 January
540,440
541,309
Sale of new pre-paid contracts
19,268
25,715
Initial recognition of contracts pre-paid by instalment
7,649
2,734
Decrease following delivery of services
(44,420)
(49,930)
Movement due to business combinations
3,656
-
Increase due to significant financing
21,887
20,612
Balance at reporting date
548,480
540,440
Current
45,174
44,437
Non-current
503,306
496,003
Balance at reporting date
548,480
540,440
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.
G. AASB 17 Insurance Contracts applicable to pre-paid contracts
From 1 January 2023, AASB 17 Insurance Contracts is applicable to the Group’s pre-paid contracts and will impact their recognition
and measurement, refer to Note 27 Other accounting policies, for further details.
InvoCare Annual Report 2022
89
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 2022 with the
comparative information for the year ended 31 December 2021.
The movements are disclosed according to the activities performed to align with the disclosure in Note 2 Revenue.
From 1 January 2023, AASB 17 Insurance Contracts is applicable to the Group’s pre-paid contracts and will impact the recognition
and measurement of deferred revenue and deferred selling costs related to Funeral services, refer to Note 27 Other accounting
policies, for further details.
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 pre-paid Cemeteries & Crematoria contract
Repeated activities until
services/goods delivered
Activities/
Financial impact
Customer
payments
- by instalments
Finance costs*
Customer
payments
- by instalments
Finance costs*
Services/goods
delivered
Balance sheet impact
Cemeteries &
Crematoria
services/goods
↑ Deferred revenue
↑ Deferred revenue
↑ Deferred revenue ↑ Deferred revenue
↓ Deferred revenue
Profit and loss impact
Cemeteries &
Crematoria
services/goods
N/A
Finance costs
- Customers
advance payments
N/A
Finance costs
- Customers
advance payments
Operating revenue
- Cemeteries &
Crematoria
Cash flows impact
Cemeteries &
Crematoria
services/goods
↑ InvoCare bank
account
N/A
↑ InvoCare bank
account
N/A
N/A
*
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 2022 with the comparative information for the year ended 31 December
2021.
90
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
III. Deferred revenue movement
2022
2021
Cemeteries
&
Crematoria
Funeral
services
Total
Cemeteries
&
Crematoria
Funeral
services
Total
$’000
$’000
$’000
$’000
$’000
$’000
Balance as at 1 January
89,328
38,631
127,959
100,276
37,442
137,718
Add/(less): Changes during the period
Cash received from customer instalment
payments
2,240
-
2,240
5,560
-
5,560
Revenue recognised on service delivery
during the period
(17,132)
(3,076)
(20,208)
(21,436)
(3,277)
(24,713)
Revenue deferred during the period:
Revenue deferred
5,325
3,506
8,831
4,057
3,241
7,298
Recognition of financing costs on customer
advance payments
316
1,157
1,473
871
1,225
2,096
Balance at reporting date
80,077
40,218
120,295
89,328
38,631
127,959
Current
22,766
3,450
26,216
30,763
3,313
34,076
Non-current
57,311
36,768
94,079
58,565
35,318
93,883
Balance at reporting date
80,077
40,218
120,295
89,328
38,631
127,959
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 release 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 2022 with the comparative information
for the year ended 31 December 2021.
2022
2021
Cemeteries
&
Crematoria
Funeral
services
Total
Cemeteries
&
Crematoria
Funeral
services
Total
$’000
$’000
$’000
$’000
$’000
$’000
Balance as at 1 January
15,509
20,246
35,755
17,179
20,533
37,712
Add/(less): Changes during the period
Selling costs recognised in profit and loss
related to service delivery during
the period
(1,872)
(38)
(1,910)
(2,435)
(287)
(2,722)
Selling costs deferred on sales during the
period
1,082
-
1,082
765
-
765
Balance at reporting date
14,719
20,208
34,927
15,509
20,246
35,755
Current
3,274
1,671
4,945
4,571
1,673
6,244
Non-current
11,445
18,537
29,982
10,938
18,573
29,511
Balance at reporting date
14,719
20,208
34,927
15,509
20,246
35,755
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.
III. Current and non-current split
The Group determines the classification of current and non-current portions of deferred revenue and deferred selling costs based on
the pattern of usage associated with the estimated timing of delivery of the related products (memorialisation and funeral services).
This pattern of usage is based on historical data, forecast cash receipts from instalment payers and construction schedules, which is
reviewed annually.
D. AASB 17 Insurance Contracts applicable to deferred revenue and deferred selling costs related to
the funeral services
From 1 January 2023, AASB 17 Insurance Contracts is applicable to the Group’s pre-paid contracts and will impact their recognition
and measurement, refer to Note 27 Other accounting policies, for further details.
InvoCare Annual Report 2022
91
Consolidated
financial statements
Significant assets and liabilities
Note 11. Non-current operating assets
This note includes the information for the following two categories of non-current operating assets:
•
Property, plant and equipment
Right of use assets and the related lease liabilities
A. Property, plant and equipment
Cemetery
land
Freehold
land
Buildings
Leasehold
land and
buildings
Leasehold
Improve-
ments
Plant and
equip-
ment
Total
2022
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Composition as at
31 December 2022
Cost
122,726
104,923
285,376
4,534
45,428
204,734
767,721
Accumulated
depreciation/amortisation
(10,351)
-
(87,545)
(4,113)
(14,904)
(119,368)
(236,281)
Accumulated impairment
(5,299)
-
-
-
-
-
(5,299)
Net book value
107,076
104,923
197,831
421
30,524
85,366
526,141
Movement for the year ended
31 December 2022
Opening net book value
107,497
102,082
185,043
562
29,403
69,867
494,454
Additions
-
1,647
19,959
-
5,413
32,940
59,959
Additions through business
combinations
-
-
-
-
-
77
77
Disposals
-
(73)
-
-
(447)
(557)
(1,077)
Depreciation/amortisation
charge
(393)
-
(6,319)
(141)
(3,797)
(17,496)
(28,146)
Effect of movement in exchange
rates
(28)
1,205
(839)
-
(41)
577
874
Transfers to/(from) held for sale
-
62
(13)
-
(7)
(42)
-
Closing net book value
107,076
104,923
197,831
421
30,524
85,366
526,141
2021
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 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
92
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
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.
2022
2021
$’000
$’000
Freehold buildings
8,354
7,754
Leasehold improvements
189
548
Plant and equipment
3,241
2,049
Total assets in the course of construction
11,784
10,351
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.
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% (2021: 2.5%) in revenue and
2.0% (2021: 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 12.3% (2021: 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 five to ten 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
2022
$’000
$’000
$’000
$’000
Composition as at 31 December 2022
Cost
182,274
2,587
21,748
206,609
Accumulated depreciation
(41,043)
(636)
(6,483)
(48,162)
Net book value
141,231
1,951
15,265
158,447
Movement for the year ended 31 December 2022
Opening net book value
141,556
313
11,446
153,315
Additions
12,372
1,966
8,682
23,020
Additions through business combinations
2,045
-
-
2,045
Lease modifications/terminations
(704)
(285)
(127)
(1,116)
Depreciation
(14,198)
(43)
(4,736)
(18,977)
Effect of movement in exchange rates
160
-
-
160
Closing net book value
141,231
1,951
15,265
158,447
InvoCare Annual Report 2022
93
Consolidated
financial statements
Significant assets and liabilities
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
II. Lease liabilities on related right of use assets
2022
2021
$’000
$’000
Current
21,475
20,671
Non-current
160,989
154,731
Balance as at 31 December
182,464
175,402
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.
94
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
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 Annual Report 2022
95
Consolidated
financial statements
Significant assets and liabilities
Note 12. Intangibles
Goodwill Brand name
Capitalised
software
Total
2022
$’000
$’000
$’000
$’000
Composition as at 31 December 2022
Cost
260,557
19,947
27,078
307,582
Accumulated amortisation
-
(15,580)
(15,756)
(31,336)
Impairment
(43,201)
-
-
(43,201)
Net book value
217,356
4,367
11,322
233,045
Movement for the year ended 31 December 2022
Opening net book value
213,868
5,232
7,813
226,913
Additions
-
23
5,125
5,148
Additions through business combinations
2,554
-
-
2,554
Amortisation charge
-
(887)
(1,616)
(2,503)
Effect of movement in exchange rates
934
(1)
-
933
Closing net book value
217,356
4,367
11,322
233,045
2021
Composition as at 31 December 2021
Cost
257,386
19,847
21,277
298,510
Accumulated amortisation
-
(14,615)
(13,464)
(28,079)
Impairment
(43,518)
-
-
(43,518)
Net book value
213,868
5,232
7,813
226,913
Movement for the year ended 31 December 2021
Opening net book value
212,706
6,399
6,281
225,386
Additions
-
30
3,656
3,686
Additions through business combinations
324
-
-
324
Finalisation of prior period acquisitions
289
-
-
289
Amortisation charge
-
(1,197)
(2,124)
(3,321)
Effect of movement in exchange rates
549
-
-
549
Closing net book value
213,868
5,232
7,813
226,913
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 goodwill allocated to the Group’s three Australian-based operations (Funeral services, Cemeteries & Crematoria and Pet
cremations) was apportioned in 2021 based on the relative values of the recoverable amounts of each CGU in that year.
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
Funeral services, 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.
2022
2021
$'000
$'000
Funeral services
102,808
100,273
Cemeteries & Crematoria
24,729
24,729
Pet cremations
46,914
46,896
Singapore operations
16,080
14,936
New Zealand operations
26,825
27,034
Total goodwill
217,356
213,868
96
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Significant assets and liabilities
I. Goodwill
a. 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% (2021: 2.5%) in
revenue, 2.0% (2021: 2.0%) in expense and 1.0% (2021: 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:
2022
2021
%
%
Funeral services
12.3
9.2
Cemeteries & Crematoria
12.3
9.2
Pet cremations
12.3
9.2
Singapore operations
12.3
9.2
New Zealand operations
13.1
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, the New
Zealand 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. 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 A. 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 $4,712,000 (2021: $3,189,000) as intangible assets in respect of customisation and
configuration costs incurred in implementing SaaS arrangements.
C. Accounting policies
I. Goodwill
Goodwill arises on the acquisition of business/subsidiary and is allocated to the cash-generating units that are expected to benefit
from the synergies of the combination. 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. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
InvoCare Annual Report 2022
97
Consolidated
financial statements
Significant assets and liabilities
Note 13. Pre-paid technology assets
2022
2021
$’000
$’000
Balance at 31 December
Current
2,278
582
Non-current
13,431
8,019
Balance at 31 December
15,709
8,601
Movement for the year
Opening balance at 1 January
8,601
5,292
Additions
8,423
4,387
Less: Amounts recognised within the consolidated
statement of comprehensive income
Pre-paid technology expenses
(1,315)
(654)
Accelerated unwind
-
(424)
Closing balance at 31 December
15,709
8,601
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 $8,423,000 (2021: $3,963,000 (net of accelerated unwind of pre-paid technology
assets of $424,000)) 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 three to ten 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.
98
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Capital and risks
The Group’s activities expose it to a variety of financial risks. The Group’s overall financial risk management strategy focuses on the
unpredictability of financial markets and seeks to minimise adverse effects on the Group’s financial performance. This section contains
disclosures of financial risks the Group is exposed to and how the Group manages those risks.
The capital management, impact of contingencies, commitments, and events subsequent to reporting period are also considered in
this section.
Note 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
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 ‘A’
independent credit rating
•
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
InvoCare Annual Report 2022
99
Consolidated
financial statements
Capital and risks
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.
2022
2021
$’000
$’000
Financial assets
Cash and cash equivalents
31,659
53,630
Trade receivables
69,700
66,300
Pre-paid contract funds under management
597,687
649,875
Other financial assets
5,918
4,072
704,964
773,877
Financial liabilities
Trade and other payables
80,528
69,226
Contingent considerations
-
6,282
Borrowings
200,596
188,843
Lease liabilities
182,464
175,402
Derivative financial instruments
-
76
463,588
439,829
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. All interest rate swaps were matured during the financial year ended 31 December 2022.
2022
2021
%
%
Bank borrowingsa
Effective average interest rate as at 31 December
5
3
Interest rate swaps position as at 31 December
Weighted average fixed interest rate payable
N/A
2.27
Weighted average variable interest rate receivable
N/A
0.61
Interest rate swaps coverage on outstanding bank borrowings
Australia
Nil
Nil
New Zealand
Nil
33
Singaporeb
Nil
Nil
Combined Australia and New Zealand
Nil
15
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.
100
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Capital and risks
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.
Where applicable, 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.
2022
2021
Weighted
average
interest rate
Balance
Weighted
average
interest rate
Balance
%
$'000
%
$'000
Variable borrowings
4.97
102,150
1.76
91,412
Interest rate swaps (notional principal)
-
-
2.27
(14,114)
Net exposure to cash flow interest rate risk
102,150
77,298
The notional principal amounts and swap liability periods of expiry of the interest rate swap contracts are as follows.
Nominal value
Swap liability
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Less than one year
-
14,114
-
76
All interest rate swap contracts have been closed off as of 31 December 2022. 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.
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 2022
101
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 2022. Therefore, there was no ineffectiveness to
be recorded from net investments in foreign entity hedges.
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollars, was as follows.
New Zealand dollars
Singapore dollars
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Borrowings
20,800
46,000
27,500
30,000
Derivatives
-
81
-
-
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 2022.
More than 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 as the value of the pre-paid contract funds under management exceeding the pre-paid contract liabilities at year
end. The fund can therefore take a long-term view on its investment horizon and absorb short term fluctuations in returns caused by
market volatility.
102
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Capital and risks
The asset allocation at reporting date of pre-paid contract funds under management is as follows.
2022
2021
%
%
Equities
33
43
Property
26
26
Cash and fixed interest (includes hybrid securities)
41
31
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 2022 and 31 December 2021 the following changes in investment returns are
reasonably probable.
2022
2021
Increase
Decrease
Increase
Decrease
$'000
$'000
$'000
$'000
Asset class
Equities (plus or minus 10%)
16,529
(16,529)
24,093
(24,093)
Property (plus or minus 3%)
4,008
(4,008)
4,367
(4,367)
Cash and fixed interest (no price risk)
-
-
-
-
20,537
(20,537)
28,460
(28,460)
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 2022. 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.
InvoCare Annual Report 2022
103
Consolidated
financial statements
Capital and risks
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 at 31 December 2022, 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 2022 and due for repayment in February 2028
•
$275,000,000 Amended 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
$7,440,000 working capital overdraft facility provided by ANZ
The $275,000,000 debt facility is currently drawn as follows: A$52,500,000, NZ$20,800,000 and SG$27,500,000.
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 2022.
As at 31 December 2022, the details of the facilities available, drawn down, unused by facility are disclosed in the table below.
2022
2021
$’000
$’000
Total facilities available
Working capital facility - expiring within one year
7,440
7,440
Unsecured loan facility - expiring in one to two years
275,000
-
Unsecured loan facility - expiring in two to five years
100,000
375,000
382,440
382,440
Drawn down at reporting date
Working capital facility - expiring within one year
-
-
Unsecured loan facility - expiring in one to two years
102,150
-
Unsecured loan facility - expiring in two to five years
100,000
191,412
202,150
191,412
Unused at reporting date
Working capital facility - expiring within one year
7,440
7,440
Unsecured loan facility - expiring in one to two years
172,850
-
Unsecured loan facility - expiring in two to five years
-
183,588
180,290
191,028
Long-term borrowings outstanding at reporting date
Unsecured loan facility
202,150
191,412
Less: Loan establishment costs
(1,554)
(2,569)
200,596
188,843
104
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Capital and risks
The table below analyses the Group’s financial liabilities into the relevant maturity groupings based on their contractual terms as at the
reporting date. Trade and other payables, lease liabilities and borrowings are non derivative liabilities.
Less than
one year
One to two
years
Two to
three years
More than
three years
Total
2022
$’000
$’000
$’000
$’000
$’000
Trade and other payables
80,528
-
-
-
80,528
Lease liabilities
21,895
-
40,967
171,365
234,227
Borrowings
-
102,150
-
100,000
202,150
2021
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
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
There were no transfers between levels during the reporting period.
InvoCare Annual Report 2022
105
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
Foreign exchange risk
-100 basis point
+100 basis point
-10%
+10%
Carrying
value
Profit/
(loss)
Equity
Profit/
(loss)
Equity
Profit/
(loss)
Equity
Profit/
(loss)
Equity
2022
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Financial assets
Cash and cash
equivalents
31,659
(208)
-
208
-
-
-
-
-
Trade receivables
69,700
-
-
-
-
-
-
-
-
Pre-paid contract
funds under
management
597,687
2,105
-
(2,105)
-
-
-
-
-
Other financial
assets
5,918
-
-
-
-
-
-
-
-
Financial liabilities
Trade and other
payables
(80,528)
-
-
-
-
-
-
-
-
Lease liabilities
(182,464)
-
-
-
-
-
-
-
-
Borrowings
(200,596)
(1,405)
-
1,405
-
(202)
-
165
-
Total increase/
(decrease)
492
-
(492)
-
(202)
-
165
-
2021
Financial assets
Cash and cash
equivalents
53,630
(375)
-
375
-
-
-
-
-
Trade receivables
66,300
-
-
-
-
-
-
-
-
Pre-paid contract
funds under
management
649,875
(4,529)
-
4,529
-
-
-
-
-
Other financial
assets
4,072
-
-
-
-
-
-
-
-
Financial liabilities
Trade and other
payables
(69,226)
-
-
-
-
-
-
-
-
Contingent
considerations
(6,282)
-
-
-
-
-
-
-
-
Lease liabilities
(175,402)
-
-
-
-
-
-
-
-
Borrowings
(188,843)
(1,241)
-
1,241
-
(120)
22
98
(131)
Derivatives
(76)
-
102
-
(102)
-
(22)
-
131
Total increase/
(decrease)
(6,145)
102
6,145
(102)
(120)
-
98
-
106
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Capital and risks
Note 15. Contributed equity
2022
2021
2022
2021
Number
Number
000
000
$’000
$’000
Ordinary shares - fully paid
144,061
144,061
511,293
511,293
Treasury shares - fully paid
(1,007)
(1,086)
(12,507)
(13,513)
143,054
142,975
498,786
497,780
A. Ordinary shares
2022
2021
2022
2021
Number
Number
000
000
$’000
$’000
Movement during the year
Balance at 1 January and reporting date
144,061
144,061
511,293
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
2022
2021
2022
2021
Number
Number
000
000
$’000
$’000
Movement during the year
Balance as at 1 January
(1,086)
(1,175)
(13,513)
(14,288)
Vested share rights/options exercised
53
61
739
468
Transfer to Exempted Employee Share Plan's participants
26
28
267
307
Balance at reporting date
(1,007)
(1,086)
(12,507)
(13,513)
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.
InvoCare Annual Report 2022
107
Consolidated
financial statements
Capital and risks
C. Capital management
The Group’s capital management objectives and strategies seek to maximise total shareholder returns, while maintaining a capital
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 2022, basic EPS was (1.3) cents (2021:
56.1 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 arrangements
expensed as incurred, was 35.1 cents (2021: 31.6 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 2022 dividends represents a payout ratio of 70% (2021: 66%) 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 2022 and 31 December 2021.
The Group had the following guarantees which are determined to be contingent liabilities at 31 December 2022:
•
Bank guarantees given for leased premises of subsidiaries to a maximum of $3,517,000 (2021: $3,289,000)
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.
108
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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.
2022
2021
$'000
$'000
A. Capital commitments
Contracted and conditionally contracted - within one year
Building extensions and refurbishments
2,950
2,780
Plant and equipment purchases
4,296
5,053
B. Other commitments
Documentary letters of credit - within one year
154
169
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 Section 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.
2022
2021
$'000
$'000
Within one year
-
669
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 2022 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.
InvoCare Annual Report 2022
109
Consolidated
financial statements
Business portfolios
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 2022
During the year ended 31 December 2022, the Group acquired the business assets of William Matthews Funerals, a funeral services
provider in Victoria. 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: $2,625,000, with net cash outflow: $2,575,000
•
Fair value of assets and liabilities acquired:
•
Inventories: $106,000
•
Property, plant and equipment: $77,000
•
Right of use assets: $2,045,000
•
Pre-paid contracts funds under management: $3,656,000
•
Lease liabilities: $(2,045,000)
•
Pre-paid contract liabilities: $(3,656,000)
•
Provision for employee entitlements: $(165,000)
•
Other assets: $3,000
Goodwill: $2,554,000
The accounting for this acquisition is provisional as at 31 December 2022.
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 $530,000 and $261,000, respectively.
If the acquisition had occurred on 1 January 2022, consolidated revenue and profit after tax for the year ended 31 December 2022
would have increased by approximately $2,344,000 and $326,000, respectively.
Acquisition related costs incurred during the year ended 31 December 2022 are $1,005,000.
B. Acquisition for the year ended 31 December 2021
The accounting for the one acquisition, settled during the prior year ended 31 December 2021, has been finalised during 2022. There
have been no material changes to the financial information disclosed for that acquisition. Refer to 2021 Annual Report for further
details of that acquisition.
C. Contingent considerations
During the financial year ended 31 December 2022, the Group settled all contingent considerations outstanding as at 31 December
2021 totalling $6,282,000 without any adjustment (refer to 2021 Annual Report for further details of prior year’s movements).
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.
110
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Business portfolios
Note 20. Interests in subsidiaries
A. Interests in subsidiaries
Set out below are the Group’s principal trading subsidiaries at 31 December 2022. 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 and pet cremations.
Ownership interest held by
the Group
Country of
incorporation
2022
2021
Name of subsidiaries
%
%
InvoCare Australia Pty Limited
Australia
100
100
Bledisloe Australia Pty Limited
Australia
100
100
InvoCare PetCare Pty Limited
Australia
100
100
Family Pet Care Pty Limited
Australia
100
100
InvoCare New Zealand Limited
New Zealand
100
100
Singapore Casket Company (Private) Limited
Singapore
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% (2021: 16.86%). During the year
dividends totaling $137,000 were paid to non-controlling interests (2021: $117,000).
D. Employee share trust
The Group has formed a trust to administer the InvoCare Exempt Employee Share Plan and the Employee Share Plan.
InvoCare Annual Report 2022
111
Consolidated
financial statements
Business portfolios
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 Section 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 Trust are disclosed as treasury shares and deducted from contributed equity.
IV. Foreign currency translation on subsidiaries
The results and financial positions of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
•
Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
•
Income and expenses for each statement of comprehensive income are translated at average exchange rates
All resulting exchange differences are recognised in other comprehensive income
On consolidation, exchange differences arising from the translation of any net investment in foreign subsidiaries, and of borrowings
and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a
foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange
differences will be recognised in the statement of comprehensive income, as part of the gain or loss on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as assets and liabilities of the foreign
subsidiaries and translated at the closing rate.
Note 21. Other financial assets
2022
2021
$’000
$’000
Balance at 1 January
4,072
4
Additions
1,846
4,068
Balance at 31 December
5,918
4,072
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.
On 21 July 2022, the Group invested in $1,447,000 in Parting Stone Australia Pty Limited (Parting Stone), an arrangement together with
a US based partner. In October 2022, the Group invested an additional $399,000 as working capital. Parting Stone provides services
to turn cremated remains into memorialisation products. This new investment is classified as a financial asset.
B. Accounting policy
Other financial assets are measured at fair value through profit and loss, less any impairment.
112
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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 25. Deed of cross guarantee
Note 23. Related party transactions
Note 26. Remuneration of auditors
Note 24. Parent entity information
Note 27. Other accounting policies
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 InvoCare’s
Securities 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 and annual general meeting, unless Board express approval is
obtained.
The share-based remuneration 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 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 vest when employment condition is met. From 2022 no further grants under this plan occurred.
•
Service Based Equity Plan (SEP) – in the form of rights 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
2022, 268 employees accepted the offer and at 31 December 2022 a further $141,000 was remaining to be collected via payroll
deductions.
InvoCare Annual Report 2022
113
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.
Key terms and conditions of the
LTIP
Grant year
2017
2018
2019
2020
2021
2022
Base year (financial year ended
31 December)
2016
2017
2018
2019
2020
2021
Form of granta
Performance rights
Yes
Yes
Yes
Yes
Yes
Yes
Options
Yes
Yes
Yes
Yes
N/A
N/A
Form of settlement when
exercising vested LTIb
Australian participants
Shares
Shares
Shares
Shares
Shares
Shares
Overseas
Cash
Cash
Cash
Cash
Cash
Cash
Grant date fair value
Rights – grant date value
$14.06
$13.91
$12.96
$9.70
$11.57
$12.37
Options – grant date value
$2.93
$2.78
$2.51
$2.14
N/A
N/A
Dividend entitlementc
Performance rights
No
No
No
Yes
Yes
Yes
Performance hurdle(s) and
vesting scale
CAGR in EPS targetd
Maximum (100% vesting)
12%
12%
12%
10%
15%
15%
Minimum (30% vesting)
7%
8%
8%
6%
10%
10%
Average ROIC targete,f
Maximum (100% vesting)
N/A
N/A
N/A
12%
N/A
N/A
Minimum (30% vesting)
N/A
N/A
N/A
10%
N/A
N/A
Average ROCE targetg
Maximum (100% vesting)
N/A
N/A
N/A
NA
12%
13%
Minimum (30% vesting)
N/A
N/A
N/A
NA
10%
11%
Number of tranches for the grant
Performance rights/options
3
2
2
1
1
1
Performance testing time for each
tranche (T)
Feb-19
T1
Feb-20
T2 +
PY residue
Feb-21
T3 +
PY residue
T1
Feb-22
Final
re-testing
All residue
T2 +
PY residue
T1
Feb-23
T2 +
PY residue
Feb-23
Only one testing
Feb-24
Only one testing
Feb-25
Only one testing
a
Both options and performance rights are granted for nil consideration, they are not entitled to voting rights during the vesting
period
b
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
114
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Other statutory disclosures
c
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
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 2017 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 (i.e. re-testing), the average of years one and two ROIC and WACC are to be used
f
ROIC means return on invested capital and is calculated by dividing the operating earnings by the average invested capital
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.
Grant date
Expiry date
Fair
value at grant
date
Balance
at the
start of
the year
Granted
Grant -
dividend
entitlements
Vested
Lapsed
Balance
at the
end of
the year
Number
Number
Number
Number
Number
Number
Options
1/01/2016
1/01/2026
$2.40
274,170
-
-
(2,738)
-
271,432
1/01/2017
1/01/2027
$2.93
258,779
-
-
-
(258,779)
-
22/02/2017
22/02/2027
$2.93
16,221
-
-
-
(16,221)
-
1/01/2018
1/01/2028
$2.78
609,410
-
-
-
(609,410)
-
1/01/2019
1/01/2029
$2.51
764,490
-
-
-
(11,952)
752,538
1/03/2020
1/03/2028
$0.58
497,758
-
-
-
(14,600)
483,158
2,420,828
-
-
(2,738)
(910,962)
1,507,128
Performance rights
1/01/2017
1/01/2027
$14.06
29,581
-
-
-
(29,581)
-
22/02/2017
22/02/2027
$14.06
3,380
-
-
-
(3,380)
-
1/01/2018
1/01/2028
$13.91
56,181
-
-
-
(56,181)
-
1/01/2019
1/01/2029
$12.96
64,789
-
-
-
(2,074)
62,715
1/03/2020
1/03/2035
$9.70
99,366
-
2,241
-
(2,317)
99,290
3/08/2020
1/08/2035
$9.70
17,349
-
396
-
-
17,745
1/01/2021
1/01/2036
$11.57
280,954
-
6,421
-
-
287,375
1/01/2022
1/01/2037
$12.37
-
63,741
833
-
-
64,574
1/01/2022
1/01/2037
$10.90
-
222,657
2,832
-
(4,939)
220,550
25/07/2022
25/07/2037
$9.85
-
4,205
54
-
-
4,259
1/08/2022
1/08/2037
$9.85
-
8,534
111
-
-
8,645
551,600
299,137
12,888
-
(98,472)
765,153
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2022 and was
$11.25 (2021: $11.33).
InvoCare Annual Report 2022
115
Consolidated
financial statements
Other statutory disclosures
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
•
From 2022 no further grants under this plan occurred
•
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 share entitles 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
•
For 2022 grant onwards, the rights will vest in 2 years from grant date
•
For 2020 grant, the rights are divided into six equal tranches and vest every 6 months from 1 March 2021 onwards
•
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
116
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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
Balance
at the
start of
the year
Granted
Grant -
dividend
entitlements
Vested
Lapsed
Balance
at the
end of
the year
Number
Number
Number
Number
Number
Number
Rights - ongoing employment condition only
1/09/2020
1/09/2035
$9.70
113,421
-
2,291
(16,043)
(17,077)
82,592
19/10/2020
1/09/2035
$10.50
14,198
-
324
-
-
14,522
1/01/2021
31/12/2035
$11.57
34,782
-
-
-
-
34,782
3/05/2021
3/05/2036
$11.57
2,015
-
20
(2,035)
-
-
1/09/2022
3/05/2036
$10.12
-
86,107
-
-
(1,403)
84,704
164,416
86,107
2,635
(18,078)
(18,480)
216,600
Shares - ongoing employment condition only
1/03/2018
1/03/2028
$13.91
3,509
-
-
(3,509)
-
-
1/03/2019
21/02/2029
$14.46
18,330
-
-
(9,158)
(1,021)
8,151
1/03/2020
1/03/2035
$10.70
1,758
-
-
(586)
(586)
586
15/06/2020
1/07/2035
$11.10
20,000
-
-
(10,000)
-
10,000
1/03/2021
1/03/2031
$10.70
12,000
-
-
(4,000)
-
8,000
1/09/2021
1/09/2036
$11.10
34,421
-
-
(9,356)
(7,092)
17,973
1/01/2022
1/01/2037
$12.37
-
10,700
-
-
10,700
1/01/2022
1/01/2037
$10.97
-
6,660
-
-
-
6,660
90,018
17,360
-
(36,609)
(8,699)
62,070
The value of the options and performance rights exercised is based on the VWAP for the year ended 31 December 2022 and was
$11.25 (2021: $11.33).
Note 23. Related party transactions
A. Key management personnel compensation
2022
2021
$
$
Short-term employee benefits
3,760,535
2,671,110
Post-employment benefits
146,725
49,597
Other long-term benefits
15,462
10,618
Share based payments
1,267,592
814,380
5,190,314
3,545,705
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 Section F.
InvoCare Annual Report 2022
117
Consolidated
financial statements
Other statutory disclosures
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.
2022
2021
$’000
$’000
Statement of comprehensive income
Profit after income tax
34,398
56,023
Total comprehensive income
34,398
56,382
Balance sheet
Current assets
-
85
Total assets
922,006
897,139
Current liabilities
10,586
4,854
Total liabilities
180,956
160,574
Equity
Contributed equity
498,786
497,780
Share-based payments reserve
9,261
5,503
Foreign currency reserve
1,080
1,080
Retained profits
231,923
232,202
Total equity
741,050
736,565
B. Guarantees entered into by the parent entity
The parent entity provided the following guarantees during the year ended 31 December 2022 and 31 December 2021:
•
Bank guarantees given for leased premises of subsidiaries to a maximum of $3,517,000 (2021: $3,289,000)
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 2022
and 31 December 2021.
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 2022 and
31 December 2021.
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
118
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
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 2022 of the Closed Group.
2022
2021
$’000
$’000
A. Consolidated statement of comprehensive income of the Closed Group
Revenue from continuing operations
483,621
433,530
Finished goods, consumables and funeral disbursements
(120,995)
(105,646)
Employee benefits expense
(191,910)
(162,424)
Advertising and public relations expenses
(10,930)
(11,228)
Occupancy and facilities expenses
(21,328)
(19,968)
Motor vehicle expenses
(5,467)
(4,970)
Technology
(30,410)
(17,827)
Other expenses
(16,802)
(15,736)
Depreciation and amortisation expenses
(39,747)
(38,114)
Reversal of impairment of cemetery land
-
4,000
Finance costs
(11,931)
(12,557)
Interest income
1,271
746
Acquisition related costs
(1,004)
(743)
Restructuring costs
(1,476)
-
Net (loss)/gain on undelivered pre-paid contracts
(55,611)
44,085
Net gain on lease modifications/terminations
448
1,517
Net gain on disposal of non-current assets
484
6,852
(Loss)/profit before income tax
(21,787)
101,517
Income tax benefit/(expense)
9,277
(26,842)
Net (loss)/profit after income tax for the year
(12,510)
74,675
Total comprehensive (loss)/income for the year, net of tax
(12,510)
74,675
B. Summary of movements in consolidated retained profits of the Closed Group
Retained profits as at 1 January
210,627
159,835
(Loss)/profit after income tax for the year
(12,510)
74,675
Dividends paid
(36,060)
(23,883)
Retained profits as at 31 December
162,057
210,627
InvoCare Annual Report 2022
119
Consolidated
financial statements
Other statutory disclosures
2022
2021
$’000
$’000
C. Consolidated balance sheet of the Closed Group
Current assets
Cash and cash equivalents
24,784
36,484
Trade receivables
15,128
16,378
Other receivables
-
1,093
Inventories
40,492
42,289
Pre-paid technology assets
2,278
582
Pre-paid contract funds under management
48,985
52,959
Asset held for sale
-
89
Deferred selling costs
3,274
4,571
Deferred contract assets
204
1,811
Total current assets
135,145
156,256
Non-current assets
Trade and other receivables
252,365
246,155
Shares in subsidiaries
147,957
147,957
Other financial assets
5,918
4,072
Property, plant and equipment
436,559
411,059
Right of use asset
123,933
118,187
Pre-paid contract funds under management
548,702
596,916
Pre-paid technology assets
13,202
8,019
Intangible assets
112,453
106,599
Deferred selling costs
10,812
10,313
Deferred contract assets
161
152
Total non-current assets
1,652,062
1,649,429
Total assets
1,787,207
1,805,685
Current liabilities
Trade and other payables
85,972
59,503
Contingent consideration
-
6,187
Lease liabilities
18,458
17,944
Current tax liabilities
8,900
3,949
Pre-paid contract liabilities
45,072
44,315
Deferred revenue
15,086
30,758
Provision for employee benefits
16,657
15,895
Total current liabilities
190,145
178,551
Non-current liabilities
Borrowings
200,596
188,843
Lease liabilities
137,051
130,278
Deferred tax liabilities
26,324
44,837
Pre-paid contract liabilities
503,306
496,003
Deferred revenue
61,021
54,754
Provision for employee entitlements
2,771
2,561
Total non-current liabilities
931,069
917,276
Total liabilities
1,121,214
1,095,827
Net assets
665,993
709,858
Equity
Contributed equity
498,786
497,780
Reserves
5,150
1,451
Retained profits
162,057
210,627
Total equity
665,993
709,858
120
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Other statutory disclosures
Note 26. 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.
2022
2021
$
$
A. Audit services
Deloitte Touche Tohmatsu - Australian firm
Audit and review of financial reports
660,000
550,000
Non-Deloitte Touche Tohmatsu - Singaporean firm
Audit and review of financial reports
28,767
29,569
Total remuneration for audit services
688,767
579,569
B. Non-audit services
Deloitte Touche Tohmatsu - Australian firm
Assurance services
31,250
26,741
Taxation services
68,411
55,000
Other services
342,360
246,486
Total remuneration for non-audit services
442,021
328,227
C. Non-audit services prior to appointment as auditors
Deloitte Touche Tohmatsu - Australian firm
Taxation services
-
113,566
Other services
-
121,149
Total remuneration for non-audit services
-
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.
InvoCare Annual Report 2022
121
Consolidated
financial statements
Other statutory disclosures
Note 27. Other accounting policies
A. New or amended accounting standards and interpretations 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 2022.
New Accounting Standards and Interpretations not yet mandatory or early adopted
There are no new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB)
that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
AASB 17 Insurance Contracts
As disclosed within the Group’s Half Year Financial Report, the Group has been analysing and assessing if its pre-paid contracts meet
the definition of insurance contracts. Having sought and received independent professional advice, the Group has assessed that
pre-paid contracts meet the definition of insurance contracts under the criteria detailed within AASB 17 Insurance Contracts.
AASB 17 applies to such contracts, regardless of the nature of the core business of the issuer. The standard identifies insurance
contracts as those contracts under which the entity accepts significant insurance risk from another party (the policyholder) by
agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the
policyholder. Relevantly, the Standard states it applies to the Group’s pre-paid funeral service products.
Why does AASB 17 apply to pre-paid contracts?
Unlike funeral insurance (a product the Group does not sell), by entering a pre-paid contract a customer (or beneficiary) is benefiting
from the ability to lock in the delivery of their chosen 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. The beneficiary of a pre-paid
contract is certain to use the service, however the timing of redemption, being the beneficiary’s death is uncertain. Due to the
potentially significant period between sale and redemption, the Group is accepting the risk associated with the uncertainty over the
future cost to service the contract (i.e., increases in the cost of employee salaries and other goods to be supplied as part of the
pre-arranged funeral service), as well as the timing of when the service will be provided. It is the significant risk of future cost increases
that results in the Group’s pre-paid contracts meeting the definition of insurance contracts under AASB 17.
AASB 17 applies to annual reporting periods beginning on or after 1 January 2023. The first applicable reporting period for the Group
is for the year ending 31 December 2023, with restatement of comparative financial statement balances for the year ended
31 December 2022 and opening balances at 1 January 2022. The Group has not early adopted AASB 17.
What are the key requirements of AASB 17?
Prior to 1 January 2023, the Group applied the requirements of AASB 15 Revenue from Contracts with Customers to recognise and
measure its pre-paid contracts. The insurance contract accounting standard AASB 1038 applies specifically to insurance entities and
has not been applicable to InvoCare.
Under AASB 15, funeral service revenue relating to pre-paid contracts represented the corresponding amount of deferred revenue
relating to the administration fee and the reduction of the corresponding pre-paid contract liability (being the initial contract value plus
the increases in the liability relating to the financing components recognised since contract inception). As detailed within Notes 9 and
10, the Group currently recognises the initial value of pre-paid contracts within two liabilities on the balance sheet, deferred revenue
for the 10% administration fee and within pre-paid contract liabilities representing the value of the remaining 90% of the pre-paid
contract. 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).
The adoption of AASB 17 will change the Group’s consolidated financial statements compared with existing reporting requirements,
introducing substantial changes in recognition, measurement, and disclosure of the Group’s pre-paid contracts.
Ultimately AASB 17 is not expected to change the underlying economics or cash flows of the Group’s business. However, one of the
key changes is the deferred future profit, which under AASB 17 is referred to as Contractual Service Margin (CSM), and the timing of
the release thereof for profit (or loss) recognition. Instead of the current accounting treatment of recognising profit (or loss) on a
pre-paid contract when a funeral service is delivered, under AASB 17 the release of a portion of the CSM will be recognised within the
insurance result each period (i.e. earlier).
122
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Other statutory disclosures
Measurement models
•
For the measurement of insurance liabilities, AASB 17 introduces the general measurement model, also known as the building
block approach. The insurance liability arising from pre-paid contracts represents two elements, the Liability for Remaining
Coverage (LRC) and the Liability for Incurred Claims (LIC)
•
The LRC is measured as the sum of:
•
fulfilment cash flows – representing the Group’s assessment of the future cost to provide future funeral services at initial
recognition of the contract and subsequently at the balance date, comprising estimates of expected cash flows, discounting,
and an explicit risk adjustment for non-financial risk; and
•
the CSM – representing the unearned profit from in-force contracts that the Group will recognise as part of insurance
revenue in profit or loss as it provides funeral services over the coverage period. The CSM is earned based on a pattern of
coverage units, reflecting the quantity of funeral services provided (i.e. for future redemptions)
•
The LIC represents current estimates of amounts that the Group expects to collect from pre-paid contracts and to pay for
redeemed pre-paid contracts, including an adjustment for the timing and risk of those amounts (i.e. past/current redemptions)
•
Under AASB 17 the expected emergence of fulfilment cash flows (the costs of performing pre-paid funerals), releases from risk
adjustment and a component of the CSM reflecting the pre-paid funeral services provided will be recognised as insurance
revenue in the insurance service result in the statement of comprehensive income
AASB 17 is expected to have a significant impact on the work required to measure insurance liabilities related to pre-paid
contracts under the general measurement model including actuarial modelling of cash flow projections, involving input of
assumptions and modelling of movements in the CSM
Level of aggregation
•
Under AASB 17, contracts are aggregated into portfolios which comprise contracts subject to similar risks and managed
together. Within the portfolios contracts are organised by annual cohort and further subdivided into specified measurement
groups based on their profitability. For pre-paid contracts, a cohort is expected to represent the contracts sold in each year
Risk adjustment
•
Under AASB 17, the measurement of insurance contract liabilities will include a risk adjustment for non-financial risk to reflect the
compensation that the Group requires for bearing the uncertainty relating to the amount and timing of future cash flows to
perform a pre-paid contract. The Standard does not prescribe techniques for estimating the risk adjustment but does offer
guidance. The technique used, and the corresponding confidence level associated with the methodology selected, will need to be
disclosed. The Group proposes to adopt a scorecard approach, under the Value at Risk (VaR) / confidence level approach, for the
calculation of the risk adjustment for the pre-paid funeral contracts within the scope of AASB 17
•
A scorecard approach uses a set of pre-specified criteria, for which the Group will assign a score, based on its level of
compliance with the criteria. The risk adjustment was not required to be applied to either the Funeral services deferred revenue or
pre-paid contract liabilities under AASB 15
The finalisation of the methodology for determining the risk adjustment, and the corresponding confidence level, is ongoing and
subject to further refinement and review. In addition, the Group continues to give due consideration to evolving industry
interpretation
Discount rates
AASB 17 requires that the estimates of expected cash flows that are used to measure either the liability for remaining coverage,
or incurred claims are to be discounted to reflect the time value of money and the financial risks related to those cash flows. This
aligns with the requirements under AASB 15 to recognise a finance cost associated with significant financing, where the Funeral
services deferred revenue and pre-paid contract liabilities were adjusted (i.e. increased) using a discount rate that best reflected
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). In addition, AASB 17 also requires the discount rate to reflect the
liquidity characteristics of the underlying insurance contracts. The standard does not prescribe a methodology to determine either
the discount rate or illiquidity premium. The methodology and impact of reflecting illiquidity within discount rates is currently being
determined
What financial statement line items will change?
•
The accounting requirements of AASB 17 will be applied to the Group’s pre-paid contract liabilities, associated deferred revenue
and deferred selling costs arising from pre-paid contracts. The Group will cease to account for these assets and liabilities under
AASB 15
•
Retrospective adjustments will be made at 1 January 2022 with any difference in measurement of the insurance liabilities
compared to the previous assets and liabilities recognised when the Group applied AASB 15 will be recognised as an adjustment
to opening retained earnings at 1 January 2022. The 2022 comparative amounts will be restated to AASB 17 amounts
•
AASB 17 does not apply to the Group’s pre-paid contracts funds under management (being the cash received (funds) from the
customer/beneficiary passed to independently managed trusts to be invested), therefore there will be no change in accounting or
disclosure for this asset
InvoCare Annual Report 2022
123
Consolidated
financial statements
Other statutory disclosures
Presentation and disclosure changes
The Group continues to assess the financial and disclosure impacts of applying AASB 17. The relevant key areas of consideration are
set out below:
How pre-paid contracts results will be derived?
•
In the statement of comprehensive income, AASB 17 will require the presentation of the insurance revenue and insurance service
expenses. For the Group, the element of funeral services revenue that related to pre-paid contracts will be reclassified to a new
revenue stream, ‘Insurance revenue’. A new expense category called ‘Insurance service expenses’ will largely reflect the
combination of costs to service pre-paid funerals (i.e. equivalent to a claims expense), amortisation of employee benefit expenses
incurred in selling pre-paid contracts and marketing expenses. Additionally, all changes in value because of either the effect of or
change in the time value of money or financial risk, will no longer form part of ‘Finance costs – customer advanced payments’ but
will be recognised separately as either insurance finance income or expenses
•
On the balance sheet, because all cash flows resulting from the rights and obligations under insurance contracts must be taken
into account under AASB 17, the previous disclosure of pre-paid contract liabilities within Pre-paid contracts will cease. The
recognition, measurement and disclosures of pre-paid contracts funds under management (i.e. the ‘asset’) will remain
unchanged. Deferred revenue and deferred selling costs related to Funeral services will no longer be presented within these
balances. Alternatively, the standard requires these associated balances to be combined into single line items for portfolios of
insurance that are either in an asset or liability position with separate disclosure as insurance liabilities, relating to the liability for
remaining coverage (LRC) and liability for incurred claims (LIC)
•
In order to reconcile the movement in these insurance contract liabilities, detailed disclosures will present the changes to each of
the individual measurement components. The notes covering the risks and judgements arising from insurance contracts are
expected to be significantly more detailed
AASB 17 contains an option regarding recognition of a component of insurance finance income or expenses either in profit or
loss or other comprehensive income. The Group currently does not intend to apply the latter option and expects to recognise all
elements of insurance finance income or expenses in profit or loss. This aligns to the current approach under AASB 15 and would
continue to ensure the most effective matching with valuation changes in the funds under management investment portfolio,
which is measured at fair value through profit or loss
Transition
On transition, where the Group assesses it is impracticable to apply the full retrospective approach, where eligible, it expects to
apply the modified retrospective approach to all insurance contracts. An assessment is being performed on the aged pre-paid
contracts to identify gaps in data, most notably the cost estimates to service the contracts in the years they were initially entered
into. Key estimates and judgements applied in determining the estimated costs to service the insurance contracts will be
disclosed within the Group’s Half Year Financial Report for 30 June 2023
If the Group is unable to apply the modified retrospective approach to any of its insurance contracts due to data unavailability it
will be required to apply the fair value approach to measure these contracts at transition. The fair value approach determines the
CSM (or loss component) of the LRC, being the difference between the fair value of a group of pre-paid funeral contracts (i.e., the
price a market participant would agree to take on the liability for pre-paid contracts at the transition date under current market
conditions) and the net discounted risk adjusted fulfilment cash flows measured at that date
Implementation
The Group has committed resources and effort into the implementation of AASB 17. A Group-wide program of work remains ongoing,
comprising a multi-disciplinary team aided by independent expert advisers. The implementation of the standard involves changes and
enhancements in technology, systems, and processes, particularly across IT, finance and actuarial. The program is responsible for
setting Group-wide accounting policies and developing application methodologies, establishing appropriate processes and controls,
sourcing required data and implementing actuarial and finance system changes.
The requirements of AASB 17 are complex and the Group’s expectations noted above are subject to change as it continues to assess
the impact of the standard and interpretation developments. However, ultimately AASB 17 is not expected to change the underlying
economics or cash flows of the Group’s business but has the potential to impact timing of profit recognition.
Alongside the qualitative effects outlined above, the Group continues to assess the quantitative impact of the application of AASB 17,
with the opening balances as at 1 January 2022 currently being measured in accordance with the standard. Although the Group’s
AASB 17 implementation project has made significant progress, with certain material judgements still being under consideration and
certain interpretations remain pending, at this time it is not practicable to reliably quantify the effects on the Group’s consolidated
financial statements.
The Group will provide quantitative disclosure impacts of the adoption of AASB 17, including the impacts on comparatives for the year
ended 31 December 2022, in its Half Year Financial Report for the period ending 30 June 2023.
124
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
Other statutory disclosures
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 Pet cremations
business, primarily held for the purpose of trading, are sold, consumed or realised as part of the normal operating cycle even when
they are not expected to be realised within twelve months, and are classified as current.
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where appropriate, a
proportion of variable and fixed overhead. Costs are assigned to individual items of inventory predominantly on the basis of weighted
average cost. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary
to make the sale.
III. Deferred contract assets
Deferred contract assets represent items to be delivered related to the pre-2018 memorial product contracts. These contract assets
will be unwind to cost of goods sold as the performance obligations of these contracts are met.
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.
InvoCare Annual Report 2022
125
Consolidated
financial statements
Other statutory disclosures
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
126
InvoCare Annual Report 2022
Notes to the consolidated financial statements
continued
SECTION 5
Signed
reports
Directors’ declaration
In the directors’ opinion:
The financial statements and Notes 1 to 27 are in accordance with the Corporations Act 2001, including:
•
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements
•
giving a true and fair view of the Company’s and the Group's financial position as at 31 December 2022 and of their
performance for the financial year ended on that date
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable
at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified
in Note 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 71 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
27 February 2023
128
InvoCare Annual Report 2022
Directors’ declaration
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
129
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
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of InvoCare Limited (the “Company”), and its subsidiaries (the “Group”) which
comprises the consolidated balance sheet as at 31 December 2022, the consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then
ended, and notes to the financial statements, including a summary of significant accounting policies, and the
directors’ declaration.
In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001,
including:
giving a true and fair view of the Group’s financial position as at 31 December 2022 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 Company, 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.
130
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.
Key Audit Matter
How the scope of our audit responded to the Key Audit
Matter
Accounting for pre-paid funeral contracts
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).
As at 31 December 2022, the Group had recorded
$597.7 million of pre-paid contract funds under
management and $548.5 million of pre-paid
contract liabilities.
As disclosed in note 9 and note 28.A, the Group has
determined
AASB 17 Insurance Contracts is
applicable to the Group’s pre-paid funeral contracts
and will impact their recognition and measurement
from 1 January 2023.
We have considered pre-paid funeral contracts to
be a key audit matter due to the:
-
materiality of the asset and liability
balances;
-
historical fluctuations noted in the mark-
to-market adjustment of the pre-paid
funeral
contract
funds
under
management;
-
redemptions at the time of need requiring
appropriate release of deferred revenue to
the Statement of Comprehensive Income;
-
judgement involved in determining the
classification of the asset and liability
balances as current and non-current; and
-
judgement involved in determining the
discount rate in relation to the financing
component on the pre-paid contract
liabilities.
For the pre-paid funeral contract funds under
management, our procedures included, but were not
limited to:
-
agreeing a sample of balances recorded by the
Group to statements and confirmations received
from the independent custodians;
-
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;
-
evaluating the competence, capability and
objectivity of the independent custodians in
regard to their valuation of the underlying
investments; and
-
reconciling the opening balance of the pre-paid
contract funds under management to the closing
balance in order to recalculate movements for
new prepaid funeral contracts entered into,
redemptions at the time of need and the mark-
to market adjustment for the year.
For both the pre-paid funeral contract funds under
management and the pre-paid contract liabilities, our
procedures included, but were not limited to:
-
understanding 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
customer contract;
-
assessing for a sample of redeemed contracts
(recognised revenue) whether the Group’s
performance obligation under the pre-paid
funeral contracts
had
been
satisfied
in
accordance with
AASB 15 Revenue from
Contracts
with
Customers.
This
included
comparing the relevant original contracts to
service delivery documents and investment
returns to the amounts received back from the
financial institution, as well as confirming the
appropriate release of the redeemed contracts’
131
revenue into the Statement of Comprehensive
Income;
-
evaluating the appropriateness of the discount
rate used by management for the financing
component in relation to the pre-paid contract
liabilities; and
-
evaluating the reasonableness of the disclosures
as per note 9 and note 28.A against the
requirements
of
Australian
Accounting
Standards, in particular assessing the current
and non-current classification in line with the
allocation as determined by management’s
actuarial expert.
Other Information
The directors are responsible for the other information. The other information comprises the information included
in the Group’s annual report for the year ended 31 December 2022, 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.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control
as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair
view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the 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.
132
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:
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.
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.
133
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 46 to 64 of the Directors’ Report for the year
ended 31 December 2022.
In our opinion, the Remuneration Report of InvoCare Limited, for the year ended 31 December 2022 complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
Sandeep Chadha
Partner
Chartered Accountants
Sydney, 27 February 2023
134
InvoCare Annual Report 2022
SECTION 6
Shareholder
and other
information
136
InvoCare Annual Report 2022
Five year financial history
2022
2021
2020
2019
2018
Operating revenue ($’000)
588,535
527,096
476,249
499,665
480,198
Operating EBITDA ($’000)
136,115
125,477
102,565
144,433
118,998
Operating EBITDA margin (%)
23%
24%
22%
29%
25%
Operating earnings after tax attributable to equity holders ($’000)
50,151
45,143
27,994
59,066
49,496
Operating earnings per share (cents)
35.1
31.6
20.9
51.7
45.2
(Loss)/profit after tax attributable to equity holders ($’000)
(1,809)
80,158
(11,541)
63,752
41,224
Basic earnings per share (cents)
(1.3)
56.1
(8.6)
55.8
37.8
Total dividend (full year) (cents)
24.5
21.0
12.5
41.0
37.0
Ungeared, tax free operating cash flow* ($’000)
133,467
135,206
107,895
116,370
96,663
Cash conversion %*
101%
108%
111%
84%
91%
Actual capital expenditure ($’000)
63,348
62,703
60,952
65,289
84,120
Net debt ($’000)
182,708
144,654
137,468
349,968
393,469
Interest cover* (times)
19.0
15.8
8.3
10.1
9.6
Leverage ratio* (times)
1.3
1.2
1.3
2.4
3.3
Funeral homes (number)
278
278
277
280
255
Memorial parks (number)
17
17
17
17
16
Pet cremation sites (number)
16
16
13
N/A
N/A
* Definition of these measures is included in the Glossary on pages 140 and 141.
InvoCare Annual Report 2022
137
Shareholders and
other information
Shareholders information
The following information is presented in complance with ASX Lsiting Rules 4.10 (as relevant).
1. Corporate Governance Statement
The 2022 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
Number
Ordinary shares on issue
144,060,733
Unquoted options on issue
1,507,128
3. Voting rights
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 as at 24 March 2022
Range
Fully paid ordinary shares
%
Number of holders
100,001 and over
88,403,367
61.37
40
10,001 to 100,000
15,839,473
10.99
792
5,001 to 10,000
11,763,000
8.17
1,654
1,001 to 5,000
22,970,584
15.94
9,751
1 to 1,000
5,084,309
3.53
11,324
Total
144,060,733
100.00
23,561
Unmarketable parcels
11,108
0.01
680
138
InvoCare Annual Report 2022
Shareholders information
continued
5. Top 20 registered shareholders as at 24 March 2022
Name
Number of shares
Percentage %
J P Morgan Nominees Australia Pty Limited
22,710,651
15.76
Blue Eternal Holdings Pte Ltd
14,381,667
9.98
HSBC Custody Nominees (Australia) Limited
12,664,739
8.79
BNP Paribas Noms Pty Ltd
10,465,324
7.26
Citicorp Nominees Pty Limited
9,466,276
6.57
Argo Investments Limited
2,493,277
1.73
National Nominees Limited
2,234,741
1.55
Washington H Soul Pattinson and Company Limited
2,069,283
1.44
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd
1,727,745
1.20
BNP Paribas Nominees Pty Ltd
1,114,000
0.77
Netwealth Investments Limited
1,014,322
0.70
IOOF Investment Services Limited
939,470
0.65
Solium Nominees (Aus) Pty Ltd
906,975
0.63
Netwealth Investments Limited
532,950
0.37
Navigator Australia Ltd
444,447
0.31
BNP Paribas Noms (NZ) Ltd
435,715
0.30
Nulis Nominees (Australia) Limited
431,410
0.30
Broadgate Investments Pty Ltd
415,643
0.29
Solium Nominees (Australia) Pty Ltd
388,895
0.27
Citicorp Nominees Pty Limited
338,241
0.23
Total for Top 20
85,175,771
59.10
6. Substantial shareholders as at 24 March 2022
The share balances in this table are extracted from substantial shareholder notices received by the Company.
Shareholders
Number of shares
Voting power
Date of last notice
Kuang Ming Investments Pte. Limited
8,729,098
6.06%
2 June 2021
Blue Eternal Holdings Pte Ltd and TPG *
27,623,729
19.98%
8 March 2023
UBS Group AG and its related bodies corporate
16,171,722
11.23%
10 March 2023
State Street Corporation and subsidiaries
7,375,894
5.12%
22 March 2023
* Blue Eternal and TPG have an interest in 19.983% of the InvoCare shares on issue through a combination of physical ownership and derivates.
InvoCare Annual Report 2022
139
Shareholders and
other information
140
InvoCare Annual Report 2022
Glossary
Term
Description
Average capital employed
Average of opening and closing capital employed
Average working capital % of sales
Average of opening and closing working capital divided by Operating revenue for 12 months
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 Statutory EBITDA
COVID
COVID-19 pandemic
Dividend payout ratio
Dividend per share divided by Operating EPS
EBITDA margin
Operating EBITDA divided by Operating revenue
EPS
Earnings per share, calculated as Reported profit/(loss) divided by the weighted average number
of shares
ERP
Enterprise Resource Planning, e.g. the main Oracle general ledger financial system used by the
business
Free cash flow
Operating cash flow + net funds from pre-paid contracts + interest paid less cash CAPEX
(recurring and platform only)
Funeral case average
Calculated as funeral gross revenue divided by funeral case volume
Funeral case volume
Number of funeral services undertaken
FUM
Funds under management in the pre-paid funerals business
Interest cover ratio
Calculated as Operating EBITDA divided by Net finance costs excluding AASB 16 interest,
merchant fees and interest on 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 including platform
investments (IT and Shared Service Centre projects)
Leverage ratio
Calculated for disclosure purposes as Net debt divided by Operating EBITDA. Leverage
calculation used for bank covenant testing purposes uses an Adjusted EBITDA measure (primarily
adjusted to include proforma earnings from acquisitions and costs arising from restructuring
initiatives). r12 measure uses rolling 12-month Operating EBITDA
LTIFR
Lost time injury frequency rate
Maintenance CAPEX
Recurring annual CAPEX required to maintain facilities
Memorialisation revenue
Revenue earned from the sale of memorials, plaques, burial plots etc. in the Cemeteries &
Crematoria business
InvoCare Annual Report 2022
141
Shareholders and
other information
Term
Description
MTM
Mark-to-market
NBO
Network & Brand Optimisation program of projects as part of Protect & Grow Strategy
Net debt
Cash and cash equivalents + Borrowings + Finance leases
NPS
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 the Weighted average number of shares
Operating leverage
This 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 (excluding vet rebates) divided by Pet cremation volume
Pet cremation volumes
The number of pet cremations conducted
Reported profit/(loss)
Net profit/(loss) attributed to shareholders of InvoCare Limited
ROCE
Return on capital employed
ROCE %
Calculated as Operating EBIT divided by Average capital employed. r12 measure uses rolling
12-month Operating EBIT
SaaS
Software-as-a-Service
TRIFR
Total recordable injury frequency rate
Ungeared, tax-free cash flows
Calculated as operating cash flow excluding net finance costs paid, tax paid and SaaS
arrangements expensed as incurred 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
142
InvoCare Annual Report 2022
Corporate directory
InvoCare Limited
ABN
42 096 437 393
ASX code
IVC
Directors
Bart Vogel
Chairman
Olivier Chretien
Managing Director and Chief Executive Officer
Kim Anderson
Non-Executive Director
Richard Davis
Non-Executive Director
Megan Quinn
Non-Executive Director
Keith Skinner
Non-Executive Director
Kee Wong
Non-Executive Director
Company Secretary
Heidi Aldred
Registered office
Level 5, 40 Mount Street
North Sydney NSW 2060
02 9978 5200
02 9978 5299
www.invocare.com.au
Share registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Toll free: 1300 854 911
02 9287 0303
www.linkmarketservices.com.au/services/registry.html
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