2015
Japara Healthcare Annual Report
CORPORATE INFORMATION
Board of Directors
Linda Bardo Nicholls AO
Non-Executive Chairman
Andrew Sudholz
Managing Director & Chief Executive Officer
Auditor
KPMG
147 Collins Street
Melbourne Vic 3000
Australia
Share Registry
Link Market Services Limited
333 Collins Street
Melbourne Vic 3000
Australia
Telephone: (03) 9615 9800
Legal Adviser
Herbert Smith Freehills
101 Collins Street
Melbourne Vic 3000
Australia
Website: japarahealthcare.com.au
ASX code: JHC
Richard England
Non-Executive Director
David Blight
Non-Executive Director
JoAnne Stephenson
(appointed 1 September 2015)
Non-Executive Director
Tim Poole
(resigned 1 September 2015)
Non-Executive Director
Chief Financial Officer & Company Secretary
Chris Price
Company Secretary
Kathryn Davies
Japara Healthcare Limited
ABN 54 168 631 052
Q1 Building, Level 4
1 Southbank Boulevard
Southbank Vic 3006
Australia
Telephone: (03) 9649 2100
Facsimile: (03) 9649 2129
CORPORATE GOVERNANCE STATEMENT
The Company’s Corporate Governance Statement can be found in the investor section of the
Company’s website.
CONTENTS
Highlights
Company Overview
Chairman’s Review
Managing Director and CEO’s Review
Annual Financial Report
Directors’ Report
2
3
4
6
9
10
Auditor’s Independence Declaration 20
Remuneration Report
Statement of Profit or Loss and
Other Comprehensive Income
Statement of Financial Position
Statement of Changes In Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
21
30
31
32
33
34
68
69
Additional Information
71
1
Japara Healthcare | Annual Report 2015
FY15 HIGHLIGHTS
Total revenue of $281.3m
up 14.8% on pro forma FY14 revenue
EBITDA of $50.6m
up 26.5% on pro forma FY14
NPAT of $28.8m, resulting
in Earnings Per Share of 11.0 cents
Full year dividend
of 11.0 cents per share
Net Refundable
Accommodation
Deposit cash inflows of $77.3m
Whelan Care Business 258 beds
successfully acquired and integrated
805 net new beds built
by end of FY19
22 facilities reaccredited
2
2
COMPANY OVERVIEW
Japara Healthcare is one of the largest residential aged care operators in Australia caring
for over 3,100 residents nationally across 39 facilities located in Victoria, New South Wales,
South Australia and Tasmania.
The Group’s provision of care is underpinned by an operating model that is designed to
facilitate ageing-in-place by servicing the full spectrum of resident care needs as well as
providing services to those residents with dementia.
The success of the operating model is achieved through our highly qualified staff supported
by dedicated teams across a variety of functions including clinical care and quality, people
and culture, centralised support and administrative functions.
Key portfolio statistics (as at 30 June 2015)
Number of facilities
Total beds
Total operational beds
Total Independent Living Units (ILUs) 180
Total number of employees
4,419
39, across 4 states
3,389
3,207
ALBURY
1 facility
90 beds
SYDNEY
1 facility
60 beds
GIPPSLAND
3 facilities
295 beds
MELBOURNE
& SURROUNDS
19 facilities
1,642 beds
LAUNCESTON
1 facility
132 beds
3
ADELAIDE
5 facilities
310 beds
VICTORIAN
GOLDFIELDS
3 facilities
264 beds
GEELONG
& SURROUNDS
6 facilities
414 beds
Japara Healthcare | Annual Report 2015 CHAIRMAN’S REVIEW
LINDA BARDO NICHOLLS AO
Dear Shareholder,
On behalf of the Directors, it gives me great pleasure to present the 2015 Annual Report for Japara Healthcare Limited.
Well placed to help to meet the growing demand for aged care places
Japara Healthcare is one of Australia’s largest private sector operators of residential aged care facilities with over 3,200
operational resident places. Our team of more than 4,400 full time, part time and casual nurses and healthcare professionals
are focused on meeting the specialised clinical care and lifestyle needs of residents in our 39 facilities in Victoria, New
South Wales, South Australia and Tasmania.
Demand for aged care places is forecast to grow significantly, with an additional 82,000 places forecast to be needed
over the next decade. The Australian residential aged care sector is estimated to require up to $33 billion of investment to
meet this demand, both in new capacity, and in the refurbishment and rebuild of existing stock1. The private sector has
an important role to play in meeting this demand for the benefit of communities across the country.
Delivered a solid result in our first full year as an ASX-listed company despite some
headwinds
This year was Japara Healthcare’s first full year as a publicly-listed company, and I am pleased to report that the Company
has performed well, delivering EBITDA of $50.6 million, which is slightly ahead of the $50.3 million guidance provided at
the Company’s AGM in November 2014 and ahead of our Prospectus forecast of $48.9 million. The result includes a part
year contribution from the acquisition of the Whelan Care business in South Australia, which completed on 31 October
2014.
In delivering this result, management has effectively navigated the various regulatory changes announced by the Federal
Government that came into effect over the course of the year, including the introduction of the funding changes relating to
the Living Longer Living Better reforms, the removal of the Payroll Tax Supplement from 1 January 2015, and the removal
of the Dementia Supplement from 1 August 2014. Our management team has a strong track record of managing the
business in an evolving regulatory environment and has done a commendable job in taking advantage of the opportunities
and responding to the challenges the current round of regulatory change has presented.
Ongoing focus on care, safety and compliance, 100% accreditation record maintained
The consistent delivery of high quality care and the provision of a safe environment for our residents and staff underpins
everything that we do. Our focus on delivering high standards of care continued to be reflected in our strong accreditation
record and high occupancy levels across our facilities.
Our objective of protecting both residents’ and employee’s safety across our 39 facilities is supported by our Workplace
Health and Safety program, resulting in a Lost Time Injury Frequency Rate (LTIFR) that is consistently better than the
national industry average.
Well positioned to deliver our growth agenda
The demographics driving a significant increase in demand for aged care places provide Japara Healthcare and its
shareholders with exciting opportunities for growth. We see opportunities to grow the business organically, through new
developments and through select acquisitions.
Our new Japara Signature Services program has the potential to deliver enhanced lifestyle options for our residents, as
well as providing attractive growth opportunities for the business over the coming years.
1 Aged Care Financing Authority, Annual Report on the Funding and Financing of the Aged Care Sector, July 2015
4
Our brownfield and greenfield development programs, which involve the redevelopment and extension of existing
facilities and the construction of new facilities, are expected to deliver higher quality, higher capacity facilities and provide
opportunities to realise operational efficiencies within our portfolio.
In FY15, the Company received a strong allocation of 465 new aged care places in the Department of Social Services’
2014 Aged Care Approvals Round (ACAR), with Japara Healthcare receiving the highest number of places allocated to a
single provider in Victoria, and the third-highest nationally. This was an excellent outcome, as these licences will support
the delivery of our development strategy over the coming years.
The Company continues to pursue selective acquisition opportunities. During the year, the Company successfully
completed and integrated the acquisition of the Whelan Care business, which expanded Japara Healthcare’s national
footprint into South Australia. In October 2015, the Company announced plans to enter the Queensland market, with the
acquisition of the four-facility Profke residential aged care portfolio. Japara Healthcare maintains a disciplined approach to
mergers and acquisitions, and will only pursue opportunities that are expected to deliver value to shareholders.
The business is highly cash generative and this, coupled with a strong and well-capitalised balance sheet, provides the
capacity to continue to invest in new aged care places to underpin future growth as well as deliver attractive returns to
our shareholders.
The Board was pleased to declare a fully franked final dividend of 5.5 cents per share taking the full year dividend to 11.0
cents per share, which was consistent with our Prospectus forecast of a 100% dividend payout ratio in FY15.
Thank you
I would like to thank the Management team and all of the staff at Japara Healthcare for their dedication and contribution
to delivering high quality care for our residents and a strong result for our shareholders.
I would also like to take this opportunity to thank you, our shareholders, for your support of Japara Healthcare, and I look
forward to meeting with some of you at the Company’s Annual General Meeting.
Linda Bardo Nicholls AO
Chairman
5
Japara Healthcare | Annual Report 2015 MANAGING DIRECTOR AND
CEO’S REVIEW
ANDREW SUDHOLZ
Dear Shareholder,
Following the successful listing of Japara Healthcare on the Australian Securities Exchange in April last year, we were
pleased to deliver earnings ahead of our prospectus guidance for FY15. While recent regulatory reforms present many
opportunities for our business, they did produce some headwinds in 2015 which made delivering ahead of forecast a good
achievement.
Our strong operational performance reflects the quality of our portfolio, the strength of our management team and
processes, and our continued focus on providing more options to residents through additional services and flexible
accommodation payments.
Focus on operational execution delivered a strong result
Japara Healthcare reported total revenue of $281.3 million, up 14.8% on FY14 pro forma revenue. Revenue growth was
driven by an increase in key operating drivers, including an increase in average occupancy to 94.6%, an increase in the
acuity-linked Aged Care Funding Instrument (ACFI) rate received from the Federal Government, the full year impact of the
brownfield places delivered in FY14, as well as eight months contribution from the acquired Whelan Care business.
EBITDA increased to $50.6 million, which was up 26.5% on FY14 pro forma, driven by a combination of revenue growth
and the benefits of prudent cost management. This result was ahead of both the 2015 prospectus forecast of $48.9
million, and the $50.3 million guidance provided at the 2014 Annual General Meeting.
Strong operational execution during the year offset the majority of the $5.1 million pre-tax impact of the removal of the
Payroll Tax and Dementia supplements, which was an excellent result. Our resident care and lifestyle package Japara
Signature Services, was launched in September 2014. Initial take-up has been very good, despite the roll-out being slower
than initially planned. We remain confident in the opportunity for growth that Japara Signature Services provides, and will
continue a measured roll-out across our facilities in 2016.
The EBITDA margin improved, increasing from 16.3% to 18.0%, primarily due to an increase in care and accommodation-
related income, the successful integration of the Whelan Care business, brownfield beds becoming operational, and
stringent cost control.
Net profit after tax (NPAT) was $28.8 million including the contribution from the Whelan Care business, which was ahead
of the 2015 Prospectus forecast of $27.7 million.
The table below sets out the key line items in the financial performance of the Group in FY15 compared with the FY14 pro
forma numbers.
A $ million
Total Revenue
Total Expenses
EBITDA
FY15
Actual
$281.3m
$230.7m
$50.6m
FY14
Pro Forma
$245.0m
$205.0m
$40.0m
Change
(%)
14.8
12.5
26.5
Change
$36.3m
$25.7m
$10.6m
Regulatory changes are presenting opportunities, as well as challenges
On 1 July 2014, the Federal Government’s Living Longer Living Better reforms were implemented, which introduced
significant changes to the aged care funding regime. The regulatory changes have presented a number of compelling
longer-term growth opportunities for Japara Healthcare, however, they have also presented some challenges for the
business in 2015.
The removal of the distinction between ‘high care’ and ‘low care’ places enabled the Group to apply the Refundable
Accommodation Deposit (RAD) regime across all aged care places, which resulted in strong growth in RAD inflows for
the year to $77.3 million, up from $24.3 million in 2014 (on a pro forma basis), providing funding support for our brownfield
and greenfield development pipeline.
6
The broadening of the scope for Approved Providers to set resident fees, including on specialist or additional non-
healthcare services, provides the opportunity for Japara Healthcare to offer residents increased care and lifestyle options
via Japara Signature Services. This offers significant future growth potential and an exciting opportunity for us to continue
to enhance the wellbeing and lifestyle options available for our residents.
Continued execution of our growth agenda
Our business is well positioned for continued growth. We remain focused on implementing our strategic business plan,
which includes organic growth from enhancing our existing portfolio, maintaining our track record of successful brownfield
and greenfield developments, and expanding our national portfolio through value accretive acquisitions.
Our strong focus on capacity expansion through brownfield and greenfield developments resulted in the delivery of 60 new
places in FY15, and this, coupled with new beds from the Whelan Care business acquisition, brought the total number of
places in our portfolio to 3,389 as at 30 June 2015, of which 3,207 were operational.
Architectural schematic
– Glen Waverly
The completion of the Whelan Care business acquisition
delivered 258 additional places and 41 independent living
apartments across four facilities and one retirement complex in
South Australia. The successful integration of this business led
to a stronger than anticipated contribution to the 2015 result.
In keeping with our strategic goal of expanding our national
footprint, Japara Healthcare announced its entry into the
Queensland market with the execution of contracts for the
acquisition of the Profke residential aged care portfolio in October
2015. The portfolio is comprised of four aged care facilities
totalling 587 places in Queensland and New South Wales, and
provides Japara Healthcare with a strategic presence in the
region and a strong platform for further expansion.
The acquisition is expected to settle in December 2015 and be
earnings per share accretive in FY16, with operating EBITDA for
the seven months post acquisition estimated at approximately
$3.5 million to $4.0 million. It is expected that the annualised
EBITDA contribution from the Profke residential aged care
portfolio will increase to approximately $9.5 million within 18
months, following the implementation of Japara Healthcare’s
operating model across the Profke facilities, and the completion
of two planned refurbishments.
Including the Profke acquisition, Japara Healthcare will have
expanded its portfolio by 845 places through acquisitions since listing in April 2014. We are continuing to assess further
acquisition opportunities on a selective and disciplined basis.
In respect of our development growth strategy, we have a substantial pipeline in place which is expected to deliver an
additional 805 operational places by the end of FY19. More than 70% of the bed licences required to deliver this additional
capacity are already owned or allocated to Japara Healthcare following the 465 places awarded to the Company in the
Department of Social Services’ 2014 Aged Care Approvals Round (ACAR). This was a strong result that reflects the
Group’s proven capabilities and track record in delivering high quality facilities and care to our residents.
Our people, our residents and staff, remain our number one priority
While there has certainly been a lot of change in the business over the past 18 months, one thing that hasn’t changed is
our focus on the safety, health and wellbeing of both our residents and our staff.
We have maintained our strong accreditation record across all our facilities, with the re-accreditation of 22 aged care
facilities in 2015, reflecting the strength and quality of our internal systems and processes that underpin the Group’s
resident care model. Japara Healthcare’s occupational health and safety performance continues to benchmark well
against national standards.
Delivering returns for our shareholders
Japara Healthcare was pleased to declare total dividends of 11.0 cents per share (50% franked) in 2015, ahead of the
10.5 cents per share dividend forecast in the Prospectus, reflecting 100% payout of the higher than anticipated earnings
delivered during the year. Our dividend policy of paying up to 100% of net profit after tax remains unchanged.
7
Japara Healthcare | Annual Report 2015 MANAGING DIRECTOR AND CEO’S REVIEW (continued)
Outlook
The industry fundamentals of the aged care sector remain favourable, with an estimated 82,000 additional places forecast
to be required by 20252. This is a key influencer of our growth strategy.
In 2016, Japara Healthcare will continue to focus on executing its robust growth agenda as well as maintaining a high
level of resident care. Additionally, we will continue proactive management of key revenue drivers, such as occupancy and
ACFI, while maintaining a strong focus on disciplined cost management.
The business will benefit from income from increases in ACFI per resident from higher care delivery, as well as income
from Daily Accommodation Payments, the continued rollout of Japara Signature Services, and an uplift in income
from refurbished facilities (Significant Refurbishment) flowing from the regulatory reforms that came into effect in FY15.
Additionally, the continued delivery of our development program, a full year contribution from the Whelan Care business,
and a part year contribution from the Profke portfolio, are expected to contribute to earnings growth in FY16.
Japara Healthcare remains well positioned to deliver strong and sustainable performance over the long-term, and while
there will be some headwinds from the full year impact of the removal of the Payroll Tax Supplement, our FY16 earnings
are expected to exceed our FY15 financial result.
I would like to extend my thanks to the Board, Executive Leadership Team, and all of our staff for their contribution during
the year, with a particular thanks to our dedicated facility staff, who continue to deliver a high standard of clinical care to
our residents. I would also like to thank all of our shareholders for your ongoing support, and look forward to seeing you
at our Annual General Meeting.
Andrew Sudholz
Managing Director and CEO
2 Aged Care Financing Authority, Annual Report on the Funding and Financing of the Aged Care Sector, July 2015
8
ANNUAL FINANCIAL REPORT
For the reporting period ended 30 June 2015
Our values are:
Resident focus, integrity, quality, honesty, respect and justice
9
Japara Healthcare | Annual Report 2015 DIRECTORS’ REPORT
The directors present their report together with the consolidated financial statements of Japara Healthcare Limited (the
Company) and its controlled entities (the Group) for the financial year ended 30 June 2015 and the Independent Auditor’s
Report thereon.
The Company was incorporated on 19 March 2014 and comparative information is presented from this date to 30 June
2014.
1. Directors
Each of the current directors of the Company were appointed on 19 March 2014 and remain in office at the date of this
report. The details of the directors are as follows:
Linda Bardo Nicholls AO
BA (Econ), MBA, FAICD
Non-Executive Chairman
Linda is a senior executive and company director with more than 30 years experience
across Australia, New Zealand and the United States. Presently, Linda is the Chairman of
Yarra Trams and has directorships with Fairfax Media, Medibank Private, Pacific Brands
Group and Sigma Pharmaceuticals.
Previously, she has held the position of Chairman at some of Australia’s most well-
regarded companies, including Healthscope and Australia Post, and was a director of
St George Bank.
Linda has not held any other directorships of listed companies in the last three years.
Linda holds a Masters of Business Administration from Harvard Business School and a
Bachelor of Arts in Economics from Cornell University.
Andrew Sudholz
FPI, MAICD
Managing Director and Chief
Executive Officer (CEO)
Andrew is a founding shareholder and executive director of the Japara Group. Andrew
has more than 30 years experience in the real estate, healthcare and professional services
industries.
Prior to the establishment of the Japara Group, Andrew was a global partner of the Arthur
Andersen Group, a national partner of Ernst & Young’s Real Estate Advisory Services
Group and the state general manager of the Triden Corporation.
He is also a fellow of the Australian Property Institute, a former president of the Victorian
division and national board member of the Property Council of Australia and is currently
a member of the Australian Institute of Company Directors.
Andrew has not held any other directorships of listed companies in the last three years.
Richard England
FCA, MAICD
Non-Executive Director
Chairman of the Audit, Risk and Compliance Committee and member of the Remuneration
and Nomination Committee.
Richard has more than 20 years experience as a non-executive director and Chairman
of multiple ASX listed and unlisted companies across the financial services, banking,
healthcare and insurance industries.
Richard is currently the chairman of Ruralco Holdings and is a non-executive director of
Nanosonics and Macquarie Atlas Roads.
Prior to embarking on his career as a director, Richard was a Chartered Accountant in
Public Practice and a partner at Ernst & Young, where he was the national director of
Corporate Recovery and Insolvency.
Richard is a fellow of the Institute of Chartered Accountants in Australia and a member of
the Australian Institute of Company Directors.
During the last three years Richard was Chairman of Chandler Macleod Group.
10
Tim Poole
BComm, CA
Non-Executive Director
David Blight
BAppSc
Non-Executive Director
Member of the Audit, Risk and Compliance Committee and the Remuneration and
Nomination Committee.
Tim has more than 15 years experience as a director and chairman of ASX listed and
unlisted companies across the financial services, infrastructure and natural resources
industries.
He is currently a non-executive director of McMillan Shakespeare Limited and Aurizon
Holdings Limited and chairman of Lifestyle Communities Limited. He was formerly
managing director of Hastings Funds Management Limited and chairman of Asciano
Limited.
During the last three years Tim has also been a non-executive director of Newcrest Mining
Limited and AustralianSuper.
Tim holds a Bachelor of Commerce from the University of Melbourne and is a qualified
Chartered Accountant.
Chairman of the Remuneration and Nomination Committee and member of the Audit,
Risk and Compliance Committee.
David is currently Managing Director and CEO of ARA Australia; the Australian business
of the Singapore listed ARA Group. He is also a director of several private unlisted
companies in the construction, development and investment markets.
Up to 2008, David was Global Chairman and CEO of ING Real Estate Investment
Management, as well as Vice Chairman of ING Real Estate, based in The Netherlands.
Over his 32 years in the industry, David has held senior executive positions with Armstrong
Jones, Mirvac Group and APN Property Group.
David has not held any directorships of listed entities in addition to those set out above
during the last three years.
David holds a Bachelor of Applied Science in Property Resource Management (Valuation)
from the University of South Australia and is a Board member of APREA (Australian
Chapter).
2. Company secretary
Kathryn Davies was appointed to the position of Company Secretary on 30 September 2014. Kathryn has over 15 years
corporate experience in senior roles of stock exchange listed companies, has a Bachelor of Business in Accounting and
Business Law and is a member of CPA Australia.
3. Directors’ meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by
each of the directors during the financial year are:
Director
Board Meetings
Linda Bardo Nicholls AO
Andrew Sudholz
Richard England
Tim Poole
David Blight
A
12
11
11
12
12
B
12
12
12
12
12
Audit, Risk and
Compliance Committee
Meetings
Remuneration and
Nomination Committee
Meetings
A
7
6
7
B
7
7
7
A
3
4
4
B
4
4
4
A - Number of meetings attended
B - Number of meetings held during the time the director held office during the period
11
Japara Healthcare | Annual Report 2015 DIRECTORS’ REPORT (continued)
4. Principal activities
The principal activity of the Group during the financial year was that of owner, operator and developer of aged care
facilities. No significant change in the nature of these activities occurred during the financial year.
5. Operating and financial review
Overview of the Group
The Group is one of the largest residential aged care operators in Australia with 3,389 resident places nationally across 39
facilities located in Victoria, New South Wales, South Australia and Tasmania.
In conjunction with the business of providing aged care services, the Group also operates 180 Independent Living Units
(ILUs) across five retirement villages, located adjacent to its aged care facilities. Retirement village revenue accounts for
less than 1% of the Group’s operations by revenue.
Since inception in 2005, the Group has successfully expanded its business and achieved significant growth in earnings by:
• Development and expansion of facilities;
• Selective acquisition of facilities, particularly underperforming facilities with low refundable accommodation deposit
balances and/or sub optimal financial characteristics; and
•
Implementation of the Group’s care and operating model (see below).
In 2014 the Group was restructured resulting in an Initial Public Offering of Ordinary Shares (IPO). Japara Healthcare
Limited was admitted to the official list of ASX Limited on 17 April 2014.
The Group’s provision of care is underpinned by an operating model that is designed to facilitate ageing-in-place by
servicing the full spectrum of resident care needs as well as providing services to those residents with dementia. This
operating model is aimed at achieving:
• above industry average occupancy levels through providing a high standard of resident care;
• EBITDA per place levels in excess of the industry average for top quartile operators;
•
internal processes to ensure receipt of all entitled Government care funding; and
• cash flow generation to meet working capital requirements, facilitate future growth and provide returns to shareholders.
Funding sources
The Group derives funding from two main sources, being operating funding (Government funding, resident contributions
and accommodation charges) and capital funding (Refundable Accommodation Deposits (RADs)).
Government and resident contributions
As an Approved Provider of residential aged care services as determined by the Department of Social Services
(Department), each of the Group’s facilities is eligible to receive funding contributions from the Government. Funding is
received in the form of subsidies and supplements (primary supplements and other supplements) for approved residents
in funded places, on a per resident per day basis. The Group derived circa 72% of its revenue from Government care
funding during the financial year.
The Group also receives contributions from residents for the provision of a full spectrum of aged care services, optional
additional services and accommodation charges. Resident fees made up approximately 28% of the Group’s revenue for
the financial year.
Refundable Accommodation Deposits (RADs)/Accommodation bonds
RADs (which replaced Accommodation bonds from 1 July 2014) account for a significant component of the Group’s
capital funding. The Group maintains a conservative RAD management regime with the average value of incoming RADs
set with reference to the median house price in the relevant Local Government Authority (LGA).
During the 2015 financial year the Group used capital funding received from RADs for the following purposes:
• financing capital works for aged care facilities in line with its brownfield developments program;
• financing the acquisition of the Whelan Care Business (see below); and
•
repaying bank debt that was used to finance both capital works for aged care facilities and the acquisition of the
Whelan Care Business.
The Group maintains a disciplined approach to capital expenditure, with all key capital projects subject to strict approval
protocols. Capital expenditure comprises expenditure on asset enhancement and replacement programs and general
maintenance projects (maintenance capital expenditure is funded from operational cash flows) as well as growth capital
12
expenditure comprising brownfield development projects and acquisition of aged care facilities (funded via equity,
borrowings, operating cash flows, RADs or any combination of these, as appropriate).
Each resident has the option to either pay a RAD or a Daily Accommodation Payment (DAP) (or a mixture of both). The DAP
is charged monthly and recognised in revenue as a resident contribution. The value of a DAP is calculated with reference
to the room price using the maximum permissible interest rate which is set by the government.
Key costs
The Group’s key cost relates to labour, which is approximately 66% of total revenue for the financial year. The remaining
costs related to medical supplies, catering, cleaning, consumables, repairs and maintenance, energy, utilities and
corporate costs.
As one of the largest operators of residential aged care services in Australia, the Group leverages its ability to achieve cost
advantages through internalisation and centralisation of certain functions and economies of scale.
Review of operations
Revenue and other income
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)
Net Profit After Tax (NPAT)
1
2015
$’000
281,249
50,590
28,839
20141
$’000
48,914
(1,346)
(2,938)
Net profit amounts have been calculated in accordance with Australian Accounting Standards (AASBs).
The results for 2014 included one off costs of $9,839,000 relating to the Initial Public Offering.
Operational highlights
The Group’s revenue for the financial year has increased by 10.3% from the prior year on an annualised basis, reflecting:
• Average occupancy of 94.6% - in line with expectations;
• An increase in the average Aged Care Funding Instrument (ACFI) (per resident day) from $166.30 (adjusted)2 to $175.10;
• The acquisition of the Whelan Care Business contributing $14.8 million revenue (see note 27 to the financial statements);
and
• The impact of the 124 brownfield places completed between May 2014 and June 2014 becoming fully operational
during FY2015.
This is a pleasing result following the Governments’ decision to cease the dementia supplement and the payroll tax
supplement effective 31 July 2014 and 1 January 2015 respectively. The resulting reduction in revenue was offset in
FY2015 by increases in occupancy, the ACFI rate and revenue from brownfield developments and the Whelan Care
Business acquisition.
The annualised EBITDA (excluding the FY2014 IPO costs) has increased by 14.2%. This increase was in line with
expectations.
During the financial year the Group introduced a number of initiatives to better manage staff costs including limiting the use
of agency staff. As a result of this, staff costs as a percentage of the Group’s revenue have decreased from 68% in FY2014
to 66% in FY2015. The decrease was achieved despite the annual Enterprise Bargaining Agreement (EBA) increase for all
nurses of 2.75% in October 2014 and the introduction of 124 brownfield places at the end of FY2014 requiring more staff
at the facilities in the initial months after opening.
To assist in the management of staff and to ensure the appropriate staffing levels to fulfil all of the residents’ care
requirements are achieved, the Group has invested in the Kronos Workforce Management System. The implementation
of the Workforce Management System is expected to deliver long-term savings to the Group and maintain full compliance
with legislation. The Workforce Management System is expected to be fully implemented across the Group in the first half
of FY2016.
1 Comparative operating results are presented from the date of incorporation of Japara Healthcare Limited to the reporting date (19 March 2014 to 30
June 2014 – operations commenced on 22 April 2014).
2 FY2014 ACFI of $146.70 adjusted for; 8.75% CAP (Conditional Adjustment Payment), 1.86% of COPE (Commonwealth Own Purpose Expense Index-
ation) and the Workforce Supplement redirection of 2.4% to show like for like FY15 funding comparative.
13
Japara Healthcare | Annual Report 2015
DIRECTORS’ REPORT (continued)
Prior to the investment in the Workforce Management System, the Group undertook a review of its payroll system and
discovered that in some instances loading on overtime was not identified and paid to some employees. The unpaid
amount (including on-costs and associated legal and professional advisory fees), net of income tax benefit is $4,918,000
of which $4,746,000 relates to the period prior to the Group listing on the ASX.
Review of financial position
A summary of the audited balance sheet is set out below:
Total assets
Total liabilities
Net assets
2015
$’000
915,799
385,760
530,039
2014
$’000
807,258
293,271
513,987
The Group’s total assets increased by 13.4% during the financial year. This was primarily due to an increase in the cash
balance from operations, an increase in RAD funding (discussed below) and the acquisition of the Whelan Care Business
which included four residential aged care facilities accommodating 258 residents.
Total liabilities increased by 31.5% which was mainly due to an increase in the RAD/accommodation bond liability of 47.5%.
The net RAD cash inflow for the year was $77.3 million. This represents a significant increase in RAD funding due to the
introduction of the aged care reforms on 1 July 2014 which allowed aged care providers to potentially charge a RAD on
all types of resident places. The increase represents an increase in both quantum and average RAD value, both of which
were in line with the Group’s expectations for the year. The acquisition of the Whelan Care Business also increased the
RAD liability by a further $23.1 million.
The Group’s current liabilities exceed current assets by $315.8 million (2014: $249.8 million) as at 30 June 2015. This
mainly arises because of the requirement to classify resident obligations relating to RADs/accommodation bonds and
ILU resident loans as current liabilities, whereas, the property, plant and equipment, investment properties and intangible
assets to which they relate are required to be classified as non-current assets.
The Group maintains a minimum level of liquidity to ensure RADs/accommodation bonds are able to be refunded as
required and its working capital requirements are generally consistent throughout the course of the financial year with no
significant variations. The Group’s cash position is expected to provide sufficient liquidity to meet the Group’s currently
anticipated cash requirements (see note 24 to the financial statements for further details).
The Group currently has a syndicated debt facility with a limit of $95 million. The facility is in place for the purpose of
funding future brownfield developments and initial funding for acquisitions. At the date of signing this report the facility is
undrawn.
Over time, the Group may seek additional debt funding from a range of sources to diversify its funding base to reduce
reliance on the bank finance market and to manage its exposure to interest rate risk.
Business strategies and prospects for future financial years
The Group is committed to maximising the value in its current portfolio through organic growth while maintaining a high
level of resident care in line with its care and operating model as described in the overview of the Group.
In addition to organic growth the Group has an expansion plan which centres on increasing the size of its aged care portfolio
through brownfield and greenfield developments and through the acquisition of existing aged care facilities.
The Group has ambitions to increase its portfolio over the medium term and is focusing on strategic expansion throughout
Victoria, South Australia and Tasmania, where it can leverage its existing management platform and operations as well as
expanding into New South Wales and Queensland if an appropriate platform can be acquired and readily integrated into
the Group’s existing operations.
Organic growth
i. Additional services
The Company has introduced a full suite of additional services that are available to our residents, known as Japara
Signature Services, which is expected to generate revenue growth from resident contributions as they access these
services. These services include hairdressing, pay TV, superior room furnishings, concierge services and various non-
clinical therapy services and are now offered to all residents including those who occupy the pre reform “high care” beds in
our existing portfolio. In addition the majority of our brownfield and greenfield developments will include Japara Signature
Services once these are completed.
14
ii. Government ACFI funding
As of 1 July 2015, the Government increased the ACFI rates by 1.3%. In keeping with the Group’s continuous improvement
program, the current revenue model structure continues to deliver value to the Group. The revenue model structure ensures
that the appropriate funding is received for care provided and ensures that residents’ acuity is assessed accurately and
appropriately funded. In FY2015 the resident profile resulted in higher levels of care and acuity which transpired into an
increase in funding per resident per day.
iii. Cost reduction initiatives
• The Group reviews each of its major supplier and service contracts as they come to the end of their term. Further costs
savings are expected as other major supplier and service contracts are re-tendered.
• Following the implementation of the Kronos Workforce Management System planned for the first half of FY2016, the
Group is well placed to deliver further efficiencies in staff and agency costs from FY2016 onwards whilst maintaining
high levels of care.
iv. Occupancy levels
The Group’s occupancy levels are a direct result of the quality of care we provide to our residents and are maintained and
where possible increased. A dedicated client services team work with the facility managers on a daily basis to maintain a
close relationship with our consumer base and and referral network. Benchmarking occupancy levels across the Group
and amongst its competitors is used for strategic direction and initiatives.
The Group continues to provide care and services that are closely aligned with consumer demands and is proactive in
strategic marketing activities to ensure the Group’s occupancy objectives are met. In addition, our growth strategy is
targeted towards undersupplied regions, as defined by our internal research team, which supports high occupancy levels
across the portfolio.
v. RAD/DAP funding
The Group has received strong RAD inflows during the year totalling $77.3 million. Substantial new capital is anticipated
to be received from new RADs and RAD uplift emanating from the existing portfolio. Specifically, the Group’s portfolio
comprises a significant number of places which were previously licenced as “high care” places and could not be charged
an accommodation bond, however from 1 July 2014 a large number of these places can now attract a RAD as part of
the aged care reform. The capital from RADs on these places was partly received in FY2015 and more is expected to
be received over the next 2 to 3 years. In FY2015 the capital received from this source was circa $44 million of the $77.3
million total, with the balance from RAD uplift and RADs from brownfield developments.
The Group continues to review its strategy to optimise the mix of RADs and DAPs.
Brownfield and greenfield developments
The Group’s development program delivered 124 additional new resident places in FY2014; 63 places at Millward in
Doncaster, 30 places at Mirridong in Bendigo and 31 places in Albury. During FY2015 the Group delivered a further 30 new
places at Kelaston in Ballarat and 30 new places at Bayview in Carrum Downs (with further significant refurbishment on
existing places to be completed in FY2016). An additional 69 places at Trevu in Gawler will become operational in FY2016
after being completed on 2 July 2015.
The target is to deliver a further 805 net new places by the end of FY2019. The Group will utilise the 465 resident places
that it was allocated during the Department of Social Services 2014 Aged Care Approvals Rounds with the balance to
be obtained either from future Aged Care Approvals Rounds, by acquisition or transferred from its current facilities with
non-operational places.
It is estimated that the brownfield and greenfield construction costs of future developments will be repaid by the RAD
inflows received from residents entering these facilities post completion.
During FY2015 the Group acquired land for greenfield developments in Glen Waverley in Victoria and Riverside in Tasmania
and for a brownfield extension of an existing aged care facility in Springvale, Victoria.
At the date of this report the following development projects are underway:
• Kirralee, Ballarat, Vic, significant refurbishment of 36 places, expected completion FY2017;
• George Vowell, Mt Eliza, Vic, 34 place extension, expected completion FY2017;
• Central Park, Windsor, Vic, significant refurbishment of the entire facility, expected completion FY2017;
• St Judes, Narre Warren, Vic, 30 place extension, expected completion FY2017;
• Riverside, Launceston, Tas, 75 place new build expected to be completed FY2017;
• Kingston Gardens, Springvale South, Vic, 51 place extension and significant refurbishment, expected completion
FY2017; and
• Glen Waverley, Vic, 60 place new build expected to be completed in FY2018 (subject to planning approval).
15
Japara Healthcare | Annual Report 2015 DIRECTORS’ REPORT (continued)
As these projects are completed, the Group will also receive funding from the significant refurbishment accommodation
supplement which provides a potential additional $20 per day for each concessional resident in newly built or significantly
refurbished facilities.
The Group remains on track to deliver new places in line with its brownfield and greenfield program.
Acquisitions of existing aged care facilities
The Group continues to review new acquisition opportunities of existing aged care facilities. The Group targets individual
or groups of facilities where shareholder value can be enhanced through operational improvements, specifically the
implementation of the Group’s care and operating model and the centralisation of corporate costs. This was demonstrated
following the Group’s acquisition and successful integration of the Whelan Care Business during FY2015 (see note 27 of
the financial statements), adding 258 resident places to the Group.
A disciplined and selective approach
The Group has established policies and procedures for the acquisition of additional aged care facilities. As part of the due
diligence process, pricing is confirmed by independent valuations undertaken by the Group’s panel of valuers for both the
business and real estate components. The Group undertakes formal legal, financial, property, operational and compliance
due diligence on each facility before completing any acquisition.
Typically, management targets facilities where expertise can be applied in the short-term to improve the performance of
the facility and grow EBITDA before corporate costs to bring it in line with the Group average. The Group utilises its existing
infrastructure and compliance platform to successfully execute acquisitions including the application of strict investment
criteria to identify and filter acquisition opportunities, subject to market conditions and availability of capital.
The Group’s key acquisition investment criteria include:
• Lifecycle: new or near new facilities with minimum 15 year economic life;
• Demand: facilities in locations that have unmet demand;
• Growth: operational facilities that provide potential for long term growth from income and RADs;
• Cash flow: facilities that have a substantial income flow; and
• Value creation: facilities that provide an opportunity for the Group to execute strategic value enhancement and asset
management strategies to enhance returns to investors through:
– purchasing undervalued assets which may be mispriced due to complexities of ownership, capital structure, planning
controls or ineffective management processes;
– countercyclical investing involving acquisitions and divestments using additional knowledge and information;
– asset management through asset repositioning, refurbishment, extension and re-development of existing assets;
and
– effective deal sourcing including opportunities that are off-market or subject to capital constraints, utilising the
Group’s network of contacts and market intelligence.
The Group will consider the acquisition of a single aged care facility or any portfolio where the investment criteria are met.
Key business risks
The regulatory framework may change
The Australian aged care industry is highly regulated by the Federal Government. Any future regulatory changes may have
an adverse impact on the way the Group promotes, manages and operates its facilities, and its financial performance.
In addition, there is a risk that other participants in the industry may, through their actions and business practices cause
future regulatory changes that will have an adverse impact on the Group’s financial performance.
The Group’s RAD levels may decline
The Group may be exposed to the liquidity risks associated with the repayment and future receipt of RADs. These risks
include particular circumstances that require the repayment of a large number of RADs at any one aged care facility, a
reduction in the price achieved for new RADs, inappropriate pricing of RADs, economic factors impacting the demand for
the Group’s aged care services or regulatory changes that limit the ability to receive replacement or new RADs.
Occupancy levels may fall
In the ordinary course of its business, the Group faces the risk that occupancy levels may fall below expectations. Reduced
occupancy levels may adversely affect the Group’s financial performance as it would reduce the amount of Government
care funding to which the Group is entitled, resident contributions, accommodation payments and RADs. A decrease in
occupancy levels may also result in an increase in financing costs. Either of these occurrences would be likely to lead to
a decline in the Group’s profitability.
16
The Group may lose key personnel
The Group relies on a high quality management team with significant aged care industry experience. The loss of key
members of the Group’s management team could adversely affect the Group’s ability to operate its facilities and its
business to the current standard.
This could undermine the Group’s ability to effectively comply with regulations and may also result in a reduction in
demand for the Group’s aged care services from new and existing residents. Either of these occurrences may adversely
impact on the Group’s financial performance and position.
Facilities may lose their approvals or accreditation
Aged care facilities are required to be operated by Approved Providers and accredited in various ways. These approvals
are generally subject to regular review and may be revoked in certain circumstances. Aged care facilities must be operated
by an Approved Provider, certified and accredited to attract Government care funding. If the Group does not comply with
regulation and is unable to secure accreditation for the operation of its aged care facilities and resident places in the future,
or if any of its existing accreditation or approvals are adversely amended or revoked, this may affect Government care
funding, breach lending covenants and may also adversely impact on the financial performance and position and future
prospects of the Group.
The Group’s reputation may be damaged
The Group operates in a commercially sensitive industry in which its reputation could be adversely impacted should it,
or the aged care industry generally, suffer from any adverse publicity. If any such adverse publicity were to occur, this
may reduce the number of existing residents at the Group’s facilities or the Group’s ability to attract new residents to its
facilities, both of which occurrences may adversely impact the Group’s financial performance and position and future
prospects.
6. Dividends
Dividends paid or recommended for payment on ordinary shares are as follows:
Final dividend @ 5.5 cents per share (2014: Nil cents)
Interim dividend paid during the year @ 5.5 cents per share (2014: Nil cents)
$14,468,000
$14,468,000
The interim dividend paid during FY2015 was unfranked. The final dividend for FY2015 will be fully franked.
7. Events subsequent to reporting date
On 2 July 2015, the Group completed the purchase of the land and buildings of the Trevu at Gawler aged care facility
located in South Australia for a total consideration of $12,735,000. The facility has capacity to accommodate 69 residents.
The purchase included the transfer of 24 resident places to the Group from the vendor as approved by the Department
of Social Services. The remaining 45 resident places have been transferred from the Trevu at Willaston aged care facility
acquired with the Whelan Care Business on 31 October 2014 (see section 5 above). All residents have been relocated from
Trevu at Willaston to Trevu at Gawler and the Trevu at Willaston aged care facility has been closed.
The Group funded the purchase of the newly built Trevu at Gawler aged care facility and resident places with cash.
Other than mentioned above, no matters or circumstances have arisen since the end of the financial year which significantly
affected or may significantly affect the operations of the Group, the results of those operations, or the state of the affairs
of the Group in future financial years.
8. Likely developments
The Group’s growth strategy centres on increasing the size of its aged care portfolio through the acquisition of additional
aged care facilities and the development of brownfield and greenfield projects. Other than the likely developments
disclosed in section 5 above and elsewhere in this report, no matters or circumstances have arisen which significantly
affected or may significantly affect the operations of the Group, the results of those operations, or the state of the affairs
of the Group in future financial years.
17
Japara Healthcare | Annual Report 2015
DIRECTORS’ REPORT (continued)
9. Environmental regulation
The Group’s operations are not subject to particular significant environmental regulation under either Commonwealth
or State legislation. However, the following areas of the business have been identified as having a potential affect on the
environment in which the Group operates:
• Energy management;
• Waste management;
• Water management.
Each area identified above is managed with the intention of reducing unnecessary waste and minimising the consumption
of resources in a cost effective way. Further information on the Group’s environmental sustainability initiatives can be found
in the Group’s Corporate Governance Statement which is available at japarahealthcare.com.au.
10. Indemnification and insurance of officers
Indemnification
The Company has agreed to indemnify the current directors and officers of the Company, against all liabilities to another
person (other than the Company or a related body corporate) that may arise from their position as directors of the
Company and its controlled entities, to the full extent permitted by law. The agreement stipulates that the Company will
meet the full amount of any such liabilities, including costs and expenses.
The Company has also agreed to indemnify the current directors of its controlled entities for all liabilities to another person
(other than the Company or a related body corporate) that may arise from their position, except where the liability arises
out of conduct involving a lack of good faith. The Company has agreed to meet the full amount of any such liabilities,
including costs and expenses.
Insurance premiums
During the financial year, the Group paid a premium in respect of a contract insuring the directors named in this report and
current executive officers of the Group against certain liabilities that may be incurred by such a director or executive officer
to the extent permitted by the Corporations Act 2001.
The directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect
of the directors’ and officers’ liability and legal expenses, as such disclosure is prohibited under the terms of the contract.
11. Non-audit services
During the year, KPMG, the Group’s auditor, has performed certain other services in addition to their statutory duties. Other
services are performed by KPMG where the Group considers that KPMG is best qualified to perform those procedures
and that the performance of those procedures would not compromise auditor independence requirements.
The Board has considered the other services provided during the year by the auditor and in accordance with written
advice provided by resolution of the Audit, Risk and Compliance Committee, is satisfied that the provision of those other
services during the year are compatible with, and did not compromise, the auditor independence requirements of the
Corporations Act 2001 due to the following:
•
the other services provided do not undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own
work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly
sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, for audit and non-audit services provided during the year
are set out below:
Audit and review of financial statements
Debt financing advisory fee
Other advisory services
18
2015
$’000
335
190
90
615
12. Proceedings on behalf of the Company
From time to time, the Group is subject to claims and litigation during the normal course of business. The directors have
given consideration to such matters, which are or may be subject to litigation at period end, and are of the opinion that,
other than for specific provisions already raised, no material liability exists.
13. Lead Auditor’s Independence Declaration
The Lead Auditor’s Independence Declaration is set out on page 20 and forms part of the Directors’ Report for the
financial year ended 30 June 2015.
14. Rounding off
The Group is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class
Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless
otherwise stated.
Remuneration Report
The Remuneration Report is set out in Section 15 and forms part of this Directors’ Report.
Signed in accordance with a resolution of the directors:
Signed and dated at Melbourne on 24 August 2015
Linda Bardo Nicholls AO
Chairman
Andrew Sudholz
Managing Director and CEO
19
Japara Healthcare | Annual Report 2015
20
ABCDLead Auditor’s Independence Declaration under Section 307C of the CorporationsAct 2001To: the directors of Japara Healthcare LimitedI declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2015there have been:(i)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and(ii)no contraventions of any applicable code of professional conduct in relation to the audit.KPMGDarren ScammellPartnerMelbourne24 August 2015 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 21
Japara Healthcare | Annual Report 2015 REMUNERATION REPORT - AUDITED
15.1. Key management personnel
This remuneration report sets out the remuneration arrangements of key management personnel in accordance with the
Corporations Act 2001 and Australian Accounting Standards for the year ended 30 June 2015 (FY2015). Key management
personnel are those people who have the authority and responsibility for planning, directing and controlling the Group’s
activities, either directly or indirectly.
Table 1 – Key Management Personnel for FY2015
Name
Position
Senior executives
Andrew Sudholz
Chris Price
Jerome Jordan
Julie Reed
John McKenna
CEO and Managing Director (CEO)
Chief Financial Officer (CFO) (from 22 June 2015)
Group Executive of Operations
Group Executive of Aged Care
Chief Financial Officer (CFO) (until 22 June 2015)
Independent non-executive directors
Linda Bardo Nicholls AO
Chairman
Richard England
Chairman of the Audit, Risk and Compliance Committee
David Blight
Tim Poole
Chairman of the Remuneration and Nomination Committee
15.2 Remuneration Framework and Governance
Remuneration and Nomination Committee
The Remuneration and Nomination Committee (the Committee) is responsible for matters relating to succession
planning, nomination and remuneration of the directors, the Chief Executive Officer and senior executives as set out in
the Committee’s Charter. The Committee comprises only non-executive directors all of whom are independent from
management.
The main responsibilities of the Committee in respect to remuneration include:
• Review and recommend to the Board arrangements for the executive directors (including the CEO) and the executives
reporting to the CEO, including contract terms, annual remuneration and participation in the Company’s short and
long term incentive plans;
• Review and approve short term incentive strategy, performance targets and bonus payments;
• Recommend to the Board whether offers are to be made under any or all of the Company’s employee equity incentive
plans in respect of a financial year; and
• Review and recommend to the Board the remuneration arrangements for the Chairman and the non executive directors
of the Board, including fees, travel and other benefits.
Services from remuneration consultants
The Committee considers the advice of independent remuneration consultants and other external providers as required.
The advice and recommendations are used as a guide only, and do not serve as a substitute for thorough consideration
and debate of the issues by the Directors.
During the reporting period the Board engaged KPMG as remuneration consultant to review the amount and elements
of the key management personnel remuneration and provide benchmarking in relation thereto. KPMG was paid $8,800
(2014: $39,500) for the remuneration benchmarking in respect of reviewing the amount and elements of remuneration. The
Board is satisfied that the remuneration benchmarking performed by KPMG was free from undue influence by members
of the key management personnel about whom the recommendations may relate.
KPMG was required to provide a summary of the way in which it carried out its work, details of its interaction with key
management personnel in relation to the assignment and other services, and respond to questions by the Board after the
completion of the assignment.
22
15.3.
FY2015 Remuneration summary
Details of the remuneration of Executives, prepared in accordance with statutory obligations and accounting standards,
are set out in a Table 6 in Section 15.4.3 of this report.
The Board recognises that the statutory tables may not provide a clear indication of the actual value of remuneration
earned by Executives during the year. As such, Table 2 below summarises the actual amounts the executives received in
FY2015. This includes their fixed remuneration for FY2015 and any other payments received during the year.
No Short Term Incentives (STI’s) or Long Term Incentives (LTI’s) were paid or vested during the year.
The key difference between remuneration figures provided in Table 2 below and Table 6 in section 15.4.3 is that the
statutory table requires the value of equity grants to be estimated and apportioned over the relevant vesting period,
irrespective of whether those awards ultimately vest.
Table 2 – Remuneration paid in FY2015
A. Sudholz
C. Price (from 22 June 2015)
J. Jordan
J. Reed
J. McKenna (until 22 June 2015)
Cash salary1
Superannuation
838,819
10,762
391,655
387,843
372,241
32,674
751
30,650
31,185
34,730
Other
2,597
-
2,597
2,597
-
Total
874,090
11,513
424,902
421,625
406,971
1. Cash salary includes salary and fees and leave entitlements paid in the year detailed in Table 6.
STI performance outcomes
The STI performance gateways for FY2015 were:
•
•
that ongoing compliance and accreditation targets are met in accordance with the Aged Care Act 1997; and
the prospectus forecast EBITDA of $48.9 million be met (adjusted for acquisitions).
As noted in the covering letter to this Remuneration Report, the Board has determined that no STI is payable for FY2015
as prospectus forecast was met but the result was not sufficient for an STI pool to form. It is a requirement that the STI
is self-funding, that is, that following the payment of the STI, EBITDA adjusted for acquisitions, needs to be at or above
forecast. This was not the case for FY2015, once adjusted for the Whelan acquisition.
LTI performance outcomes
Similarly, in relation to the LTI, the Board considered a performance gateway hurdle was not met resulting in the FY2014
LTI being forfeited. No further performance rights were granted during the period ended 30 June 2015.
The Board intends to grant a replacement LTI in the form of performance rights to senior executives including the CEO
(subject to shareholder approval where required). The performance period of the proposed LTI performance rights will be
from 1 July 2015 to 30 June 2018. Further information on the new LTI will be included in the Explanatory Memorandum
accompanying the Notice of Annual General Meeting.
15.4. Senior Executive Remuneration Structure
15.4.1 Principles of executive remuneration packages
The remuneration structures outlined below are designed to attract suitably qualified candidates, reward the achievement
of stretch objectives, and help achieve the broader outcome of creation of value for shareholders. The remuneration
structures take into account:
•
•
•
the capability and experience of the key management personnel;
the key management personnel’s ability to influence performance;
the Group’s performance including:
-
-
the Group’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and Net Profit After Tax (NPAT);
the growth in earnings per share; and
- compliance with relevant legislation and regulation.
No STI has been granted in the current year and is therefore presented at target levels. The LTI amount is presented based
on the fair value of the LTI granted in the period using an accepted valuation methodology. Table 3 below represents the
target remuneration mix for Group executives.
23
Japara Healthcare | Annual Report 2015
REMUNERATION REPORT - AUDITED (continued)
Table 3 – Target mix of remuneration components
CEO
CFO
Other senior executives
Fixed
remuneration
Short-term
incentive
50.0%
58.8%
58.8%
25.0%
23.5%
23.5%
At risk
Long-term
incentive
25.0%
17.7%
17.7%
Total
100.0%
100.0%
100.0%
15.4.2 Executive remuneration in detail
i) Fixed remuneration
Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT
charges related to employee benefits), as well as leave entitlements and employer contributions to superannuation
funds. Remuneration levels are reviewed annually by the Remuneration and Nomination Committee. Senior executive’s
remuneration is also reviewed on promotion.
The Board has determined that there will be no increase in senior executive fixed remuneration for FY2016. Nurses and
other facility staff employed by the Group are subject to the various Enterprise Bargaining Agreements which stipulate
wage increases throughout FY2016 of up to 3.25%.
ii) Performance linked remuneration (At risk)
Performance linked remuneration includes both STI’s and LTI’s, and is designed to reward senior executives for exceeding
their objectives. The STI is an ‘at risk’ bonus provided in the form of cash. The LTI is in the form of a performance-based
Equity Incentive Plan (EIP).
In FY2014 an LTI was granted to the CEO under the Group’s performance-based Limited Recourse Loan Plan (Loan Plan).
Following forfeiture of the shares issued under the Loan Plan a new LTI for FY2016 will be granted to the CEO under the
Group’s EIP, subject to shareholder approval.
The Board has the discretion to vary the “at risk” performance-based elements of remuneration, including STI’s and LTI’s,
at any time, where it considers a reduction to be prudent.
STI bonus
The Remuneration and Nomination Committee sets certain financial and non-financial performance hurdles for each
senior executive. There are also gateway hurdles in place to ensure that threshold financial performance measures and
ongoing compliance and accreditation targets are met prior to any payment of STI’s. Should these performance hurdles
be met, the STI bonus may be paid subject to the Board’s discretion.
In the event the STI bonus is payable in future years, 50% will be paid in cash following the end of the performance year,
and the remaining 50% will be deferred for a further 12 months before also being paid in cash or performance rights
(subject to certain conditions including the participant’s continued employment for the additional 12 months).
The Remuneration and Nomination Committee reviews and makes a recommendation to the Board as to whether or not
an STI bonus should be made to eligible executives on an annual basis.
LTI plan
The Group’s EIP is an LTI plan under which performance rights are issued to the participant for nil consideration and
each performance right entitles the holder to acquire one share for nil consideration at the end of the performance period
subject to the satisfaction of certain conditions. The performance rights do not carry voting rights or dividend entitlements.
The key terms of the EIP are as follows:
• offers may be made at the Board’s discretion to employees of the Group or any other person that the Board determines
to be eligible to receive a grant under either long-term incentive plan;
•
the Board has the discretion to set the terms and conditions on which it will offer performance rights in individual offer
documents;
• participants must accept an offer made under the EIP to be eligible to receive performance rights;
the participant must not sell, transfer, encumber, hedge or otherwise deal with performance rights;
the participant will be free to deal with any shares allocated on vesting of the performance rights, subject to the
requirements of the Group’s Policy for Dealing in Securities; and
if the participant ceases employment for cause or due to their resignation, unless the Board determines otherwise, any
unvested performance rights will be automatically forfeited.
•
•
•
24
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Japara Healthcare | Annual Report 2015
REMUNERATION REPORT - AUDITED (continued)
15.5. CEO and other senior executives’ employment arrangements
The CEO’s service agreement with the Group specifies the duties and obligations to be fulfilled by him. The agreement
may be terminated by either party by giving 12 months’ notice. The Group retains the right to terminate the contract
immediately by making payment equal to 12 months’ total fixed remuneration in lieu of notice, less any applicable taxable
deduction. The CEO has no entitlement to termination payment in the event of removal for cause.
The CFO’s service agreement with the Group specifies the duties and obligations to be fulfilled by him. The agreement may
be terminated by either party by giving 6 months’ notice. The Group retains the right to terminate the contract immediately
by making payment equal to 6 months’ pay in lieu of notice, less any applicable taxable deduction. The CFO has no
entitlement to termination payment in the event of removal for cause.
The Group has entered into service agreements with each of the other senior executives that are capable of termination
on 3 months’ notice by the employee. The Group retains the right to terminate an agreement immediately for serious
misconduct without any obligation to provide notice or pay the employee any remuneration. In the event that the employee
is terminated due to abolition of their position or redundancy the employee will be entitled to a severance payment
equivalent to 12 months gross salary, less any applicable taxable deduction. On termination of employment the senior
executives are also entitled to receive their statutory entitlements of accrued annual and long-service leave, together with
any superannuation benefits.
The service agreements outline the components of remuneration but do not prescribe how remuneration levels are
modified year to year. The Remuneration and Nomination Committee reviews remuneration levels each year taking into
account cost-of-living changes and any change in the scope of the role performed by the senior executive.
15.6. Non-executive directors remuneration
Under the Constitution, the Board may decide the remuneration which each non-executive director is entitled to receive
from the Group for his or her services as a non-executive director. However, the total amount provided to all non-executive
directors for their services as non-executive directors must not exceed, in aggregate in any financial year, the amount
fixed by the shareholders of the Company. This amount was fixed at $1,000,000 at a general meeting of the Company on
4 April 2014. In FY2015, the fees payable to the current non-executive directors were in line with those disclosed in the
Company’s Prospectus dated 11 April 2014.
The annual base director fees currently agreed to be paid by the Group are $200,000 to the non-executive chairman,
$100,000 to each other non-executive director and an additional $20,000 to the chair of each standing Committee of the
Board. There will be no increase in non-executive director’s fees for FY2016.
Non-executive directors did not receive nor are eligible for performance related remuneration.
26
The remuneration of non-executive directors’ included within employee benefits expense in the Statement of Profit or Loss
for FY2015 was as follows (FY2014 covers the period from 22 April 2014 to 30 June 2014):
Table 7 – Non-executive directors remuneration for FY2015 and FY2014
Short-term benefits
Post-employment
benefits
Fees
$
Non-monetary
benefits
$
Superannuation
benefits
$
Total fees paid
$
Linda Bardo Nicholls AO (Chairman)
FY2015
FY2014
Richard England
FY2015
FY2014
Tim Poole
FY2015
FY2014
David Blight
FY2015
FY2014
183,066
-
16,934
200,000
37,616
-
3,480
41,096
109,840
-
10,160
120,000
22,570
-
2,088
24,658
91,533
-
8,467
100,000
18,808
-
1,740
20,548
109,840
-
10,160
120,000
22,570
-
2,088
24,658
Total non-executive directors’ remuneration
FY2015
FY2014
494,279
-
45,721
540,000
101,564
-
9,396
110,960
15.7. Other benefits
Key management personnel may be reimbursed for travel and other expenses incurred in attending to the Group’s affairs,
including attending and returning from meetings of directors or committees or general meetings. There are no retirement
benefit schemes for directors, other than statutory superannuation contributions.
27
Japara Healthcare | Annual Report 2015 REMUNERATION REPORT - AUDITED (continued)
15.8. Key management personnel shareholdings in the Company
Table 8 – The movement during the reporting period in the number of ordinary shares in the Company held directly,
indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 July 2014
Received under
the Loan Plan
arrangement 1
Other net
change
Held at
30 June 2015
No. of shares
No. of shares
No. of shares
No. of shares
Non-executive directors
Linda Bardo Nicholls AO
25,000
-
21,500
46,500
Richard England
Tim Poole
David Blight
Managing director & CEO
25,000
-
6,250
31,250
200,000
-
-
200,000
50,000
-
-
50,000
Andrew Sudholz
15,700,001
546,591
-
16,246,592
Other key management personnel
Chris Price
Jerome Jordan
Julie Reed
John McKenna
-
-
-
-
-
-
-
-
10,000
-
-
10,000
125,000
-
-
125,000
1. Shares issued under the Loan Plan (see section 15.4.2 for further details). These shares have been forfeited as disclosed in section 15.3.
28
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29
Japara Healthcare | Annual Report 2015
STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2015
Revenue
Other income
Finance income
Total income
Employee benefits expense
Resident costs
Occupancy costs
Depreciation and amortisation expense
Administrative expenses
Other expenses
Finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) for the period
Note
6
6
6
10
7
7
11(a)
2015
$’000
278,262
2,987
1,292
2014
$’000
48,378
536
203
282,541
49,117
(186,742)
(22,860)
(13,384)
(9,718)
(7,315)
(358)
(2,825)
39,339
(10,500)
28,839
(32,934)
(3,804)
(2,478)
(1,582)
(1,180)
(9,864)
(325)
(3,050)
112
(2,938)
Other comprehensive income, net of income tax
Total comprehensive income/(loss) for the period
-
-
28,839
(2,938)
Profit/(loss) attributable to members of the group
28,839
(2,938)
Total comprehensive income/(loss) attributable to members of the group
28,839
(2,938)
Earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
8
8
10.97
(0.01)
10.94
(0.01)
The accompanying notes form part of these financial statements.
30
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2015
ASSETS
Current Assets
Cash
Trade and other receivables
Current tax receivable
Other assets
Total Current Assets
Non-Current Assets
Trade and other receivables
Other financial assets
Non current assets held for sale
Property, plant and equipment
Investment property
Deferred tax assets
Intangible assets
Total Non-Current Assets
TOTAL ASSETS
LIABILITIES
Current Liabilities
Trade and other payables
Other liabilities
Loans and borrowings
Current tax payable
Other financial liabilities
Short term provisions
Total Current Liabilities
Non-Current Liabilities
Long term provisions
Total Non-Current Liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Retained earnings/(deficit)
TOTAL EQUITY
Note
13
12
11(e)
12
31(d)
14
16
11(e)
15
21
22
19
11(e)
20
23
23
2015
$’000
2014
$’000
53,878
10,168
-
3,237
67,283
2,607
1,078
1,997
383,797
31,549
12,300
415,188
848,516
915,799
16,657
9,498
-
4,432
325,251
27,217
383,055
2,705
2,705
385,760
530,039
517,848
12,191
530,039
28,107
7,073
2,702
3,585
41,467
1,210
-
-
340,799
23,312
15,684
384,786
765,791
807,258
22,180
9,331
15,817
-
220,904
23,045
291,277
1,994
1,994
293,271
513,987
516,755
(2,768)
513,987
The accompanying notes form part of these financial statements.
31
Japara Healthcare | Annual Report 2015 STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2015
2015
Balance at 1 July 2014
Comprehensive income
Profit attributable to members of the group
Other comprehensive income
Total comprehensive income
Transactions with owners of the company
Issue of shares
Dividends
Equity settled share based payment
Total transactions with owners of the company
Balance at 30 June 2015
2014
Balance at 19 March 2014
Comprehensive income
Loss attributable to members of the group
Other comprehensive income
Total comprehensive income/(loss)
Transactions with owners of the company
Issue of shares
Equity raising costs, net of tax
Equity settled share based payment
Total transactions with owners of the company
Balance at 30 June 2014
Issued
capital
$’000
516,755
Retained
earnings/
(deficit)
$’000
Total
$’000
(2,768)
513,987
-
-
-
28,839
28,839
-
-
28,839
28,839
1,093
-
-
1,093
517,848
Issued
capital
$’000
-
-
-
-
525,000
(8,245)
-
516,755
516,755
-
(14,468)
588
(13,880)
12,191
Retained
earnings/
(deficit)
$’000
-
(2,938)
-
(2,938)
-
-
170
170
(2,768)
1,093
(14,468)
588
(12,787)
530,039
Total
$’000
-
(2,938)
-
(2,938)
525,000
(8,245)
170
516,925
513,987
The accompanying notes form part of these financial statements.
32
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2015
Note
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers
Payments to suppliers and employees
Income taxes refunded/(paid)
Interest received
Finance costs paid
Net cash provided by operating activities
33
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land & buildings
Proceeds from sale of land
Purchase of plant and equipment
Proceeds from sale of plant and equipment
Capital works in progress
Purchase of resident places
Acquisition of aged care business, net of cash
27(d)
Acquisition of the Japara Group, net of cash
Other acquisitions and acquisition related costs
Net cash used by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of share capital
Equity raising costs
Dividends paid
Net proceeds/(repayments) of bank borrowings
Proceeds from RADs/accommodation bonds & ILU resident loans
Repayment of RADs/accommodation bonds & ILU resident loans
Proceeds from other financial assets
Settlement of pre acquisition receivables/(payables) of the Japara Group
Net cash provided by financing activities
17(b)
19
Net increase in cash and cash equivalents held
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
13
2015
$’000
275,995
(234,918)
684
1,204
(2,782)
40,183
(9,796)
758
(4,040)
-
(18,224)
(493)
(23,879)
2014
$’000
48,569
(45,636)
(1,326)
143
(325)
1,425
-
-
(2,013)
43
(2,711)
-
-
-
(181,411)
(6,326)
(62,000)
-
(186,092)
-
(1,291)
(14,468)
(14,000)
154,111
(76,779)
15
-
47,588
25,771
28,107
53,878
350,919
(18,803)
-
14,000
25,645
(11,210)
-
(147,777)
212,774
28,107
-
28,107
The accompanying notes form part of these financial statements.
33
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015
NOTE 1: REPORTING ENTITY
Japara Healthcare Limited (“the Company”) is a company domiciled in Australia. The Company was incorporated on
19 March 2014. The consolidated financial statements comprise the Company and its subsidiaries (collectively “the
Group” and individually “Group companies”). The comparative information and results for the Group are presented from
19 March 2014 to 30 June 2014.
The Company’s registered office is at Q1 Building, Level 4, 1 Southbank Boulevard, SOUTHBANK, VIC, 3006, AUSTRALIA.
The Group is a for-profit entity and is primarily involved in the provision of residential aged care services throughout
Australia (see note 5).
NOTE 2: BASIS OF ACCOUNTING
The consolidated financial statements are general purpose financial statements which have been prepared in accordance
with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards
(IFRS) adopted by the International Accounting Standards Board (IASB).
The financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet
its obligations associated with all financial liabilities.
Comparative figures in the Statement of Profit or Loss and Other Comprehensive Income have been reclassified as
considered appropriate based upon the nature of the revenue and expenses.
The Group’s current liabilities exceed current assets by $315,722,000 as at 30 June 2015. This mainly arises because of
the requirement to classify resident obligations relating to accommodation bonds, refundable accommodation deposits
(“RADs”) and independent living unit (“ILU”) resident loans of $325,251,000 as current liabilities (refer note 20 for further
details), whereas, the investment properties, property, plant and equipment, and intangible assets to which they relate are
required to be classified as non current assets.
Note 24(b)(ii) explains that liquidity risk is controlled through monitoring forecast cash flows and ensuring adequate access
to financial instruments that are readily convertible to cash. This is also achieved by maintaining a liquidity management
strategy to ensure that the Group has sufficient liquidity to enable it to refund accommodation bonds and RADs that are
expected to fall due within the next twelve months.
The financial statements were authorised for issue by the Board of Directors on 24 August 2015. Details of the Group’s
accounting policies are included in note 37.
NOTE 3: FUNCTIONAL AND PRESENTATION CURRENCY
These consolidated financial statements are presented in Australian dollars, which is the Group’s functional currency.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class
Order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise
stated.
NOTE 4: USE OF JUDGEMENTS AND ESTIMATES
In preparing these consolidated financial statements, management has made judgements, estimates and assumptions
that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
prospectively.
Information about critical judgements, assumptions and estimation uncertainties that have a significant risk of resulting in
a material adjustment within the year ended 30 June 2015 are included in the following notes:
Note 11 – recognition of deferred tax assets: availability of future taxable profit;
Note 15 – impairment test: key assumptions underlying recoverable amounts; and
Note 27 – acquisition of subsidiaries: fair value measured on a provisional basis.
Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial
and non financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. The Chief Financial
Officer has overall responsibility for overseeing all significant fair value measurements, including Level 3 measurements.
34
NOTE 4: USE OF JUDGEMENTS AND ESTIMATES (continued)
The finance team regularly reviews significant unobservable inputs and valuation adjustments. If third party information,
such as broker quotes or pricing services, is used to measure fair values, then the finance team assesses the evidence
obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including
the level in the fair value hierarchy in which such valuations should be classified.
Significant valuation issues are reported to the Audit, Risk & Compliance Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair
values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques
as follows.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which
the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
• Note 9 – share based payment arrangements;
• Note 16 – investment property;
• Note 24 – financial instruments; and
• Note 27 – Acquisition of Whelan Care Business.
NOTE 5: SEGMENT REPORTING
The consolidated group operates predominantly in one business and geographical segment being the provision of
residential aged care services throughout Australia. Segment information reported to key management personnel is
substantially similar to information provided in this financial report.
NOTE 6: REVENUE AND OTHER INCOME
Revenue
Government care funding
Resident fees
Total revenue
Other income
Increase in fair value of investment property
Discount on acquisition
Other income
Total other income
Finance income
Interest income
Decrease in fair value of Independent Living Unit liability
Total finance income
Total income
Note
16
27(c)
2015
$’000
200,392
77,870
278,262
772
727
1,488
2,987
1,197
95
1,292
2014
$’000
35,315
13,063
48,378
452
-
84
536
199
4
203
282,541
49,117
35
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 7: EXPENSES
Other expenses
Acquisition costs
Loss on disposal of non current assets
Equity raising costs
Transfer duty arising on the restructure of the Group
Total other expenses
Finance costs
Loan establishment fees
Loan interest expense
RAD/accommodation bond settlement interest expense
Increase in fair value of Independent Living Unit liability
Total finance costs
Note
2015
$’000
104
254
-
-
358
542
1,039
1,079
165
2,825
2014
$’000
-
25
5,843
3,996
9,864
131
36
158
-
325
NOTE 8: EARNINGS PER SHARE
The calculation of basic earnings per share (EPS) has been based on the following profit/(loss) attributable to ordinary
shareholders and weighted average number of ordinary shares outstanding.
(a) Profit/(loss) attributable to ordinary shareholders
Profit/(loss) for the period attributable to ordinary shareholders
(b) Weighted average number of ordinary shares outstanding during the
period used in calculating basic EPS
Weighted average number of ordinary shares outstanding during the period
used in calculating basic EPS
Weighted average number of dilutive options outstanding
Weighted average number of ordinary shares outstanding during the
period used in calculating dilutive EPS
2015
$’000
28,839
2014
$’000
(2,938)
2015
No.
2014
No.
262,962,730
262,500,001
682,000
1,457,000
263,644,730
263,957,001
NOTE 9: SHARE BASED PAYMENT ARRANGEMENTS
(a) Description of equity settled share option arrangements
During the year ended 30 June 2015, the Group had the following share based payment arrangements.
(i) Offer bonus
On 17 April 2014, following the successful listing on the Australian Securities Exchange a number of employees received
a one off offer bonus in recognition of their contribution to the Initial Public Offering. The offer bonus was funded by the
previous shareholders of Japara Holdings Pty Ltd and was delivered partly in a cash component and partly as rights
that vest as ordinary shares in the Company on 17 April 2016, after two years continued employment with the Group
subsequent to ASX listing.
36
NOTE 9: SHARE BASED PAYMENT ARRANGEMENTS (continued)
(ii) Loan Plan
The Company’s Loan Plan is an LTI plan under which the Chief Executive Officer and any other employee as determined
by the Board are entitled to acquire Loan Shares in the Company. Loan Shares have the same rights as ordinary shares.
Participants will be provided with a limited recourse loan from the Company for the sole purpose of subscribing for Loan
Shares in the Company. The loan is recognised as a financial asset in the financial statements of the Group when the Loan
Shares vest. Eligibility to participate in the Loan Plan and the number of Loan Shares (and the associated loan amount) to
be acquired by each participant will be determined by the Board.
On 17 April 2014, the CEO was granted 547,000 Loan Shares under the Loan Plan. During the year ended 30 June 2015
the Loan Shares were forfeited as a gateway performance hurdle was not met. No Loan Shares were granted under the
Company’s Loan Plan in the year ended 30 June 2015.
(iii) Rights Plan
The Company’s Rights Plan is an LTI plan under which eligible employees that are invited by the Board to participate in
the Rights Plan are provided with performance rights. On 17 April 2014, performance rights were granted to the former
Chief Financial Officer (resigned 22 June 2015), Group Executive of Operations and the Group Executive of Aged Care.
During the year ended 30 June 2015 the rights were forfeited as a gateway performance hurdle was not met. No rights
were granted under the Company’s Rights Plan in the year ended 30 June 2015.
(b) Reconciliation of outstanding rights
Offer bonus
Loan Plan
Rights Plan
Total
Number
of rights
2015
Number
of rights
2014
Number
of rights
2015
Number
of rights
2014
Number
of rights
2015
Number
of rights
2014
Number
of rights
2015
Number
of rights
2014
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Outstanding at the
beginning of the reporting
period
Granted during the period
Forfeited during the period
Exercised during the period
Total
712
-
(30)
-
682
-
745
(33)
-
712
547
-
(547)
-
-
-
547
-
-
547
198
-
(198)
-
-
-
198
-
-
198
1,457
-
-
1,490
(775)
-
682
(33)
-
1,457
No rights outstanding were exercisable at the reporting date (2014: Nil). The weighted average exercise price for rights
outstanding at 30 June 2015 was $Nil (2014: $0.73). Of the 682,000 rights outstanding at 30 June 2015, 150,000 were
granted to key management personnel.
(c) Measurement of fair value
(i) Offer bonus
As the exercise price is $Nil upon vesting, the fair value of the rights issued under the offer bonus scheme is deemed to
be equal to the spot price at the grant date ($2.00 per share) less the fall in value due to the dividend yield estimated to be
5.4%. The fair value of the rights issued under the offer bonus scheme on 17 April 2014 was $1,390,000.
(ii) Loan Plan
As discussed in note 9(a)(ii) the Loan Shares granted under the Loan Plan in the period ended 30 June 2014 were forfeited
during the year ended 30 June 2015 and no further Loan Shares have been granted.
The fair value of the Loan Shares granted under the loan plan in the period ended 30 June 2014 was measured utilising
the assumptions underlying the Black Scholes valuation methodology to produce a Monte Carlo simulation model which
allows for the incorporation of the dividend approach to paying down the loan. Service and non market performance
conditions attached to the transactions were not taken into account in measuring fair value.The fair value of the rights
issued under the Loan Plan Scheme on 17 April 2014 was $481,000.
37
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 9: SHARE-BASED PAYMENT ARRANGEMENTS (continued)
(iii) Rights Plan
As discussed in note 9(a)(ii) the performance rights granted under the Rights Plan in the period ended 30 June 2014 were
forfeited during the year ended 30 June 2015 and no further performance rights have been granted.
As the exercise price is $Nil upon vesting, the fair value of the performance rights issued under the offer bonus scheme
was deemed to be equal to the spot price at the grant date ($2.00 per share on 17 April 2014) less the fall in value due
to the dividend yield estimated to be 5.4%. The fair value of the rights issued under the Rights Plan on 17 April 2014 was
$331,000.
(d) Expense recognised in profit or loss
The expense recognised in profit or loss as an employee benefit for each of the share arrangements was as follows:
Loan Plan
Rights Plan
Total
2015
$’000
(25)
(18)
(43)
2014
$’000
25
18
43
During the year ended 30 June 2015 the Loan Shares granted under the Loan Plan and the performance rights granted
under the Rights Plan were forfeited due to the failure to meet a gateway performance hurdle. In accordance with
AASB 2 Share-based payment, the expense recognised in the Statement of Profit or Loss and Other Comprehensive
Income is reversed through profit or loss when equity settled share based payments are forfeited.
NOTE 10: EMPLOYEE BENEFITS EXPENSE
Wages and leave expenses
Superannuation contributions
Payroll tax expense
Agency staff costs
Workcover expense
Share based payment
Other staff costs
Note
9(d)
2015
$’000
154,447
14,285
8,293
3,653
5,161
(43)
946
2014
$’000
26,965
2,417
1,441
876
937
43
255
Total employee benefit expense
186,742
32,934
NOTE 11: INCOME TAX EXPENSE
(a) The major components of tax expense/(benefit) comprise:
Current tax expense
Deferred tax expense/(benefit)
Under/(over) provision in respect of prior period
Income tax expense/(benefit) for continuing operations
6,670
4,049
(219)
10,500
816
(928)
-
(112)
38
NOTE 11: INCOME TAX EXPENSE (continued)
(b) The prima facie taxable profit/(loss) from ordinary activities before income tax is reconciled to the income tax
expense/(benefit) in the financial statements as follows:
Profit/(loss) before income tax
Prima facie tax on profit/(loss) at the statutory tax rate of 30% (2014: 30%)
Add:
Tax effect of:
non-deductible tax expenses
Less:
Tax effect of:
over provision for income tax in prior year
gain on acquisition of a business – non-taxable
other non taxable income
Income tax expense/(benefit)
Weighted average effective tax rate
(c) Income tax rate
2015
$’000
39,339
11,802
2014
$’000
(3,050)
(915)
496
803
(219)
(1,369)
(210)
10,500
27%
-
-
-
(112)
4%
The tax rate used in the above reconciliations is the corporate tax rate of 30% payable by Australian corporate entities on
taxable profits under the Australian tax law.
(d) Tax consolidation
Relevance of tax consolidation to the consolidated group
Japara Healthcare Limited and its controlled entities formed a tax consolidated group which commenced on 16 April 2014.
Relevance of tax consolidation to the parent entity
Japara Healthcare Limited commenced operations in April 2014. It is the head entity of the tax consolidated group.
Nature of tax funding arrangements and tax sharing agreements
The tax consolidated group has entered into income tax sharing and funding agreements effective from 16 April 2014
whereby each company in the group contributes to the income tax payable in proportion to their contribution to profit
before tax of the consolidated group. The income tax liability/receivable of the subsidiary is recorded in the books of
account of Japara Healthcare Limited as an intercompany payable or receivable with the subsidiary.
(e) Reconciliations
(i) Gross movements of deferred tax account
The overall movement in the deferred tax account is as follows:
Opening balance
Acquisitions through business combinations
Credited/(debited) to the income statement
Credited directly to equity
Closing balance
Note
26,27(b)
2015
$’000
15,684
665
(4,049)
-
12,300
2014
$’000
-
11,222
928
3,534
15,684
39
Japara Healthcare | Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 11: INCOME TAX EXPENSE (continued)
(ii) Gross movements of current tax account
The overall movement in the current tax account is as follows:
Opening balance
Acquisitions through business combinations
Income tax payable
Income tax amounts paid during the period
Income tax amounts received during the period
Over provision for income tax in prior period
Closing balance
(f) Deferred Tax Assets – Consolidated
2015
$’000
2014
$’000
2,702
-
(6,670)
2,797
(3,480)
219
(4,432)
-
2,192
(816)
1,326
-
-
2,702
Opening
Balance
$’000
Charged to
Income
$’000
Charged
directly to
Equity
$’000
Acquisitions
through
business
combinations
$’000
Closing
Balance
$’000
-
-
-
-
-
-
-
9,468
171
162
745
452
5,854
16,852
127
35
(40)
119
(1)
984
1,224
(476)
52
(30)
(130)
-
(1,121)
(1,705)
-
-
-
-
-
3,534
3,534
-
-
-
-
-
-
-
9,341
9,468
136
202
626
453
1,336
12,094
171
162
745
452
5,854
16,852
665
9,657
-
-
-
-
-
665
223
132
615
452
4,733
15,812
Deferred tax assets
Provisions
Deferred borrowing costs
Deferred legal costs
Sundry creditors and accruals
ILU resident loans
Deferred equity raising costs
Balance at 30 June 2014
Provisions
Deferred borrowing costs
Deferred legal costs
Sundry creditors and accruals
ILU resident loans
Deferred equity raising costs
Balance at 30 June 2015
40
NOTE 11: INCOME TAX EXPENSE (continued)
(g) Deferred Tax Liability – Consolidated
Opening
Balance
$’000
Charged to
Income
$’000
Charged
directly to
Equity
$’000
Acquisitions
through
business
combinations
$’000
Closing
Balance
$’000
Deferred tax liability
Property, plant and equipment
Capital works in progress (interest
expense)
Deferred management fee
receivable
Balance at 30 June 2014
Property, plant and equipment
Capital works in progress (interest
expense)
Deferred management fee
receivable
-
-
-
-
439
140
589
360
(75)
11
296
1,952
-
392
Balance at 30 June 2015
1,168
2,344
NOTE 12: TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables
Provision for impairment
Deferred management fees receivable
Other receivables
Total current trade and other receivables
NON CURRENT
Deferred management fees receivable
Total non current trade and other receivables
-
-
-
-
-
-
-
-
Note
24(b)(i)
24(b)(i)
79
215
578
872
-
-
-
-
2015
$’000
9,204
(418)
8,786
609
773
10,168
2,607
2,607
439
140
589
1,168
2,391
140
981
3,512
2014
$’000
6,380
(243)
6,137
753
183
7,073
1,210
1,210
41
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 13: CASH AND CASH EQUIVALENTS
Cash at bank and on hand
Short term deposits
Reconciliation of cash
Cash reported in the Statement of Cash Flows are reconciled to the
equivalent items in the Statement of Financial Position as follows:
Note
2015
$’000
53,570
308
53,878
2014
$’000
27,799
308
28,107
Cash
53,878
28,107
Included within cash at bank and on hand is an amount that is reserved for the refund of RAD/accommodation bond
liabilities in accordance with the Aged Care Act 1997. For more information on RAD/accommodation bond liabilities see
note 20(a).
The Group has also entered into a number of security deposit guarantees with its bankers for security for the performance
of the Group. As at the reporting date, $1,143,000 (2014: $748,000) of the cash balance was secured by its bankers.
NOTE 14: PROPERTY, PLANT AND EQUIPMENT
(a) Movements in carrying amounts of property, plant and equipment
Movement in the carrying amounts for each class of property, plant and equipment are shown below:
Land and
buildings
$’000’s
Note
Property
improve-
ments
$’000’s
Plant and
Equipment
$’000’s
Motor
Vehicles
$’000’s
Capital
Works in
Progress
$’000’s
Total
$’000’s
Year ended 30 June 2015
Balance at the beginning of year
316,527
6,130
15,253
323
2,566
340,799
Additions
Additions through business
combinations
27(b)
Disposals – written down value
Transfers
Transfers to held for sale
Depreciation expense
Balance at the end of the year
Period ended 30 June 2014
Additions
Additions through business
combinations
Disposals – written down value
Transfers
Depreciation expense
Balance at the end of the period
9,056
21,600
(550)
8,144
(600)
-
-
(2)
-
-
4,004
1,302
(254)
-
-
-
-
-
-
-
(5,915)
348,262
(355)
5,773
(3,317)
16,988
(131)
192
18,160
-
-
(8,144)
-
-
31,220
22,902
(806)
-
(600)
(9,718)
12,582
383,797
357
8
283,086
6,190
-
33,987
(903)
316,527
-
-
(68)
6,130
1,642
14,254
(67)
-
(576)
15,253
6
352
-
-
(35)
323
2,711
4,724
35,410
339,292
-
(35,555)
-
(67)
(1,568)
(1,582)
2,566
340,799
(b) Property, plant and equipment under construction
During the reporting period the Group completed construction of an extension of the Kelaston aged care facility. Costs
totalling $7,726,000 were transferred from capital works in progress to land and buildings upon completion of construction.
42
NOTE 15: INTANGIBLE ASSETS
(a) Movements in carrying amounts of intangible assets
Year ended 30 June 2015
Balance at the beginning of the year
Additions at cost
Additions through business combinations
27(b)
Note
Closing value at 30 June 2015
Period ended 30 June 2014
Goodwill
$’000
260,746
-
-
260,746
Resident
places
$’000
124,040
493
29,909
154,442
Total
$’000
384,786
493
29,909
415,188
Additions through business combinations
26
Closing value at 30 June 2014
(b) Impairment testing
260,746
260,746
124,040
124,040
384,786
384,786
For the purpose of impairment testing of intangible assets with an indefinite useful life the Group has identified one Cash
Generating Unit (CGU); this is consistent with the operating segment identified in note 5.
The recoverable amount of the CGU was based upon its value in use, determined by discounting the future cash flows
to be generated from the continuing use of the CGU. The recoverable amount was determined to be higher than the
carrying amount and therefore no impairment loss was recognised.
The post tax discount rate of 10.18% (2014: 10.1%) was determined based on the cash rate target adjusted for a risk
premium to reflect both the increased risk of investing in equities generally and the systemic risk of the CGU.
Five years of cash flows were included in the discounted cash flow model. A long term growth rate into perpetuity has
been determined at 3% (2014: 4%), consistent with an assumption a market participant would make.
Budgeted EBITDA was based upon expectation of future outcomes taking into account past experience, adjusted for
anticipated revenue growth and occupancy rates.
The estimated recoverable amount of the CGU exceeded its carrying amount. Management has identified that a
reasonable possible change in two key assumptions could cause the carrying amount to exceed the recoverable
amount. The following table shows the amount by which these two assumptions would need to change individually for
the estimated recoverable amount to be equal to the carrying amount.
Discount rate
Long term growth rate
2015
%
1.06
(1.42)
2014
%
1.26
(1.56)
43
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 16: INVESTMENT PROPERTY
(a) Reconciliation of carrying amount
Balance at beginning of period
Additions resulting from capitalised expenditure
Additions through business combinations
Transfer in from capital work in progress
Fair value adjustments
Balance at end of period
Note
6
2015
$’000
23,312
5
7,460
-
772
31,549
2014
$’000
-
-
21,292
1,568
452
23,312
Investment property comprises Independent Living Units (ILUs) located across five retirement villages. Four retirement
villages are subject to loan licence agreements which confer the right to occupancy of the unit, until such time as the
resident’s occupancy terminates and the occupancy rights are transferred to another resident. Upon entry a resident will
loan the Group an amount equal to the fair value of the unit. On termination the resident is entitled to repayment of the loan
inclusive of any uplift in fair value since the agreement date less the deferred management fee. The remaining retirement
village is subject to 49 year lease agreements with no loan agreement – it is carried at fair value with reference to external
valuations.
(b) Fair value hierarchy
The fair value of investment property of $31,549,000 (2014: $23,312,000) has been categorised as a Level 3 based on the
inputs to the valuation technique used (see note 4).
Due to the frequency of residents entering and departing from a unit the fair value of each unit within a retirement village
under a loan licence agreement is based upon the most recent loan received for a similar unit.
NOTE 17: ISSUED CAPITAL
(a) Ordinary shares
At the beginning of the reporting period
Issued during the period
At the end of the reporting period
Ordinary shares
2015
$’000
262,500
547
263,047
2014
$’000
-
262,500
262,500
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per share at
general meetings of the Company.
The Company does not have authorised capital or par value in respect of its shares.
Issue of ordinary shares
In August 2014, 547,000 shares were issued to the CEO under the terms of the Loan Plan (see note 9). In accordance
with the Loan Plan the CEO is granted a loan (see note 31) in exchange for the shares. The shares vest at the end of the
performance period as set out in the Loan Plan. During the performance period any dividends earned on the shares are
offset against the loan balance.
During the year the performance gateway hurdles were not met and the shares granted under the Loan Plan were forfeited
by the CEO.
44
NOTE 17: ISSUED CAPITAL (continued)
(b) Dividends
The following dividends were declared and paid:
Interim unfranked ordinary dividend of 5.5 cents (2014: Nil)
per share to be paid on 30 April 2015
Proposed final 2015 fully franked ordinary dividend of 5.5 cents (2014: Nil)
per share to be paid 30 October 2015
2015
$’000
2014
$’000
14,468
14,468
-
-
The proposed final dividend for 2015 was declared after the end of the reporting period and therefore has not been
provided for in the financial statements. There are no income tax consequences arising from this dividend at 30 June 2015.
2015
$’000
2014
$’000
Franking account
The franking credits available for subsequent financial years at a tax rate of 30%
427
1,111
The ability to use the franking credits is dependent upon the ability to declare dividends. In accordance with the tax
consolidation legislation, the Company as the head entity in the tax consolidated group has also assumed the benefit of
$427,000 franking credits. The Group intends to pay income tax instalments to the Australian Taxation Office (ATO) in the
months subsequent to the reporting date to enable the proposed dividend to be franked to the extent proposed above.
NOTE 18: CAPITAL MANAGEMENT
The Group’s principal sources of funds are cash flows from operations and RADs. The Group may finance its ongoing
operations with operating cash flows or bank borrowings or a combination.
Over time, the Group may seek debt funding from a range of sources to diversify its funding base to reduce reliance on the
bank finance market and to manage its exposure to interest rate risk on long term borrowings. Quantitative and qualitative
disclosures about market risk sensitive instruments are included in note 24.
The Group’s working capital requirements are generally consistent throughout the course of the year and there are no
significant variations.
The Group maintains a disciplined approach to capital expenditure, with all key capital projects subject to strict approval
protocols. Capital expenditure comprises expenditure on asset enhancement and replacement programs and general
maintenance projects (maintenance expenditure funded from operational cash flows) as well as growth capital expenditure
comprising brownfields and greenfields development projects and acquisition of aged care facilities (funded via equity,
borrowings, RAD inflows, operating cash flows or any combination of these, as appropriate).
The Group may borrow money from time to time in order to finance activities.
45
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 19: LOANS AND BORROWINGS
CURRENT
Unsecured liabilities:
Bank loan
Vendor loan
Total current borrowings
(a) Syndicated facility agreement
Note
19(b)
19(c)
2015
$’000
2014
$’000
-
-
-
14,000
1,817
15,817
On 5 August 2014, the Group signed a three year Syndicated Debt Facility Agreement (SFA) with NAB, CBA and ANZ for
a total facility of $95,000,000. Under the SFA the Company can draw funds as and when required in order to assist with
construction funding of brownfield and greenfield developments as well as funding for acquisitions where required.
On 31 October 2014, $25,000,000 was drawn down to fund part of the purchase of the Whelan Care Portfolio (see
note 27). On 27 November 2014, $15,000,000 was repaid and on 28 January 2015 the remaining $10,000,000 was repaid.
The facility remains undrawn at 30 June 2015.
(b) Revolving cash advance facility
On 12 June 2014 the Group entered into a Revolving Cash Advance Facility. The facility limit was $17,000,000 of which
$14,000,000 was drawn down upon at 30 June 2014. The debt was repaid in full on 9 January 2015 and the agreement
was terminated.
(c) Vendor loan
Upon acquisition of the Japara Group (see note 26) the Group assumed a liability due to the vendor of the Scottvale aged
care facility. The Japara Group purchased the Scottvale aged care facility in August 2013 and the vendor loan was repaid
in full on 5 September 2014.
NOTE 20: OTHER FINANCIAL LIABILITIES
CURRENT
RADs/Accommodation bonds
ILU resident loans
Total
(a) RADs/Accommodation bonds
2015
$’000
302,948
22,303
325,251
2014
$’000
205,327
15,577
220,904
Refundable Accommodation Deposits (RADs)/Accommodation bonds are non interest bearing deposits made by some
aged care facility residents to the Group upon their admission.
The Group has provided each resident that has entered into a RAD/accommodation bond agreement with the Group and/
or paid a RAD/accommodation bond to the Group with a written guarantee of future refund of the RAD/accommodation
bond balance in accordance with the RAD/accommodation bond agreement and in compliance with the prudential
requirements set out under the Aged Care Act 1997.
(b) ILU resident loans
ILU (independent living unit) resident loans are non interest bearing loans made by ILU residents to the Group upon
entering into a loan/licence agreement to occupy an independent living unit operated by the Group.
46
NOTE 21: TRADE AND OTHER PAYABLES
CURRENT
Unsecured liabilities
Trade payables
Sundry payables and accrued expenses
NOTE 22: OTHER LIABILITIES
CURRENT
Billing in advance of services provided
Other current liabilities
NOTE 23: PROVISIONS
CURRENT
Provision for annual leave
Provision for long service leave
NON CURRENT
Provision for long service leave
2015
$’000
2014
$’000
6,381
10,276
16,657
6,548
2,950
9,498
18,792
8,425
27,217
6,811
15,369
22,180
5,551
3,780
9,331
16,274
6,771
23,045
2,705
1,994
47
Japara Healthcare | Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 24: FINANCIAL INSTRUMENTS
(a) Accounting classifications
The following table shows the carrying amounts of financial assets and financial liabilities at the reporting date. The
carrying amounts of financial assets and liabilities are a reasonable approximation of fair value.
2015
Financial assets
Cash and cash equivalents
Receivables
Other financial assets
Total financial assets
Financial liabilities
Accruals
Trade and other payables
RADs/accommodation bonds & ILU loans (other financial liabilities)
Total financial liabilities
2014
Financial assets
Cash and cash equivalents
Receivables
Total financial assets
Bank loans
Accruals
Trade and other payables
Accommodation bonds & ILU loans (other financial liabilities)
Vendor loans
Total financial liabilities
(b) Financial risk management
Loans and
receivables
$’000
Other financial
liabilities
$’000
53,878
12,775
1,078
67,731
-
-
-
-
Total
$’000
53,878
12,775
1,078
67,731
-
-
-
-
(10,276)
(9,331)
(325,251)
(344,858)
(10,276)
(9,331)
(325,251)
(344,858)
Loans and
receivables
$’000
Other financial
liabilities
$’000
Total
$’000
28,107
8,283
36,390
(14,000)
(15,369)
(10,591)
-
-
-
(14,000)
(15,369)
(10,591)
(220,904)
(220,904)
(1,817)
(1,817)
(262,681)
(262,681)
28,107
8,283
36,390
-
-
-
-
-
-
Inherent within the Group’s activities are the risks that arise from holding financial instruments. These are managed
through a process of ongoing identification, measuring and monitoring. The Group’s financial instruments consist mainly
of deposits with banks, bank loans, accounts receivable and payable, and RADs/accommodation bonds, which all arise
directly from its operations. The main purpose of non derivative financial instruments is to raise finance for the Group’s
operations. The Group does not have any derivative financial instruments at balance date.
The directors of the Group are responsible for identifying and controlling risks that arise from these financial instruments.
As such the Group has identified that the key areas of risk are credit risk, liquidity risk and market risk (which can be
analysed further into interest rate risk, currency risk and price risk), with further information on each risk category disclosed
below. The directors of the consolidated group, amongst other responsibilities, are tasked to identify, monitor, control and
hence mitigate risk, within the framework of the Group’s operational mandate and compliance with legislation and industry
specific regulations. Information is reported to all relevant parties within the Group on a regular basis including key
management, the Board of Directors and the Audit, Risk and Compliance Committee. All risk management policies are
approved and reviewed by the Audit, Risk and Compliance Committee under the authority of the Board on a regular basis.
48
NOTE 24: FINANCIAL INSTRUMENTS (continued)
(i) Credit risk
Credit risk represents the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause
the Group to incur a financial loss.
With respect to credit risk arising from the financial assets of the Group, the Group’s exposure to credit risk arises from
default of the counterparty, with the current exposure equal to the fair value of these instruments as disclosed in the
Statement of Financial Position and notes to the financial statements. This does not represent the maximum risk exposure
that could arise in the future as a result of changes in values, but best represents the current maximum exposure at the
reporting date.
The Group has identified that it does not have any material credit risk exposure to any single nonrelated party receivable
or group of nonrelated party receivables under financial instruments entered into by the Group. The Group has identified
that its single largest customer is the Department of Social Services in respect of funding received. Such funding is
received on a monthly basis, in advance at the start of each month, and any funding receivable at balance date is accrued
based upon Department of Social Services calculations of balancing funding amounts. The Group has determined that
any credit risk associated with the Department of Social Services is insignificant. In respect of other customers, being
aged care facility residents, the Group monitors the level of receivables balances on a weekly basis and any associated
credit risk is mitigated by their independence of each other and individual immateriality to the Group. As a result of the 1
July 2014 Federal Government reforms relating to funding of the aged care industry, more residents are now contributing
greater amounts towards their aged care costs. This is primarily as a result of increases in the levels of means and assets
testing of residents. There have been delays in the Federal Governments assessments of the amounts that are payable
by individual residents due to the implementation of new Centrelink and Medicare IT systems used to calculate fees using
the new methodology. This has resulted in delays by some residents in paying their means tested care fees as they
are querying the Federal Government’s calculations of the amounts that they owe. The figures below do not take into
account the fact that approximately $1,000,000 of the aged debtors greater than 61+ days can be offset against RADs or
accommodation bonds paid by a resident prior to it being refunded to the relevant resident upon discharge. The Group’s
overall exposure to bad debts is therefore largely mitigated, however a provision for doubtful debts has been raised in the
financial statements which at reporting date is $418,000 (2014: $243,000).
At 30 June 2015, the ageing analysis of resident debtors is as follows:
Not yet due
$’000
Current
$’000
31 – 60 days
$’000
61+ days
$’000
Impaired
$’000
Year
2015
2014
(ii) Liquidity risk
5,318
4,865
761
444
262
274
2,863
797
(418)
(243)
Total
$’000
8,786
6,137
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities.
This risk is controlled through monitoring forecast cash flows and ensuring adequate access to financial instruments
that are readily convertible to cash. In addition, the Group maintains sufficient cash and cash equivalents to meet
normal operating requirements. Also, as part of the Group’s compliance with the User Rights Principles 1997, the Group
maintains a liquidity management strategy to ensure that the Group has sufficient liquidity to enable it to refund RAD and
accommodation bond balances that are expected as and when they fall due.
Financial liabilities of the Group comprise trade and other payables, dividends payable, RADs, accommodation bonds and
ILU resident loan liabilities. Trade and other payables have no contractual maturities and are typically settled within 30 days
or within the terms negotiated. RADs and accommodation bonds are potentially repayable within 14 days of a resident
leaving the aged care facility and therefore classified under “current liabilities” in the Statement of Financial Position.
However, on average, each resident occupies a place for approximately 29 months, resulting in approximately 41.4% of
RADs and accommodation bonds being replaced in any 12 month period. In addition, any RAD or accommodation bond
payable is typically replaced by an equivalent or higher RAD receivable from a new incoming resident. ILU resident loan
liabilities are subject to loan agreements and whilst repayable within the earlier of 14 days after a new ILU resident replaces
the departing ILU resident or six months after ILU resident departure, and therefore classified under “current liabilities” in
the Statement of Financial Position, are typically replaced by an equivalent or higher ILU resident loan receivable from a
new incoming ILU resident. It is also unlikely in practice that all ILU resident loan liabilities would be refundable within a
12 month period.
49
Japara Healthcare | Annual Report 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 24: FINANCIAL INSTRUMENTS (continued)
(iii) Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in
market variables such as interest rates, foreign exchange rates and prices. Financial instruments affected by market
risk include cash, loans and borrowings and RADs and accommodation bonds. Market risk is managed and monitored
using sensitivity analysis, and minimised through ensuring that all operational activities are undertaken in accordance with
established internal and external guidelines, financing and investment strategies of the Group.
Interest rate risk
The Group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of
changes in market interest rates and the effective weighted average interest rates on those financial assets and financial
liabilities, primarily relates to the Group’s bank debt. Interest rate risk arises from the possibility that changes in interest
rates will affect future cash flows or the fair values of financial instruments. The Group reviews its bank borrowings on a
monthly basis and monitors its position in respect of fixing interest rates or leaving them as floating rates in accordance
with its interest rate hedging strategy. As at 30 June 2015 the Group has no bank borrowings.
The Group’s exposure to interest rate risk at the reporting date is as follows:
Weighted
average
effective
interest rate
Floating
interest rate
Maturing
within 1 year
Non interest
bearing
%
$’000
$’000
$’000
2015
Financial assets
Total
$’000
53,878
12,775
1,078
67,731
-
12,775
1,078
13,853
(10,276)
(9,331)
(10,276)
(9,331)
(325,251)
(325,251)
(344,858)
(344,858)
-
8,283
8,283
-
(15,369)
(10,591)
28,107
8,283
36,390
(14,000)
(15,369)
(10,591)
(220,904)
(220,904)
(1,817)
(1,817)
-
-
-
-
-
-
-
-
-
-
-
(14,000)
-
-
-
-
(14,000)
(248,681)
(262,681)
Cash and cash equivalents
2.24
53,878
Receivables
Other financial assets
Total financial assets
Financial liabilities
Accruals
Trade and other payables
RADs/accommodation bonds & ILU loans
Total financial liabilities
2014
Financial assets
Cash and cash equivalents
Receivables
Total financial assets
Financial liabilities
Bank loans
Accruals
Trade and other payables
Accommodation bonds & ILU loans
Other financial liabilities
Total financial liabilities
-
-
-
-
-
2.66
-
4.29
-
-
-
-
-
-
53,878
-
-
-
-
28,107
-
28,107
-
-
-
-
-
-
50
NOTE 24: FINANCIAL INSTRUMENTS (continued)
Interest rate risk sensitivity analysis
The Group has performed a sensitivity analysis on its Statement of Profit or Loss and Other Comprehensive Income and
Statement of Financial position based upon a reasonably possible change in interest rates, with all other variables held
constant. The sensitivity of the Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial
Position is the effect of the assumed changes in interest rates on the interest income and interest expense for the reporting
period, based on the floating rate financial assets held at 30 June 2015. The sensitivity has been calculated using a
change in interest rates of 100 basis points increase and decrease.
At reporting date, the effect on profit/(loss) after tax and equity as a result of changes in the interest rate, with all other
variables remaining constant would be as follows:
Net results
Equity
Price risk
2015
2014
+1.00%
$’000
377
377
-1.00%
$’000
(377)
(377)
+1.00%
$’000
31
31
-1.00%
$’000
(31)
(31)
The Group has assessed that it is materially exposed to the risk that the Federal Government, through the Department
of Social Services, may alter the rate of funding provided to Approved Providers of residential aged care services. As
Government funding represents approximately 72% of the Group’s revenue, a fluctuation in the rate of Government
funding may have a direct impact on the revenue of the Group. Whilst the Group is not able to influence Government
policy directly, it and members of its senior management team, participates in aged care industry public awareness
discussions and in aged care industry dialogue with the Government about its proposals for changes to funding for the
aged care industry.
Price risk sensitivity analysis
The Group has performed a sensitivity analysis on its Statement of Profit or Loss and Other Comprehensive Income
and Statement of Financial Position based upon reasonably possible changes in levels of Government funding, with all
other variables held constant. The sensitivity of the Statement of Profit or Loss and Other Comprehensive Income and
Statement of Financial Position is the effect of the assumed changes in levels of Government funding on the revenue of
the Group, based on the amount of Government funding received for the year ended 30 June 2015. The sensitivity has
been calculated using a change in the level of Government funding of 1.00% increase and decrease.
At reporting date, the effect on profit/(loss) after tax and equity as a result of changes in the level of Government funding,
with all other variables remaining constant would be as follows:
Net results
Equity
2015
2014
+1.00%
$’000
1,403
1,403
-1.00%
$’000
(1,403)
(1,403)
+1.00%
$’000
246
246
-1.00%
$’000
(246)
(246)
51
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 25: LIST OF SUBSIDIARIES
Name of entity
Japara Holdings Pty Ltd
Japara Property Holdings Pty Ltd
Japara Aged Care Property Trust
Aged Care Services Australia Group Pty Ltd
Aged Care Services One (Central Park) Pty Ltd
Aged Care Services Two (Roccoco) Pty Ltd
Aged Care Services Three (Balmoral Grove) Pty Ltd
Aged Care Services Four (Park Group) Pty Ltd
Aged Care Services Five (Narracan Gardens) Pty Ltd
Aged Care Services Six (Mirridong) Pty Ltd
Aged Care Services Seven (Kelaston) Pty Ltd
Aged Care Services Eight (Elanora) Pty Ltd
Aged Care Services Nine (George Vowell) Pty Ltd
Aged Care Services 10 (Kingston Gardens) Pty Ltd
Aged Care Services 11 (View Hills) Pty Ltd
Aged Care Services 12 (Albury & District) Pty Ltd
Aged Care Services 13 (Lakes Entrance) Pty Ltd
Aged Care Services 14 (Lower Plenty Garden Views) Pty Ltd
Aged Care Services 15 (Rosanna Views) Pty Ltd
Aged Care Services 16 (Millward) Pty Ltd
Aged Care Services 17 (Bonbeach) Pty Ltd
Aged Care Services 18 (Hallam) Pty Ltd
Aged Care Services 19 (Goonawarra) Pty Ltd
Aged Care Services 20 (Bayview Gardens) Pty Ltd
Aged Care Services 21 (Barongarook Gardens) Pty Ltd
Aged Care Services 22 (Sandhurst) Pty Ltd
Aged Care Services 23 (Capel Sands) Pty Ltd
Aged Care Services 24 (St Judes) Pty Ltd
Aged Care Services 25 (Springvale) Pty Ltd
Aged Care Services 26 (Bayview) Pty Ltd
Aged Care Services 27 (Kirralee) Pty Ltd
Aged Care Services 28 (Elouera) Pty Ltd
Aged Care Services 29 (Mirboo North) Pty Ltd
Aged Care Services 30 (Brighton) Pty Ltd
Aged Care Services 31 (Vonlea Manor) Pty Ltd
Aged Care Services 32 (Scottvale) Pty Ltd
Aged Care Services 33 (Anglesea) Pty Ltd
Aged Care Services 34 (Yarra West) Pty Ltd
52
Ownership
Equity holding
2015
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
NOTE 25: LIST OF SUBSIDIARIES (continued)
Name of entity
Aged Care Services 35 (The Homestead) Pty Ltd
Aged Care Services 36 (Trevu) Pty Ltd
Aged Care Services 37 (Oaklands) Pty Ltd
Aged Care Services 38 (Mitcham) Pty Ltd
Aged Care Services 39 (Tugan) Pty Ltd
Aged Care Services 40 (Ballina) Pty Ltd
Aged Care Services 41 (Cairns) Pty Ltd
Aged Care Services 42 (Portland) Pty Ltd
Aged Care Services 43 (Mildura) Pty Ltd
Aged Care Services 44 (Lakes Entrance) Pty Ltd
Aged Care Services 45 (Woodend) Pty Ltd
Oakleigh Glen Pty Ltd
Bacaal Pty Ltd
Japara Developments Pty Ltd
Japara Property Management Pty Ltd
Japara Retirement Living Pty Ltd
Japara Retirement Living 1 (Woodburn lodge) Pty Ltd
Japara Retirement Living 2 (Balmoral Mews) Pty Ltd
Japara Retirement Living 3 (Lakes Entrance) Pty Ltd
Japara Retirement Living 4 (Cosgrove Cottages) Pty Ltd
Japara Retirement Living 5 (Sydney Williams) Pty Ltd
Japara Retirement Living 6 (Barongarook) Pty Ltd
Japara Retirement Living 7 (The Homestead) Pty Ltd
Japara Retirement Living 8 (The Heritage) Pty Ltd
JD No. 1 (Bundaberg) Pty Ltd
JD No. 2 (Balmoral Mews) Pty Ltd
JD No. 3 (Lakes Entrance) Pty Ltd
JD No. 4 (Queenscliff) Pty Ltd
JD No. 5 (Albury & District) Pty Ltd
JD No. 6 (Dava) Pty Ltd
JD No. 7 (Colac) Pty Ltd
JD No. 8 (Yarra West) Pty Ltd
JD No. 9 (North Albury) Pty Ltd
Ownership
Equity holding
2015
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
53
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 26: ACQUISITION OF JAPARA GROUP
On 22 April 2014, the Company acquired 100% of the shares and voting interests of the Japara Group. The acquisition met
the definition of a business combination in accordance with AASB 3: Business Combinations and was treated as such in
the consolidated annual financial report for the period ended 30 June 2014.
In accordance with AASB 3, during the measurement period (not to exceed one year from the acquisition date) the
acquirer shall retrospectively adjust the provisional amounts recognised at the acquisition date to reflect new information
obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the
measurement of the amounts recognised as of that date.
Adjustment 1
The Company has obtained new information about facts and circumstances that existed as of the acquisition date relating
to overtime wages payable. Had these facts been known at the acquisition date the payable would be $6,780,000 greater
than the amount disclosed in the consolidated annual financial report for the period ended 30 June 2014. This provision
gives rise to a deferred tax asset of $2,034,000 and therefore has a net effect of increasing Goodwill at acquisition by an
amount of $4,746,000.
Adjustment 2
The Company has obtained new information about facts and circumstances that existed as of the acquisition date relating
to leave loading payable. Had these facts been known at the acquisition date the payable would be $518,000 greater than
the amount disclosed in the consolidated annual financial report for the period ended 30 June 2014. This provision gives
rise to a deferred tax asset of $155,000 and therefore has a net effect of increasing Goodwill at acquisition by an amount
of $363,000.
Adjustment 3
Following a review of the opening taxation balances, the Company has determined that the deferred tax balances arising
due to timing differences on property, plant & equipment and resident places do not exist at the acquisition date as a result
of the resetting of the tax cost base, making them equal to the fair value taken up at acquisition. This has resulted in an
increase in the deferred tax asset of $4,864,000 and therefore a decrease in the Goodwill balance of the same amount.
The new information obtained has resulted in the following adjustments to the provisional amounts recognised at 22 April
2014:
Provisional
balance as
reported
$’000
(39,743)
(23,896)
4,169
260,501
Adjustment 1
$’000
Adjustment 2
$’000
Adjustment 3
$’000
(6,780)
-
2,034
4,746
-
(518)
155
363
-
-
4,864
(4,864)
Total
$’000
(46,523)
(24,414)
11,222
260,746
Trade and other payables
Provisions
Deferred tax assets
Goodwill
As a result of this new information, the Statement of Financial Position as at 30 June 2014 has been restated as follows:
Provisional
balance as
reported
$’000
(15,400)
(22,527)
8,631
384,541
Adjustment 1
$’000
Adjustment 2
$’000
Adjustment 3
$’000
(6,780)
-
2,034
4,746
-
(518)
155
363
-
-
4,864
(4,864)
Total
$’000
(22,180)
(23,045)
15,684
384,786
Trade and other payables
Provisions (current)
Deferred tax assets
Intangible assets
54
NOTE 27: ACQUISITION OF WHELAN CARE BUSINESS
On 31 October 2014, the Company acquired certain assets and shares from entities associated with the Whelan Care
Group (“Whelan Care Business”) which consisted of:
• 100% of the shares and voting rights of Oakleigh Glen Pty Ltd, a company that owns and operates two aged care
facilities in South Australia Mitcham (38 resident places) and Oaklands (88 resident places);
• The business and assets of another two aged care facilities in South Australia – Trevu at Willaston (45 resident places)
and The Homestead (63 resident places);
• The business and assets of 41 Independent Living Apartments (ILAs) at The Homestead; and
• The titles to all land and buildings on which each of the abovementioned businesses operate.
(a) Consideration transferred
The consideration transferred was $41,113,000 ($26,700,000 contract price plus settlement adjustments of $14,413,000).
$25,000,000 was drawn down from the debt facility to fund the acquisition and the remaining $16,113,000 was funded
from cash. The $25,000,000 debt raised has subsequently been repaid in full (see note 19).
(b) Identifiable assets and liabilities assumed
The following table summarises the recognised amounts of assets and liabilities assumed at the acquisition date:
Cash
Trade and other receivables
Property, plant and equipment
Investment property
Deferred tax assets
Intangible assets
Trade and other payables
Other financial liabilities – RADs/accommodation bonds/ILU loans
Provisions
Total
Measurement of fair values
31 October
2014
$’000
17,234
1,646
22,902
7,460
665
29,909
(1,400)
(30,533)
(2,215)
45,668
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Property, plant and equipment
Property, plant and equipment have been valued by an independent expert.
Land and buildings have been valued using a combination of the direct comparison and capitalisation approaches.
Plant and equipment has been valued at the depreciated replacement cost which reflects adjustments for physical
deterioration as well as functional and economic obsolescence.
Investment property
Investment property has been valued by an independent expert using a combination of the direct comparison and
capitalisation approaches.
Intangible assets
Intangible assets represent resident places valued using a going concern market value of the Whelan Care Business to
determine the value of the resident places. The valuation was based upon a discounted cash flow, with the value of the
resident places determined after the fair value of the tangible assets were deducted from the valuation. Five year forecast
cash flows generated by the Whelan Care Business, discount rates of 13.0% 14.5% and a long term growth rate into
perpetuity of 4.7% were used in the discounted cash flow model. Using this methodology, a going concern market value
of the business of $31,300,000 was ascertained.
Independent valuations of the Whelan Care Business were obtained from CBRE as at 30 June 2014. These valuations
were determined by a combination of the capitalisation approach and the direct comparison approach giving a going
concern market value (net of liabilities) of circa $33,400,000.
55
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 27: ACQUISITION OF WHELAN CARE BUSINESS (continued)
(c) Discount on acquisition
A discount on acquisition, net of acquisition-related costs, has been recognised in the Statement of Profit or Loss and
Other Comprehensive Income as part of ‘Other income’ as follows:
Fair value of identifiable assets
Consideration
Discount on acquisition
Less acquisition related costs
Total
Note
27(b)
27(a)
2015
$’000
45,668
(41,113)
4,555
(3,828)
727
Acquisition and integration related costs include legal fees, due diligence, stamp duty and the costs incurred by the
acquisition department associated with the acquisition of the Whelan Care Business.
(d) Acquisition of Whelan Care Business, net of cash
Consideration
Less cash acquired
Total cost of acquisition, net of cash
NOTE 28: OPERATING LEASES
(a) Operating lease commitments
Minimum lease payments under non cancellable operating leases:
– not later than one year
– between one year and five years
– later than five years
Note
27(a)
27(b)
2015
$’000
1,429
4,578
1,527
7,534
2015
$’000
41,113
(17,234)
23,879
2014
$’000
1,517
4,916
2,199
8,632
The above amounts relate primarily to property leases for the business premises of the Group which are non cancellable
leases with terms between 4 and 10 years, with rent payable monthly in advance.
NOTE 29: COMMITMENTS
As at the reporting date, the Group had entered into contracts relating to capital expenditure. Details of the contracts are
included in the table below:
Aged care
facility
Bayview
Nature of capital expenditure
30 place extension & significant
refurbishment
Contract
amount
7,311
Central Park Significant refurbishment
12,102
Amount
incurred
Future
commitment
Expected
completion
date
6,027
1,867
1,284
Nov-15
10,235
Nov-16
56
NOTE 30: CONTINGENCIES
Security Deposit Guarantees
The Group has entered into a number of security deposit guarantees with its bankers for security for the performance of
the Group (see note 13). At the date of signing this financial report, the directors are not aware of any situations that have
arisen that would require these security deposit guarantees to be presented to the bank.
NOTE 31: RELATED PARTIES
(a) Parent Entity
Japara Healthcare Limited is the ultimate parent entity.
(b) Subsidiaries
Interests in subsidiaries are detailed in note 25.
(c) Totals of remuneration paid
Key management personnel remuneration included within the Statement of Profit or Loss and Other Comprehensive
Income for the period is shown below:
Short term employee benefits
Post employment benefits
Other short term benefits
Other long term benefits
Share based payments
2015
$’000
2,337
177
165
30
(43)
2,666
2014
$’000
496
46
35
7
43
627
Executive officers also participate in the Group’s Long Term Incentive Scheme’s (see note 9).
(d) Key management personnel transactions
In August 2014, 547,000 shares were issued to the Chief Executive Officer (“CEO”) under the terms of the Loan Plan (see
note 9). In accordance with the Loan Plan the CEO was granted a loan in exchange for the shares. The shares vest at
the end of the performance period as set out in the Loan Plan. During the performance period any dividends earned on
the shares are offset against the loan balance. The total loan outstanding at 30 June 2015 is $1,078,000; this amount is
classified as an “Other financial asset” in the Statement of Financial Position.
During the year the performance gateway hurdles were not met and the shares granted under the Loan Plan were forfeited
by the CEO.
NOTE 32: SUBSEQUENT EVENTS
On 2 July 2015, the Group completed the purchase of the land and buildings of the Trevu at Gawler aged care facility
located in South Australia for a total consideration of $12,735,000. The facility has capacity to accommodate 69 residents.
The purchase included the transfer of 24 resident places to the Group from the vendor as approved by the Department
of Social Services. The remaining 45 resident places have been transferred from the Trevu at Willaston aged care facility
acquired with the Whelan Care Business on 31 October 2014 (see note 27). All residents have been relocated from Trevu
at Willaston to the newly built Trevu at Gawler. The Trevu at Willaston facility has now been closed.
The Group funded the purchase of the newly built Trevu at Gawler aged care facility and resident places with cash.
Other than mentioned above, no matters or circumstances have arisen since the end of the reporting period which
significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of
the affairs of the Group in future financial years.
57
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 33: CASH FLOW INFORMATION
Reconciliation of result for the period to cashflows from operating activities
Profit for the year
Cash flows excluded from profit attributable to operating activities:
Acquisition related costs
net refund of equity raising costs
Non cash flows in profit:
depreciation
gain on bargain purchase
straight lining of rental expense
Note
14(a)
27(c)
net loss on disposal of property, plant and equipment
accommodation bond retention revenue
deferred management fee income
Increase in fair value of investment property
6
ILU loan finance charge
equity settled share based payment transactions
Changes in assets and liabilities, net of the effects of purchase and disposal
of subsidiaries:
(increase)/decrease in trade and other receivables
(increase)/decrease in other assets
(increase)/decrease in deferred tax assets
increase/(decrease) in trade and other payables
increase/(decrease) in current tax liabilities
increase/(decrease) in provisions
Net cash provided from operating activities
NOTE 34: REMUNERATION OF AUDITORS
Audit and review services
Audit and review of financial statement
Other advisory services
Total
2015
$’000
28,839
3,871
(734)
9,718
(4,555)
20
88
(2,621)
(853)
(772)
69
(43)
(2,718)
961
4,733
(4,938)
6,451
2,667
40,183
335
280
615
2014
$’000
(2,938)
-
-
1,582
-
24
25
(554)
(130)
(452)
-
170
731
13,277
309
(11,662)
418
625
1,425
236
1,068
1,304
The majority of the fees relating to other advisory services were fees incurred relating to the acquisition of the Japara
Group in FY2014 and debt re financing fees in FY2015.
58
NOTE 35: DEED OF CROSS GUARANTEE
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly owned subsidiaries listed in note
25 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and
Directors’ reports as they are part of a Closed Group as defined by the Corporations Act 2001.
As a condition of the Class Order the Company and each of the subsidiaries entered into a Deed of Cross Guarantee on
12 June 2014 or have been added as parties to the Deed of Cross Guarantee by way of Assumption Deeds dated 23 June
2015. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of
winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under
other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid
in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.
The consolidated Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial Position for
the Closed Group is the same as the financial statements for Japara Healthcare Limited and its controlled entities.
NOTE 36: PARENT ENTITY
As at, and throughout, the reporting period ended 30 June 2015 the parent entity of the Group was Japara Healthcare
Limited.
Statement of Financial Position
Assets
Current assets
Non current assets
Total Assets
Liabilities
Current liabilities
Total Liabilities
Equity
Issued capital
Retained earnings
Total Equity
Statement of Profit or Loss and Other Comprehensive Income
Loss for the period
Other comprehensive income
Total comprehensive income
Guarantees
2015
$’000
2014
$’000
7,652
490,644
498,296
1,597
1,597
517,848
(21,149)
496,699
(2,212)
-
(2,212)
6,127
509,616
515,743
4,117
4,117
516,755
(5,129)
511,626
(5,299)
-
(5,299)
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in
respect of its subsidiaries.
Further details of the Deed of Cross Guarantee and the entities subject to the deed are disclosed in note 35.
59
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
(i) Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group (see
note 37(a)(iii)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net
assets acquired. Any goodwill that arises is tested annually for impairment (see note 37(k)). Any gain on a bargain purchase
is recognised in profit or loss immediately. Transaction costs are expensed as†incurred, except if related to the issue of
debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre existing relationships. Such
amounts are generally recognised in profit or loss.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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 over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which
control commences until the date on which control ceases.
(iii) Transactions eliminated on consolidation
Intra group balances and transactions, and any unrealised income and expenses arising from intra group transactions,
are eliminated. Unrealised gains arising from transactions with equity accounted investees are eliminated against the
investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured.
Revenue comprises daily Government care funding, resident care funding and accommodation funding, all of which
are determined in accordance with Government authorised rates. These fees are regulated by the Government and are
accrued by the Group during the resident’s period of occupancy. Revenue from the rendering of a service or supply of a
good is recognised upon the delivery of the service or good to the resident.
Interest revenue is accrued on a daily basis based on the principal amount and prevailing interest rate.
Cash received in advance and goods and services invoiced in advance in relation to unearned income are recognised as
deferred revenue.
All revenue is stated net of the amount of GST.
(c) Financing costs
Financing costs directly attributable to the acquisition, construction or production of assets that necessarily take a
substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time
as the assets are substantially ready for their intended use of sale.
All other financing costs are recognised in profit or loss in the period in which they are incurred.
(d) Leases
Leases of fixed assets, including assets acquired under hire purchase agreements, where substantially all the risks and
benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the Group, are classified
as finance leases.
Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of
the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease
payments are allocated between the reduction of the lease liability and the lease interest expense for the period.
Leased assets are depreciated on a straight line basis over the shorter of their estimated useful lives or the lease term.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as
expenses in the periods in which they are incurred.
Lease incentives under operating leases are amortised on a straight line basis over the life of the lease term.
60
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Financial instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions to
the instrument. For financial assets, this is equivalent to the date that the Group commits itself to either purchase or sell
the asset (e.g. trade date accounting is adopted).
Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified
“at fair value through profit or loss” in which case transaction costs are expensed to profit or loss immediately.
Classification and subsequent measurement
Financial instruments are subsequently measured either at fair value, amortised cost using the effective interest rate
method or at cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between
knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other
circumstances, valuation techniques are adopted.
Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition
less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference
between that initial amount and the maturity amount calculated using the effective interest method.
The effective interest method is used to allocate interest income or interest expense over the relevant period and is
equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs
and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual
term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected
future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or
expense in the Statement of Profit or Loss and Other Comprehensive Income.
The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the
requirements of accounting standards specifically applicable to financial instruments.
Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an
active market and are subsequently measured at amortised cost. Gains or losses are recognised in profit or loss through
the amortisation process and when the financial asset is derecognised.
Financial liabilities
Non derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Gains or
losses are recognised in profit or loss through the amortisation process and when the financial liability is derecognised.
Impairment of financial assets
At the end of the reporting period the Group assesses whether there is any objective evidence that a financial asset or
group of financial assets is impaired.
Financial assets at amortised cost
If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred,
the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the
estimated future cash flows discounted at the financial assets original effective interest rate.
Impairment on loans and receivables is reduced through the use of an allowance accounts, all other impairment losses on
financial assets at amortised cost are taken directly to the asset.
Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss.
Available for sale financial assets
A significant or prolonged decline in value of an available for sale asset below its cost is objective evidence of impairment,
in this case, the cumulative loss that has been recognised in other comprehensive income is reclassified from equity to
profit or loss as a reclassification adjustment. Any subsequent increase in the value of the asset is taken directly to other
comprehensive income.
(f) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly liquid
investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short
term borrowings in current liabilities in the Statement of Financial Position.
61
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) Trade and other receivables
Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary
course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified
as current assets. All other receivables are classified as non current assets.
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any provision for impairment.
(h) Property, Plant and Equipment
Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and
impairment of losses.
The carrying amount of property, plant and equipment is reviewed annually by Directors to ensure it is not in excess of
the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash
flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been
discounted to their present values in determining recoverable amounts.
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. All other repairs and maintenance are charged to the Statement of Profit or Loss and other
comprehensive income during the financial year in which they are incurred.
Capital works in progress
Capital expenditure incurred in the course of development activities, are carried at cost, less any recognised impairment
loss. Cost includes professional fees, internal wage expenses directly attributable to the development activities and, for
qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Upon completion the
asset is reclassified as property, plant and equipment or leasehold improvements.
Vacant land
Land held for development and sale is valued at the lower of cost and net realisable value. Cost includes the cost of
acquisition, development, borrowing costs and holding costs until completion of development. Borrowing costs and
holding charges incurred after development is completed, are expensed. Profits are brought to account on the signing of
an unconditional contract of sale.
Depreciation
The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land,
is depreciated on a straight line basis over their useful lives to the Group commencing from the time the asset is held ready
for use. Leased plant and equipment and leasehold improvements are depreciated over the shorter of either the unexpired
period of the lease or the estimated useful lives of the equipment and improvements.
The depreciation rates used for each class of depreciable asset are:
Fixed asset class
Depreciation rate
Freehold land
Buildings
0.0%
2.0%
Plant and equipment
4.0% to 25.0%
Leasehold improvements
Lower of lease term or useful life
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses
are included in the Statement of Profit or Loss and Other Comprehensive Income.
(i) Investment property
Investment property is held to generate long term rental yields and capital growth. Investment property is carried at fair
value, determined annually by independent valuers. Changes to fair value are recorded in the Statement of Profit or Loss
and Other Comprehensive Income as other income/expenses.
62
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Non current assets held for sale
Non current assets are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower
of their carrying amount and fair value less costs to sell.
Assets classified as held for sale are not amortised or depreciated.
Non current assets classified as held for sale and any associated liabilities are presented separately in the Statement of
Financial Position.
(k) Intangible Assets
Goodwill
Goodwill and goodwill on consolidation are initially recorded at the amount by which the fair value of the purchase price for
a business combination exceeds the fair value attributed to the interest in the net fair value of identifiable assets, liabilities
and contingent liabilities at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on
the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Resident places
Resident places are issued by the Government to Approved Providers, and can also be purchased from third parties.
Resident places are stated at cost or fair value at acquisition less any accumulated impairment losses. The resident places
are not amortised as the directors believe that they have a long indeterminate life and are not expected to diminish in value
over time. Accordingly, no significant depreciable amount exists that requires amortisation.
The carrying amounts of the resident places are reviewed at the end of each reporting period to ensure that they are not
valued in excess of their recoverable amounts.
(l) Impairment of non financial assets
At each reporting date, the Group reviews the carrying amounts of its non financial assets to determine whether there is
any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Impairment
testing is performed annually for goodwill and other intangible assets with indefinite useful lives including resident places.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business
combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use
is based on the estimated future cash flows, discounted to their present value using a pre tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
(m) Impairment of financial assets other than goodwill
At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset has
been impaired. A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the
estimated future cash flows of the financial asset(s).
In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of
debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications
that they will enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that
correlate with defaults.
For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used
to reduce the carrying amount of financial assets impaired by credit losses. After having taken all possible measures of
63
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
recovery, if management establishes that the carrying amount cannot be recovered by any means, at that point the written
off amounts are charged to the allowance account or the carrying amount of impaired financial assets is reduced directly
if no impairment amount was previously recognised in the allowance account.
When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the
Company recognises the impairment for such financial assets by taking into account the original terms as if the terms have
not been renegotiated so that the loss events that have occurred are duly considered.
(n) Derecognition of financial assets
Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferred to
another party whereby the Group no longer has any significant continuing involvement in the risks and benefits associated
with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or
expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and
the fair value of consideration paid, including the transfer of non cash assets or liabilities assumed, is recognised in profit
or loss.
(o) Income Tax
The charge for current income tax expense/(credit) is based on the profit or loss for the year adjusted for any non assessable
or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by the reporting
date.
Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have
been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial
recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable
profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is
settled based on tax rates that have been enacted or substantially enacted by the end of the reporting period. Deferred
tax expense/(income) is charged/(credited) in profit or loss except where it relates to items that may be credited directly to
equity, in which case the deferred tax is adjusted directly against equity.
Deferred tax assets are recognised to the extent that it is probable that future tax profits will be available against which
deductible temporary differences can be utilised.
The amount of benefits brought to account or which may be realised in the future is based on the assumption that
no adverse change will occur in income tax legislation and the anticipation that the Group will derive sufficient future
assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
The Group and its wholly owned Australian subsidiaries have formed an income tax consolidated group under the Tax
Consolidation Regime. Each entity in the Group recognises its own current and deferred tax liabilities, except for any
deferred tax assets resulting from unused tax losses and tax credits, which are immediately assumed by the parent
entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The Group notified
the Australian Tax Office that it had formed an income tax consolidated group to apply from 16 April 2014. The tax
consolidated group has entered tax sharing and tax funding agreements whereby each company in the Group contributes
to the income tax payable in proportion to their contribution to profit before income tax of the tax consolidated group.
(p) Trade and other payables
Trade and other payables represent the liabilities for goods and services received by the Group that remain unpaid at the
end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days
of recognition of the liability.
(q) Goods and Services Tax (GST)
Revenue, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is
not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost
of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial
Position are shown inclusive of GST.
Cash flows are presented in the Statement of Cash Flows on a gross basis, except for the GST component of investing
and financing activities, which are disclosed as operating cash flows.
64
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
(r) Refundable Accommodation Deposit (RAD)/Accommodation Bond liabilities
RADs/accommodation bonds are non interest bearing deposits made by aged care facility residents to the Group upon
admission. These deposits are liabilities which fall due and payable when the resident leaves the facility. As there is no
unconditional right to defer payment for 12 months, these liabilities are recorded as current liabilities.
RAD/accommodation bond liabilities are recorded at an amount equal to the proceeds received, net of retention and any
other amounts deducted from the RAD/accommodation bond in accordance with the Aged Care Act 1997.
(s) Independent Living Unit (ILU) Resident loan liabilities and deferred management fee receivables
ILU Resident loans are non interest bearing payments made by retirement village residents to the Group upon signing of
a licence agreement to occupy an ILU. These payments are liabilities which fall due and payable upon termination of the
licence less the deferred management fee calculated in accordance with the licence. As there is no unconditional right to
defer payment for 12 months, these liabilities are recorded as current liabilities.
ILU Resident loan liabilities are recorded at fair value.
Deferred management fees crystallise upon the termination of the loan licence agreement. As such, the deferred
management fee receivables are recorded at present value based upon an expected occupancy period of ten years until
termination of the loan licence agreement. Therefore deferred management fees contain both current and non current
elements.
(t) Provisions
Employee benefits
Provision is made for the Group’s liability for employee benefits arising from services rendered by employees to reporting
date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected
to be paid when the liability is settled, plus related on costs. Employee benefits payable later than one year have been
measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the
liability, consideration is given to employee wage increases and the probability that the employee may not satisfy any
vesting requirements. Those cash flows are discounted using corporate bond yields with terms to maturity that match the
expected timing of cash flows.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which
it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are
measured using the best estimate of the amounts required to settle the obligation at reporting date.
(u) Share based payments
The grant date fair value of equity settled share based payment awards granted to employees is generally recognised as
an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an
expense is adjusted to reflect the number of awards for which the related service and non market performance conditions
are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the
related service and non market performance conditions at the vesting date. For share based payment awards with non
vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there
is no true up for differences between expected and actual outcomes.
(v) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary
shares outstanding during the period after eliminating treasury shares.
Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effect of dilutive ordinary shares.
(w) Adoption of new and revised accounting standards
During the current year, the following standards became mandatory and have been adopted retrospectively by the Group:
65
Japara Healthcare | Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015 (continued)
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) AASB 2014 1 Amendments to Australian Accounting Standards – Part A: Annual Improvements 2010 2012
and 2011 2013 Cycles
Amendments to existing accounting standards, particularly in relation to: clarifying share based payment vesting and
non vesting conditions, operating segment asset disclosures, clarification of current/non current classification of debt,
clarification of KMP when an entity has a management entity/responsible entity (such as a trustee), the meaning of effective
IFRSs, exemptions for joint ventures from business combination requirements, clarification of the scope exception for
measuring the fair value of financial assets and liabilities on a portfolio basis, and clarifying the interrelationship between
business combinations and investment property when classifying property as investment property or owner occupied.
(ii) AASB 2014 1 Amendments to Australian Accounting Standards – Part C: Materiality
Further to AASB 2013 9 Part B (see below), amendments are made to particular Australian Accounting Standards to delete
their references to AASB 1031. This is part of the AASB’s program to delete references to AASB 1031 in all Australian
Accounting Standards prior to final withdrawal of AASB 1031.
(iii) AASB 2013 9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and
Financial Instruments (December 2013) – Part B – Materiality
Guidance on materiality removed from AASB 1031 and cross references inserted to other standards and the Framework
for the Preparation and Presentation of Financial Statements where guidance on materiality is located.
(iv) AASB 2013 3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non Financial Assets
Removes extra disclosure requirements with regard to the measurement of the recoverable amount of impaired assets.
Introduced by AASB 13. Recommend early adoption with AASB 13.
(x) New Accounting Standards and Interpretations
A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or
after 1 July 2015 (unless otherwise stated), and have not been applied in preparing these consolidated financial statements.
Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early.
(i) AASB 2014 1 Amendments to Australian Accounting Standards – Part E: Financial Instruments
Defers the mandatory application date of AASB 9 Financial Instruments to annual reporting periods beginning on or after
1 January 2018. This aligns with the IASB’s tentative decision that IFRS 9 will be mandatorily effective for years beginning
on or after 1 January 2018.
(ii) AASB 15 Revenue from contracts with customers
AASB 2014 5 Amendments to Australian Accounting Standards arising from AASB 15
AASB 15 (effective on or after 1 January 2017) introduces a five step process for revenue recognition with the core principle
of the new Standard being for entities to recognise revenue to depict the transfer of goods or services to customers in
amounts that reflect the consideration (that is, payment) to which the entity expects to be entitled in exchange for those
goods or services.
Accounting policy changes will arise in timing of revenue recognition, treatment of contracts costs and contracts which
contain a financing element.
AASB 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously
addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple
element arrangements.
The changes in revenue recognition requirements in AASB 15 may cause changes to the timing and amount of revenue
recorded in the financial statements as well as additional disclosures. The impact of AASB 15 has not yet been quantified.
(iii) AASB 9 Financial Instruments (December 2010) (includes financial assets and financial liability requirements)
AASB 2010 7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010)
AASB 9 Financial Instruments (December 2009) (Financial asset requirements only)
AASB 2009 11 Amendments to Australian Accounting Standards arising from AASB 9
66
NOTE 37: SIGNIFICANT ACCOUNTING POLICIES (continued)
In AASB 9 (December 2010), the AASB added requirements for the classification and measurement of financial liabilities
that are generally consistent with the equivalent requirements in AASB 139 except in respect of the fair value option; and
certain derivatives linked to unquoted equity instruments.
The AASB also added the requirements in AASB 139 in relation to the derecognition of financial assets and financial
liabilities to AASB 9.
AASB 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for
financial assets; amortised cost and fair value. The basis of classification depends on the entity’s business model and the
contractual cash flow characteristics of the financial asset.
The guidance in AASB 139 on impairment of financial assets. Guidance on hedge accounting continues to apply as long
as hedge accounting provisions in AASB 2013 9 not applied.
67
Japara Healthcare | Annual Report 2015 DIRECTORS’ DECLARATION
1
In the opinion of the directors of Japara Healthcare Limited (‘the Company’):
(a) the consolidated financial statements and notes to the Consolidated Financial Statements, set out on pages 30
to 67 and the Remuneration Report contained in section 15 in the Directors’ Report, are in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the Company’s financial position as at 30 June 2015 and of its performance, for
the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2
There are reasonable grounds to believe that the Company and the Company entities identified in Note 25 will be
able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross
Guarantee between the Company and those Company entities pursuant to ASIC Class Order 98/1418.
3
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief
executive officer and chief financial officer for the period ended 30 June 2015.
4 The directors draw attention to Note 2 to the consolidated financial statements, which include a statement of compliance
with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Signed and dated at Melbourne on 24 August 2015
Linda Bardo Nicholls AO
Chairman
Andrew Sudholz
Managing Director and CEO
68
ABCD
Independent auditor’s report to the members of Japara Healthcare Limited
Report on the financial report
We have audited the accompanying financial report of Japara Healthcare Limited (the company),
which comprises the consolidated statement of financial position as at 30 June 2015, and
consolidated statement of profit or loss and comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year ended on that date, notes
1 to 37 comprising a summary of significant accounting policies and other explanatory
information and the directors’ declaration of the Group comprising the company and the entities
it controlled at the year’s end or from time to time during the year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that is free from material misstatement whether due to fraud or
error.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards
require that we comply with relevant ethical requirements relating to audit engagements and plan
and perform the audit to obtain reasonable assurance whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation of the financial report that gives a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s financial
position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
KPMG, an Australian partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme
approved under Professional
Standards Legislation.
69
69
Japara Healthcare | Annual Report 2015
21
29
70
ABCDIndependenceIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.Auditor’sopinionIn our opinion:(a)the financial report of the Groupis in accordance with the Corporations Act 2001, including: (i)givinga true and fair view of the Group’s financial position as at 30 June 2015and of itsperformance for the year endedon that date; and (ii)complying with Australian Accounting Standards and the Corporations Regulations 2001.(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2.Report on the remuneration reportWe have audited the Remuneration Report included onpages 17to25ofthe directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards.Auditor’s opinionIn our opinion, the remuneration report of Japara Healthcare Limited for the year ended 30 June 2015, complies with Section 300A of the Corporations Act 2001.KPMGDarren ScammellPartnerMelbourne24 August 2015 ADDITIONAL INFORMATION
Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows.
This information is current as at 10 September 2015.
(a) Distribution of Shareholders – Ordinary Shares
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Ordinary shares
%
No of Holders
232,564,377
19,394,149
6,648,403
4,114,044
325,619
88.41
7.38
2.53
1.56
0.12
263,046,592
100.00
96
786
827
1,280
564
3,553
%
2.70
22.13
23.29
36.04
15.84
100.00
(b) Less than marketable parcels of ordinary shares
The number of shareholdings held in less than marketable parcels is 35 holders for a total of 791 ordinary shares.
(c) 20 Largest Shareholders – Ordinary Shares
Name
1 National Nominees Limited
2 HSBC Custody Nominees (Australia) Limited
3 J P Morgan Nominees Australia Limited
4 Citicorp Nominees Pty Limited
5 Ashens Properties Pty Ltd ATF Sudholz Family Discretionary Trust
6 Australian Foundation Investment Company Limited
7 BNP Paribas Noms Pty Ltd
8 Australian Shareholder Nominees Pty Ltd
9 Wanganui Pty Ltd
10 Samraj Pty Limited
11 Warbont Nominess Pty Ltd
12 AMP Life Limited
13 Djerriwarrh Investments Limited
14 Citicorp Nominees Pty Limited
15 Mirrabooka Investments Limited
16 HSBC Custody Nominees (Australia) Limited
17 AMCIL Limited
18 Bond Street Custodians Limited
19 Naze Nominees Pty Ltd
20 Australian Shareholder Nominees Pty Ltd
TOTAL
Number of fully
paid ordinary
shares
% of issued
capital
59,818,175
31,975,423
30,338,500
16,268,869
15,127,179
10,392,892
8,210,098
6,894,070
5,100,000
3,200,000
2,767,542
2,670,477
2,270,000
2,097,519
1,991,000
1,732,497
1,608,700
1,600,000
1,489,195
1,276,778
22.74
12.16
11.53
6.18
5.75
3.95
3.12
2.62
1.94
1.22
1.05
1.02
0.86
0.80
0.76
0.66
0.61
0.61
0.57
0.49
206,828,914
78.64
71
Japara Healthcare | Annual Report 2015ABCDIndependenceIn conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.Auditor’sopinionIn our opinion:(a)the financial report of the Groupis in accordance with the Corporations Act 2001, including: (i)givinga true and fair view of the Group’s financial position as at 30 June 2015and of itsperformance for the year endedon that date; and (ii)complying with Australian Accounting Standards and the Corporations Regulations 2001.(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2.Report on the remuneration reportWe have audited the Remuneration Report included onpages 17to25ofthe directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards.Auditor’s opinionIn our opinion, the remuneration report of Japara Healthcare Limited for the year ended 30 June 2015, complies with Section 300A of the Corporations Act 2001.KPMGDarren ScammellPartnerMelbourne24 August 2015 ADDITIONAL INFORMATION (continued)
(d) Substantial Shareholders
The names of the Substantial Shareholders listed in the Company’s Register as at 10 September 2015 are:
Shareholder
BTT Investment Management Limited
National Australia Bank and its associated entities
Ashens Properties Pty Ltd ATF Sudholz Family Discretionary Trust
(e) Securities subject to voluntary escrow
There are currently no securities on issue subject to voluntary escrow.
(f) Voting Rights
Number of fully paid
ordinary shares
% of issued
capital
19,947,642
15,739,169
15,700,000
7.41%
7.05%
5.97%
In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of
attorney, or by a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands
and one vote for each fully paid ordinary share on a poll.
Holders of unquoted performance rights do not have voting rights.
(g) Distribution of unquoted securities – performance rights
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total 100.00
Performance
rights
-
512,700
130,600
38,800
-
%
0.00
75.16
19.15
5.69
0.00
682,100
100.00
No of Holders of
performance
rights
-
25
18
9
-
52
%
0.00
48.07
34.62
17.31
0.00
100.00
(h) On-Market-Buy-Backs
There is no current on-market-buy-back in relation to the Company’s securities.
(i) Use of funds
In accordance with listing rule 4.10.19, for the reporting period, the Company confirms that it used the cash and assets held
in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives.
72