Oceania Healthcare Limited
Annual Report 2021

Plain-text annual report

Believe in better. ANN UAL REP ORT 2021 Purpose, connection and identity. Reimagining the retirement and aged care experience. A LETTER FROM THE CHAIRLetter from the Chair Change of balance date At a glance Trading highlights Letter from the CEO How we create value Better all round Believing in a better future Board of Directors Three year summary Financial statements Corporate governance 02 06 08 10 12 16 20 24 26 30 31 93 Our residents are amazing people. Their lives are rich in experiences, woven with stories and journeys, filled with achievements and sacrifices, friends and family. It is our privilege to honour them with an experience of the highest quality that reflects and respects who they are, and to make their lives the best we can. It’s why everyone at Oceania is committed to transforming the category, to challenging the norm and doing everything we do, better. We’re on a constant journey steeped in vision and purpose that positions our company as a leader. We put the residents at the heart of what we do which defines our business as a provider of better outcomes and growth. 01 LET TER FROM THE C HAIR The pursuit of better. I am pleased to present Oceania’s Annual Report for the 10 month period ended 31 March 2021. Despite the challenges presented by the continuing impact of COVID-19 on the business, Oceania has demonstrated continued resilience and has delivered a pleasing financial result for the period. Our experience over the last 18 months has proven that Oceania’s aged care strategy is a sound platform for future performance and growth. Financial Performance In our last Annual Report, we announced that we were changing our balance date from 31 May to 31 March. We have now completed this change and this is the first Annual Report prepared with the new balance date. As a result, much of our financial performance outlined in this report and the accompanying financial statements is reported on the basis of the 10 month period to 31 March 2021. 02 OCEANIAANNUAL REPORT 2021The pursuit of better. Unaudited Underlying EBITDA of $56.2m for the 10 months ended 31 March 2021 was 8% higher than the prior corresponding period of the 10 months to 31 March 2020 (unaudited). This was largely as a result of both strong sales of new developments and resales volumes in the current period, as well as the ongoing receipt of deferred management fees from developments completed in prior periods. Oceania’s total assets as at 31 March 2021 are $1.9b, compared with $1.5b as at 31 May 2020. This material increase is due in part to a reversal of CBRE’s COVID-19 related valuation assumptions that had led to a decrease in the value of Oceania’s existing investment property assets in FY2020, the completion of key development sites, as well as reflecting strong sales volumes of new retirement village units and care suites that have been developed over the last two years. For the 10 months to 31 March 2021, operating cash flow was $96.0m, compared to $99.4m for the 12 months to 31 May 2020. This reflects strong sales volumes over the 10 month period to 31 March 2021. Oceania completed a heavily oversubscribed seven year retail bond issue in October 2020, raising $125.0m. Oceania completed a $100.0m capital raise, comprising a $80.0m placement in March 2021 and a $20.0m retail offer in April 2021. The proceeds of the capital raise have been utilised to acquire Waterford (Hobsonville Point, Auckland), a retirement village comprising 64 independent living villas and 36 independent living apartments and our leasehold site in Franklin (Auckland), together with adjacent bare land. The capital raise and corporate bond have increased the diversity of Oceania’s funding sources, which provides a good platform for future growth. As at 31 March 2021, Oceania had current drawn debt and bonds of $329.9m and $79.9m of cash, representing $225.0m of undrawn net debt headroom. The Directors have declared a final dividend of 2.1 cents per share, taking full year dividends (non-imputed) to 3.4 cents per share, which represents 55% of Underlying Net Profit After Tax. This reflects strong trading and operating cash flow throughout the period. A dividend reinvestment plan for our New Zealand and Australian shareholders will apply to this dividend, which is payable on 22 June 2021. This provides a cost effective and convenient way for our shareholders to increase their investment in Oceania without any brokerage fees, by reinvesting all or part of any dividend paid on their shares in additional Oceania shares instead of receiving that distribution in cash. Strategy and Operations We were pleased to announce the appointment of Brent Pattison as Chief Executive Officer on 22 March 2021 following the resignation of Earl Gasparich on 6 March 2021. Brent was previously Oceania’s Chief Financial Officer, after having been appointed to that role in January 2020. He brings a great deal of experience to the role, with over ten years of relevant aged care and retirement village sector experience. We are delighted with Brent’s appointment and it is great to see Brent continuing to execute Oceania’s strategy, starting with the $100.0m capital raise and the acquisition of Waterford and the Franklin site. The capital raise and corporate bond have increased the diversity of Oceania's funding sources, which provides a good platform for future growth. Throughout the period, Oceania has continued to execute its strategy to create a superior portfolio of fully integrated retirement village and aged care centres around New Zealand and to deliver the highest levels of quality care and outstanding service to our residents. Following COVID-19 related disruption to our development programme in the first half of the 2020 calendar year, work at all of our development sites restarted in the second half of the 2020 calendar year and we achieved our expected build rate of 217 aged care beds and retirement village units completed by 31 March 2021. In addition to acquiring the new Waterford and Franklin sites, we are making good progress on the development projects that are scheduled to be completed in FY2022, including 113 new care suites at Lady Allum (Auckland), a further 39 apartments at The BayView (Tauranga) and 18 villas at Gracelands (Hastings). Our development of 49 apartments at Eden (Auckland) was completed in April 2021 and the selldown of these apartments is now underway. 03 LETTER FROM THE CHAIRThe Board has been continuing its work on developing Oceania’s materiality matrix and has been undertaking deep dive investigations into the areas of risk that matter most to our key stakeholders. As an example, recently, one risk the Board has undertaken a deep dive into is the risk of data information governance and cyber risk. Cyber risk has become a heightened risk for New Zealand businesses, particularly over the last year. Oceania is continuing to invest in additional staff training, data protection measures and mitigation strategies to safeguard personal and other information held by Oceania. Cyber risk remains a key area of focus for the business. We have also made tangible progress with our sustainability initiatives over the last three to six months, as we are continuing to work towards our goal of becoming carbon neutral in the future. We have now completed our Planet Roadmap and are working on waste diversion strategies and trials for vermicomposting of incontinence products as well as other energy efficiency and recycling initiatives at our sites around New Zealand. Looking Ahead On behalf of the Board, I would like to thank the Directors and our team of dedicated staff for their continued hard work and effort during what has been another challenging year. Despite the ongoing uncertainties associated with COVID-19, we remain focused on performance and growth in the business. We are looking forward to continuing to deliver exceptional service and care to our residents across New Zealand. Yours sincerely Elizabeth Coutts Chair Oceania Construction of our Waimarie Street development in Auckland is well underway and is progressing on time and budget. As part of this development, we have engaged with the local community liaison group and have received positive feedback as to how the site is being managed. We are expecting this premium development, comprising 79 apartments and 31 care suites, to be completed in FY2023. Despite additional costs and business interruptions arising from COVID-19, Oceania’s aged care business continued to perform well throughout the period with strong sales volumes of care suites around New Zealand. The ongoing restrictions associated with the COVID-19 pandemic have required us to maintain strong communication channels with our staff and residents, particularly with regard to our expectations of our people in order to keep COVID-19 out of our sites. Our team have recently been involved in preparing a comprehensive vaccination roll-out strategy, to ensure that our residents and staff are vaccinated against COVID-19. This has been an unprecedented exercise, both in terms of scale and importance, and Oceania’s solid clinical expertise and clinical governance structures have provided us with a sound basis for this significant task. Governance During the period, our Directors visited many of our sites around New Zealand either as a Board or individually. Most recently, our monthly Board meeting was held at The Bellevue (Christchurch) in March 2021, after we had visited other sites in Christchurch and Rangiora the previous afternoon. It was great to meet our people onsite and see the finished product so soon after completion. We enjoy the opportunity to hold our meetings at sites, so that we can meet with staff and observe the culture and day to day operations at the sites. We appreciate meeting with our residents and receiving their feedback, which is then incorporated into our continuous improvement processes. 04 OCEANIAANNUAL REPORT 2021LE T T E R F R O M T H E C H A I R (C O N T I N U E D) Ground works are progressing well at our premier Waimarie Street, St Heliers, Auckland site. Waimarie Street, St Heliers, Auckland 05 O C E A N I A A N N U A L R E P O R T 2 0 2 1 C HAN GE O F BAL AN C E DAT E This represents the first Annual Report since the change of balance date to 31 March 2021. The proforma comparative underlying earnings positions for the 10 months to 31 March 2020 and the 12 months to 31 March 2020 are set out on the following pages. Financial Metrics The following 10 month trading position as provided below represents the trading position of the company. The periods represent: — 10 months to 31 March 2021; and — 10 months to 31 March 2020 (comparative period) This forms the basis of the trading highlights pages in this Annual Report. Underlying earnings 10 month comparative position $NZ000’s Care Village operations Resales capital gain Development margin Corporate Group U/L EBITDA Interest Depreciation Care Suite depreciation Underlying NPAT Occupied beds per day Effective bed capacity per day Effective Occupancy (%) Existing ORAs sold New ORAs sold Existing Care Suites sold New Care Suites sold Total ORAs sold 06 Audited 10 months to 31 March 2021 Unaudited 10 months to 31 March 2020 18,484 13,320 17,913 23,815 (17,370) 56,162 (6,771) (13,808) 35,583 6,173 41,756 2,313 2,504 92.4% 81 87 113 107 388 15,391 12,378 10,442 28,611 (14,760) 52,062 (5,024) (12,044) 34,994 4,984 39,978 2,272 2,477 91.7% 52 55 96 106 309 C H A N G E O F B A L A N C E DAT E Provided below are 12 month underlying positions. The periods represent: — 12 months to 31 March 2021; and — 12 months to 31 March 2020 (comparative period) During the 12 month period to 31 March 2021, New Zealand has been subject to Alert Level 3 restrictions or higher for a total of 49 days (13% of a calendar year). In addition to national lockdowns the Auckland region has been subject to Alert Level 2.5 restrictions or higher for a further 53 days as depicted below. 26 March 2020 — 27 April 2020 12 August 2020 — 30 August 2020 15 February 2021 — 17 February 2021 L E V E L 4 — N Z L E V E L 3 — A K L L E V E L 3 — A K L 1 A P R I L 2 0 2 0 3 0 S E P T E M B E R 2 0 2 0 3 1 M A R C H 2 0 2 1 28 April 2020 — 13 May 2020 31 August 2020 — 23 September 2020 L E V E L 3 — N Z L E V E L 2 .5 — A K L 1 March 2021 — 7 March 2021 L E V E L 3 — A K L The business has operated under Level 2.5 or above restrictions for a total of 102 calendar days (28%) of the 12 month period to 31 March 2021. Underlying earnings 12 month comparative position $NZ000’s Care Village operations Resales capital gain Development margin Corporate Group U/L EBITDA Interest Depreciation Care Suite depreciation Underlying NPAT Occupied beds per day Effective bed capacity per day Effective Occupancy (%) Existing ORAs sold New ORAs sold Existing Care Suites sold New Care Suites sold Total ORAs sold Unaudited 12 months to 31 March 2021 Unaudited 12 months to 31 March 2020 23,081 16,458 18,959 29,524 (20,381) 67,641 (7,879) (16,256) 43,506 7,197 50,703 2,305 2,504 92.0% 88 107 124 115 434 17,944 14,904 15,411 45,023 (18,108) 75,174 (5,545) (13,782) 55,847 5,397 61,244 2,271 2,474 91.8% 80 78 122 128 408 07 AT A G L AN C E Better experiences. Oceania is a leading provider of premium healthcare services. Our purpose is to reimagine the aged care and retirement living experience and we constantly challenge ourselves to deliver better. We have a substantial development pipeline and sufficient land to build 1,956 new residences with 75% of these already consented. 08 OCEANIAANNUAL REPORT 2021AT A G L A N C E Staff Residents 2,800 3,700 Care beds and care suites Units 2,654 1,367 Existing sites with mature operations 25 As at 31 March 2021 Existing sites with brownfield developments (current and planned) 19 Undeveloped sites Total sites 1 45 09 T R AD I N G HIGHLIGHT S 10 months to 31 March 2021 Delivering better. Financial 10 month period to 31 March 2021 Total assets as at 31 March 2021 Underlying Earnings Before Interest, Tax, Depreciation and Amortisation 10 months to 31 March 2021 $1.9bn $56.2m 7.9% ahead of 10 months to 31 March 2020 proforma underlying earnings before interest, tax, depreciation and amortisation of $52.1m Operating Cash Flow 10 months to 31 March 2021 $96.0m compared to 12 months to 31 May 2020 reported operating cash flow of $99.4m 21.6% higher than 31 May 2020 total assets of $1.5bn Reported Total Comprehensive Income 10 months to 31 March 2021 $167.8m compared to 12 months to 31 May 2020 reported total comprehensive income of $9.9m 10 OCEANIAANNUAL REPORT 2021T R A D I N G H I G H L I G H T S Operational 10 month period to 31 March 2021 87 New units 81 107 113 Resale units New care suites Resale care suites Total sales 388 25.6% ahead of total sales for the comparative 10 month period to 31 March 2020 of 309 Developments 10 month period to 31 March 2021 Consents secured 26 Under construction 394 Completed 217 To complete in FY2022 221 Units + care suites Units + care suites Units + care suites Units + care suites Resource consents received during FY2021 Units and care suites under construction as at 31 March 2021: – Awatere (Hamilton) – The BayView Stage 2B (Tauranga) Units and care suites completed in FY2021 at: – Green Gables (Nelson) – The Bellevue (Christchurch) – The BayView Stage 2A – Eden (Mt Eden, Auckland) (Tauranga) – Gracelands (Hastings) – Lady Allum (Milford, Auckland) – Waimarie Street (St Heliers, Auckland) – Stoke (Nelson) Units and care suites expected to complete in FY2022: – The BayView Stage 2B (Tauranga) – Eden (Mt Eden, Auckland) – Lady Allum (Milford, Auckland) – Gracelands (Hastings) – Stoke (Nelson) 11 A N N U A L R E P O R T 2 0 2 1 LET TER FROM THE C EO Performance and growth. Aged care continues to be an essential service and a growing industry in New Zealand. It is a sector that I feel very privileged to be involved with. We implemented a change in our reporting date during the year, from a historical 31 May balance date to a 31 March balance date. The financial statements included within this Annual Report represent the 10 months of trading from 1 June 2020 to 31 March 2021. The highlights pages within this Annual Report provide a proforma of the 10 month period to 31 March 2020 for comparison purposes. COVID-19 continued to have an impact on our financial performance again this year. It presented a challenge for any business, but more poignant for a business whose heartbeat is to care for those most vulnerable to the virus. I have nothing but respect for our team of 2,800 who have worked relentlessly and tirelessly to ensure that we have kept this virus out of our retirement villages and care centres, and continued to keep our residents, their families, and each other safe. 12 OCEANIALE T T E R F R O M T H E C E O We are committed to ensuring that our clinical and care staff provide excellent clinical care to our residents. We focus on providing resident centred care that is holistic and aims to satisfy our residents’ needs, wishes and choices. We seek to provide individualised care and to strengthen each resident’s independence and self-determination, as well as empower each resident to make their own choices and uphold their identity and values. Oceania continues to distinguish itself from other aged care and retirement village operators due to its focus on aged care. We have demonstrated resilience over the past year as a result of our aged care business being a needs-based product, as residents and their families make a decision to move into an aged care centre or buy a care suite when a resident needs rest home or hospital level care. Our team have worked hard to ensure that we continue to deliver growth and performance to our investor community against this challenging backdrop. Instead of letting these challenging times slow down our activity, we increased the investment in our business, demonstrating our commitment to building an even better future for Oceania, our residents, their families and our staff. Our People Our people are at the very heart of our business. It is their passion that allows us to continue to build on our success. We are pleased to announce that we made three new senior appointments during the year to further strengthen our leadership team. Kathryn Waugh has been promoted to the role of Chief Financial Officer after having joined Oceania in 2009 as Financial Controller. Kathryn is a qualified chartered accountant and prior to joining Oceania, she held senior roles at PwC. Anna Thorburn has been promoted to Group General Counsel. Anna joined Oceania in 2012 having previously worked as a senior solicitor in the corporate/commercial team at Russell McVeagh. Kathryn and Anna have both been heavily involved in Oceania’s corporate transactions, including the IPO in 2017, the corporate bond in 2020 and the most recent capital raise and acquisitions in March 2021. Jo Copeland joined us in March 2021 in the role of General Manager People. Jo started her career as an employment lawyer and then spent the last 20 years in Human Resource leadership roles across a variety of sectors including information technology, telecommunications, professional services and pharmaceuticals. We have further invested in clinical training and development this year as part of our commitment to provide a career development pathway for our staff. Oceania encourages staff to undertake professional development, including supporting healthcare assistants to gain qualifications commensurate with their level of experience, and encouraging registered nurses to reach the highest level of clinical expertise as nurse practitioners. Clinical leadership and education are key to the delivery of quality care, improving overall skill levels and surveillance abilities. Oceania is well positioned to leverage its established operational platform to pursue a wide range of organic and inorganic growth opportunities. Our ongoing employee share scheme gives our people an opportunity to own a stake in Oceania and to share in our growth. Permanent staff are invited to participate in the scheme and receive an allocation of $800 per annum (for full-time employees) and $400 per annum (for part-time employees) of Oceania shares. There was a 77% uptake in September 2020. We are delighted that we can further recognise our people in this way for the crucial part they play in Oceania’s success. 13 The capital raise followed a successful inaugural $125m corporate bond. This transaction achieved the lowest coupon ever by an unrated first time issuer and has increased the diversity of Oceania’s funding sources, as well as providing additional certainty of tenor. As a result of the capital raise and the corporate bond, Oceania had gearing of less than 25% at balance date, which provides a good platform for future growth. Developments After significant construction delays during the COVID-19 lockdown periods, we cautiously increased our spend on our development projects in line with the return of sales confidence. We have completed our developments at Green Gables (Nelson), The Bellevue (Christchurch), The BayView Stage 2A (Tauranga) and Eden (Auckland). Green Gables is in a prime area of Nelson. This location provides a compelling luxury retirement offering with proximity to the town centre. The build has 28 apartments and 61 care suites. The Bellevue adds a luxury offering to our Christchurch site mix. With 22 apartments and 71 care suites, it also has a brownfield development opportunity with Stage Two, 46 apartments, planned to commence in September 2021. Tauranga continues to be a growth market and the construction of our first 35 apartments at The BayView has been completed, with a further 39 apartments and community centre due for completion in December 2021. The site offers commanding views out to the Mount. Since 31 March 2021, we have also completed the construction of 49 apartments at Eden, located in the popular Auckland suburb of Mt Eden. We have six projects currently under development across both the South and North Islands of New Zealand. Ground works are progressing well at our premier Waimarie Street (St Heliers, Auckland) site, which boasts one of the largest cranes in operation in New Zealand for this type of construction. This village will offer 79 luxury apartments and 31 care suites and is expected to be completed in FY2023. Following the successful sale of two stages of new villas at Gracelands (Hastings) over the last year, we are building a further 18 new villas as Stage Three of this development. These villas will be completed later this year. The construction of 113 care suites is underway at Lady Allum (Milford, Auckland) and we expect the new care building at Lady Allum to be completed in FY2022. Acquisitions and funding Oceania has a well established and proven brownfield development-led growth strategy, facilitated by a strong development team and investment in an operational platform built for scale. Oceania is well positioned to leverage its established operational platform to pursue a wide range of organic and inorganic growth opportunities. In April 2021 we acquired Waterford, in Hobsonville Point, Auckland. This is a modern 100 unit retirement village with future brownfield development opportunity, located in a growing suburban Auckland catchment. This acquisition provides an immediate positive underlying earnings impact via its existing operations along with significant development pipeline opportunities. We have also entered into agreements to purchase the currently leased Franklin site, encompassing a 44 bed care facility, with an additional 4.1 hectares of adjacent development land. This total land parcel presents a prime opportunity for a large integrated village and care development in one of the fastest growing secondary urban areas in New Zealand. These two acquisitions will add 275 independent living units and care suites in key growth areas of Auckland. These acquisitions strengthen Oceania’s development pipeline and provide future NTA and earnings growth potential. These acquisitions were funded by way of a highly successful and oversubscribed $80m placement and $20m retail offer. We were delighted to observe strong support from our existing shareholders and some new faces on the register. Franklin, Auckland 14 OCEANIAANNUAL REPORT 2021Outlook The retirement village and aged care sector is naturally expanding as the New Zealand population ages but the opportunity for growth is far greater. There is an opportunity to improve many facets including the experience we deliver to our residents, the positive impact we make to our local communities, the reduction of our carbon footprint, and improvement of societal perceptions around ageing. Performance and growth are Oceania’s key ambitions moving forward. We will also maintain our strong focus on clinical excellence and operational performance as sector leaders. Building on the success of our recent capital raise and acquisitions, with favourable gearing, we will continue to invest in resource and infrastructure to achieve this. We have a significant development pipeline to build on, including both brownfield and greenfield opportunities. We look forward to continuing to deliver premium accommodation and outstanding care services that enhance our residents’ lives and provide for a better retirement and aged care living experience for New Zealanders. Thank you for your support. Brent Pattison Chief Executive Officer Oceania LE T T E R F R O M T H E C E O (C O N T I N U E D) The Bellevue, Christchurch We have also commenced a new stage of 29 villas at Stoke (Nelson). This brownfields development will be undertaken as villas become vacant and the site becomes available for redevelopment. The first two villas will be completed later this year. Our team are also busy with consenting and design activity, with developments in South Auckland, the Hawkes Bay and the Nelson/Marlborough region in the planning stages. We are looking forward to continuing to develop sites across both metropolitan and regional areas of New Zealand. Given the timeframes for purchasing, consenting and the construction of new developments, we will continue to seek to acquire new greenfield sites as good opportunities arise in the next few years. Brand Oceania invested in the development of a new brand platform this year. This brand platform goes well beyond marketing, setting out a bold ambition for Oceania to continue to reimagine the category, led by research and informed by our residents. ‘Believe in Better’ is a statement of intent, not to rest on our past achievements, but to constantly challenge ourselves to deliver better experiences for our residents. To launch this platform to market, we created a campaign that championed our residents authentically and respectfully. We tapped into something elemental to Kiwis – our human need to strive for better. We are always looking at ways to make the world a better place, and our residents at Oceania are no different. The campaign puts Oceania residents and their incredible life stories of striving for better at the heart of our communications. It celebrates them as people who have lived incredible lives and who continue to live with a deep sense of identity, connection and purpose. 15 H OW W E C R E AT E VALU E Our purpose To reimagine the retirement and aged care living experience in New Zealand Our drivers Our business Our people Highly motivated, passionate and safe staff Our expertise The capability of our people and quality of our systems Our villages The quality of our villages and landbank Our relationships The strength of the relationships we have with our key stakeholders and our brand reputation Develop Our financial capital The combination of shareholder funds, banking facilities and operating cash flow employed to maintain and grow our business Our natural capital The quality of the natural resources we rely on to run our business today and in the future 16 The pursuit of better Sell $ Yield From superior care and independent living experiences + $ Growth Development of our landbank by recycling capital from sales OCEANIAANNUAL REPORT 2021H OW W E C R E AT E VA L U E Our value outcomes Residents love living in our communities We delight our residents with hospitality inspired, customer led services We are passionate about the wellbeing of our staff, residents and their families We lead the way in how we do things 17 WO R K I N G O N W HAT MAT T E R S Strategy We have set our strategy by considering what is important to key stakeholders and which risks and opportunities have the greatest impact on our ability to create value in the short and long term. This strategy establishes goals and identifies measures to report people, planet and prosperity achievements as we build a better future. Our purpose To reimagine the retirement and aged care living experience in New Zealand People Planet Prosperity Our goals We delight our residents and staff by caring for them and making a difference to their happiness every day. Our measure Employee wellness engagement, resident engagement, health and safety. Our goals Through better use of our resources we will substantially reduce our environmental impact enabling carbon neutrality in the future. Our measure Waste to landfill, energy efficiency, greenhouse gas emissions. Our goals Integrated thinking will be embedded in our strategy, decision making, long term planning and reporting by 2022. Our measure Financial returns and shareholder value growth. Our value outcomes Residents love living in our communities We delight our residents with hospitality inspired, customer led services We are passionate about the wellbeing of our staff, residents and their families We lead the way in how we do things Our people — Our expertise — Our villages — Our financial capital — Our natural capital Our drivers 18 OCEANIAANNUAL REPORT 2021W O R K I N G O N W H AT M AT T E R S Materiality matrix In developing our strategy, we conducted a deep dive into what mattered most to our key stakeholders, being our residents and their families, our staff and local communities, our investors and funders, our suppliers and industry bodies and the government. The findings from this matrix form the pillars of our strategy and key performance indicators for success. E C N A T R O P M I R E D L O H E K A T S 2 9 18 6 17 29 20 27 19 13 1 7 3 16 15 8 28 12 11 21 14 4 22 5 30 25 10 24 23 26 B U S I N E S S I M PA C T People 1 2 3 4 5 6 7 8 9 10 Model of care Building design Clinical excellence Innovation Person centred approach Diversity and inclusion Health and Safety Staff attraction and retention Community connection Development expertise Planet 11 12 Waste management Energy efficiency Prosperity 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Industry partnerships Residential house prices Market capacity and funding Changes to Government regulation Residential care affordability Transparency about costs/entitlements Resource consents Maintenance Maintaining development pipeline Transformation process for premium accommodation Development margins Service line ratios and profitability Village sales Occupancy rates Governance and ownership Debt gearing and funding sources Technology Cyber security 19 Better all round. Oceania is on a journey to reimagine the retirement and aged care experience and what it means to live in a village, ensuring that this is a stage of life to be enjoyed with purpose and connection, in a way that is unique to every resident. 20 OCEANIAANNUAL REPORT 2021B E T T E R A L L R O U N D Our residents have always strived for better, and so do we. We are always focusing on the future, on enhancing our offering, innovating and delivering to the future needs of our residents, their families, the communities which they live in and our staff. Every day, our people have an inherent desire to make our residents’ lives better. From our staff to management, to the Executive Team and the Board. From big national driven concepts to smaller local initiatives, and one off resident experiences, Oceania is committed to transforming aged care living in New Zealand. I’m in what they call a care suite. It’s well equipped and very comfortable, everything I need is here. There’s plenty of room for my visitors when they come to see me. I’m very well looked after here. The restaurant is very good, I have most of my meals there and if you’re not feeling well, they’ll bring it to your room. But we are never finished in our quest. We are never done because better improves every day. — Priscilla, Oceania Resident Our human centric approach At Oceania we design spaces and experiences with people at the heart. We build communities and connections, not just bricks and mortar. Everything we do is designed for our residents and the things that matter the most to them, being identity, connection, and purpose. Boutique village designs We deliver a retirement and aged care experience that is bespoke to our residents. We don’t have a one size fits all approach to our villages. That’s why we keep our villages boutique with careful consideration given to the region and community they are part of, with a unique design that centres around fostering connections and a tight knit community. Unique care suite experiences Our aged care offering is different from others. Oceania’s care suites deliver exceptional rest home and hospital level care, evolving as a resident’s needs increase so the resident doesn’t have to move again. More importantly, care suites are designed to feel like home, with private ensuites, living areas and kitchenettes so our residents can share a cup of tea with the family like they always have and our couples’ care suites ensure that even if the residents have different needs, they can stay together with their partners as they have always done. 21 Category leading activities I Love Music Research shows that listening to our favourite songs can make us more sociable and trigger long term memories. We developed ‘I Love Music’ which is a music programme as unique as every resident, with their own MP3 player loaded with their favourite music from past and present. Move & Groove Staying fit has a positive impact on residents’ overall health and mental wellbeing and helps keep them active and mobile. ‘Move and Groove’ is a collaboration between certified Zumba instructors and Oceania’s physiotherapist team to develop a programme that can be enjoyed by any level of mobility, ensuring physical independence is a priority. Audiobooks Reading books relaxes and reduces overall stress levels, while also increasing joy. As publishers have moved from print to audiobooks, we have embraced this change. The Oceania Audiobook Library brings thousands of books directly to our residents’ ears making titles both old and new fully accessible for residents to enjoy. Guest Services Managers We’ve developed a Guest Services Manager role to provide a concierge like service to our care suite residents. Our Guest Services Managers bring creativity and empathy, alongside exceptional problem solving skills and attention to detail, to deliver hospitality services to delight our residents. They are the person who delivers all the special touches to our residents. They get to know the residents, find out what they like to do and then make it happen for them. Whether that’s planning their weekly manicure, helping them set up Skype to keep in touch with grandchildren, or booking tickets and organising transport so that they can go and see a show with their friends. Hospitality led dining experience Food is vital for good nutrition, but it is also one of life’s great joys. Led by a team of skilled chefs and dieticians, we ensure taste and nutrition are the heroes of our dishes. We look to culinary trends and our residents’ personal preferences to refine and update our menus regularly. 22 OCEANIAANNUAL REPORT 2021B E T T E R A L L R O U N D (C O N T I N U E D) Nurse Practitioners To complement our team of skilled Registered Nurses, we’ve invested in a team of Nurse Practitioners. They are highly trained to provide the same services as a General Practitioner but will be available to residents whenever they need them. Oceania’s Nurse Practitioners are integrated into our care process, providing greater vigilance so they can spot issues early and build in preventative care measures unique to each resident. It’s the little things Gary, a care resident at Te Mana loves to garden. When Gary became less mobile, he was no longer able to bend down and tend to the flowerbeds. Our staff came up with a great idea. They brought some hanging flower baskets and hung them at the perfect height for Gary to reach and tend to them, enabling him to continue doing what he loved most. Pat and Beverley, residents at our Atawhai Care Centre, are academics who share a passion for history. The activities team quickly discovered both ladies were keen to have an outlet to use their research skills and exercise their minds. Each week the staff find opportunities for Pat and Beverley to share their passion for history, such as booking them in to give a talk to the other residents. The Diversional Therapist also ensures the pair have an active role during van trips and outings, researching the destination ahead of time to find fascinating facts to share with the group along the journey. As well as the bigger concepts and initiatives, we also like to pay attention to the little details. It’s one of the ways that we celebrate our residents’ personality and individuality. 23 Believing in a better future. Now more than ever, creating a sustainable future is paramount to us and our stakeholders. Our performance extends well beyond that of financial results. It includes social and environmental performance, and the impact we have on our people and our planet. In 2020, our journey started with looking at ways in which we could substantially reduce our environmental impact with the aim to enable carbon neutrality in the future. These initiatives have been designed to step us toward a better future and provide a healthy environment that we leave for generations to come. Planet Roadmap A major milestone was achieved with the completion of the Planet Roadmap. The Planet Roadmap is a summary, communicating to investors, stakeholders, and the business how Oceania will decarbonise its business. This takes planet emissions reduction goals from our strategy and defines how we will achieve them within the timeframe. It describes the short- term project workstreams, backed up by emissions reduction benefits of those projects. Incontinence product composting trial Oceania is working with MyNoke, a large worm farming company, on an incontinence product vermicomposting trial. Waste from six care centres is being processed and studied at MyNoke’s Taupo worm farm. The goal is to roll the solution out to all sites. Waste diversion We now have 30 sites diverting food waste. There are no national food waste solutions available, so we have sourced bespoke local solutions including onsite Bokashi composting, vermicomposting, pig buckets and commercial composting solutions. The next stage which is diverting the remaining organic waste, including paper hand towels, cut flowers and newspapers, has started and will roll out across the group. Energy audits driving efficiency planning The findings from our energy audits have been an invaluable contributor to the Planet Roadmap, as well as providing site specific opportunities that we will investigate further. The report indicated which initiatives across the group would provide meaningful emission reductions to reach our sustainability targets. It also advised the optimal timeframe which we built into the roadmap timeline. For example, LED lighting and energy efficient shower head conversion, should be implemented in the short term, while delaying wide-scale gas boiler conversion is advisable while gas prices remain low. 24 OCEANIAANNUAL REPORT 2021B E L I E V I N G I N A B E T T E R F U T U R E Building design energy efficiency Much of our ability to achieve our long term emission reduction goals relies on the improved efficiency design of our new developments. Homestar 6 principles are already incorporated in our building design brief, but we wish to continually improve our new buildings’ performance. A review of our design brief is currently underway to clearly articulate our sustainability goals and standards. To inform this brief, we will work with vendors to complete a design review with energy modelling of the new Elmwood care centre. This will provide metrics for benchmarking and recommendations that will be incorporated into the revised design brief. Village initiatives New homes for villa curtains As the sustainability message permeates throughout Oceania, individuals and departments are identifying how they can contribute. The property team recently spearheaded an initiative where ‘pre loved’ curtains from refurbished villas, find new homes through Habitat for Humanity. Full circle for soft plastics When the residents of Meadowbank needed new raised bed garden planters and a compost heap, the Village Manager thought this would be a perfect opportunity to show the full circle of their recycling. For the past year, Meadowbank Village residents have been collecting soft plastics, which are sent to Future Post for recycling. Future Post makes fence posts used for farming and horticulture, that can also be used for garden beds in retirement villages. Village recycling directory More of our village residents are interested in finding out how they can become more sustainable. We were approached by residents from three different Auckland villages, seeking information on what items can be recycled, and where they can take these items. In response we are co-ordinating a resident driven recycling directory and education resource. Village residents from all Auckland villages are compiling lists of recycling questions, with a group of other village residents, researching the answers to create the content for the directories. We will use this model for other villages around the country if this proves successful. Transferring ripe Bokashi bin to compost bins for further breakdown. Stories of better I’d heard about Bokashi and always felt it would be a great thing to try. I’ve always been conscious of the waste we produce that was just going to landfill and also the rubbish bags which are quite heavy for the staff to lift. It’s been quite a learning curve and people don’t always like change. We’ve found out all about composting and all the layers, it’s like layering a cake. It’s been a bit of trial and error getting it right and teaching the staff how to do it. I often get out there and help with scraping the waste into our bins. We have three colour coded bins for compost, general waste and liquids. You’re paying a lot more attention to what’s going into the bins and it makes you really aware of the dietary needs and intake of the residents. One other thing that’s great is how we are able to use up cartons. We get a lot of egg cartons and napkins and we’re able to use them for layering which is fantastic. We’ve noticed the rubbish bin is not as full. We’re on a huge recycling buzz — cardboard, plastics, tins. We’re now totally aware of what we’re throwing away. It’s been a really worthwhile experience and we’re really happy to take part.” — Jacque Biddick, Kitchen Manager Otumarama 25 B OAR D O F D I R EC TO R S Governance that believes in better. Our Board has a broad and deep range of complementary skills, backed by years of experience, a combination that’s been invaluable in another year where our response to the COVID-19 pandemic has framed the backdrop to our day to day operations. We remain vigilant, yet COVID-19 hasn’t prevented us from progressing Oceania in line with our values and the best interests of our residents and our people. Elizabeth Coutts Chair & Independent Director ONZM, BMS, FCA Dame Kerry Prendergast Independent Director DNZM, CNZM, MBA (VUW), NZRN, NZM Alan Isaac Independent Director CNZM, BCA, FCA Patrick McCawe Independent Director BCA (Hons), MBA, CA Sally Evans Independent Director BHSc, MSc, FAICD, GAIST Gregory Tomlinson Independent Director AME 26 OCEANIAANNUAL REPORT 2021B OA R D O F D I R E C T O R S The Board has established four standing committees to assist in the execution of the Board’s duties. Throughout the year, each of the committees met regularly, and focused on how to make our residents’ lives better. Audit Committee Board members: Alan Isaac (Chair), Liz Coutts, Patrick McCawe. The Audit Committee focuses on the performance and growth of Oceania. They provided governance and support (through a project subcommittee) for the issue of our corporate bond in October 2020, and a $100m capital raise in March 2021. Both initiatives had excellent outcomes. Our seven year retail bond issue in October 2020 was heavily oversubscribed, raising $125m. Such was the demand for this bond, the transaction attracted the lowest coupon rate ever by an unrated first time issuer and has allowed Oceania to diversify its funding. The $100m capital raise in March 2021 was also a great success. The proceeds of this capital raise funded the acquisition of Waterford and Franklin. Both the $80m placement and the $20m retail offer were significantly oversubscribed and the acquisitions were well received by the market. Remuneration Committee Board members: Sally Evans (Chair), Liz Coutts, Alan Isaac. In September 2020, the Remuneration Committee established the Performance Share Right Plan for the Executive Team. This incentive programme encourages key executives to commit to Oceania for the long term and to align their interests with those of Oceania’s shareholders. Oceania’s employee share scheme was again offered to permanent employees during the year. Clinical and Health & Safety Committee Board members: Dame Kerry Prendergast (Chair), Liz Coutts, Sally Evans. With the risk associated with the COVID-19 pandemic still prevalent, the Clinical and Health & Safety Committee has provided oversight and governance in respect of clinical and health and safety matters, during the year, and has focused on clinical excellence. As of 1 April 2021, Oceania has been accepted into the ACC accredited AEP Partnership programme. Our goal is to reduce injuries and provide early intervention to enable staff to return safely to independence and work. Development Committee Board members: Greg Tomlinson (Chair), Liz Coutts FY2021 has seen significant development activity for Oceania. The Development Committee has provided governance on these projects. Under construction/planning The Development Committee visited Waterford as part of undertaking due diligence investigations and reviewed management’s due diligence findings. Completed projects The Development Committee has overseen the completion of three significant developments during FY2021; Green Gables in Nelson (28 apartments and 61 care suites), The Bellevue Stage One in Christchurch (22 apartments and 71 care suites) and The BayView Stage 2A in Tauranga (35 apartments). The Board held its monthly Board meeting at The Bellevue in March 2021 and the Directors were very pleased with the quality of the completed development. 27 Oceania Waterford Oceania’s newly acquired Waterford is a premium lifestyle village with outstanding common facilities. It is located within the high growth area of Hobsonville Point, Auckland. 28 OCEANIAANNUAL REPORT 202129 O C E A N I A A N N U A L R E P O R T 2 0 2 1 T H R E E Y E AR S U M MARY For the 10 month period ended 31 March 2021 Financial Metrics $NZ000’s Underlying net profit after tax 1, 2 Underlying EBITDA1 Profit / (loss) for the period Total comprehensive income Total assets Operating cash flow Operating Metrics Units Care suites Care beds Total New sales Resales Total Group occupancy March 2021 10 months May 2020 12 months May 2019 12 months 41.8 56.2 85.5 167.8 1,883.7 96.0 42.9 63.5 (13.6) 9.9 1,548.7 99.4 51.2 64.3 45.4 99.8 1,399.4 89.3 March 2021 10 months May 2020 12 months May 2019 12 months 1,367 847 1,807 4,021 194 194 388 92.4% 1,285 679 1,882 3,846 189 166 355 91.5% 1,202 542 2,112 3,856 133 177 310 91.0% 1 2 This is a non-GAAP measure, refer to note 2.1 in the consolidated financial statements for further details. Underlying Net Profit after Tax has been restated in comparative periods to exclude depreciation in respect of care suites in line with the current period. 30 OCEANIAANNUAL REPORT 2021C O N S O LI DAT E D F I N A N C I A L S TAT E M E N T S C O N S O LI DAT E D FI NAN C IAL S TAT E M E N T S For the 10 month period ended 31 March 2021 Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Independent Auditor's Report 32 33 34 35 37 87 31 O C E A N I A A N N U A L R E P O R T 2 0 2 1 C O N S O LI DAT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E For the 10 month period ended 31 March 2021 $NZ000’s Revenue Change in fair value of investment property Change in fair value of right of use investment property Other income Total income Employee benefits and other staff costs Depreciation (buildings) Depreciation and amortisation (chattels, leasehold improvements and software) (Reversal of impairment) / impairment of property, plant and equipment Impairment of goodwill Rental expenditure in relation to right of use investment property Finance costs Other expenses Total expenses Profit / (loss) before income tax Income tax benefit Profit / (loss) for the period Other comprehensive income Items that will not be subsequently reclassified to profit or loss Gain on revaluation of property, plant and equipment for the period, net of tax Gain on revaluation of right of use assets for the period, net of tax Items that may be subsequently reclassified to profit or loss Profit / (loss) on cash flow hedges, net of tax Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to shareholders of the parent Notes March 2021 10 months 2.2 3.1 3.4 2.3 2.4 2.4 , 3.2, 3.4 2.4, 3.2, 3.4, 5.2 2.4, 3.2 2.4, 5.2 2.4, 3.4 2.4 2.4 175,417 79,969 2,299 2,069 May 2020 12 months 193,646 (21,724) 17,086 2,743 259,754 191,751 115,669 8,615 5,193 (4,267) 1,220 4,115 6,795 47,276 184,616 128,100 9,266 5,226 916 491 19,236 6,284 50,540 220,059 75,138 (28,308) 5.1 10,396 85,534 14,666 (13,642) 3.2, 5.1 3.4, 5.1 78,583 61 78,644 29,223 51 29,274 3,609 (5,689) 82,253 23,585 167,787 9,943 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 4.2 4.2 13.8 13.8 (2.2) (2.2) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 32 C O N S O LI DAT E D F I N A N C I A L S TAT E M E N T S C O N S O LI DAT E D BAL AN C E S H E E T As at 31 March 2021 $NZ000’s Assets Cash and cash equivalents Trade and other receivables Investment property Property, plant and equipment Right of use assets Intangible assets Total assets Liabilities Trade and other payables Derivative financial instruments Deferred management fee Refundable occupation right agreements Lease liabilities Borrowings Deferred tax liabilities Total liabilities Net assets Equity Contributed equity Retained deficit Reserves Total equity Notes March 2021 May 2020 5.3 3.1 3.2 3.4 5.2 5.4 5.6 3.3 3.3 3.4 4.4 5.1 4.1 79,906 47,687 1,099,803 604,052 41,714 10,571 17,624 41,630 947,800 489,990 40,822 10,830 1,883,733 1,548,696 44,308 5,486 41,499 618,433 11,513 327,292 - 34,831 10,484 34,344 535,370 13,001 325,454 - 1,048,531 953,484 835,202 595,212 675,625 (85,406) 244,983 835,202 588,389 (155,907) 162,730 595,212 The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes. 33 C O N S O LI DAT E D S TAT E M E N T O F C HAN GES I N EQ U I T Y For the 10 month period ended 31 March 2021 $NZ000’s Balance as at 31 May 2019 Notes Contributed equity Retained deficit Asset revaluation reserve Cash flow hedge reserve Total equity 580,794 (110,060) 140,931 (1,786) 609,879 Impact of adoption of NZ IFRS 16 Leases Loss for the year Other comprehensive income Revaluation of cash flow hedge net of tax Revaluation of assets net of tax Revaluation of right of use assets net of tax Total comprehensive income Transactions with owners Dividends paid Share issue: dividend reinvestment scheme Employee share scheme Total transactions with owners 5.6 3.2 , 5.1 3.4 , 5.1 4.1 4.1 4.3 (2,211) (13,642) - - - - - - 29,223 51 - - - - - - - - (2,211) (13,642) (5,689) - - (5,689) 29,223 51 9,943 (13,642) 29,274 (5,689) - (29,822) 7,595 - - (172) 7,595 (29,994) - - - - - - - - (29,822) 7,595 (172) (22,399) Balance as at 31 May 2020 588,389 (155,907) 170,205 (7,475) 595,212 Profit for the period Other comprehensive income Revaluation of cash flow hedge net of tax Revaluation of assets net of tax Revaluation of right of use assets net of tax Total comprehensive income 5.6 3.2 , 5.1 3.4 , 5.1 Transactions with owners Dividends paid Share issue Directly attributable transaction costs deducted from equity Share issue: dividend reinvestment plan Employee share scheme Total transactions with owners 4.1 4.1 4.1 4.1 4.3 - - - - - - 80,000 (1,939) 9,175 85,534 - - - - - 78,583 61 - 85,534 3,609 - - 3,609 78,583 61 85,534 78,644 3,609 167,787 (15,476) - - - - 443 87,236 (15,033) - - - - - - - - - - - - (15,476) 80,000 (1,939) 9,175 443 72,203 Balance as at 31 March 2021 675,625 (85,406) 248,849 (3,866) 835,202 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 34 OCEANIAANNUAL REPORT 2021C O N S O LI DAT E D CAS H FLOW S TAT E M E N T For the 10 month period ended 31 March 2021 $NZ000’s Cash flows from operating activities Receipts from residents for village and care fees Payments to suppliers and employees Rental payments in relation to right of use investment property Receipts from new occupation right agreements Payments for outgoing occupation right agreements Interest received Interest paid Interest paid in relation to right of use assets Net cash inflow from operating activities Cash flows from investing activities Proceeds from sale and / or disposal of property, plant and equipment and investment property Payments for property, plant and equipment and intangible assets Payments for investment property and investment property under development Net cash outflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Proceeds from bond issuance Repayment of bank borrowing from bond proceeds Proceeds from share placement Capitalised costs in relation to share placement Capitalised borrowing costs Principal payments for right of use assets Dividends paid Net cash inflow from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of period March 2021 10 months May 2020 12 months 142,290 (153,328) (4,115) 171,387 (52,157) 24 (7,307) (757) 96,037 163,035 (178,005) (19,236) 181,298 (40,341) 153 (6,511) (1,026) 99,367 - (36,269) (66,005) (34) (40,433) (95,516) (102,274) (135,983) 90,274 (89,652) 125,000 (125,000) 80,000 (1,939) (1,861) (2,002) (6,301) 68,519 62,282 17,624 79,906 166,330 (109,449) - - - - (607) (2,569) (22,227) 31,478 (5,138) 22,762 17,624 The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes. 35 CONSOLIDATED FINANCIAL STATEMENTSC O N S O LI DAT E D CAS H FLOW S TAT E M E N T (continued) For the 10 month period ended 31 March 2021 Reconciliation of profit after income tax to net cash inflow from operating activities $NZ000’s Profit / (loss) for the period Non cash items included in profit for the period Deferred management fees accrued but not settled Depreciation (buildings and care suites) Depreciation and amortisation (chattels, leasehold improvements and software) Impairment of goodwill Net loss on disposal of property, plant and equipment Fair value adjustment to investment property Fair value adjustment to right of use investment property and right of use land and buildings Impairment of property, plant and equipment Loss allowance for trade and other receivables Interest accrued but not paid Fair value movement on residents’ share of resale gains Fair value loss on cash flow hedges Deferred tax benefit Employee share scheme Other non cash items Cash items excluded from profit for the period Receipts from new occupation right agreements Payments for outgoing occupation right agreements Increase in operating assets and liabilities Decrease in trade and other receivables Increase in trade and other payables Net cash inflow from operating activities Notes March 2021 10 months 85,534 May 2020 12 months (13,642) 2.2 2.4 2.4 2.4 3.1 3.4 3.2 2.4 2.4 5.6 5.1 4.3 (32,901) 8,615 5,193 1,220 995 (79,969) (2,262) (4,304) 18 (1,723) 2,026 - (30,706) 9,266 5,226 491 204 21,724 (17,086) 916 51 (1,472) 329 101 (10,396) (14,666) 443 514 (172) 351 (112,531) (25,443) 171,387 (52,157) 119,230 181,298 (40,341) 140,957 (2,271) 6,075 96,037 (2,595) 90 99,367 The Board of Directors of the Company authorised these consolidated financial statements for issue on 21 May 2021. For and on behalf of the Board Elizabeth Coutts Chair Alan Isaac Director The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes. 36 OCEANIAANNUAL REPORT 2021N OT ES TO T H E C O N S O LI DAT E D FI NAN C IAL S TAT E M E N T S For the period ended 31 March 2021 1. General Information 1.1 Basis of Preparation 1.2 Accounting Policies 1.3 Significant Events and Transactions 2. Operating Performance 2.1 Operating Segments 2.2 Revenue 2.3 Other Income 2.4 Expenses 3. Property Assets 3.1 Village Assets: Investment Property 3.2 Care Assets: Property, Plant and Equipment 3.3 Refundable Occupation Right Agreements 3.4 Leases 4. Shareholder Equity and Funding 4.1 Shareholder Equity and Reserves 4.2 Earnings per Share 4.3 Employee Share Based Payments 4.4 Borrowings 5. Other Disclosures 5.1 Income Tax 5.2 Intangible Assets 5.3 Trade and Other Receivables 5.4 Trade and Other Payables 5.5 Related Party Transactions 5.6 Financial Risk Management 5.7 Contingencies and Commitments 5.8 Events After Balance Date Independent Auditor's Report 38 38 39 40 42 42 49 50 51 53 55 59 64 66 69 69 70 71 72 75 75 78 80 81 81 82 85 85 87 37 CONSOLIDATED FINANCIAL STATEMENTS N OT ES TO T H E C O N S O LI DAT E D FI NAN C IAL S TAT E M E N T S For the 10 month period ended 31 March 2021 1. General Information 1.1 Basis of Preparation (i) Entities Reporting The consolidated financial statements of the ‘Group’ are for the economic entity comprising Oceania Healthcare Limited (the ‘Company’) and its subsidiaries, together ‘the Group’. Refer to note 5.5 for details of the Group structure. The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Oceania Healthcare Limited as at 31 March 2021 and the results of all subsidiaries for the period then ended. The Group owns and operates various care centres and retirement villages throughout New Zealand. The Group's registered office is Affinity House, 2 Hargreaves Street, St Mary's Bay, Auckland 1011, New Zealand. (ii) Statutory Base Oceania Healthcare Limited is a limited liability company which is domiciled and incorporated in New Zealand. It is registered under the Companies Act 1993 and is a FMC Reporting Entity in terms of Part 7 of the Financial Markets Conduct Act 2013. The Company is also listed on the NZX Main Board (‘NZX’) and the Australian Securities Exchange (‘ASX’) as a foreign exempt listing. The consolidated financial statements have been prepared in accordance with the requirements of the NZX and ASX listing rules, and Part 7 of the Financial Markets Conduct Act 2013. The consolidated financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (‘NZ GAAP’). They comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’), International Financial Reporting Standards (‘IFRS’) and other applicable New Zealand Financial Reporting Standards, as appropriate for for-profit entities. The Group is a Tier 1 for-profit entity in accordance with XRB A1. The consolidated financial statements have been prepared in accordance with the going concern basis of accounting, which assumes that the Group will be able to realise its assets and discharge its liabilities in the normal course of business as they come due into the foreseeable future. The Consolidated Balance Sheet has been prepared using a liquidity format. (iii) Measurement Basis These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets and liabilities, including investment properties, certain classes of property, plant and equipment, right of use assets, assets held for sale and cash flow hedges. (iv) Key Estimates and Judgements The preparation of the consolidated financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise their judgement in the process of applying the Group’s accounting policies. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in the following notes: – Fair value of investment property and investment property under development (note 3.1) – Classification of accommodation with a care or service offering (note 3) – Fair value of freehold land and buildings (note 3.2) – Revenue recognition of deferred management fees (note 3.3) – Fair value of right of use assets (note 3.4) – Recognition of deferred tax (note 5.1) 38 OCEANIAANNUAL REPORT 2021 1.2 Accounting Policies Accounting policies that summarise the measurement basis used and which are relevant to understanding the consolidated financial statements are provided throughout the notes to these consolidated financial statements. Other relevant policies are provided as follows: (i) Principles of Consolidation Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intercompany transactions and balances between Group companies are eliminated. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. (ii) Functional and Presentational Currency These consolidated financial statements are presented in New Zealand Dollars which is the Company’s functional currency and the Group’s presentation currency. Unless otherwise stated the consolidated financial statements are presented in round thousands of dollars. The use of $m signifies millions of dollars. (iii) Goods and Services Tax (‘GST’) The Consolidated Statement of Comprehensive Income and Consolidated Cash Flow Statement have been prepared so that all components are stated exclusive of any GST that can be claimed. GST is only deductible by the Group to the extent that it relates to care operations. All items in the Consolidated Balance Sheet are stated net of GST, with the exception of receivables and payables, which include GST invoiced. (iv) Comparative Information Where a change has been made to the presentation of the consolidated financial statements to that used in prior periods, comparative figures have been restated accordingly. A change has been made to the underlying net profit after tax section of note 2.1 to include an adjustment in relation to depreciation of care suite buildings in deriving underlying profit. This change has been made to provide comparability of care suite assets, which are subject to an occupation right agreement ('ORA'), with other village assets subject to an ORA which are treated as investment property for GAAP purposes and are not depreciated. (v) New Accounting Standards There have been no changes to accounting standards during the period. The Group has not early adopted any standards, amendments or interpretations to existing standards that are not yet effective. (vi) Measurement of Fair Value The Group classifies its fair value measurement using the fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1: Quoted prices (unadjusted) in active markets for the identical assets or liabilities. Level 2: Inputs other than quoted prices included within 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). The carrying amount of all financial assets and liabilities is considered to approximate their fair value. 39 CONSOLIDATED FINANCIAL STATEMENTS1.3 Significant Events and Transactions (i) COVID-19 On 11 March 2020, the World Health Organisation declared COVID-19 to be a global pandemic. COVID-19 has impacted the health and wellbeing of people around the world and in turn the outbreak and the associated restrictions put in place to fight the virus have had a significant adverse impact on the global economy. The New Zealand Government’s overall public health strategy in respect of the COVID-19 pandemic affecting New Zealand was elimination with the overall goal to stop community transmission in New Zealand. Refer to note 1.3 of the 31 May 2020 Annual Report for specific details of events to 31 May 2020. – Post the 31 May 2020 balance date, at 11:59pm on 8 June 2020, Alert Level 1 was entered and was in place at the time of signing the 31 May 2020 annual financial statements. Strict border restrictions were in place and contact tracing was encouraged. – At 12 noon on 12 August 2020, the greater Auckland region re-entered Alert Level 3 lockdown. Businesses including construction were permitted to operate under strict guidelines. Oceania continued with construction projects in the development pipeline and sales of retirement village units continued under certain conditions. The rest of New Zealand was moved back into Alert Level 2. Contact tracing, strict social distancing measures and mass gathering limits had to be followed. – At 11:59pm on 30 August 2020, the greater Auckland region entered Alert Level 2 (with extra restrictions). The rest of New Zealand remained at Alert Level 2. – At 11:59pm on 21 September 2020, Alert Level 1 came into force for all regions except the Auckland region. – At 11:59pm on 23 September 2020, Alert Level 2 (with no extra restrictions) came into force for the Auckland region. – At 11:59pm on 7 October 2020, the greater Auckland region entered Alert Level 1 at which point all of New Zealand aligned at Alert Level 1. – At 11:59pm on 14 February 2021, the greater Auckland region entered Alert Level 3. The rest of New Zealand moved to Alert Level 2. – At 11:59pm on 17 February 2021, the greater Auckland region entered Alert Level 2. The rest of New Zealand moved to Alert Level 1. – At 11:59pm on 22 February 2021, the greater Auckland region entered Alert Level 1 at which point all of New Zealand aligned at Alert Level 1. – At 6:00am on 28 February 2021, the greater Auckland region entered Alert Level 3. The rest of New Zealand moved to Alert Level 2. – At 6:00am on 7 March 2021, the greater Auckland region entered Alert Level 2. The rest of New Zealand moved to Alert Level 1. – At 12:00 noon on 12 March 2021, the greater Auckland region entered Alert Level 1 at which point all of New Zealand aligned at Alert Level 1. 40 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Certain key judgements and estimates are applied in the consolidated annual financial statements. The Directors have assessed the impact of COVID-19 on these judgements and estimates and concluded that limited changes are necessary. This is primarily due to Oceania providing an essential service. The following key matters were considered and undertaken with regards to the financial impact of COVID-19 on the 31 March 2021 consolidated financial statements: – CBRE Limited, as independent valuers, undertook a valuation as at 31 March 2021. As at 30 April 2020 CBRE Limited concluded their valuation on the basis of ‘material valuation uncertainty’ which meant that under extraordinary circumstances at that time there remained a higher degree of uncertainty than would otherwise be the case however the valuation could still be relied upon. As at 31 March 2021 this statement has been revised to a lesser one of ‘market uncertainty’. CBRE Limited continue to state that values and incomes may change more rapidly and significantly than during standard market conditions and recommend their valuations are reviewed periodically to reflect the duration and severity of the impact COVID-19 has on New Zealand and its economy. – No changes to the methodology or input estimates in relation to expected credit losses have been required as a result of continued strong collection levels in respect of private care fees and deferred settlement of ORA contracts. – The enactment of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 has resulted in the reintroduction of depreciation on buildings. The impact of this change is detailed in note 5.1 and has been reflected in the 31 May 2020 comparative figures. Balance Date On 9 July 2020 the Group received approval from the Commissioner of Inland Revenue to change the balance date for the Group and its subsidiaries to 31 March. These consolidated financial statements are the first adopting a 31 March balance date and represent a period of 10 months. Retail Bond On 25 September 2020 Oceania Healthcare Limited announced an offer of up to $75.0m (with the ability to accept up to an additional $50.0m in oversubscriptions) of 7 year secured fixed rate bonds. On 19 October 2020 bonds totalling $125.0m were issued to New Zealand retail investors. These bonds mature on 19 October 2027. A fixed interest rate of 2.3% per annum applies to the Bonds. Refer to note 4.4 for the impact on the 10 months to 31 March 2021. Capital Raise On 24 March 2021 the Group successfully completed an institutional share placement of $80.0m. Settlement of the placement occurred on 26 March 2021 for ASX and on 29 March 2021 for NZX with the allotment of all shares and the commencement of trading on both NZX and ASX on 29 March 2021. The new shares issued under the placement rank equally in all aspects with existing ordinary shares on issue. On 24 March 2021 the Group also announced a non-underwritten $20.0m retail offer. Completion of the offer and allotment of shares occurred on 16 April 2021. 41 CONSOLIDATED FINANCIAL STATEMENTS2. Operating Performance 2.1 Operating Segments The Group's chief operating decision maker is the Board of Directors. The operating segments have been determined based on the information reviewed by the Board of Directors for the purposes of allocating resources and assessing performance. The assets and liabilities of the Group are reported to the chief operating decision maker in total not by operating segment. The Group operates in New Zealand and comprises three segments; care operations, village operations and other. Product Services Recognition of Operating Revenue and Expenses Recognition of Fair Value movements on New Developments Care Village Includes traditional care beds and care suites. Includes independent living and rental properties. Other N/A The provision of accommodation and related services to independent residents in the Group’s retirement villages. The Group derives Operating Revenue from weekly service fees and rental income. Operating Revenue also includes DMF accrued over the expected occupancy period for the relevant accommodation. Operating Expenses include village property maintenance, sales and marketing, and administration related expenses. Provision of support services to the Group (includes administration, marketing and operations). In addition this segment includes the provision of training by the Wesley Institute of Learning. Includes support office and corporate expenses and rental costs relating to the Group’s three leasehold sites. Finance costs relate to the cost of bank debt acquired for the purchase and development of villages. Income and expenditure relating to the Wesley Institute of Learning is recognised in this segment. Fair value movements are recognised in comprehensive income (i.e. profit or loss). N/A The provision of accommodation, care and related services to Oceania’s aged care residents. Includes the provision of services such as meals and care packages to independent living residents. The Group derives Operating Revenue from the provision of care and accommodation. The daily fee is set annually by the Ministry of Health. In relation to the provision of superior accommodation above the Government specification the Group derives revenue from Premium Accommodation Charges (‘PACs’) or, in the case of care suites, through Deferred Management Fees (‘DMF’). Operating Expenses primarily include staff costs, resident welfare expenses and overheads. Fair value increases or decreases are recognised in other comprehensive income (i.e. not in profit or loss) for the fair value movement above historical cost. Impairments below historical cost are recognised in comprehensive income (i.e. profit or loss). 42 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Care Village Recognition of Fair Value movements on Existing Care Centres and Retirement Villages Recognition in Underlying Profit (refer note 2.1 overleaf) Fair value movements are treated the same as above. When sites are decommissioned for development this results in an impairment of the buildings and chattels which is recognised in comprehensive income (i.e. profit or loss). Fair value movements are removed. Asset Categorisation Assets used, or, in the case of developments, to be used, in the provision of care are recognised as property, plant and equipment. Fair value movements are recognised in comprehensive income (i.e. profit or loss). Fair value movements are removed. Realised gains on resales and the development margins from the sale of independent living units and care suites are included, reflective of the ownership structure of the assets. Assets used for village operations are recognised as investment property. Other N/A No material adjustments. Support office assets are recognised as property, plant and equipment. Assets include intangibles (e.g. software). Information regarding the operations of each reportable segment is included above. Amongst other criteria, performance is measured based on segmental underlying earnings before interest, tax, depreciation and amortisation (‘EBITDA’), which is the most relevant measure in evaluating the performance of segments relative to other entities that operate within the aged care and retirement village industries. Additional Segmental Reporting Information Capital expenditure: Refer to notes 3.1, 3.2 and 3.4 for details on capital expenditure. Goodwill: Goodwill is allocated to care cash generating units. What is Total Comprehensive Income? Total comprehensive income is a measure of the total performance of all segments under NZ GAAP. It includes fair value movements relating to the Group’s care centres and cash flow hedges. 43 CONSOLIDATED FINANCIAL STATEMENTS2.1 Operating Segments (continued) 2021 (10 months) $NZ000’s Revenue Change in fair value of investment property Change in fair value of right of use investment property Other income Total income Operating expenses Impairment of goodwill Reversal of impairment of property, plant and equipment Segment EBITDA Interest income Finance costs Depreciation (buildings and care suites) Depreciation and amortisation (chattels and software) Profit / (loss) before income tax Income tax benefit Profit / (loss) for the period attributable to shareholders Other comprehensive income Gain on revaluation of property, plant and equipment for the period, net of tax Gain on revaluation of right of use asset for the period, net of tax Loss on cash flow hedges, net of tax Total comprehensive income for the period attributable to shareholders of the parent Care Operations 146,572 - - 512 Village Operations 28,199 79,969 2,299 1,524 147,084 111,991 Other 646 - - 9 655 Total 175,417 79,969 2,299 2,045 259,730 (128,602) (20,517) (17,941) (167,060) (1,220) 4,169 21,431 - - (8,410) (4,164) 8,857 10,112 - 98 - - 91,572 (17,286) 4 - - - 20 (6,795) (205) (1,029) 91,576 (25,295) 594 (310) (1,220) 4,267 95,717 24 (6,795) (8,615) (5,193) 75,138 10,396 18,969 92,170 (25,605) 85,534 78,583 61 - - - - - - 3,609 78,583 61 3,609 97,613 92,170 (21,996) 167,787 44 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20212020 (12 months) $NZ000’s Revenue Change in fair value of investment property Change in fair value of right of use investment property Other income Total income Care Operations 163,909 - - 309 164,218 Village Operations 28,591 (21,724) 17,086 2,237 26,190 Other 1,146 - - 44 1,190 Total 193,646 (21,724) 17,086 2,590 191,598 Operating expenses Impairment of goodwill Reversal of impairment of property, plant and equipment Segment EBITDA Interest income Finance costs Depreciation (buildings and care suites) Depreciation and amortisation (chattels and software) Profit / (loss) before income tax Taxation benefit Profit / (loss) for the period attributable to shareholders Other comprehensive income Gain on revaluation of land and buildings for the period, net of tax Gain on revaluation of right of use asset for the period, net of tax Loss on cash flow hedges, net of tax Total comprehensive income for the period attributable to shareholders of the parent (144,376) (34,536) (18,964) (197,876) (491) (916) 18,435 - - (8,989) (4,602) 4,844 11,485 - - - - (8,346) (17,774) 27 - - - (8,319) 6,550 126 (6,284) (277) (624) (24,833) (3,369) (491) (916) (7,685) 153 (6,284) (9,266) (5,226) (28,308) 14,666 16,329 (1,769) (28,202) (13,642) 29,223 51 - - - - - - (5,689) 29,223 51 (5,689) 45,603 (1,769) (33,891) 9,943 45 CONSOLIDATED FINANCIAL STATEMENTS2.1 Operating Segments (continued) Underlying Net Profit After Tax (‘Underlying Profit’) Underlying Profit is a non-GAAP measure of financial performance and considered in the determination of dividends. The calculation of Underlying Profit requires a number of estimates to be approved by the Directors in their preparation. Both the methodology and the estimates may differ among companies in the retirement village sector. Underlying Profit does not represent cash flow generated during the period. The Group calculates Underlying Profit by making the following adjustments to reported Net Profit after Tax: Add back / remove Add back Add back Add back / remove Add back Add back Add back Add back = Remove Add back Add back = Net Profit after Tax Change in fair value of investment property, right of use investment property assets and cash flow hedges and impairment / reversal of impairment of property, plant and equipment and right of use property, plant and equipment Impairment of goodwill Rental expenditure in relation to right of use investment property assets Loss / gain on sale or decommissioning of assets Depreciation (Care Suites) Directors’ estimate of realised gains on the resale of units and care suites sold under an ORA Directors’ estimate of realised development margin on the first sale of new ORA units or care suites following the development of an ORA unit or care suite, conversion of an existing care bed to a care suite or conversion of a rental unit to an ORA unit Deferred taxation component of taxation expense so that only the current tax expense is reflected Underlying Profit Interest income Finance costs (including lease interest under NZ IFRS 16) Depreciation and amortisation (including right of use property, plant and equipment) Underlying EBITDA Change to Definition of Underlying Profit The definition of Underlying Profit has been amended in the period to add back depreciation of care suites. The comparative period figures have been restated to reflect this change. The change allows for comparability of care suite assets, which are subject to an ORA, with other village assets subject to an ORA which are treated as Investment Property for GAAP purposes and are not depreciated. This change is consistent with the management information used by the company and that which is reported to the Board. The comparative period has been restated to add back depreciation on care suites. This has increased Underlying Profit in the comparative period by $6.0m. Resale Gain – Underlying Profit The Directors’ estimate of realised gains on resales of ORA units and care suites (i.e. the difference between the incoming resident’s ORA licence payment and the ORA licence payment previously received from the outgoing resident) is calculated as the net cash flow received, and receivable at the point that the ORA contract becomes unconditional and has either ‘cooled off’ (the contractual period in which the resident can cancel the contract) or where the resident is in occupation at balance date. 46 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Development Margin – Underlying Profit The Directors’ estimate of realised development margin is calculated as the ORA licence payment received, and receivable, in relation to the first sale of new ORA units and care suites, at the point that the ORA contract becomes unconditional and has either ‘cooled off’ or where the resident is in occupation at balance date, less the development costs associated with developing the ORA units and care suites. The Directors’ estimate of realised development margin for conversions is calculated based on the difference between the ORA licence payment received, and receivable, in relation to sales of newly converted ORA units and care suites, at the point that the ORA contract becomes unconditional and has either ‘cooled off’ or where the resident is in occupation at balance date, and the associated conversion costs. The table below describes the composition of development and conversion costs. Included New builds: – the construction costs directly attributable to the relevant project, including any required infrastructure (e.g. roads) and amenities related to the units (e.g. landscaping) as well as any demolition and site preparation costs associated with the project. The costs are apportioned between the ORA units and care suites, in aggregate, using estimates provided by the project quantity surveyor. The construction costs for the individual ORA units or care suites sold are determined on a prorated basis using gross floor areas of the ORA units and care suites; – an apportionment of land value based on the gross floor area of the ORA units and care suites developed. The value for Brownfield1 development land is the estimated fair value of land at the time a change of use occurred2 (from operating as a care centre or retirement village to a development site), as assessed by an external independent valuer. Greenfield3 development land is valued at historical cost; and – capitalised interest costs to the date of project completion apportioned using the gross floor area of ORA units and care suites developed. Conversions: – of care beds to care suites - the actual refurbishment costs incurred; and – of rental units to ORA units - the actual refurbishment costs incurred and the fair value of the rental unit prior to conversion. Excluded – construction, land (apportioned on a gross floor area basis) and interest costs associated with common areas and amenities or any operational or administrative areas. 1 Brownfield land refers to land previously utilised by, or part of, an operational aged care centre or retirement village. 2 The timing of a change of use is a Directors’ estimate. It is based on a range of factors including evidence of steps taken to secure a resource consent and/ or building consent for a particular development or stage of a development and the decommissioning of existing operations (either through the buy-back of existing village ORA units or decommissioning of an existing care centre). Note the cost of buybacks is not included in the development cost as an independent fair value of the land on an unencumbered basis is used as the value ascribed to the development land. Greenfield land refers to land not previously utilised by, or as part of, an operational aged care centre or retirement village. Greenfield land is typically bare (undeveloped) land at the time of purchase. 3 47 CONSOLIDATED FINANCIAL STATEMENTS2.1 Operating Segments (continued) 2021 (10 months) $NZ000’s Total comprehensive income for the period attributable to shareholders of the parent Care operations Village operations Other Total 97,613 92,170 (21,996) 167,787 Adjusted for Underlying Profit items Less: Change in fair value of investment property, right of use assets and cash flow hedges and impairment of property, plant and equipment Add: Impairment of goodwill Add: Rental expenditure in relation to right of use asset Add: Depreciation (care suites) Add: Loss / (gain) on sale or decommissioning of assets Add: Realised resale gain Add: Realised development margin Underlying net profit before tax Less: Deferred tax benefit Underlying net profit after tax Less: Interest income Add: Finance costs Add: Depreciation (buildings) Add: Depreciation and amortisation (chattels, leasehold improvements and software) Underlying EBITDA (82,811) (82,367) (3,609) (168,787) 1,220 - 6,173 - - - 22,195 (10,112) 12,083 - - 2,236 4,165 18,484 - 4,115 - - 17,913 23,815 55,646 (594) - - - (84) - - (25,689) 1,220 4,115 6,173 (84) 17,913 23,815 52,152 310 (10,396) 55,052 (25,379) 41,756 (4) - - - (20) 6,795 206 1,028 55,048 (17,370) (24) 6,795 2,442 5,193 56,162 2020 (12 months) $NZ000’s Total comprehensive income for the year attributable to shareholders of the parent Care operations Village operations Other Total 16,329 27,505 (33,891) 9,943 Adjusted for Underlying Profit items Less: Change in fair value of investment property and cash flow hedges and impairment of property, plant and equipment Add: Impairment of goodwill Add: Rental expenditure in relation to right of use asset Add: Loss / (gain) on sale or decommissioning of assets Add: Depreciation (care suite)1 Add: Realised gain on resale Add: Realised development margin Underlying net profit before tax1 Less: Deferred tax benefit Underlying net profit after tax Less: Interest income Add: Finance costs Add: Depreciation (buildings) Add: Depreciation and amortisation (chattels and software) Underlying EBITDA 916 491 - 146 5,980 - - 23,862 (11,485) 12,377 - - 3,009 4,602 19,988 (24,637) 5,689 (18,032) - 19,236 (11) - 11,489 34,320 67,902 (6,550) 61,352 (27) - - - - - 3 - - - (28,199) 3,369 (24,830) (126) 6,284 277 624 491 19,236 138 5,980 11,489 34,320 63,565 (14,666) 48,899 (153) 6,284 3,286 5,226 61,325 (17,771) 63,542 1 The comparatives above have been restated to add back depreciation on care suites. This has increased Underlying Profit by $6.0m in the comparative period. 48 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20212.2 Revenue How We Earn Revenue Care Village Daily care fees for long term and short term rest home, hospital and dementia residents Premium accommodation charges Deferred management fees – independent living Village service fees – independent living Deferred management fees – care suites Rental income – residents without a long term occupation right agreement Other Training income Interest income Accounting Policy Revenue is recognised in accordance with NZ IFRS 15 Revenue from Contracts with Customers (‘NZ IFRS 15’). Deferred management fees and rental income are considered leases under NZ IFRS 16 Leases (‘NZ IFRS 16’), and are therefore excluded from the scope of NZ IFRS 15. None of the Group’s revenue, as defined by NZ IFRS 15, contains significant financing components. Rest Home and Hospital Service Fees A contract is in place with all care residents by means of an admission agreement. The resident receives the benefit as the care is administered and each resident incurs a contracted daily care fee set by the Government each year. Rest home and hospital service fees are recognised at the point in time the services are rendered which is specifically linked to the day the service is delivered. Where applicable these are recognised net of any associated rebates to residents. Aged care subsidies received from the Ministry of Health, included in rest home, hospital and dementia fee revenue within the care segment, for the 10 months to 31 March 2021 amounted to $82.8m (12 months to 31 May 2020: $103.7m). Premium Accommodation Charges Premium accommodation charges are payable by residents who occupy a premium room above the level specified by the Government. The charge is included in their admission agreement and the charge is recognised when the accommodation is provided. Deferred Management Fees Deferred management fees are considered leases and are payable by residents of the Group's units, apartments and care suites under the terms of their ORA or unit title rights. Refer to note 3.3. Management fees are typically payable on termination of the ORA up to a maximum percentage of a resident's occupation licence or unit title rights deposit for the right to share in the use and enjoyment of common facilities. The timing of the recognition of deferred management fees is a critical accounting estimate and judgement. The deferred management fee is recognised on a straight line basis over the longer of the term specified in a resident's ORA or the average expected occupancy for the relevant accommodation which is 7 years for units, 5 years for apartments and 3 years for care suites from the date of occupation. Estimates of deferred management fee tenure are reviewed periodically. Where a change is made, it is the Group’s policy to recognise the aggregate impact of this change in the period in which the change in estimate occurs. Deferred management fees are recognised with respect to the leased retirement village site as per note 3.4. 49 CONSOLIDATED FINANCIAL STATEMENTS2.2 Revenue (continued) Village Service Fees Village service fees are charged to residents to recover a portion of village operating costs associated with services provided including staff wages, rates, and electricity. An ORA is in place with all village residents who receive the benefit of services throughout their stay. Village service fees are recognised over time as services are rendered. Training Income Training income is received from students attending short term training courses at the Wesley Institute of Learning. Income is recognised when the course is provided. Rental Income Rental agreements are in place with all rental residents and set out the relevant weekly / monthly rental fee. The resident receives the benefit throughout their stay and revenue is recognised as it is earned. March 2021 10 months 132,780 3,606 20,234 9,479 1,869 5,208 663 914 664 May 2020 12 months 151,347 3,866 19,926 7,836 1,494 5,997 1,176 1,275 729 175,417 193,646 March 2021 10 months May 2020 12 months 24 2,045 2,069 153 2,590 2,743 $NZ000’s Rest home, hospital, dementia fees Premium accommodation charge Deferred management fees – independent living Deferred management fees – care suites Deferred management fees – leased site Village service fees Training income Rental income Other services provided to residents 2.3 Other Income Interest Income Interest income is recognised on an accruals basis using the effective interest method. Other Income Other income includes administration and legal income derived from the settlement of ORAs. $NZ000’s Interest income Other income 50 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20212.4 Expenses Accounting Policy All operating expenses are recognised on an accrual basis. $NZ000’s Profit before income tax includes the following expenses: Employee benefits and other staff costs Wages and salaries COVID-19 wage subsidy1 Termination benefits Employee share scheme expense Other staff costs2 Depreciation and amortisation Depreciation of buildings Depreciation of care suites Depreciation of right of use assets (buildings) Depreciation of chattels Depreciation of right of use assets (chattels) Amortisation of software Finance costs Interest on senior debt facilities Interest on Retail Bond Agency, commitment and line fees Interest rate swaps Capitalised interest and line fees Amortisation of bank fees Bank interest Change in fair value of cash flow hedges Interest on right of use assets (Reversal of impairment) / impairment of property, plant and equipment Rental expenditure in relation to right of use investment property Impairment of goodwill Notes March 2021 10 months May 2020 12 months 113,124 (156) 281 255 2,165 115,669 1,948 6,173 494 3,104 1,609 480 126,636 (1,821) 1,176 (172) 2,281 128,100 2,663 5,980 623 3,074 2,096 56 13,808 14,492 3,468 1,291 2,782 2,302 (4,261) 455 1 - 757 6,795 (4,267) 7,092 - 3,126 1,087 (6,367) 220 - 101 1,025 6,284 916 4,115 19,236 1,220 491 4.3 3.2 3.2 3.4 3.2 3.4 5.2 3.2 3.4 5.2 1 2 The COVID-19 wage subsidy has been recognised as a reduction in expenses in accordance with NZ IAS 40 Accounting for Government Grants and Disclosure of Government Assistance. Other staff costs include costs such as staff training, uniforms and recruitment. 51 CONSOLIDATED FINANCIAL STATEMENTS2.4 Expenses (continued) $NZ000’s Other expenses Fees paid to Auditor Audit and review of consolidated financial statements Other assurance services – Trustee reporting Other services – Proxy voting (Annual Shareholders Meeting) Total fees paid to auditor Repairs and maintenance of property, plant and equipment including leasehold care centres Repairs and maintenance of investment property including leasehold investment property (Gain) / loss on disposal of property, plant and equipment Donations Loss allowance for trade and other receivables Resident consumables Movement of Residents’ share of resale gains Insurance Legal and professional services COVID-19 District Health Board allowance1 Other expenses (no items of individual significance) Total Expenses Notes March 2021 10 months May 2020 12 months 396 6 - 402 2,410 1,301 (84) 3 18 14,340 2,026 2,928 2,867 (142) 21,207 47,276 184,616 388 6 6 400 2,987 1,098 138 7 51 16,348 329 2,845 3,284 (2,049) 25,102 50,540 220,059 5.3 1 In the comparative figures the COVID-19 District Health Board allowance of $1.8m and a payment from Disability Support Services of $0.2m have been recognised as an offset to expenses in accordance with NZ IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. 52 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20213. Property Assets The Group operates care centres and retirement villages. As outlined in section 2.1, village sites are typically investment property and care sites are typically property, plant and equipment. What is Investment Property? Land and buildings are classified as investment property when they are held to generate revenue either through capital appreciation or through rental income. As residents occupying our retirement villages live independently, the level of services provided is seen as secondary to the provision of accommodation. Accordingly, these buildings are classified as investment property as they are held primarily to generate DMF income. What is Property, Plant and Equipment? Land, buildings and chattels are classified as property, plant and equipment when they are used to generate revenue through the provision of goods and services or for administration purposes. As residents occupying our care centres, including care suites, require services including nursing care, meals and laundry the buildings in which they live are considered to be operated by the Group to generate this revenue and are classified as property, plant and equipment. What is a Care Suite? Care suites are a premium offering for a resident requiring rest home or hospital level care. The care suite is located within a care centre. Rather than pay a daily premium accommodation charge for the provision of the premium room the residents enter into an ORA with a net management fee. Market Uncertainty The date of 30 April 2020 was a particularly significant time in the property market with New Zealand having only exited Alert Level 4 at 11:59pm on 27 April 2020 and was still subject to stringent Alert Level 3 restrictions. As at 30 April 2020 CBRE Limited reassessed a number of their inputs and assumptions to take account of: – Lower growth rates, particularly in the short term; – Higher discount rates; and – Increased discounts on unsold stock. The property portfolio has been independently valued by CBRE Limited as at 31 March 2021. The valuation represents a ‘point in time valuation’ and while the same overall approach was used for this valuation as in prior years the valuers highlighted that there has been a reversal of the changes made to key inputs and assumptions which were made in the 30 April 2020 valuation as a result of COVID-19. As at 31 March 2021 New Zealand was at Alert Level 1 and whilst New Zealand’s borders remain largely closed, and immigration (which has formerly underpinned growth in the residential market) will be absent for some time, in CBRE Limited’s view the market had shown better than expected sentiment over the last 6 to 12 months and as a result the key assumptions used in the valuation have almost all returned to pre COVID-19 levels and the unfavourable changes made to growth rates, discount rate and discounts on unsold stock at 30 April 2020 have been reversed. CBRE Limited at 31 March 2021 have reported on the basis of ‘market uncertainty’ meaning that there remains uncertainty in the market because of the longer term economic impacts of COVID-19. CBRE Limited commented in the valuation report that, for the avoidance of doubt, the inclusion of the ‘market uncertainty’ declaration does not mean that the valuation cannot be relied upon. Rather, it has been used in order to be clear and transparent with all parties that, in the current extraordinary circumstances, there is a higher degree of uncertainty than would otherwise be the case. Further, CBRE Limited continue to state that values and incomes may change more rapidly and significantly than during standard market conditions and recommend their valuations are reviewed periodically to reflect the duration and severity of impact COVID-19 has on New Zealand and its economy. 53 CONSOLIDATED FINANCIAL STATEMENTS3. Property Assets (continued) Classification of Serviced Apartments and Care Suites Where services are provided to residents who occupy accommodation under an ORA, it is the Group’s policy to assess their level of significance in the context of the overall income derived from the serviced apartment or care suite in ascertaining whether the serviced apartment or care suite is freehold land and buildings (referred to as property, plant and equipment) or investment property. The Group applies the following principles when ascertaining the appropriate accounting treatment to be applied: CLASSIFICATION Investment Property Village Assets Property, Plant and Equipment Care Assets Independent living (villa or apartment) SCENARIO Serviced apartment Care suite Traditional care bed Additional services are optional Services are compulsory but an insignificant portion of total revenue from the unit Services are compulsory and a significant portion of the total revenue from the unit Full ARRC1 funded care is compulsory for that unit/bed CONSIDERATION OF SIGNIFICANCE OF CASH FLOWS Qualitatively the business model is the provision of retirement accommodation Quantitatively insignificant (a guideline of under 20% of total revenue is adopted) and qualitatively the business model is the provision of retirement accommodation Quantitatively significant. Qualitatively the business model is the provision of care Qualitatively the business model is the provision of care. Quantitative assessment not relevant as price of accommodation does not change overall purpose of the accommodation Accounting Policy Investment property includes both freehold land and buildings and land and buildings under development, comprising independent units, serviced apartments and common facilities, provided for use by residents under the terms of an ORA. Investment property is held for long-term yields and is not occupied by the Group. Investment property is held at fair value. The fair value of investment property is determined by the Directors having taken into consideration the valuation conducted by CBRE Limited as an independent registered valuer and the cost of work undertaken in relation to investment property under development. The movement in the carrying value of investment property, net of additions, transfers and disposals is recognised as a fair value movement in the Consolidated Statement of Comprehensive Income. 1 ARRC refers to age-related residential care. 54 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20213.1 Village Assets: Investment Property Fair value measurement on investment property under development is only applied if the fair value is considered to be reliably measurable. Where the fair value of a property under development can be determined, it is carried at fair value. Where the fair value of investment property under development cannot be reliably determined, the carrying amount is considered to be the fair value of the land plus the cost of work undertaken. $NZ000’s Notes March 2021 May 2020 Investment property under development at fair value Opening balance Transfer from / (to) property, plant and equipment Capitalised expenditure Capitalised interest and line fees Transfer to completed investment property Transfer to held for sale investment property Change in fair value during the period – developments as at balance date Change in fair value during the period – developments completed during the period Closing balance 3.2 Completed investment property at fair value Opening balance Transfer from investment property under development Transfer to property, plant and equipment Transfer to right of use assets Capitalised expenditure Capitalised interest and line fees Disposals Change in fair value during the period – existing villages Change in fair value during the period – recently completed developments1 Closing balance 3.2 3.4 Held for sale investment property at fair value Opening balance Transfer from investment property under development Disposals Closing balance 145,020 - 63,881 3,028 (99,512) - 7,826 23,477 143,720 802,060 99,512 (1,329) - 7,050 124 - 34,888 13,778 956,083 720 - (720) - 101,460 22,193 82,472 3,332 (61,551) (720) (1,258) (908) 145,020 780,214 61,551 (17,592) (14,006) 10,208 1,287 (44) (25,132) 5,574 802,060 - 720 - 720 Total investment property 1,099,803 947,800 1 Recently completed developments refers to those developments which were being sold down during the period. 55 CONSOLIDATED FINANCIAL STATEMENTS3.1 Village Assets: Investment Property (continued) Change in Fair Value Recognised in the Consolidated Statement of Comprehensive Income $NZ000’s Increase in fair value of investment property Add: Transfers to property, plant and equipment and to right of use assets during the period Less: Capitalised expenditure including capitalised interest Add: Disposals Change in fair value recognised in Consolidated Statement of Comprehensive Income March 2021 10 months 152,003 1,329 (74,083) 720 May 2020 12 months 66,126 9,405 (97,299) 44 79,969 (21,724) A reconciliation between the valuation and the amount recognised on the Consolidated Balance Sheet as investment property is as follows: $NZ000’s Investment property under development Valuation Completed Investment Property Valuation Add: Refundable occupation licence payments Add: Residents’ share of resale gains Less: Management fee receivable Less: Resident obligations for units not included in valuation Held for Sale Investment property Valuation March 2021 May 2020 143,720 143,720 474,215 573,766 7,205 (84,433) (14,670) 956,083 - - 145,020 145,020 370,257 501,739 5,870 (72,933) (2,873) 802,060 720 720 Total investment property at fair value 1,099,803 947,800 Where an incoming resident has an unconditional ORA in respect of a retirement village unit and the corresponding outgoing resident for that same accommodation has not yet been refunded, the CBRE Limited valuation is adjusted for the incoming resident balances only. In certain circumstances accommodation under an ORA is valued as development land. In these situations the CBRE Limited valuation is not adjusted for the refundable amounts and consequently no offsetting ‘gross up’ is required. An adjustment of $14.7m (2020: $2.9m) is included in the above reconciliation to reflect this. The valuation of investment property is adjusted for cash flows relating to refundable occupation licence payments, residents' share of resale gains and management fee receivable recognised separately on the Consolidated Balance Sheet and also reflected in the valuation model. Why do we adjust for the liability to residents? In the CBRE Limited valuation the fair value of investment property includes an allowance for the amount that is payable by the Group to residents already in occupation within the property. However, this liability to existing residents is recognised in the Group’s Consolidated Balance Sheet (referred to as refundable occupation right agreements – refer to note 3.3). Accordingly, the Group adds this net liability to residents to the CBRE Limited valuation to ‘gross up’ the fair value of investment property and avoid double counting the liability to residents. 56 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Valuation Process and Key Inputs Investment Property under Development CBRE Limited provided valuations of development land in respect of investment property under development as at 31 March 2021 (2020: 30 April 2020). The fair value of investment property is determined by the Directors having taken into consideration the valuation conducted by CBRE Limited as an independent registered valuer and the cost of work undertaken in relation to investment property under development. The Group has applied the following methodology in relation to the measurement of investment property under development: Practical completion not achieved Where the development still requires substantial work such that practical completion is not going to be achieved, and a reliable estimate of fair value cannot be made, at or close to balance date, the fair value recognised is the fair value of the development land per the Directors’ valuation plus the cost of any work in progress. An amount of $51.6m as at 31 March 2021 (2020: $65.2m) has been recognised in relation to these development sites. Where an individual development is of both investment property and freehold buildings in nature, the fair value of land and work in progress is apportioned between investment property under development and freehold land and buildings under development, by applying the estimated gross floor area for these respective areas of the development based on information obtained from the project quantity surveyors at the planning and design stages. Practical completion achieved Where a development is practically completed, or likely to be completed at, or close to, balance date the investment property is measured at its completed fair value per the Directors’ valuation with an adjustment made for any estimated costs, in accordance with the project budget, to be incurred to complete the development, and is then transferred to completed investment property. Completed Investment Property As required by NZ IAS 40 Investment Property, the valuation of investment property is adjusted for cash flows relating to refundable occupation licence payments, residents’ share of resale gains and management fees receivable recognised separately on the Consolidated Balance Sheet and also reflected in the valuation model. The Group's interest in all completed investment property was valued on 31 March 2021 by CBRE Limited (2020: 30 April 2020 by CBRE Limited), at a total of $472.2m (2020: 30 April 2020 $379.8m adjusted downwards for the impact of any sale, resale and repurchase of ORAs between 1 May 2020 and 31 May 2020 by $10.3m with a corresponding increase in refundable occupation licence payments of $13.3m to arrive at the fair value of completed investment properties at 31 May 2020). Investment Property Held for Sale Investment property assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at their fair value. On 8 September 2020 the one parcel of land that met the definition of held for sale as at 31 May 2020 was sold to a third party. There was no gain or loss on this transaction. No properties met the definition of held for sale as at 31 March 2021. Property Specific Assumptions Seismic and Weather Tightness Assessments The CBRE Limited valuation, and accordingly the fair value of investment property, incorporates an allowance in relation to remediation to properties where seismic strength testing has been carried out in prior years. Key Accounting Estimates and Judgements All investment properties have been determined to be Level 3 (2020: Level 3) in the fair value hierarchy as the fair value is determined using inputs that are unobservable. 57 CONSOLIDATED FINANCIAL STATEMENTS3.1 Village Assets: Investment Property (continued) Significant Unobservable Inputs The significant unobservable input used in the fair value measurement of the Group's development land is the value per m2 assumption. Increases in the value per m2 rate result in the corresponding increases in the total valuation. The significant unobservable inputs used in the fair value measurement of the Group's portfolio of completed investment property are the discount rate and property price growth rate. The following assumptions have been used to determine fair value: Significant Input Description 2021 2020 Discount rate The pre-tax discount rate Property price growth rate Property price growth rate Anticipated annual property price growth over the cash flow period 0-4 years Anticipated annual property price growth over the cash flow period 5+ years 14.0% - 20.0% (median: 15.0%) 14.1% - 20.3% (median: 15.3%) 0.5% - 3.5% (2.0%) - 3.0% 2.5% - 3.5% 2.5% - 3.5% Due to the market uncertainty disclosed in note 3, the range of reasonably possible changes to key assumptions is uncertain and could be significantly greater than the ranges used in the sensitivity analysis. Sensitivities At 31 March 2021 Completed investment property Valuation $NZ000’s Difference $NZ000’s Difference % At 31 May 2020 Completed investment property Valuation $NZ000’s Difference $NZ000’s Difference % Adopted value Discount rate +0.5% Discount rate -0.5% Property growth rate +50 bp Property growth rate -50 bp 474,215 (17,288) (3.6%) 18,442 3.9% 18,025 3.8% (31,516) (6.6%) Adopted value Discount rate +0.5% Discount rate -0.5% Property growth rate +50 bp Property growth rate -50 bp 370,257 (13,998) (3.8%) 14,940 4.0% 22,519 6.1% (23,563) (6.4%) The stabilised occupancy period is a key driver of the CBRE Limited valuation. A significant increase / (decrease) in the occupancy period would result in a significantly lower/ (higher) fair value measurement. Significant Input Stabilised occupancy period 2021 2020 2.8 years – 8.5 years (median: 7.0 years) 3.2 years – 8.3 years (median: 6.8 years) Current ingoing price, for subsequent resales of ORAs, is a key driver of the CBRE Limited valuation. A significant increase / (decrease) in the ingoing price (as driven by the property growth rates) would result in a significantly higher / (lower) fair value measurement. 58 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20213.2 Care Assets: Property, Plant and Equipment Accounting Policy Property, plant and equipment comprises owner-occupied freehold land and buildings and plant and equipment operated by the Group for the provision of care services, care suites and land and buildings that are to be developed into care centres in the future. Following initial recognition at cost, completed owner occupied freehold land and buildings and land and buildings under development are carried at fair value. Independent valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the assets’ fair value at balance date. Any depreciation at the date of valuation is deducted from the gross carrying value of the asset, and the net amount is restated to the revalued amount of the asset. In periods where no valuation is carried out, the asset is carried at its revalued amount plus any additions, less any impairment and less any depreciation incurred since the date of the last valuation. All other plant and equipment is stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. In relation to land and buildings under development, fair value is determined by the Directors having taken into consideration the valuation conducted by CBRE Limited as an independent registered valuer and the cost of work undertaken, whereas previously the fair value was held at the CBRE Limited valuation plus the cost of work undertaken in relation to land and buildings under development. A property under construction is classified as land and buildings within property, plant and equipment where the completed development will be classified as such and as investment property where the completed development will be classified as an investment property. Fair value measurement on property under construction is only applied if the fair value is reliably measurable. Where the fair value of property under construction cannot be reliably determined the value is the fair value of the land plus the cost of work undertaken. Property under construction classified as land and buildings under development is revalued annually and is not depreciated. 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 expensed to the Consolidated Statement of Comprehensive Income during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation of land and buildings above cost are credited to the asset revaluation reserve in other comprehensive income; increases that offset previous decreases taken through profit or loss are recognised in profit or loss. Decreases that offset previous increases of the same asset are charged against the asset revaluation reserve in other comprehensive income; all other decreases are charged to profit or loss. When revalued assets are sold, or held for sale, the amounts included in the reserve are transferred to retained earnings. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Category – Freehold buildings – Chattels and leasehold improvements – Motor vehicles Useful life range 10 - 50 years 2 - 50 years 5 years Weighted average depreciation rate 2.75% 20% 22% 59 CONSOLIDATED FINANCIAL STATEMENTS3.2 Care Assets: Property, Plant and Equipment (continued) The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. No depreciation is charged in the year of sale for all assets other than buildings in which case depreciation is charged to the earlier of the date of classification to held for sale or the date of sale. 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 the net disposal proceeds with the carrying amount of the asset. These are included in the Consolidated Statement of Comprehensive Income. NZ$000’s Period ended 31 March 2021 Opening net book amount Additions Capitalised interest and line fees Disposals Depreciation Transfer to right of use assets Transfer from investment property Reclassification within property, plant and equipment Revaluation surplus Comprehensive income – Existing care centres – Care centres recently developed / under development Other comprehensive income1 – Existing care centres – Care centres recently developed / under development Closing net book amount At 31 March 2021 Cost Valuation Accumulated depreciation Net book amount Freehold land and buildings under development Notes Freehold land Freehold buildings Chattels and leasehold improvements Total 54,206 77,496 339,916 18,372 489,990 18,664 837 - - - - 3.4 3.1 - - - - - - - 1,329 8,189 271 - 4,138 30,991 - - 1,108 - (8,121) (3,104) (11,225) (32,998) (2,105) 35,103 1,610 1,076 1,543 - - 75 2,007 16,333 31,757 10,441 - 27,017 - - - - - - - - 1,329 - 4,229 75 50,097 37,458 54,767 92,800 437,079 19,406 604,052 - - - 51,543 51,543 54,767 92,800 437,079 - 584,646 - - - (32,137) (32,137) 54,767 92,800 437,079 19,406 604,052 1 The revaluation noted in the Statement of Comprehensive Income differs from the above due to deferred tax, refer note 5.1. 60 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Freehold land and buildings under development Notes Freehold land Freehold buildings Chattels and leasehold improvements Total NZ$000’s Year ended 31 May 2020 Opening net book amount Additions Capitalised interest and line fees Disposals Depreciation Transfer to right of use assets Transfer (to) / from investment property Reclassification within property, plant and equipment 3.4 3.1 Revaluation surplus Comprehensive income – Existing care centres – Care centres recently developed / under development Other comprehensive income1 – Existing care centres – Care centres recently developed / under development Closing net book amount At 31 May 2020 Cost Valuation Accumulated depreciation Net book amount 70,297 70,662 282,417 19,333 442,709 20,776 958 - - - - - - - - 7,722 790 - 7,643 36,141 - (155) 1,748 (155) (8,643) (3,074) (11,717) - (5,375) (5,375) (22,193) 570 17,022 (22,759) 3,300 19,459 (1,034) 454 (313) - (95) 72 1,608 2,469 652 6,553 136 20,738 - - - - - - (4,601) - (893) (23) 4,729 27,427 54,206 77,496 339,916 18,372 489,990 - - - 47,407 47,407 54,206 77,496 339,916 - 471,618 - - - (29,035) (29,035) 54,206 77,496 339,916 18,372 489,990 Land and Buildings Under Development A valuation in respect of development land was provided by CBRE Limited as at 31 March 2021. Any costs incurred to 31 March 2021 on the developments are included in arriving at the fair value as at 31 March 2021. The Group has applied the following methodology in relation to the measurement of land and buildings under development: Practical completion not achieved Where the development still requires substantial work such that practical completion is not going to be achieved, and a reliable estimate of fair value cannot be made, at or close to balance date, the fair value recognised is the fair value of the development land per the Directors’ valuation plus the cost of any work in progress. An amount of $16.2m as at 31 March 2021 (2020: $20.3m) has been recognised in relation to these development sites. Where an individual development is of both investment property and freehold buildings in nature, the fair value of land and work in progress is apportioned between investment property under development and freehold land and buildings under development, by applying the estimated gross floor area for these respective areas of the development based on information obtained from the project quantity surveyors at the planning and design stages. 1 The revaluation noted in the Statement of Comprehensive Income differs from the above due to deferred tax, refer note 5.1. 61 CONSOLIDATED FINANCIAL STATEMENTS3.2 Care Assets: Property, Plant and Equipment (continued) Practical completion achieved Where a development is practically completed, or likely to be completed at, or close to, balance date the land and buildings are measured at its completed fair value per the Directors’ valuation with an adjustment made for any estimated costs, in accordance with the project budget, to be incurred to complete the development, and is then transferred to completed land and buildings. Completed Land and Buildings A valuation in respect of completed land and buildings was provided by CBRE Limited as at 31 March 2021 (2020: 30 April 2020). The valuation of the Group’s care centres was apportioned to land, buildings, chattels and goodwill. The fair value of land and buildings as calculated by CBRE Limited is based on the level of rent able to be generated from the maintainable net cash flow of the site subject to average efficient management. The fair value of the Group’s land and buildings as determined by the Directors is based on these apportionments. However, chattels are carried at historic cost less depreciation and the amount apportioned to goodwill by CBRE Limited is not recorded in the consolidated financial statements. The CBRE Limited valuation included $10.4m of goodwill (30 April 2020: $12.0m) in respect of completed land and buildings. The CBRE Limited valuation used in the determination of the fair value of freehold buildings, incorporates an allowance in relation to remediation to properties where seismic strength testing has been carried out in prior years. Care Suites and Serviced Apartments As discussed earlier in note 3, where services are provided to residents who occupy accommodation under an ORA, it is the Group’s policy to look at the significance of these services in the context of the overall revenue derived from care suite or serviced apartment in ascertaining whether the care suite or serviced apartment is property, plant and equipment or investment property. Care suite residents occupying accommodation under an ORA receive a significant level of services. Hence, they are included in property, plant and equipment. Care suite land and buildings are held at fair value. Where a site is in its first few years of operation, the Directors assess the appropriateness of the fair value of care suites by taking into consideration the CBRE Limited valuation and applying different operating assumptions including instances where care suites are occupied by residents paying a premium accommodation charge. No adjustment has been made or required as at 31 March 2021. As at 31 May 2020 an adjustment was made in respect of two sites, a decrease of $8.7m, to the CBRE Limited valuation. The CBRE Limited valuation of care suites includes $0.1m of goodwill (2020: $0.6m). This goodwill is not recognised in the consolidated financial statements. Key Accounting Estimates and Judgements All land and buildings have been determined to be Level 3 (2020: Level 3) in the fair value hierarchy as the fair value is determined using inputs that are unobservable. Critical Judgements and Estimates in Applying Accounting Policies Classification of Care Suites An area of significant judgement is determining the classification of those properties which are operated as care suites. Refer note 3 for further information. Valuation of Freehold Land and Buildings The valuation approach for the freehold land and buildings as at 31 March 2021 was an income capitalisation approach and/or discounted cash flow analysis supplemented by the direct comparison approach. The valuation is determined by the capitalisation of net cash flow profit/earnings before interest, tax, depreciation, amortisation and rent (‘EBITDAR’) under the assumption a positive cash flow will be generated into perpetuity. Capitalisation rates used for the 31 March 2021 valuation range from 12.0% to 17.0% with a median value of 13.4% (30 April 2020: 11.0% to 17.75% with a median value of 13.0%). The valuation was apportioned between land, buildings, chattels / plant and equipment and goodwill to determine the fair value of the assets. The significant unobservable input used in the fair value measurement of the Group's development land is the value per m2 assumption. Increases in the value per m2 rate result in corresponding increases in the total valuation. The significant unobservable input used in the fair value measurement of the Group's portfolio of completed land and buildings is the capitalisation rate applied to earnings. A significant decrease / (increase) in the capitalisation rate would result in significantly higher / (lower) fair value measurement. 62 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Sensitivities At 31 March 2021 Adopted value Capitalisation rate +50 bp Capitalisation rate -50 bp Freehold land and buildings Valuation $NZ000’s Difference $NZ000’s Difference % 529,879 (32,694) (6.2%) 36,509 6.9% At 31 May 2020 Adopted value Capitalisation rate +50 bp Capitalisation rate -50 bp Freehold land and buildings Valuation $NZ000’s Difference $NZ000’s Difference % At 31 March 2021 Completed care suite property Valuation $NZ000’s Difference $NZ000’s Difference % At 31 May 2020 Completed care suite property Valuation $NZ000’s Difference $NZ000’s Difference % Assets Held for Sale 417,412 (23,041) (5.5%) 28,316 6.8% Adopted value Discount rate +0.5% Discount rate -0.5% Property growth rate +50 bp Property growth rate -50 bp 170,367 (10,512) (3.6%) 11,738 3.9% 6,476 3.8% (11,323) (6.6%) Adopted value Discount rate +0.5% Discount rate -0.5% Property growth rate +50 bp Property growth rate -50 bp 113,395 (6,259) (3.8%) 7,692 4.0% 6,897 6.1% (7,216) (6.4%) Assets are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are measured at the lower of carrying amount and fair value less costs to sell, except for investment property assets held for sale which are carried at fair value. Carrying Value of Assets The carrying amount at which both land and buildings would have been carried had the assets been measured under historical cost is as follows: $NZ000’s Carrying amount – Historical cost 2021 Carrying amount – Historical cost 2020 Freehold land Freehold buildings Freehold land and buildings under development Total 32,008 245,872 3,052 280,932 36,911 226,382 21,929 285,222 63 CONSOLIDATED FINANCIAL STATEMENTS3.3 Refundable Occupation Right Agreements What is an ORA? An ORA is a contract which sets out the terms and conditions of occupation of an independent living unit or care suite. A new resident is charged a refundable occupation licence payment in consideration for the right to occupy one of the Group's units, apartments or care suites. On termination of the ORA the occupation licence payment is repaid to the exiting resident. What is DMF? An amount equal to a capped percentage of the occupation licence payment is charged by the Group as a management fee for the right to use and enjoy the common areas of the village. The deferred management fee is payable by the resident on termination of the ORA. Accounting Policy The occupation licence payment becomes payable when the ORA is unconditional and has either ‘cooled off’ or where the resident is in occupation. The Group has a legal right to set-off any amounts owing to the Group by a resident against that resident's licence payment. Such amounts include deferred management fees, recovery of village operating costs and recovery of outstanding obligations to the village. The management fee receivable is recognised in accordance with the terms of the resident’s ORA. The deferred management fee represents the difference between the management fees receivable under the ORA and the portion of the management fee accrued which is recognised on a straight-line basis over the longer of the term specified in a resident's ORA or the average expected occupancy for the relevant accommodation i.e. 7 years for units, 5 years for apartments and 3 years for care suites (2020: 7 years, 5 years, 3 years). The management fee recognised in the Consolidated Statement of Comprehensive Income represents income earned in line with the average expected occupancy. Included in the obligation to residents is an estimate of the amount expected to be paid to those residents whose ORA or unit title arrangement allows them to participate in the resale gain of the unit or apartment they occupy. As the refundable occupation licence payment is repayable to the resident upon termination (subject to a new ORA being issued to an incoming resident), the fair value is equal to the face value, being the amount that can be demanded. 64 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021$NZ000’s Village Refundable occupation licence payments Residents’ share of resale gains Less: Management fee receivable (per contract) Leasehold Village Refundable occupation licence payments Less: Management fee receivable (per contract) Care Suites Refundable occupation licence payments Accommodation rebate Less: Management fee receivable (per contract) March 2021 May 2020 573,766 7,205 501,739 5,870 (117,300) (100,912) 463,671 406,697 37,130 (6,647) 30,483 33,015 (3,809) 29,206 152,273 120,506 375 (28,369) 124,279 559 (21,598) 99,467 Total refundable occupation right agreements 618,433 535,370 Reconciliation of Management Fees recognised under NZ IFRS and per ORA $NZ000’s Village Management fee receivable (per contract) Deferred management fee Management fee receivable (per NZ IFRS) Leasehold Villages Management fee receivable (per contract) Deferred management fee Management fee receivable (per NZ IFRS) Care Suites Management fee receivable (per contract) Deferred management fee Management fee receivable (per NZ IFRS) March 2021 May 2020 (117,300) (100,912) 32,867 (84,433) 27,979 (72,933) (6,647) 2,590 (4,057) (3,809) 1,621 (2,188) (28,369) 6,042 (21,598) 4,744 (22,327) (16,854) 65 CONSOLIDATED FINANCIAL STATEMENTSN OT ES TO T H E C O N S O LI DAT E D FI NAN C IAL S TAT E M E N T S (continued) For the 10 month period ended 31 March 2021 3.4 Leases What’s a right of use asset? Right of use assets are assets held under a lease arrangement. It represents the value of the lessee’s right to use an asset over the life of the lease. There is a corresponding lease liability on the Consolidated Balance Sheet which represents the present value of the future lease payments. Accounting Policy The Group adopted NZ IFRS 16 on 1 June 2019. The leases to which this standard applies include; (i) one retirement village which meets the definition of an investment property, (ii) three care facilities which meet the definition of land and buildings, (iii) one support office building which meets the definition of land and buildings, and (iv) equipment and motor vehicles under lease agreements which are classified as chattels. Right of use assets and lease liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the remaining lease payments. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liabilities. Right of use assets are initially recognised at cost, comprising of the initial amount of the lease liability less any lease incentives received. Right of use assets relating to equipment and motor vehicles, recognised in chattels, are subsequently depreciated using the straight line method from the commencement date to the end of the lease. Right of use assets relating to care centres are subsequently measured at fair value as determined by the Directors having taken into consideration the valuation performed by CBRE Limited. In considering the lease term, the Group applies judgement in determining whether it is reasonably certain that an extension or termination option will be exercised. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined the incremental borrowing rate at the commencement of the lease is used. Right of Use Asset March 2021 $NZ000’s Opening net book value Additions Disposals Depreciation Revaluation for the period – Comprehensive Income Revaluation for the period1 – Other Comprehensive Income Net book value as at 31 March 2021 Investment Property 31,140 7 - - Land and Buildings 4,837 33 (266) (494) Chattels 4,845 872 (9) Total 40,822 912 (275) (1,609) (2,103) 2,299 (37) - 33,446 96 4,169 - - 4,099 2,262 96 41,714 1 The revaluation noted in the Statement of Comprehensive Income differs from the above due to deferred tax, refer note 5.1. 66 OCEANIAANNUAL REPORT 2021May 2020 $NZ000’s Opening net book value Recognition on adoption of NZ IFRS 16 Leases Notes Investment Property - - Transfer from investment property / property, plant and equipment 3.1, 3.2 14,006 Additions Disposals Depreciation Revaluation for the year – Comprehensive Income Revaluation for the year14 – Other Comprehensive Income Net book value as at 31 May 2020 March 2021 $NZ000’s Cost Valuation Accumulated depreciation Net book value as at 31 March 2021 Land and Buildings - 5,423 - 8 - Chattels - 235 5,375 1,336 (5) Total - 5,658 19,381 1,350 (5) (623) (2,096) (2,719) (42) 71 4,837 - - 17,086 71 4,845 40,822 6 - - 17,128 - 31,140 Investment Property Land and Buildings - 33,446 - 33,446 - 4,169 - 4,169 Chattels 8,924 - (4,825) 4,099 Total 8,924 37,615 (4,825) 41,714 A reconciliation between the valuation and the amount recognised on the Consolidated Balance Sheet as right of use investment property is as follows: $NZ000’s Right of use Investment Property Valuation Add: Refundable occupation licence payments Less: Management fee receivable March 2021 May 2020 373 37,130 (4,057) 33,446 313 33,015 (2,188) 31,140 The valuation of right of use investment property is adjusted for cash flows relating to refundable occupation licence payments and management fee receivable recognised separately on the Consolidated Balance Sheet and also reflected in the valuation model. 67 CONSOLIDATED FINANCIAL STATEMENTS3.4 Leases (continued) Lease Liabilities March 2021 $NZ000’s Opening net book value Additions and disposals Interest Lease payments made Lease liabilities as at 31 March 2021 May 2020 $NZ000’s Opening net book value Recognition on adoption of NZ IFRS 16 Leases Transfer from borrowings Additions Interest Lease payments made Lease liabilities as at 31 May 2020 Investment property Land and buildings - - - - - Notes Investment property 4.4 - - - - - - - 7,865 (349) 352 (847) 7,021 Land and buildings - 8,444 - - 471 (1,050) 7,865 Chattels 5,136 863 345 (1,852) 4,492 Chattels - 278 5,517 1,331 508 (2,498) 5,136 Total 13,001 514 697 (2,699) 11,513 Total - 8,722 5,517 1,331 979 (3,548) 13,001 Lease of Investment Property The Group leases one site, Everil Orr, which meets the definition of investment property. The site comprises both apartments and common facilities provided for use by residents under the terms of an ORA. Payments to the lessor under this lease are made as ORAs are sold. Subsequent cash flows upon the sale and resale of the units are shared between the lessor and the Group. Due to the variability of these payments both the right of use asset and the corresponding lease liability were initially recognised at nil value. Rental payments are recognised as a rental expense through the Consolidated Statement of Comprehensive Income. The right of use asset is held at fair value in accordance with NZ IAS 40 Investment Property. The fair value is determined by the Directors having taken into consideration the valuation conducted by CBRE Limited at 31 March 2021. The carrying value of the right of use asset as at 31 March 2021 in respect of this leased site is $33.4m (2020: $31.1m). On 15 February 2021 the Group entered into a Sale and Purchase Agreement to purchase one leased site for a purchase price of $5.0m. Date of settlement is 18 June 2021. Lease of Property, Plant and Equipment The Group leases three care centres which are valued as right of use assets as well as on one support office building and various equipment and motor vehicles. A valuation in respect of right of use property assets was provided by CBRE Limited as at 31 March 2021. 68 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021 4. Shareholder Equity and Funding 4.1 Shareholder Equity and Reserves Accounting Policy Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Share capital Authorised, issued and fully paid up capital 689,276,946 618,056,183 Total contributed equity 689,276,946 618,056,183 675,625 675,625 588,389 588,389 March 2021 Shares May 2020 Shares March 2021 $NZ000’s May 2020 $NZ000’s Movements Opening balance of ordinary shares issued 618,056,183 610,254,535 588,389 580,794 Shares issued for employee share scheme Shares issued for dividend reinvestment plan Share issue (placement) Capitalised costs in relation to share placement 1,193,045 8,489,256 61,538,462 - 1,004,640 6,797,008 - - - 9,175 80,000 (1,939) - 7,595 - - Closing balance of ordinary shares issued 689,276,946 618,056,183 675,625 588,389 All ordinary shares are authorised and rank equally with one vote attached to each fully paid ordinary share. The shares have no par value. Share Issue On 29 March 2021 a total of 61,538,462 shares with a value of $1.30 per share were issued in relation to an Institutional Placement. These shares rank equally with existing shares. The Placement was fully underwritten. Fees incurred of $1.9m have been offset against funds raised. Dividend Reinvestment Plan (‘DRP’) – 1,399,054 shares with a value of $1.5331 per share were issued in the four months to 31 March 2021 in relation to the 30 November 2020 dividend reinvestment plan. – 2,613,632 shares with a value of $0.9910 per share were issued in the six months to 30 November 2020 in relation to the 31 May 2020 dividend reinvestment plan. Further, 4,476,570 shares with a value of $0.9910 were issued in the six months to 30 November 2020 pursuant to an underwriting agreement with Macquarie Securities (NZ) Limited. – 2,272,880 shares with a value of $1.0018 per share were issued in relation to the 31 May 2019 dividend reinvestment plan. – 4,524,128 shares with a value of $1.175 per share were issued in relation to the 30 November 2019 dividend reinvestment plan. Recognition and Measurement – 3,164,556 shares are held by the Group and its subsidiaries in relation to a previously cancelled long term incentive plan scheme. Shares issued to OCA Employees Trustee Limited, a subsidiary, on behalf of Oceania employees in relation to an employee share scheme are classified as Treasury Shares as the Group has a beneficial interest in the 3,164,556 shares. – On 20 November 2020, 1,948,061 share rights were issued for nil consideration and a nil exercise price in relation to the LTI Scheme for the provision of performance-based remuneration. Group Structure There are no major shareholders. 69 CONSOLIDATED FINANCIAL STATEMENTS4.1 Shareholder Equity and Reserves (continued) Dividends On 21 May 2021, a full year dividend of 2.1 cents per share (not imputed) was declared and will be paid on 22 June 2021. The record date for entitlement is 8 June 2021. Final dividend for the prior year Interim dividend for period Total dividends declared during the period1 Dividend Reinvestment Plan March 2021 cents per share March 2021 $NZ000’s 1.2 1.3 7,417 8,142 15,559 May 2020 cents per share 2.6 2.3 May 2020 $NZ000’s 15,867 14,037 29,904 On 25 July 2019, the Board approved the implementation of a dividend reinvestment plan for New Zealand and Australian shareholders. This plan has been effective for all subsequent dividends. This plan shall also be effective for the dividend payable on 22 June 2021 at a discount of 2.5% to the volume weighted average price of shares sold on the NZX Main Board over a period of five trading days starting on 4 June 2021. The dividend reinvestment plan shall apply to those shareholders who have provided a participation election by 5:00pm on the dividend election date, being 9 June 2021. Asset Revaluation Reserve The asset revaluation reserve is used to record the revaluation of freehold land and buildings and land and buildings under development. Cash Flow Hedge Reserve The cash flow hedge reserve is used to record gains or losses on instruments used as cash flow hedges. The amounts are recognised in the Consolidated Statement of Comprehensive Income when the hedged transaction affects profit or loss. Refer note 5.6. 4.2 Earnings per Share Basic Basic earnings per share is calculated by dividing the profit after tax of the Group by the weighted average number of ordinary shares outstanding during the period. $NZ000’s Profit / (loss) after tax ($’000) Weighted average number of ordinary shares outstanding ('000s) Basic earnings per share (cents per share) Diluted March 2021 10 months 85,534 621,537 13.8 May 2020 12 months (13,642) 610,711 (2.2) Diluted Earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. As at 31 March 2021 there were no shares with a dilutive effect (2020: nil). Profit / (loss) after tax ($’000) Diluted weighted average number of ordinary shares outstanding ('000s) Diluted earnings per share (cents per share) March 2021 10 months 85,534 621,537 13.8 May 2020 12 months (13,642) 610,711 (2.2) 1 Total dividends declared during the period differs to dividends paid per the Consolidated Statement of Changes in Equity as a result of dividends payable on shares held within the Group. 70 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20214.3 Employee Share Based Payments Employee Share Scheme On 15 September 2020 the Board approved a new Long Term Incentive Scheme for its senior executives (‘LTI Scheme’). The LTI Scheme has been established to: – provide an incentive to key executives to commit to Oceania for the long term; and – align these executives’ interests with the interests of Oceania’s shareholders. Participants in the Scheme will be granted Share Rights from time to time which will, on vesting, convert into an entitlement to receive ordinary shares. Vesting will depend on achievement of certain performance hurdles relating to Oceania’s total shareholder return relative to the NZX50, and Oceania’s performance against EBITDA targets. Share Rights become exercisable if the holder remains employed on the vesting date and performance hurdles are met over the period from the commencement date to the measurement date, and in certain other exceptional circumstances. On becoming exercisable, each Share Right will entitle the holder to receive one fully paid ordinary share in Oceania Healthcare Limited, less an adjustment for tax paid on the holder’s behalf for the benefit received under the Scheme. The Share Rights have a nil exercise price. Performance Hurdles The Share Rights in each grant are divided between two performance hurdles; – Share Rights will qualify for vesting on a straight-line basis, from 0%, where the total shareholder return (TSR) from the commencement date to the measurement date is equal to the 35th percentile of the NZX50 Group, to 100% where the TSR is equal to or greater than the 75th percentile of the NZX50 Group; and – For the second performance hurdle, Share Rights will qualify for vesting if the Group’s annual growth in underlying earnings (before interest, tax, depreciation and amortisation) per share (UEPS) from the commencement date to the measurement date is equal to or greater than the target for growth in UEPS for that period. Lapse – Share Rights will lapse where the performance hurdles are not met on a relevant measurement date or, in general, where the participant ceases to be employed by the Group before the vesting date (except in certain circumstances). Employee Share Plan On 22 September 2020 1,193,045 shares were issued as part of an employee share scheme (‘ESS’). All permanent employees as at 1 August 2020 were invited to participate. Full time employee participants were allocated an equivalent of $800 of shares and part time employee participants were allocated an equivalent of $400 of shares. The shares are held in trust and will be transferred to the employee if the employee remains employed by Oceania (or any of its subsidiaries) for the following three years. In the comparative period, on 25 July 2019, 1,004,640 shares were issued as part of the ESS. 71 CONSOLIDATED FINANCIAL STATEMENTS4.4 Borrowings Accounting Policy Borrowings are initially recognised at fair value, including transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Consolidated Statement of Comprehensive Income over the period of the borrowings using the effective interest method. Specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such a time as the assets are substantially ready for their intended use. Other borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred. $NZ000’s Secured Bank loans Capitalised loan costs Retail Bond – OCA010 Capitalised bond costs Total borrowings Current Non current Total borrowings excluding capitalised loan costs Recognition and Measurement March 2021 May 2020 204,930 (473) 125,000 (2,165) 327,292 - 329,930 329,930 326,686 (1,232) - - 325,454 - 326,686 326,686 Bank Loans Interest is charged using the BKBM Bill rate plus a margin and line fee. Interest rates applicable in the 10 month period to 31 March 2021 ranged from 2.40% to 2.58% (year to 31 May 2020: 2.52% to 3.85%). Retail Bond The Group issued 125.0m retail bonds totalling $125.0m on 19 October 2020 with a maturity date of 19 October 2027. The bonds are listed on the NZX Debt Market (NZDX) with the ID OCA010. The bond has a fixed interest rate of 2.3%. The bonds are quoted on the NZX Debt Market and their fair value at balance date is based on their listed market price as at balance date. Interest on OCA010 is payable quarterly in January, April, July and October in equal instalments. The bonds were trading at a yield of 2.7% as at close of business on 31 March 2021. Debt Financing On 30 October 2020, an agreement was entered into with the banking syndicate to decrease total debt facility limits from $420.0m to $350.0m as follows: (i) General Corporate Facility limit decreased to $85.0m; and (ii) Development Facility limit increased to $265.0m. The maturity of borrowings is 31 July 2023. 72 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Financing Arrangements At 31 March 2021, the Group held committed bank facilities with drawings as follows: $NZ000’s General Corporate Facility Development Facility General Facility Total March 2021 Committed March 2021 Drawn May 2020 Committed 85,000 265,000 - - 204,930 - 350,000 204,930 135,000 215,000 70,000 420,000 May 2020 Drawn 118,567 208,119 - 326,686 The Group’s revolving Development Facility is utilised to cover costs associated with current development projects. The revolving General Corporate Facility is used for general corporate purposes as well as for development land and initial costs for projects not currently funded by the Development Facility. Interest on the General Corporate Facility is typically payable quarterly. Interest on the Development Facility is capitalised and repaid together with principal using the ORA licence proceeds received upon settlement of initial sales of newly developed units and care suites. Line fees are payable quarterly on the committed General Corporate Facility and the Committed Development Facility. The financial covenants in the Group’s senior debt facilities, with which the Group must comply include: a) Interest Cover Ratio – the ratio of Adjusted EBITDA to Net Interest Charges is not less than 2.0x b) Loan to Value Ratio – the ratio of total bank indebtedness shall not exceed 50% of the total property value of all Group’s properties (including the ‘as-complete’ valuations for projects funded under the Development Facility); and c) Guarantor Group Coverage – at all times the adjusted EBITDA of the Guaranteeing Group must be at least 90% of the Adjusted EBITDA of the total tangible assets of the Group; and d) Development – at all times the outstanding principal amount under the Development Facility shall not exceed the Development Value. Development Value (per the most recent valuation excluding any settled stock) is the aggregate value of all Residential Facilities in all Developments that are being funded by the Development Facility less their cost to complete. The covenants are tested half yearly. All covenants have been complied with during the period. The Group has agreed with its banks that the calculation of Adjusted EBITDA and Net Interest, for the purposes of the financial covenants, shall continue to be based on the accounting treatment in use before the introduction of NZ IFRS 16 Leases. Assets Pledged as Security The bank loans of the Group are secured by mortgages over the Group’s care centre freehold land and buildings and rank second behind the Statutory Supervisors where the land and buildings are classified as investment property and investment property under development. As at 31 March 2021 the balance of the bank loans over which the properties are held as security is $204.9m (2020: $327.0m), the total commitment as at 31 March 2021 is $350.0m (2020: $420.0m). 73 CONSOLIDATED FINANCIAL STATEMENTS4.4 Borrowings (continued) Net Debt Reconciliation Cash and cash equivalents include cash on hand. The following provides an analysis of net debt and the movements in net debt for the year. $NZ000’s Cash and cash equivalents Debt – repayable within one year Debt – repayable after one year Cash and liquid investments Gross debt – fixed interest rates Gross debt – floating interest rates March 2021 May 2020 79,906 (2,431) 17,624 (2,407) (339,012) (337,280) (261,537) (322,063) 79,906 (136,513) (204,930) 17,624 (113,001) (226,686) (261,537) (322,063) Liabilities from financing activities NZ$000’s Net debt as at 31 May 2019 Cash flows Recognition on adoption of NZ IFRS 16 Leases Acquisitions – finance leases Terminations – finance leases Other non-cash movements Net debt as at 31 May 2020 Finance leases due within 1 year Finance leases due after 1 year (1,600) (3,917) 337 (786) 3,211 (7,936) (188) (1,148) 5 (175) - (804) Cash 22,762 (5,138) - - - - 17,624 (2,407) (10,594) Net debt as at 31 May 2020 17,624 (2,407) (10,594) Cash flows Acquisitions – finance leases Terminations – finance leases Other non-cash movements Net debt as at 31 March 2021 62,282 - - - 2,253 178 8,503 578 (3,132) (10,595) 677 3,026 79,906 (2,431) (9,082) Borrowings due within 1 year Borrowings due after 1 year Total - - - - - - - - - - - - - (265,487) (248,242) (56,882) (58,472) - - - (8,722) (1,336) 5 (4,317) (5,296) (326,686) (322,063) (326,686) (322,063) (592) 72,446 - - 756 (13,727) (2,652) 1,051 (329,930) (261,537) 74 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20215. Other Disclosures 5.1 Income Tax What is Current Tax? Current tax is an estimate of the tax that is payable to Inland Revenue for the current financial period. What is Deferred Tax? Deferred tax is an estimate of income tax that will be payable or recoverable in respect of temporary differences relating to the accounting and tax values of the Group’s assets and liabilities. Deferred tax also includes the value of tax losses that we consider we will use in the future to meet any income tax obligation. Accounting Policy The tax expense or benefit for the period comprises current and deferred tax. Tax is recognised in the calculation of profit for the period in the Consolidated Statement of Comprehensive Income, except to the extent that it relates to items recognised in other comprehensive income. In this case the tax is also recognised in other comprehensive income. The current income tax charge is calculated on the basis of the tax laws enacted at the balance date. The Directors periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Balance Sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences, and losses can be utilised. 75 CONSOLIDATED FINANCIAL STATEMENTSMarch 2021 10 months May 2020 12 months - (10,396) (10,396) 75,138 21,039 342 387 (1,193) (3,752) (23,035) (5,910) 3,254 28 (1,194) 683 - 9,351 - - (14,666) (14,666) (28,308) (7,926) 137 4 (1,783) (1,531) 1,287 (4,472) 3,335 42 268 272 - 10,367 - (4,149) (10,103) (8,583) (10,873) (8) (723) 3,752 336 - 499 (89) (271) 1,531 - 367 3,252 (10,396) (14,666) (10,396) (14,666) 5.1 Income Tax (continued) $NZ000’s Income tax benefit Current tax Deferred tax Taxation expense is calculated as follows: Profit / (loss) before income tax Tax at the New Zealand tax rate of 28% Adjusted by the tax effect of: Non-deductible impairment of goodwill Non-deductible expenditure Capitalised interest deductible for tax Taxable deferred management fees Non-assessable revaluation of investment property Taxable depreciation Accounting depreciation Right of use asset Non-deductible impairment / (reversal of non-deductible impairment) of fixed asset Adjustment for timing difference of provisions Other Losses generated Current tax expense Impact of movements in investment property Impact of movements in property, plant and equipment Impact of movements in right of use assets Other adjustments Deferred management fee Other deferred tax assets not recognised Prior period adjustments: other Losses utilised or derecognised Deferred tax benefit Income tax benefit 76 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021Movement in the Deferred Tax Balance: $NZ000’s Investment property Property, plant and equipment Right of use assets Provisions and other assets / liabilities DMF revenue in advance Tax losses Deferred tax assets not recognised Deferred tax (liabilities) / assets $NZ000’s Investment property Property, plant and equipment Right of use assets Provisions and other assets / liabilities DMF revenue in advance Tax losses Deferred tax liabilities Balance 1 June 2020 Audited (960) (14,651) 929 8,645 5,538 499 - - Balance 1 June 2019 Audited (9,264) (22,504) - 6,123 7,069 3,751 (14,825) Recognition and Measurement No income tax was paid or payable during the period (2020: nil). Key Accounting Judgements Deferred Tax on Investment Property Recognised in Consolidated Statement of Comprehensive Income Recognised in Other Comprehensive Income Balance 31 March 2021 Audited - 3,189 (8,972) (13,520) 4,149 10,103 8 723 (3,752) (499) (336) (35) (1,389) - - - 902 7,979 1,786 - (336) - 10,396 (10,396) Recognised in Consolidated Statement of Comprehensive Income Recognised in Other Comprehensive Income Balance 31 May 2020 Audited 8,304 10,785 89 271 (1,531) (3,252) 14,666 - (960) (2,932) (14,651) 840 2,251 - - 159 929 8,645 5,538 499 - Deferred tax on investment property is assessed on the basis that the asset value will be realised through use (‘Held for Use’). An initial recognition exemption has been applied to newly developed village sites in accordance with NZ IAS 12. The Group’s ORAs comprise two distinct cash flows (being an ORA deposit upon entering the unit and the refund of this deposit upon exit). In determining the tax base of investment property, the Group considered whether taxable cash flows are received at the end of the ORA period (i.e. upon refund of the ORA deposit by way of set off on exit by a resident) or at the beginning of the ORA period (i.e. at time of the receipt of the ORA deposit). The Group has carefully evaluated all the available information and considers it appropriate to recognise and measure the tax base and associated deferred tax based on the taxable cash flows being receivable at the end of the ORA period as this best represents the Group’s contractual entitlement. In calculating deferred tax under the Held for Use methodology, the Group has made significant judgements to determine taxable temporary differences. The carrying value of the Group’s investment property is determined on a discounted cash flow basis and includes cash flows that are both taxable and non-taxable in the future. The Group has recognised deferred tax on the cash flows with a future tax consequence being DMF and deductible amounts as provided by CBRE Limited, to the extent that it doesn’t relate to land. The Group uses the CBRE Limited valuation of land and improvements to estimate the apportionment of cash flows arising from the depreciable (i.e. buildings) and non-depreciable components (i.e. land). 77 CONSOLIDATED FINANCIAL STATEMENTS5.1 Income Tax (continued) Recognition of Deferred Tax on Deferred Management Fee The interpretation of New Zealand tax laws in relation to DMF involves significant judgements and uncertainty. During October 2018, the Group obtained a binding ruling from Inland Revenue, applicable for ORAs entered into after 1 June 2018 with certain revisions to the terms and conditions relating to the DMF. Pursuant to this ruling DMF revenue is recognised as derived on the exit of a unit or care suite by a resident. Recognition of Deferred Tax on Tax Losses The Company and its subsidiaries exited the former OHHL tax consolidated group from 31 May 2015. All tax losses incurred by the Company and its subsidiaries until 31 May 2015 are tax losses of the OHHL consolidated tax group (of which the Group is no longer a member). After taking into consideration losses generated in the period to 31 March 2021, the Group now has an estimated $86.9m (2020: $53.4m) of available tax losses as at 31 March 2021. The Group may recognise deferred tax assets to the extent that it is probable that the Group will generate future economic profits to offset the deferred tax assets or to the extent that they offset deferred tax liabilities. All available losses generated are held off balance sheet and are noted below: NZ$000’s Opening balance – tax losses Prior period adjustments: other Losses per Inland Revenue Losses utilised for the period Losses forfeited during the period Losses generated during the period Closing balance – tax losses 5.2 Intangible Assets Accounting Policy March 2021 10 months May 2020 12 months 53,435 43 53,478 - - 33,397 86,875 25,589 (2,280) 23,309 - (6,900) 37,026 53,435 Goodwill Goodwill represents the excess of cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary or business at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested at least once annually for impairment at 31 March and carried at cost less accumulated impairment losses. Impairments are recognised in the Statement of Comprehensive Income. Gains and losses on the disposal of an entity or cash generating unit (‘CGU’) include the carrying amount of goodwill relating to the entity or CGU sold. Goodwill is allocated to CGUs and these CGUs are grouped where appropriate for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. Computer Software Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specified software. These costs are amortised on a straight line basis over their estimated useful lives (2.5 years). 78 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021$NZ000’s Year ended 31 May 2020 Opening net book amount Additions Amortisation Impairment charge Disposal Closing net book amount As at 31 May 2020 At cost Accumulated amortisation and impairment Net book amount Period ended 31 March 2021 Opening net book amount Additions Amortisation Impairment charge Disposal Closing net book amount As at 31 March 2021 At cost Accumulated amortisation and impairment Net book amount Goodwill Software Total 7,056 - - (491) - 6,565 1,612 2,709 (56) - - 8,668 2,709 (56) (491) - 4,265 10,830 207,387 (200,822) 6,565 7,021 (2,756) 4,265 214,408 (203,578) 10,830 6,565 - - (1,220) - 5,345 4,265 1,441 (480) - - 10,830 1,441 (480) (1,220) - 5,226 10,571 207,387 (202,042) 8,426 215,813 (3,200) (205,242) 5,345 5,226 10,571 Impairment Test for Goodwill The carrying value of goodwill has been assessed on a site by site basis taking into account the site's results as a whole. The carrying amount of goodwill at each site is not significant in comparison to the total amount of goodwill. All goodwill is allocated to the care CGUs. Key Judgements in Applying the Accounting Policies Care CGUs Recoverable Amount The recoverable amount of the individual care sites has been determined based on an external valuation of fair value less costs to sell by CBRE Limited as an external valuer. The fair value less costs to sell is considered level 3 in the fair value hierarchy. This has been used for comparison to current carrying value. The assumptions used in determining the fair value for care centres are disclosed in note 3.2. 79 CONSOLIDATED FINANCIAL STATEMENTS5.3 Trade and Other Receivables Accounting Policy Trade receivables are amounts due from residents and various government agencies in the ordinary course of business and are recognised initially at fair value, being its transaction price, plus transaction costs. Trade receivables are held with the objective of collecting the contractual cash flows and therefore they are subsequently measured at amortised cost using the effective interest method, less a provision for impairment. Occupation licence payment receivables are recognised at the point in time that an ORA becomes unconditional and has either ‘cooled off’ or where the resident is in occupation, and the resident has not yet made all of the contractual licence payment to the Group. The long term portion of this receivable has been discounted by $0.5m (2020: $0.4m). $NZ000’s Net trade and other receivables Trade receivables Less: Loss allowance Occupation licence payment receivable Prepayments Deposits on freehold land and buildings Trade and other receivables March 2021 May 2020 14,337 (454) 13,883 29,219 2,585 2,000 47,687 13,032 (435) 12,597 27,636 1,397 - 41,630 Recognition, Measurement and Judgements in Applying Accounting Policies The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and requires recognition from initial recognition of the trade receivable. To measure expected credit losses, trade receivables have been grouped and reviewed on the basis of the number of days since resident departure and the funding stream and type of debtor. Judgement is used in selecting the inputs to the impairment calculation and is based on past history and forward looking assumptions. The Group has the following financial assets subject to the application of the expected credit loss mode: – Trade receivables from care operations for the provision of care fees revenue for rest home and hospital fees. These are split between private amounts owed by residents and amounts due from agencies such as the Ministry of Health and ACC. – Trade receivables from village operations for the provision of weekly service fees and occupation licence payment receivables. These are receivable from residents. The following details the expected loss rate adopted by the Group based on historic impairments and any other known factors with respect to resident departure date. A review of the appropriateness of the expected loss rate has been undertaken in light of COVID-19 and no change to the rate applied has been required or made. Category of debt Care residents Ministry of Health / ACC Village Residents Expected loss rate Departure <90 days Current 1% 1% - 10% 1% - Departure >90 days 75% 100% - There is no significant concentration of credit risk as trade receivables relate to individual residents and government agencies. 80 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 20215.4 Trade and Other Payables Accounting Policy Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest method. Sundry payables include $0.1m (2020: $0.1m) relating to cash held on behalf of residents. Wages and Salaries, Annual Leave and Long Service Leave Liabilities for wages and salaries, including non-monetary benefits and annual leave are recognised in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. The liability for employee entitlements is carried at the present value of the estimated future cash flow. The liability for long service leave is recognised in the provision for employee entitlements and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. $NZ000’s Trade payables Sundry payables and accruals Accrued interest on external borrowings and derivatives Employee entitlements COVID-19 wage subsidy payable Trade and other payables 5.5 Related Party Transactions March 2021 May 2020 9,302 15,481 900 18,625 - 44,308 5,858 11,654 514 16,658 147 34,831 On 5 September 2018 OHHL sold 15.56% of its holding. On 22 May 2019 OHHL sold a further 0.49% holding resulting in a remaining 41.16% shareholding as at 31 May 2019 and on 3 February 2020 OHHL sold their remaining holding. There are now no major shareholders. The below entities are subsidiaries of Oceania Healthcare Limited. Name of entity Principal activities Oceania Group (NZ) Limited Support office functions Oceania Care Company Limited Operation of aged care centres Oceania Village Company Limited OCA Employees Trustee Limited Ownership and operation of retirement villages Hold LTIP shares on behalf of employees 2021 100% 100% 100% 2020 100% 100% 100% Class of shares Ordinary Ordinary Ordinary 100% 100% Ordinary All subsidiaries are incorporated in New Zealand and have a balance date of 31 March (2020: 31 May). There are no significant restrictions on subsidiaries. 81 CONSOLIDATED FINANCIAL STATEMENTS5.5 Related Party Transactions (continued) Key Management Personnel Compensation Key management personnel are all executives with the authority for the strategic direction and management of the Group and exclude those in an Acting capacity. $NZ000’s Directors' remuneration and expenses Directors’ dividends including DRP Salaries and other short term employee benefits Key management personnel dividends including DRP Termination benefits1 Transactions with Related Parties There are no outstanding balances with related parties (2020: nil). 5.6 Financial Risk Management March 2021 10 months May 2020 12 months 561 398 2,107 83 - 3,149 729 670 2,448 212 772 4,831 The Group's activities expose it to a variety of financial risks: market risks (including cash flow interest rate risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as interest rate swap contracts to hedge certain interest rate risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rates to determine market risk and aging analysis for credit risk. Classification and Measurement Financial assets are required to be classified into three measurement categories: those measured at fair value through profit and loss, those measured at fair value through other comprehensive income and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. Trade receivables are amounts due from residents and various government agencies held to collect contractual cash flows in the ordinary course of business. These balances are held at amortised cost less a provision for impairment. Risk management is carried out centrally by management under policies approved by the Board of Directors. The Directors provide written principles for overall risk management, as well as policies covering specific areas, such as interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments. (a) Market Risk Market risk is the risk that changes in market prices such as interest rates will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. (b) Cash Flow Risk The Group has no significant interest-bearing assets, as such the Group's income is substantially independent of changes in market interest rates. The Group's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. The cash flow and interest rate risks are monitored by the Directors on a monthly basis. The Directors monitor the existing interest rate profile with reference to the Group’s Treasury Policy and the Group’s underlying interest rate exposure. Management present interest rate hedging analysis and strategies to the Directors for consideration and seek Director approval prior to entering into any interest rate swaps. 1 Termination benefits in the 12 months to 31 May 2020 were made to two employees who met the definition of ‘key management’ and ceased to be employed by the Group during the year. 82 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021The following table shows the sensitivity of the Group's Profit / (loss) and equity to a movement in interest rates of +/-1%. This assumes all other variables remain constant. NZ$000’s 2021 Interest expense Change in fair value of cash flow hedges 2020 Interest expense1 Change in fair value of cash flow hedges +1% -1% Profit / (loss) Equity Profit / (loss) Equity (33) - (33) 5,081 33 - 33 (5,284) 412 43 412 6,480 (412) (45) (412) (6,790) 1 Comparative figures have been restated to correctly represent the sensitivity movements. Interest Rate Swaps It is the Group's policy to manage interest rate risk through the use of interest rate swaps to reduce the impact of changes in interest rates on its floating rate long term debt. The objective of the interest rate swaps is to protect the Group from the short to medium term impact to cash flows which arises out of variability in floating interest rates. Interest rate swaps are initially recognised at fair value on the date a contract is entered into and are subsequently measured at fair value on each reporting date. The fair values of the interest rate swaps are determined based on cash flows discounted to present value using current market interest rates. When interest rate swaps meet the criteria for cash flow hedge accounting, the effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while the ineffective portion is recognised in other expenses in the Consolidated Statement of Comprehensive Income. Amounts taken to the interest rate reserve are transferred out of the reserve and included in the measurement of the hedged transaction when the forecast transaction occurs. When interest rate swaps do not meet the criteria for cash flow hedge accounting, all movements in fair value of the hedging instruments are recognised in the Consolidated Statement of Comprehensive Income. The Group adopted NZ IFRS 9 Financial Instruments (‘NZ IFRS 9’) on 1 June 2018. From this point forward all swaps are accounted for under NZ IFRS 9. After the adoption of NZ IFRS 9 the rules on hedge accounting have been amended to align accounting treatment with risk management practices of the reporting entity. Under the interest rate swap agreements, the Group has a right to receive interest at variable rates and an obligation to pay interest at fixed rates. New interest rate swaps of $175.0m were put in place with an effective date of 1 June 2019 (with a trade date of 30 April 2019). Of the interest rate swaps in place at 31 March 2021, $175.0m (2020: $175.0m) are being used to cover approximately 85% (2020: 54%) of the loan principal outstanding. These agreements effectively change the Group’s interest exposure on the principal covered by the interest rate swaps from a floating rate to a fixed rate. Bank loans of the Group currently bear an average fixed interest rate (including margin and line fees) of 4.1% (2020: 4.1%). The fair value of these agreements at 31 March 2021 is a $5.5m liability. The agreements cover notional amounts for a period of 3 years, 5 years, and 7 years. The notional principal amounts and the period of expiry of the interest rate swap contracts are as follows: Less than 1 year Between 1 and 3 years Between 3 and 5 years Over 5 years Average contracted fixed interest rate Notional principal amount March 2021 % May 2020 % March 2021 $NZ000’s May 2020 $NZ000’s - 3.04 3.17 3.35 - 3.04 3.17 3.35 - 75,000 50,000 50,000 - 75,000 50,000 50,000 83 CONSOLIDATED FINANCIAL STATEMENTS 5.6 Financial Risk Management (continued) (c) Credit Risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposure from trade and other receivables. In the normal course of business, the Group has no significant concentrations of credit risk. Other than on a small number of exceptions, the Group requires settlement of the ORA before allowing occupation of its villas or apartments. Therefore, the Group does not face significant credit risk. The values attached to each financial asset in the Consolidated Balance Sheet represent the maximum credit risk. No collateral is held with respect to any financial assets. The Group enters into financial instruments with various counterparties in accordance with established limits as to credit rating and dollar limits and does not require collateral or other security to support the financial instruments. Concentrations Cash and cash equivalents of the Group are deposited with one of the major trading banks. Non-performance of obligations by the bank is not expected due to the credit rating of the counter party considered. The Standard and Poors credit rating of the counter party as at 31 March 2021 is AA- (2020: AA-). The Group’s receivables represent distinct trading relationships with each of the residents. There are no concentrations of credit risk with residents. Large receivables generally relate to the residential care subsidies which are received in aggregate via the various District Health Boards and Work and Income New Zealand. Neither of these entities has demonstrated, or is considered, a credit risk. (d) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. Due to the dynamic nature of the underlying businesses, the Directors aim at maintaining flexibility in funding by keeping committed credit lines available. Cash flow forecasting is regularly performed by management. Management monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs, while maintaining headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. Such forecasting takes into consideration the Group's debt financing plans and covenant compliance. The table below shows the maturity analysis of the Group's contractual undiscounted cash flows. NZ$000’s 2021 Trade and other payables Lease liabilities Borrowings Cash flow hedge – interest rate swaps Refundable occupation right agreements 2020 Trade and other payables Lease liabilities Borrowings Cash flow hedge - interest rate swaps Refundable occupation right agreements Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years 24,783 3,108 7,942 2,772 618,433 17,512 3,211 7,730 2,958 535,370 - 1,521 8,394 2,386 - - 2,870 7,484 3,090 - - 4,213 214,215 1,497 - - 4,138 334,361 6,776 - - 6,373 127,875 - - - 7,134 - 885 - The refundable ORAs are repayable to the resident on vacation of the unit, apartment, care suite or on the termination of the occupation right agreement and subsequent resale of the unit, apartment or care suite. The expected maturity of the refundable ORAs is shown in note 3.3. 84 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021(e) Capital Risk Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The consolidated financial statements are prepared on a going concern basis. 5.7 Contingencies and Commitments At 31 March 2021, the Group had no contingent liabilities or assets (2020: nil). At 31 March 2021, the Group has a number of commitments to develop and construct certain sites totalling $131.4m (2020: $113.9m) of which $131.4m (2020: $113.5m) relates to development sites. As at 31 March 2021, a commitment of $9.3m (2020: $9.3m) exists in relation to Stage One and $5.8m (2020: $9.9m) in relation to Stage Two in the form of future lease payments in respect of the development of Everil Orr, a leasehold site. Lease payment obligations arise as ORAs are sold. Refer to note 3.4 for further details. There are no significant unrecognised contractual obligations entered into for future repairs and maintenance at balance date. 5.8 Events After Balance Date Acquisitions On 23 March 2021, Oceania Village Company Limited entered into a Sale and Purchase Agreement to purchase the business assets of Waterford on Hobsonville Point (‘Waterford’). Waterford is an established retirement village with 64 independent living villas and 36 independent living apartments. The Sale and Purchase Agreement was subject to the parties obtaining Statutory Supervisor consent. This consent was received on 8 April 2021 and the transaction was settled on 23 April 2021. The financial effects of this transaction have not been recognised as at 31 March 2021. The business assets will be recognised on date of settlement and future operating results consolidated from that point forward. (i) Provisional purchase consideration and fair value of net assets acquired: The purchase price of $55.8m was linked to the 31 March 2020 CBRE Limited valuation of Waterford and associated financial statements. At the date of signing the annual financial statements the purchase price allocation calculation has not yet been finalised. This calculation will be finalised in the interim report to 30 September 2021. Provisional details of the consideration transferred are: Cash paid Total purchase consideration $NZm’s 55.8 55.8 The provisionally determined fair values of the business assets and liabilities as at the date of acquisition are as follows: Investment property Refundable occupation right agreements net of deferred management fee Total net identifiable assets acquired $NZm’s 98.4 (42.6) 55.8 (ii) Contingent Liabilities No material contingent liabilities with respect to this transaction were noted during the due diligence process. Should, on a detailed review of the asset, any future contingent liabilities arise they will be disclosed in future financial statements. (iii) Finalisation of purchase price allocation At the time the financial statements were authorised for issue, the Group had not yet completed the accounting for the acquisition of the Waterford business assets. The valuation of the Waterford assets as prepared by CBRE Limited as at 31 March 2020 was $61.8m. CBRE Limited has provided a valuation of the Waterford assets as at the acquisition date totalling $68.9m. This valuation is net of gross up in relation to occupation right agreements. The increase from the purchase price is representative of the movements in CBRE Limited's key assumptions, including growth rate and discount rate, between 31 March 2020, being the reference date for the purchase, and 23 April 2021 being the settlement date, largely reflecting a reversal of COVID-19 impacts. 85 CONSOLIDATED FINANCIAL STATEMENTS 5.8 Events After Balance Date (continued) The fair values of the occupation right agreement asset, deferred management fees and associated gross up of investment property disclosed above have only been determined provisionally. No allowance has been made for deferred tax impact due to the level of losses held by the Group. Over the coming months, the Directors’ assessment of fair value will be finalised and presented in the interim financial statements for the period ended 30 September 2021. Capital Raise On 16 April 2021, a total of 15,619,810 ordinary shares with a value of $20.0m ($1.2796 per share) were issued in relation to the Retail Offer. These shares rank equally with existing shares. Costs of $0.2m in relation to this capital raise were incurred and will be recognised in equity. Dividend On 21 May 2021 an interim dividend of 2.1 cents per share (not imputed) was declared and will be paid on 22 June 2021. The record date for entitlement is 8 June 2021. Refer to note 4.1. There have been no other significant events after balance date. 86 OCEANIANOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)For the 10 month period ended 31 March 2021ANNUAL REPORT 2021I N D E P E N D E N T AU D I TO R ' S R E P O R T To the shareholders of Oceania Healthcare Limited Independent auditor’s report To the Shareholders of Oceania Healthcare Limited Our opinion In our opinion, the accompanying consolidated financial statements of Oceania Healthcare Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 31 March 2021, its financial performance and its cash flows for the 10 month period then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). What we have audited The Group's consolidated financial statements comprise: ● the consolidated balance sheet as at 31 March 2021; ● ● ● ● the consolidated statement of comprehensive income for the 10 month period then ended; the consolidated statement of changes in equity for the 10 month period then ended; the consolidated cash flow statement for the 10 month period then ended; and the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm carries out other services for the Group in the area of trustee reporting. The provision of these other services has not impaired our independence as auditor of the Group. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current 10 month period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. PricewaterhouseCoopers, PwC Tower, 15 Customs Street West, Private Bag 92162, Auckland 1142 New Zealand T: +64 9 355 8000, www.pwc.co.nz 87 CONSOLIDATED FINANCIAL STATEMENTSPricewaterhouseCoopers, PwC Tower, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand T: +64 9 355 8000, www.pwc.co.nz Independent auditor’s report To the shareholders of Oceania Healthcare Limited We have audited the consolidated financial statements which comprise: •the consolidated balance sheet as at 31 May 2019;•the consolidated statement of comprehensive income for the year then ended;•the consolidated statement of changes in equity for the year then ended;•the consolidated cash flow statement for the year then ended; and•the notes to the consolidated financial statements, which include significant accounting policies. Our opinion In our opinion, the accompanying consolidated financial statements of Oceania Healthcare Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 31 May 2019, its financial performance and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm carries out other services for the Group in the areas of trustee reporting, tax advisory and market research. The provision of these other services has not impaired our independence as auditor of the Group. I N D E P E N D E N T AU D I TO R ' S R E P O R T (continued) Description of the key audit matter How our audit addressed the key audit matter Valuation of investment property and freehold land and buildings As disclosed in notes 3.1 and 3.2 of the consolidated financial statements: ● the Group’s investment property portfolio was valued at $1,099.8 million at 31 March 2021 and included completed investment property and investment property under development. ● the Group’s freehold land and buildings were valued at $584.6 million at 31 March 2021. This included freehold land and buildings operated by the Group for the provision of care services, care suites, and land and buildings to be developed into care facilities in the future (together referred to as freehold land and buildings). The Group’s accounting policy is to measure these assets at fair value. Independent valuations of all investment property and freehold land and buildings were carried out by a third party valuer, CBRE Limited (the Valuer). Completed investment property and care suites are recorded in the consolidated financial statements at a Directors’ valuation which is based on the value determined by the Valuer as at 31 March 2021, adjusted by the Directors for: ● the estimated costs to be incurred to ● complete development of any asset not complete at the date of the valuation, but valued by the Valuer as if it was complete; and for completed investment property, refundable occupation licence payments, residents’ share of resale gains and management fees receivable which are recognised separately on the consolidated balance sheet and also reflected in the Valuer’s cash flow model. The valuation of investment property and freehold land and buildings is inherently subjective given that there are alternative assumptions and valuation methods that may result in a range of values. We considered the adequacy of the disclosures made in notes 1.3 and 3 to the consolidated financial statements. These notes explain that there is significant estimation uncertainty in relation to the valuation of investment property and freehold land and buildings. We discussed with the Valuer and obtained sufficient audit evidence to demonstrate that the inclusion of the valuation in the consolidated balance sheet and disclosures made in the consolidated financial statements were appropriate. Our audit procedures also included the following: External valuations We read the valuation report and discussed it with the Valuer. We assessed the valuation approach and confirmed that this was in accordance with the relevant accounting standards. On a sample basis, we tested whether property specific information supplied to the Valuer by the Group reflected the underlying property records held by the Group. From our discussions with management and the Valuer, and from our review of the valuation report, assumptions (as detailed in the description of this Key Audit Matter) were made for each individual property to reflect its characteristics, its overall quality, geographic location and desirability as a whole. Valuation adjustments We tested, on a sample basis, the adjustments made to the valuations determined by the Valuer as at 31 March 2021 as detailed in the description of this Key Audit Matter. This testing included obtaining quantity surveyors reports to support the estimated cost to complete developments as at 31 March 2021. We also obtained supporting documentation for a sample of transactions included in work in progress as at 31 March 2021. 88 PwC 2 OCEANIAANNUAL REPORT 2021For each completed investment property and each care suite, assumptions and estimates were made in respect of: ● property price growth rate; ● stabilised occupancy periods; and ● discount rate. Investment property under development and land and buildings to be developed into care facilities in the future are recorded in the consolidated financial statements at a Directors’ valuation which is based on a range of values determined by the Valuer as at 31 March 2021, adjusted by management for the cost of any work in progress. For each asset under development, assumptions and estimates were made in respect of the price per square metre of land. Freehold land and buildings operated by the Group for the provision of care services are recorded in the consolidated financial statements at a Directors’ valuation which is based on the value determined by the Valuer as at 31 March 2021. For each property, assumptions and estimates are made in respect of: ● forecast earnings before interest, tax, depreciation, amortisation, and rent; and ● capitalisation rate. The valuation of the Group’s property portfolio is inherently subjective. The existence of significant estimation uncertainty, coupled with the fact that only a small percentage difference in assumptions on individual properties, when aggregated, could result in material differences, is why we have given specific audit focus and attention to this area. Assumptions and estimates Our work over the assumptions focused on the largest properties within the portfolio and those properties where the assumptions used and/or period-on-period fair value movement suggested a possible outlier compared to the rest of the portfolio and the market data for the sector. We held discussions with the Valuer to gain an understanding of the assumptions and estimates used and the valuation methodology applied. This includes understanding any changes made to significant inputs and assumptions (including the reversal of the changes made to assumptions in the prior year as a result of COVID-19). We also sought to understand and consider restrictions imposed on the valuation process (if any) and the market conditions at balance date. We engaged our in-house expert to challenge the work performed by the Valuer and assess the reasonableness of the assumptions used based on their knowledge gained from reviewing valuations of similar properties, known transactions and available market data. We understood the apportionment of the valuations to each class of assets and assessed the reasonableness of this through discussions with the Valuer and our in-house expert. Valuation estimates Because of the judgement involved in determining valuations for individual properties and the existence of alternative assumptions and valuation methods, there is a range of values which can be considered reasonable when evaluating the independent property valuations used by the Group. If we identified an error in a property valuation or determined that the valuation was outside of a reasonable range, we evaluated the error or difference to determine if there was a material misstatement in the consolidated financial statements. We considered whether there were any events subsequent to the date of the Valuer’s report which may have caused the valuation of investment property and freehold land and buildings to be materially different to those determined by the Valuer. PwC 89 3 CONSOLIDATED FINANCIAL STATEMENTS I N D E P E N D E N T AU D I TO R ' S R E P O R T (continued) Deferred tax on investment property and care suites Determination of deferred tax balances As disclosed in note 5.1 of the consolidated financial statements, the Group assesses deferred tax on investment property and care suites on the basis that the asset value will be realised through use (‘Held for Use’). In applying the Held for Use methodology, the Group makes four key assumptions which involve significant judgement: 1. Determining the amount of taxable cash flows; 2. Timing of taxable cash flows, being at the end of the Occupation Right Agreement (ORA) period; 3. Apportionment of the value of investment property between land and buildings; and 4. Determining the number of years that commercial investment property is expected to be in use and depreciable for tax purposes. Due to the significant judgement exercised by the Group in determining the deferred tax on investment property and care suites, we have given specific audit focus and attention to this area. Assumptions with respect to realisation through held for use With respect to the assumptions used in the calculation of deferred tax, we engaged our in-house tax specialist to challenge the work performed and assess the reasonableness of the assumptions based on their knowledge of the tax legislation and other accepted approaches in the industry. 1. Determining the amount of taxable cash flows We agreed the amount of taxable cash flows of investment property and care suites to the Valuer’s report, which is based on materially the same assumptions and estimates used in the valuation of investment property and care suites described above. 2. Timing of taxable cash flows We tested a sample of new ORAs to confirm that the Deferred Management Fees (DMF) are contractually earned at the end of the ORA period. 3. Apportionment of investment property We have agreed the inputs to the apportionment calculation to the Valuer’s land valuation and recalculated the apportionment between land and buildings. 4. Determining the number of years that commercial investment property is expected to be depreciable for tax purposes We determined a reasonable range for the expected period in which the relevant assets will be in use and depreciable for tax purposes. Management’s judgement was within this range. 90 PwC 4 OCEANIAANNUAL REPORT 2021 Our audit approach Overview Overall group materiality: $1.8 million which represents approximately 1% of revenue. We chose revenue as the benchmark because, in our view, it is a key financial metric used in assessing the performance of the Group and is not as volatile as other profit or loss measures. We performed a full scope audit over the consolidated financial information of the Group. As reported above, we have two key audit matters, being: ● Valuation of investment property and freehold land and buildings ● Deferred tax on investment property and care suites As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole. How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. Other information The Directors are responsible for the other information. The other information comprises the information included in the Annual report, but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. PwC 91 5 CONSOLIDATED FINANCIAL STATEMENTS I N D E P E N D E N T AU D I TO R ' S R E P O R T (continued) In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the consolidated financial statements The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the External Reporting Board’s website at: https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-1/ This description forms part of our auditor’s report. Who we report to This report is made solely to the Company’s Shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s Shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The engagement partner on the audit resulting in this independent auditor’s report is Leopino Foliaki. For and on behalf of: Chartered Accountants Auckland, New Zealand 21 May 2021 92 PwC 6 OCEANIAANNUAL REPORT 2021 C O R P O R AT E G OV E R N A N C E C O R P O R AT E G OV E R NAN C E This section of the Annual Report provides information on Directors’ independence, diversity and inclusion policies, remuneration and statutory disclosures. Oceania’s governance framework is guided by the recommendations set by the NZX Corporate Governance Code. Oceania has prepared a statement on the extent to which it has followed the recommendations in the NZX Corporate Governance Code. The Corporate Governance Statement is current as at 31 March 2021. Oceania considers that it has followed the recommendations in the NZX Corporate Governance Code in all respects during FY2021. For detailed information on Oceania’s corporate governance policies, practices and processes please refer to the Investors section on the Oceania website – www.oceaniahealthcare.co.nz/governance. This contains the following documents: Corporate Governance Statement Constitution Charters – Board Charter – Audit Committee Charter – Remuneration Committee Charter – Clinical and Health and Safety Committee Charter – Development Committee Charter Policies – Code of Values and Conduct – Health and Safety Policy – Occupational Rehabilitation Policy – Fraud Policy – Whistleblowing Policy – Diversity Policy – Market Disclosure Policy – Remuneration Policy – Trading in Company Securities Policy – External Auditor Independence Policy – Privacy Policy Dividend Reinvestment Plan Offer Document Director Independence As at 31 March 2021, the Board comprised six Directors. All of the Directors are non-executive Directors. The Board has considered which of the Directors are independent Directors for the purposes of the NZX Listing Rules and has determined that, as at 31 March 2021, all six Directors are independent Directors, including the Chair and the Chair of the Audit Committee. As at the date of this Annual Report, the Directors are: Elizabeth Coutts Alan Isaac Dame Kerry Prendergast Sally Evans Patrick McCawe Gregory Tomlinson Chair, Independent Director Appointed in November 2014 Independent Director Independent Director Independent Director Independent Director Independent Director Appointed in October 2015 Appointed in December 2016 Appointed in March 2018 Appointed in February 2017 Appointed in March 2018 The factors relevant to determining whether a Director is an independent Director are the criteria in the NZX Listing Rules for Director independence, having regard to the factors described in the NZX Corporate Governance Code that may impact Director independence. 93 C O R P O R AT E G OV E R NAN C E (continued) Committee Membership The Board has four standing committees to assist in the execution of the Board’s duties, being the Audit Committee, the Remuneration Committee, the Clinical and Health and Safety Committee and the Development Committee. As at 31 March 2021, membership of the committees was as follows: Audit Committee – Alan Isaac (Chair), Elizabeth Coutts, Patrick McCawe Remuneration Committee – Sally Evans (Chair), Elizabeth Coutts, Alan Isaac Clinical and Health and Safety Committee – Dame Kerry Prendergast (Chair), Elizabeth Coutts, Sally Evans Development Committee – Gregory Tomlinson (Chair), Elizabeth Coutts Diversity Oceania’s Diversity Policy is available on its website. The Diversity Policy aims to ensure that Oceania has a focus on diversity throughout the organisation. This recognises that a diverse workforce contributes to business growth and performance, helping to drive an inclusive, high performance environment. The Board considers that the Diversity Policy has been successfully implemented across the business with an excellent balance of gender and ethnicity at Director and officer levels. As at 31 March 2021 (and 31 May 2020 for the prior comparative period), the gender breakdown of the Directors, officers (as that term is defined in the NZX Listing Rules) and employees is as follows: Gender Directors Officers Employees 31 March 2021 31 May 2020 Male 3 3 398 Female 3 5 2,375 Male 3 5 416 Female 3 5 2,368 Oceania is developing further internal systems and processes to allow regular and efficient monitoring of policy objectives. 94 OCEANIAANNUAL REPORT 2021C O R P O R AT E G OV E R N A N C E Remuneration Report Directors’ Fees Directors’ remuneration is paid in the form of fees. A higher level of fees is paid to the Chair to reflect the additional time and responsibilities that this position involves. Additional fees are payable in respect of work carried out by the Chairs of the Audit Committee, Remuneration Committee and the Clinical and Health and Safety Committee. Director Remuneration paid for the 10 month period ended 31 March 2021 Board fees Audit Committee $150,000 $75,000 $75,000 $75,000 $75,000 $75,000 - $16,667 - - - - Clinical and Health and Safety Committee - - $12,500 - - - Remuneration Committee Total remuneration - - - $6,250 - - $150,000 $91,667 $87,500 $81,250 $75,000 $75,000 Director Elizabeth Coutts (Chair) Alan Isaac Dame Kerry Prendergast Sally Evans Patrick McCawe Gregory Tomlinson The above fees exclude GST and expenses. Employees’ Remuneration Oceania did not employ people directly in the 10 month period ended 31 March 2021. All employees are employed by the subsidiaries of Oceania. The number of employees and former employees of Oceania’s subsidiaries, not being a Director of Oceania, who received remuneration and other benefits the value of which was or exceeded $100,000 during the 10 month period ended 31 March 2021 is set out in the table of remuneration bands below. The remuneration figures shown in the ‘Remuneration’ column include all monetary payments actually paid during the course of the 10 month period ended 31 March 2021, which include performance incentive payments for the year ended 31 May 2020. The table does not include amounts paid after 31 March 2021 that relate to the 10 month period ended 31 March 2021. Remuneration Number of employees Remuneration Number of employees $100,000 - $109,999 $110,000 - $119,999 $120,000 - $129,999 $130,000 - $139,999 $140,000 - $149,999 $150,000 - $159,999 $160,000 - $169,999 19 9 1 9 2 6 3 $180,000 - $189,999 $200,000 - $209,999 $310,000 - $319,999 $340,000 - $349,999 $380,000 - $389,999 $430,000 - $439,999 $570,000 - $579,999 1 1 1 1 1 1 1 Chief Executive Officer’s Remuneration The remuneration of the Chief Executive Officer (‘CEO’) for the 10 month period ended 31 March 2021 is as follows: Base salary Brent Pattison 1 $28,931 2 Earl Gasparich 4 $394,980 5 Other benefits $1,350 2 $31,073 5 STI 0 3 Subtotal $30,281 LTIP $9,032 2 Remuneration total $39,313 $106,500 $532,553 - $532,553 1 2 3 4 5 Mr Pattison became acting CEO on 6 March 2021 and CEO on 22 March 2021. Salary, other benefits and LTIP pro-rated from Mr Pattison’s 6 March 2021 start date. Mr Pattison’s STI received during the year is not included as the STI related to the period in which Mr Pattison was Chief Financial Officer. Mr Gasparich resigned from the position as CEO on 6 March 2021. Salary and other benefits pro-rated to the date that Mr Gasparich resigned as CEO (being 6 March 2021). 95 C O R P O R AT E G OV E R NAN C E (continued) Chief Executive Officer’s Remuneration (continued) Mr Gasparich received a short term incentive of $106,500. This was a discretionary payment made to reflect the additional work undertaken as a result of the impact of COVID-19 on the business. The remuneration of the CEO for the year ended 31 May 2020 (being the prior comparative period) is as follows: Base salary $517,937 Other benefits $34,217 STI $84,875 Subtotal $637,029 LTIP - Remuneration total $637,029 Mr Gasparich received a short term incentive of $84,875. This was based on achievement of financial performance (EBITDA performance against budget), health and safety performance (injury and reporting rates), personal goals and a discretionary component for the year ended 31 May 2019. The remuneration of the CEO comprises a fixed remuneration and performance payments. Fixed remuneration includes a base salary, the provision of a carpark and a vehicle allowance. Statutory Disclosures Disclosure of Directors’ Interests The following particulars were entered in the Interests Register kept for Oceania and its subsidiaries during the 10 month period ended 31 March 2021: Elizabeth Coutts: Disclosed she ceased to hold the following positions: Chair of Ports of Auckland Limited; Chair of Urwin and Company Limited; and Director of Tennis Auckland Region Inc. Alan Isaac: Disclosed he ceased to hold the following positions: Director of Murray Capital General Partner Limited; and Director of Rakaia Fund Investments Limited. Dame Kerry Prendergast: Disclosed she ceased to hold the following positions: Deputy Chair of NZ Conservation Authority; Deputy Chair of Wellington Free Ambulance; Member of Kiwirail Tourism Advisory Board; Member of Anne Frank NZ Holocaust Advisory Board. Disclosed the following new positions: Chair of Wellington Free Ambulance; and Member of Three Waters Programme Advisory Board. Sally Evans: Disclosed the following new positions: Director of Allianz Australian Life Insurance Ltd; Director of Allianz Australia Life Insurance Holdings Limited; Director of Ingenia Communities Holdings Limited and Ingenia Communities RE Limited as Responsible Manager of Ingenia Communities Management Trust and Ingenia Communities Fund. Gregory Tomlinson: Disclosed he ceased to hold the following positions: Director of Argenta Limited; Director of The Icehouse Limited; Director of Forte Health Limited; and Director of Forte Health Group Limited. Disclosed the following new position: Director of Tomlinson Group Argenta GP Limited. Patrick McCawe: Disclosed the following new positions: Alternate Director of Cairns Airport Property Holding Pty Ltd; Alternate Director of Mackay Airport Property Holding (Hotel) Pty Ltd; Alternate Director of Mackay Airport Property Holding Pty Limited; Director of Macquarie Australian Infrastructure Management 1 Limited; Director of Macquarie Infrastructure Management (Australia) Limited; Alternate Director of North Queensland Airports No. 1 (Mackay) Pty Ltd; Director of Prospect Water No. 1 Pty Limited; Director of Prospect Water No. 2 Pty Limited; Director of Voyage Australia Holdings Pty Limited; Director of Voyage Australia Pty Operations Limited; and Director of Voyage Australia Pty Limited. Specific Disclosures There were no specific disclosures made by Directors during the 10 month period ended 31 March 2021 of any interests in transactions with Oceania or any of its subsidiaries. Use of Company Information During the 10 month period ended 31 March 2021, the Board did not receive any notices from Directors requesting use of Oceania’s or any of its subsidiaries’ information. 96 OCEANIAANNUAL REPORT 2021C O R P O R AT E G OV E R N A N C E Securities Dealings of Directors Dealings by Directors of Oceania in relevant interests in Oceania’s ordinary shares during the 10 month period ended 31 March 2021 are entered in the Interests Register: Director Elizabeth Coutts Number of ordinary shares 50,000 Nature of relevant interest Beneficial interest Acquisition / disposal Acquisition Consideration (per share) $0.99 Date of transaction 13 August 2020 Gregory Tomlinson 1,039,404 Beneficial interest Acquisition Elizabeth Coutts Alan Isaac 14,905 2,162 Dame Kerry Prendergast 2,494 Sally Evans 414 Gregory Tomlinson Sally Evans Elizabeth Coutts Alan Isaac 167,522 24,000 10,988 1,526 Dame Kerry Prendergast 1,760 Sally Evans 466 $0.99 $0.99 $0.99 $0.99 13 August 2020 17 August 2020 17 August 2020 17 August 2020 Beneficial interest Acquisition Beneficial interest Acquisition Acquisition Registered and beneficial interest Registered and beneficial interest Acquisition $0.99 17 August 2020 Beneficial interest Acquisition Registered and beneficial interest Acquisition Beneficial interest Acquisition Beneficial interest Acquisition Acquisition $0.99 $1.04 $1.53 $1.53 $1.53 17 August 2020 28 August 2020 24 February 2021 24 February 2021 24 February 2021 Acquisition $1.53 24 February 2021 Registered and beneficial interest Registered and beneficial interest Gregory Tomlinson Elizabeth Coutts 124,291 200,000 Beneficial interest Acquisition Beneficial interest Acquisition Gregory Tomlinson 3,729,843 Beneficial interest Acquisition $1.53 $1.30 $1.30 24 February 2021 29 March 2021 29 March 2021 Directors’ Interests in Shares Directors of Oceania have disclosed the following relevant interests in shares as at 31 March 2021: Director Elizabeth Coutts Alan Isaac Dame Kerry Prendergast Sally Evans Patrick McCawe Gregory Tomlinson Number of shares in which a relevant interest is held 1,506,829 shares 280,356 shares 311,711 shares 65,180 shares 250,000 shares 23,919,392 shares 97 C O R P O R AT E G OV E R NAN C E (continued) Indemnity and Insurance Oceania has granted indemnities, as permitted by the Companies Act 1993 and the Financial Markets Conduct Act 2013, in favour of each of its Directors. Oceania also maintains Directors’ and Officers’ liability insurance for its Directors and officers. Auditor’s Fees Oceania’s external auditor is PricewaterhouseCoopers. Total fees paid to PricewaterhouseCoopers in its capacity as auditor during the 10 month period ended 31 March 2021 were $396,000. Total fees paid to PricewaterhouseCoopers for other professional services (being trustee reporting) during the 10 month period ended 31 March 2021 were $6,000. No other fees were paid to PricewaterhouseCoopers for other professional services. Donations During the 10 month period ended 31 March 2021, Oceania paid a total of $3,000 in donations. Stock Exchange Listings Oceania’s shares are listed on the NZX and the ASX. Oceania is listed on the ASX as a Foreign Exempt Listing, which means that Oceania is required to comply with the NZX Listing Rules but it is exempt from the majority of the ASX Listing Rules. In accordance with ASX Listing Rule 1.15.3, Oceania confirms that it has complied with the NZX Listing Rules for the 10 month period ended 31 March 2021. NZX Waivers Oceania does not have any waivers from the requirements of the NZX Listing Rules. Credit Rating Oceania has no credit rating. Former Directors Earl Gasparich resigned as a Director of Oceania Village Company Limited, Oceania Care Company Limited and Oceania Group (NZ) Limited on 6 March 2021. Subsidiary Company Directors Brent Pattison, Kathryn Waugh and Jill Birch are the Directors of all Oceania’s subsidiaries as at 31 March 2021, with the exception of OCA Employees Trustee Limited (the Directors of which are Elizabeth Coutts and Sally Evans). No remuneration is payable, and there is no entitlement to other benefits, for any directorship of a subsidiary. 98 OCEANIAANNUAL REPORT 2021 C O R P O R AT E G OV E R N A N C E SHAREHOLDER AND BONDHOLDER INFORMATION Twenty Largest Shareholders (as at 30 April 2021) Registered Shareholder New Zealand Central Securities Depository Limited FNZ Custodians Limited Hobson Wealth Custodians Limited Tomlinson Group Investments Limited 1 Forsyth Barr Custodians Limited Custodial Services Limited New Zealand Depository Nominee Limited Custodial Services Limited Custodial Services Limited Philip George Lennon FNZ Custodians Limited H & G Limited Custodial Services Limited Custodial Services Limited Custodial Services Limited Andrew Craig Strong & Alison Jean Strong Harrogate Trustee Limited 1 JB Were (NZ) Nominees Limited Leveraged Equities Finance Limited PT (Booster Investments) Nominees Limited 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Number of Shares % Shares 233,035,319 33.05 60,863,326 33,916,023 20,248,275 20,077,777 19,471,836 17,830,572 12,961,348 7,420,189 6,000,000 5,558,076 5,500,000 5,445,384 5,030,776 4,908,021 4,564,074 3,749,265 3,412,335 3,311,990 3,309,459 8.63 4.81 2.87 2.84 2.76 2.52 1.83 1.05 0.85 0.78 0.78 0.77 0.71 0.69 0.64 0.53 0.48 0.46 0.46 476,614,045 67.51 1 Gregory Tomlinson’s relevant interests are held by Tomlinson Group Investments Limited and Harrogate Trustee Limited. 99 C O R P O R AT E G OV E R NAN C E (continued) New Zealand Central Securities Depository Limited provides a custodial depository service that allows electronic trading of securities to its members. It does not have a beneficial interest in these shares. Its major holdings of Oceania shares are held on behalf of: Name Number of shares % Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC Nominees (New Zealand) Limited Citibank Nominees (New Zealand) Limited Accident Compensation Corporation Generate Kiwisaver Public Trust Nominees Limited MFL Mutual Fund Limited ANZ Wholesale Trans-Tasman Property Securities Fund HSBC Nominees (New Zealand) Limited A/C State Street BNP Paribas Nominees (NZ) Limited TEA Custodians Limited Client Property Trust Account JP Morgan Chase Bank NA NZ ANZ Wholesale Australasian Share Fund BNP Paribas Nominees (NZ) Limited BNP Paribas Nominees (NZ) Limited Public Trust ANZ Wholesale Property Securities National Nominees Limited Public Trust Class 10 Nominees Limited Queen Street Nominees ACF Pie Funds Mint Nominees Limited New Zealand Permanent Trustees Limited 33,953,761 29,806,500 22,895,982 22,678,382 18,804,829 17,987,497 16,170,865 13,522,260 9,397,572 8,659,722 8,199,188 4,931,444 4,517,777 4,034,572 3,021,201 2,539,851 2,407,054 2,300,935 2,292,307 1,696,909 4.84 4.25 3.26 3.23 2.68 2.56 2.30 1.93 1.34 1.23 1.17 0.70 0.64 0.57 0.43 0.36 0.34 0.33 0.33 0.24 Spread of Shareholdings (as at 30 April 2021) Size of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Totals Substantial Product Holders Number of Shareholders 883 2,095 1,620 3,265 410 8,273 % 10.67 25.32 19.58 39.47 4.96 100 Number of Shares 481,997 6,176,596 12,245,961 95,770,025 590,232,177 704,906,756 % 0.07 0.88 1.74 13.59 83.73 100 According to Oceania’s records and notices given under the Financial Markets Conduct Act 2013, the following were substantial product holders of Oceania as at 31 March 2021: Substantial Product Holder ANZ New Zealand Investments Limited, ANZ Bank New Zealand Limited and ANZ Custodial Services New Zealand Limited Jarden Securities Limited and Harbour Asset Management Limited Number of Shares % of Shares Held at Date of Notice Date of Notice 46,013,058 7.38 27 November 2020 48,237,587 7.03 30 March 2021 100 OCEANIAANNUAL REPORT 2021C O R P O R AT E G OV E R N A N C E Twenty Largest Bondholders (as at 30 April 2021) Registered Bondholder New Zealand Central Securities Depository Limited FNZ Custodians Limited Custodial Services Limited Hobson Wealth Custodians Limited Custodial Services Limited Custodial Services Limited Forsyth Barr Custodians Limited Custodial Services Limited Custodial Services Limited Investment Custodial Services Limited JB Were (NZ) Nominees Limited Custodial Services Limited FNZ Custodians Limited Forsyth Barr Custodians Limited FNZ Custodians Limited Custodial Services Limited Custodial Services Limited David James Foster & Linda Joyce Foster F S Investments Limited Craig John Thompson 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Number of Bonds % Bonds 25,397,000 16,565,000 15,023,000 11,499,000 9,529,000 7,717,000 6,195,000 4,236,000 3,218,000 2,253,000 1,683,000 1,374,000 999,000 680,000 615,000 591,000 522,000 500,000 500,000 500,000 20.31 13.25 12.01 9.19 7.62 6.17 4.95 3.38 2.57 1.80 1.34 1.09 0.79 0.54 0.49 0.47 0.41 0.40 0.40 0.40 109,596,000 87.58 New Zealand Central Securities Depository Limited provides a custodial depository service that allows electronic trading of securities to its members. It does not have a beneficial interest in these bonds. Its major holdings of Oceania bonds are held on behalf of: Name 1 2 3 4 5 6 7 8 9 TEA Custodians Limited Generate Kiwisaver Public Trust Nominees Limited Queen Street Nominees ACF Pie Funds Mint Nominees Limited JP Morgan Chase Bank NA NZ Queen Street Nominees ACF Hobson Wealth Public Trust RIF Nominees Limited BNP Paribas Nominees (NZ) Limited ANZ Custodial Services New Zealand Limited Spread of Bondholdings (as at 30 April 2021) Size of Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Totals Number of Bondholders 1 14 93 299 46 453 % 0.22 3.09 20.53 66.00 10.16 100.00 Number of Bonds % Bonds 12,590,000 10.07 4,080,000 4,075,000 3,490,000 500,000 251,000 160,000 141,000 110,000 Number of Bonds 1,000 70,000 908,000 10,446,000 3.26 3.26 2.79 0.40 0.20 0.13 0.11 0.09 % - 0.06 0.73 8.35 113,575,000 90.86 125,000,000 100.00 101 oceaniahealthcare.co.nz 

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