Pacific Smiles Group Limited
Annual Report 2012

Plain-text annual report

ANNUAL REPORT 2012 Annual Report 2012 I “What pleases us most about the roll-out of new Centres is the clear demonstration of the scalability of the business model. We and the rest of the team are systematic in the way that we research, investigate, scope, design, develop, launch and operate Dental Care Centres.” II Pacific Smiles Group Limited MESSAGE FROM THE FOUNDERS A year ago, in our Founders’ Message, we reflected on As founders, what pleases us most about the roll-out of a year of ‘loading the bases’ in preparation for the new Centres is the clear demonstration of the scalability delivery of significant projects during financial year 2012. of the business model. We and the rest of the team are And delivered we have. The relocation and expansion of the flagship Sydney nib Dental Care Centre and the integration of The Dental systematic in the way that we research, investigate, scope, design, develop, launch and operate Dental Care Centres. Specialists from York Street into that development, This systematic and scalable approach extends to was one of the largest projects ever undertaken by the the consistent positioning of all our Dental Centres Pacific Smiles management team. It is also one of according to what we call the 6 A’s, which are Availability, the largest and most sophisticated Dental Centres Accessibility, Array of Services, Affordability, Attention in Australia. The fact that it has been an outstanding to Care and Service and Assurance of Quality. This success from day one is a testament to the deep skills positioning is completely focused on delivering the very that have been developed internally. best care, service and value to the patient. This positioning Those skills were also apparent in other key projects which were completed during the year and which expanded our operating frontier considerably. underpins the direction that we established right from the start with Pacific Smiles Group and we are proud to see it rolling out into an expanding geographic area. Pacific Smiles Dental North Lakes was our first new Our focus on Dental Care Centre networks was development in Queensland and it is well located within enhanced this year with the completion of two other a major retail precinct about 40 minutes north of major initiatives, the sale of the Eye Care business and Brisbane. Pacific Smiles Dental Woden was our first the execution of a new fifteen year agreement with nib to Dental Centre in the ACT where it has quickly achieved develop and operate nib branded Dental Care Centres. an excellent reputation and strong patient demand, being open seven days a week. Our successes accrue from the efforts and the commitment of all the dentists who practice from our Closer to our home base in the Hunter, we were proud fully serviced facilities and the staff and management to open a new Pacific Smiles Dental Centre at Kotara, who support them. We sincerely thank them all. one of the major retail areas of Newcastle. And Western Sydney was not ignored, with the opening of a Pacific Smiles Dental Centre in Penrith. Annual Report 2012 III CHAIRMAN’S REPORT It is a pleasure this year to report a record Net Profit Before Tax (NPBT) of $6.8 million, representing growth over the previous year of 98%. In the current economic climate, this was an outstanding result, achieved during a very busy year of major initiatives and against a backdrop of substantial geographic expansion of our Dental Centre networks into the three eastern mainland states of Australia and the ACT. The Group now operates 34 Dental Centres, of which 6 are branded nib Dental Care Centres and 28 of which are Pacific Smiles Dental Centres. The latter are mainly located in regional hubs between one and three hours of capital cities. For our shareholders, the excellent financial result has allowed the Board to declare a final dividend of 2.0 cents per share (fully franked). Added to the interim dividend of 1.2 cents per share paid in April 2012, the total annual dividend in relation to the 2012 financial year of 3.2 cents per share was up by 88% on last year and represents a payout ratio of 28%. As mentioned in the Message from the Founders and covered in more detail in the Managing Director’s report, there were many significant initiatives completed during the year. I won’t elaborate on them here, other than to say that the Board is very pleased that Pacific Smiles Group is now more sharply focused on its core business of Dental Centre development and management and dental services support businesses such as Dental Assistant Training Solutions, our Registered Training Organisation for the dental industry. With a sharp business strategy and effective execution, Pacific Smiles Group remains committed to achieving sufficient scale to undertake a liquidity event on behalf of all shareholders in the medium term, subject to conducive external conditions. “Pacific Smiles Group enjoys well located and popular Dental Centres throughout the eastern mainland states and the ACT. Our focus on patient care as the key driver of all operational and financial outcomes continues to serve us well, as evidenced in the 2012 results.” IV Pacific Smiles Group Limited In the meantime, the Board was pleased to provide the Pacific Smiles Group is fortunate to have someone of recent (post balance date) opportunity for all shareholders his calibre on our Board. to participate in the 2012 Authorised Sale. This occurred in July 2012 and approximately 20% of issued shares were sold to new investors introduced to Pacific Smiles Group by TDM Asset Management. The price of $1.55 per share at which the transactions took place set a new benchmark for the Company. As Chairman, I welcome the new investors and thank them for their confidence in our successful business model. Whilst there are now a number of dental corporates operating in the Australian market place, Pacific Smiles Group stands out as a scalable and sustainable organisation with stable, experienced management and excellent clinical and corporate governance. I also welcome Ben Gisz to the Board of Directors of Pacific Smiles Group. Ben has extensive experience in financial markets in Australia and overseas and is a principal of TDM Asset Management. His contributions as a Director are greatly appreciated and I believe that The long term prospects for Pacific Smiles Group are very promising, but there are current challenges accruing from economy-wide negative consumer sentiment and the Federal Government retreat from direct funding of private dental services. However, Pacific Smiles Group enjoys well located and popular Dental Centres throughout the eastern mainland states and the ACT. We have a pipeline of new Dental Centre developments that, subject to suitable market conditions, continue to roll out at a rate of approximately 3 to 6 per year. Our focus on patient care as the key driver of all operational and financial outcomes continues to serve us well, as evidenced in the 2012 results. Thanks to all shareholders for their support and to all internal stakeholders for their commitment and diligence in producing such a pleasing result. Annual Report 2012 V The Year in Review MANAGING DIRECTOR’S REPORT Financial Year 2012 proved that a clear strategy, well As noted by the Chairman and the Founders, there were executed, will deliver record results, even in a challenging a number of strategic initiatives completed in Financial operating environment. With no clear signs of a lift in Year 2012. The sale of the Eye Care business was a consumer sentiment in Australia and government policy major one, not so much by virtue of transaction size, but changes that are quite adverse to the private dental because it facilitated the transition of the organisation to services sector in the short to medium term, Pacific Smiles a pure-play dental facilities and dental services business. Group is benefiting from its prior period investments in people and systems and from a service culture that we believe is second to none in our industry. Soon after the sale of that business, Pacific Smiles Group entered into a new fifteen year Relationship and Marketing Agreement with nib Health Funds Limited. Under this The Net Profit Before Tax (NPBT) of $6.8 million was agreement, Pacific Smiles Group enjoys exclusive rights achieved from record services to patients to the value to the development and operation of Dental Centres of $86 million. Obviously, some of this accrued from the branded as nib Dental Care Centres. There are six such new Dental Centres that were opened during the year, Centres in New South Wales and Victoria now, with other but organic growth from established Dental Centres opportunities currently being explored. was again strong this year, suggesting that our focus on patient care and customer service resonates with the communities that we serve. One of the nib Dental Care Centres was relocated during the year. The flagship Sydney nib Dental Care Centre was relocated from George Street to Hunter Street and Four brand new Pacific Smiles Dental Centres were expanded to 18 surgeries. It is one of the most impressive opened during the year at North Lakes in Queensland, Dental Centres in Australia and patient volumes have Kotara in Newcastle, Penrith in Western Sydney and stepped up considerably since the move, validating the Woden in Canberra. All four new Centres are located in expansion. close proximity to large Westfield Shopping Towns and benefit from excellent exposure and easy access. All four were designed and built to proprietary in-house templates and finishes guides and they all exude the professional, yet friendly Pacific Smiles appeal. So well documented and standardised are our new Centre developments that they can be rolled out without distraction to daily operational management or to other major strategic initiatives. Since the balance date, three more Pacific Smiles Dental Centres have been opened at Bendigo in regional Victoria, Belmont in the Lake Macquarie region of New South Wales and Bateau Bay on the Central Coast of New South Wales. A decision was finally made to close The Dental Specialists on York Street after some years of under performance and significant asset impairment write-downs in previous periods. Equipment and personnel were transferred to the new flagship nib Centre on Hunter Street, which benefited from having an even greater array of dental services to offer patients. From an operational perspective, great strides were made during the year on our two key internal aims – consistency and efficiency. Increasingly, many of the recurring processes and communications in Centres and in Group Head Office are being automated. There VI Pacific Smiles Group Limited is a way to go yet, but it was pleasing during the year for the delivery of the nationally accredited Certificate III to see the development of patient e-communications, an and Certificate IV in Dental Assisting. During the year, this automated staff rostering system, an on-line workplace 100% owned subsidiary, called Dental Assistant Training safety system and a company intranet, which will shortly Solutions delivered a record number of qualifications and go live. As predicted, these systems are allowing Pacific Smiles short courses to Trainees and other employees of Pacific Smiles Group and to a growing external customer base. Group to expand its networks of Dental Centres without The proprietary in-house training program for patient care commensurate increases in head office labour. The and customer service, which is called APPEx (A Perfect scalability dividend that the organisation is now enjoying Patient Experience) is currently undergoing a revamp and is derived not only from these various systems technology shift from paper-based to an on-line self-administered investments, but from investments in people, training and series of education modules for all staff and dentists. systems over the years. Training continues to be a foundation block for Pacific Smiles Group. It is the only dental corporate in Australia that owns and operates a Registered Training Organisation As with all other automation projects at Pacific Smiles Group, the aim of this is to create a truly scalable asset to underpin a consistent approach in terms of process and culture. OUTLOOK Despite the outstanding results for Financial Year 2012 This step change in Federal Government funding, with and a long term positive view, the intermediate outlook a lengthy gap between the termination of one program is shaded by economic uncertainty, subdued consumer and the commencement of the next, could serve to sentiment and Federal Government policy changes that curtail demand for private dental services. Other recent reduce support for the private dental services market in government changes such as the means testing of Australia. At the time of writing this report, the Federal Government had just announced the termination of the Chronic the private health insurance rebate and of the Medical Expenses Tax Offset Scheme, could also depress demand for private dental services in the short term. Diseases Dental Scheme from late calendar 2012 and Pacific Smiles Group is less dependent upon Federal the Teen Dental Scheme at the end of 2013. Combined, Government revenue streams than many other dental these schemes represent about $1 billion per year and providers but is, nevertheless, likely to be impacted by almost 15% of the total private dental services market in these changes which coincide with a period of reduced Australia. They are being terminated with no immediate discretionary expenditure and an increase in the number replacement. of dentists practicing in Australia. From January 2014, the Federal Government proposes a Management will work diligently to minimise the impacts Dental Health Reform Package to provide $2.7 billion over of these multiple challenges in the short term and is six years to children aged 2 to 17 in Family-Tax-Benefit-A committed to the continued development and expansion eligible households. If implemented, this will reach some of profitable networks of Dental Centres where patient 3.4 million Australian children and would be a huge boost care and customer service remain the central focus. to the private dental services market. Annual Report 2012 VII PERFORMANCE HIGHLIGHTS • Consolidated Group Net Profit After Tax of $4.7 million reported for 2012. • Net Profit Before Tax was $6.8 million, up 98% on the previous year. • Total Revenue up 17% to $56.7 million, derived from services provided by dentists to patients to the value of $86 million. • Gross Profit up 19% on the previous year. • At $10.6 million for 2012, EBITDA has increased by 48% compared with 2011. Excluding the impairment adjustments in 2011, the EBITDA from operations has increased by 28%. • Balance sheet remains strong and gearing position is conservative. Borrowings have been reduced over the course of the year, with substantial investments in growing and enhancing the business funded largely by cash flows from operations. • Total dividends paid of $888K, an increase of 32% over the previous year. Total dividends declared and paid in respect of the 2012 financial year, including a final dividend paid subsequent to year end, totalled 3.20 cents per share, representing a payout ratio of 28% of Net Profit After Tax. VIII Pacific Smiles Group Limited 60,000,000 60,000,000 60,000,000 50,000,000 50,000,000 50,000,000 40,000,000 40,000,000 40,000,000 30,000,000 30,000,000 30,000,000 20,000,000 20,000,000 20,000,000 0 0 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 0 2008 Revenue Revenue Revenue 2009 2010 2011 2012 Total Revenue 25,000,000 25,000,000 25,000,000 20,000,000 20,000,000 20,000,000 15,000,000 15,000,000 15,000,000 10,000,000 10,000,000 10,000,000 5,000,000 5,000,000 5,000,000 0 0 0 2008 2008 Net Assets 2008 Net Assets Net Assets 2009 2009 2010 2010 2011 2011 2012 2012 2009 2010 2011 2012 Net Assets 11,000,000 11,000,000 11,000,000 9,000,000 9,000,000 9,000,000 7,000,000 7,000,000 7,000,000 5,000,000 5,000,000 5,000,000 3,000,000 3,000,000 3,000,000 0 0 0 EBITDA EBITDA EBITDA 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2008 2009 2010 2011 2012 EBITDA BUSINESS DEVELOPMENT HIGHLIGHTS North Lakes Kotara ACT Pacific Smiles Dental nib Dental Care Centre • Entry into the ACT market with the launch of Pacific • Relocation and expansion of the flagship nib Dental Smiles Dental Woden Care Centre in Sydney • Strengthened presence in the Hunter region with • Completed the relocation of Pacific Smiles Dental the opening of Pacific Smiles Dental Kotara Torquay into new and larger premises • First new development in Queensland, with the • Planning well advanced for commissioning new opening of Pacific Smiles Dental North Lakes Pacific Smiles Dental centres in Bendigo, Bateau Bay and Belmont • Established Pacific Smiles Dental Penrith to extend reach into Western Sydney Annual Report 2012 IX FINANCIAL REPORT This financial report covers both Pacific Smiles Group Limited as an individual entity and the consolidated entity consisting of Pacific Smiles Group Limited and its subsidiaries. The financial report is presented in the Australian currency. Pacific Smiles Group Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and its principal place of business are located at 6 Molly Morgan Drive, Greenhills, NSW. A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ Report on pages 2 to 4, which is not part of this financial report. The financial report was authorised for issue by the Directors on 25 October 2012. The Company has the power to amend and reissue the financial report. X Pacific Smiles Group Limited DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION INDEPENDENT AUDIT REPORT DIRECTORS’ DECLARATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS 2 5 6 8 9 10 11 12 13 Annual Report 2012 XI DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2012 Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Pacific Smiles Group Limited and the entities it controlled at the end of, or during the year ended 30 June 2012. Directors The following persons were directors of Pacific Smiles Group Limited during the whole of the financial year and up to the date of this report: R Cameron | A Abrahams | J Gibbs | S Rutherford | L Wheeldon | B Gisz appointed 18 July 2012 Robert Cameron AO BE Min (Hons) MBA Grad. Dip. Geoscience, FAICD, FAIM, FAusIMM Chairman, appointed in a non-executive capacity in 2003. Bob Cameron is the Founder and Chairman (non-executive) of Centennial Coal Company Limited and was its Managing Director and Chief Executive Officer until 30 June 2011. He is currently Chairman of County Coal, Chairman of Hunter Valley Training Company, a director of Mining Education Australia, a director of the University of NSW Foundation and a Trustee of the Museum of Applied Arts and Sciences. Bob has been honoured with an Order of Australia, as part of the Queen’s Birthday Honours List in 2012. Alex Abrahams BDS (Syd Uni), AIMM Founder and Executive Director – Strategy and Business Development, appointed in 2003. Alex has overseen the development of the Company from a group of partnerships to an incorporated entity on 1 January 2003. Alex is a Dentist with a special interest in dental implants. Alex is a member of the Australian Dental Association and a member of the Australian Osseointegration Society (Implants). He is a Director of Group Homes Australia Pty Limited, a Director of the Trustees of Canyon Property Trust and Key Health Unit Trust, and formerly a Board Member of Hunter Valley Grammar School. John Gibbs B.Bus, M.Bus. (Int. Mkg.), AFAIM, GAICD Managing Director and Chief Executive Officer, appointed in 2008. John commenced employment as General manager in 2004. He has a background of experience in the establishment and management of private health facilities and the development of private medical markets. He has established new private hospitals for Australian and international investors in the Asia-Pacific region and has participated in redevelopments in Australia. John has undergraduate and postgraduate Business and Marketing Degrees. Simon Rutherford B. Comm., CA, FAICD Non-Executive Director, appointed in 2003. Simon is a Chartered Accountant and Partner with Lawler Partners. He is a director of Lawler Corporate Finance Pty Limited, and specialises in strategy, structuring, business sales, mergers and acquisitions. In this role Simon has assisted various companies with capital raising, listing requirements and initial public offers. Simon is a Director of the Trustee of Canyon Property Trust and is involved with various syndicated investments. He also sits on a number of other Boards and boards of management. 2 Pacific Smiles Group Limited DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2012 Lance Wheeldon BAppSc Non-Executive Director, appointed in 2003. Lance is currently the CEO, Company Secretary and Executive Director of Hunter Valley Private Hospital and has led the significant development and expansion of this facility for over 10 years. He also has extensive prior experience in multisite networks as an Operations Manager in the pathology sector. Lance has a Bachelor of Applied Science degree and broad management experience in project management, mergers, information technology, organisational structures, workplace safety and human resource management. Ben Gisz B.Comm., CA, FFin, CFA Non-Executive Director, appointed in 2012. Ben is a principal of TDM Asset Management, a Sydney based private investment firm. Ben has extensive financial markets experience, including prior roles in private equity investing, investment banking and equities research. Ben holds a Bachelor of Commerce degree from the University of Sydney and is a Fellow of the Financial Services Institute of Australasia. Ben is also a Chartered Accountant and a CFA Charter holder. Company Secretary The company secretary is Jane Coleman B.Comm, MBA, CA, GAICD. Jane was appointed to the position of Company Secretary during 2006, and also holds the position of Chief Financial Officer within the Group. Jane is a Chartered Accountant. Before joining the Company, Jane worked in senior roles within a global chartered accounting firm, and within the health, finance and health insurance industries. Principal Activities Pacific Smiles Group continues to be an operator of Dental Care Centres at which independent and employed practitioners practice and provide clinical treatments and services to patients. Review of Operations The Group’s net profit for the financial year after providing for income tax amounts to $4,747,958 (2011: $1,996,598). Commentary on financial performance and other developments during the year are provided in the Group’s Annual Report. Dividends Dividends paid to members during the financial year were $887,514 (2011: $674,138). Likely Developments and Expected Results of Operations The Group will continue to pursue opportunities to enhance the growth and prosperity of its business. Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this annual financial report because the directors believe it would be likely to result in unreasonable prejudice to the Group. Shares Under Option Details of shares under option are disclosed at Note 17 of the accompanying financial report. Environmental Regulation The Group’s operations are not regulated by any significant environmental regulation. Annual Report 2012 3 DIRECTORS’ REPORT FOR YEAR ENDED 30 JUNE 2012 Meetings of Directors The numbers of meetings of the Company’s Board of Directors held during the year ended 30 June 2012, and the attendances by each Director were: MEETINGS HELD WHILST A DIRECTOR MEETINGS ATTENDED Robert Cameron Alex Abrahams Simon Rutherford Lance Wheeldon John Gibbs 11 11 11 11 11 10 10 10 10 11 Matters Subsequent to the End of the Financial Year Subsequent to the end of the financial year, the Directors declared a final dividend of 2.0 cents per share in relation to the financial year ended 30 June 2012. The dividend was paid in October 2012. An extraordinary general meeting of Pacific Smiles Group Limited was held on 16 July 2012, at which Shareholders unanimously approved the 2012 Authorised Sale proposal and associated changes to the Company’s constitution. These approvals enabled entities associated with TDM Asset Management Pty Ltd (TDM) to acquire a relevant interest in 19.9% of the issued shares of the Company for $13,000,000. In connection with the transaction, Mr Ben Gisz, a principal of TDM, was appointed as a Director of the Company. No other matter or circumstance has arisen since 30 June 2012 that has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years, or (b) the results of those operations in future financial years, or (c) the Group’s state of affairs in future financial years. Insurance of Officers and Auditors During the financial year, the Group paid a premium in respect of a contract insuring its directors and officers against a liability incurred as such an officer. No such insurance contracts apply to insure auditors of the Group. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group. Auditors’ Independence Declaration A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. Auditor Cutcher & Neale continues as auditor in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Board of Directors. Alexander Abrahams Director Greenhills - 25 October 2012 4 Pacific Smiles Group Limited AUDITOR’S INDEPENDENCE DECLARATION FOR YEAR ENDED 30 JUNE 2012 PACIFIC SMILES GROUP LIMITED ABN: 42 103 087 449 AUDITORS INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF PACIFIC SMILES GROUP LIMITED I declare that, to the best of my knowledge and belief, during the year ended 30 June 2012 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Cutcher & Neale Chartered Accountants Mark O'Connor Partner 24 October 2012 NEWCASTLE Annual Report 2012 5 INDEPENDENT AUDIT REPORT FOR YEAR ENDED 30 JUNE 2012 PACIFIC SMILES GROUP LIMITED ABN: 42 103 087 449 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF PACIFIC SMILES GROUP LIMITED Report on the Financial Report We have audited the accompanying financial report of Pacific Smiles Group Limited, which comprises the statement of financial position as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration. Directors' Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 6 Pacific Smiles Group Limited INDEPENDENT AUDIT REPORT FOR YEAR ENDED 30 JUNE 2012 PACIFIC SMILES GROUP LIMITED ABN: 42 103 087 449 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF PACIFIC SMILES GROUP LIMITED Independence PACIFIC SMILES GROUP LIMITED ABN: 42 103 087 449 In conducting our audit, we have complied with the independence requirements of the INDEPENDENT AUDIT REPORT Corporations Act 2001. We confirm that the independence declaration required by the TO THE MEMBERS OF PACIFIC SMILES GROUP LIMITED Corporations Act 2001, which has been given to the directors of Pacific Smiles Group Limited on 24 October 2012, would be in the same terms if given to the directors as at the time of this auditor’s report. Independence Auditor's Opinion In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the In our opinion: Corporations Act 2001, which has been given to the directors of Pacific Smiles Group Limited on 24 October 2012, would be in the same terms if given to the directors as at the time of this (a) the financial report of Pacific Smiles Group Limited is in accordance with the auditor’s report. Corporations Act 2001, including: Auditor's Opinion (i) giving a true and fair view of the company’s financial position as at 30 June 2012 and In our opinion: of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations (a) the financial report of Pacific Smiles Group Limited is in accordance with the 2001; Corporations Act 2001, including: (b) the financial report also complies with International Financial Reporting Standards as (i) giving a true and fair view of the company’s financial position as at 30 June 2012 and disclosed in Note 1. of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Cutcher & Neale Chartered Accountants Cutcher & Neale Mark O'Connor Chartered Accountants Partner NEWCASTLE 26 October 2012 Mark O'Connor Partner NEWCASTLE 26 October 2012 Annual Report 2012 7 DIRECTORS’ DECLARATION 30 JUNE 2012 In the directors’ opinion: a. the financial statements and notes set out on pages 9 to 38 are in accordance with the Corporations Act 2001, including: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 and of its performance for the financial year ended on that date; and b. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c. the financial statements comply with all Australian equivalents to International Financial Reporting Standards (AIFRS) in their entirety. This declaration is made in accordance with a resolution of the Board of Directors. Alexander Abrahams Director Greenhills - 25 October 2012 8 Pacific Smiles Group Limited CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 30 JUNE 2012 REVENUE Cost of goods sold Other direct expenses Gross profit Other expenses from ordinary activities Consumable supplies expenses Employee expenses Occupancy expenses Marketing expenses Administration and other expenses Impairment of property, plant and equipment Depreciation and amortisation expense Finance costs Profit before income tax Income tax expense NOTES 2 3 3 3 4 2012 $ 56,709,687 (878,030) (6,378,450) 49,453,207 (5,354,025) (22,411,891) (4,771,159) (1,438,105) (4,906,543) 2,719 (3,287,702) (489,453) 6,797,048 2011 $ 48,623,079 (2,292,324) (4,723,321) 41,607,434 (4,133,082) (18,837,195) (4,307,161) (1,615,014) (4,460,921) (1,107,149) (3,202,449) (506,654) 3,437,809 (2,049,090) (1,441,211) Profit / (loss) for the year 4,747,958 1,996,598 Other comprehensive income - - Total comprehensive income for the year 4,747,958 1,996,598 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. Annual Report 2012 9 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 ASSETS Current Assets Cash and cash equivalents Receivables Inventories Other Total Current Assets Non-Current Assets Property, plant and equipment Intangible assets Deferred tax assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Payables Borrowings Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Borrowings Provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Contributed equity Retained profits Total Equity NOTES 6 7 8 9 10 11 12 13 14 15 16 14 16 17 18 2012 $ 4,654,737 565,478 1,522,999 297,903 7,041,117 18,816,194 8,978,570 1,282,124 29,076,888 2011 $ 3,415,433 966,724 1,503,815 205,929 6,091,901 14,915,625 9,785,690 998,976 25,700,291 36,118,005 31,792,192 6,365,283 5,950,282 910,831 1,432,871 14,659,267 971,740 402,387 1,374,127 5,804,222 6,080,836 765,288 1,348,062 13,998,408 1,356,355 306,549 1,662,904 16,033,394 15,661,312 20,084,611 16,130,880 11,355,349 8,729,262 11,262,062 4,868,818 20,084,611 16,130,880 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 10 Pacific Smiles Group Limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 JUNE 2012 NOTES CONTRIBUTED EQUITY $ RETAINED PROFITS $ TOTAL EQUITY $ Consolidated Balance at 30 June 2010 10,563,767 3,546,358 14,110,125 Total comprehensive income for the year - 1,996,598 1,996,598 Transactions with equity holders in their capacity as equity holders: Movements in contributed equity Dividends provided for or paid Consolidated Balance at 30 June 2011 Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Movements in contributed equity Dividends provided for or paid 17 5 17 5 698,295 - 698,295 - (674,138) (674,138) 698,295 (674,138) 24,157 11,262,062 4,868,818 16,130,880 - 4,747,958 4,747,958 93,287 - 93,287 - (887,514) (887,514) 93,287 (887,514) (794,227) Consolidated Balance at 30 June 2012 11,355,349 8,729,262 20,084,611 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Annual Report 2012 11 CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDED 30 JUNE 2012 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and finance costs paid Income taxes paid Net cash inflow from operating activities Cash flows from investing activities Payments for purchases of businesses Proceeds from disposal of a business Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Loans advanced Repayment of loans Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of shares Share buy back Proceeds from borrowings Repayment of borrowings Dividends paid Net cash inflow / (outflow) from financing activities Net increase / (decrease) in cash Cash at the beginning of the financial year Cash at the end of the financial year NOTES 29 25 27 6 6 2012 $ 62,170,334 (50,752,687) 11,417,647 129,791 (452,607) (2,234,056) 8,860,775 2011 $ 52,638,932 (43,513,506) 9,125,426 142,367 (539,103) (1,652,450) 7,076,240 - (3,540,959) 713,488 (7,043,350) 17,788 (424,000) 424,000 (6,312,074) 153,323 (60,036) 1,121,870 (1,637,040) (887,514) (1,309,397) 1,239,304 3,415,433 4,654,737 - (2,919,296) 55,378 - - (6,404,877) 698,295 - 497,027 (1,973,366) (674,138) (1,452,182) (780,819) 4,196,252 3,415,433 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. 12 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 1. Summary of Significant Accounting Policies The principal accounting policies adopted in preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Pacific Smiles Group Limited and its subsidiaries. a. Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act 2001. Pacific Smiles Group Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with International Financial Reporting Standards (IFRS) The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical Cost Convention These financial statements have been prepared on an accruals basis and are based on historical costs, modified where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Critical Accounting Estimates and Judgements The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed, where applicable, in the relevant notes to the financial statements. New Accounting Standards and Accounting Interpretations The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the reporting period. Details of the impact of the adoption of these new accounting standards, where applicable, are set out in the individual accounting policy notes. Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods. None of these standards or interpretations have been adopted early in the preparation of these financial statements. On assessment of these new standards and interpretations, there is no material identified impact for the Group. b. Principles of Consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Pacific Smiles Group Limited (“Company” or “parent entity”) as at 30 June 2012 and the results of all subsidiaries for the year then ended. Pacific Smiles Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(g)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries are consistent with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the individual financial statements of the parent entity. c. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is responsible for allocating resources and assessing performance of the operating segments. Annual Report 2012 13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 1. Summary of Significant Accounting Policies (continued) d. Revenue Recognition Revenue is recognised at the fair value of consideration received or receivable. Revenue from the rendering of services is recognised once the services have been provided and is measured in accordance with contractual calculation methods and rates. Revenue from the sale of goods is net of returns, discounts and other allowances, and is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Risks and rewards of ownership are considered to pass to the buyer at the time when control of the goods passes to the customer in the case of the supply of non-customised products, or at the time a significant monetary deposit is taken in the case of customised products. Income Tax e. The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the jurisdictions where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretations. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases 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 transactions 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 end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. f. Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease inception at the lower of the fair value of the lease asset and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in borrowings. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of the finance balance outstanding. The interest element of the finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. Payments made under operating leases are charged to the profit or loss as incurred. Lease income from operating leases where the Group is a lessor is recognised in income as it is earned. 14 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 1. Summary of Significant Accounting Policies (continued) g. Business Combinations The acquisition method of accounting is used to account for all business combinations. Cost is measured as the fair value of the assets given, equity instruments issued or liabilities incurred or assumed. The consideration also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer Note 1(m)). Contingent consideration is classified as a financial liability and amounts are subsequently re-measured to fair value, with changes in fair value recognised in profit and loss. Impairment of Assets h. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Other assets, including those that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Cash inflows considered for the purposes of impairment testing are discounted to present value. Significant judgement has been used in testing assets for impairment and in determining the amounts recognised as impairment losses at reporting date. Further details of the material impairment losses recognised in the financial statements in the previous financial year are provided below: Impairment Loss – Property, Plant and Equipment During the previous financial year, the Group recorded an impairment loss of $1,107,149 relating to the write down of the leasehold improvements assets at two of its Dental Centres. The adjustment comprised $685,692 relating to the Group’s specialist Dental Centre located in Sydney, and $421,457 relating to a Dental Centre located in Melbourne. The impairment assessments were made on the basis of the assets’ expected value in use. Discounted cash flow forecasts were reviewed for each business unit, and the carrying value of the business assets exceeded their recoverable amount. During the financial year ended 30 June 2012, a decision was made to cease operation of a dedicated specialist Dental Centre in Sydney, and instead facilitate the provision of a range of specialist dental services throughout the network of general Dental Centres operated by the Group. Assets with remaining carrying values that were previously utilised at the specialist Dental Centre have been redeployed to other productive uses within the Group. i. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. j. Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment if applicable. The amount of the impairment loss is recognised in profit or loss with other expenses. When a receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. Annual Report 2012 15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 1. Summary of Significant Accounting Policies (continued) Inventories k. Inventories held for sale and stores of consumable supplies are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on the basis of actual costs. l. Property, Plant and Equipment All property, plant and equipment is stated at historical cost less depreciation, amortisation and accumulated impairment losses. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Depreciation is calculated using the straight line method to allocate the cost of assets, net of their residual values, over their estimated useful lives, as follows: Leasehold improvements Plant and equipment 10 to 20 years 3 to 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. 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 (note 1(h)). m. Intangible Assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill on acquisitions of businesses is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Goodwill is allocated to relevant cash-generating units for the purpose of impairment testing. (ii) Rights and Licences Contractual rights and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight line method to allocate the cost of the rights and licences over their estimated useful lives, being between three and ten years. n. Payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. o. Borrowings Borrowings are measured at amortised cost. Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liabilities for at least 12 months after the reporting period. p. Employee Benefits Provision is made for the Group’s liability for employee benefits arising from services rendered by employees up to balance date. Employee benefits that may be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. 16 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 1. Summary of Significant Accounting Policies (continued) q. Dividends Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. r. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. s. Parent Entity Financial Information The financial information for the parent entity, Pacific Smiles Group Limited, disclosed in note 30 has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries are accounted for at cost in the financial statements of Pacific Smiles Group Limited. (ii) Tax consolidation legislation Pacific Smiles Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Pacific Smiles Group Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Pacific Smiles Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly–owned entities fully compensate Pacific Smiles Group Limited for any current tax payable assumed and are compensated by Pacific Smiles Group Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Pacific Smiles Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. Annual Report 2012 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 2. Revenue Services rendered Sale of goods Interest revenue Rents Government subsidies Sundry income 3. Expenses Profit/(loss) before income tax includes the following specific expenses: Depreciation Plant and equipment Leasehold improvements Total Depreciation Amortisation Rights and licences Total Amortisation Net loss on disposal of non-current assets Impairment loss/(write-back) on write-down of assets to recoverable amount Receivables – other entities Inventories Property, plant and equipment Interest and finance charges paid/payable 2012 $ 53,828,157 1,812,768 129,791 604,082 287,683 47,206 2011 $ 42,750,485 4,935,080 142,367 482,677 145,100 167,370 56,709,687 48,623,079 2,345,586 690,148 3,035,734 251,968 251,968 38,634 (3,898) (26,806) (2,719) 489,453 2,097,563 811,059 2,908,622 293,828 293,828 10,007 27,869 2,990 1,107,149 506,654 Rental expenses relating to operating leases 4,162,986 3,656,926 Defined contribution superannuation plans expense 1,762,891 1,549,128 18 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 4. Income Tax Expense a. Income Tax Expense Current tax Deferred tax (note 12) 2012 $ 2011 $ 2,379,600 (330,510) 2,049,090 1,698,963 (257,752) 1,441,211 b. Numerical Reconciliation of Income Tax Expense to Prima Facie Tax Payable Profit before income tax expense 6,797,048 3,437,809 Income tax calculated at 30% (2011: 30%) Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Amortisation of intangibles Impairment loss – fixed assets Sundry items Income tax expense c. Tax consolidation legislation 2,039,114 1,031,343 72,090 (816) (61,298) 2,049,090 84,648 332,145 (6,925) 1,441,211 Pacific Smiles Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The accounting policy in relation to this legislation is set out in note 1. On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Pacific Smiles Group Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Pacific Smiles Group Limited for any current tax payable assumed and are compensated by Pacific Smiles Group Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Pacific Smiles Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables. Annual Report 2012 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 5. Dividends (a) Interim and final dividends totalling 2.10 cents (2011: Interim and final dividends totalling 1.60 cents) per share, fully franked based on tax paid @ 30% PARENT ENTITY 2012 PARENT ENTITY 2011 $ $ 887,514 674,138 (b) Franking credits available for subsequent financial years based on a tax rate of 30% (2011: 30%) 5,893,584 3,940,861 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for franking credits that will arise from the payment of the amount of income tax payable or collection of income tax receivable. The impact on the franking account of the dividend declared by the directors and paid since the end of the reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking account of $362,067 (2011: $163,123). 2012 $ 2011 $ 4,654,737 3,415,433 - 86,106 (14,350) 71,756 493,722 565,478 88,442 421,423 (24,487) 485,378 481,346 966,724 6. Cash and Cash Equivalents CURRENT Cash at bank and in hand 7. Receivables CURRENT Trade debtors – related entity Trade debtors – other entities Provision for impairment – other entities Sundry debtors 20 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 8. Inventories CURRENT Inventories – at cost Inventories – at net realisable value 9. Other Assets CURRENT Prepayments Other 10. Property, Plant and Equipment NON-CURRENT Leasehold improvements – at cost Less accumulated depreciation and impairment Plant and equipment – at cost Less accumulated depreciation and impairment 2012 $ 2011 $ 1,522,999 - 1,522,999 170,381 127,522 297,903 15,166,137 (4,632,313) 10,533,824 17,309,691 (9,027,321) 8,282,370 1,289,210 214,605 1,503,815 139,608 66,321 205,929 12,047,714 (4,233,518) 7,814,196 14,726,751 (7,625,322) 7,101,429 Total property, plant and equipment 18,816,194 14,915,625 Annual Report 2012 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 10. Property, Plant and Equipment (continued) Movements in Carrying Amounts 2012 LEASEHOLD PLANT & IMPROVEMENTS EQUIPMENT Carrying amount at the beginning of the year Additions Disposals Depreciation expense Impairment reversal/(loss) $ 7,814,196 3,421,365 (14,308) (690,148) 2,719 $ 7,101,429 3,621,985 (95,458) TOTAL $ 14,915,625 7,043,350 (109,766) (2,345,586) (3,035,734) - 2,719 Carrying amount at the end of the year 10,533,824 8,282,370 18,816,194 2011 Carrying amount at the beginning of the year Additions Disposals Depreciation expense Impairment loss Carrying amount at the end of the year LEASEHOLD PLANT & IMPROVEMENTS EQUIPMENT $ 8,277,771 1,458,238 (3,605) (811,059) (1,107,149) 7,814,196 $ 7,420,211 1,840,560 (61,779) (2,097,563) - 7,101,429 TOTAL $ 15,697,982 3,298,798 (65,384) (2,908,622) (1,107,149) 14,915,625 22 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 11. Intangible Assets NON-CURRENT Goodwill Less accumulated amortisation and impairment Rights and licences Less accumulated amortisation and impairment 2012 $ 2011 $ 9,733,313 (1,052,088) 8,681,225 991,221 (693,876) 297,345 9,733,313 (1,052,088) 8,681,225 2,463,997 (1,359,532) 1,104,465 Total intangible assets 8,978,570 9,785,690 Movements in Carrying Amounts 2012 GOODWILL $ RIGHTS & LICENSES $ TOTAL $ Carrying amount at the beginning of the year 8,681,225 1,104,465 9,785,690 Additions Disposals Amortisation expense Carrying amount at the end of the year 2011 Carrying amount at the beginning of the year Additions Amortisation expense Carrying amount at the end of the year - - - 8,681,225 GOODWILL $ 5,544,964 3,136,261 - 8,681,225 - (555,152) (251,968) 297,345 RIGHTS & LICENSES $ 1,398,293 - (293,828) 1,104,465 - (555,152) (251,968) 8,978,570 TOTAL $ 6,943,257 3,136,261 (293,828) 9,785,690 Annual Report 2012 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 12. Deferred Tax Assets NON-CURRENT The balance comprises temporary differences attributable to: Provision for doubtful debts Write-down of inventories to net realisable value Depreciation of property, plant and equipment Accrued expenses Provisions Net deferred tax assets Movements: Balance at the beginning of the year Credited (charged) to the income statement Assumption of deferred tax assets in business acquisitions Reversal of deferred tax assets on disposal of business Balance at the end of the year 13. Payables CURRENT Trade payables and accruals 2012 $ 2011 $ 4,305 - 565,834 161,407 550,578 1,282,124 998,976 330,510 - (47,362) 1,282,124 7,346 8,366 375,642 111,238 496,384 998,976 724,659 257,752 16,565 - 998,976 6,365,283 5,804,222 24 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 14. Borrowings CURRENT Secured: Bank bills Bank loans Other loans Unsecured: Other loans Total NON-CURRENT Secured: Bank loans Unsecured: Other loans Total Security 2012 $ 2011 $ 4,500,000 850,282 - 5,350,282 600,000 5,950,282 4,500,000 1,119,063 284,333 5,903,396 177,440 6,080,836 911,740 696,355 60,000 971,740 660,000 1,356,355 Bank bills, bank loans and asset finance provided by the bank are secured by registered equitable mortgage over the whole of the assets and undertakings of the Group, including uncalled capital and inter-entity guarantees. Financing Arrangements Access was available at balance date to the following lines of credit: Total bank borrowings facilities Used at balance date Unused at balance date Covenants attaching to bank borrowings were complied with during the year. 13,500,000 (7,316,909) 6,183,091 13,500,000 (7,537,791) 5,962,209 15. Current Tax Liabilities CURRENT Income tax payable 910,831 765,288 Annual Report 2012 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 16. Provisions CURRENT Employee benefits NON-CURRENT Employee benefits Movements: Balance at the beginning of the year Amounts recognised in connection with business combinations Reverse amounts in connection with business disposed Additional provisions made Amounts used Balance at the end of the year 17. Contributed Equity (a) Share Capital – No. of Shares Ordinary shares – fully paid Ordinary shares – partly paid Share Capital - $ of shares Ordinary shares – fully paid Ordinary shares – partly paid 2012 $ 2011 $ 1,432,871 1,348,062 402,387 306,549 1,654,611 - (157,875) 1,712,610 (1,374,088) 1,835,258 2012 42,241,151 - 42,241,151 2012 $ 11,355,349 - 11,355,349 1,268,575 55,218 - 1,505,060 (1,174,242) 1,654,611 2011 41,627,518 663,663 42,291,181 2011 $ 10,784,905 477,157 11,262,062 26 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 17. Contributed Equity (continued) (b) Movements DATE DETAILS NUMBER OF SHARES ISSUE PRICE 30 June 2010 Opening Balance 1 September 2010 Share issue on exercise of options 22 November 2010 Share issue on exercise of options 23 March 2011 Conversion of partly paid shares into fully paid 30 June 2011 30 June 2011 Regular calls on unpaid amounts of partly paid shares Balance 41,633,652 200,000 600,000 (142,471) 42,291,181 $0.45 $0.60 30 November 2011 Share buy back (50,030) $1.20 30 June 2012 Regular calls on unpaid amounts of partly paid shares 30 June 2012 Balance 42,241,151 $ 10,563,767 90,000 360,000 - 248,295 11,262,062 (60,036) 153,323 11,355,349 (c) Ordinary Shares Fully paid ordinary shares – Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At shareholders’ meetings, each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Partly paid ordinary shares – The partly paid ordinary shares have been called on a scheduled basis throughout the year. All partly paid shares were fully paid up by the end of the financial year. (d) Share Options Unissued ordinary shares of the Company under option at the date of this report are set out below. DATE OPTIONS GRANTED EXERCISE DATE ISSUE PRICE OF SHARES NUMBER UNDER OPTION September 2008 October 2009 June 2010 September 2010 September 2013 October 2012 July 2013 October 2012 $1.00 $0.85 $1.00 $0.85 250,000 1,475,000 85,843 75,000 1,885,843 Annual Report 2012 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 18. Retained Profits Balance at the beginning of the year Net profit/(loss) for the year Dividends Balance at the end of the year 19. Remuneration of Auditors Cutcher & Neale 2012 $ 4,868,818 4,747,958 (887,514) 8,729,262 2011 $ 3,546,358 1,996,598 (674,138) 4,868,818 Audit of the annual financial report under the Corporations Act 2001 33,500 32,000 20. Contingencies Bank guarantees The bank guarantees at the end of the financial year relate to security pro- vided under operating leases for premises. 21. Commitments (a) Capital Commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: 1,054,887 1,222,373 Property, plant and equipment Payable within one year 268,818 449,294 (b) Operating Lease Commitments Non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities are as follows: Payable within one year Payable later than one year but not later than five years Payable later than five years 4,602,773 16,155,004 15,989,326 36,747,103 4032,899 15,936,893 16,781,968 36,751,760 Operating leases relate to rented premises and motor vehicles. Leases have various terms, including some options to extend the terms. 28 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 22. Key Management Personnel Disclosures (a) Directors The names of persons who were directors of the Company at any time during the financial year were as follows: Robert Cameron John Gibbs Alex Abrahams Simon Rutherford Lance Wheeldon (b) Key management personnel compensation Key management personnel compensation for the years ended 30 June 2012 and 2011 is set out below. The key management personnel are all the directors of the Group and the executive managers within the Group who report directly to the Board or Chief Executive Officer, and have prime responsibility for significant functional areas within the Group. These personnel are deemed to have the greatest authority for the strategic direction and management of the Group. Short-term employment benefits 2012 $ 1,205,114 2011 $ 1,266,659 (c) Other transactions with key management personnel or entities related to them Information on transactions with key management personnel or entities related to them, other than compensation, is set out below. All key management personnel or their related parties held shares in the Company during the financial year, and as such, participated in dividends. Bislab Pty Limited ATF the Canyon Property Trust, an entity related to Alex Abrahams and Simon Rutherford, provided premises rental to the Company during 2012 and 2011 on normal commercial terms and conditions. Exandal Investments, an entity related to Alex Abrahams and Alison Hughes, provided premises rental to the Company during 2012 and 2011 on normal commercial terms and conditions. 88 Park Avenue Pty Limited ATF the Key Health Unit trust, an entity related to Alex Abrahams, provided premises rental to the Company during 2012 on normal commercial terms and conditions. Susan Abrahams, an individual related to Alex Abrahams, provided premises rental to the Company during 2012 and 2011 on normal commercial terms and conditions. The Company received fees for the provision of services to Alex Abrahams and Alison Hughes under normal terms and conditions of dental service and facility agreements. The Company received fees for the provision of property management and administration services to Exandal Investments, Bislab Pty Limited and 88 Park Avenue Pty Limited. The Company paid fees for management and support services to Whitesail Pty Limited ATF AJ Abrahams Family Trust during the 2012 year. The entity is related to Alex Abrahams. Fees were based on an agreement approved by the Board, which reflects commercial terms and conditions. The Company paid consultancy fees for specific advice and assistance to Lawler Partners during the 2012 and 2011 years. Lawler Partners is an entity related to Simon Rutherford. Fees paid were based on normal commercial terms and conditions. Annual Report 2012 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 22. Key Management Personnel Disclosures (continued) (c) Other transactions with key management personnel or entities related to them (continued) The aggregate amounts of each of the above types of transactions were: Subscriptions for new ordinary shares Dividends paid Revenues from rendering of services Administration fees received Rental expense Consultancy fees paid Administration expenses 23. Subsidiaries 2012 $ - 631,894 464,593 2,038 1,164,502 3,514 32,676 2011 $ 360,000 476,403 540,757 9,792 1,068,556 - - The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(b): NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF SHARES Pacific Smiles Group Limited Pacific Eyes Pty Limited * Dentist Smiles Group Pty Limited Dental Assistant Training Solutions Pty Limited Pacific Medical Care Pty Limited ** Australia Australia Australia Australia Australia - Ordinary Ordinary Ordinary Ordinary EQUITY HOLDING 2012 % 2011 % - 100 100 100 100 - 100 100 100 100 * Change of name from Pacific Optical Pty Limited to Pacific Eyes Pty Limited during the year, in connection with the disposal of the Eye Care business. ** Subsidiary has not traded since incorporation. 30 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 24. Related Party Transactions (a) Parent Entity The parent entity within the Group is Pacific Smiles Group Limited. (b) Subsidiaries Interests in subsidiaries are set out in Note 23. (c) Key Management Personnel Disclosures of transactions involving key management personnel are set out in Note 22. (d) Transactions With Related Parties In addition to the disclosures in relation to key management personnel, the following transactions occurred with related parties. All transactions below involved entities within the wholly-owned group. Provision of serviced dental facilities and related supplies Sub-leasing of premises Provision of management, administration and associated services and supplies Provision of training services 2012 $ 7,766,060 75,581 212,197 54,572 2011 $ 4,766,390 227,057 380,640 34,053 Transactions between members of the wholly-owned group are undertaken on terms equivalent to those which apply to arms-length third parties where similar arrangements exist. Where services provided within the Group are not similarly provided to arms-length parties, charging methodologies are applied to reflect likely normal commercial terms intended to recover costs and return a reasonable margin. Annual Report 2012 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 25. Business Combinations (a) Summary of Acquisitions There were no business acquisitions during the financial year. Details of business acquisitions during the previous financial year are summarised below. On 1 April 2011, the Group acquired a dental centre at Bribie Island, Queensland. On 29 April 2011, the Group acquired a dental centre at Warilla, New South Wales. Details of the aggregate fair value of the assets and liabilities acquired and goodwill were as follows: Purchase consideration (refer to (b) below): Cash paid/payable Fair value of net identifiable assets acquired (refer to (c) below) Goodwill (note 11) 2012 $ - - - 2011 $ 3,540,959 404,698 3,136,261 In some instances, purchase consideration has been determined provisionally, as future installments of the price are payable upon satisfaction of certain conditions. The full potential consideration, and hence goodwill, has been recognised as it was probable at balance date that these conditions will be fulfilled. During 2011, $91,603 of additional consideration was paid in relation to a previous business acquisition, upon satisfaction of contractual conditions. This amount was recognised in Other Expenses in the Income Statement. (b) Purchase Consideration Outflow of cash to acquire businesses, net of cash acquired Total consideration Vendor finance/deferred consideration applied Cash paid Total outflow 2012 $ - - - - 2011 $ 3,540,959 480,000 3,060,959 3,540,959 No cash or bank overdrafts were acquired as part of the business acquisitions. During 2011, acquisition-related transaction costs of $164,264 was included in Other Expenses in the Income Statement and in Operating Cash Flows in the Statement of Cash Flows. (c) Assets and Liabilities Acquired The assets and liabilities arising from the acquisitions were as follows: Inventories Plant and equipment Deferred tax assets Provision for employee benefits Net identifiable assets acquired 32 Pacific Smiles Group Limited 2012 $ - - - - - 2011 $ 63,848 379,503 16,565 (55,218) 404,698 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 26. Financial Risk Management The Group’s principal financial instruments comprise bank bills, bank and other loans, equipment finance instruments and cash. The main purpose of these instruments is to raise finance for the Group’s operations and investments. The Group has various other financial instruments such as trade and other debtors and creditors, which arise directly from its operations. The Group does not trade in financial instruments. The Board has overall responsibility for the establishment and oversight of the risk management framework. Senior management develops and monitors risk management policy, and reports regularly to the directors on issues and compliance matters. Risk management principles and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The main risks arising from the Company and Group’s financial instruments are identified below. Market Risk The Group’s exposure to market risk for changes in interest rates relates primarily to its bank debt obligations. A significant portion (90%) of the Group’s borrowings at balance date attracted fixed interest rates, with fixed rates applying to the bank-provided equipment loans and bank bills. These loans are primarily used to partly finance the purchase of durable tangible assets and intangible assets such as goodwill acquired in business acquisitions. Of these fixed interest liabilities, $1,500,000 (or 22% of total borrowings) comprise bank bills, which have short durations and hence are repriced frequently. The remaining $3,000,000 of bank bills form part of a loan facility which is subject to annual review by the bank, but which has an interest rate fixed for more than twelve months. The remaining 10% of other loans were non-interest bearing. Cash balances in cheque and other on-call accounts earned interest at rates ranging between 0.1% and 3.5% (2011: 1.25% and 4.75%) for the Group, depending upon account balances. The weighted average interest rate on borrowings at the end of the year was 4.58% (2011: 5.22%) for the Group. Interest Rate Sensitivity Analysis Effect on profit before tax and equity: 1% increase in interest rates 1% decrease in interest rates Credit Risk 2012 $ 7,961 (7,961) 2011 $ 24,794 (24,794) The Group has no significant concentrations of credit risk. The Group does not have significant credit exposure to any one financial institution or customer. The credit risk on financial assets of the consolidated entity which have been recognised in the balance sheet is generally the carrying amount, net of any provision for doubtful debts. Annual Report 2012 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 26. Financial Risk Management (continued) Liquidity Risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of working capital and bank borrowings. The Group aims to achieve this flexibility by keeping committed credit lines available. Opportunities to raise additional capital from shareholders are also considered where appropriate. Bank financing facilities are identified at Note 14. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows to ensure sufficient liquidity is always available to meet liability obligations as they fall due. The Group’s Balance Sheet shows an excess of current liabilities over current assets at balance date of $7,618,150. Liabilities have been classified as current where it is probable that they will be settled within twelve months or if there is a contractual obligation that may require settlement within twelve months, regardless of how likely settlement under contractual arrangements is judged to be. The Group’s current assets, available financing facilities, and ongoing positive operating cash flows continue to be sufficient to satisfy all payment obligations within the timeframes required. Maturities of Financial Liabilities The following tables show the maturity groupings of gross (undiscounted) payment obligations under contracts for financial liabilities. Consolidated – 2012 Bank bills (*) Bank loans Other loans Payables and accruals Consolidated – 2011 Bank bills (*) Bank loans Other loans Payables and accruals LESS THAN 6 MONTHS $ 4,500,000 507,088 60,000 6,365,284 11,432,372 4,500,000 640,339 401,773 5,804,222 11,346,334 6 TO 12 MONTHS 1 TO 5 YEARS TOTAL CONTRACTUAL AMOUNTS $ 4,500,000 1,762,022 660,000 6,365,284 13,287,306 4,500,000 1,815,418 1,121,773 5,804,222 $ - 911,740 60,000 - 971,740 - 696,356 660,000 - 1,356,356 13,241,413 $ - 343,194 540,000 - 883,194 - 478,723 60,000 - 538,723 * Bank bills totaling $4,500,000 form part of a bank facility which is reviewed annually with the Bank. The overall facility does not have a fixed expiry date. It is an ongoing line of credit, subject to the Bank’s annual review. The particular financial instruments drawn under the facility, such as bank bills, have specified maturity or roll-over dates, but the line of credit is un-termed. The Company anticipates the facility will be reviewed with the Bank during the next twelve months and will remain in place thereafter in the normal course of business. Balances outstanding under the facility have been classified as contractually due within twelve months for the purposes of this disclosure. Fair Value The fair value of financial assets and liabilities held by the Group approximate the individual carrying values of those assets and liabilities. 34 Pacific Smiles Group Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 27. Segment Information (a) Description of Segments For part of the financial year, the consolidated entity was organised into two primary divisions by service type. These were Dental and Eye Care, and represented the operating segments of the business. On 14 November 2011, the Eye Care business was sold, and thereafter, the Group’s activities are primarily Dental in nature. The Group’s activities are located throughout Eastern Australia. (b) Segment Information DENTAL EYE CARE CONSOLIDATED $ $ $ 2012 Segment revenue Sales and services to external customers Other revenue Consolidated revenue Segment result 53,843,088 1,051,119 54,894,207 1,797,837 17,643 1,815,480 Profit/(loss) before income tax 6,866,450 (69,402) Income tax expense Profit after income tax Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 36,121,037 2,026 16,036,427 1,525,414 Other segment information Acquisitions of property, plant and equipment, intangibles and other non-current assets Depreciation and amortisation expense Impairment losses/(reversals) 7,039,906 3,227,338 - 3,444 60,364 (2,719) 55,640,925 1,068,762 56,709,687 6,797,048 (2,049,090) 4,747,958 36,123,063 (5,058) 36,118,005 17,561,841 (1,528,447) 16,033,394 7,043,350 3,287,702 (2,719) Annual Report 2012 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 27. Segment Information (continued) 2011 Segment revenue Sales and services to external customers Other revenue Consolidated revenue Segment result Profit/(loss) before income tax Income tax expense Profit after income tax Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information DENTAL EYE CARE CONSOLIDATED $ $ $ 42,293,046 882,885 43,175,931 5,392,519 54,629 5,447,148 3,498,476 (60,667) 31,119,796 1,216,677 14,988,817 2,814,613 47,685,565 937,514 48,623,079 3,437,809 (1,441,211) 1,996,598 32,336,473 (544,281) 31,792,192 17,803,430 (2,142,118) 15,661,312 Acquisitions of property, plant and equipment, intangibles and other non-current assets Depreciation and amortisation expense Impairment losses (c) Disposal of Eye Care Business 6,439,808 3,029,945 1,124,271 11,817 172,504 13,737 6,451,625 3,202,449 1,138,008 On 14 November 2011, the Group, via subsidiary company Pacific Optical Pty Limited, completed the sale of its Eye Care business. Details of the aggregate fair value of the assets and liabilities disposed are as follows: Total disposal consideration Fair value of net assets disposed Net loss on disposal Inflow of cash from disposal of business, net of cash disposed Deferred consideration Cash received Total inflow 2012 $ 713,488 741,421 27,933 424,000 289,488 713,488 No cash or bank overdrafts were disposed of as part of the business disposal. Deferred consideration was received prior to the end of the financial year. The assets and liabilities disposed were as follows: Inventories Plant and equipment Intangible assets Deferred tax assets Provision for employee benefits Net identifiable assets disposed 36 Pacific Smiles Group Limited 215,504 81,278 555,152 47,362 (157,875) 741,421 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 28. Events Occurring After the Balance Sheet Date Subsequent to the end of the financial year, the Directors declared a final dividend of 2.0 cents per share in relation to the financial year ended 30 June 2012. The dividend was paid in October 2012. An extraordinary general meeting of Pacific Smiles Group Limited was held on 16 July 2012, at which Shareholders unanimously approved the 2012 Authorised Sale proposal and associated changes to the Company’s constitution. These approvals enabled entities associated with TDM Asset Management Pty Ltd (TDM) to acquire a relevant interest in 19.9% of the issued shares of the Company for $13,000,000. In connection with the transaction, Mr Ben Gisz, a principal of TDM, was appointed as a Director of the Company. 29. Note to the Statement of Cash Flows Reconciliation of profit/(loss) after income tax to net cash inflow from operating activities Profit/(loss) for the year Depreciation and amortisation Impairment losses Net loss on disposal of non-current assets Change in operating assets and liabilities (Increase) decrease in receivables (Increase) decrease in inventories (Increase) decrease in other operating assets (Increase) decrease in deferred tax assets Increase (decrease) in trade payables Increase (decrease) in provisions Increase (decrease) in income tax Net cash inflow from operating activities 30. Parent Entity Financial Information (a) Summary Financial Information 2012 $ 4,747,958 3,287,702 (2,719) 38,633 401,246 (234,688) (91,974) (330,510) 561,062 338,522 145,543 8,860,775 The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Retained earnings Profit or (loss) for the year Total comprehensive income 2012 $ 7,546,203 36,455,100 14,490,712 15,864,839 11,355,349 9,234,912 20,590,261 4,904,599 4,904,599 2011 $ 1,996,598 3,202,450 1,107,149 10,007 (244,945) 90,563 (114,002) (257,752) 908,841 330,818 46,513 7,076,240 2011 $ 6,287,388 31,225,201 13,095,188 14,745,311 11,262,062 5,217,828 16,479,890 2,166,255 2,166,255 Annual Report 2012 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED 30 JUNE 2012 30. Parent Entity Financial Information (continued) (b) Contingent liabilities of the parent entity 2012 $ 2011 $ Bank guarantees 1,054,887 1,222,373 The parent entity did not have any contingent liabilities or financial guarantees as at 30 June 2012 or 30 June 2011, other than bank guarantees. (c) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2012, the parent entity had contractual commitments for the acquisition of property, plant or equipment totaling $268,818 (30 June 2011 - $449,294). These commitments are not recognised as liabilities as the relevant assets have not yet been received. 38 Pacific Smiles Group Limited FIVE YEAR HISTORICAL TRENDS GENERAL INFORMATION Dental Number of Centres Number of Surgeries Eye Care Number of Centres PROFIT AND LOSS Total Revenue Gross Profit EBITDA EBIT Profit Before Income Tax Profit/(Loss) After Income Tax BALANCE SHEET Total Assets Total Liabilities Total Borrowings Net Assets Contributed Equity Retained Profits CASH FLOWS Cash Flows From Operations Dividends - Fully Franked RATIOS EBITDA / Revenue Profit After Income Tax / Revenue Interest Coverage: EBITA / Net Interest Gearing: Debt / (Debt and Equity) Return on Equity: Profit After Income Tax / Total Equity 2012 2011 2010 2009 2008 31 150 - $’000 56,710 49,453 10,574 7,287 6,797 4,748 $’000 36,118 16,033 6,922 20,085 11,355 8,729 $’000 8,861 888 28 130 4 $’000 48,623 41,607 7,147 3,944 3,438 1,997 $’000 31,792 15,661 7,437 16,131 11,262 4,869 $’000 7,076 674 25 118 6 $’000 43,485 35,881 6,996 4,222 3,676 2,512 $’000 29,906 15,796 8,914 14,110 10,564 3,546 $’000 5,869 465 19 104 7 $’000 39,527 30,666 3,450 938 310 -420 $’000 26,687 15,204 9,013 11,483 9,984 1,499 $’000 5,211 385 17 105 5 $’000 33,657 25,864 4,541 2,690 2,015 1,389 $’000 26,512 14,413 9,515 12,099 9,542 2,556 $’000 2,617 312 18.6% 8.4% 14.7% 4.1% 21.0 times 11.6 times 25.6% 23.6% 31.6% 12.4% 16.1% 5.8% 9.7 times 38.7% 8.7% -1.1% 2.2 times 44.0% 13.5% 4.1% 4.4 times 44.0% 17.8% -3.7% 11.5% Dividends Per Share 2.10 cents 1.60 cents 1.15 cents 1.0 cents 0.90 cents Annual Report 2012 39 NOTES THIS PAGE INTENTIONALLY LEFT BLANK 40 Pacific Smiles Group Limited PACIFIC SMILES GROUP HEAD OFFICE Level 1, 6 Molly Morgan Drive GREENHILLS NSW 2323 pacificsmilesgroup.com.au DENTAL ASSISTANT TRAINING SOLUTIONS Level 1, 366 Hunter Street NEWCASTLE NSW 2300 dentalassistanttraining.com.au nib DENTAL CARE CENTRES NEW SOUTH WALES Glendale - 595 Main Road Newcastle - 366 Hunter Street Parramatta - 28 Grose Street Sydney - 27-31 Hunter Street Wollongong - 106 Crown Street VICTORIA Melbourne - 356 Collins Street nib.com.au/dentallocations PACIFIC SMILES DENTAL CENTRES NEW SOUTH WALES Bateau Bay - Bateau Bay Sqaure Belmont - 12 Thomas Street QUEENSLAND Bribie Island - Bribie Island Shopping Centre North Lakes - Westfield North Lakes Charlestown - Cnr Smart & Pearson Streets VICTORIA Erina - Erina Fair Forster - 22 South Street Gladesville - 3 Meriton Street Greenhills - 8 Molly Morgan Drive Kotara - 88 Park Avenue Lake Haven - Lake Haven Shopping Centre Morisset - 49 Yambo Street Nowra - 64 Junction Street Penrith - 59 Station Street Rutherford - West Mall, Rutherford Shopping Centre Salamander Bay - 167 Salamander Way Tuggerah - Westfield Shopping Centre Warilla - 102 Shellharbour Road pacificsmilesdental.com.au Bendigo - Leading Healthcare Building, 84 Mollison Street Bairnsdale -287 Main Street Drysdale - 41 High Street Melbourne - 360 Bourke Street Sale - 56 Cunninghame Street Torquay - 110 Geelong Road Traralgon - 20 Hotham Street Warragul - 130 Albert Street Waurn Ponds - Medical One Building, 160 Colac Road AUSTRALIAN CAPITALTERRITORY Woden - 28 Brewer Street Annual Report 2012 41 Pacific Smiles Group Limited ABN 42 103 087 449 PO Box 2246 GREENHILLS NSW 2323 P: + 61 2 4930 2000 F: + 61 2 4930 2099 E: admin@pacificsmiles.com.au pacificsmilesgroup.com.au 

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