Pacific Smiles G rou p 2013
Annual Report
2
Pacific Smiles Group Annual Report 2013
Contents
Message from the Founders
Chairman’s Report
Managing Director’s Report
2013 Financial Year Highlights
Financial Report
Five Year Historical Trends
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Message from
the Founders
Time flies when you’re having fun, and given how quickly
the first ten years of Pacific Smiles Group seems to have gone
by, there’s no doubt that both of us have thoroughly enjoyed
the journey. We continue to enjoy it every day and this has
been an important aspect of the prevailing culture at our great
organisation. We genuinely aim to generate smiles for life, not
only for our patients, but for all stakeholders, including dentists,
employees, colleagues and associates and of course, our fellow
shareholders.
As founders, we are justifiably proud of the organisation
reaching the significant milestone of ten years in business.
From three Dental Centres in the Hunter in 2003 to thirty-four
Dental Centres across New South Wales, the ACT, Victoria and
Queensland in 2013, the growth and expansion has already
exceeded our initial expectations. Yet we feel like we’re just
getting started! There are so many more opportunities to build
on our successful foundations.
In our celebratory tenth year of operations, it was pleasing
to achieve a record financial performance, despite subdued
consumer sentiment and the cessation of a major government
funding initiative for the dental services industry. The government
program contributed to outstanding performance in the first half
of the year and its termination impacted negatively on patient
demand in the second half.
Economic sentiment is cyclical, government programs come
and go. Regardless, Pacific Smiles Group consistently focuses
on exceeding the expectations of dentists and patients, our two
customer groups. Our service culture, expressed as A Perfect
Patient Experience (APPEx®) is our point of difference and
sustainable competitive advantage in an increasingly crowded
provider market. So it was at the start, so it is today and so it will
be tomorrow.
Dr Alex Abrahams
& Dr Alison Hughes
We genuinely
aim to generate smiles
for life, not only for
our patients, but for all
stakeholders, including
dentists, employees,
colleagues and
associates and of
course, our fellow
shareholders.
4
Pacific Smiles Group Annual Report 2013
Robert
Cameron AO
Pacific Smiles
Group is a company that
is successfully balancing
the dual commitments
of performance and
compliance, exhibiting
a strong culture of
good corporate social
responsibility.
Chairman’s Report
The 2013 financial year commenced with the 2012 Authorised
Sale through which TDM Asset Management joined our share
register and Ben Gisz, one of their principals, joined our Board.
The relationship has been value-adding from the start and is one
of many contributors to the achievement of a record Net Profit
Before Tax of $9.1 million. This was an improvement of 39% over
the previous year’s record result.
As Chairman, I am obviously very pleased with the robust
financial performance, but I am equally proud of the positive
progress that the company is making on multiple fronts,
including operational efficiencies, business development,
strategic collaboration, risk management, clinical and corporate
governance, and health and safety. Pacific Smiles Group is a
company that is successfully balancing the dual commitments
of performance and compliance, exhibiting a strong culture of
good corporate social responsibility.
Despite some economic and government funding challenges
to the business during the year, the patient volumes at the
established Pacific Smiles Dental Centres and nib Dental Care
Centres held up quite well and according to anecdotal evidence,
better than many others in the industry. Our over-the-counter
billings for the year was a record high $95 million, but there was a
skew to the first half of the year when the Federal Government’s
Chronic Disease Dental Scheme was operating.
The management actions in relation to the termination of
the Chronic Disease Dental Scheme will be covered in the
Managing Director’s report, but suffice to say, my fellow Board
members and I were pleased with management’s anticipation
and response to one of the most significant changes to dental
funding seen in Australia.
Expansion has continued at a solid pace, benefiting from the
highly systematic approach that management has developed
and honed over many years. Three new Pacific Smiles Dental
Centres were opened during the year at Bendigo in regional
Victoria, Bateau Bay on the Central Coast of New South Wales
and at Belmont on the shores of Lake Macquarie, also in New
South Wales. A number of other opportunities were scoped out
for commencement in the current year.
The Board has declared a final dividend of $0.05 per share on
the basis of the very successful year. Total dividends in relation to
the 2013 financial year are $0.075, representing a payout ratio of
56% on the statutory net profit after tax. The total dividends
paid during the financial year were up over 100% on last year.
We continue to work towards a liquidity
event on behalf of all shareholders and
I thank you for your continued
support.
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Managing Director’s
Report
The 2013 financial year was truly a year of two very different
halves. Early in the financial year, the Federal Government
announced the impending closure of the Chronic Disease
Dental Scheme, precipitating a rush of eligible patients seeking
treatment before the cut-off date at the end of November. This
had the effect of bringing forward significant volumes of much
needed dental treatment, thereby generating subdued demand
conditions in the short term following. Given that the Chronic
Disease Dental Scheme was funding about 15% of the total
private dental services market in Australia, it is hardly surprising
that the impact was so significant.
Fortunately, our long-term commitment to quality patient care
and customer service bolstered patient loyalty and lessened the
impact on the Dental Centres operated by Pacific Smiles Group,
compared with the wider market. That is not to suggest that our
second half was not materially impacted, but demand conditions
had improved towards the end of the financial year, despite
the absence of any meaningful Federal government funding
program.
Subdued economic sentiment is possibly the more potent and
immediate influence on patient demand for discretionary dental
services. While participation in ancillary private health insurance
has held up well in the face of the changes to the private health
insurance rebate,
insurance members and customers are
somewhat less inclined to seek treatments and services, other
than those that they deem to be urgent or non-discretionary.
Despite the challenges, we continue to enjoy success with
new Dental Centres, particularly in our established geographic
clusters where our brand and reputation for quality are well
known.
Business Performance
The 2013 financial year produced another solid result for Pacific
Smiles Group. Our Net Profit After Tax of $6.1 million was up
34% on the previous year, quite an achievement in this rapidly
changing market. The approach to accounting for commercial
property leases was revised to fully comply with IFRS, and one
onerous lease contract was provided for. These non-cash
adjustments increased expenses in 2013, but will lessen reported
expenses in future periods.
Almost 400,000 appointments were attended across our
growing network of Dental Centres, producing a record $95m of
over-the-counter patient billings. Strong growth compared to the
John Gibbs
Almost
400,000 appointments
were attended across
our growing network
of Dental Centres,
producing a record
$95m of over-the
-counter patient
billings.
6
Pacific Smiles Group Annual Report 2013
previous year was evident across all of our operating
regions, underscoring the scalability of the Pacific
Smiles Group business model. Success builds upon
success and there are opportunities being scoped in
multiple of our operating regions.
Other business development initiatives included
the launch of the employee and dentist intranet, the
development of an on-line induction and training
program for employees plus a new staff rostering
system.
One of the most pleasing aspects of our financial
performance this year was cost management,
both at head office and in the Dental Centres. The
termination of the Chronic Disease Dental Scheme,
combined with subdued consumer sentiment,
triggered an unprecedented focus on costs across
the whole dental industry and Pacific Smiles Group
was no exception. All opportunities to reduce the
cost base without compromising quality or care or
the capacity for future expansion, were scrutinised
and many useful initiatives were actioned.
Speaking of quality and care, Pacific Smiles Group
is the pioneer of the use of post-visit surveys and the
customer loyalty metric known as the Net Promoter
Score in the dental services industry in Australia. In
the 2013 financial year, it was very encouraging to
see an already impressive result improve by a further
7% to positive 67 across our network. By Australian
and
international standards across numerous
industries, this is an exceptionally high Net Promoter
Score, validating our focus on patient care and
customer service under our APPEx® (A Perfect
Patient Experience) program.
Business Development
Three new Pacific Smiles Dental Centres were
opened during the year, at Bendigo in regional
Victoria, Belmont on Lake Macquarie, New South
Wales and Bateau Bay on the New South Wales
Central Coast. Designed and fitted out to the Pacific
Smiles standard blueprint, they were all delivered
on time and within approved expenditure budgets.
In New South Wales, the new centres are in retail
precincts while the Bendigo centre is part of a
new and exciting medical precinct that has been
developed near the centre of the town.
Extensive research was undertaken during the year
into new Dental Centre opportunities within existing
clusters and in new geographic zones, many of
which are now being assessed.
Additional surgeries were commissioned at a
couple of our existing Dental Centres in response
to sustained patient demand. This is a very cost and
time effective way to increase capacity and Pacific
Smiles Group has a number of unfitted surgeries that
can be commissioned as patient demand grows.
Outlook
Patient demand has recovered to levels which
support our current operations and known future
plans. It is not currently at the almost unsustainably
strong levels that existed towards the end of the
Chronic Disease Dental Scheme, however, a new
Federal Government program called the Child Dental
Benefits Schedule (CDBS) is marked to commence
from January 2014, at which time the underused
Medicare Teen Dental Plan will cease.
CDBS will be directed towards 3.4 million children
aged 2 to 17 in Family Tax Benefit A households,
providing them with government funding over a two
year period with which to pay for required dental
services from private sector providers. While the
total funding under CDBS will be less than under the
Chronic Disease Dental Scheme, it will nonetheless
encourage and support more Australians to visit the
dentist more regularly. It is a much better designed
program for children and teens than the Teen Dental
Plan.
Regardless of the government funding regime,
Pacific Smiles Group will continue to develop and
operate Dental Centres that appeal to their local
communities and which successfully build up a
loyal base of patients over time. Numerous initiatives
that will help to foster successful growth and drive
preference for Pacific Smiles Dental Centres and nib
Dental Care Centres are currently being evaluated.
The focus on outer urban and regional localities
will continue for the foreseeable future, bolstered
by an upturn in the number of dentists graduating
from Australian dental schools. Shareholders
can rest assured that the experienced and stable
management team at Pacific Smiles Group will
continue to develop and operate Dental Centres that
are as appealing to dentists as they are to patients.
I take this opportunity to thank my fellow Directors,
the Executive and Senior Management teams, the
Centre Managers and Lead Practitioners and all the
employees and dentists throughout Pacific Smiles
Group.
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8.0c
7.0c
6.0c
5.0c
4.0c
3.0c
2.0c
1.0c
0.0c
$10M
$8M
2009
2010
2011
2012
2013
Interim Dividend
Final Dividend
Dividends
8.0c
7.0c
6.0c
2013 Highlights
5.0c
$6M
4.0c
$4M
$2M
0
3.0c
2.0c
1.0c
0.0c
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Net Profit Before Tax
Impairment of Non-Current Assets
Interim Dividend
Final Dividend
EBITDA*
Profit Before Tax
Dividends
Net Profit Before Tax
Dividends
$14M
$12M
$10M
$8M
$6M
$4M
$2M
0
$10M
$8M
$6M
$4M
$2M
0
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
* Excludes impairment of non-current assets
Net Profit Before Tax
Impairment of Non-Current Assets
$95
Million
Profit Before Tax
$14M
$12M
$10M
$8M
in “over the counter”
billings, an increase of 11%
on the previous year
$6M
$4M
$2M
0
2009
2010
2011
2012
2013
* Excludes impairment of non-current assets
389
Thousand
Net Profit
Before Tax
increase
Patient
Appointments
this year
EBITDA
increase
8.0c
7.0c
6.0c
5.0c
4.0c
3.0c
2.0c
1.0c
0.0c
2009
2010
2011
2012
2013
Interim Dividend
Final Dividend
Dividends
Net Profit Before Tax
Impairment of Non-Current Assets
2013
Profit Before Tax
7.5
cps
2011
2012
2010
2009
Full year
dividends
totalling 7.5
cents per share
(fully franked),
representing a
payout ratio of
56% of FY 2013
statutory NPAT
$10M
$8M
$6M
$4M
$2M
0
$14M
$12M
$10M
$8M
$6M
$4M
$2M
0
8 Pacific Smiles Group Annual Report 2013
2009
2010
2011
2012
2013
* Excludes impairment of non-current assets
Our Dental Centres
Queensland
New South Wales
Bribie Island
North Lakes
Forster
Salamander Bay
Rutherford
Glendale
Greenhills
Kotara
NEWCASTLE
Charlestown
Belmont
Morisset
Lake Haven
Penrith
Parramatta
Gladesville
Tuggerah
Bateau Bay
Erina
Chatswood
SYDNEY
(opening soon)
Wollongong
Warilla
Nowra
Australian
Capital Territory
Woden
Bendigo
Victoria
Melton
(opening soon)
MELBOURNE
Warragul
Drysdale
Waurn Ponds
Bairnsdale
Sale
Traralgon
Torquay
Dental Centre Growth
Three new Pacific Smiles Dental Centres opened
during the year – Bendigo in regional Victoria,
Belmont on Lake Macquarie and Bateau Bay on
the Central Coast of New South Wales.
One additional surgery commissioned in
existing Dental Centre to expand capacity.
Pacific Smiles Dental Centres
nib Dental Care Centres
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30
20
10
0
FINANCIAL REPORT
10
Pacific Smiles Group Annual Report 2013
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consoliated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
12
16
17
18
19
20
21
43
44
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FOR THE YEAR ENDED 30 JUNE 2013
Directors’
Report
Your directors present their report on the consolidated entity (referred to hereafter as “the Group”) consisting
of Pacific Smiles Group Limited (“the Company”) and the entities it controlled at the end of, or during the year
ended 30 June 2013.
Directors from left to right:
Mr Simon Rutherford, Mr Robert Cameron AO, Mr Ben Gisz,
Dr Alex Abrahams, Mr John Gibbs and Mr Lance Wheeldon.
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:
»» Mr Robert Cameron AO
»» Dr Alexander Abrahams
»» Mr John Gibbs
»» Mr Simon Rutherford
»» Mr Lance Wheeldon
»» Mr Ben Gisz appointed as a director on 18 July 2012 - continues in office at the date of this report.
12 Pacific Smiles Group Annual Report 2013
FOR THE YEAR ENDED 30 JUNE 2013
Robert Cameron AO
BE Min (Hons) MBA Grad. Dip. Geoscience, FAICD, FAIM, FAusIMM
Chairman, appointed in a non-executive capacity in 2003
Member of the Remuneration Committee
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.
Alexander Abrahams
BDS (Syd Uni), AIMM
Founder and Executive Director – Strategy and Business Development, appointed in 2002
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
Chairman of the Remuneration Committee & Member of the Audit and Risk Committee
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.
Lance Wheeldon
BAppSc
Non-Executive Director, appointed in 2003
Member of the Audit and Risk Committee
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 ten years. He also has extensive prior experience in multi-site 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
Chairman of the Audit and Risk Committee
Ben is a Partner at 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.
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FOR THE YEAR ENDED 30 JUNE 2013
Directors’
Report
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. Jane has also held several external board positions.
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 $6,137,358 (2012: $4,577,226).
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 $1,979,560 (2012: $887,514).
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.
Meetings of Directors
The numbers of meetings of the Company’s Board of Directors held during the year ended 30 June 2013, and the attendances
by each Director were:
Full Meetings of Directors
Meetings of Committees
Audit and Risk
Remuneration
Held
Attended
Held
Attended
Held
Attended
Robert Cameron
John Gibbs
Alex Abrahams
Ben Gisz
Simon Rutherford
Lance Wheeldon
Hamish Corlett*
13
13
13
11
13
13
1
13
12
13
11
12
13
1
-
-
-
2
2
2
-
-
-
-
2
2
2
-
2
-
-
-
2
-
-
2
-
-
-
2
-
-
* Hamish Corlett served as an Alternate Director for Ben Gisz on one occasion
- Not a member of the relevant Committee
14 Pacific Smiles Group Annual Report 2013
FOR THE YEAR ENDED 30 JUNE 2013
Directors’
Report
Matters Subsequent to the End of the Financial Year
Subsequent to the end of the financial year, the Directors declared a final dividend of 5.0 cents per share in relation to the
financial year ended 30 June 2013. The dividend, which totalled $2,273,223, was paid in October 2013.
The bank bill liability of $3,000,000 at the end of the financial year was repaid in full in September 2013.
No other matter or circumstance has arisen since 30 June 2013 that has significantly affected, or may significantly affect:
(a) the Group’s operations in future financial years, or
(b) results of those operations in future financial years, or
(c) Group’s state of affairs in future financial years.
Shares Under Option
Details of shares under option are disclosed at Note 18 of the accompanying financial report.
Environmental Regulation
The Group’s operations are not regulated by any significant environmental regulation.
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.
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001
is set out on page 16.
Auditor
In accordance with approval by a General Meeting of the members of the Company and the Corporations Act 2001, KPMG
was appointed as auditor, replacing Cutcher & Neale, on 4 June 2013.
This report is made in accordance with a resolution of the Board of Directors.
Alexander Abrahams
Director
Greenhills
28 October 2013
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ABCD
Lead Auditor’s 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, in relation to the audit for the financial
year ended 30 June 2013 there have been:
FOR THE YEAR ENDED 30 JUNE 2013
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
Auditor’s
(i)
Independence
no contraventions of any applicable code of professional conduct in relation to the
(ii)
Declaration
audit.
ABCD
KPMG
Lead Auditor’s 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, in relation to the audit for the financial
year ended 30 June 2013 there have been:
Chris Allenby
(i)
Partner
(ii)
Sydney
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
28 October 2013
KPMG
Chris Allenby
Partner
Sydney
28 October 2013
16 Pacific Smiles Group Annual Report 2013
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
Liability limited by a scheme approved under
International Cooperative (“KPMG International”), a Swiss entity.
Professional Standards Legislation.
Consolidated
Statement of
Comprehensive
Income
REVENUE
Direct expenses
Gross profit
Other income
Expenses
Consumable supplies expenses
Employee expenses
Occupancy expenses
Marketing expenses
Administration and other expenses
Depreciation and amortisation expense
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
FOR THE YEAR ENDED 30 JUNE 2013
NOTES
2
3
4
4
4
4
4
5
2013
$
60,073,808
(6,306,008)
53,767,800
(Restated)*
2012
$
55,640,925
(7,256,480)
48,384,445
1,543,309
923,604
(5,503,446)
(23,640,307)
(6,034,613)
(1,056,328)
(6,155,195)
(3,601,405)
(194,471)
9,125,344
(5,354,025)
(22,411,891)
(4,999,695)
(1,438,105)
(4,903,824)
(3,287,702)
(359,662)
6,553,145
(2,987,986)
(1,975,919)
6,137,358
4,577,226
Other comprehensive income
-
-
Total comprehensive income for the year
6,137,358
4,577,226
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying
notes.
* See Note 1(v)
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Consolidated
Statement of
Financial Position
AS AT 30 JUNE 2013
FOR THE YEAR ENDED 30 JUNE 2013
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
7
8
9
10
11
12
13
14
15
16
17
15
17
18
2013
$
9,768,728
469,763
1,602,000
94,839
11,935,330
18,586,036
7,841,104
2,037,719
24,464,859
(Restated)*
2012
$
4,654,737
565,478
1,522,999
297,903
7,041,117
18,816,194
8,978,570
1,564,408
29,359,172
40,400,189
36,400,289
6,321,264
3,350,696
1,703,310
1,622,478
12,997,748
621,044
1,943,837
2,564,881
6,365,284
5,950,282
910,831
1,540,672
14,737,069
971,740
1,265,534
2,237,274
15,562,629
16,974,343
24,837,560
19,425,946
12,609,165
12,228,395
24,837,560
11,355,349
8,070,597
19,425,946
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
* See Note 1(v)
18 Pacific Smiles Group Annual Report 2013
Consolidated
Statement of
Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2013
Restated total equity at 30 June 2011*
11,262,062
4,380,885
15,642,947
NOTES
Contributed
equity
$
Retained
profits
$
Total
equity
$
Restated total comprehensive income
for the year*
Transactions with owners of the Company,
recognised directly in equity:
Movements in contributed equity
Dividends provided for or paid
Consolidated Balance at 30 June 2012
Total comprehensive income for the year
Transactions with owners of the Company,
recognised directly in equity:
Movements in contributed equity
Dividends provided for or paid
18
6
18
6
-
4,577,226
4,577,226
93,287
-
93,287
-
(887,514)
(887,514)
93,287
(887,514)
(794,227)
11,355,349
8,070,597
19,425,946
-
6,137,358
6,137,358
1,253,816
-
1,253,816
-
(1,979,560)
(1,979,560)
1,253,816
(1,979,560)
(725,744)
Consolidated Balance at 30 June 2013
12,609,165
12,228,395
24,837,560
19
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
* See Note 1(v)
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Consolidated
Statement of
Cash Flows
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and finance costs paid
Income taxes paid
NOTES
Net cash inflow from operating activities
27
Cash flows from investing activities
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 and cash equivalents
Cash and cash equivalents at the beginning of the financial
year
Cash and cash equivalents at the end of the financial year
18
18
6
7
7
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
66,716,518
(52,348,212)
14,368,306
131,980
(342,267)
(2,668,819)
11,489,200
-
(3,198,156)
18,973
-
-
(3,179,183)
1,253,816
-
-
(2,470,282)
(1,979,560)
(3,196,026)
2012
$
62,170,334
(50,752,687)
11,417,647
129,791
(452,607)
(2,234,056)
8,860,775
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)
5,113,991
1,239,304
4,654,737
9,768,728
3,415,433
4,654,737
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
20 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
1. Summary of Significant Accounting Policies
(a) Corporate Information
The financial statements are for the consolidated entity consisting of Pacific Smiles Group Limited (“the Company”) and its
subsidiaries (“the Group”).
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 12 to 15, which is not part of this financial report.
The financial report is presented in Australian Dollars, which is the Company’s functional currency.
The financial report was authorised for issue by the Directors on 28 October 2013. The Company has the power to amend and
reissue the financial report.
(b) Basis of Preparation
Statement of Compliance
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.
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (AASBs)
adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. Pacific Smiles Group Limited is a
for-profit entity for the purpose of preparing the financial statements.
The financial statements also comply with International Financial Reporting Standards (IFRS) adopted 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 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 2013 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.
(c) 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 2013 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(h).
21
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Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
1. Summary of Significant Accounting Policies (continued)
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.
(d) 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.
(e) 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.
Interest income is recognised as it accrues in profit and loss.
(f) Income Tax
The income tax expense 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.
22 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
(g) 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, net of incentives received from the lessor, are charged to profit and
loss on a straight-line basis over the period of the lease.
Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease
term.
(h) 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(n)).
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.
(i) Impairment of Assets
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 any material impairment losses recognised in the financial statements are provided in
the notes dealing with the relevant asset category.
(j) 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.
(k) 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 and 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 and loss.
(l) Inventories
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.
23
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Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
1. Summary of Significant Accounting Policies (continued)
(m) 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 and 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
10 to 20 years
Plant and equipment
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(i).
(n) 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.
(o) Payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are
unpaid.
(p) 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.
(q) Employee Benefits
(i) Short-term Obligations
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided. The liabilities are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual
leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented
as payables.
(ii) Long-term Obligations
The Group’s obligation in respect of long service leave is the amount of future benefit that employees have earned in return
for their service in the current and prior periods. That liability is measured as the present value of expected future payments
to be made in respect of the services provided by employees up to the end of the reporting period. Consideration is given to
expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments
24 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity that
match, as closely as possible, the estimated future cash outflows.
The obligations are presented as a current liability in the balance sheet if the Group does not have an unconditional right to defer
settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.
(r) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability.
Onerous Contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are
lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of
the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a
provision is established, the Group recognises any impairment loss on the assets associated with that contract.
(s) 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.
(t) 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.
u) Parent Entity Financial Information
The financial information for the parent entity, Pacific Smiles Group Limited, disclosed in Note 28 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.
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Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
1. Summary of Significant Accounting Policies (continued)
(v) Correction of Error – Accounting for Operating Leases
In the Group’s financial statements up until the year ended 30 June 2012, the costs in relation to non-cancellable operating
leases for premises were charged to profit and loss as expense when the payment obligation occurs. This resulted in matching
of the operating lease expenses with the pattern of payments required under the various leases.
During the year ended 30 June 2013, the Group reviewed it’s accounting policy for operating leases, and determined that it was
not in line with all of the requirements of the relevant Australian Accounting Standard.
The Group’s financial statements for the year ended 30 June 2013 reflect the revised accounting policy described in Note 1(g). In
summary, payments made under operating leases, net of incentives received from the lessor, are charged to profit and loss on a
straight line basis over the period of the lease.
The error has also been corrected retrospectively by restating each of the affected financial statement line items for the prior
periods as follows:
30 June
2012
Increase/
(Decrease)
1 July 2012
(Restated)
30 June
2011
Increase/
(Decrease)
1 July 2011
(Restated)
$
$
$
$
$
$
Balance sheet (extract)
Deferred Tax Assets
Current Provisions
1,282,124
(1,432,871)
282,284
(77,801)
1,564,408
998,976
(1,510,672)
(1,348,062)
209,113
(55,222)
1,208,089
(1,403,284)
Non-current Provisions
(402,387)
(863,147)
(1,265,534)
(306,549)
(641,824)
(948,373)
Net Assets
20,084,611
(658,665)
19,425,946
16,130,880
(487,933)
15,642,947
Retained Earnings
8,729,262
(658,665)
8,070,597
4,868,818
(487,933)
4,380,885
Total Equity
20,084,611
(658,665)
19,425,946
16,130,880
(487,933)
15,642,947
The net profit for 2012 changed as follows:
Income Statement (extract)
Other Income
Occupancy Expenses
Profit Before Income Tax
Income Tax Expense
Profit for the Year
2012
$
Profit Increase/
(Decrease)
2012 (Restated)
$
$
938,971
(4,771,159)
6,797,048
(2,049,090)
4,747,958
(15,367)
(228,536)
(243,903)
73,171
(170,732)
923,604
(4,999,695)
(6,553,145)
(1,975,919)
(4,577,226)
Income Statement and Balance Sheet items other than those mentioned above were not affected by the retrospective correction
to the accounting for operating leases.
26 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
2. Revenue
Services rendered
Sale of goods
3. Other Income
Rents
Government subsidies
Sundry income
Reversal of liability for contingent consideration not payable
4. Expenses
Profit before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Leasehold improvements
Total Depreciation
Amortisation
Rights and licences
Total Amortisation
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
59,742,649
331,159
60,073,808
766,165
255,324
41,820
480,000
1,543,309
2012
$
53,828,157
1,812,768
55,640,925
588,715
287,683
47,206
-
923,604
2,361,277
942,783
3,304,060
2,345,586
690,148
3,035,734
297,345
297,345
251,968
251,968
Net loss on disposal of non-current assets
105,280
38,634
Impairment loss/(write-back) on write-down of assets to recoverable amount
Receivables – other entities
Inventories
Property, plant and equipment
Goodwill
Goodwill – contingent purchase consideration not payable
30,783
-
-
360,121
480,000
(3,898)
(26,806)
(2,719)
-
-
Rental expenses relating to operating leases
4,960,588
4,391,522
Provision for onerous lease contracts
415,131
-
Net finance costs
Interest and finance charges paid/payable
Interest received/receivable
Total net finance costs
344,960
(150,489)
194,471
489,453
(129,791)
359,662
Defined contribution superannuation plans expense
1,864,385
1,762,891
27
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Notes to the
Consolidated
Financial Statements
5. Income Tax Expense
Current tax
Deferred tax (note 13)
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
3,461,297
(473,311)
2,987,986
2012
$
2,379,600
(403,681)
1,975,919
Profit before income tax expense
9,125,344
6,553,145
Income tax calculated at 30% (2012: 30%)
2,737,603
1,965,943
Tax effect of amounts which are not deductible/(taxable) in calculating
taxable income:
Amortisation of intangibles
Impairment loss – non-current assets
Sundry items
Income tax expense
6. Dividends
(a) Interim and final dividends totalling 4.5 cents (2012: Interim and final
dividends totalling 2.1 cents) per share, fully franked based on tax paid @ 30%
88,620
108,036
53,727
2,987,986
72,090
(816)
(61,298)
1,975,919
Parent Entity
Parent Entity
2013
$
2012
$
1,979,560
887,514
(b) Franking credits available for subsequent financial years based on a tax rate
of 30% (2012: 30%)
8,360,956
5,893,584
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 $974,238.
28 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
7. Cash and Cash Equivalents
CURRENT
Cash at bank and in hand
8. Receivables
CURRENT
Trade debtors – other entities
Provision for impairment – other entities
Sundry debtors
9. Inventories
CURRENT
Inventories – at cost
10. Other Assets
CURRENT
Prepayments
Other
11. 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
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
2012
$
9,768,728
4,654,737
97,534
(33,478)
64,056
405,707
469,763
86,106
(14,350)
71,756
493,722
565,478
1,602,000
1,522,999
32,276
62,563
94,839
170,381
127,522
297,903
16,846,026
(5,564,120)
11,281,906
17,967,563
(10,663,433)
7,304,130
15,166,137
(4,632,313)
10,533,824
17,309,691
(9,027,321)
8,282,370
29
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Total property, plant and equipment
18,586,036
18,816,194
FOR THE YEAR ENDED 30 JUNE 2013
Notes to the
Consolidated
Financial Statements
11. Property, Plant and Equipment (continued)
Movements in Carrying Amounts
2013
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation expense
Carrying amount at the end of the year
2012
Carrying amount at the beginning of the year
Additions
Disposals
Depreciation expense
Impairment reversal/(loss)
Leasehold
improvements
$
10,533,824
1,746,595
(46,879)
(951,634)
11,281,906
Leasehold
improvements
$
7,814,196
3,421,365
(14,308)
(690,148)
2,719
Plant and
equipment
$
8,282,370
1,451,561
(77,375)
(2,352,426)
7,304,130
Plant and
equipment
$
7,101,429
3,621,985
(95,458)
(2,345,586)
-
Carrying amount at the end of the year
10,533,824
8,282,370
Total
$
18,816,194
3,198,156
(124,254)
(3,304,060)
18,586,036
Total
$
14,915,625
7,043,350
(109,766)
(3,035,734)
2,719
18,816,194
30 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
12. Intangible Assets
NON-CURRENT
Goodwill
Less accumulated amortisation and impairment
Rights and licences
Less accumulated amortisation and impairment
Total intangible assets
Movements in Carrying Amounts
2013
Carrying amount at the beginning of the year
Amortisation expense
Contingent consideration not payable
Impairment expense
Carrying amount at the end of the year
2012
Carrying amount at the beginning of the year
Disposals
Amortisation expense
Carrying amount at the end of the year
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
2012
$
9,733,313
(1,892,209)
7,841,104
680,000
(680,000)
-
7,841,104
Rights and
licenses
$
297,345
(297,345)
-
-
-
Rights and
licenses
$
1,104,465
(555,152)
(251,968)
297,345
9,733,313
(1,052,088)
8,681,225
991,221
(693,876)
297,345
8,978,570
Total
$
8,978,570
(297,345)
(480,000)
(360,121)
7,841,104
Total
$
9,785,690
(555,152)
(251,968)
8,978,570
Goodwill
$
8,681,225
-
(480,000)
(360,121)
7,841,104
Goodwill
$
8,681,225
-
-
8,681,225
Impairment Losses - Goodwill
During the financial year, the Group recorded an impairment loss of $360,121 relating to the write down of goodwill assets at
two of its Dental Centres.
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.
Contingent Consideration Not Payable
During the financial year, the Group wrote down the value of goodwill associated with a business acquisition undertaken in 2011
by $480,000. This amount represented contingent consideration. Under the contract for the acquisition of the business, the
sum was payable if certain conditions were met over the two years following acquisition. Not all of the conditions for payment
were met, and hence the amount did not become payable. A liability for deferred consideration had been recognised and it
has been reversed during the financial year. The reversal of this liability of $480,000 is reflected in Other Income (Note 3). The
carrying value of the goodwill related to this particular business has also been written down by $480,000, with this amount
being reflected in Impairment Losses (Note 4).
31
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Notes to the
Consolidated
Financial Statements
13. Deferred Tax Assets
NON-CURRENT
The balance comprises temporary differences attributable to:
Provision for doubtful debts
Depreciation of property, plant and equipment
Accrued expenses
Provisions
Net deferred tax assets
Movements:
Restated balance at the beginning of the year
Credited (charged) to the income statement
Reversal of deferred tax assets on disposal of business
Balance at the end of the year
14. Payables
CURRENT
Trade payables and accruals – related entities
Trade payables and accruals – other entities
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
2012
$
10,043
715,772
242,010
1,069,894
2,037,719
1,564,408
473,311
-
4,305
565,834
161,407
832,862
1,564,408
998,976
403,681
(47,362)
2,037,719
1,564,408
40,241
6,281,023
6,321,264
-
6,365,284
6,365,284
32 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
15. Borrowings
CURRENT
Secured:
Bank bills
Bank loans
Unsecured:
Other loans
Total
NON-CURRENT
Secured:
Bank loans
Unsecured:
Other loans
Total
Security
2013
$
2012
$
3,000,000
290,696
3,290,696
60,000
3,350,696
4,500,000
850,282
5,350,282
600,000
5,950,282
621,044
911,740
-
621,044
60,000
971,740
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.
16. Current Tax Liabilities
CURRENT
Income tax payable
13,500,000
(5,016,775)
8,483,225
13,500,000
(7,316,909)
6,183,091
1,703,310
910,831
33
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2
FOR THE YEAR ENDED 30 JUNE 2013
Employee
Benefits
$
1,835,258
1,760,572
(1,627,289)
1,968,541
Straight-
line Lease
Adjustment
$
940,948
319,496
(77,801)
1,182,643
2013
$
2012
$
1,389,485
88,907
144,086
1,622,478
579,056
1,093,736
271,045
1,943,837
Onerous
Contracts
$
-
415,131
1,432,871
77,801
-
1,510,672
402,387
863,147
-
1,265,534
Total
$
2,776,206
2,495,199
-
(1,705,090)
415,131
3,566,315
2013
43,641,151
1,823,314
2012
42,241,151
-
45,464,465
42,241,151
2013
2012
12,545,349
11,355,349
63,816
-
12,609,165
11,355,349
Notes to the
Consolidated
Financial Statements
17. Provisions
CURRENT
Employee benefits
Straight-line operating lease adjustment
Onerous contracts
NON-CURRENT
Employee benefits
Straight-line operating lease adjustment
Onerous contracts
Movements:
Restated balance at the beginning of the year
Additional provisions made
Amounts used
Balance at the end of the year
18. 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
34 Pacific Smiles Group Annual Report 2013
FOR THE YEAR ENDED 30 JUNE 2013
Notes to the
Consolidated
Financial Statements
18. Contributed Equity (continued)
(b) Movements in Ordinary Share Capital
Date
Details
Number of Shares
Issue Price
30 June 2011
Opening Balance
30 November 2011
Share buy back
Year to 30 June 2012
Calls on unpaid
amounts of partly paid
shares
30 June 2012
Balance
28 March 2013
28 March 2013
8 April 2013
27 June 2013
Share issues on
exercise of options
Share issue – partly
paid
Amounts paid up on
partly paid shares
Share issue on exercise
of options
30 June 2013
Balance
42,291,181
(50,030)
-
42,241,151
1,325,000
1,823,314
-
75,000
45,464,465
$1.20
-
$0.85
$1.55
-
$0.85
$
11,262,062
(60,036)
153,323
11,355,349
1,126,250
18,233
45,583
63,750
12,609,165
(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 are called on in accordance with their underlying agreements
and as required by the Company. In any case, on winding up of the Company, the balance of partly paid shares, if any, may
be called up. The proceeds on winding up are proportional to the amounts paid on partly paid shares. Partly paid shares
carry equal dividend participation and voting rights as fully paid shares, although any dividends must first be applied to the
unpaid balance on the shares.
(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
September 2013
$1.00
250,000
35
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Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
2013
$
3,000
50,000
53,000
2012
$
33,500
-
33,500
1,105,035
1,054,887
19. Remuneration of Auditors
Audit of the annual financial report under the Corporations Act 2001
Cutcher & Neale
KPMG
20. Contingencies
Bank guarantees
The bank guarantees at the end of the financial year relate to security
provided 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:
Property, plant and equipment
Payable within one year
-
268,818
(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
4,840,943
17,268,686
17,371,522
39,481,151
4,603,690
17,084,374
20,045,136
41,733,200
Operating leases relate to rented premises and motor vehicles. Leases have various terms, including some options to extend
the terms.
36 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
22. Related Party Transactions and 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
Ben Gisz
Simon Rutherford
Lance Wheeldon
(b) Key management personnel compensation
Key management personnel compensation for the years ended 30 June 2013 and 2012 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
2013
$
2012
$
1,469,112
1,205,114
(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 2013 and 2012 on normal commercial terms and conditions.
Exandal Investments, an entity related to Alex Abrahams and Alison Hughes, provided premises rental to the Company during
2013 and 2012 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 2013 and 2012 on normal commercial terms and conditions.
Susan Abrahams, an individual related to Alex Abrahams, provided premises rental to the Company during 2013 and 2012 on
normal commercial terms and conditions.
The Company received fees for the provision of services to Alex Abrahams during 2013 and 2013 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 during 2012.
The Company paid fees for management and support services to Just Paddling Pty Limited ATF AJ Abrahams Family Trust
during 2013 and 2012. 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 professional advice and assistance to Lawler Partners during the 2012 year.
Lawler Partners is an entity related to Simon Rutherford. Fees paid were based on normal commercial terms and conditions.
37
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FOR THE YEAR ENDED 30 JUNE 2013
Notes to the
Consolidated
Financial Statements
22. Related Party Transactions and Disclosures (continued)
The aggregate amounts of each of the above types of transactions were:
Subscriptions for new ordinary shares – partly paid
Subscriptions for new ordinary shares – exercise of share
options
Dividends paid
Revenues from rendering of services
Administration fees received
Rental expense
Consultancy fees paid
Administration and support services
2013
$
18,233
1,126,250
1,161,602
454,934
-
2012
$
-
-
631,894
464,593
2,038
1,251,616
1,164,502
-
49,764
3,514
32,676
23. Subsidiaries
The parent entity within the Group is Pacific Smiles Group Limited. The consolidated financial statements incorporate the
assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(c).
Name of Entity
Country of
incorporation
Class of shares
Equity holding
Pacific Smiles Group Limited
Dentist Smiles Group Pty Limited
Dental Assistant Training Solutions
Pty Limited
Pacific Eyes Pty Limited *
Pacific Medical Care Pty Limited **
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
* No longer trading
** Subsidiary has not traded since incorporation.
2013
%
100
100
100
100
2012
%
100
100
100
100
38 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
24. Financial Risk Management
The Group’s principal financial instruments comprise bank bills, bank and other loans, 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. All of the
Group’s bank borrowings at balance date, comprising bank bills and bank-provided equipment loans, attracted fixed interest
rates. These loans have been used to partly finance the purchase of durable tangible assets and intangible assets such as
goodwill acquired in business acquisitions.
Bank bills totaling $3,000,000 form part of an ongoing loan facility which is reviewed annually with the Bank. The fixed
interest rate period on this bill expired in September 2013, and at that time the bill was repaid.
The balance of other non-bank loans is non-interest bearing.
Cash balances in cheque and other on-call accounts earn interest at rates ranging between 0.1% and 2.75% (2012: 0.1% and
3.5%) for the Group, depending upon account balances.
The weighted average interest rate on borrowings at the end of the year was 4.90% (2012: 4.58%) 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
2013
$
43,251
(43,251)
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.
2012
$
39
7,961
(7,961)
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2
FOR THE YEAR ENDED 30 JUNE 2013
Notes to the
Consolidated
Financial Statements
24. 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 15.
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 $1,062,418. 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 time frames required.
Maturities of Financial Liabilities
The following tables show the maturity groupings of gross (undiscounted) payment obligations under contracts for financial
liabilities.
Consolidated – 2013
Bank bills (*)
Bank loans
Other loans
Payables and accruals
Consolidated – 2012
Bank bills
Bank loans
Other loans
Payables and accruals
Less than 6 months
6 to 12 months
1 to 5 Years
$
3,000,000
182,554
60,000
6,321,264
9,563,818
4,500,000
507,088
60,000
6,365,284
11,432,372
$
-
$
-
108,142
621,044
-
-
-
-
108,142
621,044
-
343,194
540,000
-
883,194
-
911,740
60,000
-
971,740
Total Contractual
Amounts
$
3,000,000
911,740
60,000
6,321,264
10,293,004
4,500,000
1,762,022
660,000
6,365,284
13,287,306
* Bank bills totaling $3,000,000 form part of an ongoing 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 continue to be available 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 regardless of whether or not repayment is
expected within this timeframe. The bank bill liability of $3,000,000 was repaid in full in September 2013.
Fair Value
The fair value of financial assets and liabilities held by the Group approximate the individual carrying values of those assets
and liabilities.
40 Pacific Smiles Group Annual Report 2013
Notes to the
Consolidated
Financial Statements
FOR THE YEAR ENDED 30 JUNE 2013
25. Segment Information
The Group’s activities are within the Dental sector. The Group’s activities are located throughout Eastern Australia.
The financial results from this segment are consistent with the financial statements for the Group as a whole.
26. Events Occurring After the Balance Sheet Date
Subsequent to the end of the financial year, the Directors declared a final dividend of 5.0 cents per share in relation to the
financial year ended 30 June 2013. The dividend, which totaled $2,273,223 was paid in October 2013.
The bank bill liability of $3,000,000 at the end of the financial year was repaid in full in September 2013.
27. Notes to the Statement of Cash Flows
Reconciliation of profit after income tax to net cash inflow from operating activities
2013
$
2012
$
Profit for the year
Depreciation and amortisation
Impairment losses
Write down of goodwill – contingent consideration not payable
Reverse of liability for deferred consideration not payable
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
6,137,358
3,601,405
360,121
480,000
(480,000)
105,280
95,715
(79,001)
203,064
(473,311)
(44,019)
790,109
792,479
11,489,200
4,577,226
3,287,702
(2,719)
-
-
38,633
401,246
41
(234,688)
(91,974)
(403,681)
561,063
582,424
145,543
8,860,775
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2
FOR THE YEAR ENDED 30 JUNE 2013
Notes to the
Consolidated
Financial Statements
28. Parent Entity Financial Information
(a) Summary Financial Information
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
(b) Contingent liabilities of the parent entity
Bank guarantees
2013
$
2012
$
12,607,481
40,897,987
12,908,100
15,463,823
12,609,165
12,824,999
25,434,164
6,228,310
6,228,310
7,546,203
36,737,384
14,568,513
16,805,787
11,355,349
8,576,248
19,931,597
4,733,867
4,733,867
2013
$
2012
$
1,105,035
1,054,887
The parent entity did not have any contingent liabilities or financial guarantees as at 30 June 2013 or 30 June 2012, other
than bank guarantees.
42 Pacific Smiles Group Annual Report 2013
FOR THE YEAR ENDED 30 JUNE 2013
Directors’
Declaration
In the directors’ opinion:
a.»
the financial statements and notes set out on pages 17 to 42 are in accordance with the Corporations
Act 2001, including:
i.» giving a true and fair view of the consolidated entity’s financial position as at 30
June 2013 and of its performance for the financial year ended on that date; and
ii.» complying with Australian Accounting Standards and the Corporations
Regulations 2001; and
b.»
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable; and
c.» Note 1 confirms that the financial statements comply with International Financial Reporting Standards.
This declaration is made in accordance with a resolution of the Board of Directors.
Alexander Abrahams
Director
Greenhills
28 October 2013
43
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ABCD
Lead Auditor’s 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, in relation to the audit for the financial
year ended 30 June 2013 there have been:
FOR THE YEAR ENDED 30 JUNE 2013
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
(i)
Independent
Audit Report
no contraventions of any applicable code of professional conduct in relation to the
(ii)
audit.
ABCD
KPMG
Independent auditor’s 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 (the
company), which comprises the consolidated statement of financial position as at 30 June 2013,
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 30
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
Chris Allenby
Partner
Directors’ responsibility for the financial report
Sydney
28 October 2013
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 Australian Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial statements of the Group
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. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation of the financial
report that gives a true and fair view in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
financial position and of its performance.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
44 Pacific Smiles Group Annual Report 2013
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
Liability limited by a scheme approved under
International Cooperative (“KPMG International”), a Swiss entity.
Professional Standards Legislation.
ABCD
Independent auditor’s 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 (the
company), which comprises the consolidated statement of financial position as at 30 June 2013,
and consolidated statement of comprehensive income, consolidated statement of changes in
equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 30
comprising a summary of significant accounting policies and other explanatory information and
the directors’ declaration of the Group comprising the company and the entities it controlled at
the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives
a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that is free from material misstatement whether due to fraud or
error. In note 1, the directors also state, in accordance with Australian Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial statements of the Group
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. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation of the financial
report that gives a true and fair view in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
Independent
Audit Report
FOR THE YEAR ENDED 30 JUNE 2013
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group’s
ABCD
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.
Auditor’s opinion
In our opinion:
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as
at 30 June 2013 and of its performance for the year ended on that date; and
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.
KPMG
Chris Allenby
Partner
Sydney
28 October 2013
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FOR THE YEAR ENDED 30 JUNE 2013
Five Year
Historical Trends
(Unaudited)
GENERAL INFORMATION
Dental
Number of Centres
Number of Surgeries
Eye Care
Number of Centres
PROFIT AND LOSS
Total Revenue
Gross Profit
EBITDA (excludes impairment of
non-current assets)
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
2013
2012
2011
2010
2009
34
158
-
$’000
61,768
53,768
13,281
9,320
9,125
6,137
$’000
40,400
15,563
3,972
24,838
12,609
12,228
$’000
11,489
1,980
31
150
-
$’000
56,694
48,384
10,198
6,913
6,553
4,577
$’000
36,400
16,974
6,922
19,426
11,355
8,071
$’000
8,861
888
28
130
4
$’000
48,617
40,670
7,975
3,666
3,301
1,901
$’000
32,001
16,358
7,437
15,643
11,262
4,381
$’000
7,076
674
25
118
6
$’000
43,452
35,002
6,754
3,988
3,526
2,407
$’000
30,075
16,357
8,914
13,718
10,564
3,154
$’000
5,869
465
21.7%
10.0%
18.0%
8.1%
16.4%
3.9%
15.5%
5.5%
49.5 times
19.9 times
10.9 times
9.2 times
13.8%
24.7%
26.3%
23.6%
32.2%
12.2%
39.4%
17.5%
19
104
7
$’000
39,455
29,963
5,013
673
121
-553
$’000
26,810
15,615
9,013
11,195
9,984
1,212
$’000
5,211
385
12.7%
-1.4%
1.7 times
44.6%
-4.9%
Dividends Per Share
4.50 cents
2.10 cents
1.60 cents
1.15 cents
1.0 cents
46 Pacific Smiles Group Annual Report 2013
FOR THE YEAR ENDED 30 JUNE 2013
The Pacific Smiles Group Story
It’s 2003. Beyonce, Guy Sebastian, Eminem and the Black Eyed Peas are dominating the local music
charts and Lord of the Rings, The Matrix and Finding Nemo are the box-office movie hits of the year. The
Concorde takes off for its final trans-Atlantic flight and a military invasion of Iraq is launched. The iTunes
Store opens for business and the first Blu-Ray disc players are available to the public. At Harvard University,
a student creates Facemash in his dorm room, which is later to morph into Facebook.
And during this eventful time, something exciting is happening in the Hunter region of New South Wales
that will have a profound and lasting impact on the Australian dental scene.
On the 1st of January, Greenhills and East Maitland Dental merged with Lakes Dental Charlestown and
Lakes Dental Dora Creek to form Pacific Smiles Group, one of the first so-called dental corporates in
Australia. The company founders, Dr. Alex Abrahams and Dr. Alison Hughes, created the company with
little fanfare, but big ambitions.
Those ambitions were borne of their vision of a dental group corporate in structure, but not in culture. With
a corporate structure to support the group’s future expansion and growth combined with a friendly and
unpretentious culture centred on patient care and customer service, Pacific Smiles Group was a sure-fire
winner from the start.
Many years prior to 2003, Alex and Sue Abrahams believed that dentists should do dentistry and managers
should manage. They learnt about practice management and implemented, evaluated and refined systems
to support the philosophy. Alison came on board as a keen participant and the formula resulted in the
initial success of the original three dental centres for the best outcome for patients, staff and dentists.
A business plan was developed by Alex with help from Dr Genna Levitch in the lead-up to 2003 and many
of the guiding principles from that document are still relevant today.
Things moved quickly from the start. A Board of Directors was appointed at commencement and a
General Manager joined a year later. The three original Dental Centres became five via an operations
agreement with nib for the large nib Dental Care Centres in Newcastle and Sydney. Immediately following
were the significant milestones of the first Dental Centre acquisition (Forster) and the first Dental Centre
development (Salamander Bay).
A group head office was developed to provide the corporate and administrative employees with a
professional workplace. During the first few years, this team had worked out of Dental Centre staff rooms,
spare surgeries and for a while, a residential house! In the years that followed, Pacific Smiles Group continued
to expand at a rapid pace with a growing family of employees and dentists. Even with such growth and the
changes that inevitably accompany it, many of the employees and dentists from the earliest days of Pacific
Smiles Group remain with the group today.
As with any organisation over a ten year period, there have been highs, lows and everything in between.
Mixed with risks, challenges, successes and a few learning experiences along the way, the journey has
been an adventure and there are many chapters yet to come!
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6 Molly Morgan Drive PO Box 2246
Greenhills NSW 2323
T: +61 2 4930 2000
pacificsmilesgroup.com.au
ABN 42 103 087 449