Ramsay Health Care
Annual Report 2020

Plain-text annual report

Ramsay Health Care Limited Annual Report 2020 ARTANIA CRUISE SHIP PASSENGER, JURGEN SCHREYEK, GIVEN GUARD OF HONOUR AT JOONDALUP HEALTH CAMPUS AFTER ‘MIRACLE’ COVID-19 SURVIVAL* www.ramsayhealth.com ANNUAL GENERAL MEETING 2020 The 2020 Annual General Meeting of Ramsay Health Care Limited ABN57001288768 will be held virtually. Full access details are available in Ramsay’s Notice of Meeting. INDICATIVE KEY DATES FOR 2021 RESULTS RELEASE DATES: Interim Results – Thursday, 25 February 2021 at 10.30am Preliminary Final Results – Thursday, 26 August 2021 DIVIDEND PAYMENT DATES – ORDINARY SHARES Interim Dividend Tuesday, 31 March 2021 (Record date 9 March 2021) Final Dividend Thursday, 30 September 2021 (Record date 7 September 2021) DIVIDEND PAYMENT DATES – CARES Tuesday, 20 April 2021 (Record date 29 March 2021) Wednesday, 20 October 2021 (Record date 28 September 2021) ANNUAL GENERAL MEETING 2021 The 2021 Annual General Meeting of Ramsay Health Care Limited is scheduled to be held on Wednesday, 24 November at 10.30am (Sydney time). Full details will be provided closer to the date. FOR MORE INFORMATION To view our interactive Annual Report and for more information on the Company including market announcements and for a copy of the Company’s Corporate Governance Statement, visit the Investor Centre at: www.ramsayhealth.com Contents 2 Global Healthcare Operator 4 A letter to our Shareholders 8 Board of Directors 11 Additional Information 13 Corporate Directory 14 Financial Report Staff bid fond farewell Jürgen Schreyek — one of the sickest passengers aboard the cruise ship Artania — won the battle against COVID making a miraculous recovery and finally headed home to Germany on Monday 25 May. Staff were in tears, clapping and cheering on Mr Schreyek who was given a guard of honour as he was discharged. Mr Schreyek was the final Artania patient at Joondalup Health Campus (JHC), having arrived at the hospital on March 30 with his wife Christina, who made a quicker recovery and flew home several weeks prior. He spent two weeks in ICU and a further six weeks on the COVID ward and a rehabilitation ward, forming strong bonds with staff at every stage of his journey. Speaking through a translator — JHC registered nurse and fellow German Anne Karow — the 70-year-old said he considered himself incredibly lucky to be able to walk out of the hospital and go home. But he also said it was somewhat heartbreaking because he now considered some of the staff, including Ms Karow, as being like family. Jürgen and Christina Schreyek are experienced cruise passengers and were looking forward to a month-long tour that would encompass Australia and New Zealand before island-hopping across the South- Pacific to Peru, from where the pair intended to fly home to Munich. By the time the Artania arrived in Fremantle for what was expected to be a short re-supply stop-over, cruise ships had become the hot-potato of the pandemic in Australia. People were increasingly falling ill, Jürgen was very unwell and required the support of a ventilator while still on board. Their fate was confirmed when the repatriation of as many passengers as possible was underway, and their names were called as people identified as being too unwell to fly. “I already knew, like many others, that I’d been sick somehow – probably with Coronavirus. And when we left the ship, there were two police buses outside…with emergency lights on. They drove us at high speed. I didn’t know what was going on, or where I was going.” Christina watched as her husband lost consciousness during the bus ride to JHC. *FROM COVER IMAGE COURTESY OF: ©WESTPIX Neither of them can clearly recall arriving at the hospital as they were in the grips of the virus, but Christina does remember being told her beloved husband needed support of a heart-lung machine. Two weeks later both were recovering in hospital and full of praise for the quality of care they received at Joondalup Health Campus. “I knew it was severe. With his [Jürgen’s] heart and the lungs and I cried a lot and I was hugged and they cried with me. Everyone, no matter who it was, showed me so much love. It’s something that you cannot describe. I will never forget in my life this,” Christina said. “I write every day to our friends in Germany and yesterday I wrote “you cannot imagine how we are treated; I think in Germany not even Angela Merkel is treated like this.” It’s really like that, we are happy,” Christina said. ANNUAL REPORT 2020 3 Global Healthcare Operator Economies of scale 11 Countries 8,500,000+ Patient visits/admissions per annum Speed to market Innovation Best practice 519 Locations 77,000+ Employees Cost leadership Summary of Core Earnings for FY2020# 12 MONTHS TO 30 JUNE Revenue EBITDAR EBITDA EBIT Core NPAT attributable to members of the parent Basic Core earnings per share (after CARES dividend) Diluted Core earnings per share (after CARES dividend) 2020* ($ millions) 2019** ($ millions) $12,395.5 $2,009.7 $1,843.9 $952.3 $336.9 156.4c 155.9c $11,552.8 $2,161.0 $1,592.1 $1,108.0 $590.9 282.7c 281.0c ALL NUMBERS ARE IN AUSTRALIAN DOLLARS UNLESS OTHERWISE STATED # CORE EARNINGS ARE THE EARNINGS ATTRIBUTABLE TO MEMBERS OF THE PARENT BEFORE NET NON-CORE ITEMS & FROM CONTINUING OPERATIONS. * RESULTS PREPARED UNDER AASB16 LEASES REFER TO OVERVIEW SECTION OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER INFORMATION. ** RESULTS PREPARED UNDER AASB117 LEASES REFER TO OVERVIEW SECTION OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER INFORMATION. RESULTS IN 2020 INCLUDE 12 MONTHS OF CAPIO RESULTS. RESULTS IN 2019 INCLUDE CAPIO RESULTS FROM 7 NOVEMBER 2018. Norway Denmark United Kingdom France Sweden Germany Italy Hong Kong Malaysia Indonesia Australia The Ramsay Health Care Global Network Market leading positions: • NUMBER 1 IN AUSTRALIA • NUMBER 1 IN SCANDINAVIA • NUMBER 1 IN FRANCE Differentiated portfolio: • DIVERSIFIED STRATEGIC PORTFOLIO • DEEP & EXPERIENCED LEADERSHIP • INDUSTRY LEADING QUALITY • SCALE A letter to our Shareholders The last four months of FY2020 was one of the most remarkable periods in the history of the Company. With the onset of the COVID-19 pandemic in March 2020, the sustainability of the business and ensuring that we protected the wellbeing of our patients, staff and doctors was overwhelmingly our primary focus. We are extremely proud of our global teams and how they responded to the crisis – delivering for each other and delivering for our patients, all the while strengthening our culture of ‘people caring for people’. Our global business had been tracking well until the end of February 2020. At our interim results we reaffirmed our efforts during this crisis. COVID-19 has impacted our financial result this year but, importantly, it has reinforced our role as a leading health care and hospital provider in our major regions. FY’20 guidance of core EPS growth on a like for like basis1 of 2% to 4%. However, the extraordinary circumstances posed by the COVID-19 pandemic on The period demonstrated what an incredible, and resilient, organisation Ramsay Health Care is. We have accomplished a lot over the period including an equity raising, and we are well positioned for the long term. the Company’s operations around the world resulted in us withdrawing guidance in March 2020 and had a significant impact on the full year result. As a result of the pandemic, elective surgery restrictions were imposed in most regions from March 2020 creating a significant level of uncertainty. Ramsay led industry discussions with all levels of government in our major regions – Australia, UK and France – to make our facilities available to the respective national efforts, and in return, we were successful in securing agreements with governments in the form of a viability guarantee. Ramsay’s hospitals around the globe played and are continuing to play a critical role in supporting governments, caring for patients and our communities and ensuring that our facilities are made available and remain fully staffed. We are pleased to report that no Ramsay employees were stood down because of the pandemic. This period has been filled with example after example of our hospitals, doctors and staff stepping up to care for thousands of COVID-19 patients and volunteering to work in aged care and public facilities. It has been an extremely challenging time for our staff and doctors as we have pivoted to support national RESULTS Ramsay Health Care reported statutory net profit after tax, attributable to members of the parent (after adjusting for net non-core items after tax) of $284.0 million, a decrease of 47.9% on the previous corresponding period. On a like for like basis1 this represented a decrease of 40.0% on the previous corresponding period. Group Core Net Profit After Tax (Core NPAT) of $336.9 million, for the year ended 30 June 2020 decreased by 43.0% on the previous corresponding period. On a like for like basis1 this represented a decrease of 34.4% on the previous corresponding period. Core NPAT delivered Core EPS of 155.9 cents for the year, a decrease of 44.5% on the previous corresponding period. On a like for like basis1 this represented a decrease of 35.9% on the previous corresponding period. As previously announced, the Company will not be paying a final dividend on ordinary shares for FY’20. The CARES dividend due for payment on 20 October 2020 will be paid. 1 The New Lease Accounting Standard (AASB16) was adopted on 1 July 2019 and comparatives have not been restated, as permitted under the transitional provisions in the standard. In order to make meaningful comparison of the results, commentary has been provided on a like for like basis under the Old Lease Accounting Standard (AASB117) for FY20 and FY19 6 RAMSAY HEALTH CARE LIMITEDCaring for our patients The period has been filled with numerous examples of our hospitals, doctors & staff going above and beyond including: Joondalup Health Campus in Perth took in 30 patients suffering with coronavirus from a cruise ship & cared for these patients without any cross infection to staff, doctors or other patients demonstrating their amazing expertise & ability to manage in a crisis. In Continental Europe our hospitals have cared for over 7000 COVID-19 patients. In the regions most impacted our facilities responded rapidly, expanding their intensive care capacity & our nurses mobilised from across the region to assist in hot spots. Our flagship hospital in Sweden, St Goran’s, & our Omegna Hospital in Northern Italy, were heavily involved in the crisis as both these regions were significantly impacted by the virus. AUSTRALIA For the full year, revenue in Ramsay’s Australian operations decreased by 2.2% and EBITDAR decreased by 23.2%. Our Ramsay UK hospitals assisted NHS England performing thousands of operations on behalf of the public sector & loaning staff & equipment, allowing the NHS to focus on caring for COVID-19 patients. In Victoria, Australia, our staff are playing a critical role caring for COVID-19 patients, undertaking urgent public surgery & delivering up to 60 shifts a day in affected aged care facilities. Before the pandemic Ramsay’s Australian division was on track to meet full year targets but was significantly impacted by elective surgery restrictions during the last quarter. We entered partnership agreements with governments in New South Wales, Queensland, Victoria and Western Australia to maintain full capacity and make our facilities available to assist with the national COVID-19 response. In return, Ramsay received Net Recoverable Costs, as defined in these agreements, hence the business was broadly breakeven at the EBIT level for the four-month period between March and June 2020. Joondalup Health Campus was one of the first facilities in the country to treat a large cohort of COVID-19 patients. With very little notice and over one weekend, Joondalup took in 30 patients suffering with coronavirus from the Artania cruise ship and cared for these patients without any cross infection to staff, doctors or other patients demonstrating their amazing expertise and ability to manage in a crisis and receiving much praise from these patients. Most agreements were paused or ceased on 30 June 2020 as elective surgery restrictions eased. However, elective surgery restrictions were reintroduced in Victoria in late July and we recommenced the agreement with the Victorian government on 23 July 2020. The rapid escalation of the crisis in Victoria demonstrates that it is too early to make any conclusive statements about the near term. Through the first quarter of FY’21, our hospitals in Victoria have been caring for COVID-19 patients and assisting public hospitals with urgent surgery work, © J U L I E N G U Y E N , I I © R E A N M A T O N _ T R E M B L A Y _ C O M P L E M E N T while many of our staff are currently providing up to 60 shifts a day in aged care facilities. We are experiencing additional costs associated with increased PPE usage, more costly PPE on a per unit basis, social distancing requirements, staff costs involved in screening patients, staff and visitors, and increased cleaning regimes. Despite the current situation, we are positive about the longer term. The relationships we have developed with governments has put us in a strong position to continue to support the public sector in dealing with the backlog of work into the future. We are very proud of how our teams in Australia have delivered for our patients during this crisis. Our overall Net Promoter Score (NPS) for Q4 was 77.8 - the highest we have ever achieved. For the full year FY’20 our NPS was 75 (up from 73 in FY’19); and in an outstanding achievement, Ramsay Australia recorded zero sentinel events during the whole of FY’20. In relation to brownfield developments, the Company remains committed to investment and in FY’20, Ramsay Australia completed 11 projects with a total investment of $255 million, consisting of 295 gross beds (net 222), 11 theatres and 85 consulting suites. During FY’20, the Board approved a further $196 million in projects including 209 net beds, 7 theatres, 13 consulting suites and a new emergency department. I M A G E S O N T H E S E P A G E S : © A F P , I © S H O O T N G D U C K S , I © S M O N L A M B E R T , 7 ANNUAL REPORT 2020 Our response during this pandemic has demonstrated what an incredible & sustainable organisation we are & one that is driven to do the right thing for our patients, staff & doctors. CONTINENTAL EUROPE Ramsay Santé was on track to meet full year targets before COVID-19 hit Europe and was recording strong activity to that point. However, our hospitals across the region were heavily impacted by the pandemic. Our facilities in France, Italy and Sweden have been at the forefront of the crisis, caring for over 7,000 COVID-19 patients. Our staff travelled from all over France to assist at the frontline in the worst affected areas in Paris. We commend the efforts of these staff and doctors who worked tirelessly while supporting the families of the patients who died with coronavirus in our facilities during the period. For FY’20 Ramsay Santé’s revenues were up 14.3% and EBITDAR was up 8.5%. For the first half of FY’20, Ramsay Santé’s revenues were up 44.3% and EBITDAR was up 38% reflecting the consolidation of an extra four months of Capio earnings (Capio was acquired 7 November 2018). The second half of FY’20 was negatively impacted by COVID-19, with revenue down 5.3% and EBITDAR down 10.5%. Ramsay Santé received a revenue guarantee from the French government which applies from 1 March to 31 December 2020. Sweden also received government support during the period, specifically in relation to St Göran’s Hospital. In Sweden our Capio-Flow digital consultation platform in the Proximity Care business was well utilized during the crisis expanding almost threefold to over 33,000 consultations per month by June. 8 There remain concerns of a second wave in Europe and while our business has performed well at the start of this year, there are still many uncertainties and it is too early to make any predictions about FY’21. Ramsay Santé continues to make good progress on the integration of the Capio business. We expect to achieve identified synergies but the timing of the realization of these synergies has been impacted by the COVID-19 pandemic. UNITED KINGDOM On the back of a strong first half, Ramsay UK continued to perform well at the start of the third quarter. However, like other regions, Ramsay UK was heavily impacted by COVID-19 and elective surgery restrictions. For the full year, revenue was down 4.9% and EBITDAR was down 10.6% on the previous year. Ramsay UK led the industry discussions on making hospitals available to the NHS and an agreement was reached with NHS England for the COVID-19 period where Ramsay received net cost recovery for its services, including operating costs, overheads, use of assets, rent and interest, less a deduction for any private revenue. As a result, the business was broadly break even at the EBIT level for March to June 2020. Most of Ramsay’s UK facilities were made available to the national effort and we performed 13,000 urgent operations for the NHS by the end of June (33% of the independent sector). In addition, our staff volunteered to work in NHS ICU or palliative care wards during the crisis and we loaned ventilators to the NHS. Importantly, the crisis has seen many new services move into our hospitals and the engagement built with NHS Trusts has positioned Ramsay UK well for the future. Uncertainties still remain in relation to the pandemic in the UK. The agreement with NHS England has been extended to end of December 2020. ASIA There were no restrictions imposed on elective surgery during the pandemic in either Malaysia or Indonesia, therefore there were no government viability guarantees put in place. However, movement control orders in these countries impacted patient volumes during the pandemic. Our hospitals in Asia contributed to the care of COVID-19 patients, treating hundreds of patients during the period. BALANCE SHEET STRENGTH & LIQUIDITY During the second half of FY’20 Ramsay Health Care undertook an equity raising of $1.5 billion. This action was taken to strengthen Ramsay’s balance sheet and provide financial flexibility in order to navigate an uncertain operating environment. RAMSAY HEALTH CARE LIMITEDCaring for our communities The strategic location of our facilities across regions meant that they played a key role in supporting governments with national & local response efforts: Assisting local public hospitals/aged care facilities with beds, ventilators & staff. Leading role in achieving government partnerships to assist with national & local COVID-19 response efforts. Contributing to local businesses impacted during the pandemic, for example our hospitals in Australia have purchased many thousands of meals for our staff from local restaurants & cafes. Proceeds from the equity raising have been used to partially repay Ramsay Funding Group’s revolving debt facilities, which remain available for redraw. As a result of the equity raising, the Group Consolidated Leverage Ratio has reduced from 3.1x at 30 June 2019 to 2.0x as at 30 June 2020. The Group has available undrawn debt capacity and cash headroom of around A$3 billion (equivalent). The next scheduled debt maturity is not until October 2022. The equity raising puts Ramsay’s balance sheet in a strong position to implement our strategic objectives, including continuing our brownfield developments and providing the ability to take advantage of other opportunities that may arise in the future. OUTLOOK FY’20 has been an extraordinary year and one that has highlighted the strength and depth of Ramsay Health Care. Our response during this pandemic has demonstrated what an incredible and sustainable organisation we are and one that is driven to do the right thing for our patients, staff and doctors. The agreements we achieved with governments around the world to play our part in national efforts, not only We would like to thank the Board for all their input and direction throughout the year and particualrly as we navigated through the pandemic crisis. Most importantly, we thank our staff and doctor teams around the globe for your dedication and resilience during this most extraordinary year. MICHAEL SIDDLE & CRAIG MCNALLY provided us with security in the short term, but also demonstrated the strength of the private sector. However, many uncertainties remain with respect to the ongoing impact of the pandemic. As a result, Ramsay is unable to provide financial guidance for FY’21. Notwithstanding the significant near-term uncertainties, over the longer term, strong industry fundamentals remain. In addition to the increased demand for healthcare generally created by ageing populations with increased incidence of chronic disease, there are also now longer public waiting lists in each of our markets. We expect to play an enhanced role in relieving pressure on public waiting lists into the future. Following our recent $1.5 billion equity raising, Ramsay is also committed to expanding our business both in Australia and overseas, in and out of hospital where there is a strategic fit and it meets our strict investment criteria. We have a strong balance sheet to support this growth strategy. 9 ANNUAL REPORT 2020ALISON DEANS HENRIETTA ROWE Board of Directors JAMES MCMURDO CRAIG MCNALLY Michael Siddle CHAIRMAN Appointed 27/05/14 (Appointed as a Director 26/05/75) Mr Michael Siddle was appointed as Chairman of the Company on 27 May 2014, having formerly been Deputy Chairman for 17 years and a founding Director. He has built up significant knowledge of the business and the private hospital industry after starting with the Company in 1968. Mr Siddle has extensive experience in the management of private hospitals and has been integrally involved in Ramsay Health Care’s successful expansion through construction, mergers and acquisitions. Mr Siddle is also a Trustee of the Paul Ramsay Foundation. Committee memberships: • People & Remuneration Committee (Member) • Nomination & Governance Committee (Member) Independence status: • Non-independent Peter Evans FCA DEPUTY CHAIRMAN Appointed 27/05/14 (Appointed as a Director 29/12/90) Mr Peter Evans was appointed as Deputy Chairman of the Company on 27 May 2014, having formerly served as a Non-Executive Director since his appointment to the Board in 1990. Mr Evans began working with Ramsay Health Care in 1969. He is a Chartered Accountant who was in public practice for over 20 years with predecessor firms of KPMG. Mr Evans has specialised in the financial management of hospitals and has had extensive experience in the health care field for 50 years. Mr Evans is also a Trustee of the Paul Ramsay Foundation and has been actively involved with several other charitable organisations over many years. Committee memberships: • Risk Management Committee (Chair) • Audit Committee (Member) Independence status: • Non-independent Craig McNally CEO & MANAGING DIRECTOR Appointed 03/07/17 Mr Craig McNally was appointed Managing Director and Chief Executive Officer of Ramsay Health Care on 3 July 2017, after serving seven years with Ramsay Health Care as Chief Operating Officer and 22 years prior to this in various roles including Head of Global Strategy and European Operations. Mr McNally is one of Ramsay’s longest serving Executives having commenced with the Company in 1988. He was initially employed as a Hospital Executive in Ramsay’s Sydney-based mental health facilities, before taking over divisional responsibility for acute medical and surgical hospitals in the early nineties. In 1995, he became Ramsay’s Head of Strategic Development, and for the last two decades has been responsible for the development and implementation of Ramsay’s growth strategy including brownfield expansions, international market assessments, mergers and acquisitions and new business strategies. As the Company’s chief negotiator and deal-maker he has been at the forefront of all the major acquisitions and deals completed by Ramsay Health Care. His unique ability to assess the opportunities and risks associated with new business ventures and to evaluate their ‘strategic fit’, as well as his sound judgement and insight, has ensured the Company’s successful growth both domestically and internationally. In his role as head of Ramsay’s UK and European business, Mr McNally has been responsible for leading these teams through the challenging acquisition and merger phases and ensuring their successful integration with Ramsay Health Care and adoption of The Ramsay Way culture. His quiet but assured leadership style is well- respected throughout the organisation. Prior to joining Ramsay Health Care in 1988, Mr McNally was an executive of a private hospital in Sydney following completion of a health administration degree at the University of New South Wales. He is married with three children and an enthusiastic fan of football, baseball and rugby. 10 RAMSAY HEALTH CARE LIMITEDMICHAEL SIDDLE KAREN PENROSE CLAUDIA SÜSSMUTH DYCKERHOFF DAVID THODEY PETER EVANS James McMurdo BSc (Economics), ACA NON-EXECUTIVE DIRECTOR Karen Penrose B.Com (UNSW) CPA FAICD NON-EXECUTIVE DIRECTOR Appointed 10/09/19 Appointed 01/03/20 Mr James McMurdo has over 30 years finance and banking experience. He has a background in corporate advisory spanning across mergers and acquisitions, strategic advisory and financing with experience across multiple industries including the healthcare sector. He has held senior operating management roles and worked extensively in both the Asia Pacific and European regions. Until July 2020, Mr McMurdo was Vice Chairman of Investment Banking for Deutsche Bank based in Hong Kong. He has held senior management roles at Deutsche Bank including Global Co-Head of Corporate Finance, Head of Corporate and Investment Bank for Asia Pacific and CEO for Australia and New Zealand. He sat on the firm’s Global Executive Committee for the Corporate and Investment Bank for four years. Prior to this, Mr McMurdo was a Partner at Goldman Sachs where he held senior positions in the Investment Banking Division in Australia and Europe. Mr McMurdo holds a degree in Economics from the University of Newcastle upon Tyne and is a member of the Institute of Chartered Accountants for England & Wales. Committee memberships: • Audit Committee (Member) Independence status: • Independent Ms Karen Penrose has had an extensive executive career in leadership and CFO roles, mainly in financial services. She is well-versed in financial management, customer outcomes and operating in a rapidly changing regulatory environment which stems from 20 years in banking with Commonwealth Bank and HSBC and eight years as a listed-company CFO. Ms Penrose has been a full-time director since 2014 and is an experienced committee chair of audit and risk. In addition to being a Non-Executive Director of Ramsay Health Care, Ms Penrose also serves as a Director of Vicinity Centres, Bank of Queensland, and Estia Health. Ms Penrose is a member of Chief Executive Women and on the Board of Marshall Investments Pty Limited. In the past three years, Ms Penrose has served as a Director of the following listed companies: • Vicinity Centres (Appointed June 2015) • Bank of Queensland (Appointed November 2015) • Estia Health (Appointed October 2018) • Spark Infrastructure Group (Resigned May 2020) • Future Generation Global Investment Company Limited (Resigned October 2018) • AWE Limited (Resigned April 2018) Committee memberships: • Audit Committee (Chair) • Risk Management Committee (Member) Independence status: • Independent Alison Deans BA, MBA, GAICD NON-EXECUTIVE DIRECTOR Appointed 15/11/18 Ms Alison Deans has 25 years’ experience building technology-enabled businesses involved in media, ecommerce, financial services and health, and across leadership roles as an executive, a director and in venture capital. Ms Deans joined the Board of Ramsay Health Care in November 2018. She is also a Non-Executive Director of Westpac Banking Corporation, Cochlear Limited, SCEGGS Darlinghurst and Deputy Pty Ltd. She is also on the Investment Committee of MainSequence Ventures. In her executive career Ms Deans was previously the CEO of eBay Australia and New Zealand, CEO of eCorp Limited, (a publicly listed portfolio of digital businesses), CEO of Hoyts Cinemas, and most recently CEO of netus Pty Ltd - a technology investment company acquired by Fairfax. Ms Deans also spent seven years as a Consultant with McKinsey & Company and is currently a Senior Advisor with the firm. She holds a Master of Business Administration from the Stanford Graduate School of Business and a Master of Arts from Trinity College at Cambridge University. In the past three years, Ms Deans has served as a Director of the following listed companies: • Cochlear Limited (Appointed February 2015) • Westpac Banking Corporation • (Appointed April 2014) Insurance Australia Group Limited (Resigned October 2017) Committee memberships: • People & Remuneration Committee (Chair) • Nomination and Governance Committee (Member) Independence status: • Independent 11 ANNUAL REPORT 2020Board of Directors…continued Claudia Süssmuth Dyckerhoff PhD NON-EXECUTIVE DIRECTOR Appointed 30/10/18 Dr Claudia Süssmuth Dyckerhoff PhD joined the Ramsay Health Care Board in October 2018, bringing expertise in market growth strategies, business development, and operational performance improvement in hospitals. Dr Süssmuth Dyckerhoff has extensive global experience in hospitals and health care across Europe, Asia, and the USA. She joined McKinsey & Company in Switzerland in 1995 and was transferred to the USA focusing on supporting health care companies, including pharmaceutical/medical device companies, payor, provider and health systems in Europe and the USA. In 2006, Dr Süssmuth Dyckerhoff transferred to China, was elected Senior Partner in 2010 and supported health care companies as well as governments across Asia. She also led McKinsey’s Asia-wide Health Systems and Services Sector. Dr Süssmuth Dyckerhoff also supports three start-ups, and in September 2017 she joined the Board of med tech start-up Cyrcadia. Dr Süssmuth Dyckerhoff studied Business Administration at the University of St Gallen, Switzerland as well as at ESADE, Barcelona where she graduated with an MBA/CEMS Master. She also holds a PhD in Business Administration from the University of St Gallen/University of Michigan Ann Arbor. In the past three years, Dr Süssmuth Dyckerhoff has served as a Director of the following listed companies: • Hoffmann La Roche (Appointed March 2016) • Clariant AG (Appointed April 2016) Committee memberships: • Risk Management Committee (Member) Independence status: • Independent 12 Group General Counsel & Company Secretary Henrietta Rowe B Econ (Soc Sci) (Hons), LLB (Hons), FGIA GROUP GENERAL COUNSEL & COMPANY SECRETARY Appointed 25/06/19 Ms Henrietta Rowe was appointed Group General Counsel & Company Secretary on 25 June 2019 and is responsible for the Group legal and secretariat functions. Henrietta has more than 13 years’ experience with leading global law firm, Herbert Smith Freehills, and in-house at the Commonwealth Bank of Australia, specialising in corporate governance, mergers and acquisitions, capital management, executive remuneration, as well as general corporate and contractual advice. Henrietta holds a Bachelor of Economics (Social Sciences) (Honours) and a Bachelor of Laws (Honours) from the University of Sydney and is a Fellow of the Governance Institute of Australia. Retired Board Members Rod H McGeoch AO LLB MAICD NON-EXECUTIVE DIRECTOR Appointed 03/07/97 & retired 14/11/19 Kerry C D Roxburgh BCom MBA MeSAFAA NON-EXECUTIVE DIRECTOR Appointed 03/07/97 & retired 14/11/19 Bruce R Soden B.Comm CA FAICD CFO & GROUP FINANCE DIRECTOR Appointed 02/01/97 & retired 12/09/19 David Thodey AO NON-EXECUTIVE DIRECTOR Appointed 28/11/17 LEAD INDEPENDENT DIRECTOR Appointed 01/03/20 Mr David Thodey AO is a business leader who has had a strong executive career in the technology and telecommunications industries, with more than 30 years of experience creating brand and shareholder value. In addition to being a Non-Executive Director and Lead Independent Director of Ramsay Health Care, Mr Thodey is currently Chairman of Australia’s national scientific research agency, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Chairman of Tyro Payments Limited (a leading alternative payments provider) and Xero Limited (a small business accounting software company). Mr Thodey also had a successful career as CEO of Telstra, Australia’s leading telecommunications and information services company, and prior to that he was CEO of IBM. Mr Thodey holds a Bachelor of Arts in Anthropology and English from Victoria University, Wellington, New Zealand, attended the Kellogg School of Management postgraduate General Management Program at Northwestern University in Chicago, USA, and was awarded an Honorary Doctorate in Science and Technology from Deakin University in 2016 and an Honorary Doctorate of Business from University of Technology Sydney in 2018. Mr Thodey is also a Fellow of the Australian Academy of Technological Sciences and Engineering (ATSE) and the Australian Institute of Company Directors (AICD). Mr Thodey was awarded an Order of Australia in 2017 for his service to business and the promotion of ethical leadership and workplace diversity. In the past three years, Mr Thodey has served as a Director of the following listed companies: • Xero Limited (Appointed June 2019) • Tyro Payments Limited (Appointed November 2018) • Vodafone Group Plc (Resigned July 2020) Committee memberships: • Nomination and Governance Committee (Chair) • People & Remuneration Committee (Member) Independence Status: • Independent RAMSAY HEALTH CARE LIMITEDAdditional Information Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This information is current as at 11 September 2020. (a) Distribution of Shareholders – Ordinary Shareholders Number of Shareholders Size of Holding Ordinary Shares % of Issued Capital 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over Totals 69,683 9,866 726 261 46 80,582 17,948,705 19,328,269 4,907,333 5,806,686 180,890,712 228,881,705 7.842 8.445 2.144 2.537 79.032 100.000 (b) Less than marketable parcels of ordinary shares The number of shareholdings held in less than marketable parcels is 584 holders, for a total of 1,659 ordinary shares. (c) 20 Largest Shareholders – Ordinary Shareholders Name Number of fully paid Ordinary Shares % of Issued Capital HSBC Custody Nominees (Australia) Limited Paul Ramsay Holdings Pty Limited J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty Ltd 1. 2. 3. 4. 5. 6. 7. Woolwich Investments Pty Ltd 8. BNP Paribas Nominees Pty Ltd Custodial Services Limited 9. 10. Argo Investments Limited 11. Australian Foundation Investment Company Limited 12. Sargon Ct Pty Limited 13. Netwealth Investments Limited 14. Citicorp Nominees Pty Limited 15. HSBC Custody Nominees (Australia) Limited 16. BNP Paribas Nominees Pty Ltd HUB24 Custodial Services Limited 17. BNP Paribas Nominees (NZ) Pty Ltd 18. Australian Executor Trustees Limited 19. HSBC Custody Nominees (Australia) Limited 20. BKI Investment Company Limited Totals 53,909,722 42,999,269 33,404,461 13,175,972 8,265,947 3,863,144 3,750,000 3,236,785 2,448,055 2,023,131 2,020,000 2,010,406 1,083,872 951,540 899,255 597,717 521,714 513,494 473,717 438,535 176,586,736 23.553% 18.787% 14.594% 5.757% 3.611% 1.688% 1.638% 1.414% 1.070% 0.884% 0.883% 0.878% 0.474% 0.416% 0.393% 0.261% 0.228% 0.224% 0.207% 0.192% 77.152% (d) Substantial Shareholders The names of the Substantial Shareholders listed in the Company’s Register as at 11 September 2020: Shareholder Number of fully paid Ordinary Shares % of Issued Capital Paul Ramsay Foundation Limited / Paul Ramsay Holdings Pty Limited 42,999,269 18.80% (e) Voting Rights In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney, or by a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for each fully paid ordinary share, on a poll. 13 ANNUAL REPORT 2020(f) On-market purchases During FY2020 the Company purchased 156,000 ordinary shares on-market for the purposes of its employee and Non-Executive Director share plans (including to satisfy the entitlements of holders of vested performance rights to acquire shares under the Executive Performance Rights Plan), at an average price per ordinary share of $66.64. (g) Distribution of Convertible Adjustable Rate Equity Securities (CARES) Holders Size of Holding 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over Totals Number of CARES Holders 3,756 236 20 9 4 4,025 CARES 1,088,809 463,173 138,328 212,326 697,364 2,600,000 % of Issued Securities 41.877 17.815 5.320 8.166 26.822 100.000 (h) Less than marketable parcels of CARES The number of CARES held in less than marketable parcels is 1 holder, for a total of 2 CARES. (i) 20 Largest CARES Holders Name Number of fully paid CARES % of Issued Capital J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited National Nominees Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP Australian Executor Trustees Limited Argo Investments Limited Longhurst Management Services Pty Ltd Navigator Australia Ltd 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Citicorp Nominees Pty Limited 11. NULIS Nominees (Australia) Limited 12. Peroda Nominees Pty Limited 13. HSBC Custody Nominees (Australia) Limited - A/C 2 14. 15. Australian Executor Trustees Limited Jamplat Pty Ltd 16. Mutual Trust Pty Limited 17. Netwealth Investments Limited 18. Region Hall Pty Limited 19. Beth Maclaren Smallgoods Foundation Pty Limited 20. Citicorp Nominees Pty Limited 343,227 130,795 114,551 108,791 52,817 35,879 25,000 20,969 19,264 18,049 16,435 12,293 11,620 9,597 9,333 8,564 7,877 7,676 7,500 7,349 13.201% 5.031% 4.406% 4.184% 2.031% 1.380% 0.962% 0.807% 0.741% 0.694% 0.632% 0.473% 0.447% 0.369% 0.359% 0.329% 0.303% 0.295% 0.288% 0.283% Totals 967,586 37.215% (j) On-Market Buy-Backs There is no current on-market buy-back in relation to the Company’s securities. (k) Corporate Governance Statement The Company’s 2020 Corporate Governance Statement can be found at: ramsayhealth.com/sustainability/governance/corporategovernancestatement2020 14 RAMSAY HEALTH CARE LIMITEDCaring for our employees & doctors during COVID-19 pandemic We implemented stringent new safety & clinical quality protocols, guidelines on social distancing & PPE use, & adopted patient & visitor screening & visitor restrictions to ensure maximum safety for our staff, patients & doctors. Wellbeing & employee assistance services & resources launched for our staff & doctors. No employees were stood down because of the pandemic. Adopted virtual technology solutions early in the pandemic for improved communications. Frequent communication updates to staff & doctors. Corporate Directory As at 20 September 2020 Directors Non Executive Directors Michael Siddle (Chairman) Peter Evans (Deputy Chairman) Alison Deans James McMurdo Karen Penrose Claudia Süssmuth Dyckerhoff David Thodey AO Executive Director Craig McNally (Managing Director & CEO) Group General Counsel & Company Secretary Henrietta Rowe Registered Office Suite 18.03, Level 18 126 Phillip Street Sydney NSW 2000 Australia Email: enquiry@ramsayhealth.com Website: www.ramsayhealth.com Telephone: +61 2 9220 1000 Facsimile: +61 2 9220 1001 Share Registry Boardroom Pty Limited Level 12, Grosvenor Place 225 George Street Sydney NSW 2000 Australia Email: enquiries@boardroomlimited.com.au Website: www.boardroomlimited.com.au Telephone Enquiries (from within Australia): 1300 737 760 Telephone Enquiries (from outside Australia): +61 2 9290 9600 Facsimile: +61 2 9279 0664 Auditor Ernst & Young 200 George Street Sydney NSW 2000 Australia 15 ANNUAL REPORT 2020Financial Report FOR THE YEAR ENDED 30 JUNE 2020 Ramsay Health Care Limited & Controlled Entities A.B.N. 57 001 288 768 Contents 15 Directors’ Report 57 Independent Audit Report 62 Directors’ Declaration 63 Consolidated Income Statement 64 Consolidated Statement of Comprehensive Income 65 Consolidated Statement of Financial Position 66 Consolidated Statement of Changes in Equity 67 Consolidated Statement of Cash Flows 68 Notes to the Consolidated Financial Statements Overview I. Results For The Year II. Capital – Financing III. Assets & Liabilities Operating & Investing IV. Risk Management V. Other Information Page 68 Page 76 Page 82 Page 93 Page 111 Page 116 Overview 1. Segment 6. Equity 7. Net Debt Information 2. Revenue & Other Income 3. Expenses 4. Dividends 5. Earnings per Share 8. Working Capital 16. Financial Risk Management 17. Share Based Payment Plans 9. Business Combinations 10. Property, Plant & Equipment 11. Right of Use Assets 12. Intangible Assets 13. Impairment Testing of Goodwill 14. Taxes 15. Other Assets/ (Liabilities) 18. Expenditure Commitments 19. Subsequent Events 20. Related Party Transactions 21. Auditors' Remuneration 22. Information Relating to Subsidiaries 23. Closed Group 24. Parent Entity Information 25. Material Partly-Owned Subsidiaries 16 RAMSAY HEALTH CARE LIMITED RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT Your Directors submit their report for the year ended 30 June 2020. DIRECTORS The names of the Directors of Ramsay Health Care Limited (“Ramsay” or “the Company”) in office during the financial year and until the date of this report, unless noted otherwise, are listed below. Each Director’s beneficial interest in the share capital of the Company as at the date of this report is as follows: Director Ramsay Health Care Limited C.A. Deans P.J. Evans J. McMurdo (appointed 11 September 2019) C.R. McNally K.L.C. Penrose (appointed 1 March 2020) M.S. Siddle C. Süssmuth Dyckerhoff D.I. Thodey AO R.H. McGeoch AO (resigned 14 November 2019)* K.C. D. Roxburgh (resigned 14 November 2019)* B.R. Soden (resigned 12 September 2019)* Convertible Adjustable Rate Equity Securities (CARES) 1,402 - - - - - - 700 257 - 2,000 Ordinary Shares 5,705 11,099 4,964 351,707 957 3,905,244 3,705 11,071 55,511 50,180 324,070 Rights over Ordinary Shares - - - 140,808 - - - - - - 180,577 * Retiring Directors’ beneficial interest in the share capital of the company is provided at the date of the Director’s retirement. Particulars of each Director’s and the Company Secretary’s experience and qualifications are set out in the Board of Directors section of this Annual Report. Interests in Contracts or Proposed Contracts with the Company No Director has any interest in any contract or proposed contract with the Company other than as disclosed elsewhere in this report. 17 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW Principal Activities Ramsay is a global hospital group operating in approximately 500 locations across Australia, the United Kingdom, France, Sweden, Norway, Denmark, Germany, Indonesia, Malaysia, Hong Kong and Italy. The Group is committed to being a leading provider of health care services by delivering high quality outcomes for patients and ensuring long term profitability. Ramsay is well-respected in the health care industry for operating quality private hospitals and for its excellent record in hospital management, staff engagement and patient care. Ramsay facilities cater for a broad range of health care needs from day surgery procedures to highly complex surgery, as well as psychiatric care and rehabilitation. The Group now operates across 11 countries, treating over 8.5 million patients in approximately 500 locations and employing almost 80,000 staff. Importantly, Ramsay continues to differentiate its business in terms of leadership, focusing on quality and clinical excellence and reinvesting in its business. We maintain market leading positions in Australia, France and Scandinavia, and we are a market leader in the private provision of services to the National Health Service (NHS) in England. Ramsay listed on the Australian Securities Exchange in 1997 and, over the last twenty three years has developed and acquired a high quality portfolio of strategically located assets both in Australia and overseas, which have helped to position it at the forefront of the global health care market. Ramsay is committed to ongoing improvement in patient care in all areas and has an excellent record in providing quality patient care and managing clinical risk. All Ramsay facilities offer high quality health care services and are fully accredited with the relevant accreditation bodies in their regions. Accreditation is an important driver for safety and quality improvement and ensures that Ramsay hospitals are at the forefront of health care delivery. Ramsay maintains a decentralised management structure which allows each of its facility managers to develop productive working relationships with doctors. This has assisted in attracting high calibre medical practitioners to consult in its facilities. Ramsay takes a leadership role in shaping the world that we live in through its focus on the environment, good corporate governance and societal issues at large. Since 2011 Ramsay has been included in the FTSE4Good Index, an index which objectively measures the performance of companies that meet globally recognised corporate responsibility standards. The Group also commits significant funds and resources to clinical teaching and medical research believing that the private sector has an important role to play in the training and development of the future medical and nursing workforce. To this end, through its hospitals, the Group works closely with government and universities in the training of nursing and medical staff. In November 2007, Ramsay Health Care acquired Capio UK and its portfolio of hospitals in England. Ramsay Health Care UK is now one of the leading providers of independent hospital services in the UK, with a network of over 30 acute hospitals and day procedure centres providing a comprehensive range of clinical specialties to private and self-insured patients as well as to patients referred by the NHS. In March 2010, Ramsay Health Care purchased a 57% interest in Group Proclif SAS (Proclif), a private hospital operator based in France. Proclif changed its name to Ramsay Santé. This was the start of several acquisitions in France, culminating in its acquisition of a controlling interest in Générale de Santé (GdS) in October 2014. GdS was the leading operator of private hospitals in France comprising 75 facilities (including 61 hospitals) in the fields of medicine, surgery, obstetrics and rehabilitation. On 1 July 2015, Ramsay Santé and GdS merged and the merged entity is now known as Ramsay Santé (formerly Ramsay Générale de Santé). Ramsay owns 52.5% of this merged entity. It is listed on Euronext. This merged entity acquired HPM, a group of nine hospitals in Lille in December 2015. In November 2018, the merged entity acquired the share capital of Capio AB. Capio is a leading, pan-European healthcare provider offering a broad range of healthcare services in Sweden, Norway, Denmark, France and Germany. In July 2013, Ramsay Health Care entered into a Joint Venture arrangement with Malaysian multinational conglomerate Sime Darby Berhad. Ramsay owns 50% of this Joint Venture. The joint venture combined Sime Darby’s portfolio of health care assets in Malaysia (three hospitals and a nursing and health sciences college) with Ramsay’s three Indonesian hospitals, under a jointly owned company, Ramsay Sime Darby Health Care Sdn Bhd (RSD). Non – AASB Financial Information The review of results of operations included in the Directors’ Report below includes a number of non-AASB financial measures. These non-AASB financial measures are used internally by management to assess the performance of the business and make decisions on the allocation of resources. It is the Company’s intention to no longer separate its profit between core and non-core, going forward. 18 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Financial Performance A summary of the consolidated statutory revenue and earnings is set out below: Summary of statutory earnings 2020 $m* AASB16 2020 $m** AASB117 2019 $m** AASB117 % Change*** AASB117 Revenue from contracts with customers and income from government grants Earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) Earnings before interest, tax, depreciation and amortisation (EBITDA) Earnings before interest and tax (EBIT) Statutory reported net profit after tax attributable to owners of the parent 12,395.5 12,395.5 11,552.8 7.3% 1,974.0 1,974.0 2,092.6 (5.7%) 1,808.2 877.5 1,311.7 726.7 1,502.3 1,016.0 (12.7%) (28.5%) 284.0^ 327.1 545.5 (40.0%) ^ Percentage change between AASB 16 results for 2020 and AASB 117 results for 2019 is -47.9%. 2020* AASB16 2020** AASB117 2019** AASB117 % Change*** AASB117 Basic earnings per share (after CARES dividend) Diluted earnings per share (after CARES dividend) 131.0c 130.5c 151.7c 151.2c 260.5c 258.9c (41.8%) (41.6%) * Results prepared under AASB16 Leases refer to Overview section of the Consolidated Financial Statements for further information. ** Results prepared under AASB117 Leases refer to Overview section of the Consolidated Financial Statements for further information. Results in 2020 include 12 months of Capio results. Results in 2019 include Capio results from 7 November 2018. ***Percentage change is calculated between the 2019 and 2020 results prepared under AASB117 Leases. Summary of Core earnings# Revenue from contracts with customers and income from government grants Core earnings before interest, tax, depreciation, amortisation, rent and non-core items (Core EBITDAR) Core earnings before interest, tax, depreciation and amortisation and non-core items (Core EBITDA) Core earnings before interest and tax and non-core items (Core EBIT) Core net profit after tax attributable to owners of the parent 2020 $m* AASB16 2020 $m** AASB117 2019 $m** AASB117 % Change*** AASB117 12,395.5 12,395.5 11,552.8 7.3% 2,009.7 2,009.7 2,161.0 (7.0%) 1,843.9 1,357.9 1,592.1 (14.7%) 952.3 336.9^ 812.0 387.7 1,108.0 590.9 (26.7%) (34.4%) ^ Percentage change between AASB 16 results for 2020 and AASB 117 results for 2019 is -43.0%. 2020* AASB16 2020** AASB117 2019** AASB117 % Change*** AASB117 Basic Core earnings per share (after CARES dividend) Diluted Core earnings per share (after CARES dividend) 156.4c 155.9c 180.9c 180.2c 282.7c 281.0c (36.0)% (35.9)% # Core earnings are the earnings attributable to members of the parent before net non-core items and from continuing operations. * Results prepared under AASB16 Leases refer to Overview section of the Consolidated Financial Statements for further information. ** Results prepared under AASB117 Leases refer to Overview section of the Consolidated Financial Statements for further information. Results in 2020 include 12 months of Capio results. Results in 2019 include Capio results from 7 November 2018. *** Percentage change is calculated between the 2019 and 2020 results prepared under AASB117 Leases. 19 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Reconciliation of Statutory earnings to Core earnings The reconciliation below outlines the Statutory net profit after tax, adjusted for the non-core items. Statutory net profit after tax attributable to owners of the parent Add: Net non-core items, net of tax, attributable to owners of the parent Core net profit after tax attributable to owners of the parent 2020 $m 2019 $m 284.0 52.9 336.9 545.5 45.4 590.9 Reconciliation of Statutory earnings under AASB16 Leases to earnings under AASB117 Leases The reconciliation below outlines the statutory earnings under AASB16 Leases to the earnings under AASB117 Leases. Statutory net profit after tax attributable to owners of the parent under AASB16 Add: Amortisation of Right of Use Asset Add: Interest in relation to Lease Liability Less: Rent Less: Tax impact of the above Less: Attributable to non-controlling interests Net profit after tax attributable to owners of the parent under AASB117 2020 $m 284.0 345.7 231.7 (496.5) (20.7) (17.1) 327.1 Financial Highlights Ramsay’s statutory net profit after tax (NPAT), attributable to members of the parent (after adjusting for net non-core items after tax) was $284.0 million, a decrease of 47.9% on the previous corresponding period. On a like for like basis, under the previous lease accounting standard (AASB117), this represented a decrease of 40% on the previous corresponding period. Group Core Net Profit After Tax (Core NPAT) of $336.9 million, for the year ended 30 June 2020 decreased by 43.0% on the previous corresponding period. On a like for like basis, under the previous lease accounting standard (AASB117), this represented a decrease of 34.4% on the previous corresponding period. It is the Company's intention to no longer separate its profit between core and non-core, going forward. Statutory net profit after tax delivered EPS of 130.5 cents for the year, a decrease of 49.6% on the previous corresponding period. On a like for like basis, under the previous lease accounting standard (AASB117), this represented a decrease of 41.6% on the previous corresponding period. Core NPAT delivered Core EPS of 155.9 cents for the year, a decrease of 44.5% on the previous corresponding period. On a like for like basis, under the previous lease accounting standard (AASB117), this represented a decrease of 35.9% on the previous corresponding period. As previously announced, the Company will not be paying a final dividend on ordinary shares for FY'20. The CARES dividend due for payment on 20 October 2020 will be paid. The business had been tracking well until the end of February 2020, the extraordinary circumstances posed by the COVID 19 pandemic on the Company’s operations around the world resulted in us withdrawing guidance in March 2020 and had a significant impact on the full year result. Due to the pandemic, elective surgery restrictions were imposed in most regions from March 2020, creating a significant level of uncertainty. Ramsay led the industry discussions with all levels of government in our major regions – Australia, UK and France – to make our facilities available to the respective national efforts, and in return, Ramsay were successful in securing agreements with government in the form of a viability guarantee. Ramsay’s hospitals around the globe played, and continue to play, a critical role in supporting governments, caring for patients and our communities and ensuring that our facilities are made available and remain fully staffed. It has been an extremely challenging time for the Ramsay staff and doctors as the business has pivoted to support national efforts during this crisis. COVID 19 has impacted the financial result this year but, importantly, it has reinforced the Company’s role as a leading health care and hospital provider in the major regions we operate in. 20 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Operational Highlights – Australia For the full year, revenue in Ramsay’s Australian operations decreased by 2.2% and EBITDAR decreased by 23.2%. Prior to the pandemic Ramsay’s Australian division was on track to meet full year targets, but was significantly impacted by elective surgery restrictions during the last quarter. Ramsay Australia entered partnership agreements with governments in New South Wales, Queensland, Victoria and Western Australia to maintain full capacity and make our facilities available to assist with the national COVID 19 response. In return, Ramsay received net recoverable costs as defined in these agreements. This resulted in the business being broadly breakeven at an EBIT level for the four months between March and June 2020. Joondalup Health Campus was one of the first facilities in the country to treat a large cohort of COVID 19 patients. Joondalup took in 30 patients suffering with coronavirus from the Artania cruise ship and cared for these patients without any cross infection to staff, doctors or other patients. Most of these agreements were paused or ceased on 30 June 2020 as elective surgery restrictions eased. Ramsay’s Australian hospitals experienced increased surgical demand from July as they started to ramp back up to full capacity. With the exception of Victoria, surgical activity so far in financial year 2021 has been above last year. However, volumes in medical specialties are recovering more slowly. The business has incurred additional costs associated with increased Personal Protective Equipment (PPE) usage, more costly PPE on a per unit basis, social distancing requirements, staff costs involved in screening patients, staff and visitors and increased cleaning regimes. The escalation of the crisis in Victoria demonstrated that it was too early to make any conclusive statements about the near term. As elective surgery restrictions were reintroduced in Victoria in late July the agreement with the Victorian government was recommenced on 23 July 2020. Operational Highlights – Continental Europe Overall, for the year ended 30 June 2020, Ramsay Santé’s revenues were up 14.3% and EBITDAR was up 8.5%. For the first half of financial year 2020, Ramsay Santé’s revenues were up 44.3% and EBITDAR was up 38% reflecting the consolidation of an extra four months of Capio earnings (Capio was acquired 7 November 2018). However, the second half of financial year 2020 was negatively impacted by COVID 19, with revenue down 5.3% and EBITDAR down 10.5%. Ramsay Santé was on track to meet full year targets before COVID 19 hit Europe and was recording strong activity to that point. However, the hospitals across the region were heavily impacted by the pandemic. June activity was better than expected both in France and the Nordics, contributing to a positive result in that month. Ramsay Santé is receiving a revenue guarantee from the French government which applies from 1 March to 31 December 2020. Sweden also received government support during the period, specifically in relation to St Göran’s Hospital. Ramsay’s facilities in France, Italy and Sweden have been at the forefront of the pandemic, caring for over 7,000 COVID 19 patients. Our staff travelled from all over France to assist at the frontline in the worst affected areas in Paris. Surgical activity in France and the Nordics has been ramping up since June although it is now impacted by the summer vacation period. There remain concerns of a second wave in Europe and, while the business has performed well in the first few months of this year, there are still many uncertainties and it is too early to make any predictions about 2021. Ramsay Santé continues to make good progress on the integration of the Capio business. It is expected that identified synergies will be achieved but the timing of the realization of these synergies has been impacted by the pandemic. Operational Highlights – UK On the back of a strong first half, Ramsay UK continued to perform well at the start of the third quarter. However, like other regions, Ramsay UK was heavily impacted by COVID 19 and elective surgery restrictions. For the full year, revenue was down 4.9% and EBITDAR was down 10.6% on the previous year. Ramsay UK led the industry discussions on making hospitals available to the NHS and an agreement was reached with NHS England for the COVID 19 period where Ramsay received net cost recovery for its services, including operating costs, overheads, use of assets, rent and interest, less a deduction for any private revenue. As a result, the business was broadly break even at the EBIT level for March to June 2020. The crisis has seen many new services move into our hospitals and the engagement built with NHS Trusts has positioned Ramsay UK well for the future. Most of the UK facilities were made available to the national effort and the business performed 13,000 urgent operations for the NHS by the end of June (33% of the independent sector). In addition, our staff volunteered to work in NHS ICU or palliative care wards during the crisis and we loaned ventilators to the NHS. Uncertainties still remain in relation to the pandemic in the UK and the duration of the current agreement with NHS England, which remains on foot. We are in negotiations with NHS England to extend and vary this agreement with a possible December 2020 end date. Ramsay UK will participate in the contract tender process recently launched by the NHS to identify operators to assist with reducing waiting lists over the next four years. More than 50,000 patients have now waited at least a year for treatment and waiting lists are predicted to hit 10 million by December 2020. Operational Highlights – Asia There were no restrictions imposed on elective surgery during the pandemic in either Malaysia or Indonesia, therefore there were no government viability guarantees put in place. However, movement control orders in these countries impacted patient volumes during the pandemic. Patient volumes in these regions are now gradually increasing. 21 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Financial Position A summary of the audited Statement of Financial Position is set out below: Total assets Total liabilities Net assets 2020 $m 18,058.7 (13,822.8) 4,235.9 2019 $m % Change 12,639.8 (9,616.7) 3,023.1 42.9% 43.7% 40.1% Ramsay’s total assets increased by 42.9% mainly due to an increase in the right of use assets. Total liabilities increased by 43.7% mainly due to the increase in lease liabilities. These movements are in line with expectations given the implementation of AASB16 Leases which resulted in capitalisation of the right of use asset balance of $4,548.3 million and recognition of $4,929.6 million of lease liabilities. Ramsay’s net asset position increased by 40.1% which is largely attributable to the $1.5 billion equity raising less dividends paid to Ramsay shareholders of $322.5 million. Balance Sheet Strength & Liquidity The equity raising of $1.5 billion was undertaken to strengthen Ramsay’s balance sheet and provide financial flexibility in order to navigate an uncertain operating environment. Proceeds from the equity raising have been used to partially repay Ramsay Funding Group’s revolving debt facilities, which remain available for redraw. As a result of the equity raising, the Group Consolidated Leverage Ratio* has reduced from 3.1x at 30 June 2019 to 2.0x as at 30 June 2020. The Group has available undrawn debt capacity and cash headroom of around A$3 billion (equivalent). The next scheduled debt maturity is not until October 2022. * Note: The Group Consolidated Leverage Ratio is presented on a pre AASB16 basis, consistent with the Ramsay Funding Group debt facility documents. Capital Employed Working Capital Property, plant and equipment Intangible assets Current and deferred tax assets Other assets/(liabilities) Capital employed (before right of use assets) Right of use assets Capital employed Core Return on Capital Employed (ROCE*) (before lease accounting changes) 2020 $m 2019 $m Variance $m (875.6) 4,447.2 4,246.1 143.6 (138.7) 7,822.6 4,477.9 (440.4) 4,642.8 4,263.3 15.7 (546.8) 7,934.6 - 12,300.5 7,934.6 (435.2) (195.6) (17.2) 127.9 408.1 (112.0) 4,477.9 4,365.9 10.4% 16.3% (5.9%) Core Return on Capital Employed (ROCE*) 9.4% 16.3% (6.9%) * ROCE = EBIT / average of opening and closing capital employed Ongoing capital employed (before right of use assets) decreased by $112.0 million from 2019 driven by: - Working capital decreased by $435.2 million due to revenue guarantee payments received by Ramsay Santé being in excess of revenue guarantee accruals recognised in the period. - Property, plant and equipment reduced by $195.6 million due to a $368.3 million transfer of assets to right of use asset with the implementation of AASB16 Leases. - Other assets / (liabilities) have increased $408.1 million due to the derecognition of the deferred lease provision of $294.3 million and reclassification of the unfavourable contracts provision of $207.3 million to property, plant and equipment. Both changes were a result of implementation of AASB 16 Leases. 22 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Cash Flow Core EBITDA Changes in working capital Finance costs Income tax paid Movements in other items Operating cash flow Capital expenditure Free cash flow Net acquisitions Interest and dividends received Cashflow after investing activities Dividends paid Other financing cashflows Net shares issued Net increase/(decrease) in cash 2020* $m 2019** $m Variance $m 1,843.9 435.2 (418.8) (203.4) 23.8 1,680.7 (680.6) 1,000.1 (22.7) 47.3 1,024.7 (335.1) (1,363.9) 1,467.1 792.8 1,592.1 98.6 (158.8) (253.0) (375.6) 903.3 (593.8) 309.5 (1,167.5) 9.0 (849.0) (321.3) 758.3 375.0 (37.0) 251.8 336.6 (260.0) 49.6 399.4 777.4 (86.8) 690.6 1,144.8 38.3 1,873.7 (13.8) (2,122.2) 1,092.1 829.8 * 2020 cashflow is prepared under AASB 16 Leases. Net interest includes interest associated with capitalised leases under AASB16. ** 2019 cashflow is prepared under AASB 117 Leases. Cashflow increased by $829.8 million from 2019, mainly as a result of: - Net acquisition cash outflows decreased by $1,144.8 million. The outflow in 2019 mainly relates to the acquisition of Capio - Other financing cash outflows increased by $2,122.2 million. The outflow in 2020 mainly relates to repayment of debt with banks and the repayment of principal on the lease liabilities capitalised on implementation of AASB 16 Leases (previously included in Core EBITDA as rental costs in 2019). - Net shares issued cash inflows increased by $1,092.1 million. The inflow in 2020 is due to the equity raise and has been used in part to pay down debt. Business Strategies & Prospects for Future Financial Years Ramsay’s scale and size provides the opportunity to explore greater efficiencies and to establish stronger partnerships, which will generate earnings growth along the healthcare value chain. At the same time, we are building our capabilities in terms of ensuring we have a workforce that is adaptable and forward thinking that we are delivering what customers want, and we are delivering quality outcomes. Growth is only pursued if the Group’s financial and strategic criteria and investment hurdles are satisfied. Ramsay’s growth strategy is broken down into five key components which are discussed below. Brownfield Capacity Expansion Growth Through Acquisition Creation of Shareholder Value Organic Growth Public/Private Collaborations New Growth Platforms Organic Growth Organic growth is underpinned by demographics, Ramsay’s quality portfolio of hospitals and continuous business improvement. 23 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Business Strategies & Prospects for Future Financial Years (Continued) Brownfield Capacity Expansion During the year the Board approved $196 million in new brownfield projects which underscores the Company’s confidence in the long term industry dynamics. Public/Private Collaborations A key component of Ramsay’s growth strategy is further involvement in the provision of public hospital services through “public/private collaborations”. Growth through Acquisition The Company remains committed to expanding its global portfolio and will continue to search for opportunities in new and existing markets that are a strategic fit and meet the Company’s rigorous financial hurdles. New Growth Platforms We are looking at areas of growth in adjacent businesses like pharmacy (in Australia) and patient transport (in France) that will supplement our core strategy and assist in delivering improved and integrated services to patients across an increasingly disperse health ecosystem. Material Business Risks Ramsay faces a number of business risks that could affect the Group’s operations, business strategies and financial prospects. These are described below, together with relevant mitigation strategies. It is not possible to identify every risk that could affect Ramsay’s business and the actions taken to mitigate these risks cannot provide absolute assurance that a risk will not materialise. Impact of COVID-19 The ongoing COVID-19 pandemic has had a significant impact on the global economy and the ability of businesses and governments to operate. Across the globe, travel, trade, business, working arrangements and consumption have been materially impacted by the COVID-19 pandemic. The impacts of COVID-19 for Ramsay include but are not limited to the following risks: • Ramsay has observed that a growing number of countries are deferring surgeries as a result of the spread of COVID-19. Further, a number of health authorities are either recommending or enforcing the deferral of elective surgeries in order to reduce the strain on healthcare systems. Given the high degree of uncertainty surrounding the extent and duration of COVID-19, it is not currently possible to assess the full impact of COVID-19 on Ramsay’s business. However, a prolonged reduction in elective surgeries across Ramsay’s key operating geographies will materially adversely impact Ramsay’s financial performance and profitability. • In connection with governmental requirements to maintain capacity, Ramsay has in place and continues to negotiate agreements in each of its key operating geographies to provide Ramsay with a level of cost recovery in return for such capacity arrangements (except for France, where there is to be a level of revenue recovery). There is no guarantee that the terms of such agreements, including the level of financial recovery, the conditions to receiving any funds and the ability to terminate such arrangements at a time that suits Ramsay, will be able to be obtained on terms equivalent to existing arrangements. • COVID-19 is having an adverse impact on supply chains including the cost and global supply of Personal Protection Equipment (PPE) used to protect health care workers. • COVID-19 is having a significant people impact on the healthcare sector globally due to health care workers being infected and the impacts associated with the mental health of healthcare workers. In addition, COVID-19 will continue to impact availability of staff during the pandemic including as elective surgery increases post the pandemic. • In the event that significant numbers of staff need to be quarantined due to exposure to COVID-19, or where they are required to assist in clearing elective surgery backlogs, they may need to be supplemented by more expensive staff, including overtime and/or agency staff. • Government measures and economic impacts of business shutdowns are increasing the levels of unemployment that could result in declines of private health insurance (PHI) membership due to affordability. Significant declines in PHI membership, particularly in Australia, would have an adverse impact on Ramsay’s revenue. • Public perception of the safety of hospitals during the pandemic could impact the volume of returning elective surgeries as patients may choose to delay some procedures due to the perceived risk of catching the virus while in hospital. • COVID-19 and the responses to it may lead to accelerated shifts in site of care in some countries and changes in practices (including the increased use of telehealth), which may adversely impact future revenues. Government policy & regulation Ramsay operates in the healthcare industry which is subject to extensive laws, regulations, policies and ethical standards (which may vary by jurisdiction) relating to, among other things, the conduct of operations, the licensing and accreditation of facilities and the addition and development of facilities and services. There are a number of areas in which changes in the policies of governments may have a material impact on the health sectors in each of the regions in which Ramsay operates and, more specifically, the private healthcare sector and Ramsay. Changes which could have a material impact Ramsay include but are not limited to: • Policies that would effectively reduce the role of the private sector in a country’s health system, including the involvement of the private sector in the provision of healthcare to public patients • Economic factors or regulations that impact the affordability of private health insurance (particularly in Australia) and the level of private health insurance coverage • Changes to patient choice, such as the legislation in the UK, which allows patients the freedom to choose private or public health care provision 24 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Material Business Risks (Continued) Health insurance funds A large component of Ramsay’s revenue in Australia is derived from health insurers. Therefore, failure to reach satisfactory commercial terms with major insurers has the potential to impact on the financial performance and operations of Ramsay. Ramsay is also susceptible to factors adversely affecting private health funds. A decline in the profitability of health funds, a decline in health fund membership and an inability of health funds to obtain premium increases (because of government regulation or other restrictions) may indirectly impact the financial performance of Ramsay through pressure on rates being charged by the hospitals or fewer patients due to declining membership. Revenue from government sources The majority of Ramsay’s revenue in the UK, France and Scandinavia is derived from government sources. Accordingly, Ramsay has prima facie, significant risk exposure to adverse pricing changes as set by the respective governments. Failure to reach a satisfactory outcome with governments has the potential to impact on the financial performance and operations of Ramsay. Failure to achieve an acceptable outcome may be because of differences in rates, terms or conditions (including the introduction of different funding models). Cyber Security/Information Technology Ramsay handles and stores personal information digitally and in paper form, including health information, for its customers and employees. With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Ramsay recognises information privacy and cyber security as an increasing risk. Any breach by Ramsay of privacy and security regulations could expose Ramsay to penalties (including financial penalties), which could adversely affect Ramsay’s financial position or cause reputational harm. Any damage or interruption to Ramsay’s information systems or those provided by third party technology vendors could adversely affect Ramsay’s service capability, its ability to conduct its business and generate revenue, as well as result in significant costs being incurred, for example to rebuild systems, respond to regulatory inquiries or actions, pay damages, or take other remedial steps with respect to third parties. Industry disruption or lack of innovation The rate of disruption and innovative changes remain a key area of risk and opportunity. The importance of latest technology and trends to enable improved service delivery, attracting and retaining staff and adjusting to industry changes is increasing. Failure to innovate, harness new technology (e.g. telehealth) or adapt to disruptive technologies are important risk considerations. Acquisitions Ramsay’s future business strategy includes the potential acquisition of additional hospitals, health services or businesses with relevant adjacencies, including through minority investments. These acquisitions may expose Ramsay to unanticipated liabilities and losses to the extent that operational, legal or financial due diligence fails to identify adequately key risks or where valuations are overstated. The process of integrating acquired operations into Ramsay’s existing operations may not realise expected synergies as a result of unforeseen operating difficulties or a failure to leverage economies of scale. Furthermore, a failure to adequately assess and integrate cultural aspects of operations across international markets may affect the contribution of those international markets to Ramsay’s overall performance. Ramsay’s potential to make further acquisitions may be restricted by relevant competition regulators depending on the size of the proposed acquisition as well as the competition regulators’ interpretation of the market in which Ramsay is operating and how a proposed acquisition may alter the competitive environment of that market. There can also be no guarantee that Ramsay will identify any future acquisition opportunities or be able to complete future acquisition opportunities on acceptable terms or, if it does do so, that such acquisitions will be effectively integrated into, and beneficial to, Ramsay’s business. People/workforce People are Ramsay’s most important asset and have been key to the organisation’s ongoing success. Managing the risks associated with the supply of quality labour, staff retention and maintaining the Ramsay culture is a key focus and includes, but is not limited to: • Management of nursing staff – the most significant cost in hospital operations is nursing labour. In some regions such as the UK there is a shortage of nurses and enhanced competition to recruit and retain nursing staff which also causes additional upward pressure on nursing costs. Should these labour costs be larger than anticipated this may impact on the financial performance and operations of Ramsay. • Workplace health and safety – there may be an accident or incident at one of Ramsay’s facilities that results in serious injury, or damage to property. This may in turn result in Ramsay being fined by a regulatory authority, an interruption to Ramsay’s operations, a worker’s compensation claim, a work health and safety claim or a damages claim against Ramsay. This may also adversely impact Ramsay’s business reputation, operations and profitability. • Industrial relations – Many of Ramsay’s employees are covered by enterprise bargaining agreements or other unregistered workplace agreements, which periodically require renegotiation and renewal. Disputes may arise in the course of such renegotiations which may lead to strikes or other forms of industrial action that could disrupt Ramsay’s operations. Further, any such renegotiation could result in increased labour costs for Ramsay. If any of these events occur, it may have a material adverse effect on Ramsay. • Retention – The unexpected loss of any key members of management and operating personnel could adversely impact Ramsay’s ability to develop and implement its business strategies. 25 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) OPERATING & FINANCIAL REVIEW (Continued) Material Business Risks (Continued) Relationships with Doctors The recommendation of a patient’s doctor is often the most significant factor in a patient’s choice of hospital in many of Ramsay’s regions. Therefore, doctor engagement and working in partnership with doctors is a key factor in the success of Ramsay’s hospitals. There is no guarantee that doctors will continue to refer their patients to Ramsay hospitals. As virtually all of the doctors operating or working at Ramsay’s hospitals are not employees (other than in Scandinavia), they have the choice to work in whichever location provides the best services in terms of theatres, equipment, nurses, beds and suites. Further, doctors directly affect the efficiency and quality of service of a hospital through the number and type of patients they treat, the time they take in theatre, their consumption of supplies and their decision on when to discharge patients. Clinical The delivery of high quality clinical care is fundamental to Ramsay’s success. There are many things that could threaten this objective, including ineffective policies and practices and misbehaviour, misconduct and medical malpractice of staff and visiting medical officers or other errors such as medication errors. Poor clinical risk management could result in reputational damage and financial loss resulting from, among other things, potential significant medical malpractice incidents or claims, or outbreaks of infection or contamination (including, but not limited to, as a result of the impact of the COVID-19 pandemic) at a facility. Competition Ramsay operates in markets with established competitors and there is a risk that the actions of existing or future competitors will have a material adverse effect on Ramsay’s ability to implement its plans and on Ramsay’s business, results of operations or financial condition. Financial Ramsay’s reported revenue and earnings will fluctuate with changes in the currency exchange rates between the Australian dollar (Ramsay’s reporting currency) and the currencies of Ramsay’s offshore operations. Ramsay uses debt to reduce its cost of capital and to increase earnings per share. It is therefore subject to the risk of rising interest rates (either on floating rate debt or when existing facilities expire), the future availability of funding, and potential breach of a term or condition of its debt facilities. Ramsay has policies in place to manage liquidity, interest rate, foreign exchange and counterparty credit risk. Sustainability Ramsay recognises the importance that social and environmental risks have on value creation as a global company, employing over 77,000 staff and caring for over eight million patients each year. Failure to meet the expectations of our stakeholders on key areas such as quality, safety and sustainability is a risk to the value that Ramsay creates and our reputation. The past few years have emphasised the impacts of climate change and increasing societal pressures such as ageing populations and affordability. A refreshed strategy “Ramsay Cares” is being implemented with a focus on three pillars – Caring for our People, Caring for our Communities and Caring for our Planet. Legal & regulatory Ramsay is subject to legal and compliance related risks, including but not limited to: • Licences – hospitals are required to be licensed under various legislation in the jurisdictions within which they operate. If Ramsay is unable to secure applicable licences for the operation of its hospitals in the future or if any of its existing hospital licences are revoked, this may have a material adverse effect on Ramsay and its ability to operate its business. • Disputes or litigation – Ramsay may also be involved in disputes or litigation, including disputes with patients, suppliers, funders, government and regulatory bodies, landlords, franchisees or current or former employees (for example, industrial action or workplace health and safety claims). Insurance Insurance is maintained within ranges of coverage consistent with industry practice. However, there is a risk given that such insurance will not be available in the future on commercially reasonable terms or that any cover will be inadequate and unavailable to cover any or all claims. 26 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) DIVIDENDS Dividends paid or recommended for payment on ordinary shares are as follows: Final dividend 0.0 cents per share* (2019: 91.5 cents) Interim dividend paid during the year @ 62.5 cents per share (2019: 60.0 cents) $0.0 million (2019: $184.9 million) $126.3 million (2019: $121.2 million) Dividends paid or recommended for payment on CARES are as follows: Final dividend recommended @ $1.77 per security (2019: $2.29) Interim dividend paid during the year @ $2.04 per security (2019: $2.44) $4.6 million (2019: $6.0 million) $5.3 million (2019: $6.3 million) * No current year final dividend has been declared. The tax rate at which paid dividends have been franked and recommended dividends will be franked is 30% (2019: 30%). CORPORATE INFORMATION This financial report covers the Ramsay Health Care Limited consolidated Group which comprises the Company and its subsidiaries (‘the Group’). The Company is a for-profit company, limited by shares that is incorporated and domiciled in Australia, whose shares are publicly traded on the Australian Securities Exchange. The registered office is Suite 18.03, Level 18, 126 Phillip Street, Sydney NSW 2000. The financial report of the Company for the year ended 30 June 2020 was authorised for issue on 8 September 2020 in accordance with a resolution of the Directors. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Other than as referred to in the Operating and Financial Review, there have been no significant changes in the state of the Group’s affairs during the financial year. PERFORMANCE RIGHTS (EQUITY) At the date of this report there were 1,277,546 (2019: 1,085,023) ordinary shares under the Executive Performance Rights Plan that are yet to vest. Refer to Note 17 of the financial statements for further details of any rights outstanding as at 30 June 2020. SIGNIFICANT EVENTS AFTER THE REPORTING DATE There have been no significant events after the reporting date that may significantly affect the Group’s operations in future years, the results of these operations in future years or the Group’s state of affairs in future years. LIKELY DEVELOPMENTS & EXPECTED RESULTS Directors and management of the consolidated entity will continue to seek growth in its existing business and to ensure the operation of high quality, cost effective facilities, in order to optimise returns to shareholders. At the same time, directors and management are continuing to pursue opportunities, including expansion of existing facilities, further hospital acquisitions as well as other opportunities closely aligned to the health sector, which are within the Company’s core competencies and investment criteria. INDEMNIFICATION & INSURANCE OF DIRECTORS & OFFICERS The Company has a Directors’ and Officers’ Liability policy covering each of the Directors and certain executive officers for liabilities incurred in the performance of their duties and as specifically allowed under the Corporations Act 2001. The premiums in respect of the policy are payable by the Company. The terms of the policy specifically prohibit the disclosure of any other details relating to the policy and therefore the Directors do not intend disclosing further particulars relating thereto. 27 ANNUAL REPORT 2020 RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED Letter to shareholders from People & Remuneration Chair Dear Shareholders On behalf of the Board of Ramsay Health Care, I am pleased to present you with our FY’20 Remuneration Report. Since our last AGM, and in light of the shareholders vote against the FY'19 remuneration report, we have spent time listening to our shareholders and we have incorporated this feedback into the ongoing evolution of our remuneration framework. In addition, we have considered the extraordinary circumstances posed by COVID-19. We acknowledge the impact this has had on shareholders, the community and other stakeholders, while also recognising the efforts of the Ramsay management team in effectively guiding the business through these unprecedented and challenging times. Feedback from Shareholders During the past fiscal year, the Ramsay People and Remuneration Committee has reflected on the feedback from shareholders on the FY’19 Remuneration Report. We have spent significant time meeting with proxy advisors and shareholders so that we could better understand and incorporate their feedback into our evolving remuneration framework. We appreciate the time and thought that shareholders have put into providing this feedback. On the positive side, we were pleased to hear that our shareholders supported the changes to the remuneration framework that were disclosed last year for introduction in FY’20. These changes were designed to enhance the alignment of remuneration with our strategic imperatives, The Ramsay Way, which defines our culture and values, and the expectations of our stakeholders. The changes which were implemented in FY'20 include: • Enhancements to the STI framework including an individual STI modifier (0 – 100%) based on the Ramsay Way to reflect how individuals achieve their performance goals; • Simplified scorecards to provide clarity and transparency on performance expectations and the link to strategic goals; removing double counting of the EPS metric between STI and LTI; and setting threshold, target and stretch performance levels for financial measures; • Deferral of STI payments for all senior executives; • Minimum shareholding requirements for NEDs and Executives to further enhance shareholder alignment; and • Introduction of a formal clawback policy. However, our shareholders also gave us clear feedback that further evolution was required in both the remuneration framework and the application of the framework. We have sought to address this feedback in our frameworks and practices, including the following changes: • In our assessment of performance against EPS targets, we recognise the need to ensure executives are held accountable for prior decisions. To support this, we have established principles for how exceptions to the EPS measure will be considered on a case-by-case basis to ensure appropriate accountability for remuneration purposes. These principles apply to consideration of achievement of EPS targets from FY'20. We also note that from FY'21 Ramsay does not intend to report earnings on a core and non core basis. Remuneration targets will be amended to reflect this change and the principles for considering exceptions will be updated accordingly; • From FY'21 we will use a three year EPS growth measure relative to a target growth range for the LTI hurdle rather than the historic practice of setting hurdles annually relative to guidance. This will enhance long term decision making and align to shareholder expectations; • From FY’21, we will introduce a return-based metric (ROIC) into the LTI, as a gateway to being considered for the EPS hurdled parcel of performance rights. This is to ensure appropriate attention to capital efficiency as we pursue our growth strategy, particularly in light of the acquisitive nature of our business; • We have reviewed Non-Executive Director (NED) and CEO remuneration levels relative to market. As a result we will reduce NED base fees by 20% through removal of the NED share plan, and there will be no change to CEO remuneration for FY’21; • We have continued to refine the application of the STI performance framework and our disclosure of metrics and achievement levels to ensure that the targets are appropriately challenging, and outcomes are more transparent. This is an ongoing process of refinement both of target setting and clarity of disclosure. 28 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) FY’20 Performance & Remuneration Outcomes Until late February 2020 the business had been tracking well in terms of strategic, operational and financial targets, but the extraordinary circumstances posed by the COVID-19 pandemic in the last four months of the year has had a significant negative impact on the full year financial performance. With the onset of the pandemic, the primary focus of the Ramsay management team turned to business sustainability, ensuring that we protect the wellbeing of our patients, staff and doctors, and responding to the healthcare crisis by assisting governments with their response to COVID-19. Ramsay’s hospitals around the globe played a critical role in national responses by making our facilities and staff available across Australia, the United Kingdom, France and Scandinavia. We are proud of our global teams – how they responded to the crisis and the role they have played in each country. Over this period the teams have built on and strengthened our culture of people caring for people. Management have also taken decisive action to effectively manage the balance sheet through the equity raise, in order to enhance financial flexibility during a period of uncertainty, and position Ramsay for future growth opportunities. Given the significant impacts of COVID-19, we did not meet the FY’20 financial targets we set for either the short-term or long-term incentive plans. We also recognise the broader impact of COVID-19 on many of our stakeholders. As a result, the Board has determined the following outcomes for FY’20 in terms of remuneration: • No fixed remuneration increases will be provided to senior management in Australia and the UK. • No STI payments will be made, notwithstanding that a proportion of the non-financial scorecard targets were met. See section 4.2 for further details. • The FY’18 LTI will not vest as neither the TSR or EPS hurdles were met. Given that the EPS performance was well below threshold there was no need for a review of EPS inclusions or exclusions in determining individual accountability for vesting of LTI for this year. Conclusion We look forward to further feedback from our shareholders on this FY’20 Remuneration Report as we continue to evolve our remuneration framework. The Board of Ramsay remain committed to ensuring our reward outcomes align with performance for our stakeholders and that we have remuneration structures in place which support Ramsay’s strategy and The Ramsay Way – people caring for people. ALISON DEANS Chair, People and Remuneration Committee 29 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) Remuneration Report Contents 29 1. Key Management Personnel 29 2. Our response to Feedback on the FY’19 Remuneration Report 31 3. Executive Remuneration Framework 37 4. FY’20: Performance & Remuneration Outcomes 42 5. Executive Service Agreements 43 6. Remuneration Governance 44 7. Non-Executive Director Fees 46 8. Statutory Disclosures This Remuneration Report (Report) for the year ended 30 June 2020 has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) (Act) and the Accounting Standards. 30 RAMSAY HEALTH CARE LIMITEDName Executives Mr Craig McNally Mr Bruce Soden Mr Martyn Roberts Mr Daniel Sims Mr Olivier Chretien Non-Executive Directors Mr Michael Siddle Mr Peter Evans Ms Alison Deans Mr James McMurdo Ms Karen Penrose RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 1. Key Management Personnel The report discloses the FY’20 remuneration arrangements and outcomes for the people listed below, who are the individuals within the Company who have been determined to be Key Management Personnel (KMP) in the financial year to 30 June 2020. Key Management Personnel (KMP) are those people who have the authority and responsibility for planning, directing and controlling the Group’s activities, either directly or indirectly. Position Term Managing Director and CEO Full year Former Group Finance Director and Chief Financial Officer Until 31 December 2019 Group Chief Financial Officer From 20 April 2020 CEO Ramsay Australia Full year Group Chief Strategy Officer Until 30 June 2020 Chairman Deputy Chairman Non-Executive Director Non-Executive Director Non-Executive Director Dr Claudia Süssmuth Dyckerhoff Non-Executive Director Mr David Thodey AO Mr Rod McGeoch Mr Kerry Roxburgh Non-Executive Director Non-Executive Director Non-Executive Director Full year Full year Full year From 11 September 2019 From 1 March 2020 Full year Full year Until 14 November 2019 Until 14 November 2019 2. Our response to feedback on our FY’19 Remuneration Report At our FY’19 AGM, 29.23% of shareholders voted against our FY’19 Remuneration Report (A ‘First Strike’). Following this, the Ramsay Board and People and Remuneration Committee have consulted extensively with proxy advisors, institutional investors, equity analysts and other stakeholders. We appreciate the time and thought given by all stakeholders in this period of consultation. The feedback received has been valuable and we have incorporated it into the ongoing evolution of our remuneration framework. Five key issues were raised during these discussions and these are listed below together with our response. Concern raised Our response Core EPS used as a performance metric in the LTI plan without adjustment to ensure executive accountability for past decisions The determination of ‘Core EPS’ in our Annual Report uses a consistent and transparent set of adjustments to statutory EPS to give a consistent measure of the underlying profitability of the business. While this approach is appropriate for financial purposes, the calculation may include adjustments related to decisions made in prior years that have adverse impacts in the current year with the unintended consequence that an executive might not be held accountable for their past decisions. From FY'20, in determining EPS results for remuneration purposes, the Board will consider any adjustments made in calculating the EPS metric and make adjustments on a case-by-case basis (including attribution of individual accountability for results) to ensure management are held accountable for their past decisions and are not unfairly advantaged or disadvantaged by events outside their control. To ensure any adjustments are consistently applied, five guiding principles will be applied (please see section 3.5 for further details): • Plan integrity and management accountability – adjustments will be made to align with the purpose of the plan and reflect management accountability for past decisions. • Nature and timing of adjustments – adjustments, both positive and negative, will only be made at the time of vesting. • Transparency - the Company will provide a clear rationale and disclosure, for any adjustments made, especially in cases where performance has not been achieved. 31 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) Concern raised Our response Core EPS used as a performance metric in the LTI plan without adjustment to ensure executive accountability for past decisions…continued • Material or significant events - adjustments will only be made for events or items over the vesting period that have a material impact positively or negatively on the performance outcome, and consequently reward outcome. • Balance of interests – adjustments will be balanced to ensure outcomes are not unfairly biased towards either shareholders or management. From FY'21, Ramsay does not intend to report Core EPS and Non-Core EPS. The EPS metric for remuneration purposes will reflect this change and the principles for considering adjustments to the EPS measure will still apply. EPS metric in the LTI plan is based on performance relative to annual market guidance, rather than a disclosed long term target From FY’21 the EPS metric used in the LTI will be based on a 3 year range for EPS growth against threshold and stretch performance levels. This will increase transparency for shareholders and strengthen the focus on long term performance over the 3 year period, rather than year-on-year performance. Absence of a return-based metric in LTI plan Ramsay continues to pursue a growth strategy – including significant acquisitions as well as organic capital investment – in a capital intensive business. As such, we recognise that it is important to ensure that management deploys capital effectively. To reflect this, from FY’21, the EPS component of the LTI grant will only vest if a threshold level of return on capital (ROIC) is achieved. Lack of transparency for disclosures in relation to STI metrics and associated performance outcomes In parallel with refinements of our STI scorecard in FY’20, we have sought to improve the clarity and depth of our disclosure regarding the rationale, structure and assessments of performance in our STI scorecard. Specifically, we have sought to clarify the alignment between our strategy and the measures in the scorecard. We have disclosed greater detail on the metrics used and on performance relative to our threshold, target and stretch targets for financial metrics. We have disclosed the specific weightings for each of the 5 key categories in our STI scorecard and provided more detail regarding performance against each key category. These changes provide significantly more clarity and transparency than previous years, ensuring stakeholders can better assess the pay to performance linkage, the priority we place on metrics and the respective outcome achieved for each metric. This will give greater insight into the Board’s determination of the appropriate aggregate reward outcome taking into account performance against each of the category metrics, as well as the appropriateness of the overall performance assessment. A review of NED “Non-Executive Director” remuneration during FY’20 highlighted an opportunity to re-align NED fees to broader market practice. The Board has determined to reduce NED base fees by 20% from 1 July 2020 and accordingly, it will no longer be making the NED Share Rights Plan award equal to 20% of the relevant NED’s base fees (excluding committee fees and superannuation). In addition, the Chairman’s fee has been reduced by $65,100 per annum. These are permanent changes to NED and Chairman fees. The minimum shareholding requirement introduced in FY’20 will ensure that the interests of NEDs continue to be aligned to shareholder interests. Subject to shareholder approval at the 2020 AGM, the Company will still provide NEDs the opportunity to salary sacrifice a portion of their annual remuneration to be granted as share rights if they choose to do so. Our CEO’s pay has been benchmarked to ASX-listed companies with similar market capitalisation, revenue and international operations. As a global organisation and recognising that there are no direct Australian listed competitors, consideration is also given to international healthcare organisations. There will be no change to CEO pay for FY’21. Perceived high levels of NED and CEO pay relative to the market 32 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 3. Executive Remuneration Framework 3.1 Alignment of Ramsay’s strategy & remuneration framework Our remuneration is designed to attract, motivate and retain a highly qualified and experienced group of executives. It is structured to align executives to the creation of long term shareholder value by executing on our focused strategy and delivering on quality consumer outcomes, in accordance with the Ramsay Way: ‘People Caring for People’. Ramsay’s Focused Strategy Growth Efficiency Sustainability Driving stronger growth from the core Developing new growth platforms • Organic Growth • Brownfield Capacity • Public/Private Collaboration • Acquisitions • Integrated Care • New Models of Care Strengthening the core • Operational Excellence • Digitalisation • Global Procurement • Capital Efficiency Building a more sustainable organisation • Patient & Doctor Experience • Clinical Excellence • Innovation • Global Talent Our Remuneration Principles Attract, retain & motivate Performance based Simple & transparent Strategic Alignment Enabling Ramsay to attract, motivate and retain the best talent globally Provides reward where individuals have demonstrated strong performance Can be easily explained and understood by all stakeholders Drives performance against strategy Shareholder Alignment Drives long term value for shareholders The Ramsay Way Encourages the right behaviours aligned to “People Caring for People” Our Remuneration Framework Fixed annual remuneration Short-term incentive (STI) Long-term incentive (LTI) Provides competitive base pay to attract and retain the capability required to manage and lead a global business Rewards performance in executing Ramsay’s strategic priorities during the year, and behaviour aligned to the Ramsay Way Drives long-term value creation for shareholders and encourages an owner’s mindset and long-term decision making 33 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 3.2 Remuneration mix: the composition of our pay Illustrated below are the proportions of reward for KMP that are delivered by each of the framework elements when ‘target’ and ‘maximum’ performance is achieved. The remuneration mix is weighted towards at-risk, performance-based remuneration to ensure a focus on both short-term and long term performance, and alignment with shareholder interests. The calculation for average KMP below excludes the CEO as that is detailed seperately. CEO at-target mix Target Remuneration 27% 0% 20% 27% 40% 46% 60% 80% 100% FIXED PAY STI LTI Average KMP at-target mix Target Remuneration 35% 17% 48% 0% 20% 40% 60% 80% 100% FIXED PAY STI LTI CEO at-maximum mix Maximum Remuneration 25% 0% 20% 31% 40% 44% 60% 80% 100% FIXED PAY STI LTI Average KMP at-maximum mix Maximum Remuneration 33% 21% 46% 0% 20% 40% 60% 80% 100% FIXED PAY STI LTI 3.3 Fixed Annual Remuneration (FAR) FAR is set taking into account market benchmarks referenced to ASX-listed companies with similar market capitalisation, revenue and international operations. As a global organisation and recognising that there are no direct Australian listed competitors, consideration is also given to international healthcare organisations and other private healthcare operators in Australia. To remain market competitive, FAR is reviewed annually against appropriate market benchmarks considering individual performance for the year and the executive’s expertise brought to the role. 34 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 3.4 Short-Term Incentives (STI) The STI plan is designed such that a proportion of Executives’ remuneration is at risk – to be delivered based on the achievement of performance measures linked to annual business objectives linked to the delivery of strategy. Component Detail Award Opportunity Executives CEO & MD Other Executive KMP Target Opportunity Maximum Opportunity 100% of FAR 50% of FAR 125% of FAR 60% to 62.5% of FAR Performance Measures & Weightings Performance outcomes for all KMP are determined based on both group and individual performance, using a scorecard, and moderated by performance aligned with the ‘Ramsay Way’ (see below). Performance is assessed against measures aligned to five key strategic priorities – each one fundamental to delivering on our strategy. Rationale Operational Executives1 Non-Operational Executives² Financial Strategy/Personal People Consumer Quality Core NPAT3, revenue and EBIT are critical to the delivery of returns for our shareholder. Delivery of annual strategic objectives that are key to delivering the long term strategy. Our people are our most important asset and our culture (The Ramsay Way of People Caring for People) is fundamental to our ongoing success. Listening and responding to the needs of our patients allows us to continually evaluate and improve on all aspects of our performance ensuring ongoing competitive advantage. Delivering superior clinical outcomes is critical to our ongoing success so we focus on maintaining the highest stands of clinical quality and safety. 50% 10% 10% 40% 20% 20% 15% 10% 15% 10% Includes MD & CEO and CEO Australia 1. 2. Includes CFO and CSO 3. It is our intention to no longer separate our profit between core and non core going forward so this will be NPAT for FY’21. These priorities are all measurable over an annual cycle and fundamental to the delivery of our long term strategy as they measure the financial outcomes and strategic foundations delivered during the year whilst also ensuring we are continually improving our culture, consumer engagement and, our high standards of quality. A copy of the CEO & MD’s scorecard for FY’20 can be found in section 4.2 of this report. For executives, the scorecard cascades from the CEO. Clear threshold and stretch performance targets have been set for financial measures, to provide greater transparency to executives and shareholders on the performance that the Board expects to be achieved. For non-financial metrics quantitative metrics are used wherever possible and complemented with qualitative metrics assessed in performance appraisals undertaken by the People & Remuneration Committee and the Board, drawing on multiple sources of feedback. 35 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) Component Detail ‘The Ramsay Way’ Performance Modifier From FY’20, a performance modifier for STI has been introduced which adjusts outcomes for each individual, based on their demonstration of ‘The Ramsay Way’ values and behaviours. ‘The Ramsay Way’ is our cultural backbone which assists in guiding decision making that is both people and outcome focussed, while also balancing risk behaviours in both a financial and non-financial sense. The application of this modifier can only reduce the quantum of awards, with the modifier being a multiplier between 0 – 100%. Calculation of Awards How STI performance outcome is determined: STI Opportunity FAR ($) x STI Target Opportunity (%) x Unadjusted Outcome Scorecard Result (%) x Ramsay Way Modifier ‘The Ramsay Way’ (%) = Performance Outcome Value of STI Award ($) In addition, the Board has discretion to adjust the performance outcomes so that it is fully reflective of the Group and individuals’ performance over the year. Delivery of Awards The STI award is delivered half in cash and half in deferred equity, in the form of restricted shares. For the CEO & MD, restricted shares, less any applicable tax, are granted and deferred for 3 years post performance. For other Executive KMP, the deferral period is 2 years with 50% of the deferred equity being released after the first year, and the second 50% released at the end of the subsequent year. The deferral of equity for KMP below the CEO & MD was introduced for FY’20 to encourage long-term decision making and improve the alignment between Executives and Shareholders. Deferred STI Amount ($) Share Price ($) Allocation of Restricted Shares (50% of STI Award) / Face value allocation using 5 Day VWAP to STI payment date = (Rounded to the nearest whole number) 3.5 Long Term Incentive (LTI) The LTI plan is designed to reward sustainable long term performance and align executives to shareholder outcomes whilst allowing Ramsay to attract and retain the best talent globally. Component Approach Award Opportunity LTI opportunities have been set based on the ability of the executive to influence sustainable long-term value creation. A face value allocation methodology is used to determine the number of rights granted. Executives CEO & MD CFO CEO Australia¹ Group CSO Opportunity 175% of FAR 90% of FAR 243% of FAR 75% of FAR 1. This is a legacy LTI arrangement which is being progressively reduced each year. Performance Period 3 Years (1 July 2019 – 30 June 2022) 36 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) Component Approach Performance Measures & Weightings • 50% Relative TSR Performance Metric (rTSR) • 50% Core EPS Performance Metric (EPS) Relative TSR Performance Metric The relative TSR hurdle is determined by measuring and ranking Ramsay’s TSR relative to the TSRs of a comparator group of companies. The comparator group is comprised of the S&P/ASX100 index (excluding companies in sectors having different drivers of operating performance being those in the real estate, finance and resources sectors). There is no retesting of grants from FY’19 onwards. For the FY’17 and FY’18 LTI grants, if the TSR hurdle is not achieved on the first test date then unvested performance rights will be re-tested on two more occasions (at 6 and 12 months following the original testing date) based on performance over the extended period. If the TSR hurdle is not satisfied on the second and final re-test, unvested performance rights under these grants will lapse. The relative TSR hurdle has been chosen because it provides a direct link between executive reward and shareholder return, relative to Ramsay’s ASX peers. Core EPS Performance Metric Up to and including the FY’20 LTI grants, the EPS hurdle is measured by comparing Ramsay’s aggregate Core EPS over 3 years against an aggregate Core EPS target calculated based on Ramsay’s market guidance for Core EPS disclosed at the start of each financial year. The annual Core EPS targets are then aggregated to provide the threshold and maximum 3-year targets for vesting of performance rights. No re-testing of the Core EPS hurdle is permitted. The Core EPS hurdle has been chosen as it provides evidence of Ramsay’s growth in profitability and is linked to shareholder returns. In determining ‘Core EPS’ results for the LTI, the Board will consider the adjustments made in calculating the Core EPS metric and make adjustments on a case-by-case basis (including attribution of individual accountability for results) to ensure management are not unfairly advantaged or disadvantaged and are held accountable for their past decisions. The principles to be applied in making these adjustments are; • Plan integrity and management accountability – adjustments will be made to align with the purpose of the plan and reflect management accountability for past decisions. • Nature and timing of adjustments – adjustments, both positive and negative, will only be made at the time of vesting. • Transparency – the Company will provide a clear rationale and disclosure, for any adjustments made, especially in cases where performance has not been achieved. • Material or significant events – adjustments will only be made for events or items over the vesting period that have a material impact on the performance outcome, and consequently reward outcome. • Balance of interests – adjustments will be balanced to ensure outcomes are not unfairly biased towards either shareholders or management. From FY’21 the EPS performance metric will be updated with the introduction of a ROIC gateway and the measurement of EPS will be based on a 3 year growth range against threshold and stretch performance hurdles. From FY’21 Ramsay does not intend to report Core EPS and Non-Core EPS. The EPS metric will be updated to reflect this change. Calculation of Awards TSR Vesting Schedule up to and including FY’20 grants Company’s TSR ranking against the comparator group % of performance rights that vest Below 50th Percentile At 50th Percentile Nil 50% Between 50th and 75th Percentile Between 50% and 100% increasing on a straight-line basis At or above 75th Percentile 100% EPS Vesting Schedule up to and including FY’20 LTI grant Aggregate EPS performance over the 3 year performance period EPS is >1% less than lower end of market guidance EPS is 1% below the lower end of market guidance Lower end of market guidance achieved Mid-point of market guidance achieved Upper end of market guidance achieved % of performance rights that vest 0% 25% 50% 75% 90% 1%+ above the upper end of market guidance achieved 100% 37 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) Component Approach Delivery of Awards Performance rights are granted for no consideration as they form part of the remuneration package for Executives. Each performance right is an entitlement to receive a fully paid ordinary share in Ramsay Health Care (ASX: RHC) at no cost (or an equivalent cash payment). Performance rights are granted at face value by dividing the individual’s LTI opportunity (as a percentage of fixed pay) by the five-day volume weighted average price (VWAP) up to and including the first trading day of the performance period. Executive FAR Amount ($) X LTI Opportunity Amount (%) Share Price ($) Allocation of Performance Rights / Face value allocation using 5 Day VWAP to first day of performance period = (Rounded to the nearest whole number) 3.6 Other The following components apply to both the STI and LTI. Component Approach Board Discretion The Board, in conjunction with the People & Remuneration Committee may exercise judgement and apply discretion as is required to ensure that outcomes appropriately reflect the performance of the individual and the Company, as well as aligning to the expectations of Ramsay’s stakeholders. Leavers The Board retains absolute discretion in determining STI payments for a leaving executive. However, if an executive ceases employment with Ramsay before KPI targets are achieved, then they will generally not be entitled to receive any STI. However, if cessation of employment is due to retirement, illness, disability or death or is a Company-initiated termination other than for cause, the Executive may receive a pro-rata STI payment for the portion of the performance period they were employed. LTI Performance Rights may remain on foot with hurdles tested at the same time as other participants in the plan if cessation of employment is due to retirement, illness, disability or death or is a Company-initiated termination other than for cause. Malus & Clawback provisions The Board may take action to reduce, recoup or otherwise adjust “at risk” remuneration including in-year incentives, unvested incentives and previously awarded incentives (cash or equity) where, in the opinion of the Board: • the employee: – has acted fraudulently or dishonestly; – has engaged in gross misconduct; – has engaged in an act which has brought the Group into disrepute or has acted or failed to act in a way that has contributed to, or is likely to contribute to, material reputational damage to the Group; – has breached his or her duties or obligations to the Group (including acting in breach of the terms and conditions of their employment and/or Ramsay’s Code of Conduct for Employees, as amended or replaced from time to time); – is convicted of an offence or has a judgement entered against them in connection with the affairs of the Group; • “at risk” remuneration vests as a result of a Financial Misstatement Circumstance or the fraud, dishonesty, negligence or breach of duties or obligations of any other person and, in the opinion of the Board, the remuneration would not have otherwise vested; • adverse outcomes have arisen after vesting of “at risk” remuneration (including during the deferral period) that cause a re-evaluation of the original assessment of performance generating the award; any other circumstances exist or have occurred which the Board determines in good faith to have resulted in the employee receiving an unfair benefit. The ability of the Board to apply the policy is broad and includes (but is not limited to) lapsing or requiring repayment of awards, and for unvested equity re-setting performance conditions or amending the terms on which they are disposed. 38 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) MINIMUM SHAREHOLDING REQUIREMENTS From FY’20, a Minimum Shareholding Requirement (MSR) has been introduced. This requires all Executives and NEDs to obtain and hold Ramsay Health Care shares in line with the detail below: Position MD & CEO Minimum Shareholding Requirement Timeframe to Acquire 200% of Fixed Annual Remuneration 5 years from time of appointment (or implementation of policy for individuals in role at 1 July 2019) Executive KMP 100% of Fixed Annual Remuneration Non-Executive Directors 100% of Base Annual Fees 4. FY'20: Performance & Remuneration Outcomes This section provides a summary of Ramsay’s performance in FY’20, and the actual remuneration outcomes that this delivered for our executives. 4.1 FAR adjustments The FAR increases that were committed to in the prior year were implemented in FY’20, ranging from 0 - 2.25%. For FY’21, there will be no increase to fixed remuneration for executives. 4.2 Actual STI outcomes For FY’20 the Board applied discretion to adjust all STI outcomes to zero reflecting the material negative impact of COVID-19 on financial outcomes. Below is a summary of the performance achieved against the scorecard as approved by the Board at the commencement FY’20. Measure Financial • Core NPAT • Revenue • EBIT Strategic Weighting Achievement Commentary on performance 50% • On track to February 2020 • Significantly negatively impacted by COVID-19 for March-June 2020 and therefore significantly below threshold performance • Growth Investment • Business Model Transformations • New Models of Care 10% • Growth investment spend and new spend approved, both above target • Business model transformation delivered against plans but with some delays due to COVID-19 • Good progress in developing new models of care • Progress behind expectation on development of global strategy People • Executive Leadership Capability • Employee Engagement • Workplace fatalities = 0 • Lost time injury rate 5% better than comparable national benchmarks Consumer • NPS Quality • Hospital accreditation • Never events • Infection rates • Unplanned readmissions • Unplanned return to theatre 10% • Executive capability strengthened through leadership team renewal and enhanced leadership programs • Employee engagement action plans implemented and measurement system in place • LTIFR 5% better than national benchmarks where available and generally improved on prior year • NPS exceeded target and improved year on year in all major regions • Quality measures improved year on year, and exceeded targets set relative to external benchmarks where available and industry standards • All hospital accreditations achieved 15% 15% NOT MET PARTIALLY MET MET EXCEEDED 39 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) The key financial metrics introduced for FY’20 for the STI were Core NPAT, Revenue and EBIT. Until the end of February 2020, financial performance had been tracking well but the COVID-19 pandemic significantly impacted the full year financial performance. Elective surgery ceased in most of our markets and the private health sector moved to provide capacity and capability in collaboration with the public sector in the fight against COVID-19. As a result of this transition, core NPAT and EBIT were significantly impacted for FY’20 as demonstrated in the charts below. Revenue ($bn) EBIT ($m) Core NPAT ($m) 16.0 12.0 8.0 4.0 0.0 1,200 900 600 300 0 800 600 400 200 0 FY'16 FY'17 FY'18 FY'19 FY'20 FY'16 FY'17 FY'18 FY'19 FY'20 FY'16 FY'17 FY'18 FY'19 FY'20 4.3 LTI Performance The FY’18 grant was due to vest at the end of FY’20 for the MD & CEO, the former Group Finance Director and Chief Financial Officer and the CEO Australia. This grant will not vest as the relative TSR and the EPS performance metrics were not met. Measure Weighting Threshold Actual Result Proportion of award vested Commentary 808.7 cps 712.0 cps Nil 50% 45.83% Nil FY’18 Plan Core EPS Relative TSR MD & CEO & Former Group Finance Director and Chief Financial Officer: 50% CEO Australia: 33.33% MD & CEO & Former Group Finance Director and Chief Financial Officer: 50% CEO Australia: 33.33% Business unit performance CEO Australia: 33.33% Budget Nil Actual EBIT less than budget FY’17 Plan Relative TSR 50% 50% 31.92% Nil 40 Our EPS performance was significantly below guidance for FY’20. As a result, the EPS performance hurdle was not met and the rights subject to this performance hurdle will not vest. Further details are set out below. The unvested FY’18 performance rights that were subject to the EPS hurdle have also lapsed. Ramsay’s relative TSR percentage ranking at 30 June 2020 testing date resulted in no vesting of TSR performance rights. These performance rights are subject to re-testing on 31 December 2020 and if some or all of the FY’18 performance rights do not vest then a third and final re-testing of the unvested FY’18 performance rights will take place on 30 June 2021. The retesting will be undertaken on the basis of Ramsay’s performance over the extended period – i.e. from 1 July 2017. The CEO Australia is the only KMP with FY’18 performance rights that are subject to a business unit performance hurdle. The impact of COVID-19 on financial performance will also mean that Australia’s EBIT performance will not meet budget for the three years to 30 June 2020 and therefore the rights subject to business unit performance will not vest. The third and final TSR test of unvested FY’17 rights, has been completed for the four years ending 30 June 2020, Ramsay Health Care was ranked 33rd against the Comparator Group, with an overall percentile ranking of 31.92%. While this result was a slight improvement over the previous tests it was still well below the 50% threshold ranking for vesting. These performance rights will now lapse. RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) EPS PERFORMANCE The FY’18 performance rights that were subject to the EPS performance hurdle were measured by reference to Ramsay’s market guidance for core EPS each year. These performance rights were subject to the vesting scale on a ‘step’ basis as follows: Aggregate EPS performance over the 3 year performance period Percentage of Performance Rights subject to the EPS hurdle that vest EPS well short of the market guidance EPS just below the lower end of market guidance Lower end of market guidance is achieved Mid-point of market guidance is achieved Upper end of market guidance is achieved Well above the upper end of market guidance achieved 0% 25% 50% 75% 90% 100% No additional rights will vest for EPS performance that is between the above specified points. As set out below with reference to the core EPS performance hurdle criteria, none of the FY’18 performance rights subject to this hurdle vested and have lapsed. <1% below guidance Lower end of guidance Middle of guidance Upper end of guidance >1% above guidance Actual EPS Achieved & Vesting Outcome FY’18 8%-10% (cps) 274.8 277.6 280.2 282.7 285.6 275.1 FY’19 0%-2% (cps) 272.4 275.1 277.9 280.6 283.4 281.0 FY’20 -6% to 4% (cps) Aggregate EPS (cps) % of Performance Rights to Vest 261.5 264.2 267.0 269.8 272.5 155.9 808.7 816.9 825.0 833.1 841.5 712.0 25% 50% 75% 90% 100% 0% EPS calculations above consider the recent capital raise and thus bonus share issue adjustments have been made for prior years. The FY’20 EPS performance was significantly impacted by COVID-19 notwithstanding performance until February 2020 was on track to meet guidance. The Board has determined no adjustment will be made to the FY’20 EPS outcome meaning that the FY’18 EPS component will vest at nil. The EPS performance for the last five years is detailed in the graph below: Core EPS (cents/share) 300.0 250.0 200.0 150.0 100.0 50.0 0.0 FY'16 FY'17 FY'18 FY'19 FY'20 41 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) TSR PERFORMANCE The FY’18 performance rights that were subject to the relative TSR performance hurdle were tested against the S&P/ASX100 index (excluding companies in sectors having different drivers of operating performance being those in the real estate, finance and resource sectors). These performance rights were subject to the vesting scale on a ‘step’ basis as follows: Company’s TSR ranking against the comparator group Below 50th percentile At 50% percentile Between 50th and 75th percentile Above 75th percentile Percentage of Performance Rights subject to the TSR hurdle that vest Nil 50% Between 50% and 100% increasing on a straight line basis 100% As noted in Ramsay’s FY’19 Remuneration Report, the portion of Ramsay’s FY’17 LTI grant that was subject to the relative TSR performance hurdle did not vest and was subject to retesting. Retesting of these performance rights was performed at 31 December 2019 and 30 June 2020. No unvested FY’17 performance rights vested following retesting and the remaining unvested rights have all now lapsed. The below table sets out the outcomes achieved for previous LTI grants tested against a TSR hurdle in each of the past three years. There will be a re-testing of the FY’18 Rights subject to the TSR performance condition at 31 December 2020 and if some or all FY’18 Rights do not vest, a third and final re-testing of the unvested FY’18 Rights will take place at 30 June 2021. If there are any unvested FY’18 Rights remaining at 30 June 2021 they will automatically lapse. Retesting no longer applies to LTI grants from FY’19. Year of grant Testing date (30 June) FY’18 FY’17 FY’16 2020 2019 2018 TSR percentile ranking for vesting to commence TSR percentile ranking for full vesting Actual TSR percentile ranking achieved TSR component vesting under LTI programme 50% 50% 50% 75% 75% 75% 45.83% 20.41% 21.83% 0% 0% 0% The three year relative TSR performance over the last five years is detailed below: TSR Percentile Ranking 100% 80% 60% 40% 20% 0% 42 FY'16 FY'17 FY'18 FY'19 FY'20 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 4.4 Five year Group Performance Correlated to Variable Reward Outcomes The graph and table below summarises STI and LTI outcomes over the past five years together with share price dividend and NPAT performance demonstrating the alignment of at risk reward outcomes and shareholder outcomes. 100% 80% 60% 40% 20% 0% FY'16 FY'17 FY'18 FY'19 FY'20 PERCENTAGE STI LTI DIVIDEND CORE EPS STI LTI FY'16 100% 100% FY'17 96% 97% FY'18 69% 41% FY'19 87% 34% FY'20 0% 0% Closing Share Price $71.76 $73.60 $53.98 $72.24 $66.52 Dividend $1.1900 $1.3450 $1.4400 $1.5150 $0.6250 NPAT ($m) $481.4 $542.7 $579.3 $590.9 $336.9 300.0 250.0 200.0 150.0 100.0 50.0 0.0 CENTS PER SHARE 43 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 4.5 Actual remuneration – Non Statutory The below table shows what executive KMP actually received in FY’20: amounts that are paid or vested to executives in FY’20 with FY’19 for comparison. Executive FAR¹ Other payments² Mr Craig McNally FY’20 $2,141,654 Managing Director and CEO FY’19 $2,091,064 $0 $0 STI³ $0 Vested LTI⁴ Total Actual Remuneration $0 $2,141,654 $2,295,000 $1,312,802 $5,698,866 Mr Bruce Soden FY’20 $785,311 $2,284,971 $0 $0 $3,070,282 Former Group Finance Director and Chief Financial Officer FY’19 $1,600,538 $0 $711,000 $2,078,636 $4,390,174 Mr Martyn Roberts⁵ FY’20 $240,929 Group Chief Financial Officer FY’19 $0 Mr Daniel Sims FY’20 $985,596 CEO Ramsay Australia FY’19 $940,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $240,929 $0 $985,596 $376,000 $875,239 $2,191,239 Mr Olivier Chretien FY’20 $1,021,003 $528,319 $0 Group Chief Strategy Officer FY’19 $1,000,482 $0 $375,000 $0 $0 $1,549,322 $1,375,482 1. FAR includes cash salary, superannuation and non-monetary benefits such as private health insurance cover and motor vehicle running costs. 2. The Former Group Finance Director and Chief Financial Officer received a payment in lieu of notice equivalent to 4 months fixed pay; in addition to any accrued annual leave and long service leave, and the Group Chief Strategy Officer received a payment in lieu of notice equivalent to 6 months fixed pay in addition to any accrued annual leave. 3. STI earned for performance in FY’19 and paid in FY’20. The Managing Director is obliged to accept 50% of his STI in cash (paid at the same time as for other Executives) and the remaining 50% of his STI is delivered in shares purchased on-market, which are subject to disposal restrictions for 3 years. 4. There was no vesting of LTI in FY’20 as both the TSR and EPS hurdle were not met. FY’19 LTI vested represents the market value of the Performance Rights that vested during FY’19 based on multi-year performance between 1 July 2015 and 30 June 2018. The value is calculated by multiplying the number of vested rights by the 5-day volume weighted average price of Ramsay shares up to and including the date of vesting on 31 August 2018 ($55.9902). Note that the LTI grants made to Mr McNally that vested during FY’19 were made whilst he held the position of Group Chief Operating Officer. 5. Martyn Roberts commenced 20 April 2020 so amounts for FY'20 relate to the period 20 April to 30 June 2020. 5. Executive Service Agreements The below details the key terms of the Executive Service Agreement for Craig McNally – Managing Director & CEO, and Martyn Roberts – Group CFO. Duration Ongoing Termination by employee 6 months notice. Company may elect to make payment in lieu of notice. Employee may terminate the employment agreement without notice if a fundamental change occurs in his role or responsibilities. Termination by Company 12 months notice (CEO) or 6 months (CFO) or payment in lieu of notice. Ramsay Health Care may summarily terminate employment without notice in certain circumstances. Restraint Period 12 month restraint provision applies. The Managing Director, Group Chief Financial Officer and Group Chief Strategy Officer have written service contracts. The CEO – Ramsay Health Care Australia does not have written service agreements and therefore his employment continues until termination by either the Executive or Ramsay. On termination, reasonable notice will apply, and the Executive will be entitled to any benefits that they have earned prior to termination (including statutory entitlements) and any applicable payments under Ramsay’s policies. The Group Chief Strategy Officer’s Executive Service Agreement provides that 6 months’ notice must be provided for termination by either party and a 6 month restraint provision applies. The Group Chief Strategy Officer left the business as at 30 June 2020. APPOINTMENT OF GROUP CFO: ADDITIONAL TERMS In joining Ramsay, the Group CFO Martyn Roberts forfeited unvested equity from his prior role. In recognition of this, the Group CFO has been provided with performance rights equivalent to $1m that vest subject to meeting individual performance requirements and service conditions over the 3 years from his employment anniversary. The vesting of the performance rights is weighted to the longer-term with vesting in tranches of 20%, 30% and 50% over 3 years. 44 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 6. Remuneration Governance 6.1 Remuneration Governance The Board oversees the Ramsay people strategy, both directly and through the People & Remuneration Committee of the Board. The People & Remuneration Committee seeks input from the MD & CEO and the Group Chief People Officer, who attend Committee meetings, except where matters relating to their own remuneration are considered. Board The remuneration related responsibilities of the Board include: • satisfying itself that the Group’s remuneration framework is aligned with the Group’s purpose, values, strategic objectives and risk appetite; • setting performance targets for the MD & CEO and members of the senior executive team, considering performance against those targets and determining remuneration outcomes; and • determining the remuneration of the MD & CEO. People & Remuneration Committee Primarily responsible for the consideration and recommendation of alternative remuneration practices, to the Board. Consideration is given to the many stakeholders in which the committee regularly interacts with, including management, shareholders and external advisors. Responsibilities include: • reviewing and making recommendations to the Board on the remuneration arrangements of the CEO, and CFO, and equity-based incentives across the Group; • reviewing and approving remuneration arrangements for the senior executive team, and remuneration policies and people practices for the Group including monitoring the Group’s remuneration framework for alignment to values, strategic objectives, long-term financial soundness and risk appetite; • review of remuneration by gender, effectiveness of people policies, engagement survey results and succession planning; • reviewing and recommending to the Board in relation to Director fees, travel and other benefits. Management Provides information relevant to the remuneration decisions and makes recommendations to the People & Remuneration Committee. The MD & CEO recommends the remuneration arrangements and performance assessment of his direct reports. Consultation with Shareholders & other external stakeholders Continued regular consultation with shareholders and proxy advisors to ensure remuneration practices are aligned to market expectations. Remuneration Consultants & Other External Advisors Support the People & Remuneration Committee by providing independent advice on matters including: • objective benchmarking data; • market practices of other listed companies; legal, tax and accounting advice; and • • alternatives for incentives plans. 45 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 6.2 Management of Risk & Remuneration Our remuneration framework has been structured to encourage strategic decision making from all of our leaders, ensuring that company and shareholder outcomes are at the heart of all decisions. A key determinant in this is the ability to mitigate excessive risk taking or short-term oriented behaviours by executives. Structurally, this is achieved through the use of deferred equity in both the short and long term incentive plans, combined with scorecard metrics that retain a core focus on strategic direction, as well as shareholder and customer outcomes together with the introduction of malus and clawback provisions (see below). BOARD DISCRETION The Board, in conjunction with the People & Remuneration Committee, has the ability to exercise discretion to ensure the quantum of executive remuneration is appropriate in light of individual and Company performance, for example by amending STI and LTI vesting outcomes. This discretion ensures that the quantum of executive remuneration is appropriate. This is also detailed in section 3.6 above. MALUS & CLAWBACK PROVISION The malus and clawback provision introduced during the reporting period gives the Board the ability to reduce and/or withhold any variable remuneration awards that have been awarded but remain unvested or unpaid, as well as recoup amounts that have previously been paid. This is described in section 5.1 and applies equally to incentive awarded under STI and LTI plans. MINIMUM SHAREHOLDING REQUIREMENT Minimum shareholding requirements for NEDs and Executives introduced this year further enhances shareholder alignment as detailed in section 3.6 above. 6.3 Engagement of Remuneration Consultants & Other External Advisors The People & Remuneration Committee, in accordance with its Charter can engage with remuneration consultants, according to specific guidelines. Ramsay did not receive any ‘remuneration recommendations’ as defined under the Corporations Act 2001 (Cth) in FY’20. 6.4 Security Trading Policy All Ramsay Directors and employees are subject to the Securities Trading Policy, a copy of which is available on our website. This policy prohibits: • the dealing (or procurement of another person to deal) with Ramsay’s securities or the securities of another company where they are in possession of inside information; • dealing with Ramsay securities during blackout periods; • short term dealing (eg buying and selling securities within a 12-month period or entering into forward contracts); and • hedging Ramsay securities. 7. Non-Executive Director Fees 7.1 Policy & Approach NEDs fees are reviewed annually and are set at a level that is sufficient to attract and retain high calibre directors with skills and experience required to oversee a business of Ramsay’s size and complexity. The current annual aggregate fee pool for NEDs is capped at $3,500,000 (including statutory superannuation contributions), as approved by shareholders at the AGM held on 12 November 2014. No increase is proposed for FY’21. Importantly, no portion of the NEDs’ remuneration is at risk in order to preserve Non-Executives’ impartiality. To create alignment between the interests of NEDs and shareholders, all NEDs are subject to a Minimum Shareholding Requirement equal to 100% of their annual base fee. This requirement must be satisfied within 5 years of appointment, for newly appointed NEDs. 7.2 Board & Committee Fees For FY’20, Non-Executive Director fees and Committee fees did not increase from FY’19 levels, which marks the third consecutive year that Non-Executive Director fees have been retained at these levels. All fees shown in the table below are inclusive of superannuation. Position Board Audit Committee Risk Management Committee Remuneration Committee Nomination Committee Chair ($‘000s) Member ($‘000s) 725 56 50 41 284 28 25 21 No fee provided for this committee The Deputy Chairman receives a fee of $339,593. 46 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 7.3 Preserved Benefits NEDs appointed prior to October 2003 (being, Michael S Siddle & Peter J Evans) remain entitled to retirement benefits under the, now frozen, Directors’ Retirement Benefits Plan. Under the plan, retirement benefits previously accrued on a pro-rata basis over a period of nine years, commence after a minimum service period of three years. Entitlements are indexed in line with the one-year Commonwealth Government Bond Rate and are adjusted twice a year. No adjustments are made based on increases in Directors’ fees or years of service. The indexation of retirement benefits occurs simply to preserve the real value of existing entitlements and not to enhance any Director’s remuneration, and as such, is not counted towards the aggregate fee pool. The value of the frozen benefits as at 30 June 2020, to which participating NEDs are entitled upon retirement are set out below: Total Frozen Benefit 31 Dec 09 Total Provision 30 June 2019 Benefits paid in FY’20¹ Total Bond Rate Adjustment Total Provision 30 June 2020 2,879,813 2,252,974 1,021,148 12,269 1,244,095 1. Benefits paid to Mr McGeoch and Mr Roxburgh in FY’20 7.4 Proposed changes to NED remuneration for FY’21 For FY’21, to align with market practice the Board has determined to reduce NED base fees by 20%. Accordingly, it will no longer be making the NED Share Rights Plan award that was equal to 20% of the NED’s base fees (excluding committee fees and superannuation). The Chairman fee will also reduce from $725,000 (FY’20) to $659,900 (FY’21) to better align to market practice. These changes are made to ensure that NED remuneration is more aligned to market practice. The introduction of the minimum shareholding requirements for NEDs ensures that NEDs continue to be appropriately aligned with shareholders. Subject to shareholder approval at the 2020 AGM, the Company will provide NEDs the opportunity to salary sacrifice a portion of their fees to be granted as share rights if they choose to do so. In addition for FY’21, there will be a travel allowance equivalent to $10,000 per meeting for internationally based NEDs for travel in excess of nine hours for attendance at Board meetings. 47 ANNUAL REPORT 2020l a t o T e c n a m r o f r e P d e t a e R l d e s a B e r a h S s a s t n e m y a P l a t o T f o % a n o i t a r e n u m e R t n e m e r i t e R ⁵ s t h g R i I T S d e r r e f e D s t n e m e l t i t n E ⁴ I T S d e u r c c A ³ y r a t e n o M - n o N n o i t a u n n a r e p u S ² s e e F & d e u r c c A l a t o T / n o i t a n m r e T i d e s a B e r a h S I T L e c i v r e S g n o L e v a e L l y r a a S h s a C n o i t a r e n u m e R n o i t a r e n u m e R $ ⁶ s t i f e n e B $ $ $ $ $ $ $ ¹ e m a N s t i f e n e B m r e T - g n o L s t i f e n e B m r e T - t r o h S n o i t a r e n u m e R d e x i F r e c i f f O e v i t u c e x E i f e h C & r o t c e r i i D g n g a n a M y l l a N c M . . R C . d e t a t s e s w i r e h t o s s e n u l ) $ ( s r a l l o D n a i l a r t s u A n i e r a s e u a v l l l A . l w o e b t u o t e s e r a ) s d r a d n a t S g n i t n u o c c A e b a c l i l p p a e h t h t i w e c n a d r o c c a n i l d e t a u c a c ( l ' 0 2 Y F r o f n o i t a r e n u m e r ’ s P M K e h t f o h c a e f o s l i a t e D ' l 0 2 Y F r o f e b a T n o i t a r e n u m e R y r o t u t a t S 1 . 8 ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I l s e r u s o c s i D y r o t u t a t S . 8 ) d e u n i t n o C ( T R O P E R ’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r e c i f f O l - , 0 0 0 5 9 2 2 , - - 1 5 7 4 3 , 3 3 5 0 3 , r e c i f f O l - - i i a c n a n F f e h C p u o r G i 3 0 0 , 1 2 1 3 5 0 2 , , 0 0 9 5 8 0 2 , , 0 0 0 0 4 0 2 , s t r e b o R . M ' 0 2 Y F 9 1 ' Y F 6 1 2 4 , - , 3 9 6 6 3 2 - ' 0 2 Y F 9 1 ' Y F i i i a c n a n F f e h C & r o t c e r i D l i i a c n a n F p u o r G r e m r o F ) D E R T E R I ( ⁷ n e d o S . . R B 1 6 9 0 4 , 0 0 0 , 1 1 7 - 9 2 3 , 1 5 8 3 5 0 2 , 1 0 5 0 1 , 1 3 5 0 2 , , 1 8 4 3 2 7 ' 0 2 Y F , 9 6 4 9 5 5 , 1 9 1 ' Y F 7 0 9 0 2 , 7 4 0 0 2 , 2 6 0 7 1 , 5 9 7 7 1 , 0 0 0 6 7 3 , - - 6 9 5 5 2 , 3 0 0 , 1 2 1 3 5 0 2 , , 7 9 9 8 3 9 9 6 4 9 1 9 , ' 0 2 Y F 9 1 ' Y F - 0 0 0 5 7 3 , - - 3 0 0 , 1 2 1 3 5 0 2 , , 0 0 0 0 0 0 , 1 ' 0 2 Y F , 1 5 9 9 7 9 9 1 ' Y F r e c i f f O y g e t a r t S i f e h C p u o r G ⁸ n e i t e r h C . O a i l a r t s u A e r a C h t l a e H y a s m a R – r e c i f f O e v i t u c e x E i f e h C s m S i . A D . 8 5 5 , 1 0 1 - 6 7 6 , 1 1 1 6 2 7 7 7 , , 1 7 0 5 8 9 4 , 2 4 8 3 3 1 , , 0 0 0 7 5 7 3 , 1 7 0 , 1 5 4 2 1 , 2 8 , 9 8 8 8 9 4 5 , – l a t o T ' 0 2 Y F – l a t o T 9 1 ' Y F RAMSAY HEALTH CARE LIMITED l a t o T e c n a m r o f r e P d e t a e R l d e s a B e r a h S s a s t n e m y a P l a t o T f o % a n o i t a r e n u m e R t n e m e r i t e R ⁵ s t h g R i I T S d e r r e f e D s t n e m e l t i t n E ⁴ I T S d e u r c c A ³ y r a t e n o M - n o N n o i t a u n n a r e p u S ² s e e F & d e u r c c A l a t o T / n o i t a n m r e T i d e s a B e r a h S I T L e c i v r e S g n o L e v a e L l y r a a S h s a C n o i t a r e n u m e R n o i t a r e n u m e R $ ⁶ s t i f e n e B $ $ $ $ $ $ $ ¹ e m a N s t i f e n e B m r e T - g n o L s t i f e n e B m r e T - t r o h S n o i t a r e n u m e R d e x i F - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 0 6 , 1 3 7 , 8 1 0 6 3 7 , 6 7 7 3 7 4 2 8 4 9 7 4 , 6 6 8 8 1 3 , 6 1 3 , 1 9 1 8 9 3 2 5 2 , - 4 0 8 9 8 , - 0 5 3 0 1 3 , 0 2 1 , 5 0 2 3 8 3 8 3 3 , 6 6 9 0 2 3 , 1 2 4 5 , 3 2 3 0 1 , 8 4 8 6 , 0 4 0 3 1 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 0 0 , 1 2 1 3 5 0 2 , n a m r i a h C 8 7 1 , 5 0 7 4 6 1 , 5 0 7 ' 0 2 Y F 9 1 ' Y F l e d d S i . . S M r o t c e r i D e v i t u c e x E - n o N s n a e D . A C . n a m r i a h C y t u p e D s n a v E . J . P 3 0 0 , 1 2 1 3 5 0 2 , 5 2 9 5 4 4 , , 1 1 9 5 4 4 ' 0 2 Y F 9 1 ' Y F 3 0 0 , 1 2 0 1 9 2 1 , 3 6 8 7 9 2 , 6 0 4 8 7 1 , ' 0 2 Y F 9 1 ' Y F r o t c e r i D e v i t u c e x E - n o N o d r u M c M . J 9 1 9 6 1 , , 9 7 4 5 3 2 - - ' 0 2 Y F 9 1 ' Y F r o t c e r i D e v i t u c e x E - n o N e s o r n e P . K 1 0 0 7 , - 3 0 8 2 8 , - ' 0 2 Y F 9 1 ' Y F r o t c e r i D e v i t u c e x E - n o N h t u m s s ü S . . R C f f o h r e k c y D 3 0 0 , 1 2 5 6 1 , 2 1 , 7 4 3 9 8 2 5 5 9 2 9 1 , ' 0 2 Y F 9 1 ' Y F r o t c e r i D e v i t u c e x E - n o N O A y e d o h T J . D 3 0 0 , 1 2 1 3 5 0 2 , 0 8 3 7 1 3 , , 5 3 4 0 0 3 ' 0 2 Y F 9 1 ' Y F 49 ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R ANNUAL REPORT 2020 l a t o T e c n a m r o f r e P d e t a e R l d e s a B e r a h S s a s t n e m y a P l a t o T f o % a n o i t a r e n u m e R t n e m e r i t e R ⁵ s t h g R i I T S d e r r e f e D s t n e m e l t i t n E ⁴ I T S d e u r c c A ³ y r a t e n o M - n o N n o i t a u n n a r e p u S ² s e e F & d e u r c c A l a t o T / n o i t a n m r e T i d e s a B e r a h S I T L e c i v r e S g n o L e v a e L l y r a a S h s a C n o i t a r e n u m e R n o i t a r e n u m e R $ ⁶ s t i f e n e B $ $ $ $ $ $ $ ¹ e m a N s t i f e n e B m r e T - g n o L s t i f e n e B m r e T - t r o h S n o i t a r e n u m e R d e x i F r o t c e r i D e v i t u c e x E - n o N ⁹ O A h c o e G c M . H R . ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R 50 - - - - - - - - 6 4 7 2 2 1 , , 5 5 7 4 3 3 4 0 2 7 2 1 , , 4 5 4 8 4 3 - 0 1 8 8 , - 7 5 5 0 1 , 9 2 1 , 5 6 7 2 , 9 6 2 , 2 1 1 1 1 , 6 1 6 2 , 0 3 7 2 4 , - - - - - - - - - - - - - - - - - - - - - - - - : ' 0 2 Y F f l o e o h w e h t r o f n o i t i l s o p d e m a n r i e h t d e h e v o b a e b a t e h t n l - - - - - - r o t c e r i D e v i t u c e x E - n o N 0 1 h g r u b x o R . . D C K . 1 5 7 8 , 1 3 5 0 2 , 5 9 9 3 1 1 , , 4 1 4 5 0 3 ' 0 2 Y F 9 1 ' Y F ) D E R T E R I ( 1 5 7 8 , 1 3 5 0 2 , 7 3 4 6 4 1 , 0 3 7 7 2 1 , i d e t s i l P M K e h t f o h c a e 3 5 4 8 1 1 , 6 6 3 7 1 3 , , 3 2 4 6 0 6 2 , , 1 5 6 5 4 4 2 , ' 0 2 Y F 9 1 ' Y F – l a t o T ' 0 2 Y F – l a t o T 1 1 9 1 ' Y F ) D E R T E R I ( , P M K g n w o i l l o f e h t r o f t p e c x E . 1 t a t e k r a m - n o d e r i u q c a , y a s m a R n i s e r a h s y r a n d r o n i i % 0 5 r e h t o e h t d n a h s a c n i % 0 5 d e r e v i l e d s a w 9 1 ' Y F r o f y l l a N c M r M o t d a p i I T S e h T 0 2 Y F n ' i i d a p I T S 9 1 ' Y F r a e y e h t r o f I T S d e u r c c a s e v ’ i t u c e x E e h t t n e s e r p e r s t n u o m a 9 1 ' Y F e h T . ' 0 2 Y F n i d e r e v i l e d e r e w s d r a w a I T S o N . e c i r p t e k r a m e h t . l y r a a s h s a c s P M K e h t ’ f o t r a p m r o f t o n o d t a h t l i i s t s o c g n n n u r e c h e v r o t o m d n a r e v o c e c n a r u s n i h t l a e h s a h c u s s t i f e n e b y r a t e n o m - n o n s t n e s e r p e r e r u g i f i s h T . l i n a P s t h g R e r a h S s D E N e h t r e d n u s t h g R e r a h S i f o m r o f e h t n i i d e v e c e r s e e f s e d u c n l i t n u o m a s h t i , s D E N o t t c e p s e r h t i W . 2 . 3 . 4 e h t i t a s t h g R e c n a m r o f r e P e h t f l o e u a v r i a f e h T . t s e v s t n e m u r t s n i y t i u q e e h t d u o h s e s l i l l a e r y e t a m i t l u y a m s e v i t u c e x E t a h t ) y n a f i ( t i f e n e b e h t f o e v i t a c d n i i r o o t d e t a e r l t o n s i n o i t a r e n u m e r s a d e d u c n l i t n u o m a e h T . d o i r e p g n i t s e v e h t r e v o d e t a c o l l a y e v l i s s e r g o r p s i d n a e t a d t n a r g e h t t a s a d e n m r e t e d s i i l e u a v r i a f e h T i . r a e y e h t g n i r u d g n d n a t s t u o r o d e t n a r g e m m a r g o r p I T L e h t r e d n u d e d r a w a s t h g R e c n a m r o i f r e P e h t f l o e u a v r i a f e h t f o n o i t r o p o r p a s e d u c n l i n o i t a r e n u m e r e h t , s d r a d n a t S g n i t n u o c c A e h t f o s t n e m e r i u q e r e h t h t i w e c n a d r o c c a n I . 5 . s t n e m e t a t s l i a c n a n i f e h t o t 6 1 e t o n n i l t u o t e s e r a s n o i t a u a v e s e h t g n n n p r e d n u n o i t p m u s s a e h T i i . i l l s e d o m n o i t a u m S o l r a C e t n o M d n a s e o h c S - k c a B e h t g n y p p a 2 B S A A h t i l l l i w e c n a d r o c c a n i i d e n m r e t e d n e e b s a h t n a r g r i e h t f o e t a d e v i t a g e n e h t g n i t c e l f e r 0 2 Y F n ' i k c a b n e t t i r w n e e b s a h s r a e y r o i r p n i s t n a r g e s e h t o t n o i t a e r n l i n o i t a s i t r o m a , i l y g n d r o c c A . t s e v l l i w 9 1 ' Y F d n a 8 1 ' Y F n i d e t n a r g s t h g i r e c n a m r o f r e p t a h t y e k l i l l n u y g n s a e r c n i i s i t i ’ 0 2 Y F n i e c n a m r o f r e p S P E e r o C s ’ y n a p m o C e h t f o t l u s e r a s A . l e v o b a e b a t e h t n i n w o h s s t l u s e r r a e y e h t r o f j t n e m t s u d a e t a r d n o b e h t t n e s e r p e r s t n u o m a e s e h T . e c i f f o m o r f t n e m e r i t e r n o p u o t d e l t i t n e e b l l i i w D E N e h t h c h w s t i f e n e b t n e m e r i t e r l a u t c a r t n o c e h t o t n o i t a e r n l i r a e y l i a c n a n i f e h t g n i r u d y a s m a R y b r o f i d e d v o r p s t n u o m a s e t u t i t s n o c s h t i , s D E N o t t c e p s e r h t i W . 6 i n a d e v e c e r n e d o S r M t n e m e r i t e r i s h n o p U . 9 1 0 2 r e b m e c e D i 1 3 g n d u c n l i d n a o t p u n w o h s s i 0 2 0 2 Y F n ' i i d e v e c e r n e d o S r M n o i t a r e n u m e r y r o t u t a t s e h T . 9 1 0 2 r e b m e c e D 1 3 n o r e c i f f O l i i i a c n a n F f e h C d n a r o t c e r i D e c n a n F p u o r i G s a n o i t i i s o p s h m o r f d e r i t e r n e d o S r M . 7 . ] e v o b a 7 n o i t c e s [ n i t u o t e s s a 9 1 0 2 r e b m e c e D 1 3 m o r f t c e f f e h t i w r e c i f f O l i i i a c n a n F f e h C d n a r o t c e r i D e c n a n F p u o r i G s a d e r i t e r n e d o S r M . 0 2 0 2 h c r a M 1 m o r f t c e f f e h t i i w D E N a s a d e t n o p p a s a w e s o r n e P s M . 9 1 0 2 r e b m e t p e S 1 1 m o r f t c e f f e h t i i w D E N a s a d e t n o p p a s a w o d r u M c M r M . 9 1 0 2 r e b m e v o N 4 1 m o r f t c e f f e h t i w D E N a s a d e r i t e r h c o e G c M r M . 9 1 0 2 r e b m e v o N 4 1 m o r f t c e f f e h t i w D E N a s a d e r i t e r h g r u b x o R r M . 0 2 0 2 e n u J 0 3 m o r f t c e f f e h t i w t n a d n u d e r e d a m s a w r e c i f f O y g e t a r t S p u o r G s a e o r l ’ s n e i t e r h C r M . 0 2 0 2 l i r p A 0 2 n o r e c i f f O l i i a c n a n F f e h C p u o r i l G s a t n e m y o p m e d e c n e m m o c s t r e b o R r M • • • • • • • . , 7 3 6 6 5 5 $ f o t i f e n e B , . 1 1 5 4 6 4 $ f o t i f e n e B t n e m e r i t e R d e u r c c a s h d e v e c e r h c o e G c M i i r M t n e m e r i t e r i s h n o p U . 9 1 0 2 r e b m e v o N 4 1 n o M G A 9 1 0 2 s ’ y a s m a R g n w o i l l o f d r a o B e h t m o r f d e r i t e r h c o e G c M r M i t n e m e r i t e R d e u r c c a s h d e v e c e r h g r u b x o R r i M t n e m e r i t e r i s h n o p U . 9 1 0 2 r e b m e v o N 4 1 n o M G A 9 1 0 2 s ’ y a s m a R g n w o i l l o f d r a o B e h t m o r f d e r i t e r h g r u b x o R r M . 0 1 . , 6 2 3 9 1 2 $ s a w 9 1 ' Y F n i i d a p n o i t a r e n u m e r l a t o t r i e h T . 9 1 ' Y F n i d e r i t e r o h w e a e S l . . L M d n a z t n a p o k A i . . E P r o f s t n u o m a e d u c n l i t o n s e o d l a t o t i s h T . 1 1 . e v a e l l a u n n a d e u r c c a o t n o i t i d d a n i y c n a d n u d e r i s h n o 0 0 0 0 0 5 $ , f i o t i f e n e b n o i t a n m r e t a d e v e c e r n e i t e r h C i r M . 0 2 0 2 e n u J 0 3 m o r f t c e f f e h t i w y a s m a R t f e l n e i t e r h C r M , , . 1 7 9 4 8 2 2 $ s a w e v a e l e c i v r e s g n o l d n a l a u n n a d e u r c c a g n d u c n l i i t i f e n e b t n e m e r i t e r l a t o t i s H . 2 3 3 , 1 3 5 $ f o t n e m y a p a i t a r g - x e . 8 . 9 RAMSAY HEALTH CARE LIMITED i s t h g R f o r e b m u N 7 , 6 d e s p a L / d e t i e f r o F i s t h g R f o r e b m u N R S T o t j t c e b u S ⁵ g n i t s e t e R i s t h g R f o e u a V l ⁸ d e s p a L / d e t i e f r o F , 9 6 3 7 0 4 $ 1 0 1 , 7 9 5 , 1 $ , 8 1 7 6 7 5 , 1 $ - - , 2 6 9 4 4 6 $ , 1 7 7 8 2 5 2 $ , 0 1 1 , 6 1 2 2 $ , - - , 0 4 7 7 5 3 , 1 $ , 6 5 7 4 6 0 , 1 $ 1 0 1 , 6 6 8 , 1 $ - - - 3 7 0 6 , 9 8 2 4 2 , 9 7 9 3 2 , - - 5 1 6 9 , 8 5 4 8 3 , 3 0 7 3 3 , - - 1 4 2 0 2 , 3 9 1 , 6 1 0 8 3 8 2 , - - - , 2 0 0 2 8 6 $ 2 7 3 0 1 , - - r e p e u a v r i a l f e g a r e v a d e t h g e w e h T i . l i n s i s d r a w a I T L f o e u a v l l 9 8 2 4 2 , 9 7 9 3 2 , - - 8 5 4 8 3 , 3 0 7 3 3 , - - 3 9 1 , 6 1 3 9 1 , 6 1 1 9 1 , 4 1 - - - - - i s t h g R f o e u a V l ⁴ d e s i c r e x E / d e t s e V $ i s t h g R f o r e b m u N ³ d e s i c r e x E / d e t s e V ² e t a D g n i t s e V 6 0 9 , 1 2 2 , 1 $ 6 1 2 8 1 , - - - - - - - - , 1 5 7 4 3 9 , 1 $ 3 4 8 8 2 , - - - - - - - - , 4 0 6 4 1 8 $ 4 4 1 , 2 1 - - - - - - - - - - - - - - 9 1 - g u A - 1 3 0 2 - g u A - 1 3 0 2 - g u A - 1 3 1 2 - g u A - 1 3 2 2 - g u A - 1 3 9 1 - g u A - 1 3 9 1 - g u A - 1 3 0 2 - g u A - 1 3 1 2 - g u A - 1 3 2 2 - g u A - 1 3 9 1 - g u A - 1 3 0 2 - g u A - 1 3 0 2 - g u A - 1 3 1 2 - g u A - 1 3 2 2 - g u A - 1 3 1 2 - g u A - 1 3 2 2 - g u A - 1 3 0 1 d e r e g g a t S f o r e b m u N s t h g R i ¹ d e t n a r G t n a r G f o e t a D e m a N 8 7 5 8 4 , 6 1 - v o N - 0 1 8 5 9 7 4 , 6 4 3 6 6 , 3 8 4 0 5 , 7 1 - v o N - 7 1 8 1 - v o N - 5 1 9 1 - v o N - 7 1 6 1 9 6 7 , 6 1 - v o N - 0 1 6 0 4 7 6 , 3 1 7 4 7 , - 7 1 - v o N - 7 1 8 1 - v o N - 5 1 9 1 - v o N - 7 1 8 7 5 8 4 , 6 1 - v o N - 0 1 1 7 5 2 4 , 6 8 1 , 7 4 2 2 9 , 1 3 8 3 9 3 1 , 2 7 3 0 1 , 2 7 3 5 1 , 7 1 - v o N - 7 1 8 1 - v o N - 5 1 9 1 - v o N - 7 1 8 1 - v o N - 5 1 9 1 - v o N - 7 1 0 2 - r p A - 0 2 ' t e y d n a 0 2 0 2 Y F g n i r u d d e t a c o l l a s d r a w a y t i u q e e h t f o e u a v l l i s t h g R e c n a m r o f r e P y l l a N c M . . R C d e l t t e S y t i u q E i s t h g R e c n a m r o f r e P d e l t t e S y t i u q E ⁹ n e d o S . . R B i s t h g R e c n a m r o f r e P d e l t t e S y t i u q E s m S i . A D . i s t h g R e c n a m r o f r e P d e l t t e S y t i u q E n e i t e r h C . O i s t h g R e c n a m r o f r e P d e l t t e S y t i u q E s t r e b o R . M l i a t o t e b s s o p m u m x a m d e i i l p m i e h T . 1 l i a t o t e b s s o p m u m n m e h T i i . s e r a h s y a s m a R f o e c i r p e r a h s t n e r r u c e h t y b d e t n a r g s t h g R e c n a m r o i f r e P f i l o r e b m u n e h t g n y p i t l u m y b d e n m r e t e d e b n a c t s e v o t i . r a e y l i a c n a n i f i s u o v e r p e h t r o f s t l u s e r r a e Y l l u F s ’ y a s m a R f o e s a e e r e h t l f o t n e m e c n u o n n a e h t r e t f a r u c c o y n o l l l i w g n i t s e V . t e m n e e b e v a h s e d r u h e c n a m r o l f r e p e b a c l i l p p a e h t h c h w o t i i t n e t x e e h t d e n m r e t e d s a h d r a o B e h t e c n o r u c c o l l i i w s t h g R e c n a m r o f r e P f o g n i t s e V . l y n o e t a d e v i t a c d n i i n a s i e t a d g n i t s e v s h T i . e s p a l l l i w s t h g i r e h t , i d e v e h c a t o n s i s t h g i r e c n a m r o f r e p d e t s e t e r e s e h t f o g n i t s e v r o f l d o h s e r h t l t n a v e e r e h t f I . 1 2 0 2 e n u J 0 3 , y r a s s e c e n f i , d n a 0 2 0 2 r e b m e c e D 1 3 n o d e t s e t e r e b l l i i w d n a t s e v t o n d d n o i t i d n o c e c n a m r o f r e p R S T e h t o t j t c e b u s s I T L 8 1 ' Y F e h t f o l l A . d e s p a l e r o f e r e h t i s t h g i r e h t d n a d e v e h c a t o n s a w s t h g i r d e t s e t e r e s e h t f o g n i t s e v r o f l d o h s e r h t l t n a v e e r e h T . 0 2 0 2 e n u J 0 3 d n a 9 1 0 2 r e b m e c e D 1 3 n o d e t s e t e r e r e w d n a t s e v t o n d d n o i t i d n o c e c n a m r o i f r e p R S T e h t o t j t c e b u s s I T L 7 1 ' Y F e h T . . 9 1 0 2 t s u g u A 0 3 n o 7 8 7 0 7 6 $ s a w g n i t s e v n o t h g R e c n a m r o i f r e P h c a e f l o e u a v t e k r a m e h T i . ) s t h g R e c n a m r o f r e P f o t c e p s e r n i l e b a y a p e c i r p e s i c r e x e o n s i e r e h t s a ( g n i t s e v f o e t a d e h t n o P A W V y a d - 5 s ’ y a s m a R n o d e s a b s i t n u o m a e h T . t s u r t e h t n i l d e h f i , s n o i t c i r t s e r g n i l a e d r e h t o d n a l a s o p s d o t i j t c e b u s , y a s m a R n i e r a h s y r a n d r o d a p - y i i l l u f e n o d e v e c e r i l r e d o h e h t i , t h g R e c n a m r o f r e P h c a e f o g n i t s e v n O . d e s p a l e r o f e r e h t s t h g i r e h t d n a g n i t s e v r o f l s d o h s e r h t i l t n a v e e r e h t e v e h c a t o n d d s n o i t i d n o c e c n a m r o i i f r e p t i n u s s e n s u b d n a S P E e r o C o t j t c e b u s i s t h g R e c n a m r o f r e P I T L 8 1 ' Y F e h t f o l l A . s t r o p e R n o i t a r e n u m e R r o i r p n i i l d e s o c s d e r a s t n a r g r a e y r o i r p o t e b a c l i l p p a a i r e t i r c e c n a m r o f r e p e h T . l e d r u h e c n a m r o f r e p S P E e h t r o f l . 2 6 8 6 $ d n a e d r u h e c n a m r o f r e p R S T e h t r o f . 6 3 3 3 $ s a w e t a d t n a r g e h t i t a t h g R e c n a m r o f r e P 0 2 0 2 Y F ' . i g n s p a l f o e t a d e h t t a P A W V y a d - 5 y a s m a R l t n a v e e r e h t g n s u d e t a u c a c s l i l i i s t h g R e c n a m r o f r e P d e t s e v n u f l o e u a v e h T . 9 1 0 2 r e b m e c e D 1 3 e v i t c e f f e r e c i f f O l i i i a c n a n F f e h C d n a r o t c e r i D e c n a n F p u o r i G s a n o i t i i s o p s h m o r f d e r i t e r n e d o S r M . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9 51 . 3 2 - r p A - 0 2 n o t s e v o t 7 8 6 7 r o s t h g i r e h t , f o % 0 5 d n a , 2 2 - r p A - 0 2 n o t s e v o t , 1 1 6 4 r o s t h g R e h t i f o % 0 3 , 1 2 - r p A - 0 2 n o t s e v o t 4 7 0 3 r o s t h g R e h t , i f o % 0 2 : s w o l l o f s a s r a e y 3 e h t r e v o d e r e g g a t s s i g n i t s e v , s n o i t i d n o c e c n a m r o l f r e p d n a t n e m y o p m e g n u n i t n o c f i o n o i t c a f s i t a s o t j t c e b u S . 0 1 . P M K e v i t u c e x E o t n o i t a r e n u m e r s a d e t n a r g s t h g i r e c n a m r o f r e p d e l t t e s y t i u q e n i ) t r o p e r i s h t f o e t a d e h t o t p u d n a 0 2 Y F g n i r u d ' ( s t n e m e v o m e h t s w o h s e b a t l l w o e b e h T ) s t n e m e v o M 0 2 Y F g n d u c n l i ' I ( l s e b a T d r a w A y t i u q E - 2 8 . ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R ) d e u n i t n o C ( I T R O P E R N O T A R E N U M E R ANNUAL REPORT 2020 i s t h g R f o e u a V l d e s p a L / d e t i e f r o F - - - - - - - d e c n u o n n a y n a p m o C e h t r e t f / d e t s e V s t h g R f o e u a V i l i s t h g R f o r e b m u N 5 d e s p a L / d e t i e f r o F ⁴ d e s i c r e x E $ i s t h g R f o r e b m u N ³ d e s i c r e x E / d e t s e V ² e t a D g n i t s e V f o r e b m u N s t h g R i ¹ d e t n a r G t n a r G f o e t a D e m a N - - - - - - - 3 5 0 4 4 $ , 3 5 0 4 4 $ , 3 5 0 4 4 $ , , 3 7 3 5 3 $ - 3 5 0 4 4 $ , 3 5 0 4 4 $ , 5 7 6 5 7 6 5 7 6 2 4 5 - 5 7 6 5 7 6 0 2 - r a M - 2 0 2 - r a M - 2 0 2 - r a M - 2 0 2 - r a M - 2 - 0 2 - r a M - 2 0 2 - r a M - 2 5 7 6 5 7 6 5 7 6 2 4 5 - 5 7 6 5 7 6 9 1 - v o N - 5 1 9 1 - v o N - 5 1 9 1 - v o N - 5 1 9 1 - v o N - 5 1 - 9 1 - v o N - 5 1 9 1 - v o N - 5 1 s n a v E . J . P s n a e D . A C . ⁶ o d r u M c M . J e s o r n e P . K f f o h r e k c y D h t u m s s ü S . . R C O A y e d o h T J . D l e d d S i . . S M . n o i t a r e n u m e r D E N f o t r a p a s a d e t n a r g s t h g i r e r a h s n i ) t r o p e r i s h t f o e t a d e h t o t p u d n a 0 2 Y F g n i r u d ' ( s t n e m e v o m e h t s w o h s e b a t l l w o e b e h T i a y a d e h t n o g n c n e m m o c P A W V y a d g n d a r t - 5 e h t y b e e f e s a b D E N e h t i f i i i o % 0 2 g n d v d y b d e n m r e t e d s i i d e t n a r g s t h g i r s e r a h s f o r e b m u n e h T . y n a p m o C e h t o t s e c i v r e s r o f s e e f r i e h t f o t r a p a s a t s o c o n t a s D E N o t d e t n a r g e r a s t h g i r e r a h S . 1 3 4 5 6 1 $ , f o t n e m y a p h s a c a d e v e c e r h c a e h g r u b x o R r i M d n a h c o e G c M r M s e r a h s f o u e i l n I . ' 0 2 Y F n i s t h g i r e r a h s f o t n a r g a e v e c e r i i t o n d d e r o f e r e h t y e h t , 9 1 0 2 r e b m e v o N 4 1 n o d r a o B e h t m o r f d e r i t e r h g r u b x o R r M d n a h c o e G c M r M . ) 1 3 6 2 5 6 $ . ( s t l u s e r y r a n m i i l e r p 9 1 ' Y F s t i . s t h g i r e r a h s f o t c e p s e r n i l e b a y a p e c i r p e s i c r e x e o n s i e r e h T . s t l u s e r y l r a e y f l a h s ’ y n a p m o C e h t f o e s a e e r e h t l f o t n e m e c n u o n n a e h t r e t f a d e s i c r e x e y l l a c i t a m o t u a d n a g n i t n a r g f o e m i t e h t t a d e t s e v y l l u f e r e w s t h g i r e r a h S . d r a o B e h t m o r f t n e m e r i t e r r i e h t f o e t a d e h t o t d e t a r o r p . t r o p e R n o i t a r e n u m e R s h t i f o s a k c o l i l g n d o h a o t j t c e b u s , y a s m a R n i e r a h s y r a n d r o d a p - y i i l l u f e n o d e v e c e r i l r e d o h e h t , t h g i r e r a h s h c a e f o e s i c r e x e e h t n O . s t l u s e r y r a n m i i l e r p 9 1 ' Y F s t i d e c n u o n n a y n a p m o C e h t r e t f i a y a d e h t n o g n c n e m m o c d o i r e p y a d g n d a r t i 5 e h t o t e c n e r e f e r y b d e t a u c a c 1 3 6 2 5 6 $ s a w . l l t h g i r e r a h s h c a e f l o e u a v e h T . n o i t a r e n u m e r 0 2 Y F s h f i ' o t c e p s e r n i s t h g i r e r a h s f o t n a r g a t a r - o r p a d e v e c e r e r o i f e r e h t d n a 9 1 0 2 r e b m e t p e S 1 1 m o r f t c e f f e h t i i w d r a o B e h t o t d e t n o p p a s a w o d r u M c M r M . d o i r e p e v i t c e p s e r e h t g n i r u d d e s p a l s t h g i r e r a h s o n , s n o i t i d n o c e c n a m r o f r e p o t j t c e b u s t o n e r a y e h t s A . 2 . 3 . 4 . 5 . 6 ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R 52 RAMSAY HEALTH CARE LIMITED i s t h g R f o r e b m u N t s o P d e s i c r e x E / d e t s e V l d e H s t h g R i 0 2 0 2 e n u J 0 3 0 2 0 2 e n u J 0 3 t a . s w o l l o f s a s i s e i t r a p d e t a e r l r i e h t g n d u c n l i i , P M K h c a e y b , y l l a c i i f e n e b r o y l t c e r i d n i r o y l t c e r i d , l d e h y n a p m o C e h t n i i s e r a h s y r a n d r o r e v o s t h g i r f o r e b m u n e h t n i ' 0 2 Y F g n i r u d t n e m e v o m e h T i s t h g R f o r e b m u N d e s p a L / d e t i e f r o F i s t h g R f o r e b m u N d e s i c r e x E / d e t s e V f o r e b m u N d e t n a r G s t h g R i ' 0 2 Y F l d e H s t h g R i d e l t t e S y t i u q E i / s t h g R e c n a m r o f r e P 9 1 0 2 y u J 1 l t a i s t h g R e r a h S e m a N s r o t c e r i D e v i t u c e x E - n o N - - - - - - - - - - - - - - - - - - - - - - - 6 7 0 9 8 1 , 7 7 5 0 8 1 , 2 7 8 7 3 1 , 2 7 3 5 1 , 8 3 9 3 1 , - - - - - - - - - 7 2 1 , 2 3 7 6 8 0 5 , 0 1 6 7 3 , - 2 7 3 0 1 , 5 7 6 5 7 6 5 7 6 2 4 5 - 5 7 6 5 7 6 - - 6 1 2 8 1 , 3 4 8 8 2 , 4 4 1 , 2 1 - - 5 7 6 5 7 6 5 7 6 2 4 5 - 5 7 6 5 7 6 - - 4 8 7 , 1 5 - 2 2 9 , 1 3 2 7 3 5 1 , 2 7 3 0 1 , - - - - - - - - - i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S i s t h g R e r a h S s n a e D . . A C o d r u M c M . J e s o r n e P . K h t u m s s ü S . . R C f f o h r e k c y D y e d o h T . . J D s r o t c e r i D e v i t u c e x E h g r u b x o R . K h c o e G c M . R s n a v E . J P . l e d d S i . . S M 5 3 6 7 8 1 , , 7 8 2 0 6 2 i s t h g R e c n a m r o f r e P y l l a N c M . . R C i s t h g R e c n a m r o f r e P ) d e r i t e R ( n e d o S . B 4 0 7 5 5 1 , i s t h g R e c n a m r o f r e P - i s t h g R e c n a m r o f r e P 8 3 9 3 1 , i s t h g R e c n a m r o f r e P s e v i t u c e x E P M K r e h t O s m S i . A D . s t r e b o R . M n e i t e r h C . O 53 ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R ANNUAL REPORT 2020 t a d e H l 0 2 0 2 e n u J 0 3 e g n a h C t e N r e h t O l e a S / e s a h c r u P s a d e v e c e R i ¹ n o i t a r e n u m e R r e h t O n o d e v e c e R i I T L f o g n i t s e V t a d e H l 9 1 0 2 y u J 1 l S E R A C s e r a h S . d r O S E R A C s e r a h S . d r O S E R A C s e r a h S . d r O S E R A C s e r a h S . d r O S E R A C s e r a h S . d r O s r o t c e r i D e v i t u c e x E - n o N e m a N . s e i t r a p d e t a e r l r i e h t - - 2 0 4 , 1 - - - 0 0 7 - 7 5 2 - 0 0 0 2 , - - - , 9 1 9 5 0 9 3 , 9 9 0 , 1 1 5 0 7 5 , 4 6 9 4 , 7 5 9 5 0 7 3 , 1 7 0 , 1 1 0 8 1 , 0 5 1 1 5 5 5 , 7 0 7 , 1 5 3 0 7 0 4 2 3 , 7 5 2 4 0 1 , 1 9 1 - - - - - - - - - - - - - 0 9 1 - - 5 3 5 5 3 5 - 7 5 9 0 0 5 2 , 6 8 0 , 1 - - 5 3 5 - 0 0 0 , 1 1 - - - - - - - - - - - - - - - - - 5 7 6 5 7 6 5 7 6 2 4 5 - 5 7 6 5 7 6 - - 2 2 1 , 9 - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 1 2 8 1 , 3 4 8 8 2 , 4 4 1 , 2 1 - - - - 2 0 4 , 1 - - 0 0 7 - 7 5 2 - 0 0 0 2 , - - - , 4 4 2 5 0 9 3 , l e d d S i . . S M 9 8 8 9 , 5 9 4 4 , 2 2 4 4 , - 0 3 5 0 1 3 9 , 0 8 1 , 0 5 1 1 5 5 5 , 4 3 8 3 2 3 , , 7 2 2 5 9 2 3 1 1 , 3 0 1 - - f f o h r e k c y D h t u m s s ü S . . R C s n a e D . A . C ² o d r u M c M . J ³ e s o r n e P . K s r o t c e r i D e v i t u c e x E - n o N s e v i t u c e x E P M K r e h t O y l l a N c M . . R C ⁶ n e d o S . B ⁴ h g r u b x o R . K ⁵ h c o e G c M . R s t r e b o R . M n e i t e r h C . O s m S i . A D . y e d o h T . . J D s n a v E . J P . r o P M K y n a y b y l l i l a n m o n d e h e r e w s e r a h s o N . s e i t r a p d e t a e r l r i e h t g n d u c n i l i , P M K h c a e y b y n a p m o C e h t f o y t i u q e e h t n i ’ 0 2 Y F g n i r u d s t n e m e v o m d n a s g n d o h e h t l i s e n l i l t u o w o e b e b a t e h T l . t n e m y a p I T S 9 1 ' Y F s h f i o t n e n o p m o c y t i u q e e h t o t e t a e r y l l l a N c M r M r o f s e r a h s e h T . i l n a P s t h g R e r a h S s D E N e h t f o s m r e t e h t h t i w e c n a d r o c c a n i d e t n a r g s t h g i r e r a h s f o e s i c r e x e n o p u s D E N o t d e t a c o l l a s e r a h s y r a n d r o s e d u c n l i I i t n e m t n o p p a s h f i o e t a d e h t l m o r f e b a t e v o b a e h t n i i d e d v o r p e r a s l i i a t e d g n d o h e r a h s l ’ s o d r u M c M r M . 9 1 0 2 r e b m e t p e S 1 1 n o d r a o B e h t o t d e t n o p p a s a w o d r u M c M i r M . t n e m e r i t e r i s h f o e t a d e h t l l i t n u p u e b a t e v o b a e h t n i i d e d v o r p e r a s l i i a t e d g n d o h e r a h s l . t n e m e r i t e r i s h f o e t a d e h t l l i t n u p u e b a t e v o b a e h t n i i d e d v o r p e r a s l i i a t e d g n d o h e r a h s l ’ s h g r u b x o R r M . 9 1 0 2 r e b m e v o N 4 1 n o d r a o B e h t m o r f d e r i t e r h g r u b x o R r M ’ s h c o e G c M r M . 9 1 0 2 r e b m e v o N 4 1 n o d r a o B e h t m o r f d e r i t e r h c o e G c M r M . t n e m e r i t e r i s h f o e t a d e h t l l i t n u p u e b a t e v o b a e h t n i i d e d v o r p e r a s l i ’ a t e d s n e d o S r M . 9 1 0 2 r e b m e c e D 1 3 n o d e r i t e r n e d o S r M i t n e m t n o p p a r e h f o e t a d e h t l m o r f e b a t e v o b a e h t n i i d e d v o r p e r a s l i i a t e d g n d o h e r a h s l ’ s e s o r n e P s M . 0 2 0 2 h c r a M i 1 n o d r a o B e h t o t d e t n o p p a s a w e s o r n e P s M . 1 . 2 . 3 . 4 . 5 . 6 ) d e u n i t n o C ( I D E T D U A – T R O P E R N O T A R E N U M E R I i l s g n d o h e r a h S P M K - 3 8 . ) d e u n i t n o C ( T R O P E R ’ S R O T C E R D I I I D E T M L E R A C H T L A E H Y A S M A R 54 RAMSAY HEALTH CARE LIMITED RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) REMUNERATION REPORT – AUDITED (Continued) 8.4 Transactions with KMP LOANS TO KMP & THEIR RELATED PARTIES There were no loans outstanding to KMPs and their related parties, at any time in FY'20. 55 ANNUAL REPORT 2020RAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) DIRECTORS’ MEETINGS The number of meetings of Directors (including meetings of committees of Directors) held during the year and the numbers of meetings attended by each Director were as follows: Board1 Audit Committee Risk Management Committee People & Remuneration Committee Nomination & Governance Committee Attended (Eligible to attend) Attended (Eligible to attend) Attended (Eligible to attend) Attended (Eligible to attend) Attended (Eligible to attend) C.A. Deans² P.J. Evans J. McMurdo³ C.R. McNally K.L.C. Penrose⁴ M.S. Siddle C. Süssmuth Dyckerhoff D.I. Thodey AO R.H. McGeoch AO⁵ K.C.D. Roxburgh⁵ B.R. Soden⁶ 13 (13) 13 (13) 11 (11) 13 (13) 8 (8) 13 (13) 10 (13) 12 (13) 3 (4) 4 (4) 2 (2) 6 (6) 3 (4) 1 (1) 6 (6) 4 (4) 4 (4) 3 (4) 3 (3) 2 (2) 7 (7) 7 (7) 5 (7) 2 (3) 2 (2) 4 (4) 4 (4) 2 (2) 2 (2) Includes special board meetings. 1 2 Ms Alison Deans was appointed as Chairman of the People and Remuneration Committee in November 2019 and as a member of the Nomination and Governance Committee in November 2019. 3 Mr James McMurdo was appointed to the Board on 11 September 2019 and was appointed as a member of the Audit Committee in November 2019. 4 Ms Karen Penrose was appointed to the Board on 1 March 2020 and was appointed as a member of the Audit Committee in March 2020. 5 Mr Rod McGeoch and Mr Kerry Roxburgh retired as Directors at the close of the 2019 AGM on 14 November 2019. 6 Mr Bruce Soden stepped down as Director of the Company with effect from 12 September 2019. COMMITTEES The Company has the following four committees: Committee Audit Committee Directors who are members Ms Penrose (C), Mr Evans and Mr McMurdo Risk Management Committee Mr Evans (C), Dr Süssmuth Dyckerhoff and Ms Penrose People and Remuneration Committee Ms Deans (C), Mr Thodey and Mr Siddle Nomination and Governance Committee Mr Thodey AO (C), Mr Siddle and Ms Deans (C) : Designates the chairman of the committee AUDITORS’ INDEPENDENCE DECLARATION The written Auditors’ Independence Declaration in relation to the audit of the financial report has been included at page 56 and forms part of this report. INDEMNIFICATION OF AUDITOR As part of the Company’s terms of engagement with Ernst & Young, the Company has agreed to indemnify Ernst & Young against certain liabilities to third parties arising from their engagement as auditor. The indemnity does not extend to any liability resulting from a negligent, wrongful or wilful act or omission by Ernst & Young. 56 RAMSAY HEALTH CARE LIMITEDRAMSAY HEALTH CARE LIMITED DIRECTORS’ REPORT (Continued) ROUNDING The amounts contained in this report and in the financial report have been rounded off to the nearest hundred thousand unless otherwise specified under the option available to the Company under ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191. The Company is an entity to which the Instrument applies. ENVIRONMENTAL REGULATION & PERFORMANCE The consolidated entity holds licences from the Environment Protection Regulatory Bodies applicable to Hospitals for the maintenance of a safe environment. The Directors are not aware of any breaches of these licences. NON-AUDIT SERVICES The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax services Other services $1,235,116 $213,651 Refer to Note 21 for further information. Signed in accordance with a resolution of the Directors. M.S. SIDDLE Chairman Sydney, 8 September 2020 C.R. McNALLY Managing Director 57 ANNUAL REPORT 2020 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Ramsay Health Care Limited As lead auditor for the audit of the financial report of Ramsay Health Care Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Ramsay Health Care Limited and the entities it controlled during the financial year. Ernst & Young Douglas Bain Partner 8 September 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 58 RAMSAY HEALTH CARE LIMITED Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Independent Auditor's Report to the Members of Ramsay Health Care Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Ramsay Health Care Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a) b) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 59 ANNUAL REPORT 2020 We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Why significant How our audit addressed the key audit matter 1. Carrying value of goodwill Our audit procedures included the following: As disclosed in Note 13 of the financial report and in accordance with the requirements of Australian Accounting Standards, the Group performed an annual impairment review of the Australian, UK, French and Nordics cash generating units (“CGUs”) to determine whether the recoverable value of these assets exceeds their carrying amount at 30 June 2020. A value in use model was used to calculate the recoverable amount of each cash generating unit (“CGU”). As disclosed in Note 9 and Note 13 of the financial report, the Group has also finalised the Purchase Price Allocation relating to the November 2018 acquisition of Capio AB, including the allocation of goodwill to the France and Nordic CGUs. This matter was considered a Key Audit Matter due to the extent of audit effort and judgement required to assess the reasonableness of the forecast cash flows, growth rates, discount rates and terminal growth rates used by the Group in undertaking the impairment review.  Assessed whether the methodology used by the Group met the requirements of Australian Accounting Standards.  For the Group’s value in use models, we:  tested the mathematical accuracy of the cash flow models;  assessed the basis of preparing cash flow forecasts, considering the accuracy of previous forecasts and budgets and current trading performance and the impact of COVID-19;  assessed the appropriateness of other key assumptions such as the discount rates and terminal growth rates with reference to publicly available information on comparable companies in the industry and markets in which the Group operates; and  performed sensitivity analyses and evaluated whether a reasonably possible change in assumptions could cause the carrying amount of the cash generating unit to exceed its recoverable amount. We involved valuation specialists in performing these procedures over the value in use models.  For the finalisation of the Capio AB Purchase Price Allocation we:  Reviewed the allocation of goodwill to the Group CGUs in accordance with the requirements of Australian Accounting Standards.  Reviewed Management’s assessment of, and accounting for, the fair value adjustments required to be applied to acquired assets and liabilities;  Assessed the suitability of the methodologies used in third-party valuations utilised by Management in their determination of the fair value of acquired assets and liabilities; and  Assessed the qualifications, competence and objectivity of the third-party valuers. We involved valuation specialists in performing these procedures over the finalisation of the Capio AB Purchase Price Allocation. We evaluated the adequacy of the related disclosures in the financial report including those made with respect to judgements and estimates. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 60 RAMSAY HEALTH CARE LIMITED Why significant How our audit addressed the key audit matter 2. Provision for insurance Our audit procedures included the following: As disclosed in Note 15(b) of the financial report, the insurance provision covers deductibles arising under insurance policies, including potential uninsured claims. Significant judgement is required in its determination due to the uncertainty in predicting future claims arising from past events. The Group engages a third-party actuary to assess the carrying value at each reporting date. This assessment involves evaluating assumptions in relation to ultimate outcomes on individual claims, claims handling costs and discount rates. This matter was considered a Key Audit Matter due to the level of judgement required to estimate the value of the liability.  We assessed the key assumptions adopted by the actuary and used by the Group to determine the value of the provision. Specifically, we have reviewed the assumptions compared to industry practice, potential known claims and actual historical claims.  We assessed the competence, qualifications and objectivity of the independent actuary the Group used.  As the completeness of these provisions relies on specific claims information, we have reviewed and tested the Group’s processes for capturing and recording the data.  We evaluated the adequacy of the disclosures relating to the provision in the financial report, including those made with respect to judgements and estimates. Given the specialist nature of the calculation performed to value the provision, our actuarial specialists were involved in the assessment of the valuation model and key assumptions. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2020 Annual Report but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 61 ANNUAL REPORT 2020 Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 62 RAMSAY HEALTH CARE LIMITED From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 28 to 53 of the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Ramsay Health Care Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Douglas Bain Partner Sydney 8 September 2020 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 63 ANNUAL REPORT 2020 RAMSAY HEALTH CARE LIMITED DIRECTORS' DECLARATION CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2020 In accordance with a resolution of the Directors of Ramsay Health Care Limited, we declare that: In the opinion of the Directors: (a) the consolidated financial statements and notes of Ramsay Health Care Limited 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 2020 and of its performance for the year ended on that date; and (ii) complying with Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. (b) the consolidated financial statements and notes also comply with International Financial Reporting Standards as disclosed in the Overview note. (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (d) this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020. (e) as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 22 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. On behalf of the Board M.S. SIDDLE Chairman Sydney, 8 September 2020 C.R. McNALLY Managing Director Diluted earnings per share (after CARES dividend) 130.5 258.9 Basic earnings per share (after CARES dividend) 131.0 260.5 The above Consolidated Income Statement should be read in conjunction with the accompanying notes. The Directors note that the 2020 results include the impact of accounting for AASB16 Leases, whilst the 2019 results were prepared under the previous lease accounting standard requirements. Refer to the Overview section for further information. Revenue from contracts with customers 12,160.3 11,552.8 Interest income Other income - income from government grants Other income - income from the sale of development assets Other income - net profit on disposal of non-current assets Total revenue and other income Employee benefit and contractor costs Overview,3 Share of profit of joint venture 15a Occupancy costs Service costs Medical consumables and supplies Depreciation, amortisation and impairment Cost of development assets sold Total expenses, excluding finance costs Profit before tax and finance costs Finance costs Profit before income tax Income tax Net profit for the year Attributable to non-controlling interests Attributable to owners of the parent Earnings per share (cents per share) 2020 $m 2019 $m 12,421.5 11,596.0 12.7 235.2 2.1 11.2 (7,020.4) (551.4) (315.0) (2,723.1) (930.7) (6.8) 16.1 890.2 466.2 (157.0) 309.2 25.2 284.0 309.2 6.7 - 29.9 6.6 (6,228.3) (942.9) (323.4) (2,592.2) (486.2) (19.4) 19.1 1,022.7 (175.9) 846.8 (274.4) 572.4 26.9 545.5 572.4 Overview, 3 (11,547.4) (10,592.4) Overview, 3 (424.0) Note 2a 2b 14 5 5 64 RAMSAY HEALTH CARE LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2020 Revenue from contracts with customers Interest income Other income - income from government grants Other income - income from the sale of development assets Other income - net profit on disposal of non-current assets Total revenue and other income Employee benefit and contractor costs Occupancy costs Service costs Medical consumables and supplies Depreciation, amortisation and impairment Cost of development assets sold Total expenses, excluding finance costs Note 2a 2b Overview,3 Overview, 3 Share of profit of joint venture 15a Profit before tax and finance costs Finance costs Profit before income tax Income tax Net profit for the year Attributable to non-controlling interests Attributable to owners of the parent Earnings per share (cents per share) Basic earnings per share (after CARES dividend) Diluted earnings per share (after CARES dividend) 14 5 5 2020 $m 2019 $m 12,160.3 11,552.8 12.7 235.2 2.1 11.2 12,421.5 (7,020.4) (551.4) (315.0) (2,723.1) (930.7) (6.8) (11,547.4) 16.1 890.2 466.2 (157.0) 309.2 25.2 284.0 309.2 6.7 - 29.9 6.6 11,596.0 (6,228.3) (942.9) (323.4) (2,592.2) (486.2) (19.4) (10,592.4) 19.1 1,022.7 (175.9) 846.8 (274.4) 572.4 26.9 545.5 572.4 131.0 260.5 130.5 258.9 Overview, 3 (424.0) The above Consolidated Income Statement should be read in conjunction with the accompanying notes. The Directors note that the 2020 results include the impact of accounting for AASB16 Leases, whilst the 2019 results were prepared under the previous lease accounting standard requirements. Refer to the Overview section for further information. 65 ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AS AT 30 JUNE 2020 Net profit for the year Items that will not be reclassified to net profit Actuarial (loss) on defined employee benefit obligation Items that may be subsequently reclassified to net profit Cash flow hedges (Loss) taken to equity Transferred to Income Statement Net change in cost of hedging Net (loss) on bank loan designated as a hedge of a net Investment Foreign currency translation Income tax relating to components of other comprehensive (expense)/income Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to non-controlling interests Attributable to the owners of the parent 2020 $m 2019 $m 309.2 572.4 (10.2) (88.8) (5.0) 12.3 1.4 (26.3) 20.9 (0.8) (7.7) 301.5 27.3 274.2 301.5 (34.7) (2.7) (4.4) (28.0) 59.6 29.3 (69.7) 502.7 (0.8) 503.5 502.7 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 66 RAMSAY HEALTH CARE LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Prepayments Other current assets Assets classified as held for sale Total current assets Non-current assets Other financial assets Investments in joint venture Property, plant and equipment Right of use assets Intangible assets Deferred tax asset Prepayments Receivables Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other creditors Loans and borrowings Lease liabilities Derivative financial instruments Provisions Income tax payable Total current liabilities Non-current liabilities Loans and borrowings Lease liabilities Provisions Defined employee benefit obligation Derivative financial instruments Other creditors Deferred tax liability Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Treasury shares Convertible Adjustable Rate Equity Securities (CARES) Other reserves Retained earnings Parent interests Non-controlling interests TOTAL EQUITY Note 7a 8a 8b 14 15a Overview,10 Overview,11 12 Overview,14 8a 8c 7b Overview,7c 7d Overview,15b 14 7b Overview,7c Overview,15b 15d 7d 14 6 6 6 Overview 2020 $m 2019 $m 1,503.7 1,916.9 411.0 14.6 175.4 39.2 4,060.8 - 4,060.8 82.6 245.8 4,447.2 4,477.9 4,246.1 409.1 11.1 78.1 13,997.9 18,058.7 3,203.5 32.3 347.8 6.2 133.7 49.4 3,772.9 4,195.5 4,941.4 390.0 222.9 45.1 24.3 230.7 10,049.9 13,822.8 745.5 1,589.5 344.8 19.3 177.0 26.5 2,902.6 16.6 2,919.2 62.7 270.3 4,642.8 - 4,263.3 390.5 11.3 79.7 9,720.6 12,639.8 2,374.7 34.0 73.1 18.6 183.2 60.2 2,743.8 5,209.4 278.1 775.9 215.3 43.8 16.5 333.9 6,872.9 9,616.7 4,235.9 3,023.1 2,197.6 (78.2) 252.2 (51.0) 1,431.9 3,752.5 483.4 4,235.9 713.5 (82.1) 252.2 (33.2) 1,693.3 2,543.7 479.4 3,023.1 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. The Directors note that the 30 June 2020 balances include the impact of accounting for AASB16 Leases, whilst the 30 June 2019 balances were prepared under the previous lease accounting standard requirements. Refer to the Overview section for further information. 67 ANNUAL REPORT 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Issued Capital (Note 6.1) $m 713.5 Treasury Shares (Note 6.2) $m (76.8) (Note 6.3) $m 252.2 CARES Other Reserves Retained Earnings Non- controlling interests Total $m (26.2) $m 1,494.3 $m 90.4 $m 2,447.4 - - - - (1.1) - (1.1) 713.5 (76.8) 252.2 (26.2) 1,493.2 90.4 2,446.3 - - - - - - - - (21.9) 16.6 - - - - - - - - (5.4) 508.9 (0.8) 502.7 - (308.8) (12.5) (321.3) - (16.6) 15.0 - - - - - - - - (21.9) - 15.0 402.3 402.3 As at 1 July 2018 AASB 9 Financial Instruments adjustment Note As at 1 July 2018 - Restated Total Comprehensive Income Dividends paid Shares purchased for executive performance share plan Treasury shares vesting to employees Share based payment expense for employees Issue of share capital in subsidiaries to non- controlling interest As at 30 June 2019 713.5 (82.1) 252.2 (33.2) 1,693.3 479.4 3,023.1 As at 1 July 2019 713.5 (82.1) 252.2 (33.2) 1,693.3 479.4 3,023.1 AASB 16 Leases adjustment Overview - - - - (218.9) - (218.9) As at 1 July 2019 - Restated Total Comprehensive Income Dividends paid Shares purchased for executive performance share plan Treasury shares vesting to employees Issue of share capital (net of transaction costs) Share based payment expense for employees Acquisition of subsidiary/non- controlling interest 713.5 (82.1) 252.2 (33.2) 1,474.4 479.4 2,804.2 - - - - 1,484.1 - - - - (9.8) 13.7 - - - - - - - - - - (5.8) 280.0 27.3 301.5 - - (13.7) - 1.3 0.4 (322.5) (12.6) (335.1) - - - - - - - (9.8) - - 1,484.1 - 1.3 (10.7) (10.3) As at 30 June 2020 2,197.6 (78.2) 252.2 (51.0) 1,431.9 483.4 4,235.9 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 68 RAMSAY HEALTH CARE LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from operating activities Receipts from customers Receipts of governments grants Payments to suppliers and employees Income tax paid Finance costs Note 2020 $m 2019 $m 12,433.8 235.2 (10,366.1) (203.4) (418.8) 11,253.2 - (9,938.1) (253.0) (158.8) Net cash flows from operating activities 7a 1,680.7 903.3 Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of businesses and non – current assets Interest and dividends received Business combinations, net of cash received Acquisition of investments and purchase of non-controlling interests 9 Net cash flows used in investing activities Cash flows from financing activities Dividends paid to ordinary shareholders of the parent Dividends paid to non-controlling interests Repayment of lease principal (2019: Repayment of finance lease principal) Overview Purchase of ordinary shares Proceeds from borrowings Repayment of borrowings Proceeds from share issue (net of transaction costs) Proceeds from non-controlling interests for share issue Costs of refinancing Net cash flows (used in) / from financing activities Net increase / (decrease) in cash and cash equivalents Net foreign exchange differences on cash held Cash and cash equivalents at beginning of year (680.6) 34.6 47.3 (25.4) (31.9) (656.0) (322.5) (12.6) (323.8) (9.8) 1,182.2 (2,222.3) 1,476.9 - - (231.9) 792.8 (34.6) 745.5 Cash and cash equivalents at end of year 7a 1,503.7 (593.8) 140.0 9.0 (1,307.5) - (1,752.3) (308.8) (12.5) (80.2) (21.9) 2,758.6 (1,895.0) - 396.9 (25.1) 812.0 (37.0) 11.9 770.6 745.5 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. The Directors note that the 2020 year end results include the impact of accounting for AASB16 Lease, whilst the 2019 year end results were prepared under the previous lease accounting standard requirements. Refer to the Overview section for further information. 69 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW The consolidated financial report of Ramsay Health Care Limited (‘the Group’) for the year ended 30 June 2020 was authorised for issue on 8 September 2020 in accordance with a resolution of the Directors. Ramsay Health Care Limited is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Director’s Report. (a) Basis of preparation This general purpose financial report: - - - has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standard Board (AASB) and the Corporations Act 2001; has been prepared on the basis of historical cost, except for derivative financial instruments, listed investments, assets held for sale and the assets and liabilities recognised through business combinations which have been measured at fair value; complies with International Financial Reporting Standards as issued by the International Accounting Standards Board; is presented in Australian Dollars; - - where necessary, and as a result of a change in the classification of certain revenues and expenses during the current year, comparative amounts in the consolidated income statement, and associated notes have been reclassified for consistency with presentation in the current period; presents all values as rounded to the nearest hundred thousand dollars, unless otherwise stated under the option available under ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191; does not early adopt any Australian Accounting Standards and Interpretations issued or amended but are not yet effective. - - (b) New and amended accounting standards and interpretations, effective 1 July 2019 The Group applied, for the first time, AASB16 Leases and AASB Interpretation 23 Uncertainty over Income Tax Treatments. The nature and effect of these changes are disclosed below. AASB16: Leases Effective for Ramsay, from 1 July 2019, AASB16 Leases has replaced AASB117 Leases. AASB16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. AABS16 substantially carries forward the lessor accounting in AASB117, with the distinction between operating leases and finance leases being retained. The Group does not have significant leasing activities acting as a lessor. (a) Transition Method and Practical Expedients Utilised The Group adopted AASB16 using the modified retrospective approach, with recognition of transitional adjustments on the date of initial application, being 1 July 2019, and comparatives have not been restated, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening Statement of Financial Position as at 1 July 2019. AASB16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group applied the following practical expedients when applying AASB16 to leases previously classified as operating leases under AASB117:  Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;  Exclude initial direct costs from the measurement of right of use assets at the date of initial application for leases where the right of use asset was determined as if AASB16 had been applied since the commencement date;  Reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under AASB136 Impairment of Assets as at the date of initial application;  Applied the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and  Applied the exemption not to recognise right of use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application. As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB16, the Group recognises right of use assets and lease liabilities for most leases. However, the Group has elected not to recognise right of use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less. 70 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (b) New and amended accounting standards and interpretations, effective 1 July 2019 AASB16: Leases (continued) On adoption of AASB16, the Group recognised right of use assets and lease liabilities in relation to leases of hospitals, office space, equipment and cars, which had previously been classified as operating leases. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as at 1 July 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 4.94%. The right of use assets were measured as follows:  French and Nordic assets: Right of use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.  All other leases: the carrying value that would have resulted from AASB16 being applied from the commencement date of the leases, subject to the practical expedients noted above. The following table reconciles the minimum lease commitments disclosed in the Group’s 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019: Minimum operating lease commitment at 30 June 2019 Less: effect of discounting these leases using the incremental borrowing rate as at the date of initial application Less: short term and low value leases not recognised under AASB16 Add: effect of extension options reasonably certain to be exercised Discounted lease payments Finance leases Lease liabilities recognised at 1 July 2019 The impact of adopting AASB16 on the Statement of Financial Position (increase/(decrease)) as at 1 July 2019: $m 4,809.1 (1,643.4) (34.6) 1,798.5 4,929.6 351.2 5,280.8 Prepayments – current Investment in joint venture Property, plant and equipment Right of use assets Deferred tax assets Total Assets Trade and other creditors – current Lease liabilities Provisions Total Liabilities Net Assets Retained earnings Total Equity As at 1 July 2019, AASB117 Leases $m Impact of Adoption of AASB16 $m AASB16 Leases $m 177.0 270.3 4,642.8 - 390.5 5,480.6 2,374.7 351.2 959.2 3,685.1 (25.1) (0.2) (375.1) 4,548.3 59.6 4,207.5 (1.6) 4,929.6 (501.6) 4,426.4 151.9 270.1 4,267.7 4,548.3 450.1 9,688.1 2,373.1 5,280.8 457.6 8,111.5 1,795.5 (218.9) 1,576.6 1,693.3 1,693.3 (218.9) (218.9) 1,474.4 1,474.4 - Right of use assets of $4,548.3 million were recognised and presented separately in the Statement of Financial Position. Lease assets of $368.3 million previously recognised under property, plant and equipment as leased assets under a finance lease, were reclassified and included as right of use assets. $6.8 million previously recognised as service concession assets were derecognised; 71 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (b) New and amended accounting standards and interpretations, effective 1 July 2019 AASB16: Leases (continued) - - Additional lease liabilities of $4,929.6 million were recognised and presented separately in the Statement of Financial Position. Lease liabilities under AASB117 were previously recognised under loans and borrowings. These lease liabilities have been reclassified from loans and borrowings in both periods; Prepayments of $25.1 million and accruals of $1.6 million related to previous operating leases were recognised against the lease liability; Provisions, consisting of the deferred lease provision and the onerous contract provisions, of $501.6 million related to the previous operating leases were derecognised/recognised against the right of use asset respectively; - Deferred tax assets increased by $59.6 million because of the deferred tax impact of the changes in assets and - - - liabilities; and The net effect of these adjustments is a debit adjustment to retained earnings of $218.9 million. The adoption of this standard has resulted in a current ratio of less than one, primarily as a result of the current lease liabilities recognised. The impact to the Statement of Financial Performance for the year ended 30 June 2020 is as follows: Impact of Adoption of AASB 16 $m AASB16 Leases $m Year ended 30 June 2020 Revenue from contracts with customers Interest income Other income – income from government grants Other income - income from the sale of development assets Other income - net profit on disposal of non-current assets Total revenue and other income Employee benefit and contractor costs Occupancy costs Service costs Medical consumables and supplies Depreciation, amortisation and impairment Cost of development assets sold Total expenses, excluding finance costs Share of profit of joint venture Profit before tax and finance costs Finance costs Profit before income tax Income tax Net profit for the period Attributable to non-controlling interests Attributable to owners of the parent AASB 117 Leases $m 12,160.3 12.7 235.2 2.1 11.2 12,421.5 (7,020.4) (1,047.9) (315.0) (2,723.1) (585.0) (6.8) (11,698.2) 16.1 739.4 (192.3) 547.1 (177.7) 369.4 42.3 327.1 369.4 - - - - - - - 496.5 - - (345.7) - 150.8 - 150.8 (231.7) (80.9) 20.7 (60.2) (17.1) (43.1) (60.2) 12,160.3 12.7 235.2 2.1 11.2 12,421.5 (7,020.4) (551.4) (315.0) (2,723.1) (930.7) (6.8) (11,547.4) 16.1 890.2 (424.0) 466.2 (157.0) 309.2 25.2 284.0 309.2 $m 268.2 (268.2) The impact to the Statement of Cash Flows increase/(decrease) for the year ended 30 June 2020 is as follows: Net cash flows from operating activities Net cash flows from financing activities Statutory Basic Earnings per Share decreased by 20.7 cents for the year ended 30 June 2020 as a result of adoption of AASB16. 72 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (b) New and amended accounting standards and interpretations, effective 1 July 2019 AASB16: Leases (continued) (b) Significant Accounting Policies subsequent to Transition All leases are accounted for by recognising a right-of-use asset and a lease liability except for:  Leases of low value assets, being those with a cost of $50,000 or less; and  Leases with a term of 12 months or less. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes:  amounts expected to be payable under any residual value guarantee;  the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option;  any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised. Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:    lease payments made at or before commencement of the lease; initial direct costs incurred; and the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset. Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right of use assets are amortised on a straight line basis over the shorter of the useful life of the asset or the term of the lease. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index or rate or when there is a change in the assessment of the term of any lease. The Group applies the short term lease recognition exemption to its short term lease of equipment, being those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the lease of low-value assets recognition exemption to lease of equipment that are considered of low value. Lease payments on short term leases and leases of low value assets are recognised as an expense on a straight line basis over the lease term. The Group determines the lease terms as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the options to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After commencement date, the Group reassess the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not exercise) the option to renew. AASB Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of AASB112 Income Taxes. It does not apply to taxes or levies outside the scope of AASB112. The Interpretation specifically addresses the following:  Whether an entity considers uncertain tax treatments separately  The assumptions an entity makes about the examination of tax treatments by taxation authorities  How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates  How an entity considers changes in facts and circumstances. An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. The Group applies significant judgement in identifying uncertainties over income tax treatments. 73 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (b) New and amended accounting standards and interpretations, effective 1 July 2019 AASB Interpretation 23 Uncertainty over Income Tax Treatment (continued) Since the Group operates in a complex multinational environment, each tax jurisdiction assessed whether the Interpretation had an impact on their own reported financial results. Upon adoption of the Interpretation, the Group considered whether it had any uncertain tax positions. The Group determined, based on its tax compliance that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The interpretation did not have an impact on the consolidated financial statements of the Group. (c) Accounting Standards and Interpretations Issued But Not Yet Effective New and amended standards and interpretations issued by the AASB that will apply for the first time in the next annual financial statement are not expected to impact the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current accounting policies. (d) Non-AASB financial information The Directors believe that the core profit (segment result) after tax, (core profit (segment result) after tax is a non-statutory profit measure and represents profit before non-core items) and the core earnings per share measures, provides additional useful information which is used for internal segment reporting and therefore would be useful for shareholders, as these measures are used to ascertain the ongoing profitability of the underlying business. It is the Company’s intention to no longer separate its profit between core and non-core going forward. (i) Reconciliation of net profit attributable to owners of the parent to core profit (segment result) Net profit after tax attributable to owners of the parent Add/(less) non-core items: - Non-cash portion of rent expense relating to leased UK hospitals** - Non-cash unfavourable lease contracts expense - Amortisation - service concession assets - Net (profit) on disposal of non-current assets - Income from the sale of development assets - Book value of development assets sold - Impairment of non-current asset - Acquisition, disposal, and development costs - Restructuring – provision for personnel costs - Restructuring – provision for service costs - FD’s unvested performance rights – accounting expense Income tax on non-core items Non-controlling interests in non-core items net of tax Core profit (segment result) after tax attributable to owners of the parent*** Core earnings per share Core profit (segment result) after tax (above) Less: CARES dividend Core profit after tax used to calculate core earnings per share - Diluted core earnings per share (after CARES dividend) - Basic core earnings per share (after CARES dividend) Weighted average number of ordinary shares adjusted for effect of dilution Weighted average number of ordinary shares 2020 $m* AASB16 2020 $m** AASB117 2019 $m** AASB117 284.0 327.1 545.5 - - 1.6 (11.2) (2.1) 6.8 37.5 10.4 7.0 24.8 - (17.3) (4.6) 52.9 336.9 336.9 (11.3) 325.6 155.9c 156.4c m 208.9 208.1 10.5 - 1.6 (11.2) (2.1) 6.8 37.5 10.4 7.0 24.8 - (20.1) (4.6) 60.6 387.7 387.7 (11.3) 376.4 180.2c 180.9c m 208.9 208.1 12.2 9.3 1.5 (6.6) (29.9) 19.4 0.6 44.4 16.5 21.9 2.6 (28.4) (18.1) 45.4 590.9 590.9 (12.8) 578.1 281.0c 282.7c m 205.8 204.5 * In accordance with AASB16 Leases ** In accordance with AASB117 Leases and AASB Interpretation 115 Operating Leases – Incentives *** Core profit (segment result) after tax is a non-statutory profit measure and represents profit before non-core items 74 RAMSAY HEALTH CARE LIMITED r e d n u d e r a p e r p e r e w s t n u o c c a e h t f i s a s t l u s e r e h t o t s e l i c n o c e r n e h t d n a s e s a e L 6 1 B S A A r e d n u t n e m e t a t S e m o c n I d e t a d i l o s n o c ) t n e m g e s ( e r o c e h t o t t n e m e t a t S e m o c n I d e t a d i l o s n o c y r o t u t a t s e h t s e l i c n o c e r l w o e b e b a t e h T l t n e m e t a t S e m o c n I ) t n e m g e s ( e r o c o t t n e m e t a t S e m o c n I y r o t u t a t s f o n o i t a i l i c n o c e R ) d e u n i t n o c ( n o i t a m r o f n i l a i c n a n i f B S A A - n o N ) d ( ) i i ( I I S T N E M E T A T S L A C N A N F D E T A D L O S N O C O T S E T O N I 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 1 0 2 e n u J 0 3 D E D N ) I D E U N T N O C ( I W E V R E V O i e h t n a t r e c s a o t t n e m e t a t S e m o c n I y r o t u t a t s d e t a d i l o s n o c e h t n i s m e t i e n i l l t n a v e e r e h t m o r f d e d u c x e l e r a ) i ( ) d ( t a d e t s i l s m e t i e r o c - n o n e h T . r a e y r o i r p e h t n i s e s a e l r o f g n i t n u o c c a e h t r o f d e s u s a w 7 1 1 B S A A . s e s a e L 7 1 1 B S A A . t n e m e t a t S e m o c n I d e t a d i l o s n o c ) t n e m g e s ( e r o c 7 . 2 1 2 . 5 3 2 3 . 0 6 1 , 2 1 - - 2 . 8 0 4 , 2 1 - ) 8 . 9 7 2 ( ) 4 . 3 1 0 , 7 ( ) 4 . 7 3 0 , 1 ( ) 1 . 3 2 7 , 2 ( ) 9 . 5 4 5 ( ) 6 . 9 9 5 , 1 1 ( 1 . 6 1 7 . 4 2 8 ) 3 . 2 9 1 ( 4 . 2 3 6 ) 8 . 7 9 1 ( 6 . 4 3 4 9 . 6 4 7 . 7 8 3 6 . 4 3 4 - - - - - - - - - - ) 0 . 6 8 4 ( - 7 . 5 4 3 ) 3 . 0 4 1 ( ) 3 . 0 4 1 ( 7 . 1 3 2 4 . 1 9 ) 5 . 3 2 ( 9 . 7 6 1 . 7 1 8 . 0 5 9 . 7 6 7 . 2 1 2 . 5 3 2 3 . 0 6 1 , 2 1 - - 2 . 8 0 4 , 2 1 - ) 4 . 1 5 5 ( ) 8 . 9 7 2 ( ) 4 . 3 1 0 , 7 ( ) 6 . 1 9 8 ( ) 1 . 3 2 7 , 2 ( ) 3 . 9 5 4 , 1 1 ( 1 . 6 1 0 . 5 6 9 ) 0 . 4 2 4 ( 0 . 1 4 5 ) 3 . 4 7 1 ( 7 . 6 6 3 8 . 9 2 9 . 6 3 3 7 . 6 6 3 - - - ) 1 . 2 ( ) 2 . 1 1 ( ) 3 . 3 1 ( - 0 . 7 2 . 5 3 - 8 . 6 1 . 9 3 1 . 8 8 - - 8 . 4 7 8 . 4 7 ) 3 . 7 1 ( 5 . 7 5 6 . 4 9 . 2 5 5 . 7 5 7 . 2 1 2 . 5 3 2 1 . 2 2 . 1 1 3 . 0 6 1 , 2 1 5 . 1 2 4 , 2 1 ) 8 . 6 ( ) 4 . 0 2 0 , 7 ( ) 4 . 1 5 5 ( ) 0 . 5 1 3 ( ) 7 . 0 3 9 ( ) 1 . 3 2 7 , 2 ( ) 4 . 7 4 5 , 1 1 ( 1 . 6 1 2 . 0 9 8 ) 0 . 4 2 4 ( 2 . 6 6 4 ) 0 . 7 5 1 ( 2 . 9 0 3 2 . 5 2 0 . 4 8 2 2 . 9 0 3 ) t n e m g e s ( e r o C d e t a d i l o s n o c t n e m e t a t S e m o c n I 7 1 1 B S A A m $ ) t n e m g e s ( e r o C d e t a d i l o s n o c t n e m e t a t S e m o c n I 7 1 1 B S A A s t n e m t s u d A j m $ ) t n e m g e s ( e r o C e m o c n I d e t a d i l o s n o c t n e m e t a t S 6 1 B S A A m $ s a s m e t i e r o c - n o N ) i ( ) d ( t a d e d u l c n i 6 1 B S A A y r o t u t a t S d e t a d i l o s n o c t n e m e t a t S e m o c n I 6 1 B S A A m $ m $ s t e s s a t n e m p o e v e d l s t e s s a t n e r r u c - n o n f o f o l e a s e h t m o r f e m o c n i - e m o c n i r e h t O e m o c n i t s e r e t n I l a s o p s d i n o t i f o r p t e n - e m o c n i r e h t O s t n a r g t n e m n r e v o g m o r f e m o c n i – e m o c n i r e h t O s r e m o t s u c h t i w s t c a r t n o c m o r f e u n e v e R 0 2 0 2 e n u J 0 3 d e d n E r a e Y e m o c n i t s e r e t n I s t s o c r o t c a r t n o c d n a t i f e n e b e e y o p m E l e m o c n i r e h t o d n a e u n e v e r l a t o T s t s o c y c n a p u c c O s t s o c e c v r e S i t n e m r i a p m i d n a n o i t a s i t r o m a , n o i t a c e r p e D i s e i l p p u s d n a l s e b a m u s n o c l i a c d e M l d o s s t e s s a t n e m p o e v e d l f o t s o C s t s o c e c n a n i f g n d u c x e i l , s e s n e p x e l a t o T s t s o c e c n a n i f d n a x a t e r o f e b t i f o r P e r u t n e v t n o i j f o t i f o r p f o e r a h S x a t e m o c n i e r o f e b t i f o r P x a t e m o c n I d o i r e p e h t r o f t i f o r p t e N s t s o c e c n a n F i s t s e r e t n i g n i l l o r t n o c - n o n l o t e b a t u b i r t t A t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A 75 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (d) Non-AASB financial information (continued) (ii) Reconciliation of statutory Income Statement to core (segment) Income Statement (continued) For the year ended 30 June 2019 Revenue from contracts with customers Interest income Other income – income from the sale of development assets Other income - net profit on disposal of non-current assets Total revenue and other income Employee benefit and contractor costs Occupancy costs Service costs Medical consumables and supplies Depreciation, amortisation and impairment Cost of development assets sold Total expenses, excluding finance costs Share of profit of joint venture Profit before tax and finance costs Finance costs Profit before income tax Income tax Net profit for the year Attributable to non-controlling interests Attributable to owners of the parent (e) Basis of consolidation Statutory consolidated Income Statement $m Non-core items as included at (d)(i) $m Core (segment) consolidated Income Statement $m 11,552.8 6.7 29.9 6.6 11,596.0 (6,228.3) (942.9) (323.4) (2,592.2) (486.2) (19.4) (10,592.4) 19.1 1,022.7 (175.9) 846.8 (274.4) 572.4 26.9 545.5 572.4 - - (29.9) (6.6) (36.5) 19.1 21.5 66.3 - 2.1 19.4 128.4 - 91.9 - 91.9 (28.4) 63.5 18.1 45.4 63.5 11,552.8 6.7 - - 11,559.5 (6,209.2) (921.4) (257.1) (2,592.2) (484.1) - (10,464.0) 19.1 1,114.6 (175.9) 938.7 (302.8) 635.9 45.0 590.9 635.9 The consolidated financial statements comprise the financial statements of Ramsay Health Care Limited and its subsidiaries (‘the Group’) as at and for the period ended 30 June each year. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement with the other vote holders of the investee   Rights arising from other contractual arrangements  The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. 76 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 OVERVIEW (CONTINUED) (e) Basis of consolidation (continued) A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interests and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. (f) Significant accounting judgements, estimates and assumptions In applying the Group’s accounting policies, management has made a number of judgements, estimates and assumptions concerning the future. The key judgements, estimates and assumptions that are material to the financial statements relate to the following areas:  Recognition of revenue, refer note 2  Recognition of land and buildings at fair value in a business combination, refer note 9;  Estimation of useful lives of property, plant and equipment, right of use and intangible assets, refer note 10, note 11 and note 12; Impairment testing of goodwill, refer note 13; Impairment of property, plant and equipment, refer note 10; Income tax losses and deferred tax, refer note 14; Insurance provision, refer note 15b;      Defined employee benefit obligations, refer note 15d; and  Share based payment transactions, refer note 17. (g) Current versus non-current classification The Group presents assets and liabilities in the Consolidated Statement of Financial Position based on current/non-current classification. An asset is current when it is:  Expected to be realised or intended to be sold or consumed in the normal operating cycle  Expected to be realised within twelve months after the reporting period  Held primarily for trading, or  Cash and cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when: It is expected to be settled in the normal operating cycle It is due to be settled within twelve months after the reporting period    Held primarily for trading, or  There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities. (h) Foreign currency translation Both the functional and presentation currency of Ramsay Health Care Limited and its Australian subsidiaries is Australian dollars (A$). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currencies of the overseas subsidiaries are: British pounds for Ramsay Health Care (UK) Limited and Euro for Ramsay Santé SA. As at the reporting date the assets and liabilities of the overseas subsidiaries are translated into the presentation currency of Ramsay Health Care Limited at the rate of exchange ruling at the reporting date and the Income Statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement. 77 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR 1. SEGMENT INFORMATION Identification of reportable segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Managing Director (the chief operating decision maker) in assessing performance and in determining the allocation of resources. The operating segments are identified by management based on the country in which the service is provided, as this is the Group’s major risk and has the most effect on the rate of return, due to differing currencies and differing health care systems in the respective countries. The Group has four reportable operating segments being Asia Pacific, UK, France and Nordics. Discrete financial information about each of these operating businesses is reported to the Managing Director and his management team on at least a monthly basis. Types of services The reportable operating segments derive their revenue primarily from providing health care services to both public and private patients in the community. Accounting policies and inter-segment transactions Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment results include transfers between the segments. These transfers are eliminated on consolidation. The accounting policies used by the Group in reporting segments are the same as those contained throughout the accounts and in prior periods. Asia Pacific $m UK $m France $m Nordics $m Total $m 5,068.0 - 5,068.0 8.7 5,076.7 797.1 (16.9) 780.2 (206.7) 573.5 Year Ended 30 June 2020 Revenue Revenue from contracts with customers Other income – income from government grants Total revenue before intersegment revenue Intersegment revenue Total segment revenue Earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) 1 Rent 2 Earnings before interest, tax, depreciation and amortisation (EBITDA) 3 Depreciation and amortisation Earnings before interest and tax (EBIT) 4 Interest Income tax expense Segment (core) net profit after tax 5 Attributable to non-controlling interest Segment (core) net profit after tax, attributable to owners of the parent 6 Non-core items net of tax after non-controlling interest Net profit attributable to owners of the parent 929.5 - 929.5 - 4,352.7 235.2 4,587.9 - 1,810.1 - 1,810.1 - 12,160.3 235.2 12,395.5 8.7 929.5 4,587.9 1,810.1 12,404.2 167.1 (1.3) 165.8 (93.3) 72.5 877.0 (122.7) 754.3 (454.8) 299.5 168.5 (24.9) 143.6 (136.8) 6.8 2,009.7 (165.8) 1,843.9 (891.6) 952.3 (411.3) (174.3) 366.7 (29.8) 336.9 (52.9) 284.0 1 "EBITDAR" is a non-statutory profit measure and represents profit before interest, tax, depreciation, amortisation, rent and non-core items. 2 Rent includes rental costs of short term or low value assets together with any related rent costs, including rent related taxes that could not be capitalised as part of lease liabilities. 3 "EBITDA" is a non-statutory profit measure and represents profit before interest, tax, depreciation, amortisation and non-core items. 4 "EBIT" is a non-statutory profit measure and represents profit before interest, tax and non-core items. 5 "Segment (core) net profit after tax" is a non-statutory profit measure and represents profit before non-core items. 6 "Segment (core) net profit after tax attributable to owners of the parent" is a non-statutory profit measure and represents profit before non-core items that are attributable to the owners of the parent. 78 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 1. SEGMENT INFORMATION (CONTINUED) Year ended 30 June 2019 Revenue Revenue from contracts with customers Total revenue before intersegment revenue Intersegment revenue Total segment revenue Earnings before interest, tax, depreciation, amortisation and rent (EBITDAR) 1 Rent 2 Earnings before interest, tax, depreciation and amortisation (EBITDA)3 Depreciation and amortisation Earnings before interest and tax (EBIT)4 Interest Income tax expense Segment (core) net profit after tax 5 Attributable to non-controlling interest Segment (core) net profit after tax, attributable to owners of the parent 6 Non-core items net of tax after non-controlling interest Net profit attributable to owners of the parent Asia Pacific $m UK $m France $m Nordics $m Total $m 5,182.5 5,182.5 3.7 5,186.2 1,036.2 (66.4) 969.8 (171.4) 798.4 942.8 942.8 - 942.8 180.9 (91.2) 89.7 (42.2) 47.5 4,281.0 4,281.0 - 4,281.0 820.8 (344.3) 476.5 (231.9) 244.6 1,146.5 1,146.5 - 1,146.5 123.1 (67.0) 56.1 (38.6) 17.5 11,552.8 11,552.8 3.7 11,556.5 2,161.0 (568.9) 1,592.1 (484.1) 1,108.0 (169.3) (302.8) 635.9 (45.0) 590.9 (45.4) 545.5 1 "EBITDAR" is a non-statutory profit measure and represents profit before interest, tax, depreciation, amortisation, rent and non-core items. 2 Rent includes rent on operating leases accounted for under AASB 117. 3 "EBITDA" is a non-statutory profit measure and represents profit before interest, tax, depreciation, amortisation and non-core items. 4 "EBIT" is a non-statutory profit measure and represents profit before interest, tax and non-core items. 5 "Segment (core) net profit after tax" is a non-statutory profit measure and represents profit before non-core items. 6 "Segment (core) net profit after tax attributable to owners of the parent" is a non-statutory profit measure and represents profit before non-core items that are attributable to the owners of the parent. As at 30 June 2020 Assets & liabilities Asia Pacific $m UK $m France $m Nordics $m Adjustments & Eliminations* $m Total $m Segment assets 6,500.8 2,716.0 10,602.9 1,866.9 (3,627.9) 18,058.7 Segment liabilities (2,139.5) (2,272.8) (8,573.7) (836.8) - (13,822.8) As at 30 June 2019 Assets & liabilities Segment assets 5,562.9 2,033.5 5,692.1 904.0 (1,552.7) 12,639.8 Segment liabilities (2,581.1) (1,395.7) (4,673.2) (966.7) - (9,616.7) *Adjustments and eliminations consist of unallocated goodwill (in 2019 only), investments in subsidiaries, intercompany and receivables/payables, most of which are eliminated on consolidation. 79 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 1. SEGMENT INFORMATION (CONTINUED) (i) Segment revenue reconciliation to Income Statement Total segment revenue Inter segment sales elimination Interest income Other income – net profit on disposal of non-current assets Other income – income from the sale of development assets Total revenue and other income (ii) Segment net profit after tax reconciliation to Income Statement 2020 $m 2019 $m 12,404.2 (8.7) 12.7 11.2 2.1 12,421.5 11,556.5 (3.7) 6.7 6.6 29.9 11,596.0 The executive management committee meets on a monthly basis to assess the performance of each segment by analysing the segment’s earnings before interest and tax (EBIT). A segment’s core net profit after tax excludes income and expenses from non-core items. Refer to the Overview note for the reconciliation of net profit attributable to owners of the parent to core profit (segment result) after tax. 2a. REVENUE AND OTHER INCOME Revenue from patients Revenue from governments under COVID 19 support contracts Rental income Income from ancillary services Revenue from contracts with customers 2020 $m 11,778.9 189.6 37.9 153.9 12,160.3 2019 $m 11,327.0 - 40.0 185.8 11,552.8 Revenue is recognised and measured at the amount of the consideration received or receivable to the extent that the performance obligations under contracts have been satisfied and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Revenue from patients Revenue from patients is recognised on the date on which the services were provided to the patient. Revenue from governments under COVID 19 support contracts During the period, specific contracts were entered into with various government bodies under which Ramsay made available its facilities and services, including equipment and staff, to assist with the respective government’s response to the COVID 19 pandemic. Each of the revenue agreements are specific to each government body as follows: Australia – agreements with the state governments of NSW, WA, Queensland and Victoria commenced from either 31 March or 1 April 2020 (each a State). In return for the commitment to maintain full workforce capacity at the facilities, Ramsay has received, and recognised as revenue, the net recoverable costs (being recoverable costs less any revenue generated from operations, calculated on an accruals basis (revenue amounts)) for these services. Recoverable costs include direct operating costs, service costs, corporate overhead costs (to the extent related to the provision of service), depreciation associated with pre-existing capital which is owned and depreciation associated with amortisation of leases. Interest and debt servicing costs are excluded. The agreements will end on various dates, depending on each States requirements. These end dates will (in most cases) be 20 or 30 days after the State gives notice but not before; in the case of the State of Victoria, the temporary restrictions imposed on private hospitals performing category 3 and non-urgent category 2 surgeries have been lifted; in the case of the State of Queensland, the State determines that activation of the Australian Health Sector Emergency Response Plan for Novel Coronavirus 2019 has ceased; and, in the case of NSW, the date notified by the Commonwealth government as being the last date covered by the private hospital financial viability payment under the National Partnership Agreement. Recoverable costs and revenue amounts are aggregated quarterly with each quarter considered separately with the first quarterly period ended 30 June 2020. Where the revenue amounts exceed recoverable costs the payment for that quarter is deemed to be zero. Victoria and Queensland include a “Pause and Restart” mechanism whereby the State can put the agreement on pause allowing the Operator to return to normal operations and relieves the State of any payment obligations during the pause while allowing the State to restart the contract to provide COVID 19 pandemic support when necessary. The Queensland State government has agreed to Ramsay’s request to put the agreement on hold from 1 July 2020. While the Victorian agreement was paused from 30 June 2020, it was restarted with effect from 23 July 2020. The NSW agreement does not have a Pause and Restart mechanism. 80 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 2a. REVENUE AND OTHER INCOME (CONTINUED) The agreement with the state government of WA was terminated with effect from 30 June 2020. However, it includes a right for the WA Department of Health to direct Ramsay for a 12 month period from 30 June 2020 to sign a new agreement on the same terms as the original agreement. This right can be exercised if the Department or the Commonwealth government reasonably form the view that this is necessary to ensure that the public and private health sectors can respond successfully to the COVID 19 pandemic. UK – an agreement with NHS England, commenced on 23 March 2020, to make the Ramsay UK facilities and services available to the NHS England and its patients. Ramsay receives, and recognises as revenue, the net cost of services provided, including operating costs, overheads, use of assets, rent and interest less a deduction for revenue earned through the provision of private, urgent elective care to patients. The term of the agreement was initially for a minimum of 14 weeks from 23 March 2020 and is currently on a rolling basis, which is terminable by the NHS England on one month’s notice. Future events could cause the assumptions on which these revenue accruals are based to change, which could affect the future results of the Group. As the revenue recognised by the Group in accordance with the contracts is variable, revenue has been recognised only to the extent that it is highly probable that a significant revenue reversal of the cumulative amount of revenue will not occur when the uncertainty associated with the variable consideration is resolved. Rental income Rental income is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives granted are recognised in the Income Statement as an integral part of the total rental income. Income from ancillary services Income from ancillary services is recognised on the date the services are provided to the customer. Income from sale of development assets Income from sale of development assets is recognised when the control of the development asset is transferred to the customer. Interest Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate (EIR), which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. 2b. OTHER INCOME – REVENUE FROM GOVERNMENT GRANTS Other income – income from government grants 2020 $m 235.2 2019 $m - Income from Government Grants Government grants are recognised when there is reasonable assurance that the grant will be received and all the attached conditions will be complied with. Grants are accounted for on a gross basis in revenue and expenses, by the Group. Where retention of a government grant is dependent on the Group satisfying certain criteria, it is initially recognised as deferred income. When the criteria for retention have been satisfied, the deferred income balance is recognised as other income. Ramsay Santé is a beneficiary of the French government decree, issued on 7 May 2020, which provides a guarantee of revenue from 1 March 2020 to 31 December 2020, equal to 10/12th of the 2019 calendar year revenue from the government, with some small indexation factor. Should the actual billings over this March to December period fall below the guaranteed revenue, then Ramsay Santé is entitled to the shortfall. In line with the requirements, under the guarantee, these estimates, payments and final square ups are completed on a site by site basis. As the final square up of the revenue guarantee will not be performed until March 2021 and the grant income recognised for Ramsay Santé is based on the current estimate at hand at the time of issuing the Ramsay Group financial statements, these estimates may be updated and produce a different outcome for the 31 December 2020 Ramsay Group half year results. Similarly, the Ramsay Santé accounts will not be issued until October 2020 and these estimates may be updated and produce a different outcome to the management accounts. The estimated grant income accrual earned under this guarantee, for the period 1 March 2020 to 30 June 2020, takes into consideration the forecast of revenue billings for the period 1 July 2020 to 31 December 2020. The key assumptions made in this estimation of the billings for the July 2020 to December 2020 period are: • • • estimate of hospital activity under current restrictions; estimate of the timing of when hospital operations will return to pre-COVID 19 activity levels; and estimate of whether there will be an initial increase in activity when restrictions end. 81 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 2c. REVENUE FROM CONTRACTS WITH CUSTOMERS AND INCOME FROM GOVERNMENT GRANTS Note Revenue from contracts with customers Other income – income from government grants Revenue from contracts with customers and income from government grants 2a 2b 3. EXPENSES 2020 $m 12,160.3 235.2 2019 $m 11,552.8 - 12,395.5 11,552.8 2020 $m 2019 $m (a) Depreciation Depreciation - Plant and equipment Depreciation - Buildings Depreciation - Right of use asset – Property Depreciation - Right of use asset – Plant and equipment Total depreciation (b) Amortisation Amortisation - Service concession assets Amortisation - Development cost Total amortisation (c) Impairment Impairment - Plant and equipment Impairment – Land and buildings Impairment - Right of use asset – Property Impairment – Intangible assets Total impairment (d) Property rental costs Expense relating to short term leases (included in occupancy costs) Expense relating to leases of low value assets (included in occupancy costs) Variable lease payments (included in occupancy costs) 315.4 143.3 - - 458.7 16.9 10.0 26.9 0.3 0.3 - - 0.6 292.4 148.2 339.6 61.7 841.9 18.1 33.2 51.3 4.8 11.2 20.8 0.7 37.5 3.4 3.5 0.5 The above should be read in conjunction with the note 7c. The Directors note that the 2020 results include the impact of accounting for AASB 16 Leases, whilst the 2019 results were prepared under the previous lease accounting standard requirements. (e) Employee benefit and contractor costs Wages and salaries Workers’ compensation Superannuation Termination benefits Social charges and contributions on wages and salaries Other employment Share-based payments (expenses arising from transactions accounted for as equity-settled share-based payment transactions) (f) Finance costs Interest expense Finance charges – Lease liability* Finance cost - unwinding of discount and effect of changes in discount rates on deferred consideration Finance costs capitalised 5,800.9 10.4 187.1 28.4 776.4 223.8 (6.6) 7,020.4 189.0 238.6 427.6 0.4 (4.0) 424.0 5,076.9 20.2 197.0 28.0 718.8 176.5 10.9 6,228.3 170.0 7.6 177.6 0.5 (2.2) 175.9 * Finance charges in relation to lease liabilities in the comparative year, 30 June 2019 only include leases classified as finance leases under AASB 117 Leases. Refer to the Overview section for further information regarding the additional lease liability balances taken on with the implementation of AASB 16 Leases. (g) Finance Costs - Recognition and Measurement Finance costs include interest, amortisation of discounts or premiums related to borrowings and other costs incurred in connection with the arrangement of borrowings. Financing costs are expensed as incurred unless they relate to a qualifying asset. A qualifying asset is an asset which generally takes more than 12 months to get ready for its intended use or sale. In these circumstances, the financing costs are capitalised to the cost of the asset. Where funds are borrowed by the Group for the acquisition or construction of a qualifying asset, the amount of financing costs capitalised are those incurred in relation to that borrowing. 82 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 4. DIVIDENDS (a) Dividend on ordinary shares paid during the year: (i) Interim dividend paid Franked dividends – ordinary (62.5 cents per share) (2019: 60.0 cents per share) (ii) Previous year final dividend paid Franked dividends – ordinary (91.5 cents per share) (2019: 86.5 cents per share) (b) Dividend proposed and not recognised as a liability: Current year final dividend proposed Franked dividends – ordinary (0.0 cents per share * ) (2019: 91.5 cents per share) (c) Dividends declared and paid during the year on CARES: Current year interim and previous year final dividend paid Franked dividends - CARES (d) Dividends proposed and not recognised as a liability on CARES: Final dividend proposed Franked dividends - CARES * No current year final dividend has been declared. (e) Franking credit balance The amount of franking credits available for the subsequent financial year are: - franking account balance as at the end of the financial year at 30% (2019: 30%) - franking credits that will arise from the payment of income tax payable as at the end of the financial year ** The amount of franking credits available for future reporting periods: - impact on the franking account of dividends proposed or declared before the financial report was authorised for issue but not recognised as a distribution to equity holders during the period Parent 2020 $m 2019 $m 126.3 121.2 184.9 311.2 174.8 296.0 - 184.9 11.3 12.8 4.6 6.0 704.2 9.5 713.7 646.2 17.0 663.2 (2.0) 711.7 (81.8) 581.4 ** As Ramsay Health Care Ltd and its 100% owned subsidiaries have formed a tax consolidated group, effective 1 July 2003, this represents the current tax payable for the Australian group. The tax rate at which paid dividends have been franked is 30% (2019: 30%). $4.6 million (2019: $190.9 million) of the proposed dividends will be franked at the rate of 30% (2019: 30%). 5. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent (after deducting the CARES dividend) by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after deducting the CARES dividend) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 83 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 I. RESULTS FOR THE YEAR (CONTINUED) 5. EARNINGS PER SHARE (CONTINUED) Net profit for the year attributable to the owners of the parent Less: dividend paid on Convertible Adjustable Rate Equity Securities (CARES) Profit used in calculating basic and diluted (after CARES dividend) earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilution – share rights not yet vested (a) Weighted average number of ordinary shares adjusted for the effect of dilution 2020 $m 284.0 (11.3) 272.7 2019 $m 545.5 (12.8) 532.7 2020 Number of Shares (m) 2019 Number of Shares (m)* 208.1 0.8 208.9 204.5 1.3 205.8 (a) The share rights granted to Executives but not yet vested, have the potential to dilute basic earnings per share. * The denominator for the purpose of calculating both basic and diluted earnings per share in 2019 has been adjusted to reflect the $1,500.0 million equity raise in the second half of FY20, at less than market value. There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. Earnings per share - basic (after CARES dividend) for the year - diluted (after CARES dividend) for the year II. CAPITAL – FINANCING HOW THE GROUP MANAGES ITS CAPITAL – FINANCING 2020 Cents per Share 2019 Cents per Share 131.0 130.5 260.5 258.9 When managing capital, management’s objective is to ensure the entity will be able to continue as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures sufficient funds are available for capital expenditure and growth strategies whilst at the same time striving for the lowest cost of capital available to the entity. The Company may raise or retire debt, change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt in order to achieve the optimal capital structure. The Group’s capital is comprised of equity plus net debt. Net debt is calculated as interest bearing liabilities plus derivatives relating to debt, less cash assets. During 2020, dividends of $322.5 million (2019: $308.8 million) were paid. For the year ended 30 June 2020 fully franked ordinary dividends of 62.5c (2019: 151.5c) per share were declared (Interim dividend of 62.5c. No current year final dividend is proposed). The group monitors its capital structure primarily by reference to its Group Consolidated Leverage Ratio** whereby debt levels are assessed relative to the cash operating profits (*EBITDA) of the Group that are used to service debt. This ratio is calculated as Net Debt/EBITDA and is 2.0 times for the year ended 30 June 2020 (2019: 3.1 times) calculated on a pre AASB16 basis. ** The Group has committed senior debt funding to October 2022 (please refer to Note 7e for further information in relation to these borrowings). As such, these subsidiaries have to comply with various financial and other undertakings in particular the following customary financial undertakings:   Total Net Leverage Ratio (Net Debt/*EBITDA) Interest Cover Ratio (*EBITDA/ Net Interest)  Minimum Shareholders Funds 84 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) HOW THE GROUP MANAGES ITS CAPITAL – FINANCING (CONTINUED) During April 2020, due to the potential adverse impact of COVID 19 on earnings, Ramsay Health Care obtained covenant waivers and agreed to certain modifications to the Ramsay Group’s finance documents with the Ramsay Group’s financiers. The wholly owned Subsidiaries of the Group are not and have not been in breach of any of the financial and other undertakings of the Senior Debt Facility Agreement. During the second half of FY20, Ramsay Health Care also undertook an equity raising of $1,500.0 million. This action was taken to strengthen Ramsay’s balance sheet and provide financial flexibility in order to navigate an uncertain operating environment and increase financial flexibility. Proceeds from the equity raising have been used to partially repay Ramsay Funding Group’s revolving debt facilities, which remain available for redraw. As a result of the equity raising, the Group Consolidated Leverage Ratio** has reduced from 3.1x at 30 June 2019 to 2.0x as at 30 June 2020. Note: *EBITDA is Earnings before Interest, Tax, Depreciation and Amortisation. **The Group Consolidated Leverage Ratio is presented on a pre AASB16 basis, consistent with the Ramsay Funding Group debt facility documents Details of Capital – Financing are as follows: Equity Net Debt * Note 6 7 2020 $m 4,235.9 8,064.6 12,300.5 2019 $m 3,023.1 4,911.5 7,934.6 * Net debt increased by $4,929.6 million due to the implementation of AASB 16 Leases. Refer to the Overview section for further information regarding the additional lease liability balances taken on at 1 July 2019. 6. EQUITY Issued capital Treasury shares Convertible Adjustable Rate Equity Securities (CARES) Other reserves Retained earnings Non-controlling interests Note 6.1 6.2 6.3 2020 $m 2,197.6 (78.2) 252.2 (51.0) 1,431.9 483.4 4,235.9 6.1 Issued Capital (a) Issued and paid up capital At 1 July Shares issued – Share Placement (net of transaction costs) Shares issued – Share Purchase Plan At 30 June (b) Terms and conditions of issued capital 2020 Number (m) 202.1 21.4 5.4 228.9 2020 $m 713.5 1,183.3 300.8 2,197.6 2019 Number (m) 202.1 - - 202.1 2019 $m 713.5 (82.1) 252.2 (33.2) 1,693.3 479.4 3,023.1 2019 $m 713.5 - - 713.5 Ordinary Shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company. (c) Recognition and Measurement Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 6.2 Treasury Shares 1.2 million ordinary shares (30 June 2019: 1.3 million) 2020 $m 78.2 2019 $m 82.1 Nature & Purpose Treasury shares are shares in the Group held by the Employee Share Plans and are deducted from equity. 85 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 6. EQUITY (CONTINUED) 6.3 Convertible Adjustable Rate Equity Securities (CARES) (a) Issued and paid up capital 2.6 million CARES shares fully paid (30 June 2019: 2.6 million CARES shares fully paid) (b) Terms and conditions of CARES 2020 $m 2019 $m 252.2 252.2 Issuer Security Face Value Dividends Dividend Rate Step-up Franking Conversion or exchange by Ramsay Ramsay Health Care Limited Convertible Adjustable Rate Equity Securities (CARES) which are a non-cumulative, redeemable and convertible preference shares in Ramsay. $100 Per CARES. The holder of each CARES is entitled to a preferred, non-cumulative, floating rate dividend equal to: Dividend Entitlement = Dividend Rate x Face Value x N 365 where: N is the number of days in the Dividend Period The payment of Dividends is at the Directors’ discretion and is subject to there being funds legally available for the payment of Dividends and the restrictions which apply in certain circumstances under the financing arrangements. If declared, the first Dividend will be payable on each CARES in arrears on 20 October 2005 and thereafter on each 20 April and 20 October until CARES are converted or exchanged. The Dividend Rate for each Dividend Period is calculated as: Dividend Rate = (Market Rate + Margin) x (1-T) where: The Market Rate is the 180 day Bank Bill Swap Rate applying on the first day of the Dividend Period expressed as a percentage per annum. The Margin for the period to 20 October 2010 was 2.85% per annum. It was determined by the Bookbuild held on 26 April 2005. T is the prevailing Australian corporate tax rate applicable on the Allotment Date. As Ramsay did not convert or exchange by 20 October 2010 the Margin was increased by a one- time step up of 2.00% (200 basis points) per annum. One-time 2.00% (200 basis points) step-up in the Margin at 20 October 2010 Ramsay expects the Dividends paid on CARES to be fully franked. If a Dividend is not fully franked, the Dividend will be grossed up to compensate for the unfranked component. If, on a Dividend Payment Date, the Australian corporate tax differs from the Australian corporate tax rate on the Allotment Date, the Dividend will be adjusted downwards or upwards accordingly. CARES have no maturity. Ramsay may convert or exchange some or all CARES at its election for shares or $100 in cash for each CARES on 20 October 2010 and each Dividend Payment Date thereafter. Ramsay also has the right to:   Ramsay cannot elect to convert or exchange only some CARES if such conversion or exchange would result in there being less than $50 million in aggregate Face Value of CARES on issue. convert or exchange CARES after the occurrence of a Regulatory Event; and convert CARES on the occurrence of a Change in Control Event. Conversion Ratio Ranking Participation Voting Rights The rate at which CARES will convert into Shares will be calculated by reference to the market price of Shares during 20 business days immediately preceding, but not including, the conversion date, less a conversion discount of 2.5%. An adjustment is made to the market price calculation in the case of a Change in Control Event. The Conversion Ratio for each CARES will not be greater than 400 shares. CARES rank equally amongst themselves in all respects and are subordinated to all creditors but rank in priority to Shares. Unless CARES are converted into Shares, CARES confer no rights to subscribe for new shares in any fundraisings by Ramsay or to participate in any bonus or rights issues by Ramsay. CARES do not carry a right to vote at general meeting of Ramsay except in limited circumstances. 86 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7. NET DEBT Cash assets Loans and borrowings - current Lease liabilities – current Loans and borrowings - non-current Lease liabilities – non-current Derivative net assets / (liabilities) - debt related 7a. CASH AND CASH EQUIVALENTS Cash at bank and on hand Note 2020 $m 7a 7b 7c 7b 7c 7d 1,503.7 (32.3) (347.8) (4,195.5) (4,941.4) (51.3) (8,064.6) 2019 $m 745.5 (34.0) (73.1) (5,209.4) (278.1) (62.4) (4,911.5) 2020 $m 2019 $m 1,503.7 745.5 Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. (i) Recognition and Measurement Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and on hand and short-term deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts and restricted cash. (ii) Reconciliation to Statement of cash flows For the purposes of the Statement of cash flows, cash and cash equivalents comprise the following at 30 June Cash at bank and on hand (iii) Reconciliation of net profit after tax to net cash flows from operations Net profit after tax for the year Adjustments for: Share of profit of joint venture Depreciation, amortisation and impairment Interest received Share based payments expense Net (profit) / loss on disposal of non-current assets Changes in assets & liabilities Deferred tax Receivables Other assets Creditors, accruals and other liabilities Provisions Inventory Tax provisions Net cash from operating activities 1,503.7 745.5 309.2 (16.1) 930.7 (12.7) (6.6) (11.2) (39.1) (268.1) 5.6 929.6 (57.2) (84.0) 0.6 1,680.7 572.4 (19.1) 486.2 (6.7) 10.9 (6.6) (14.5) (299.6) 115.9 178.9 (130.9) (19.6) 36.0 903.3 87 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7a. CASH AND CASH EQUIVALENTS (CONTINUED) (iv) Reconciliation of liabilities arising from financing activities Loans- Current Loans- Non Current Lease Liabilities Balance at 1 July 2019 $m AASB16 Adjustment $m 34.0 5,209.4 351.2 - - 4,929.6 Restated Balance at 1 July 2019 $m 34.0 5,209.4 5,280.8 Cash Flows $m (1.7) (1,038.4) (323.8) Foreign Exchange movement $m - 16.7 0.3 New Leases $m - - 319.9 Other $m - 7.8 12.0 Balance as at 30 June 2020 $m 32.3 4,195.5 5,289.2 Total liabilities from financing activities 5,594.6 4,929.6 10,524.2 (1,363.9) 17.0 319.9 19.8 9,517.0 Sale of Facilities Other $m - - (19.7) $m - - - - Balance as at 30 June 2019 $m 34.0 5,209.4 351.2 5,594.6 Loans- Current Loans- Non Current Lease Liabilities Balance at 1 July 2018 $m 32.0 3,622.3 297.9 Cash Flows $m (211.9) 1,075.5 (80.2) Foreign Exchange movement $m (8.0) 88.3 11.0 New Leases $m - - 52.3 Business Combinations $m 221.9 423.3 89.9 Total liabilities from financing activities 3,952.2 783.4 91.3 52.3 735.1 (19.7) (v) Disclosure of financing facilities Refer to Note 7e. 7b. LOANS AND BORROWINGS Current Secured liabilities: - Bank loan Non-current Secured liabilities: - Bank loan Unsecured liabilities: - Bank and financial institution loans Total 2020 $m 2019 $m 32.3 34.0 2,809.1 2,883.0 1,386.4 4,195.5 2,326.4 5,209.4 4,227.8 5,243.4 Further information on bank loans is set out in Note 7e. (i) Fair values The fair values of the Group’s interest bearing loans and borrowings are determined by using the discounted cash flow method with discount rates that reflect market interest rates, specific country risk factors, individual creditworthiness of the counterparties and the other risk characteristics associated with the underlying debts. Unless disclosed below, the carrying amount of the Group’s current and non-current borrowings approximate their fair value. The fair values have been calculated by discounting the expected future cash flows at prevailing market interest rates depending on the type of borrowings. At reporting date, the market interest rates vary from 0.093% to 0.102% (2019: 1.21% to 1.22%) for Australia, 0.090% to 0.141% (2019: 0.722% to 0.774%) for UK and -0.510% to -0.422% (2019: -0.388% to - 0.345%) for France respectively. 88 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7b. LOANS AND BORROWINGS (CONTINUED) (i) Fair values (continued) The fair value of the interest bearing loans and borrowings was estimated using the level 2 method valuation technique in which the lowest level of input that is significant to the fair value measurement is directly or indirectly observable. Set out in the table below is a comparison by carrying amounts and fair value of the Group’s Interest bearing loans and borrowings. 2020 2019 Carrying Amount $m Fair Value $m Carrying Amount $m Fair Value $m Bank loans 4,227.8 4,657.9 5,243.4 5,365.4 The fair values disclosed are the Directors’ estimate of amounts that will be payable by the Group. (ii) Interest rate, foreign exchange & liquidity risk Details regarding interest rate, foreign exchange and liquidity risk is disclosed in Note 16. (iii) Assets pledged as security The carrying amounts of assets pledged as security for loans and borrowings are set out in the following table: Fixed and floating charge Fixed assets Investment holdings in subsidiaries Total non-current assets pledged as security (iv) Defaults & breaches 2020 $m 2019 $m - 3,667.2 3,667.2 85.0 2,010.7 2,095.7 During the current and prior years, there were no defaults or breaches on any of the loans. In April 2020, lenders to the Ramsay Funding Group provided consent to amend or waive key banking covenants tests, in connection with the funding agreements (FA) and the Common Term Deed Poll (CTDP), for the next two semi-annual covenant testing points up to and including the 31 December 2020 testing date. This waiver is given on the condition that the Company does not declare a dividend in relation to its ordinary shares (it being agreed that CARES and CARES 2 are not ordinary shares and that this condition does not therefore apply in respect of or seek to restrict the declaration or payment of dividends in respect of CARES or CARES 2) during the period up to 31 December 2020. (v) Subsequent Measurement Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. 7c. LEASE LIABILITIES The Group has lease contracts for hospitals, office space and various items of other equipment and vehicles used in its operations. Leases of hospitals and office space can have lease terms between 5 and 99 years, while vehicles and other equipment generally have lease terms between 5 and 10 years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets as disclosed above. Generally, the Group is restricted from assigning and subleasing the leased assets. There are several lease contracts that include extensions and termination options and variable lease payments, which are discussed below. The Group also has certain leases of equipment with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the ‘short term lease’ and ‘lease of low value assets’ recognition exemptions for these leases. 89 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7c. LEASE LIABILITIES (CONTINUED) At 1 July 2019 Adjustment on adoption of AASB16 Restated 1 July 2019 Additions Disposals or terminations Payments Accretion of interest Reassessment of lease terms Exchange differences At 30 June 2020 Current lease liabilities Non-current lease liabilities Total lease liabilities $m 351.2 4,929.6 5,280.8 319.9 (9.4) (660.1) 336.3 21.4 0.3 5,289.2 2019 $m 73.1 278.1 351.2 2020 $m 347.8 4,941.4 5,289.2 Lease liabilities in the comparative year, 30 June 2019 only include leases classified as finance leases under AASB 117 Leases. Refer to the Overview section for further information regarding the additional lease liability balances taken on with the implementation of AASB 16 Leases. (i) Assets pledged as security The carrying amounts of assets pledged as security for lease liabilities are set out in the following table: 2020 $m 2019 $m Leased assets pledged as security 351.6 412.6 (ii) Cash outflows The Group had total cash outflows for leases of approximately $667.5 million in 2020 - the principal portion of lease payments totalled $323.8 million, interest payments totalled $336.3 million and other payments relating to low-value assets, short term and variable lease payments totalled approximately $7.4 million (included in payments to suppliers and employees). 7d. DERIVATIVE FINANCIAL INSTRUMENTS Current liabilities Interest rate derivative contracts – cash flow hedges Non - current liabilities Interest rate derivative contracts – cash flow hedges (i) Instruments used by the Group 2020 $m 2019 $m (6.2) (18.6) (45.1) (43.8) Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to fluctuations in interest and foreign exchange rates. Interest rate swaps and forward foreign exchange contracts – cash flow hedges Interest bearing loans in Australian Dollar of the Group currently bear an average variable interest rate of 0.1532% (2019: 1.357%). Interest bearing loans in GBP of the Group currently bear an average variable interest rate of 0.1316% (2019: 0.7738%). Interest bearing loans in Euro of the Group currently bear an average variable interest rate of -0.2335% (2019: -0.2913%). 90 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL - FINANCING (CONTINUED) 7d. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) (i) Instruments used by the Group (continued) In order to reduce the variability of the future cash flows in relation to the interest bearing loans, the Group has entered into Australian Dollar, GBP and Euro interest rate swap contracts under which it has a right to receive interest at variable rates and to pay interest at fixed rates. Swaps in place cover approximately 57% (2019: 60%) of the principal outstanding. While the Group also enters into other foreign exchange forward contracts with the intention to reduce the foreign exchange risk of expected sales and purchases, these other contracts are not designated in hedge relationships and are measured at fair value through profit or loss. (ii) Interest rate risk Information regarding interest rate risk exposure is set out in Note 16. (iii) Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains. Management constantly monitor the fair value of favourable contracts outstanding with any individual counterparty. Management only deal with prime financial institutions with appropriate credit ratings in order to manage this credit risk. (iv) Recognition and Measurement The Group uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when the fair value is positive and as a liability when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in Other Comprehensive Income, and later classified to profit and loss when the hedge item affects profit or loss. For the purposes of hedge accounting, hedges are classified as:    fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; cash flow hedges when they hedge exposure to variability in cash flows that is attributable either to a particular risk associated with a recognised asset or liability or to a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment; or hedges of a net investment in a foreign operation. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:    There is an economic relationship between the hedged item and the hedging instrument; The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship; and The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item. Hedges that meet the strict criteria for hedge accounting are accounted for as follows: (a) Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised directly in Other Comprehensive Income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Income Statement as other operating expenses. The Group uses predominantly interest rate swap contracts as hedges of its exposure to fluctuations in interest rates. There is an economic relationship between the hedged item and the hedging instrument as the term of the interest rate swap matches the terms of the variable rate loan (that is, notional amount, maturity, base rate, payment and reset dates). 91 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7d. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) (iv) Recognition and Measurement (continued) (a) Cash flow hedges (continued) The Group only designates the intrinsic value of the interest rate option contracts as hedging instruments. The time value of the interest rate option contracts are recognised in Other Comprehensive Income and accumulated in a separate component of equity under the cost of Hedging Reserve. These deferred costs of hedging are recognised in the profit or loss on a systematic basis over the tenor of the interest rate option contracts. Amounts recognised as Other Comprehensive Income are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised as Other Comprehensive Income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in Other Comprehensive Income is transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in Other Comprehensive Income remains in Other Comprehensive Income until the forecast transaction or firm commitment affects profit or loss. The ineffectiveness recognised in the profit or loss was immaterial. (b) Bank loan designated as a hedge of a net investment The bank loan designated as a hedge of a net investment in a foreign operation is accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument (Bank Loan) relating to the effective portion of the hedge are recognised directly in Other Comprehensive Income, while any gains or losses relating to the ineffective portion are recognised in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in Other Comprehensive Income is transferred to the Income Statement. Subsequent Measurement For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:    Using recent arm’s length market transaction; Reference to the current fair value of another instrument that is substantially the same; or A discounted cash flow analysis or other valuation models. (v) Fair Value of Derivative Financial Instruments The fair value of the derivative financial instruments was estimated using the level 2 method valuation technique and is summarised in the table above. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves. The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships. Recognition and Measurement The Group measures financial instruments, such as, derivatives, at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:   In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. 92 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7d. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) (v) Fair Value of Derivative Financial Instruments (continued) A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in the relevant notes. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 Level 2 Level 3 Quoted (unadjusted) market prices in active markets for identical assets or liabilities Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during the year. The notional principal amounts and period of expiry of the interest rate derivatives contracts are as follows: 0-1 years 1-2 years 2-3 years 3-5 years Over 5 years 2020 $m 3,048.7 1,254.1 - 923.9 - 5,226.7 2019 $m 610.3 3,154.5 1,350.0 210.0 810.0 6,134.8 The interest rate derivatives require settlement of net interest receivable or payable each 90 or 180 days. They are settled on a net basis. The swaps are measured at fair value and all gains and losses attributed to the hedged risk are taken directly to equity and re-classified to the Income Statement when the interest expense is recognised. Hedge of net investments in foreign operations Included in bank loans at 30 June 2020 is a GBP borrowing of £120 million (2019: £244.1 million) which has been designated as a hedge of the net investment in the UK subsidiary. It is being used to hedge the Group’s exposure to changes in exchange rates on the value of its net investment in the UK operations. Gains or losses on the retranslation of this borrowing are transferred to Other Comprehensive Income to offset any gains or losses on translation of the net investment in the UK subsidiary. A net loss on the bank loan designated as a hedge of the net investment in a subsidiary of $15.8million (2019: net loss $5.8 million) was recognised in Other Comprehensive Income during the year. Included in bank loans at 30 June 2020 is a Euro borrowing of €478.7 million (2019: €478.7 million) which has been designated as a hedge of the net investment in the French subsidiary. It is being used to hedge the Group’s exposure to changes in exchange rates on the value of its net investment in the French operations. Gains or losses on the retranslation of this borrowing are transferred to Other Comprehensive Income to offset any gains or losses on translation of the net investment in the French subsidiary. A net loss on the bank loan designated as a hedge of the net investment in a subsidiary of $10.5 million (2019: net loss $22.2 million) was recognised in Other Comprehensive Income during the year. 93 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 II. CAPITAL – FINANCING (CONTINUED) 7e. BORROWINGS Note Maturity 2020 $m 2019 $m Current interest-bearing loans and borrowings € Bi-lateral Facilities Total current interest-bearing loans and borrowings (v) Up to Dec 2028 Non-current interest-bearing loans and borrowings A$ 800,000,000 Syndicated Facility Loan A$ 350,000,000 Syndicated Facility Loan A$ 325,000,000 Bi-lateral Term Loan £ 395,000,000 Syndicated Facility Loan € 225,000,000 Syndicated Facility Loan € 300,000,000 Syndicated Facility Loan € 800,000,000 Term Loan € 750,000,000 Term Loan € 100,000,000 Revolving Facility Loan € 75,000,000 Capex/acquisition Facility Loan € Bi-lateral Facilities Total non-current interest-bearing loans and borrowings Total interest-bearing loans and borrowings Dec 2023 (i) Nov 2022 (i) Oct 2024 (ii) Nov 2022 (i) Nov 2022 (i) Oct 2024 (i) Oct 2022 (iii) Oct 2024 (iii) Oct 2022 (iv) (iii) Oct 2022 (v) Up to Dec 2028 32.3 32.3 - - 320.8 289.3 288.0 488.4 1,275.2 1,220.9 - 65.1 247.8 4,195.5 4,227.8 34.0 34.0 721.0 - 319.0 515.6 284.9 486.0 1,325.0 1,215.0 - 64.8 278.1 5,209.4 5,243.4 (a) Ramsay and its wholly owned subsidiaries Ramsay Funding Group’s syndicated debt facility agreements and bi lateral debt facilities remain unchanged. The covenant package, group guarantees and other common terms and conditions in respect of the debt facilities is governed under the Common Terms Deed Poll (CTDP) which Ramsay executed in November 2016. (i) Syndicated revolving bank debt facility. (ii) Bi-lateral term loan facility and repayable in full on maturity. (b) Ramsay Santé and controlled entities Ramsay Santé and controlled entities’ senior debt facility agreements and bi lateral debt facilities remain unchanged. The lenders to these debt facilities only have recourse to Ramsay Santé and certain Ramsay Santé controlled entities. The debt facilities are secured by first ranking pledges over certain material companies of Ramsay Santé, granted only by Ramsay Santé and certain Ramsay Santé controlled entities. Guarantees have also been provided and are provided only by Ramsay Santé controlled entities. (iii) Syndicated term loan facilities repayable in full on maturity. (iv) Syndicated revolving bank debt facility (v) Euro bi-lateral facilities are secured by a first charge over certain Ramsay Santé and controlled entities’ land and buildings. 94 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING HOW THE GROUP MANAGES ITS OVERALL FINANCIAL POSITION The Group manages its overall financial position by segregating its balance sheet into two categories; Assets and Liabilities – Operating and Investing and Capital – Financing. Assets and Liabilities – Operating and Investing is managed at both the site and group level while Capital – Financing (refer to section II) is managed centrally. Details of Assets and Liabilities – Operating and Investing are as follows: Working Capital Property, plant and equipment Right of use assets Intangible assets Current and deferred tax assets/(liabilities) Other assets/(liabilities) 8. WORKING CAPITAL Trade and other receivables (current) Inventories Trade and other creditors Note 8 10 11 12 14 Note 8a 8b 8c 2020 $m (875.6) 4,447.2 4,477.9 4,246.1 143.6 (138.7) 12,300.5 2020 $m 1,916.9 411.0 (3,203.5) (875.6) 2019 $m (440.4) 4,642.8 - 4,263.3 15.7 (546.8) 7,934.6 2019 $m 1,589.5 344.8 (2,374.7) (440.4) Consistent with prior years, Ramsay actively manages the collection of debtor receipts and creditor and employee payments. This often results in a negative working capital metric. Any surplus or deficit in the working capital is managed through efficient use of the revolving debt facilities and cash balances. Refer to Note 7 for further information on the debt facilities and cash balances. 8a. TRADE AND OTHER RECEIVABLES Current Trade and other receivables Allowances for impairment loss Non-current Rental property bonds and guarantees receivable Other 2020 $m 2019 $m 1,978.6 (61.7) 1,916.9 52.0 26.1 78.1 1,632.9 (43.4) 1,589.5 61.8 17.9 79.7 Total 1,995.0 1,669.2 (i) Allowances for impairment loss An allowance for expected credit loss (ECL) is recognised based on the difference between the contractual cash flows and the expected cash flows. The Group has applied a simplified approach in calculating ECLs by establishing a provision matrix for forward-looking factors specific to the debtors and the economic environment. Movements in the provision for impairment loss were as follows: At 1 July AASB 9 Financial Instruments adjustment At 1 July - restated Charge for the year Foreign exchange translation Amounts written off At 30 June 2020 $m 2019 $m (43.4) - (43.4) (43.2) (2.1) 27.0 (61.7) (47.0) (1.1) (48.1) (17.5) (0.6) 22.8 (43.4) 95 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 8a. TRADE AND OTHER RECEIVABLES (CONTINUED) (ii) Ageing analysis At 30 June, the ageing analysis of trade and other receivables is as follows: Total $m Neither past due nor impaired $m 0-30 Days PDNI* $m 31-60 Days PDNI* $m 61-90 Days PDNI* $m 91+ Days PDNI* $m Considered impaired $m 2020 2019 2,056.7 990.0 245.3 238.5 211.9 309.3 1,712.6 1,208.7 203.4 110.6 88.5 58.0 61.7 43.4 *PDNI – Past due not impaired Receivables past due but not considered impaired are: $1,005.0 million (2019: $460.5 million). Payment terms on these amounts have not been re-negotiated as based on the credit history of receivables past due not considered impaired, management believes that these amounts will be fully recovered. This is due to the fact that the Group mainly deals with the Government and creditworthy Health Funds. (iii) Related party receivables For terms and conditions of related party receivables refer to Note 20. (iv) Fair value Due to the short term nature of the current receivables, the carrying value approximates fair value. The carrying values of the discounted non-current receivables approximates their fair values. (v) Credit risk The maximum exposure to credit risk for current receivables is their carrying value. Collateral is not held as security. The Group’s credit risk is low in relation to trade debtors because the majority of transactions are with the Government and Health Funds. The maximum exposure to credit risk for non-current receivables at the reporting date is the carrying value of these receivables. The majority of the non-current receivables are assessed as low risk. (vi) Foreign exchange & interest rate risk Details regarding foreign exchange and interest rate risk exposure are disclosed in Note 16. 8b. INVENTORIES Amount of medical supplies to be consumed in providing future patient services – at cost Development assets to be sold that are currently under construction – at cost 2020 $m 2019 $m 365.2 45.8 411.0 293.8 51.0 344.8 (i) Inventory expense Medical supplies recognised as an expense for the year ended 30 June 2020 totalled $2,723.1 million (2019: $2,592.2 million) for the Group. This expense has been included in the medical consumables and supplies in the Income Statement. The cost of development assets sold which has been recognised as an expense for the year ended 30 June 2020 totalled $6.8 million (2019:$ 19.4 million) for the Group. This expense has been included in Cost of development assets sold in the Income Statement. (ii) Recognition and Measurement Inventories are recorded using the FIFO method and are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Inventories include medical supplies to be consumed in providing future patient services, and development assets, including medical suites to be sold, that are currently under construction. 96 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 8c. TRADE AND OTHER CREDITORS Trade payables Sundry creditors and accrued expenses Employee and Director entitlements Other creditors 2020 $m 2019 $m 1,148.6 505.5 993.6 555.8 3,203.5 1,035.3 473.2 865.9 0.3 2,374.7 (i) Fair values Trade payables are non-interest bearing and are normally settled on 30-60 day terms. Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. (ii) Interest rate, foreign exchange & liquidity risk Details regarding interest rate, foreign exchange and liquidity risk exposure are set out in Note 16. 9. BUSINESS COMBINATIONS Business Combinations – 2020 Ramsay has recognised amounts for business combinations in the financial statements for the year ended 30 June 2020 which have been determined on a provisional basis only. These businesses are within the healthcare sector. Assets Liabilities Fair value of identifiable net assets Goodwill arising Business combination date fair value of consideration transferred Direct costs relating to the business combination included within service costs The cash outflow as a result of the business combination is as follows: Cash Paid Net consolidated cash outflow $m 16.2 (10.4) 5.8 19.6 25.4 - (25.4) (25.4) Capio - 2019 On the 7 November 2018, 17 November 2018 and 12 June 2019, Ramsay Santé (formerly Ramsay Générale de Santé) acquired a total of 100% of the share capital of Capio. Ramsay Santé has recognised the fair values of the identifiable assets and liabilities of Capio as outlined in the table below. The purchase price accounting has now been finalised. In the final purchase price accounting of the Capio acquisition, Ramsay Santé has reassessed the existence and fair value of unfavourable contracts at the time of acquisition. This has led to the recognition of provisions for a further $100.4 million, together with other immaterial changes to fair values of other assets and liabilities, from first disclosure following acquisition. These adjustments have increased the goodwill arising on acquisition by $87.8 million. 97 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 9. BUSINESS COMBINATIONS (CONTINUED) Capio 2019 (Continued) Cash Accounts Receivable Inventory Corporate tax receivable Other assets Property, plant and equipment Intangible assets Deferred income tax asset Creditors and accruals Interest-bearing liabilities Provisions and other liabilities Fair value of identifiable net liabilities Non-controlling interest Goodwill arising on acquisition Business combination date fair value of consideration transferred Cash paid Total cash paid Direct costs relating to the business combination – included within service costs The cash outflow as a result of the business combination is as follows: Net cash acquired Cash paid Net consolidated cash outflow $m 10.0 180.5 44.7 14.3 217.8 316.2 383.9 57.3 (536.5) (735.1) (294.3) (341.2) (3.3) 1,587.9 1,243.4 (1,243.4) (1,243.4) 28.5 10.0 (1,243.4) (1,233.4) The goodwill of $1,587.9 million comprises the value of synergies expected to be achieved as a result of combining Capio with the rest of the Group, as well as intangible assets that do not qualify for separate recognition. The acquisition provides a number of strategic benefits consistent with Ramsay’s growth strategy. None of the goodwill recognised is expected to be deductible for income tax purposes. The goodwill balance represents goodwill attributable to Ramsay Santé. The Group has elected to measure the non-controlling interests in the acquiree at their fair value. The non-controlling interests in the acquiree at the time of the business combination represents other non-controlling interests within the Capio group. The fair value of the acquired receivables amounts to $180.5 million. The gross contractual amount receivable is $196.1 million. The revenue of Capio from acquisition to 30 June 2019 was $1,756.4 million and the profit before tax for this period was not significant to the Group. If Capio had been acquired at the beginning of the financial year, on 1 July 2018, the total revenue and other income for the Group would have been $12,380.3 million for the year ended 30 June 2019 and the profit before income tax from continuing operations for the Group would not have been significantly different to the Group profit before tax as reported. 98 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 9. BUSINESS COMBINATIONS (CONTINUED) Other Business Combinations – 2019 Ramsay recognised amounts for business combinations in the financial statements for the year ended 30 June 2019 which are as follows: Assets Liabilities Fair value of identifiable net assets Goodwill arising Non-controlling interest Business combination date fair value of consideration transferred Direct costs relating to the business combination included within service costs The cash outflow as a result of the business combination is as follows: Net cash acquired Cash Paid Net consolidated cash outflow $m 67.5 (29.5) 38.0 43.6 (0.4) 81.2 3.8 7.1 (81.2) (74.1) These businesses are within the healthcare sector. The purchase price accounting has now been finalised. There was not a material difference in the provisional fair values initially recognised. (i) Recognition and Measurement Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the business combination date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Business combination related costs are expensed as incurred. In accounting for a business combination, the Group assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the business combination date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the business combination date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of AASB 9 Financial Instruments, is measured at fair value with changes in fair value recognised in profit or loss. If the contingent consideration is not within the scope of AASB 9, it is measured in accordance with the appropriate AASB. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. (ii) Key Estimates and Assumptions The Group recognises the identifiable assets and liabilities of businesses at their business combination date fair values. Where a significant amount of land and buildings are recognised in the business combination, the fair value will be determined by an external valuer using an approach relevant to the private healthcare market in that country. 99 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 10. PROPERTY, PLANT AND EQUIPMENT Land & Buildings $m Plant & Equipment $m Assets Under Construction $m 2,583.8 (1,631.0) 952.8 1,112.0 (148.7) 963.3 215.2 81.4 - (292.4) (4.8) (2.5) (7.4) 487.4 - 487.4 361.8 - 361.8 327.2 (198.4) - - - (0.7) (2.5) Total $m 6,891.2 (2,444.0) 4,447.2 4,642.8 (368.3) 4,274.5 633.3 - 13.6 (440.6) (16.0) (10.1) (7.5) 952.8 487.4 4,447.2 2,685.5 (1,573.5) 1,112.0 887.1 280.5 95.1 158.7 (315.4) (0.3) (8.2) - 14.5 1,112.0 2,379.9 (1,492.8) 887.1 361.8 - 361.8 359.3 244.8 (271.6) 27.4 - - - - 1.9 361.8 359.3 - 359.3 7,039.3 (2,396.5) 4,642.8 4,113.1 643.2 - 372.3 (458.7) (0.6) (77.7) (3.5) 54.7 4,642.8 6,335.1 (2,222.0) 4,113.1 30 June 2020 Cost Accumulated depreciation and impairment Movement: At 1 July 2019 Transfer to right of use asset Restated 1 July 2019 Additions Transferred from assets under construction Business combination Depreciation Impairment Disposals Exchange differences At 30 June 2020 30 June 2019 Cost Accumulated depreciation and impairment Movement: At 1 July 2018 Additions Transferred from assets under construction Business combination Depreciation Impairment Disposals Assets reclassified as held for sale Exchange differences At 30 June 2019 1 July 2018 Cost Accumulated depreciation and impairment 3,820.0 (813.0) 3,007.0 3,169.0 (219.6) 2,949.4 90.9 117.0 13.6 (148.2) (11.2) (6.9) 2.4 3,007.0 3,992.0 (823.0) 3,169.0 2,866.7 117.9 176.5 186.2 (143.3) (0.3) (69.5) (3.5) 38.3 3,169.0 3,595.9 (729.2) 2,866.7 100 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) (i) Recognition and Measurement Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Depreciation is calculated, consistent with the prior year, on a straight-line basis over the estimated useful life of the assets as follows:  Buildings and integral plant – 40 to 60 years  Leasehold improvements – over lease term  Plant and equipment, other than plant integral to buildings – various periods not exceeding 10 years The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. (a) Impairment The carrying values of property, plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of property, plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash- generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value. An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. Impairment losses are recognised in the Income Statement in the expense category Depreciation, amortisation and impairment. An assessment is also made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. (b) Derecognition & disposal An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement in the year the asset is derecognised. (ii) Key Estimates and Assumptions Useful lives of assets are estimated based on historical experience. The useful life of assets are assessed annually and adjusted where deemed necessary. 101 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 11. RIGHT OF USE ASSETS The right of use assets have arisen upon adoption of AASB16 Leases from 1 July 2019. Refer to the Overview note for further information. Leased property $m Leased plant & equipment $m Total $m 30 June 2020 Cost Accumulated depreciation Movement: At 1 July 2019 Adjustment on adoption of AASB16 Transfer from property, plant and equipment (Note 10) Restated 1 July 2019 Additions Depreciation Impairment Reassessment of lease terms Disposals or terminations Exchange differences At 30 June 2020 30 June 2019 Cost Accumulated depreciation 5,445.2 (1,173.4) 4,271.8 - 4,130.6 219.6 4,350.2 251.4 (339.6) (20.8) 21.4 (5.0) 14.2 4,271.8 - - - 338.3 (132.2) 206.1 - 49.4 148.7 198.1 68.5 (61.7) - - (0.5) 1.7 206.1 - - - 5,783.5 (1,305.6) 4,477.9 - 4,180.0 368.3 4,548.3 319.9 (401.3) (20.8) 21.4 (5.5) 15.9 4,477.9 - - - Leased assets, where pledged, are used as security for the related lease liabilities. Refer note 7c. 102 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 12. INTANGIBLE ASSETS Goodwill $m Service Concession Assets $m Other^ $m Total $m 30 June 2020 Cost Accumulated depreciation Movement: At 1 July 2019 Adjustment on adoption of AASB16 Revised 1 July 2019 opening balance Additions Amortisation Disposals Business combination Impairment Exchange differences At 30 June 2020 30 June 2019 Cost Accumulated depreciation Movement: At 1 July 2019 Additions Amortisation Disposals Business combination Exchange differences At 30 June 2019 1 July 2018 Cost Accumulated depreciation 3,783.4 - 3,783.4 3,767.0 - 3,767.0 - - (1.2) 19.6 - (2.0) 3,783.4 3,767.0 - 3,767.0 2,152.0 - - (98.6) 1,631.5 82.1 3,767.0 2,152.0 - 2,152.0 216.0 (85.4) 130.6 154.0 (6.8) 147.2 3.1 (18.1) - - - (1.6) 130.6 219.2 (65.2) 154.0 61.6 0.4 (16.9) - 105.8 3.1 154.0 109.7 (48.1) 61.6 460.1 (128.0) 332.1 342.3 - 342.3 27.6 (33.2) (5.5) - (0.7) 1.6 332.1 436.5 (94.2) 342.3 48.9 42.7 (10.0) (23.4) 278.4 5.7 342.3 132.7 (83.8) 48.9 4,459.5 (213.4) 4,246.1 4,263.3 (6.8) 4,256.5 30.7 (51.3) (6.7) 19.6 (0.7) (2.0) 4,246.1 4,422.7 (159.4) 4,263.3 2,262.5 43.1 (26.9) (122.0) 2,015.7 90.9 4,263.3 2,394.4 (131.9) 2,262.5 ^ Mainly brands and internally generated software costs (i) Goodwill – Recognition and Measurement Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The key factor contributing to the goodwill relates to the synergies existing within the acquired businesses and also expected to be achieved as a result of combining these facilities with the rest of the Group. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is determined to have an indefinite life. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated such that:   It represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and Is not larger than an operating segment determined in accordance with AASB 8 Operating Segments. 103 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 12. INTANGIBLE ASSETS (CONTINUED) (i) Goodwill – Recognition and Measurement (continued) Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. (ii) Intangible assets – Recognition and Measurement Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the Income Statement. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level consistent with the methodology outlined for goodwill impairment testing. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. Service Concession Assets Brands Software costs Useful lives Finite Amortisation method used Amortised over the period of the lease Indefinite Not applicable Internally generated or acquired Impairment testing Acquired Acquired Finite Amortised over the period of expected future benefit from the related project on a straight line basis Internally generated When an indication of impairment exists. The amortisation method is reviewed at each financial year end. Annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. When an indication of impairment exists. The amortisation method is reviewed at each financial year end. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Income Statement when the asset is derecognised. (iii) Service concession assets – Recognition and Measurement Service concession assets represent the Group’s rights to operate hospitals under Service Concession Arrangements. Service concession assets constructed by the Group are recorded at the fair value of consideration received or receivable for the construction services delivered. Service concession assets acquired by the Group are recorded at the fair value of the assets at the date of acquisition. All service concession assets are classified as intangible assets. To the extent that the Group has an unconditional right to receive cash or other financial assets under the Service Concession Arrangements a financial asset has been recognised. The financial asset is measured at fair value on initial recognition and thereafter at amortised cost using the effective interest rate method. The financial asset will be reflected on initial recognition and thereafter as a ‘loan or receivable’. (iv) Key Estimates and Assumptions Useful lives of assets are estimated based on historical experience and the expected period of future consumption of embodied economic benefits. Adjustments to useful lives are made where deemed necessary. 104 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 13. IMPAIRMENT TESTING OF GOODWILL (i) Description of the cash generating units and other relevant information Goodwill acquired through business combinations has been allocated in part to individual cash generating units and part to segments as synergies are achieved from the larger Group. Management assess goodwill by aggregating cash generating units to the level of the segment for purposes of impairment testing because the goodwill relates to synergies existing within the acquired business and synergies achieved from combining acquired facilities with the rest of the Group. This is tested for impairment on an annual basis. Goodwill has been allocated to the Australian business, the UK business, the French business and the Nordics as follows: Australia $m 1,181.7 1,181.7 UK $m 272.7 275.5 France $m Nordic $m Unallocated* $m 1,280.9 1,048.1 - 770.8 - 1,539.0 Total $m 3,783.4 3,767.0 2020 2019 * As at 30 June 2020, all of the unallocated goodwill arising from the acquisition of Capio had been allocated to cash- generating units. (ii) Key Estimates and Assumptions The recoverable amount of the Australian business, the UK business, the French business and the Nordics business has been determined based on a value in use calculation using cash flow projections as at 30 June 2020 based on financial estimates approved by senior management and the Board of Directors covering the following financial year. In determining the 2021 (year 1) cash flow projections and subsequent year growth factors, management has factored in the performance of the Group in the current year, including the period impacted by the COVID 19 pandemic. This has resulted in lower year 1 margins across the Cash Generating Units (CGUs) due to factoring in patient volume downturn, associated government health viability contracts and government grants, and the increased cost of service as a result of heightened personal protective equipment use and staffing levels. As COVID 19 is only expected to have a short term impact on the business, Management currently forecasts that the Group volume and cost profiles will return to pre-COVID 19 levels by 30 June 2021 for all CGUs. A growth factor is then applied to the following 4 years through to the end of the value in use models. Key assumptions used in the value in use calculations are as follows: Terminal value (Year 5+) 2020 2019 Pre-tax discount rate 2020 2019 Key inputs in value in use calculations are: Australia % 3.3 3.5 10.3 10.0 UK % 1.9 1.9 8.2 7.6 France % Nordics % 1.0 1.0 7.7 7.9 2.0 N/A 7.2 N/A  Tax rates have been estimated at 30% for Australian operations, and 19% - 34.4% for overseas operations consistent with the current local tax legislation.  Discount rates – discount rates reflect management’s estimate of the time value and the risks specific to each of the cash generating units that are not already reflected in the cash flows. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates for each unit, regard has been given to the weighted average cost of capital of the entity as a whole and adjusted for country and business risk specific to the unit.  Growth rate estimates – they are based on management’s internal estimates of long term growth rates for each of the cash generating units. Management has performed sensitivity testing by CGU and on the aggregated CGUs based on assessing the effect of changes in hospital occupancy rates, health fund rates, wage increases, revenue growth rates and discount rates. COVID 19 is only expected to have a short term impact on the business and therefore the impact on the value in use for each CGU is minimal. For Australia, the United Kingdom, France and the Nordics, management do not consider that any reasonably likely changes in hospital occupancy rates, health fund rates, wage increases, revenue growth rates and discount rates would result in the carrying value of goodwill exceeding the recoverable amount. 105 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 14. TAXES (a) Income tax expense The major components of income tax expense are: Income Statement Continuing operations: Current income tax Current income tax charge Deferred income tax Relating to origination and reversal of temporary differences Adjustments in respect of deferred income tax of previous years Income tax expense reported in the Income Statement (b) Numerical reconciliation between aggregate tax expense recognised in the Income Statement and tax expense calculated per the statutory income tax rate A reconciliation between tax expense and the product of the accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before tax At the Parent Entity’s statutory income tax rate of 30% (2019: 30%) Expenditure not allowable for income tax purposes Amounts not assessable for income tax purposes Impact of changes in foreign tax rates on deferred tax balances Other French income tax expense Foreign tax rate adjustment due to differences in rates between Australia and Other Countries Other Income tax expense reported in the consolidated Income Statement (c) Recognised tax assets and liabilities 2020 $m 2019 $m 193.1 281.1 (36.7) 0.6 157.0 12.8 (19.5) 274.4 466.2 139.8 13.7 (39.1) (2.6) 44.4 6.4 (5.6) 157.0 157.0 846.8 254.0 22.4 (8.5) - 12.8 0.4 (6.7) 274.4 274.4 Opening balance Adjustment on adoption of AASB 16 Leases Restated opening balance (Charged)/ credited to income Credited to equity Payments Exchange differences Acquisition and disposal of subsidiary Closing balance 2020 $m Current income tax 2020 $m Deferred income tax 2019 $m Current income tax 2019 $m Deferred income tax (40.9) - (40.9) (193.1) - 198.1 1.1 - (34.8) 56.6 59.6 116.2 36.1 11.5 - 12.3 2.3 178.4 (24.0) - (24.0) (281.1) - 252.6 3.1 8.5 (40.9) (34.6) - (34.6) 6.7 34.1 - (3.3) 53.7 56.6 106 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 14. TAXES (CONTINUED) (c) Recognised tax assets and liabilities (continued) Amounts recognised in the Statement of Financial Position for Deferred Income Tax at 30 June: (i) Deferred tax liabilities Inventory Recognition of revenue Depreciable assets Other provisions and lease liabilities Gross deferred tax liabilities Set-off of deferred tax assets Net deferred tax liabilities (ii) Deferred tax assets Employee provisions Other provisions and lease liabilities Unearned income Losses Derivatives Gross deferred tax assets Set-off of deferred tax liabilities Net deferred tax assets (d) Tax consolidation Statement of Financial Position 2020 $m 2019 $m (17.1) (15.4) (123.6) (128.1) (284.2) 53.5 (16.1) (16.3) (175.0) (195.6) (403.0) 69.1 (230.7) (333.9) 168.3 268.5 6.9 7.3 11.6 462.6 (53.5) 409.1 154.5 270.5 2.8 14.8 17.0 459.6 (69.1) 390.5 Ramsay Health Care Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group effective 1 July 2003. Ramsay Health Care Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax funding and sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries using a group allocation method on a modified standalone basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current and deferred taxes using a group allocation method, on a modified standalone basis in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made every six months. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries' inter- company accounts with the tax consolidated group head company. There is no difference between the current and deferred tax amounts allocated under the tax funding agreement and the amount subsequently charged to the subsidiary. Therefore, there is no contribution/distribution of the subsidiaries' equity accounts. As a result of tax consolidation, intercompany assets of Ramsay Health Care Limited have increased by $10.5 million (2019: increased by $30.9 million). This is included in the summarised information relating to Ramsay Health Care Limited. Refer to Note 24. 107 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 14. TAXES (CONTINUED) (e) Income Tax - Recognition and Measurement Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except:  when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised, except:  when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or  when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the Income Statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. (f) Other taxes – Recognition and Measurement Revenues, expenses and assets are recognised net of the amount of GST except:  where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included.  The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. 108 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 14. TAXES (CONTINUED) (g) Key Estimates and Assumptions In determining the Group’s deferred tax assets and liabilities, management is required to make an estimate about the availability of future taxable profits and cash-flows. Changes in circumstances will alter expectations, which may impact the amount of tax losses and temporary differences recognised. (h) Tax losses At 30 June 2020, there is $0.7 million (2019: $3.2 million) of capital losses carried forward for which a deferred tax asset has not been recognised. As it is not probable they will be used in the foreseeable future, they have not been recognised. 15a. INVESTMENT IN JOINT VENTURE The Group has a 50% interest in Ramsay Sime Darby Health Care Sdn Bhd (RSDH), a joint venture involved in operating hospitals and day surgery facilities across Malaysia and Indonesia and a 50% interest in Ascension Ramsay Global Sourcing Limited. The Group’s interest in both entities is accounted for using the equity method in the consolidated financial statements. Investment in joint venture at beginning of period AASB 16 adjustment Share of profit of joint venture Dividend paid Foreign currency translation and other equity movements Recognition and Measurement 2020 $m 270.3 (0.2) 16.1 (35.0) (5.4) 245.8 2019 $m 241.5 - 19.1 - 9.7 270.3 A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investment in a joint venture is accounted for using the equity method. Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The Income Statement reflects the Group’s share of the results of operations of the joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture. The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of the Income Statement outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the joint venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in the joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, then recognises the loss as ‘Share of profit of joint venture’ in the Income Statement. Upon loss of joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss. 109 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 15b. PROVISIONS Current Restructuring provision Unfavourable contracts Insurance provision Legal and compliance provision Deferred lease provision Other provisions Non-current Non-current employee and Director entitlements Deferred lease provision Unfavourable contracts Insurance provision Restructuring provision Legal and compliance provision Other provisions Total 2020 $m 2019 $m 16.0 10.8 13.7 38.7 - 54.5 133.7 41.3 - 67.8 74.2 51.6 148.8 6.3 390.0 523.7 2.1 113.5 12.7 23.1 1.1 30.7 183.2 37.1 293.2 215.4 85.5 101.0 20.3 23.4 775.9 959.1 (i) Recognition and Measurement Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement net of any reimbursement. If the effect of the time value of money is material, 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, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (ii) Movements in provisions At 1 July 2019 Adjustment on adoption of AASB 16 Leases Restated 1 July 2019 Arising during the year Utilised during the year Exchange differences Unused amounts reversed Discount rate adjustment At 30 June 2020 Current 2020 Non-current 2020 Deferred lease $m 294.3 (294.3) - - - - - - - - - - Current 2019 Non-current 2019 1.1 293.2 294.3 Restructuring $m Insurance $m contracts $m Unfavourable Legal and compliance $m 103.1 - 103.1 11.9 (42.6) (5.3) 0.5 - 67.6 16.0 51.6 67.6 2.1 101.0 103.1 98.2 - 98.2 4.3 (8.7) (5.9) - - 87.9 13.7 74.2 87.9 12.7 85.5 98.2 328.9 (207.3) 121.6 - (44.2) - 1.2 - 78.6 10.8 67.8 78.6 113.5 215.4 328.9 43.4 - 43.4 161.2 (10.1) (7.1) 0.1 - 187.5 38.7 148.8 187.5 23.1 20.3 43.4 Other provisions $m 54.1 Total $m 922.0 - (501.6) 54.1 17.6 (9.0) (3.3) 1.4 - 420.4 195.0 (114.6) (21.6) 3.2 - 60.8 482.4 54.5 6.3 60.8 30.7 23.4 54.1 133.7 348.7 482.4 183.2 738.8 922.0 110 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 15b. PROVISIONS (CONTINUED) (iii) Nature and timing of provisions Restructuring provision The restructuring provision primarily relates to:   the restructuring of the Group subsequent to acquisitions. Provisions are made in the year the restructuring plans are drawn up and announced to employees; and restructuring of entities with the Group, announced prior to acquisition. Insurance provision Insurance policies are entered into to cover the various insurable risks. These policies have varying levels of deductibles. The medical malpractice provision is made to cover deductibles arising under the Medical Malpractice Insurance policy, including potential uninsured and ‘Incurred but not Reported’ claims. (i) Key Estimates and Assumptions This provision is actuarially assessed at each reporting period using a probability of sufficiency between 80% - 95% based on differing exposures to risk. The greatest uncertainty in estimating the provision is the costs that will ultimately be incurred which is estimated using historical claims, market information and other actuarial assessments. Included in the insurance provision is an amount for claiming handling expenses at between 5%-10% of the estimated Ramsay claim cost. Employee leave benefits (i) Wages, salaries, annual leave & sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non- accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Deferred lease provision The deferred lease provision was recognised in accordance with AASB117 Leases for contracts where there was a fixed, not variable annual increase written into the lease, requiring the lease costs to be straight lined over the lease term. The provision represents the excess of rent expensed over the rent paid. Deferred lease provisions have been written back on adoption of AASB 16 Leases. Refer to the Overview section for further information. Unfavourable contracts This provision consists of VAT and other taxes payable on impaired right of use assets for certain leases. Legal and compliance provision The legal and compliance provision primarily relates to amounts provided for litigation that is currently in the court process or a matter under review by a relevant authority. 15c. SUPERANNUATION COMMITMENTS The Group contributes to industry and individual superannuation funds established for the provision of benefits to employees of entities within the economic entity on retirement, death or disability. Benefits provided under these plans are based on contributions for each employee and for retirement are equivalent to accumulated contributions and earnings. All death and disability benefits are insured with various life insurance companies. The entity contributes to the funds at various agreed contribution levels, which are not less than the statutory minimum. 111 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 15d. DEFINED EMPLOYEE BENEFIT OBLIGATION The Group has a defined employee benefit obligation in France as required to be paid under local legislation. There is also a defined benefit obligation in the Nordics. The following tables summarise the funded status and amounts recognised in the consolidated Statement of Financial Position for the plans: 2020 $m 2019 $m 2018 $m 2017 $m 2016 $m Net (liability) included in the Statement of Financial Position Present value of defined benefit obligation Fair value of plans assets Net (liability) - non-current (418.4) 195.5 (222.9) (389.9) 174.6 (215.3) (85.7) 5.3 (80.4) 2020 $m (80.2) 5.0 (75.2) (75.6) 5.0 (70.6) 2019 $m Net expense for the defined employee benefit obligation (Note 3) (recognised in superannuation expenses) 24.5 12.7 Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation Acquisition balances Current service cost Interest cost Benefits paid Actuarial losses on obligation Exchange differences on foreign plans Closing defined benefit obligation Changes in the fair value of plan assets are as follows: Opening fair value of plans assets Acquisition balances Expected return Contributions by employer Benefits paid Actuarial gains Exchange differences on foreign plans Fair value of plans assets Actuarial return on plan assets Plan assets are invested as follows: Equities Bonds Property Other The Group expects to contribute $ nil to its defined benefit obligations in 2021. Actuarial losses recognised in the Statement of Comprehensive Income Cumulative actuarial losses recognised in the Statement of Comprehensive Income 10.2 102.6 112 2020 $m 2019 $m 389.9 - 18.9 9.0 (10.5) 11.6 (0.5) 418.4 174.6 - 3.4 19.6 (3.2) 1.4 (0.3) 195.5 (3.4) 85.7 196.0 9.4 3.3 (10.7) 96.4 9.8 389.9 5.2 151.5 1.9 2.9 - 8.1 5.0 174.6 (1.9) 2020 (%) 2019 (%) 21.6 49.9 9.4 19.1 2020 $m 2019 $m 24.0 48.8 12.9 14.3 88.3 92.4 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 III. ASSETS AND LIABILITIES OPERATING AND INVESTING (CONTINUED) 15d. DEFINED EMPLOYEE BENEFIT OBLIGATION (CONTINUED) The principal actuarial assumptions used in determining obligations for the liabilities are shown below (expressed as weighted averages): Discount rate Future salary increases Future pension increases (i) Recognition and Measurement 2020 (%) 1.1 to 1.6 1.0 to 2.9 1.0 to 2.9 2019 (%) 1.3 to 2.3 1.9 to 2.3 1.0 to 2.9 The Group has defined employee benefit obligations in the Nordics and in France, arising from local legislative requirements. The cost of providing benefits under this obligation is determined using the projected unit credit method using actuarial valuations. Actuarial gains and losses for the defined obligation are recognised in full in the period in which they occur in Other Comprehensive Income. Such actuarial gains and losses are also immediately recognised in retained earnings and are not reclassified to profit or loss in subsequent periods. Unvested past service costs are recognised as an expense on a straight line basis over the average period until the benefits become vested. Past service costs are recognised immediately if the benefits have already vested, immediately following the introduction of, or changes to, the obligation. The defined benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds) less unrecognised past service costs. (ii) Key Estimates and Assumptions The actuarial valuation involves making assumptions about discount rates, future salary increases and mortality rates. All assumptions are reviewed at each reporting date. In determining the appropriate discount rates, the interest rates of corporate bonds in France and the Nordics is considered. The mortality rate is based on publicly available mortality rates for France and the Nordics. Future salary increases are based on expected future inflation rates in France and the Nordics. IV. RISK MANAGEMENT 16. FINANCIAL RISK MANAGEMENT Primary responsibility for identification and control of financial risks rests with the Audit Committee under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for trading in derivatives, hedging cover of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections. The Group's principal financial instruments comprise receivables, payables, bank loans and overdrafts, cash and short-term deposits, derivatives, and other financial assets. The Group manages its exposure to key financial risks, including market risk (interest rate and foreign currency risk), credit risk and liquidity risk in accordance with the Group's financial risk management policy. The objective of the policy is to support the delivery of the Group's financial targets whilst protecting future financial security. The Group enters into derivative transactions, principally interest rate swap contracts and foreign exchange forward contracts. The purpose is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance. The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate and foreign exchange. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk and liquidity risk is monitored through the development of future rolling cash flow forecasts. The Group has entered into a Syndicated Facility Agreement with its Banks. The Syndicated Facility Agreement is with prime financial institutions. By entering into a Syndicated Facility Agreement with a number of financial institutions compared to financing through a Bilateral Facility Agreement, the Group has reduced its counterparty risk. 113 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 IV. RISK MANAGEMENT (CONTINUED) 16. FINANCIAL RISK MANAGEMENT (CONTINUED) (i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Group's exposure to market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates. The level of debt is disclosed in Note 7e. At reporting date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk that are not designated in cash flow hedges: Financial Assets Cash and cash equivalents Financial Liabilities Bank Loans Net exposure 2020 $m 2019 $m 1,503.7 745.5 (1,815.0) (311.3) (2,092.2) (1,346.7) Interest rate derivatives contracts are outlined in Note 7d, with a net negative fair value of $51.3 million (2019: negative $62.4 million) which are exposed to fair value movements if interest rates change. The Group's policy is to manage its finance costs using a mix of fixed and variable rate debt. The Group's policy is to maintain at least 50% of its borrowings at fixed rates which are carried at amortised cost and it is acknowledged that fair value exposure is a by-product of the Group's attempt to manage its cash flow volatility arising from interest rate changes. To manage this mix in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 30 June 2020, after taking into account the effect of interest rate swaps and options is approximately 57% (2019: 60%) of the Group's borrowings are at a fixed rate of interest. The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates. Interest rate sensitivity The following sensitivity analysis has been determined based on the exposure to interest rates for both derivative and non- derivative instruments at the end of the reporting period and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. At the end of the reporting period, as specified in the following table, if the interest rates had been higher or lower than the year end rates and all other variables were held constant, the consolidated entity’s post tax profit and Other Comprehensive Income would have been affected as follows: Judgements of reasonably possible movements: Post Tax Profit Higher/(Lower) Other Comprehensive Income Higher/(Lower) AUD +45 basis points (2019: +95 basis points) -45 basis points (2019: -95 basis points) GBP +55 basis points (2019: +80 basis points) -55 basis points (2019: -80 basis points) EUR +40 basis points (2019: +45 basis points) -40 basis points (2019: -45 basis points) 2020 $m 2019 $m 2020 $m 2019 $m -* -* (0.1) 0.3 (4.8) 4.8 (1.7) 1.7 (0.8) 0.8 (5.4) 5.4 1.4 (1.0) 1.0 (0.9) 11.8 (12.0) 11.1 (11.4) 3.8 (3.5) 23.3 (21.3) * There would be no significant impact on net profit as unhedged interest rate exposures are not significant. The assumed movement in basis points for the interest rate sensitivity analysis is considered reasonable, given the market forecasts available at the reporting date and the current economic environment in which the consolidated entity operates. The change in sensitivity in 2020, comparing to 2019, is due to the decreased interest rate volatility in 2020. 114 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 IV. RISK MANAGEMENT (CONTINUED) 16. FINANCIAL RISK MANAGEMENT (CONTINUED) (ii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s presentation currency) and the Group’s net investments in foreign operations. The Group manages its foreign exchange rate exposure within approved policy parameters by utilising foreign currency swaps and forwards. When a derivative is entered into for the purpose of being a hedging instrument, the Group negotiates the terms of those derivatives to match the terms of the hedged exposure. For hedges of forecast transactions, the derivatives cover the period of exposure from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or payable that is denominated in foreign currency. The Group hedges its exposure to fluctuations on the translation into Australian dollars of its foreign operations by holding net borrowings in foreign currencies and by using foreign currency swaps and forward contracts. Foreign currency sensitivity The following tables demonstrate the sensitivity to a reasonably possible change in GBP, Euro and MYR exchange rates, with all other variables held constant. The impact on the Group’s post tax profit is due to changes in the fair value of monetary assets and liabilities including non-designated foreign currency derivatives and embedded derivatives. The impact on the Group’s equity is due to changes in the fair value of forward exchange contracts designated as cash flow hedges and net investment hedges. The Group’s exposure to foreign currency changes for all other currencies is not material. British Pound (GBP) +20% (2019: +20%) -20% (2019: -20%) Euro (EUR) +20% (2019: +15%) -20% (2019: -15%) Malaysian Ringgit (MYR) +20% (2019: +17%) -20% (2019: -17%) Post Tax Profit Higher/(Lower) Other Comprehensive Income Higher/(Lower) 2020 $m 2019 $m 2020 $m 2019 $m (0.2) 0.3 (0.1) 0.1 - * - * - * - * - * - * - * - * (32.8) 48.9 (8.8) 12.8 (38.6) 56.4 (29.1) 43.3 (4.5) 6.0 (39.1) 55.1 * There would be no significant impact on net profit as unhedged foreign currency exposures are not significant. (2019: unhedged foreign currency exposures were insignificant.) The movement in the post-tax effect is a result of a change in the fair value of derivative financial instruments not designated in a hedge relationship and monetary assets and liabilities denominated in foreign currencies, where the functional currency of the entity is a currency other than the above currencies. Although the derivatives have not been designated in a hedge relationship, they act as an economic hedge and will offset the underlying transactions when they occur. The movement in equity arises from changes in the borrowings (net of cash and cash equivalents) in the hedge of net investments in overseas operations (UK, France and Malaysia) and cash flow hedges. These movements will off-set the translation of the overseas operations’ net assets in Australian dollar. 115 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 IV. RISK MANAGEMENT (CONTINUED) 16. FINANCIAL RISK MANAGEMENT (CONTINUED) (iii) Credit risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents, trade and other receivables, derivative instruments and other financial instruments. The Group's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at reporting date is addressed in each applicable note. Trade receivables The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group's policy to securitise its trade and other receivables. The majority of transactions are with the Governments and Health Funds. The Group’s credit policy requires all debtors to pay in accordance with agreed terms. The payment terms for the major debtors range from 15 days to 30 days. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectable are written off when identified. An impairment provision is recognised based on expected credit loss where the Group measures the impairment using a lifetime expected loss allowance for all trade receivables. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. The Group’s credit risk is spread across a number of Health Funds and Governments. Whilst the Group does have significant credit risk exposure to a single debtor or group of related debtors, the credit quality of these debtors is considered high, as they are either Health Funds, governed by the prudential requirements of APRA, or Governments. The credit quality of financial assets that are neither past due nor impaired is considered to be high, due to the absence of defaults, and the fact that the Group deals with creditworthy Health Funds and the Governments. Management has also put in place procedures to constantly monitor the exposures in order to manage its credit risk. Financial instruments and cash deposits Credit risks related to balances with banks and financial institutions are managed by Ramsay Group Treasury in accordance with Board approved policies. Such policies only allow financial derivative instruments to be entered into with high credit quality financial institutions with a minimum long-term credit rating of A- or better by Standard & Poor’s. In addition, the Board has approved the use of these financial institutions, and specific internal guidelines have been established with regard to limits, dealing and settlement procedures. Limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty failure. The investment of surplus funds is made only with approved counterparties and within credit risk in relation to derivatives undertaken in accordance with the consolidated entity’s hedging and risk management activities. The Group does not hold any credit derivatives to off-set its credit risk exposure. The Group’s maximum exposure for financial derivative instruments is noted in the liquidity table below. (iv) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and finance leases. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, Ramsay has established management reporting covering its worldwide business units that reflects expectations of management’s expected settlement of financial assets and liabilities. The Group continually reviews its liquidity position including cash flow forecasts to determine the forecast liquidity position and maintain appropriate liquidity levels. 116 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 IV. RISK MANAGEMENT (CONTINUED) 16. FINANCIAL RISK MANAGEMENT (CONTINUED) (iv) Liquidity Risk (continued) The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments. Year ended 30 June 2020 Trade and other liabilities Loans and borrowings Lease liabilities Financial derivatives Year ended 30 June 2019 Trade and other liabilities Loans and borrowings Lease liabilities * Financial derivatives Less than 3 months $m 3 to 12 months $m 1 to 5 years $m > 5 years $m Total $m (3,187.1) (30.5) (119.7) (2.7) (3,340.0) (2,347.4) (34.2) (19.5) (4.5) (2,405.6) - (106.1) (359.1) (4.6) (469.8) - (117.0) (58.4) (15.8) (191.2) - (4,382.6) (1,703.6) (44.8) (6,131.0) - (3,984.5) (188.5) (42.0) (4,215.0) - (126.8) (5,207.2) - (5,334.0) - (1,721.8) (108.3) (1.5) (1,831.6) (3,187.1) (4,646.0) (7,389.6) (52.1) (15,274.8) (2,347.4) (5,857.5) (374.7) (63.8) (8,643.4) * Lease liabilities in the comparative year 30 June 2019 only includes leases classified as finance leases under AASB 117 Leases The disclosed financial derivative instruments in the above table are the gross undiscounted cash flows. However, those amounts may be settled gross or net. The following table shows the corresponding reconciliation of those amounts to their carrying amounts. Less than 3 months $m 3 to 12 months $m 1 to 5 years > 5 years $m $m Total $m 0.3 (3.0) (2.7) (1.6) 3.0 (7.5) (4.5) (2.8) 2.0 (6.6) (4.6) (4.6) 7.9 (23.7) (15.8) (15.7) 1.4 (46.2) (44.8) (45.1) 20.8 (62.8) (42.0) (42.1) - - - - 3.7 (55.8) (52.1) (51.3) 0.2 (1.7) (1.5) 31.9 (95.7) (63.8) (1.7) (62.3) Year ended 30 June 2020 Inflows Outflows Net Discounted at the applicable interbank rates Year ended 30 June 2019 Inflows Outflows Net Discounted at the applicable interbank rates Collateral The Group has pledged part of its longer term deposits in order to fulfil the collateral requirements for the secured funding agreement (fiducie-sûreté). At 30 June 2020 and 2019, respectively, the fair values of the term deposits pledged were $12.1 million and $18.3 million respectively. The counterparties have an obligation to return the securities to the Group. There are no significant terms and conditions associated with the use of collateral. 117 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION 17. SHARE BASED PAYMENT PLANS An executive performance rights scheme was established in January 2004 where Ramsay Health Care Limited may, at the discretion of the Board, grant rights over the ordinary shares of Ramsay Health Care Limited to executives of the consolidated entity. The rights are issued for nil consideration and are granted in accordance with the plan’s guidelines established by the Directors of Ramsay Health Care Limited. The rights cannot be transferred and will not be quoted on the ASX. Non-executive directors are not eligible for this plan. Information with respect to the number of rights granted under the executive performance rights plan is as follows: Balance at beginning of year - granted - vested - forfeited Balance at end of year Exercisable at end of year 2020 2019 Number of Rights Weighted Average Fair Value 1,685,969 263,096 (201,620) (469,899) 1,277,546 - $52.59 $69.32 $53.46 Number of Rights 1,632,924 419,711 (246,854) (119,812) 1,685,969 - Weighted Average Fair Value $42.54 $61.96 $58.57 The following table summarises information about rights held by participants in the executive performance rights plan as at 30 June 2020: Number of Rights 254,633 152,291 205,331 199,444 219,441 109,971 136,435 1,277,546 Grant Date 10-Nov-16 17-Nov-17 17-Nov-17 15-Nov-18 15-Nov-18 17-Nov-19 17-Nov-19 Vesting Date (1) 30-Aug-19 28-Aug-20 28-Aug-20 31-Aug-21 31-Aug-21 31-Aug-22 31-Aug-22 Weighted Average Fair Value (2) $50.95 $32.61 $63.00 $33.86 $51.22 $33.36 $68.62 (1) The vesting date shown is the most likely vesting date subject to full satisfaction of the respective performance conditions. (2) Fair value at grant date (i) Key Estimates and Assumptions Performance rights are issued for nil consideration and are granted in accordance with the plan’s guidelines established by the Directors of Ramsay Health Care Limited. The fair value of share rights with TSR performance conditions are estimated on the date of grant using a Monte Carlo model. The fair value of share rights with non-market performance conditions are estimated at the date of grant using the Black Scholes Option Pricing model. The following weighted average assumptions were used for grants made on 10 November 2016, 17 November 2017, 15 November 2018 and 15 November 2019: Dividend yield Expected volatility Historical volatility Risk-free interest rate Granted 17-Nov-19 2.31% 22.5% 21.6% 0.75% Effective life of incentive right 3 years Granted 15-Nov-18 2.88% 22.5% 22.5% 2.11% 3 years Granted 17-Nov-17 2.27% 22.5% 21.7% 1.93% 3 years Granted 10-Nov-16 1.85% 22.5% 22.0% 1.76% 3 years The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the rights is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. 118 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 17. SHARE BASED PAYMENT PLANS (CONTINUED) (ii) Recognition and Measurement The Group provides benefits to employees (including Executive Directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’). There is currently one plan in place to provide these benefits, being the Executive Performance Rights Plan (Equity-settled transactions), which provides benefits to senior executives and Directors. The cost of these equity settled transactions with employees is measured by reference to the fair value at the date at which they were granted. The fair value is determined by an external valuer using the Monte Carlo and the Black Scholes models. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Ramsay Health Care Limited (‘market conditions’). Equity-settled transactions The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (Share Based Payment Reserve), over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects:   The extent to which the vesting period has expired and The number of awards that, in the opinion of the Directors of the Group, will ultimately vest. This opinion is formed based on the best available information at reporting date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. Treasury Shares Shares in the Group held by the Executive Performance Share Plan are classified and disclosed as Treasury shares and deducted from equity. 18. EXPENDITURE COMMITMENTS Commitment to manage & operate the Mildura Base Hospital Ramsay Health Care Australia Pty Limited had a 15 year agreement with the State of Victoria to manage and operate the Mildura Base Hospital, in accordance with the Hospital Service Agreement between Ramsay Health Care Australia Pty Limited and the State of Victoria. A 5 year extension to this agreement was signed and is in effect until 15 September 2020, at which time it will be transferred back to the State of Victoria. Under this agreement Ramsay Health Care Australia Pty Limited takes full operator risk. 19. SUBSEQUENT EVENTS There have been no significant events after the reporting date that may significantly affect the Group’s operations in future years, the results of these operations in future years or the Group’s state of affairs in future years. 119 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 20. RELATED PARTY TRANSACTIONS (i) Transactions with Directors of Ramsay Health Care Limited and the Group At 30 June 2020 costs of $ Nil (2019: $16,320) were accrued for expenditures incurred on behalf of Paul Ramsay Holdings Pty Limited that had not yet been invoiced. (ii) Compensation of key management personnel Non-Executive Directors Short term Post-employment Executive Directors Short term Post-employment Performance/Incentive rights Executives Short term Post-employment Performance/Incentive rights Total Short term Post-employment Performance/Incentive rights 21. AUDITORS’ REMUNERATION Amounts received or due and receivable by Ernst & Young (Australia) for: - - - An audit or review of the financial report of the entity and any other entity in the consolidated group Fees for assurance services that are required by legislation to be provided by the auditor Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements - Other services in relation to the entity and any other entity in the consolidated group Tax compliance Assurance related Amounts received or due and receivable by overseas member firms of Ernst & Young (Australia) for: - An audit or review of the financial report of the entity and any other entity in the consolidated group - Other services in relation to the entity and any other entity in the consolidated group Tax compliance Total fees to overseas member firms of Ernst & Young (Australia) 2020 $ 2,606,423 158,706 2,765,129 2,895,461 622,605 (1,015,400) 2,502,666 2,201,286 588,011 (657,130) 2,132,167 7,703,170 1,369,322 (1,672,530) 7,399,962 2019 $ 2,650,670 184,767 2,835,437 6,656,540 137,062 5,796,003 12,589,605 2,650,420 78,904 1,913,338 4,642,662 11,957,630 400,733 7,709,341 20,067,704 2020 $ 2019 $ 2,311,672 2,077,282 - - 48,350 55,848 555,842 165,301 3,081,165 723,474 475,665 3,332,269 3,552,735 4,933,775 679,274 4,232,009 729,400 5,663,175 7,313,174 8,995,444 Amounts received or due and receivable by non-Ernst & Young audit firms for: - Audit or review of the financial report 1,950,577 1,763,648 120 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 22. INFORMATION RELATING TO SUBSIDIARIES Country of Incorporation % Equity Interest Name RHC Nominees Pty Limited ^ RHC Developments Pty Limited ^ Ramsay Health Care Investments Pty Limited ^ Ramsay Hospital Holdings Pty Limited ^ Ramsay Hospital Holdings (Queensland) Pty Limited ^ Ramsay Health Care Ventures Pty Limited Ramsay Finance Pty Limited ^ Ramsay Aged Care Holdings Pty Limited ^ Ramsay Aged Care Properties Pty Limited ^ RHC Ancillary Services Pty Limited ^ Linear Medical Pty Limited ^ Newco Enterprises Pty Limited ^ Sydney & Central Coast Linen Services Pty Limited ^ Benchmark Healthcare Holdings Pty Limited ^ Benchmark Healthcare Pty Limited ^ AHH Holdings Health Care Pty Limited ^ AH Holdings Health Care Pty Limited ^ Ramsay Centauri Pty Limited ^ Alpha Healthcare Pty Limited ^ Ramsay Health Care Australia Pty Limited ^ Donvale Private Hospital Pty Limited ^ The Benchmark Hospital Group Pty Limited ^ Dandenong Valley Private Hospital Pty Limited ^ Benchmark – Surrey Pty Limited ^ Benchmark – Peninsula Pty Limited ^ Benchmark – Donvale Pty Limited ^ Benchmark – Windermere Pty Limited ^ Benchmark – Beleura Pty Limited ^ Beleura Properties Pty Limited ^ Affinity Health Holdings Australia Pty Limited ^ Affinity Health Finance Australia Pty Limited ^ Affinity Health Pty Limited ^ Affinity Health Foundation Pty Limited ^ Affinity Health Holdings Indonesia Pty Limited ^ Hospitals of Australia Pty Limited ^ Glenferrie Private Hospital Pty Limited^ Relkban Pty Limited ^ Relkmet Pty Limited ^ Votraint No. 664 Pty Limited ^ Votraint No. 665 Pty Limited ^ Australian Medical Enterprises Pty Limited ^ AME Hospitals Pty Limited ^ Victoria House Holdings Pty Limited ^ C&P Hospitals Holdings Pty Limited ^ HCoA Hospital Holdings (Australia) Pty Limited ^ AME Properties Pty Limited ^ AME Superannuation Pty Limited ^ Attadale Hospital Property Pty Limited ^ Glengarry Hospital Property Pty Limited ^ Hadassah Pty Limited ^ Rannes Pty Limited ^ Hallcraft Pty Limited ^ Jamison Private Hospital Property Pty Limited ^ Affinity Health (FP) Pty Limited ^ Armidale Hospital Pty Limited ^ Caboolture Hospital Pty Limited ^ Joondalup Hospital Pty Limited ^ Joondalup Health Campus Finance Limited^ Logan Hospital Pty Limited ^ Noosa Privatised Hospital Pty Limited ^ AMNL Pty Limited ^ Mayne Properties Pty Limited ^ Port Macquarie Hospital Pty Limited ^ HCoA Operations (Australia) Pty Limited ^ Hospital Corporation Australia Pty Limited ^ Dabuvu Pty Limited ^ NBH Hold Co. Pty Limited NBH Operator Pty Limited HOAIF Pty Limited ^ Entities included in the deed of cross guarantee as required for the instrument Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2019 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 121 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 22. INFORMATION RELATING TO SUBSIDIARIES (CONTINUED) Country of Incorporation % Equity Interest Name HCA Management Pty Limited ^ Malahini Pty Limited ^ Tilemo Pty Limited ^ Hospital Affiliates of Australia Pty Limited ^ C.R.P.H Pty Limited ^ Hospital Developments Pty Limited ^ P.M.P.H Pty Limited ^ Pruinosa Pty Limited ^ Australian Hospital Care Pty Limited ^ Australian Hospital Care (Allamanda) Pty Limited ^ Australian Hospital Care (Latrobe) Pty Limited ^ Australian Hospital Care 1988 Pty Limited ^ AHC Foundation Pty Limited ^ AHC Tilbox Pty Limited ^ Australian Hospital Care (Masada) Pty Limited ^ Australian Hospital Care Investments Pty Limited ^ Australian Hospital Care (MPH) Pty Limited ^ Australian Hospital Care (MSH) Pty Limited ^ Australian Hospital Care (Pindara) Pty Limited ^ Australian Hospital Care (The Avenue) Pty Limited ^ Australian Hospital Care Retirement Plan Pty Limited ^ eHealth Technologies Pty Limited ^ Health Technologies Pty Limited ^ Rehabilitation Holdings Pty Limited ^ Bowral Management Company Pty Limited ^ Simpak Services Pty Limited ^ APL Hospital Holdings Pty Limited ^ Alpha Pacific Hospitals Pty Limited ^ Health Care Corporation Pty Limited ^ Alpha Westmead Private Hospital Pty Limited ^ Illawarra Private Hospital Holdings Pty Limited ^ Northern Private Hospital Pty Limited ^ Westmead Medical Supplies Pty Limited ^ Herglen Pty Limited ^ Mt Wilga Pty Limited ^ Sibdeal Pty Limited ^ Workright Pty Limited ^ Adelaide Clinic Holdings Pty Limited ^ eHospital Pty Limited ^ New Farm Hospitals Pty Limited ^ North Shore Private Hospital Pty Limited ^ Phiroan Pty Limited ^ Ramsay Health Care (Asia Pacific) Pty Limited ^ Ramsay Health Care (South Australia) Pty Limited ^ Ramsay Health Care (Victoria) Pty Limited ^ Ramsay Health Care Services (QLD) Pty Limited ^ Ramsay Health Care Services (VIC) Pty Limited ^ Ramsay Health Care Services (WA) Pty Limited ^ Ramsay Pharmacy Retail Services Pty Limited^ Ramsay International Holding Company Pty Limited Ramsay Professional Services Pty Limited ^ Ramsay Diagnostics (No. 1) Pty Limited ^ Ramsay Diagnostics (No. 2) Pty Limited ^ Ramsay Health Care (UK) Limited Ramsay Health Care UK Finance Limited Ramsay Health Care Holdings UK Limited Ramsay UK Properties Limited Linear Healthcare UK Limited Independent British Healthcare (Doncaster) Limited Ramsay Diagnostics Limited Ramsay Health Care UK Operations Limited Independent Medical (Group) Limited Exeter Medical Limited Ramsay Health Care (UK) No.1 Limited Ramsay Health Care Leasing UK Limited Ramsay Santé SA* Capio AB Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia UK UK UK UK UK UK UK UK UK UK UK Guernsey France Sweden 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 52.5% 52.5% 2019 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 52.5% 52.5% ^ Entities included in the deed of cross guarantee as required for the instrument * Ramsay Santé SA (formerly Ramsay Générale de Santé SA) owns a number of subsidiaries, none of which are individually material to the Group 122 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 23. CLOSED GROUP Entities subject to instrument Pursuant to Instrument 2016/785, relief has been granted to the entities in the table of subsidiaries in Note 22, (identified by ^) from the Corporations Act 2001 requirements for preparation, audit and lodgement of their financial reports. As a condition of the Instrument, these entities entered into a Deed of Cross Guarantee on 22 June 2006 or have subsequently been added as parties to the Deed of Gross Guarantee by way of Assumption Deeds dated 24 April 2008, 27 May 2010, 24 June 2011, 20 October 2015, 17 December 2015 and 14 May 2019. The effect of the deed is that Ramsay Health Care Limited has guaranteed to pay any deficiency in the event of winding up of a wholly owned Australian entity or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that Ramsay Health Care Limited is wound up or if it does not meet its obligation under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The consolidated Income Statement and Statement of Financial Position of the entities that are members of the Closed Group are as follows: Consolidated Income Statement Profit from operations before income tax Income tax expense Net profit for the year Retained earnings at the beginning of the year AASB 16 Leases adjustment Retained earnings adjustments for additions of entities into the class order Dividends provided for or paid Retained earnings at the end of the year Consolidated Statement of Financial Position ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Other current assets Assets held for sale Total Current Assets Non-current Assets Other financial assets Investments in joint ventures Property, plant and equipment Right of use assets Goodwill and Intangible assets Deferred tax asset Prepayments Non-current receivables Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other creditors Interest-bearing loans and borrowings Lease liability Provisions Derivative financial instruments Income tax payable Total Current Liabilities Closed Group 2020 $m 2019 $m 428.1 (128.5) 299.6 1,557.1 (67.2) - (322.5) 1,467.0 564.7 618.4 160.0 31.7 9.9 - 1,384.7 648.8 245.8 2,381.6 347.2 1,073.8 185.3 11.1 205.2 5,098.8 6,483.5 990.9 - 16.6 41.3 4.6 6.9 1,060.3 737.3 (211.0) 526.3 1,339.8 - (0.2) (308.8) 1,557.1 103.6 684.2 145.2 24.0 13.0 16.6 986.6 634.3 270.3 2,249.0 - 1,081.7 123.5 11.3 202.6 4,572.7 5,559.3 917.0 0.1 - 24.8 10.0 44.8 996.7 123 ANNUAL REPORT 2020 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 23. CLOSED GROUP (CONTINUED) Non-current Liabilities Interest-bearing loans and borrowings Lease liability Provisions Derivative financial instruments Total Non-current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Treasury shares Convertible Adjustable Rate Equity Securities (CARES) Retained earnings Other reserves TOTAL EQUITY 24. PARENT ENTITY INFORMATION Information relating to Ramsay Health Care Limited Current assets Total assets Current liabilities Total liabilities Issued capital Other equity Total shareholders’ equity Net profit for the year after tax Closed Group 2020 $m 2019 $m 536.5 450.0 129.3 9.6 1,125.4 2,185.7 4,297.8 2,197.6 (78.2) 252.2 1,467.0 459.2 4,297.8 1,481.5 - 139.2 14.6 1,635.3 2,632.0 2,927.3 713.5 (82.0) 252.2 1,557.1 486.5 2,927.3 2020 $m 2019 $m 2,652.5 2,806.7 (3.3) (3.3) (2,197.6) (605.8) (2,803.4) 279.8 1,265.3 1,410.7 (47.7) (47.7) (713.5) (649.5) (1,363.0) 399.9 As a condition of the Instrument (set out in Note 23), Ramsay Health Care Limited has guaranteed to pay any deficiency in the event of winding up of a controlled entity or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to guarantee. 124 RAMSAY HEALTH CARE LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 NDED 30 June 201 V. OTHER INFORMATION (CONTINUED) 25. MATERIAL PARTLY- OWNED SUBSIDIARIES Ramsay Santé (formerly Ramsay Générale de Santé) has a material non-controlling interest (NCI): This entity represents the French and Nordic segments for management and segment reporting. Financial information in relation to the NCI is provided below: (i) Proportion of equity interest and voting rights held by non- controlling interests Refer to Note 22 which discloses the equity interest held by the Ramsay Group. The remaining equity interest is held by the non-controlling interest. Voting rights for Ramsay Santé at 30 June 2020 are 52.1% (2019: 52.9%). The remaining interest is held by the non- controlling interest. (ii) Accumulated balances of non-controlling interests Refer to the Consolidated Statement of Changes in Equity (iii) Profit allocated to non-controlling interests Refer to the Consolidated Income Statement (iv) Summarised Statement of Profit or Loss and Statement of Financial Position for 2020 and 2019 Refer to Note 1. The French and Nordic segments consist only of this subsidiary that has a material non-controlling interest. (v) Summarised cash flow information Operating Investing Financing Net increase in cash and cash equivalents 2020 $m 988.1 (306.3) (408.4) 273.4 2019 $m 245.8 (1,459.6) 1,311.6 97.8 125 ANNUAL REPORT 2020 126 RAMSAY HEALTH CARE LIMITEDwww.ramsayhealth.com 

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