Annual Report 2019
Summerset is a leading retirement village operator and aged care provider in New Zealand. We have the scale, resources and amenities to meet the needs of the high-growth populations of older people in this country and in Australia.Summerset owns and operates 31 retirement villages and has a land bank for another 10 proposed villages. We maintain high satisfaction among our residents, and we have a growing team of engaged and skilled employees. Our business is based on core commitments to sustainability – social, environmental and economic.We will continue strong, well-managed growth in New Zealand and we will strengthen our offering, especially in high-quality care for people living with dementia. Summerset owns the country’s largest land bank for future village development.We will also develop in Australia, initially on two sites - a prime broadacre property in suburban Melbourne and a second site also in Victoria. Summerset’s proven approach to developing and operating retirement villages with clear choice and cost certainty has substantial potential across the Tasman. Our ResidentsBringing the best of life to Summerset residents Summerset’s independently run survey showed an overall resident satisfaction score of 96% for both retirement village and care residents Our Environment Summerset focuses every day on: • Minimising waste• Increasing energy efficiency • Being more sustainable Our People People are the heart of Summerset Our values are: • Strong enough to care • One team • Strive to be the best Contents
From the Chair and Chief Executive
Developing more villages for Kiwi retirees
Business performance
Expanding the Summerset model into
Australia
Bringing the best of life to Summerset
residents
People are the heart of Summerset
Working together with our communities
Next-generation dementia care
Making strides in sustainability
Business and financial overview
Financial statements
Directory
Company information
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ANNUAL REPORT 2019
Summerset snapshot
More than
5,500
residents
31
Villages completed or
under development
More than
1,500
staff members
10
Greenfield sites
4,086
Retirement units in portfolio
858
Care beds in portfolio
Land bank of
5,380
retirement units
Land bank of
826
care beds
.
Sales of
652
occupation rights
96%
Care resident
satisfaction
SUMMERSET SNAPSHOT
7
7
Land purchases
96%
Village resident
satisfaction
$175.3m
Net profit after tax
$106.2m
Underlying profit
$237.9m
Operating cash flow
$3.3b
Total assets
8
ANNUAL REPORT 2019
From the Chair
and Chief Executive
Welcome to Summerset’s annual report for 2019. The year marks
a milestone in our growth as a leading retirement village and aged
care operator.
Three of the biggest milestones
this year were:
• Growth into Australia. We made our first two
land acquisitions in Australia with plans for
villages on these sites in Victoria and
expectations of further land purchases over
the next year.
• Growth in our New Zealand development
plans. Our land bank has been expanded to
the equivalent of 4,940 retirement units across
20 sites in New Zealand. In 2019 we opened
three villages, and expect to do the same in
2020 and each year thereafter for the
foreseeable future.
•
Leadership in care for people living with
dementia. Our first memory care centre in
Levin was award winning and we will open two
further centres in 2020. These all have modern
dementia design with unique features and care
to allow maximum independence for people
living with dementia.
Business performance
In 2019 we achieved an underlying profit of $106.2m, an
increase of 8% on 2018, and a net profit after tax of
$175.3m. Since the listing of Summerset in 2011, our latest
results represent a thirteen-fold increase in underlying
profit and forty-one-fold increase in net profit after tax.
The moderation in profit growth in 2019 follows the high
growth achieved in prior years. Specific contributing
factors include a reduction in our development margins
(as previously signalled), a lower rate of new retirement
unit deliveries due to the stages of various
developments, and tougher conditions in the residential
property markets of Auckland and Christchurch.
Over the coming year we will be investing in the start-up
of our Australian business, and also in recruitment and
retention of registered nurses and caregivers after we
recently lifted wages and allowances to make
Summerset a “top equal” payer. These steps involve cost,
but in the longer term quality staff are needed for growth
in the business and in shareholder value.
In the first half of 2019, the residential property markets
in Auckland and Christchurch have been slower. While
this does not affect demand for our needs-based
products, it does mean prospective residents take longer
to sell their homes. We saw steady rates of settlement
FROM THE CHAIR AND CHIEF EXECUTIVE
9
An artist's impression of our developing village at Avonhead
in our Auckland villages (Ellerslie and Hobsonville were
our top two new sales villages) through the year and a
noticeable lift in activity through the second half. This
reflects the general view that conditions are improving
in residential property markets.
Through 2019 we purchased land in Whangarei,
Cambridge, Rangiora, Blenheim and Prebbleton, as well
as our first two Australian sites.
Our New Zealand land
acquisitions have continued
to grow our pipeline of new
villages across the country.
These locations represent an attractive mix of urban and
high growth regional areas with good demographic
demand. As these villages open in the coming years, we
will benefit from spreading our growth across a larger
number of sites and being better able to match deliveries
to demand in each area.
Expansion into Australia
Our first Australian site is a broadacre site located in an
established suburb of Melbourne with good access to
amenities. This is similar to many of our New Zealand
villages and is a good entry point for us. We are
progressing well towards lodging our consent
application and setting up our teams and systems to
market, sell and operate the village. Board and
management will continue to dedicate considerable
time to ensure a successful start-up.
We have undertaken significant customer and industry
research in Melbourne. This work confirms the
attractiveness of providing security, care and
community within a village containing the full range of
independent living, assisted living, aged care and
specialist memory care.
The research also points to some changes to the build
environment compared to our New Zealand offerings,
and how we provide services. These changes will ensure
we adjust to Australian consumer preferences, and to
the funding and regulatory regimes in place.
We purchased a second Australian site in the seaside
town of Torquay on the Bellarine Peninsula in December.
We are continuing to investigate additional sites in
Victoria and expect to make further announcements in
the coming year. The opportunity in this market is large
and we are working hard to ensure a successful entry
into Australia.
We have been following the Australian Royal
Commission into Aged Care Quality and Safety closely.
The final report from the Commission is expected at
the end of 2020 and it is clear there will be wide-ranging
recommendations for reforming the provision of aged
care and home care services. We do not believe this will
have an adverse effect on our business, as we are already
focused on providing high quality care and services, and
encourage changes to achieve this.
10
ANNUAL REPORT 2019
New Zealand development
During 2019 we saw good progress on resource
consenting across our New Zealand land bank. Most
notably, this included finalisation of consent for the
proposed St Johns village development in Auckland.
Over time we will develop other higher-density sites in
similar urban environments.
The benefits of increased
housing density include
greater affordability, lower
environmental impact
and stronger communities
as people are able to retire
and be cared for in their
familiar area.
We recognise such changes in the urban environment
will create tensions, but are committed to making a
positive contribution through engagement with local
communities and the creation of developments that are
recognised for good design and their value as
community assets. We believe council processes and
the Resource Management Act 1991 need improvement
to assist such shifts in urban living.
Regarding our planned development at Boulcott's Farm
in Lower Hutt, at the time of writing this report, we have
not received a decision from the Environment Court on
our resource consent application which was heard in
June 2019.
Through 2019 we delivered 354 retirement units. There
are a further 152 units in main buildings under
construction at Casebrook (Christchurch) and Rototuna
(Hamilton). These are due for completion in early-to-mid
2020. Given the slower residential property market
conditions in 2019, we are happy with this rate of delivery.
Although there are clear signs of market recovery in
Auckland, we will continue to focus on opening new
villages.
Operations and care
In our villages and care centres we continued to see
good occupancy and satisfaction levels through 2019.
However, sector-wide challenges grew in significance,
most notably the shortage of nurses across New Zealand
as district health boards increased their demand for staff
and immigration rules limited the recruitment of skilled
nurses from overseas. The Government put nurses back
onto the long-term skills shortage list for immigration in
May 2019 which was a positive step but not a solution
in itself.
Summerset’s goal is to be a
preferred employer in our sector.
To this end we agreed, in late
2019, to considerable wage and
allowance increases for our
nursing and caregiving staff to
position our remuneration as
“top equal” in the sector.
A key sector issue is the higher wages which district
health boards are able to pay their nurses. We are a
proponent of pay equity for nurses in aged care and urge
the Government to consider this seriously. Achieving
preferred employer status is a key focus for the Board
and management, and we will make the appropriate
investments in this regard. Over time this should see our
staff turnover decrease and engagement increase.
During the past year, our clinical team and Clinical
Governance Committee developed an updated clinical
strategy to support the company’s plan for the next three
years. This is a mix of workforce development initiatives
and system improvements, ultimately designed to
deliver customer-centric care underpinned by expert
health care. The strategy builds on good progress made
in the past three years.
In our villages we continued
to build on our successful external
speaker series and are in the
process of implementing an
upgraded exercise programme
for residents.
We were the first village operator to install fibre for
residents’ phone and data communications, this process
having started in 2010. We have installed fibre-optic
cable in all new villages to provide fast, reliable
broadband to every home. We are planning to retrofit our
older villages over the next couple of years.
FROM THE CHAIR AND CHIEF EXECUTIVE
11
Looking ahead
Our business continues to perform well. Summerset is
strongly positioned for the future with an attractive
offering to residents and potential residents. We have a
good range of villages now in operation and planned for
future development. Importantly, we are now underway
with further diversification of our growth path in Victoria,
Australia.
As always, thank you to our residents for choosing
Summerset, thank you to our staff for all your efforts and
thank you to our shareholders for supporting our
business. We take our commitments to these groups and
to the wider community seriously – and we will continue
working hard for you into the future.
Rob Campbell
Chair
Julian Cook
Chief Executive Officer
Our people
We are making a number of large investments in our staff,
including remuneration increases for nurses and
caregivers and other investments such as leadership and
development courses, improved rostering systems and
recruitment programmes.
Similarly, in the health and safety space we continue to
mature our operation. Our construction business
involves the highest risk of harm and we will continue to
invest here so that Summerset becomes a leading
contractor in terms of health and safety.
Our place in the community
We have previously signalled our commitment to lifting
our efforts for environmental sustainability. In 2018, we
became the first retirement village and aged care
operator to be accredited by Certified Emissions
Measurement and Reduction Scheme (CEMARS) and we
have furthered this commitment with Toitū carbonzero
certification based on Summerset’s purchase of carbon
credits to offset its measured emissions.
We have also joined the Climate
Leaders Coalition and plan
to further deepen Summerset’s
contribution to sustainability
over time.
12
ANNUAL REPORT 2019
Developing more
villages for Kiwi
retirees
Summerset continues to provide high-quality retirement villages with
comprehensive services, facilities and amenities, in locations where
New Zealanders most want them.
There is strong demand for living environments that are
comfortable, secure and well serviced across a range
of needs and preferences. Our strategy is to grow our
offering through the acquisition of sites in urban
locations, retirement destinations and high-growth
regional centres. We carefully stage the development
of a mix of homes and facilities for either independent
living, supported living in serviced apartments, or in
specialist care centres.
Summerset has built strong
capability in every aspect of
village development, from
location research and land
acquisition, to planning and local
body consenting, to civil works
and building design and
construction.
Our land bank is now the largest in the New Zealand
retirement village sector in terms of size, diversity of
location and potential. Our in-house capabilities enable
Summerset to secure advantages in standardised
design and contract management, in procurement and
in adapting to local requirements.
Our pipeline of future retirement units in New Zealand is
now in the range of 5,000, spread across eight
greenfield sites and 12 partially built villages.
In addition, we have 19 fully completed and
operational villages.
Successes in 2019
Summerset completed 354 new retirement units this
year, of which a substantial number had been sold by
the end of the year. We will open three new retirement
villages in 2020 and are likely to continue this pattern in
subsequent years.
The highest concentration of new
sales in 2019 was in Summerset’s
Ellerslie, Hobsonville, Rototuna
and Casebrook villages.
In these, and other sites, where construction is underway
or imminent, we are achieving a good level of new unit
sales off plan. The past year saw residents move into
the first completed units at our new villages in
Avonhead (Christchurch), Richmond (Nelson - Tasman)
and Kenepuru (Wellington).
Priorities for 2020
Summerset will make progress on various developments
through the coming year, most notably starting
construction on the 2.6-hectare St Johns site in Auckland
after successfully securing resource consent in the
Environment Court. The court decision found that the
company’s plan for St Johns, which we had modified in
response to local residents’ concerns, “properly
balances the interests of intensification with the need for
compatibility with the residential environment and the
impacts on visual amenity”. We look forward to the
next stages in planning and design for this
prestigious development.
DEVELOPING MORE VILLAGES FOR KIWI RETIREES
13
Casebrook villas
Regarding our planned development at Boulcott's Farm
in Lower Hutt, at the time of writing this Annual Report,
we have not received a decision from the Environment
Court on our resource consent application which was
heard in June 2019. Our proposal is for a high-quality
development on this 3.3-hectare site and is backed by
strong expressions of interest from prospective
residents. Both St Johns and Boulcott's Farm, along with
our now-established Ellerslie village and our concept
plan for a new village in Parnell (both Auckland),
represent a higher-density form of urban village, for
which Summerset is discovering good demand.
Work will also continue on other recently consented
projects at Te Awa (Napier) and Papamoa Beach
(Tauranga), and work will start at Bell Block (New
Plymouth). Our new Waikanae (Kapiti Coast) and Milldale
(Auckland) sites are at the master planning and resource
consent application stage, while the five New Zealand
sites newly-acquired in 2019 are subject to ongoing
preliminary work. In addition, construction will proceed
on recently acquired land adjacent to the existing
villages at Casebrook (Christchurch) and Hobsonville
(Auckland), the latter being a village extension of some
38 new units, including premium waterfront homes.
In 2020 we will complete construction of the main
buildings, including care centres, at Rototuna
and Casebrook.
Together these main buildings
will add another 86 care beds and
152 serviced apartments and
memory care apartments to our
national portfolio. Summerset’s
development team will continue
to look at potential land purchases
in locations that meet our criteria.
14
ANNUAL REPORT 2019
BUSINESS PERFORMANCE
15
Business performanceOur land bank* New sites purchasedVillagesDesignConsentingConstructionVillage openFinal stagesHobsonville, AucklandWarkworth, AucklandEllerslie, AucklandRototuna, HamiltonCasebrook, ChristchurchAvonhead, ChristchurchRichmond, TasmanKenepuru, WellingtonTe Awa, NapierPapamoa Beach, TaurangaSt Johns, AucklandBell Block, New PlymouthWhangarei, Northland*Lower Hutt, WellingtonRangiora, Canterbury*Parnell, AucklandWaikanae, KapitiMilldale, AucklandCambridge, Waikato*Blenheim, Marlborough*Prebbleton, Canterbury*Cranbourne North, Melbourne*Torquay, Victoria* 16
ANNUAL REPORT 2019
New sites acquired in 2019 Approximately 140 independent homesRest home and hospital-level careMemory care centreBlenheim, MarlboroughSummerset’s first retirement village in Marlborough is on 6 hectares on Old Renwick Road, Blenheim. Marlborough has been voted one of New Zealand’s best places to retire and is projected to experience 26% growth in the number of people aged 75 years and over by 2023. Rangiora, CanterburyRangiora is a popular retirement location, and Summerset purchased 9 hectares on South Belt Road, just over two kilometres southwest of the town centre.The Waimakariri District has a forecast 30% increase in the number of people aged 75 years and over by 2023.Approximately 250 independent homesRest home and hospital-level careMemory care centreApproximately 210 independent homes Rest home and hospital-level careWhangarei, NorthlandSummerset purchased 11 hectares in Mt Denby for our first Northland retirement village this year. The proposed village is next door to the Mt Denby golf course. Whangarei’s over-75 population is forecast to increase by 34% over the next decade. Memory care centreSummerset now owns 10 greenfield sites due for development. Of these properties, seven were acquired during 2019.SUMMERSET SITEBLENHEIMSUMMERSET SITERANGIORASUMMERSET SITEWHANGAREI NEW SITES ACQUIRED
17
Approximately 210 independent homesRest home and hospital-level carePrebbleton, CanterburySummerset purchased 9 hectares on Springs Road, Prebbleton, southwest of Christchurch. Prebbleton is in the Selwyn District, where the over-75 population is forecast to increase by 80% over the next decade. The property is close to the local shops and on the key public transport route between Lincoln and central Christchurch. Cambridge, WaikatoSummerset purchased 8 hectares on Laurent Road in north Cambridge. The property is less than two kilometres from the Cambridge town centre, and close to local parks and race tracks.Approximately 210 independent homesRest home and hospital-level careMemory care centre Memory care centreIndependent homesRest home and hospital-level careCranbourne North, Melbourne, AustraliaSummerset purchased its first piece of land in Australia in September, buying 8 hectares in Cranbourne North, an established suburb southeast of Melbourne. The property is conveniently located to provide relaxing retirement living, with easy access to shopping centres, public transport and outdoor activities.Memory care centreSUMMERSET SITECAMBRIDGETorquay, Victoria, AustraliaSummerset purchased its second property in Victoria, Australia, in December 2019 in Torquay, on the Bellarine Peninsula. Torquay is a popular coastal town approximately 95 kilometres southwest of Melbourne. The 8.3 hectare property is on Briody Drive. Population forecasts show a 77% increase by 2031 of over 75-year-olds living in the area.Rest home and hospital-level careMemory care centreSUMMERSET SITETORQUAYIndependent homesSUMMERSET SITECHRISTCHURCHSOUTH TO LINCOLNPREBBLETONSUMMERSET SITECRANBOURNENORTH TO MELBOURNE 18
ANNUAL REPORT 2019
Year in reviewSeptemberResource consent received for Te Awa, NapierFirst Summerset Series: Understanding Dementia public talk in Hobsonville, AucklandPurchased land in Blenheim and RangioraAccredited as New Zealand’s first Toitū carbonzero retirement villageJanuaryFebruaryMarchAvonhead village main building construction startsSummerset expansion into Australia announced with the first land purchase in Melbourne Kiwi favourite Jude Dobson introduced as Summerset AmbassadorSummerset achieves top ACC certification for health and safety JulyAugust YEAR IN REVIEW 19
AprilMayJunePurchased land in Cambridge and Whangarei Awarded first Summerset Graduate Nursing Scholarship in partnership with Massey University Joined the Climate Leaders CoalitionFirst residents move into Summerset at Avonhead in ChristchurchOctoberNovemberDecemberLaunched new serviced apartments at Summerset on Cavendish, ChristchurchReceived resource consent for Bell Block land in New Plymouth and blessing held Principal sponsor of Dementia Auckland’s ‘Still Me’ ballPurchased land in Prebbleton, southwest of ChristchurchFirst residents move into Summerset on the Landing in Kenepuru, north of WellingtonReceived resource consent for St Johns, Auckland 20
ANNUAL REPORT 2019
Portfolio growth
22 years of consistent growth and delivery
4,200
3,600
3,000
2,400
1,800
1,200
600
o
i
l
o
f
t
r
o
p
n
i
s
t
i
n
u
t
n
e
m
e
r
i
t
e
r
l
a
t
o
T
129129
129129
'98
219219
9090
129129
'99
0
'97
407407
188188
219219
'00
4,086
4,086
3,732
3,732
354354
3,278
3,278
454454
2,828
2,828
450450
2,4192,419
409409
2,1162,116
303303
1,855
1,855
261261
1,646
1,646
209209
1,486
1,486
122122
160160
1,352
1,352
8080
1,272
1,272
163163
1,109
1,109
126126
983983
'08
983983
6262
921921
126126
795795
6363
732732
8080
652652
124124
528528
5858
470470
6363
407407
'01
470470
'02
528528
'03
652652
'04
732732
'05
795795
'06
921921
'07
1,109
1,109
1,272
1,272
1,364
1,364
1,486
1,486
1,646
1,646
1,855
1,855
2,1162,116
2,419
2,419
2,828
2,828
3,278
3,278
3,732
3,732
'09
'10
'11*
'12
'13
'14
'15
'16
'17
'18
'19
Existing stock
New retirement units delivered
* 2011 existing stock included 12 units acquired as part of the Nelson site purchase
PORTFOLIO GROWTH
21
22 years of consistent growth and delivery
4,200
3,600
3,000
2,400
1,800
1,200
600
o
i
l
o
f
t
r
o
p
n
i
s
t
i
n
u
t
n
e
m
e
r
i
t
e
r
l
a
t
o
T
983983
6262
921921
126126
795795
6363
732732
8080
652652
124124
528528
5858
470470
6363
407407
'01
470470
'02
528528
'03
652652
'04
732732
'05
795795
'06
921921
'07
129129
129129
'98
219219
9090
129129
'99
0
'97
407407
188188
219219
'00
Existing stock
New retirement units delivered
1,109
1,109
126126
983983
'08
4,086
4,086
3,732
3,732
354354
3,278
3,278
454454
2,828
2,828
450450
2,4192,419
409409
2,1162,116
303303
1,855
1,855
261261
1,646
1,646
209209
1,486
1,486
122122
160160
1,352
1,352
8080
1,272
1,272
163163
1,109
1,109
1,272
1,272
1,364
1,364
1,486
1,486
1,646
1,646
1,855
1,855
2,1162,116
2,419
2,419
2,828
2,828
3,278
3,278
3,732
3,732
'09
'10
'11*
'12
'13
'14
'15
'16
'17
'18
'19
22
ANNUAL REPORT 2019
Our villagesCompleted villagesIn developmentProposed villagesDunedinCasebrookParaparaumuLevinPalmerston NorthWanganuiNew PlymouthRichmondNelsonLower HuttPapamoa BeachHavelock NorthHastingsTe AwaNapierTaupoKatikatiManukauSt JohnsWarkworthMilldaleHobsonvilleEllerslieKarakaParnellHamiltonRototunaAoteaKenepuruWigramAvonheadBell BlockWaikanaeTrenthamWhangareiCambridgeRangioraPrebbletonBlenheimTorquayCranbourne NorthMELBOURNE NZ MAP
23
24
ANNUAL REPORT 2019
Strong wave of
growth
The New Zealand population aged 75 and over is forecast to more than triple in the next 50 years.
NZ population 75+
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
18
15
12
9
6
3
0
%
2
0
0
2
7
0
0
2
2
1
0
2
6
1
0
2
9
1
0
2
3
2
0
2
8
2
0
2
3
3
0
2
8
3
0
2
3
4
0
2
8
4
0
2
3
5
0
2
8
5
0
2
3
6
0
2
8
6
0
2
NZ population 75+ (left-hand axis)
% population 75+ (right-hand axis)
Per annum New Zealand population growth 75+
30,000
25,000
20,000
15,000
10,000
5,000
0
2
0
0
2
-
7
9
9
1
7
0
0
2
-
2
0
0
2
2
1
0
2
-
7
0
0
2
6
1
0
2
-
2
1
0
2
9
1
0
2
-
6
1
0
2
3
2
0
2
-
9
1
0
2
8
2
0
2
-
3
2
0
2
3
3
0
2
-
8
2
0
2
8
3
0
2
-
3
3
0
2
3
4
0
2
-
8
3
0
2
8
4
0
2
-
3
4
0
2
3
5
0
2
-
8
4
0
2
8
5
0
2
-
3
5
0
2
3
6
0
2
-
8
5
0
2
8
6
0
2
-
3
6
0
2
NZ population 75+ per annum growth
Source: Statistics New Zealand – National Population Projections
STRONG WAVE OF GROWTH 25
26
ANNUAL REPORT 2019
Our growth strategy in Australia involves taking the best elements of the New Zealand integrated-village model and adjusting them for the Australian market. EXPANDING THE SUMMERSET MODEL INTO AUSTRALIA
27
Expanding the
Summerset model
into Australia
Summerset will take its successful retirement village offering into
Australia, where many people are looking for quality care and
well-priced options for both independent and supported living.
Our first village will be built in Cranbourne North in
Melbourne’s outer suburbs. It will have Summerset’s
signature mix of low-rise villas and a main building with
communal facilities, apartments and a care centre, all on
one broadacre site.
Our growth strategy in Australia involves taking the best
elements of the New Zealand integrated-village model
into a market that is very similar to our own but much
larger and less developed – and doing so in a carefully
thought-out way that incorporates expertise from both
sides of the Tasman.
In September 2019, Summerset purchased 8 hectares
of land in Cranbourne North for our first Australian
village. Our investment has been well timed; the
Melbourne property market having declined
substantially since a peak in 2017. The residential
property price level was down 6% during the year to
September 2019. In the last three months of 2019, prices
increased by 6%. The site has strong attributes for
retirement village living, with several shopping centres
and public transport links nearby, along with a public
reserve and golf course.
In late December 2019, Summerset acquired a second
site in the seaside town of Torquay on the Bellarine
Peninsula in Victoria.
The Melbourne market
Melbourne, with a current population of 4.9 million, is on
track to become Australia’s biggest city by the
mid-2020s. The country faces population ageing at a
rate faster than New Zealand, with an official projection
that the number of people aged 75 and above will
increase 140% over the next 30 years (to reach
4.1 million).
This indicates there will be demand for accommodation
from independent living through to fully supported
residential care, where residents can move as their needs
change over time.
Summerset’s research has shown
an unmet demand for retirement
villages that offer a continuum of
care model.
Planning for Cranbourne North includes a state-of-the-
art memory care centre that will have the same quality
of design as those currently being built in all new
Summerset villages on this side of the Tasman.
With planning and consenting processes underway in
2020, Summerset expects to be offering the first units
for sale at Cranbourne North in late 2021.
Latest developments
Summerset has a dedicated Australian project team,
with a number of full-time staff based in Melbourne and
further implementation support from New Zealand. Two
of our senior development staff have moved over from
our New Zealand office, which has been invaluable in
terms of adding knowledge and know-how from a
Summerset perspective.
An Australian Summerset website was also launched in
September 2019.
28
ANNUAL REPORT 2019
BRINGING THE BEST OF LIFE TO SUMMERSET RESIDENTS
29
Bringing the best
of life to Summerset
residents
Our business is about bringing the best of life to Summerset residents.
People come to Summerset for companionship, security and personal
support. Most want to live in their familiar part of New Zealand, with as much
independence and comfort as possible. Our strategy is to facilitate this in
as many ways as we can.
In 2019, we continued to achieve high satisfaction
ratings among residents, and to make continuous
improvements in village design, and in our services and
infrastructure. Summerset’s independently run annual
survey produced a satisfaction score of 96% for
retirement village living residents and 96% for care
residents. Through the survey, residents confirm the
things they like best. These include: the friendliness of
our villages and the companionship of fellow residents;
the overall quality of care from Summerset staff; our
village locations and proximity to local amenities; our
layouts and beautifully maintained gardens; and high
levels of safety and security. It is heartening to see we are
scoring highly across all areas of retirement living.
Satisfaction survey
)
%
(
n
o
i
t
c
a
f
s
i
t
a
S
100
75
50
25
0
9797
9393
9595
9292
9494
9494
9797
9797
9797
9595
9696
9696
2014
2015
2016
2017
2018
2019
Retirement village living
Care centres
Infrastructure and services
Summerset’s focus on resident satisfaction starts with
the design of our villages, homes and common areas.
In 2018 we were the first retirement operator accredited
to the Lifemark design standard for accessibility in our
communal buildings and across our village facilities. This
standard is now applied in every new design, along with
an emphasis on the adaptability, usability and safety of
all our buildings.
We have installed fibre-optic cable in all new villages to
provide fast, reliable broadband to every home. We are
planning to retrofit our older villages over the next couple
of years.
We are making increased use of the VCare software
system for information access in villages and care
centres. VCare is our resident management software,
and has made a big impact since its introduction in 2017.
The benefits of having a central repository of resident
information are being realised. They include streamlining
business processes, managing our reporting more
efficiently and ensuring staff have more time to spend
with our residents.
Summerset staff use VCare on mobile devices for
ease of use as well as real-time access to important
resident information.
30
ANNUAL REPORT 2019
BRINGING THE BEST OF LIFE TO SUMMERSET RESIDENTS
31
This year we held 55 events across
our villages and hosted more than
3,000 guests, including
residents, their family and friends,
members of the community and
those interested in living at a
Summerset village.
Highlights from the Connect series this year included
Dementia New Zealand, sports commentator Keith
Quinn, cricketing legend Sir Richard Hadlee, renowned
explorer Peter Hillary and food writer and TV personality
Peta Mathias. We held more events in 2019 than ever
before, and the quality of the presenters speaks for itself.
We look forward to rolling out the 2020 programme,
which will start in March.
Community Connect
The year also saw Summerset pilot Community Connect,
a new form of connection between villages and local
secondary schools, with students helping residents
acquire new technology and social media skills. We are
looking to roll this out to more villages in 2020, following
a successful pilot with Summerset at the Course and St
Patrick’s College Silverstream in Upper Hutt.
Dementia friendly
We actively welcome into our villages people who live
with dementia. Summerset recognises the broad
continuum of their capabilities and their support needs,
with many people able to continue in independent living
units while others benefit most from care centre
accommodation or our new memory care apartments.
Summerset has adopted the seven international
Dementia Friendly Recognition Programme standards as
part of its internal audit process for all villages.
Catering
Food choices and catering are another area where the
company continues to make improvements. In 2019 we
employed a dedicated food services lead, who has been
responsible for ensuring our residents get quality food.
Feedback has been positive since we moved to using
three regionally based catering specialists in 2018 for
cafés and meal offerings in most Summerset villages.
We continue with in-house provision of food services in
two villages and this is also working well.
Food is a subject close to many residents' hearts and
is an area we will continue to monitor closely with
our supplier partners to ensure we are providing
high quality catering.
Wellbeing programmes
Summerset is committed to helping residents maintain
wellness in the fullest sense of the word. We will continue
extending the wellbeing programme through 2020
within a holistic wellness framework encompassing
physical, mental, environmental and social wellbeing. In
2019 we trialled a new signature fitness programme.
Our new fitness programme has
been developed exclusively for
Summerset villages by an
experienced fitness specialist. It
focuses on muscle strength and
coordination, and has multiple
mind-body benefits.
Feedback from the trial at two Christchurch villages has
been very positive. We have gained accreditation to
the falls prevention standard, “Live Stronger for Longer",
established by ACC and the Ministry of Health. We will
progressively use this to improve our fitness
programmes in our New Zealand villages.
Summerset Connect speaker series
The Summerset Connect speaker series is aimed at
social wellbeing for our residents. The 2019 series has
gone well, both in terms of the quality of the speakers
and the numbers in attendance.
32
ANNUAL REPORT 2019
People are the heart
of Summerset
To bring the best of life to Summerset residents, we need skilled and
engaged employees. We have a diverse team working across our
organisation. Our strategy is to recruit and retain the best people, and to
facilitate the development of their personal and professional skills. We aim
to achieve high standards of workplace health and safety across the
business – with particular focus on our construction and operations teams.
At Summerset our focus is on enabling people to
participate fully in the growth and success of our
business, and to further develop their knowledge
and skills. Recruitment and retention continue to be
challenges for Summerset, as they are for other
employers in our sector.
We have implemented well-
researched and successful
initiatives to attract registered
nurses and other professionals to
Summerset.
We are also ensuring our workplace is healthier, safer and
more supportive for all our staff.
High level of staff engagement
Summerset measures employee engagement each
year, and in 2019, the overall engagement score was 67%.
That is consistent with the past two years and above
the norm for Australasian companies, but just outside
the top quartile. In 2017 and 2018 we were in the top
quartile of employers. Engagement is different to
satisfaction and measures employees who "go the extra
mile", want to stay with their employer and speak
positively about their employer.
Remuneration and benefits
Summerset looks to be “top equal” on remuneration and
benefits for care centre staff relative to other large
employers in aged care. Our 150 plus registered nurses
and over 650 caregivers received further pay increases
of 2.5-8% in 2019 as Summerset matched the pay rates
of district health boards. We intend for our people to
share in the success of Summerset through their level
of regular pay and through a comprehensive and sector
leading set of staff benefits introduced over recent years.
These benefits include a scheme for the allocation of
new Summerset shares free to employees each year. A
parcel of shares valued at $800 has been allotted to each
employee annually over the last few years, and
transferred to their name if they are still working for
Summerset three years later. During the interim period,
dividends paid on those shares are received directly by
the employee.
Staff engagement survey1
67%67%
69%69%
67%67%
53%53%
80
60
%
40
20
0
2015
2017
2018
2019
1 Source: Kincentric engagement survey
(Kincentric acquired the Aon Hewitt survey)
PEOPLE ARE THE HEART OF SUMMERSET
33
In July 2019, the first allocation of shares under the
scheme vested to more than 300 staff members, with
the welcome news that the market value of their shares
was substantially higher than it was three years ago.
Summerset provides its employees with free health
insurance, funeral cover, quarterly travel voucher prizes,
discounts at a range of suppliers, sick leave from the first
day of employment, birthday leave, and contributions to
staff social clubs and sporting activities. Summerset also
supports many staff fundraising initiatives.
Training and development
Summerset is increasing its investment in training
and development across all our teams with a focus
on registered nurses. In 2019 we provided more
opportunities for professional learning in the fields
of wound management, infection control and
fall prevention.
We continue to develop our clinical nurse leads who
make a major contribution to the expertise of
Summerset’s nursing teams.
Recruitment
We saw a slight increase in turnover to 27.6% in 2019,
reflecting pressure in the nursing and caregiver
workforces. However, our retention, which measures
how many employees who started the year with us are
still in employment at year end, improved to 78.7% from
74.1% in the prior year.
Like all other employers in New Zealand’s aged care and
health sectors, we are faced with nurse and caregiver
recruitment challenges. Our strategy is to make
Summerset an excellent place to work, and to attract
talented and committed people.
Employee attrition
Employee retention
34.134.1
29.229.2
26.626.6
27.627.6
40
30
%
20
10
0
74.174.1
78.778.7
%
90
60
30
0
2016
2017
2018
2019
2018
2019
34
ANNUAL REPORT 2019
Our approach to remuneration and benefits, and to
training and development opportunities, enhances the
company’s reputation in what is a very competitive
employment marketplace.
In 2019 we released a new range of videos online to share
the benefits of joining our team as relayed by Summerset
staff. One of these videos spotlights two nurses who
have migrated to New Zealand. They tell their real-life
stories of working in our organisation and enjoying the
Kiwi lifestyle. In the year ahead, we will look to recruit
more nurses from overseas. Our focus is also on staff
retention and continuing to aim towards making
Summerset an outstanding place to work.
Diversity
Summerset is also working to make diversity and
inclusiveness among employees an integral part of the
workplace experience. In 2019 we continued to promote
equal opportunity principles in our recruitment and
employee management processes, to ensure there are
no barriers that may arise from diversity, and to promote
a merit-based culture where every individual can work to
their full potential. Over the next year we will go further
with data-gathering and reporting, and will be
incorporating diversity concepts into leadership
development programmes.
In 2019 our data showed that
Summerset employed people
from 37 different nationalities,
with almost equal representation
of females and males in senior and
middle management roles.
In the 2019 Summerset engagement survey, a significant
majority of employees (74%) said the culture was
accepting of people’s diverse backgrounds and of
different ways of thinking.
Health and safety
In 2019 Summerset was awarded tertiary status in ACC’s
Accredited Employers Programme. Injury frequency
rates increased slightly, with reductions in construction
offset by rates in operations going up.
WorkSafe New Zealand classes construction as a high-
risk sector. As the industry-wide Health and Safety
Attitude and Behaviours Survey has recently shown, this
view is shared by six out of ten workers and five out of
ten employers.
PEOPLE ARE THE HEART OF SUMMERSET
35
Workplace injury rates 1
8.418.41
3.683.68
10
7.5
5
2.5
0
5.625.62
4.614.61
5.055.05
2.522.52
2.152.15
2.732.73
2016
2017
2018
2019
Lost time injury frequency rate
Recordable injury frequency rate
1 The prior year LTIFR numbers have been updated due to Summerset changing
to the benchmark methodology used by the Business Leaders' Health and
Safety Forum.
Wellbeing at work
We recognise that mental health is of great significance
in the overall wellbeing of our employees. In 2019, we
started to roll out the ‘Good Yarn’ programme
encouraging workers on our construction sites to
confide in managers or colleagues when feeling under
pressure or stressed on the job. A range of additional
staff programmes ran during the year such as the 'Be a
Mate' anti-bullying campaign, Winter Wellness as well as
continuing to offer support from our free employee
assistance programme.
Summerset has around 100 workers in its construction
team, which includes design, commercial, procurement,
quality assurance and project/site management. Our
policies and practices cover contractors’ employees and
subcontractors working on our sites. Our General
Manager Construction, Dean Tallentire, was appointed
to the board of SiteSafe in 2019.
We seek to run our sites to best
practice and we are aligned with
the vision of SiteSafe and other
construction industry forums.
In early 2019 there was a substantial rise in near-miss
reporting of incidents on our sites. This was as a result
of both attitudinal change and the introduction of a new
mobile phone app that makes the reporting of unsafe
conditions quick and easy. Good levels of near-miss
reporting is one sign of a positive health and safety
culture. We seek to run our sites to best practice and we
are aligned with the vision of SiteSafe and other
construction industry forums. We are encouraging and
supporting our supply chain to be accountable for their
own health and safety, recently introducing SiteWise —
a contractor pre-qualification programme.
This will help with upskilling frontline staff and
ensuring they appreciate even more the risks involved
in their work and in our supply chains. It will also help our
teams review risk planning documentation and promote
more meaningful health and safety conversations in
each workplace.
In 2020 and beyond, we are
continuing to invest in training for
our project management teams
in the construction industry.
Supporting the next generation of talent
The company is keen to support young nurses at tertiary education level, and in 2019 we launched new
scholarships for those interested in coming into the aged care sector. We have partnered with the First
Foundation whose purpose is building a better future for New Zealand's talented youth. Under this partnership,
Theresa Fatu became the first recipient of Summerset’s First Foundation Scholarship and we will be supporting
her to achieve a nursing degree over the next three years. We look forward to Theresa joining our team at
Hobsonville for paid work experience during study breaks. Summerset also launched scholarships for final-year
Massey University nursing students with a focus on our sector. We are pleased to support the first recipient,
Ruth Trow, as she completes a 360-hour clinical placement during the final stage of her nursing degree. Our
training focus is also now on team leadership in various areas of Summerset, including in our large construction
team. We look to make progress on team leader development over the coming year.
36
ANNUAL REPORT 2019
Summerset contributed $440,000 to a number of organisations, including Dementia New Zealand, Bowls New Zealand, Wellington Free Ambulance, and Age Concern New Zealand. WORKING TOGETHER WITH OUR COMMUNITIES
37
Working
together with our
communities
Summerset’s retirement villages are part of their communities across
New Zealand. Our residents enjoy contributing to the surrounding area
with local economies also benefiting from our presence. We saw local
groups, school children, Plunket babies, animal welfare charities and
entertainers coming into our villages this year. Our residents actively
support their community with fundraising, time and energy.
Summerset continues to invest at a national and local
level in individuals and organisations, supported by
our residents.
Dementia New Zealand
The second year of our major partnership with Dementia
New Zealand saw us host another series of public talks
on understanding dementia. We host these free talks in
our villages and open them up to the public as part
of our shared goal to increase understanding of
the disease.
We were also a principal sponsor of Dementia Auckland’s
fundraising gala ball, the 'Still Me' ball held in November.
Residents and staff from our Ellerslie village were among
300 other guests who enjoyed a glittering night of dance
with VIPs including Dancing with the Stars NZ judge
Rachel White and TV3 host Mike McRoberts, as well as
the professional dance crew from Dancing with the
Stars NZ.
Bowls New Zealand
Bowls is a popular sport amongst our residents, with all
villages having a bowling green and many hosting inter-
village bowls competitions.
The second year of our partnership with New Zealand’s
overarching outdoor bowls membership body saw a
successful season of the Summerset National Bowls
competition and the return of Bowls3Five, a faster paced
game shown live on SKY TV from October to December.
Brook Waimārama Sanctuary
We enhanced our support for the environment with a
new relationship with Nelson’s Brook Waimārama
Sanctuary this year. It is the largest fenced sanctuary for
endangered plants and species in the South Island, and
is close to our Nelson and Richmond villages.
We are proud to continue our support of other
organisations which have a relationship with our villages,
or have a direct impact on the health and wellbeing of
New Zealanders. These other organisations include:
• Wellington Free Ambulance
• Orokonui Ecosanctuary
• Age Concern New Zealand
• New Zealand Indoor Bowls
•
The Sir Paul Callaghan Eureka! Awards
In 2019 other initiatives supported the Cancer Society,
Te Omanga Hospice and the New Zealand Institute of
Building. Our staff fundraise for a wide variety of charities
and we support them with top-ups from the company.
In March, staff and residents made a special effort to
fundraise collectively for the victims of Christchurch’s
mosque shootings. Together we were delighted to raise
$22,000, which was matched by Summerset, totalling
$44,000 for those affected by this tragic event. In total
Summerset contributed $440,000 to support our wider
community during 2019.
38
ANNUAL REPORT 2019
Our Summerset by the Ranges village in Levin was awarded Dementia Friendly status under the certification programme of Alzheimers New Zealand this year.Artist’s impression of the new memory care centre internal courtyard at Casebrook NEXT-GENERATION DEMENTIA CARE 39
Next-generation
dementia care
Summerset is dedicated to providing the best dementia care in the
market. Along with the rest of the Western world, New Zealand is facing far
greater numbers of people in our communities living with dementia. It is
estimated that the number of people affected by dementia in New Zealand
will triple to around 170,000 by 2050.
Summerset’s memory care centres have been designed
to bring the best of life to the increasing number of
residents needing secure aged care facilities for
dementia. Summerset offers state-of-the-art facilities
and is proud to be opening two brand new memory care
centres in 2020, at Casebrook (Christchurch) and
Rototuna (Hamilton).
Summerset’s memory care
centres have been created to
support the individual, maximise
independence and reinforce
personal identity, all within a safe
and supportive environment.
Since it opened in 2016, the first memory care centre, at
Summerset by the Ranges in Levin, has proved the
significant potential of the Summerset model. It is now
being rolled out to all our new villages.
Memory care centres
Our memory care centres provide people with their own
apartment within a secure building with specially
designed communal areas, including a dining area, and
continuous on-call staff. Residents have their own
lounge, bathroom, kitchenette and furnishings – a place
they can truly feel at home. Relatives and friends are able
to stay overnight in the apartments when appropriate.
Leading-edge design and personalised care
Indoor-outdoor flow, natural light and the placement of
everyday objects really matter for ease of living with
dementia – and Summerset is incorporating these
things, and more, in its memory care centres. Our design
team has studied international best practice from the
emerging field of dementia design through Scotland’s
Stirling University. We have taken research findings and
practices, and incorporated the key elements into
Summerset designs. Our centres are designed around
central gardens, with ease of access from various points.
Connection to nature is proven to help people with
dementia by improving cognitive processes and
enhancing mood.
Other design features include plenty of natural light and
calming colours, the layout of rooms and their contents
in ways that stimulate memory, and wayfinding
techniques such as murals. The buildings have silent call
bells as a means of alerting staff. They also have
motion detectors to enable non-intrusive monitoring
of residents.
Families and loved ones are critical at this level of care,
and we offer support and guidance for everyone
involved in the decision-making process.
Our new sensory rooms
A sensory room will be a feature of our new memory care
centres. This is a multi-purpose activity space that is
designed for activities that stimulate residents and their
senses. Research suggests that sensory stimulation can
evoke memories associated with smells, tastes, texture
and sounds.
40
ANNUAL REPORT 2019
Summerset’s new memory care centres include a
specialist ceiling-mounted projector displaying an
interactive light show and games which can be targeted
for individual needs and interests. Such activities enable
interaction and participation on both a social and
emotional level. This technology has been developed
in the Netherlands with input from neuropsychologists.
Summerset is the first to introduce this technology into
New Zealand.
'Dementia Friendly' status
Our Summerset by the Ranges village in Levin was
awarded 'Dementia Friendly' status under the
certification programme of Alzheimer’s New Zealand
this year. This means it meets seven core international
standards for ensuring that places and organisations
make life easier for those with dementia, and for their
caregivers. The standards include ongoing efforts to
make physical environments accessible to people living
with dementia, and to train staff for their fuller
understanding of the condition. Our intention in 2020 is
to have the full Summerset business accredited as
'Dementia Friendly' by Alzheimers New Zealand after an
external audit.
Partnering with Dementia New Zealand
Summerset is committed to helping New Zealanders
gain greater awareness of dementia and to overcoming
any social stigma. We recognise the growing importance
of the issues related to dementia.
We will continue to give practical support to clinical and
technological studies that increase knowledge of
dementia and its management.
Our partnership with Dementia NZ includes use of their
expertise to help us support the people in our villages
and care centres, and provide training for our staff.
Summerset was a principal sponsor of the 'Still Me' gala
ball held in Auckland in November 2019 as a fundraiser
Design innovations include:
• We have used ‘biophilic’ principles extensively
in our new memory care centres – bringing
the power of nature inside. Light, colour and
items from nature have a positive effect on
the body.
• We use a circular design for our memory care
centres, so residents can always find their way
back to their own apartment.
• Our centres have an internal garden, with
many rooms looking out onto its colours,
smells, and beauty.
• We have specially designed signage to make it
easy to navigate around each centre.
• Depth perception and some colours become
harder to see for people living with dementia,
so we have created contrasts in the interior
design, including floors, wall finishes, furniture
colours and doors.
for Dementia Auckland. The event highlighted the
power of dance and music as therapy for people living
with dementia.
Dementia talks for the public in 2019
A series of free public talks on dementia started in 2018
and continued into 2019. Hosted by Summerset with
speakers from Dementia NZ, the talks were aimed at
helping the public and our residents better understand
dementia, removing the stigma surrounding it and
breaking down barriers.
The talks were a huge success and have had a positive
impact on our communities across the country. The
public talks will continue in 2020.
Our Memory Care Centre at Summerset by the Ranges has been recognised as a first for this country. In 2017 it won
the New Zealand Aged Care Association’s “Built and Grown Environment” Award
NEXT-GENERATION DEMENTIA CARE
41
42
ANNUAL REPORT 2019
Our annual environmental sustainability cycle:Measurecollect datacalculate baselineSet targetsset a goal plan how to get there Manageget buy-in ensure change MAKING STRIDES IN SUSTAINABILITY 43
Making strides
in sustainability
Summerset is committed to environmental sustainability. We are
making good progress in actively managing and monitoring our footprint.
We are now onto the next phase of our sustainability journey and are
determined to leave a positive legacy for the next generation.
This year we have seen further developments in
embedding our sustainability programme across the
organisation. We are deepening our engagement
with staff, residents, suppliers and the wider
business community.
Summerset has developed a Social Responsibility
framework that includes three key areas: Environment,
People and Community. This framework is a blueprint for
how we positively contribute to the environment and
the communities in which we work and live.
Summerset has established a Green Team, with
representatives from across various teams, who work
together collaboratively on the sustainability
programme. Having this focus has made a big impact on
overall success so far.
The Green Team's campaigns and initiatives are filtered
out to staff through an integrated internal
communications programme, which has seen positive
results and has meant more people have been informed
and involved right across Summerset.
Our sustainability journey
We took the first step on our sustainability journey by
joining the original CEMARS programme (Certified
Emissions Measurement and Reductions Scheme) in
early 2018, becoming the first retirement village operator
in New Zealand to be CEMARS certified. Our 2017
emissions were audited, providing the benchmark for
our future reduction initiatives.
Following our 2017 base year audit, we submitted a
reduction plan for our emissions with clear targets for
the next five years.
As Summerset grows and the number of villages in
operation increases, it means our absolute carbon
emissions will continue to increase. Summerset is
targeting a 5% reduction in our emissions intensity over
the period to 31 December 2022. We will measure our
reductions on an intensity basis i.e. carbon emissions per
dollar of total revenue. This is an acceptable reduction
basis under the Toitū Envirocare programme.
Reduction in emissions intensity
A reduction in emissions intensity for the mandatory
scopes of 2.79 tCO2e/$m or 7% has been certified in 2019
(based upon a 3-year rolling average). This is a very
positive result, given this is only the third year of the
programme and in 2019 we also included our
construction business' direct emissions (waste, travel
and electricity).
Internally we track our emissions intensity by looking at
our total emissions for the year over our total revenue.
The change in our internal measure for our first three
years is a 22% reduction in emissions intensity as
illustrated below.
Emissions intensity - C02e tonnes per $ million
revenue
e
2
O
C
t
60
45
30
15
0
5454
4949
4242
2017
(Base Year)
2018
2019
44
ANNUAL REPORT 2019
The diagram below illustrates the proportion each focus
area contributes to our total emissions.
2019 key impact areas by tCO2e
Toitū carbonzero certified
In 2019 we furthered our commitment by becoming
carbonzero certified – the first operator in our sector to
do so. In 2019 we purchased international carbon credits
to offset our emissions in 2018, and have done the same
again in 2020 for our 2019 emissions.
Summerset is the first retirement
village operator in New Zealand to
be Toitū carbonzero certified.
Reduction in absolute carbon emissions
Summerset’s total emissions this year were 6,466 tCO2e,
which is 3% lower than last year’s total of 6,671 tCO2e and
10% higher than the base year total of 5,939 tCO2e.
Absolute emissions progress
e
2
O
C
t
7,500
6,000
4,500
3,000
1,500
0
00
00
431431
5,939
5,939
2017
(Base Year)
6,671
6,671
2018
6,035
6,035
2019
Village and head office emissions
Construction emissions
A focus on our practical initiatives
Summerset's five areas of focus as part of our emissions
management reduction plan are Energy, Waste, Travel,
Paper and Fertilisers.
We know energy use is the greatest contributor to our
carbon emissions. Electricity is widely used throughout
our villages for heating, cooling and lighting. As we are
a growth business, this is an important focus for us to
monitor and manage effectively. We have put in place
various power-saving initiatives including switching to
more efficient LED lighting, promoting power-saving tips
across the organisation and the installation of automatic
covers for swimming pool temperature control when
these facilities are not in use. Our energy emissions have
not increased at the same rate as our growth, largely due
to our energy-saving initiatives.
MAKING STRIDES IN SUSTAINABILITY 45
Our waste-minimisation programme has seen some
positive results. At head office we have achieved an 86%
reduction in waste emissions since 2017, which is a direct
result of introducing recycling and organic waste bins to
office areas. Village waste has reduced by 56% since
2017, despite the growth in deliveries. This is a result of
introducing green waste bins at all sites and managing
recycling waste more effectively, so less is going to
landfill. Other initiatives at various villages around the
country include paper medicine cups (instead of plastic),
reusable bin liners in care rooms and the removal of
single-use plastic bags for kerbside rubbish collection.
We have included our construction waste in this year's
figures and this will be a priority in the years ahead. We
are proud to be one of the leaders in monitoring and
reporting construction waste for our sector.
We made a concerted effort in 2019 to consider our
travel requirements in more detail. Through technology
we are holding more online meetings than ever before,
ensuring only essential air travel is taken. We are
introducing travel schemes where staff can car-pool or
cycle to work. We saw an 18% decrease in emissions from
domestic and short haul flights overall this year.
International travel has been more of a challenge due to
our international recruitment drive in 2019.
Paper reduction is a key focus and we have made a
significant impact already. Our paper use has reduced
by 1,059 kg since 2017, resulting in a 23% reduction in
emissions. In the first quarter of 2020 we have a new 'Go
Greener' programme set to launch, aimed at further
reducing our paper use across all established villages.
In addition we have a developing programme of
switching to resident e-newsletters. Residents are
onboard with this initiative at selected villages and now
prefer having an electronic newsletter, not only to save
on paper, but for ease of access and keeping up with
village news when they are away.
Although they form only a very small part of our
emissions profile, fertiliser emissions have decreased by
95% from the 2017 base year. We are working to change
the type of fertilisers we use to a more carbon-friendly
fertiliser and have run a trial of a natural weedkiller
product. The environmentally friendly natural herbicide
is in stage two of its trial period. Many conventional
products containing glyphosates can affect wildlife and
organisms in the food chain. The trialled product is
biodegradable and is made from food-grade
ingredients.
Climate Leaders Coalition
Summerset became a signatory to the Climate Leaders
Coalition in 2019, and through collective action, is
committed to reducing emissions. The Coalition is made
up of over 100 of New Zealand’s largest businesses and
joining this group signals our willingness to work with,
and learn from, others around reducing our impact on
the environment.
In 2019 we also surveyed our top 100 suppliers on their
environmental practices and intentions. The survey
results are currently being analysed and will inform the
development of a supplier code of conduct. The
outcome of this work is aimed at having a supply chain
that is more socially responsible and accountable in
the future.
Residents are also sharing the responsibility
and getting involved with some great
sustainability initiatives:
•
Residents from Summerset at Monterey Park,
in Hobsonville, Auckland, have formed their
own ‘Recycling, Re-using and Re-Purposing
Committee’ to identify and action local
suggestions for waste reduction – ideas that
have immediate benefit to their village as well
as helping reduce Summerset’s carbon
footprint.
• Nelson's Summerset in the Sun village has
trialled the use of a more naturally produced
weedkiller as a substitute for glyphosate-based
products. We are now in phase two of the trial
at Summerset at Karaka, with a view to
adopting this product across all our villages in
the near future.
46
ANNUAL REPORT 2019
Business and
financial overview
Summerset maintains strong profitability and balance sheet resilience.
Underlying profit increased by 8% to $106.2 million. Assets rose to
$3.3 billion with the largest land bank of all retirement village operators in
New Zealand. Summerset's expansion into an attractive overseas market
positions us for future sustained growth.
Financial performance overview
Underlying profit increased by 8% to $106.2 million (2018:
$98.6 million) principally driven by the maturing nature
of the business and strong margins on sales. Other
factors include continued high occupancy rates as well
as the ongoing commercial success of Summerset’s
village development and sales of retirement units.
Underlying profit is a non-GAAP measure, a detailed
explanation is included at Note 2 to the Financial
Statements, see page 65. In general terms, underlying
profit removes the fair value movement of investment
property and adds back the realised gains associated
with our resales and the development margin associated
with our new sales. Underlying profit is used to determine
the dividend pay-out to shareholders.
Revenue for the year also grew 12% to $153.9 million
(2018: $137.0 million) reflecting the opening of three new
villages and good financial performance across
village operations.
Long term growth
Underlying profit has seen a compounded annual
growth rate (CAGR) of 38% since listing on the NZX
in 2011.
A key component of underlying profit is the realised
margin on new sales; in 2019 this is $61.0 million (2018:
$63.7 million). The development margin was 27.9%,
down from 33.2% in the previous year. Construction
costs have increased across our main centres which has
had an impact on development margins. However,
overall Summerset’s medium-term expectation of
development margins is in the 20-25% range.
Good margins reflect the advantage of having strong in-
house capabilities for each stage of village development
including land purchase, planning, consenting, design
and construction management. Summerset can achieve
cost advantages through scale and standardisation of
development programmes, whilst also being able to
adapt to each project to local needs and preferences.
Summerset has the largest land bank for a retirement
village operator in New Zealand, acquiring seven new
sites in 2019. This equates to a further 5,380 units in the
pipeline across New Zealand and Australia. Summerset
has maintained strong profitability and balance sheet
resilience throughout 2019 and is well positioned for
future sustained growth.
106.2
106.2
98.698.6
81.781.7
Underlying profit
120
90
m
$
60
56.656.6
37.837.8
30
0
FY15
FY16
FY17
FY18
FY19
BUSINESS AND FINANCIAL OVERVIEW 47
Kenepuru, Wellington
Summary of sales and developments
New Zealand's residential property market slowed in
2018 after a prolonged period of rising prices and high
sales activity in Auckland. Recovery was evident during
the second half of 2019, with the real estate industry's
national price index reaching a record high in November.
Prices were up across most regions due to low interest
rates and population growth.
The year saw 652 new unit sales of occupation rights
(2018: 640), with 329 of these being new unit sales and
323 resales.
Gross proceeds were
up 14% from 2019,
resales were up 18%.
Average gross proceeds per new sale settlement of
$665,000 were up from $566,000 in 2018. Realised
resale gain also increased by 29% to $36.9 million in 2019.
Average gross proceeds per resale settlement was
$445,000 up 10% from 2018. This reflects the growth in
the residential property market in some regions, as well
as the length of time taken between sale of units.
Key development milestones included Summerset’s
three new villages opened in 2019: Avonhead
(Christchurch), Kenepuru (Wellington) and Richmond
(Nelson - Tasman). For developing villages still under
construction, new unit sales were strong at Ellerslie and
Hobsonville (Auckland), Casebrook (Christchurch) and
Rototuna (Hamilton).
In addition, the two new sites in Victoria, Australia
illustrate Summerset’s commitment to diversifying into
an attractive overseas growth market.
Land bank over time (retirement units)
5,600
5,200
4,800
4,400
4,000
3,600
3,200
2,800
2,400
2,000
1,600
1,200
800
400
0
5,380
5,380
3,9103,910
1,470
1,470
2,609
2,609
195195
2,841
2,841
232232
1,069
1,069
2,4142,414
533533
1,881
1,881
2,414
2,414
2,609
2,609
2,841
2,841
3,9103,910
FY15
FY16
FY17
FY18
FY19
Existing land bank
Net land bank growth
48
ANNUAL REPORT 2019
Net profit after tax
Summerset recorded a net profit after tax of
$175.3 million for the year ended 31 December 2019,
down from $214.5 million in 2018, as forecast.
This is largely due to a reduced fair value movement on
investment property (2019: $165.3 million; 2018:
$209.9 million).
Fair value movement in 2019 of $165.3 million reflects
fewer new retirement unit deliveries during 2019 (354)
compared with 2018 (454). This was planned for, with
Summerset making progress on the construction of two
village main buildings for delivery in 2020. Both of these
are long-term projects, with launches in 2020 on
schedule. These collectively will include 152 new
serviced apartments and memory care apartments
(which will be reflected in our fair value movement in
2020), plus another 86 care beds.
The number of unit completions is intended to increase
again in the next financial year. Site works have started
at Bell Block, Papamoa Beach and Te Awa (near Napier),
and these villages are all planned for a 2020 launch.
Business growth and expenses
Summerset derives its revenue from selling retirement
units (deferred management fees) and providing village
and care services. Summerset's revenue increased as a
result of higher volumes reflective of the scale and
growth of Summerset's operations.
Deferred management fees on Summerset’s investment
property were $52.5 million in 2019 (2018: $45.6 million).
The growth reflects the increase in the number,
occupancy and value of Summerset’s portfolio of units.
At 31 December 2019, Summerset’s total retirement unit
portfolio reached 4,086 (2018: 3,732) and at year-end
there were only 266 resale units available for sale.
Fee income from village and care
services was up 11% to $101.3
million (2018: $91.2 million). This
is largely due to the opening of a
new care centre in 2018.
Occupancy in our established care centres is also 96%
which is above the industry average of 89%.
Total expenses increased 9% to $130.2 million (2018:
$119.1 million) in line with Summerset’s ongoing business
growth as well as the growth in the provision of care
centres and their levels of occupancy.
Operating expenses increased to $122.4 million (2018:
$112.4 million), the major driver being higher people
costs. In addition to growth in employee numbers, the
company lifted pay rates for nursing and caregivers,
consistent with an objective of being ‘top equal’ for
remuneration in the sector. Alongside Summerset's
people costs, village expenses increased as a direct
result of a larger portfolio and price inflation across local
body rates, energy supply and insurance premiums.
Summerset’s finance costs of $15.4 million were up 33%
(2018: $11.6 million) reflecting our debt levels, as our
construction activity grows, and one-off fees associated
with periodic refinancing.
BUSINESS AND FINANCIAL OVERVIEW 49
Operating activities
Summerset’s net cash from operating activities was
$237.9 million for the year, up 9% from 2018 (2018:
$217.8 million). This was principally driven by gross
receipts from new occupation right agreement sales
amounting to $209.4 million, up from $187.3 million
in 2018.
Summerset is a growth company and re-invests
operating cash flows back into the business to finance
future growth. Over 2019 Summerset invested
$327.4 million in new and existing retirement villages and
care centres (2018: $290.4 million).
Investment activities are principally the purchase of land
and the development of new, and refurbishment of
existing, Summerset retirement villages and care
centres. Over the year, Summerset borrowed an
additional $103.5 million which was financed through
Summerset’s debt facilities with $362.1 million of bank
borrowings and $225.0 million of retail bonds at
year end.
Assets rose to $3.3 billion
Total assets rose 21% to $3.3 billion at 31 December 2019
(2018: $2.8 billion), mainly due to growth in the size and
value of Summerset’s investment property which
reached $3.1 billion (2018: $2.6 billion). Summerset also
has other property, plant and equipment valued at
$154.0 million at balance date (2018: $132.7 million), most
of this being care centres. These are operated to provide
services and are therefore not included as
investment property.
An increased embedded value of $752.7 million (2018:
$609.1 million) demonstrates future cash that can be
generated when units are re-licenced.
Interest bearing debt (bank loans and retail bonds) of
$597.1 million was 18% of total funding at the latest
balance date (2018: $452.8 million). Summerset has
recently refinanced our banking facility, adding two new
partners, extending the facility from $500 million to
$750 million and increasing tenor.
Summerset also has non-interest-bearing borrowings
of $1.3 billion in the form of loans from residents (2018:
$1.1 billion). This is repayable at the point residents vacate
retirement units and the associated occupation rights
are resold. Shareholders’ equity was $1.1 billion (2018:
$978.8 million).
Consistent strong growth performance
Summerset will pay an increased final dividend of 7.7
cents per share (cps) on 23 March 2020, making a full
pay-out for the latest year of 14.1 cps compared with 13.2
cps for 2018. The increase of 7% on the annual dividend
reflects growth in underlying profit.
Board policy remains for shareholder distributions in
the range of 30-50% of each year’s underlying profit.
The 2019 distribution of $31.9 million represents 30.1%
of underlying profit ($106.2 million) which is consistent
with the last five years.
Summerset continues to offer shareholders a dividend
reinvestment option including a 2% discount to market
share price.
Dividend cents per share
e
r
a
h
s
r
e
p
s
t
n
e
c
16
12
8
4
0
2.12.1
1.41.4
FY14
3.43.4
1.851.85
FY15
5.15.1
2.62.6
FY16
7.17.1
3.93.9
FY17
7.27.2
7.77.7
66
FY18
6.46.4
FY19
2.52.5
FY12
3.253.25
FY13
Interim
Final
50
ANNUAL REPORT 2019
Board of DirectorsRob Campbell (BA (Hons 1st), MPhil (Econ))Chair, Independent Rob is the Chair of the Board. He has over 30 years’ experience as a director and an investor. He is currently the Chair of SKYCITY Entertainment Group, WEL Group, Tourism Holdings and a director of Precinct Properties NZ. Rob is also an investor and director of a number of substantial private companies and is a director of, or an advisor to, a number of private investment funds. Rob has been Chair of Summerset since 2011, when he was appointed to Summerset to lead its listing on the NZX.Dr Marie Bismark( MBChB, LLB, MBHL, MPH, MD, FAICD, FAFPHM, MPsych)IndependentMarie is the Chair of Summerset’s Clinical Governance Committee. She holds degrees in law, medicine, bioethics and public health, and has completed a Harkness Fellowship in Healthcare Policy at Harvard University. Marie works as a psychiatry registrar with Melbourne Health, and as an Associate Professor at Melbourne University. Her research focuses on patients’ rights, quality of care, and medical regulation. Marie is an experienced company director, serving on the board of GMHBA Health Insurance and on the Veterans’ Health Advisory Panel. Marie has been a director of Summerset since 2013.James Ogden( BCA (Hons 1st), FCA, CFinstD, INFINZ (Cert))Independent James is the Chair of Summerset’s Audit Committee. He is a director of Vista Group International and Foundation Life (NZ). James is the Chair of the Investment Committee of Pencarrow Private Equity.James has had a career as an investment banker, including six years as Country Manager for Macquarie Bank and five years as a director of Credit Suisse First Boston. He also worked in the New Zealand dairy industry for eight years in chief executive and finance roles. He holds a Bachelor of Commerce and Administration with First Class Honours, and is a Chartered Fellow of the Institute of Directors and a Fellow of Chartered Accountants Australia and New Zealand (CAANZ). James has been a director of Summerset since 2011 when he was appointed to Summerset prior to its listing on the NZX. BOARD OF DIRECTORS
51
Anne Urlwin ( BCom, FCA, CFInstD, MAICD, ACIS, FNZIM)Independent Anne is the Chair of Summerset’s Development and Construction Committee. She is a professional director with experience in a diverse range of sectors including construction, health, telecommunications, infrastructure, regulation and financial services.She is the Deputy Chair of Southern Response Earthquake Services, and a director of Precinct Properties New Zealand, Tilt Renewables and Steel & Tube Holdings. Her other directorships include City Rail Link and Cigna Life Insurance New Zealand.Anne is a former director of Chorus and a former Chair of national commercial construction group Naylor Love Enterprises and of the New Zealand Blood Service.Anne is a Chartered Accountant with experience in senior finance management roles in addition to her governance roles.Anne has been a director of Summerset since 2014. Dr Andrew Wong(BHB, MbChB, MPH) Independent Andrew is the Managing Director of Mercy Ascot Hospitals and HealthCare Holdings, having held these positions since 2009. He holds a medical degree and has previously practised as a Public Health Medicine specialist.Andrew is also a director of a number of medical organisations. These cover a diverse range of areas such as surgical hospitals, day surgeries, diagnostic radiology and cancer care. Andrew has been a director of Summerset since 2017. Gráinne Troute (GradDipBusStuds, CMInstD) Independent Gráinne is the Chair of Summerset’s Nomination and Remuneration Committee. She is a Chartered Member of the Institute of Directors and is also a director of Tourism Holdings and Investore Property. Gráinne is a professional director with many years’ experience in senior executive roles. She was General Manager, Corporate Services at SKYCITY Entertainment Group and Managing Director of McDonald’s Restaurants (NZ). She also held senior management roles with Coopers and Lybrand (now PwC) and HR Consultancy Right Management.Gráinne has vast expertise in operating customer-focused businesses in highly competitive sectors. She has also spent many years as a trustee and Chair in the not-for-profit sector, including having been the Chair of Ronald McDonald House Charities New Zealand for five years. Gráinne has been a director of Summerset since 2016.Venasio-Lorenzo Crawley was appointed to the Board of Directors in February 2020. 52
ANNUAL REPORT 2019
Julian Cook (MAF, MSc, BSc, BA)Chief Executive Officer Julian has overall responsibility for Summerset and is focused on developing and operating vibrant villages, and ensuring that respect for our customers is always at the core of everything we do.Prior to becoming Chief Executive Officer in 2014, Julian was Summerset’s Chief Financial Officer after joining Summerset in 2010. He oversaw Summerset’s transition to become a publicly listed company on the New Zealand Stock Exchange and the Australian Securities Exchange.Julian is a member of the Executive Committee for the New Zealand Retirement Villages Association.Scott Scoullar( CA, FCPA, BCA)Deputy Chief Executive Officer and Chief Financial Officer Scott has overall responsibility for the financial management of the company and corporate services functions.Before joining Summerset in 2014, Scott held CFO roles at Housing New Zealand and Inland Revenue.Scott was named CFO of the Year at the New Zealand CFO Summit Awards in 2019 and was NZICA’s Public Sector CFO of the Year in 2011. Scott is also a Fellow of CPA Australia, and a CPA New Zealand Council Board Member.Dave Clegg(MBA)General Manager Human Resources Dave is responsible for leading Summerset’s Human Resources and Health and Safety teams to build and grow Summerset’s people capability and engagement.Before joining Summerset in 2018, Dave was the General Manager of People and Culture at Steel & Tube. Dave has over 25 years’ experience in human resources leadership roles in New Zealand and overseas. Dave holds an MBA from Southern Cross University in Australia. Fay French(RNZcmpN)General Manager Sales Fay leads our national sales team and can be found at Summerset’s Wellington office or at one of our many New Zealand villages.Fay has a breadth of experience across sales, hospitality and the health sector. Prior to joining Summerset in 2015, she held a sales leadership role at a leading New Zealand e-commerce platform, where she was responsible for leading a team of business development managers.Trained as a registered nurse, Fay has worked in various nursing roles and medical sales for Roche Pharmaceuticals.Executive Leadership Team EXECUTIVE LEADERSHIP TEAM 53
Paul Morris(Dip. BS)General Manager Development Australia Paul leads Summerset’s investigation of development opportunities in the Australian market.Paul has been with Summerset since early 2000. He commenced in the GM Development Australia role in 2018, having previously been GM Development New Zealand since 2003. Aaron Smail(BE (Civil), BBS)General Manager Development Aaron leads Summerset’s development team in New Zealand, which covers identifying and purchasing new sites, project feasibilities, consents, design concepts, master planning and design standards for villages. Previous roles in his 25 plus years of property and development experience include senior positions at Todd Property Group and Kiwi Property.Aaron has been with Summerset since 2015. Dean Tallentire (BSc (Hons), HND, RICS)General Manager Construction Dean leads our design management, building consents, procurement, cost management, construction management and administration support teams in the construction team. Dean has extensive construction and development experience and has led teams in the public and private sectors within developer and main contractor environments.Dean has been with Summerset since 2015. Eleanor Young(BSc (Hons))General Manager Operations and Customer Experience Eleanor oversees the operational performance across all Summerset villages. Her focus on service experience and delivery ensures Summerset’s residents receive the highest quality facilities and care. Before joining Summerset in 2016, Eleanor held senior roles at Inland Revenue. This included four years as the Group Manager of Customer Services, managing over 2,000 staff across New Zealand to deliver services to customers. Eleanor has a background in human resources within both the public and private sectors, having worked in managerial roles for the Ministry of Social Development, Mighty River Power and Air New Zealand. 54
ANNUAL REPORT 2019
Five year summary
Key operational and financial statistics for the five year period up to and
including FY19 are as follows:
Results highlights - operational
New sales of occupation rights
Resales of occupation rights
Total sales of occupation rights
Development margin
New retirement units delivered
Retirement units in portfolio
Care beds in portfolio
Results highlights - financial
Net operating cash flow
Total assets
Net assets
Underlying profit
Profit before income tax (IFRS)
Profit for the period (IFRS)
Dividend per share
Basic earnings per share
Unit
FY19
FY18
FY17
FY16
FY15
No.
No.
No.
%
No.
No.
No.
329
323
652
339
301
640
382
300
682
414
244
658
333
245
578
27.9%
33.2%
27.3%
22.2%
20.0%
354
454
450
409
303
4,086
3,732
3,278
2,828
2,419
858
858
806
748
616
Unit
FY19
FY18
FY17
FY16
FY15
$m
$m
$m
$m
$m
$m
cents
cents
237.9
217.8
207.7
192.6
140.3
3,337.9
2,766.4
2,232.8
1,706.8
1,363.5
1,131.9
978.8
785.8
545.6
409.8
106.2
173.6
175.3
14.1
78.6
98.6
216.2
214.5
13.2
97.1
81.7
240.2
239.9
11.0
109.8
56.6
145.6
145.5
7.7
66.9
37.8
82.8
84.2
5.3
38.9
FY19 to
FY18 %
Change
-3%
7%
2%
-16%
-22%
9%
0%
FY19 to
FY18 %
Change
9%
21%
16%
8%
-20%
-18%
7%
-19%
FINANCIAL STATEMENTS
55
Financial Statements 56
ANNUAL REPORT 2019
Income Statement
For the year ended 31 December 2019
Care fees and village services
Deferred management fees
Interest received
Total revenue
NOTE
4
4
4
2019
$000
101,259
52,470
217
2018
$000
91,154
45,637
226
153,946
137,017
Fair value movement of investment property
11
165,252
209,930
Total income
319,198
346,947
Operating expenses
Depreciation and amortisation expense
Total expenses
5
(122,399)
(112,442)
9, 10
(7,833)
(6,685)
(130,232)
(119,127)
Operating profit before financing costs
188,966
227,820
Net finance costs
Profit before income tax
Income tax credit/(expense)
Profit for the period
Basic earnings per share (cents)
Diluted earnings per share (cents)
The accompanying notes form part of these financial statements.
6
7
20
20
(15,405)
(11,647)
173,561
216,173
1,701
(1,670)
175,262
214,503
78.59
77.52
97.13
95.42
FINANCIAL STATEMENTS
57
Statement of Comprehensive Income
For the year ended 31 December 2019
Profit for the period
Fair value loss on interest rate swaps
Tax on items of other comprehensive income
(Loss)/gain on translation of foreign currency operations
Other comprehensive income that will be reclassified subsequently to
profit or loss for the period net of tax
NOTE
2019
$000
2018
$000
175,262
214,503
14
7
(7,015)
1,964
266
(6,125)
1,715
5
(4,785)
(4,405)
Total comprehensive income for the period
170,477
210,098
The accompanying notes form part of these financial statements.
58
ANNUAL REPORT 2019
Statement of Changes in Equity
For the year ended 31 December 2019
SHARE
CAPITAL
$000
HEDGING
RESERVE
$000
REVALUATION
RESERVE
$000
RETAINED
EARNINGS
$000
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$000
TOTAL
EQUITY
$000
785,786
214,503
(4,405)
210,098
(29,138)
11,339
714
978,799
978,799
(1,413)
977,386
175,262
-
-
5
5
-
-
-
5
5
-
5
-
As at 1 January 2018
257,414
(5,712)
24,941
509,143
Profit for the period
Other comprehensive
income for the period
Total comprehensive
income for the period
Dividends paid
Shares issued
Employee share plan
option cost
-
-
-
-
11,339
714
-
(4,410)
(4,410)
-
-
-
-
-
-
-
-
-
214,503
-
214,503
(29,138)
-
-
As at 31 December 2018
269,467
(10,122)
24,941
694,508
As at 1 January 2019
269,467
(10,122)
24,941
694,508
-
-
-
(1,413)
269,467
(10,122)
24,941
693,095
Adjustment on adoption
of IFRS 16
Adjusted balance at
1 January 2019
Profit for the period
Other comprehensive
income for the period
Total comprehensive
income for the period
Dividends paid
Shares issued
Employee share plan
option cost
-
-
-
-
13,351
1,256
-
(5,051)
(5,051)
-
-
-
-
-
-
-
-
-
175,262
-
266
(4,785)
175,262
266
170,477
(30,586)
-
-
-
-
-
(30,586)
13,351
1,256
As at 31 December 2019
284,074
(15,173)
24,941
837,771
271
1,131,884
The accompanying notes form part of these financial statements.
FINANCIAL STATEMENTS
59
NOTE
2019
$000
2018
$000
8
14
9
10
11
12
13
4
14
15
17
16
7
19
19
21,462
36,662
12,617
7,482
29,836
4,626
154,004
132,746
6,123
6,628
3,107,014
2,585,049
3,337,882
2,766,367
134,680
87,238
11,434
91,142
21,075
9,452
71,083
14,059
1,327,607
1,136,792
597,081
452,760
10,460
12,519
-
16,184
2,205,998
1,787,568
1,131,884
978,799
284,074
269,467
10,039
14,824
837,771
694,508
1,131,884
978,799
Statement of Financial Position
As at 31 December 2019
Assets
Cash and cash equivalents
Trade and other receivables
Interest rate swaps
Property, plant and equipment
Intangible assets
Investment property
Total assets
Liabilities
Trade and other payables
Employee benefits
Revenue received in advance
Interest rate swaps
Residents’ loans
Interest-bearing loans and borrowings
Lease liability
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity attributable to shareholders
The accompanying notes form part of these financial statements.
On behalf of the Board
Rob Campbell
Director and Chair of
the Board
James Ogden
Director and Chair of the
Audit Committee
Authorised for issue on 24 February 2020
60
ANNUAL REPORT 2019
Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Receipts from residents for care fees and village services
Interest received
Payments to suppliers and employees
Receipts for residents’ loans - new occupation right agreements
2019
$000
2018
$000
101,116
90,313
217
226
(116,811)
(107,144)
209,364
187,273
Net receipts for residents' loans - resales of occupation right agreements
44,010
47,135
Net cash flow from operating activities
237,896
217,803
Cash flows to investing activities
Payments for investment property:
- land
- construction of villages
- refurbishment of villages
Payments for property, plant and equipment:
- construction of care centres
- refurbishment of care centres
- other
Payments for intangible assets
Capitalised interest paid
(57,344)
(54,699)
(232,768)
(203,781)
(7,201)
(5,423)
(15,413)
(146)
(3,172)
(567)
(10,800)
(9,960)
(1,017)
(3,702)
(2,489)
(9,325)
Net cash flow to investing activities
(327,410)
(290,396)
Cash flows from financing activities
Net proceeds from (repayments of) bank borrowings
Proceeds from issue of retail bonds
Proceeds from issue of shares
Interest paid on bank loans and retail bonds
Payments in relation to lease liabilities
Dividends paid
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes form part of these financial statements.
135,636
(21,337)
-
125,000
2,215
1,898
(13,549)
(13,374)
(1,264)
-
(19,544)
(19,678)
103,494
72,509
13,980
7,482
21,462
(84)
7,566
7,482
FINANCIAL STATEMENTS
61
Reconciliation of Operating Results and Operating Cash Flows
For the year ended 31 December 2019
Profit for the period
Adjustments for:
Depreciation and amortisation expense
Loss on disposal of property, plant and equipment
Fair value movement of investment property
Net finance costs paid
Deferred tax expense
Deferred management fee amortisation
Employee share plan option cost
Other non-cash items
Movements in working capital
Increase in trade and other receivables
Increase in employee benefits
Increase in trade and other payables
Increase in residents’ loans net of non-cash amortisation
2019
$000
2018
$000
175,262
214,503
7,833
-
6,685
113
(165,252)
(209,930)
15,405
11,647
(1,701)
1,670
(52,470)
(45,637)
1,256
271
714
-
(194,658)
(234,738)
(10,724)
(2,390)
1,980
624
2,708
2,007
265,412
235,713
257,292
238,038
Net cash flow from operating activities
237,896
217,803
The accompanying notes form part of these financial statements.
62
ANNUAL REPORT 2019
Notes to the financial
statements
For the year ended 31 December 2019
1. Summary of accounting policies
Reporting entity
The consolidated financial statements presented for the year ended 31 December 2019 are for Summerset Group Holdings Limited
(the "Company") and its subsidiaries (collectively referred to as the "Group"). The Group develops, owns and operates integrated
retirement villages in New Zealand, including independent living, care centres with rest home and hospital-level care and memory
care centres. The Group also owns land for development of retirement villages in Australia.
Summerset Group Holdings Limited is registered in New Zealand under the Companies Act 1993 and is a FMC Reporting Entity for
the purposes of the Financial Markets Conduct Act 2013. The reporting entity is listed on the New Zealand Stock Exchange (NZX),
being the Company’s primary exchange, and is listed on the Australian Securities Exchange (ASX) as a foreign exempt listing.
Basis of preparation
These consolidated financial statements have been prepared in accordance with generally accepted accounting practice in New
Zealand (NZ GAAP), except for Note 2: Non-GAAP underlying profit, which is presented in addition to NZ GAAP compliant information.
NZ GAAP in this instance refers to New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate
for profit-oriented entities. These financial statements also comply with International Financial Reporting Standards.
These financial statements are expressed in New Zealand dollars, which is the Company’s and New Zealand subsidiaries' functional
currency. The functional currency of the Company's Australian subsidiaries is Australian dollars. All financial information has been
rounded to the nearest thousand, unless otherwise stated.
All amounts are shown exclusive of goods and services tax (GST), except for trade receivables and trade payables, and except where
the amount of GST incurred is not recoverable. When this occurs, GST is recognised as part of the cost of the asset or as an expense
as applicable.
The measurement basis adopted in the preparation of these financial statements is historical cost, with the exception of the items
noted below.
•
•
•
•
Interest rate swaps – Note 14
Investment property – Note 11
Land and buildings – Note 9
Retail bonds – Note 17
Basis of consolidation
Subsidiaries are fully consolidated at the date on which the Group obtains control, and continue to be consolidated until the date
when such control ceases. The financial statements are prepared for the same reporting period as the Company, using consistent
accounting policies. All intra-group transactions and balances arising within the Group are eliminated in full.
All subsidiary companies are 100% owned and incorporated in New Zealand or Australia with a balance date of 31 December.
FINANCIAL STATEMENTS 63
The New Zealand subsidiaries are:
Summer Land Developments Limited
Summerset Care Limited
Summerset Holdings Limited
Summerset LTI Trustee Limited
Summerset Management Group Limited
Summerset Properties Limited
Summerset Retention Trustee Limited
Summerset Villages (Aotea) Limited
Summerset Villages (Avonhead) Limited
Summerset Villages (Bell Block) Limited
Summerset Villages (Blenheim) Limited
Summerset Villages (Cambridge) Limited
Summerset Villages (Casebrook) Limited
Summerset Villages (Dunedin) Limited
Summerset Villages (Ellerslie) Limited
Summerset Villages (Hamilton) Limited
Summerset Villages (Hastings) Limited
Summerset Villages (Havelock North) Limited
Summerset Villages (Hobsonville) Limited
Summerset Villages (Karaka) Limited
Summerset Villages (Katikati) Limited
Summerset Villages (Kenepuru) Limited
Summerset Villages (Levin) Limited
Summerset Villages (Lower Hutt) Limited
Summerset Villages (Manukau) Limited
Summerset Villages (Milldale) Limited
The Australian subsidiaries are:
Summerset Villages (Napier) Limited
Summerset Villages (Nelson) Limited
Summerset Villages (New Plymouth) Limited
Summerset Villages (Number 40) Limited
Summerset Villages (Number 41) Limited
Summerset Villages (Number 42) Limited
Summerset Villages (Number 43) Limited
Summerset Villages (Number 44) Limited
Summerset Villages (Number 45) Limited
Summerset Villages (Palmerston North) Limited
Summerset Villages (Papamoa) Limited
Summerset Villages (Paraparaumu) Limited
Summerset Villages (Parnell) Limited
Summerset Villages (Rangiora) Limited
Summerset Villages (Richmond) Limited
Summerset Villages (Rototuna) Limited
Summerset Villages (St Johns) Limited
Summerset Villages (Taupo) Limited
Summerset Villages (Te Awa) Limited
Summerset Villages (Trentham) Limited
Summerset Villages (Waikanae) Limited
Summerset Villages (Wanganui) Limited
Summerset Villages (Warkworth) Limited
Summerset Villages (Whangarei) Limited
Summerset Villages (Wigram) Limited
Welhom Developments Limited
Summerset Care (Australia) Pty Limited
Summerset Holdings (Australia) Pty Limited
Summerset Management Group (Australia) Pty Limited
Summerset Villages (Cranbourne North) Pty Limited
Summerset Villages (Number 2) Pty Limited
Summerset Villages (Number 3) Pty Limited
Welhom Developments (Australia) Pty Limited
Accounting policies
Accounting policies that summarise the measurement basis used and that are relevant to the understanding of the financial
statements are provided throughout the accompanying notes.
The accounting policies adopted have been applied consistently throughout the periods presented in these financial statements,
except as outlined on the following page, with the adoption of NZ IFRS 16 - Leases.
The Group adopted all mandatory new and amended NZ IFRS Standards and Interpretations.
64
ANNUAL REPORT 2019
Notes to the financial statements (continued)
Adoption of NZ IFRS 16 - Leases, effective 1 January 2019
NZ IFRS 16 - Leases, replaces NZ IAS 17 - Leases along with three interpretations (IFRIC 4 - Determining whether an Arrangement
Contains a Lease, SIC 15 - Operating Leases - Incentives and SIC 27 - Evaluating the Substance of Transactions Involving
the Legal Form of a Lease).
During the period, NZ IFRS 16 - Leases has been adopted with effect from 1 January 2019, using the modified retrospective
approach, as permitted under the specific transition provisions in the standard. Under this transition approach, comparative
figures are not restated and an adjustment is made to retained earnings as at the application date. In addition to using the
modified retrospective approach to transition, the Group has utilised the following permitted practical expedients: the
recognition exemption for short-term leases (leases with a lease term of up to one year) and leases of low-value assets where
appropriate; the practical expedient which states that an entity is not required to reassess whether a contract is, or contains,
a lease at the date of initial application; and accounting for leases for which the lease ends within 12 months of the date of
initial application as short-term leases.
NZ IFRS 16 - Leases requires the Group to recognise a lease liability reflecting future lease payments and a right of use asset
for most lease contracts. The impact of the adoption of this standard on the Group's financial statements has not been material.
Summerset Management Group Limited is a lessee for a number of leases of office buildings and car parks. After utilising
the available practical expedients it is only the Group's lease of office premises that are required to be recognised under
the new standard.
As at 1 January 2019, the Group recognised $8.6 million of right of use assets in relation to office premise leases, along with
a lease liability of $10.6 million on its balance sheet. After taking into account an adjustment for lease incentive payments
remaining on the balance sheet prior to adoption of the new standard, this resulted in an adjustment to retained earnings
of $1.4 million as at 1 January 2019. As at 31 December 2019, the Group records $8.3 million of right of use assets and a net
lease liability of $10.5 million in the statement of financial position as a result of adopting the new standard.
In the income statement for the year ended 31 December 2019, the adoption of the new standard has decreased profit for
the period by $0.1 million, compared to the position had the standard not been in effect. This comprises an increase in
depreciation expense of $0.9 million and an increase in financing costs of $0.4 million, offset by a decrease in operating
expenses of $1.2 million.
In the statement of cash flows, lease payments previously classified as operating cash flows have been reclassified as financing
cash flows for principal repayments of the lease liability. For the year ended 31 December 2019, this has resulted in an increase
to net cash flows from operating activities of $1.3 million and a corresponding decrease to net cash flows from financing cash
flows of $1.3 million, compared to the position had the standard not been in effect. There has been no impact on actual cash
payments.
Occupation right agreements confer the right to occupancy of a retirement unit and are considered leases under NZ IFRS 16
- Leases. There is no change to the recognition or measurement of occupation right agreements and the associated deferred
management fees revenue. Deferred management fee revenue continues to be recognised on a straight-line basis in the
income statement over the period of service, being the greater of the expected period of tenure or the contractual right to
revenue.
Refer to Note 16 for the reconciliation of the opening balance of the lease liability.
There are no new standards, amendments or interpretations that have been issued and are not yet effective, that are expected to
have a significant impact on the Group.
Critical accounting estimates and judgments
In preparing the financial statements, management has made estimates and assumptions about the future that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the period. Actual results may differ from those estimates.
Estimates and assumptions are regularly evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. The principal areas of judgment in preparing these
financial statements are described in the following notes:
•
•
•
•
•
•
Deferred management fees – Note 4
Deferred taxation – Note 7
Interest rate swaps – Note 14
Leases – Note 16
Revenue in advance – Note 4
Valuation of investment property – Note 11
•
•
Valuation of land and buildings – Note 9
Valuation of retail bonds – Note 17
Comparative information
No comparatives have been restated in the current year.
2. Non-GAAP underlying profit
Profit for the period
Less fair value movement of investment property
Add/(less) impairment/(reversal of impairment) on land
Add realised gain on resales
Add realised development margin
(Less)/add deferred tax (credit)/expense
Underlying profit
FINANCIAL STATEMENTS 65
Ref
a)
b)
c)
d)
e)
2019
$000
2018
$000
175,262
214,503
(165,252)
(209,930)
-
36,901
60,973
(1,701)
-
28,685
63,683
1,670
106,182
98,611
Underlying profit is a non-GAAP measure and differs from NZ IFRS profit for the period. Underlying profit does not have a standardised
meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities.
The Directors have provided an underlying profit measure in addition to IFRS profit to assist readers in determining the realised and
unrealised components of fair value movement of investment property and tax expense in the Group’s income statement. The
measure is used internally in conjunction with other measures to monitor performance and make investment decisions. Underlying
profit is a measure that the Group uses consistently across reporting periods. Underlying profit is used to determine the dividend
pay-out to shareholders.
This statement presented is for the Group, prepared in accordance with the Basis of preparation: underlying profit described below.
Basis of preparation: underlying profit
Underlying profit is determined by taking profit for the period determined under NZ IFRS, adjusted for the impact of the following:
a)
b)
c)
d)
Less fair value movement of investment property: reversal of investment property valuation changes recorded in NZ IFRS
profit for the period, which comprise both realised and non-realised valuation movements. This is reversed and replaced with
realised development margin and realised resale gains during the period, effectively removing the unrealised component
of the fair value movement of investment property.
Add/(less) impairment/(reversal of impairment) of land: remove the impact of non-cash care centre valuation changes
recorded in NZ IFRS profit for the period. Care centres are valued at least every three years (last valued as at 31 December
2017), with fair value gains flowing through to the revaluation reserve unless the gain offsets a previous impairment to fair
value that was recorded in NZ IFRS profit for the period. Where there is any impairment of a care centre, or reversal of a
previous impairment that impacts NZ IFRS profit for the period, this is eliminated for the purposes of determining underlying
profit.
Add realised gain on resales: add the realised gains across all resales of occupation rights during the period. The realised gain
for each resale is determined to be the difference between the licence price for the previous occupation right for a retirement
unit and the occupation right resold for that same retirement unit during the period. Realised resale gains are a measure of
the cash generated from increases in selling prices of occupation rights to incoming residents, less cash amounts repaid to
vacated residents for the repayment of the price of their refundable occupation right purchased in an earlier period. Realised
resale gains exclude deferred management fees and refurbishment costs.
Add realised development margin: add realised development margin across all new sales of occupation rights during the
period, with the recognition point being the cash settlement. Realised development margin is the margin earned on the first-
time sale of an occupation right following the development of a retirement unit. The margin for each new sale is determined
to be the licence price for the occupation right, less the cost of developing that retirement unit.
Components of the cost of developing retirement units include directly attributable construction costs and a proportionate
share of the following costs:
•
•
Infrastructure costs
Land cost on the basis of the purchase price of the land
66
ANNUAL REPORT 2019
Notes to the financial statements (continued)
•
•
Interest during the build period
Head office costs directly related to the construction of retirement units
All costs above include non-recoverable GST.
Development margin excludes the costs of developing common areas within the retirement village (including a share of
the proportionate costs listed above). This is because these areas are assets that support the sale of occupation rights for not
just the new sale but for all subsequent resales. It also excludes the costs of developing care centres, which are treated as
property, plant and equipment for accounting purposes.
Where costs are apportioned across more than one asset, the apportionment methodology is determined by considering
the nature of the cost.
e)
Add/(less) deferred tax expense/(credit): reversal of the impact of deferred taxation.
Underlying profit does not include any adjustments for abnormal items or fair value movements on financial instruments that
are included in NZ IFRS profit for the period.
3. Segment reporting
The Group operates in one industry, being the provision of integrated retirement villages. The services provided across all of the
Group’s villages are similar, as are the type of customer and the regulatory environment. The chief operating decision makers, the
Chief Executive Officer and the Board of Directors, review the operating results of the Group as a whole on a regular basis. On this
basis, the Group has one reportable segment, and the Group results are the same as the results of the reportable segment. All
resource allocation decisions across the Group are made to optimise the consolidated Group’s result.
The Group continues to investigate expansion into Australia and its first Australian site was purchased in September 2019, with a
second site in December 2019. It is intended that these sites will be developed into retirement villages. To date the expenditure
incurred and assets acquired in Australia have been immaterial to the Group and as such are not reported as a separate operating
segment as at 31 December 2019.
The Ministry of Health is a significant customer of the Group, as the Group derives care fee revenue in respect of eligible government
subsidised aged care residents. Fees earned from the Ministry of Health for the year ended 31 December 2019 amounted to
$32.2 million (2018: $28.8 million). No other customers individually contribute a significant proportion of the Group revenue. All
revenue is earned in New Zealand.
4. Revenue
Care fees and village services income is recognised over the period in which the service is rendered.
Deferred management fees, which entitle residents to accommodation and the use of the community facilities within the village,
are recognised over the period of service, being the greater of the expected period of tenure or the contractual right to revenue.
The expected periods of tenure, being based on historical Group averages, are estimated to be seven to eight years for villas, five
years for apartments, and three years for serviced apartments and memory care apartments. Where the deferred management fees
over the contractual period exceed the amortisation of the deferred management fee based on estimated tenure, the amount is
recorded as a liability (revenue in advance). At balance date, the majority of the revenue in advance balance is non-current. Deferred
management fees are recognised on a gross basis in the receipts for residents’ loans section of the statement of cash flows.
Interest income is recognised in the income statement as it accrues, using the effective interest method.
5. Operating expenses
Employee expenses
Property-related expenses
Repairs and maintenance expenses
Other operating expenses
Total operating expenses
Other operating expenses include:
Remuneration paid to auditors:
- Audit and other assurance related services review of financial
statements
Donations
Rent1
1 Outgoings and short term and low value amounts exempt under NZ IFRS 16 - Leases.
FINANCIAL STATEMENTS
67
2019
$000
72,921
13,589
5,185
2018
$000
65,387
10,967
4,488
30,703
31,600
122,399
112,442
2019
$000
2018
$000
194
58
217
193
50
1,311
Employee expenses include post-employment benefits (KiwiSaver/Superannuation) of $2.0 million (2018: $1.7 million) .
6. Net finance costs
Interest on bank loans, retail bonds and related fees
Interest on interest rate swaps
Interest on lease liability
Capitalised finance costs
Fair value movement of interest rate swaps designated as fair value through
profit or loss
Fair value movement of retail bonds designated as fair value through profit
or loss
Other
Net finance costs
2019
$000
2018
$000
22,664
17,918
2,623
442
2,688
-
(10,481)
(8,953)
(7,991)
(3,434)
8,082
3,376
66
52
15,405
11,647
Interest expense comprises interest payable on borrowings and is calculated using the effective interest rate method.
Interest on lease liability relates to the lease liability recognised for the first time at 1 January 2019 under the adoption of NZ IFRS 16
- Leases (Note 16).
Borrowing costs are capitalised for property, plant and equipment (Note 9), and investment property (Note 11), if they are directly
attributable to the construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities
to prepare the asset commence and expenditure and borrowing costs are incurred. Capitalisation of borrowing costs continues
until the assets are substantially ready for their intended use.
Borrowing costs of $10.5 million (2018: $9.0 million) have been capitalised during the period of construction in the current year.
The weighted average capitalisation rate on funds borrowed representing the borrowing costs of the loans used to finance projects
is 3.87% per annum (2018: 4.17% per annum).
68
ANNUAL REPORT 2019
Notes to the financial statements (continued)
The retail bonds are designated in a fair value hedging relationship. Details of fair value hedging are included in Note 14.
7. Income tax
Tax expense comprises current and deferred tax, calculated using the tax rate enacted or substantively enacted at balance date
and any adjustment to tax payable in respect of prior years. Tax expense is recognised in the income statement, except when it
relates to items recognised directly in the statement of comprehensive income, in which case the tax expense is recognised in
the statement of comprehensive income.
Deferred tax expense is recognised in respect of temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is
probable it will be utilised. Temporary differences for the initial recognition of assets or liabilities that affect neither accounting nor
taxable profit, unless they arise from business combination, are not provided for.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
(a) Income tax recognised in the income statement
Tax expense comprises:
Deferred tax relating to the origination and reversal of temporary differences
Total tax expense/(credit) reported in income statement
2019
$000
2018
$000
(1,701)
(1,701)
1,670
1,670
The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the
financial statements as follows:
Profit before income tax
Income tax using the corporate tax rate
Capitalised interest
Other non-deductible expenses
2019
2018
$000
173,561
48,597
(2,935)
399
%
$000
%
216,173
28.0%
60,528
28.0%
(1.7%)
0.2%
(2,007)
271
(0.9%)
0.1%
Non-assessable investment property revaluations
(46,271)
(26.7%)
(58,780)
(27.2%)
Other
Prior period adjustments
Total income tax expense/(credit)
(1,681)
190
(1,701)
(1.0%)
0.1%
(1.0%)
1,431
227
1,670
0.7%
0.1%
0.8%
Total Group tax losses available amounted to $184.0 million (2018: $113.4 million). There are no unrecognised tax losses for the Group
at 31 December 2019 (2018: $3.8 million).
(b) Amounts charged or credited to other comprehensive income
Tax expense comprises:
Fair value movement of interest rate swaps
Total tax credit reported in statement of comprehensive income
2019
$000
2018
$000
(1,964)
(1,964)
(1,715)
(1,715)
(c) Imputation credit account
There were no imputation credits received or paid during the year and the balance at 31 December 2019 is nil (2018: nil).
FINANCIAL STATEMENTS 69
(d) Deferred tax
Movement in the deferred tax balance comprises:
Property, plant and equipment
Investment property
Revenue in advance
Interest rate swaps
Income tax losses not yet utilised
Other items
BALANCE
1 JAN 2019
$000
RECOGNISED
IN INCOME
$000
RECOGNISED
IN OCI*
$000
BALANCE
31 DEC 2019
$000
17,062
24,111
11,650
(3,937)
545
5,077
11,829
-
-
-
17,607
29,188
23,479
-
(1,964)
(5,901)
(31,802)
(19,829)
(900)
677
-
-
(51,631)
(223)
Net deferred tax liability
16,184
(1,701)
(1,964)
12,519
Property, plant and equipment
Investment property
Revenue in advance
Interest rate swaps
Income tax losses not yet utilised
Other items
BALANCE
1 JAN 2018
$000
RECOGNISED
IN INCOME
$000
RECOGNISED
IN OCI*
$000
BALANCE
31 DEC 2018
$000
15,641
19,363
1,421
4,748
(14,138)
25,788
-
-
-
17,062
24,111
11,650
(2,222)
-
(1,715)
(3,937)
(1,525)
(30,277)
(890)
(10)
-
-
(31,802)
(900)
Net deferred tax liability
16,229
1,670
(1,715)
16,184
* Other comprehensive income
8. Trade and other receivables
Trade and other receivables are stated at amortised cost less impairment losses. Trade receivables are not significant on an individual
basis and are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate, less an
allowance for impairment. The allowance for doubtful debts is made up of expected credit losses based on assessment of trade
receivables debt at the individual level for impairment, plus an additional allowance on the remaining balance for potential credit
losses not yet identified. The expected credit losses allowance requirement on the remaining balance has been set at 2%. There has
been no material change in the allowance for doubtful debts from prior year.
Trade receivables
Allowance for doubtful debts
Net trade receivables
Prepayments
Accrued income
Sundry debtors
Total trade and other receivables
2019
$000
2,912
(169)
2,743
8,331
923
24,665
36,662
2018
$000
2,632
(117)
2,515
4,954
1,011
21,356
29,836
70
ANNUAL REPORT 2019
Notes to the financial statements (continued)
9. Property, plant and equipment
Property, plant and equipment includes care centres, both complete and under development, and corporate assets held.
All property, plant and equipment is initially recorded at cost. Cost includes expenditure that is directly attributable to the acquisition
of the asset. The cost of self-constructed care centres includes directly attributable construction costs and other costs necessary
to bring the care centres to working condition for their intended use. These other costs include professional fees and consents,
interest during the build period and head office costs directly related to the construction of the care centres. Where costs are
apportioned across more than one asset, the apportionment methodology is determined by considering the nature of the cost.
Subsequent to initial recognition, completed care centres are carried at a revalued amount, which is the fair value at the date of
the revaluation less any subsequent accumulated depreciation on care centres and accumulated impairment losses, if any, since
the assets were last revalued. Other corporate assets are subsequently measured at cost less accumulated depreciation and
impairment losses, if any. Where an item of plant and equipment is disposed of, the gain or loss recognised in the income statement
is calculated as the difference between the net sales price and the carrying amount of the asset.
Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged
between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.
Any revaluation surplus is recognised in other comprehensive income unless it reverses a revaluation decrease of the same asset
previously recognised in the income statement. Any revaluation deficit is recognised in the income statement unless it directly
offsets a previous surplus in the same asset in other comprehensive income. Any accumulated depreciation at revaluation date is
eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon
disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Independent valuations
are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at
the balance sheet date.
Note 6 provides details on capitalised borrowing costs.
Depreciation is charged to the income statement on a straight-line (SL) basis over the estimated useful life of each item of property,
plant and equipment, with the exception of land, which is not depreciated. Depreciation methods, useful lives and residual values
are reassessed at each reporting date.
During the period, the Group changed its depreciation policy for some of its assets from a diminishing value basis to an SL basis.
There was no material impact to the Group's financial statements resulting from this change.
Major depreciation rates are as follows:
•
Buildings (2% to 13% SL)
• Motor vehicles (10% SL)
•
•
Furniture and fittings (7% to 20% SL)
Plant and equipment (2% to 50% SL)
Also included in the buildings category is building fit-out.
Right of use assets are depreciated on an SL basis over the term of their lease. Refer to Note 16.
FINANCIAL STATEMENTS
71
Additions
Disposals
Balance at 31 December
2018
Additions
Disposals
Balance at 31 December
2019
Accumulated depreciation
Balance at 1 January 2018
Depreciation charge for the
year
Disposals
Balance at 31 December
2018
Depreciation charge for the
year
Disposals
Balance at 31 December
2019
LAND AND
BUILDINGS
$000
MOTOR
VEHICLES
$000
PLANT AND
EQUIPMENT
$000
FURNITURE
AND
FITTINGS
$000
RIGHT OF USE
ASSETS
$000
Cost
Balance at 1 January 2018
113,411
1,295
9,701
(8)
250
-
9,440
3,608
(445)
6,195
1,122
(14)
123,104
1,545
12,603
7,303
TOTAL
$000
130,341
14,681
(467)
144,555
-
-
-
-
15,394
-
354
(66)
2,866
-
202
-
9,203
28,019
-
(66)
138,498
1,833
15,469
7,505
9,203
172,508
-
2,309
(2)
2,307
2,357
-
4,664
642
215
-
857
161
(66)
952
688
881
4,088
1,968
(395)
2,180
813
(9)
5,661
2,984
-
-
-
-
6,910
5,305
(406)
11,809
2,189
1,144
910
6,761
-
-
-
(66)
7,850
4,128
910
18,504
6,942
7,619
4,319
3,377
-
132,746
8,293
154,004
Carrying amounts
As at 31 December 2018
As at 31 December 2019
120,797
133,834
Buildings include $20.4 million of care centres under development carried at cost at 31 December 2019 (2018: $5.0 million). Right
of use assets relate to the Group's leased office premises and car park spaces; refer to Note 16 for further information.
Revaluations
An independent valuation to determine the fair value of all completed care centres that are classified as land and buildings was
carried out as at 31 December 2017 by CBRE Limited, an independent registered valuer. Valuations are carried out every three years
unless there are indicators of a significant change in fair value. CBRE determine the fair value of all care centre assets using an
earnings-based multiple approach. Significant assumptions used in the most recent valuation include market value per care bed
of between $68,000 and $173,000, and individual unit earning capitalisation rate of between 12.0% and 15.0%.
As the fair value of land and buildings is determined using inputs that are unobservable, the Group has categorised property, plant
and equipment as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of
the entity’s portfolios of land and buildings are the capitalisation rates applied to individual unit earnings and the market value per
care bed. A significant decrease (increase) in the capitalisation rate would result in a significantly higher (lower) fair value
measurement, and a significant increase (decrease) in the market value per care bed would result in a significantly higher (lower)
fair value measurement.
72
ANNUAL REPORT 2019
Notes to the financial statements (continued)
Cost model
If land and buildings were measured using the cost model, the carrying amounts would be as follows:
Cost
Accumulated depreciation and impairment losses
Net carrying amount
2019
2018
LAND AND
BUILDINGS
$000
LAND AND
BUILDINGS
$000
111,599
96,205
(16,602)
(14,245)
94,997
81,960
Security
At 31 December 2019, all care centres held by retirement villages registered under the Retirement Villages Act 2003 are subject to
a registered first mortgage in favour of the Statutory Supervisor.
10. Intangible assets
Intangible assets acquired by the Group are measured at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is recognised in the income statement on an SL basis over the estimated useful lives of intangible assets from the date
that they are available for use. The intangible assets are software and the amortisation rate at 31 December 2019 is 20% SL basis.
Cost
Balance at 1 January 2018
Additions
Disposals
As at 31 December 2018
Additions
As at 31 December 2019
Accumulated amortisation
Balance at 1 January 2018
Amortisation charge for the year
Disposals
As at 31 December 2018
Amortisation charge for the year
As at 31 December 2019
Carrying amounts
As at 31 December 2018
As at 31 December 2019
TOTAL
$000
8,272
2,489
(957)
9,804
567
10,371
2,710
1,380
(914)
3,176
1,072
4,248
6,628
6,123
FINANCIAL STATEMENTS
73
11. Investment property
Investment property is held to earn current and future rental income (deferred management fees). It comprises land and buildings,
and associated equipment and furnishings, relating to retirement villages and common facilities in the retirement village. Investment
property includes buildings under development, excluding care centres under development, which are included in property, plant
and equipment. Initial recognition of investment property is at cost and it is subsequently measured at fair value, with any change
in fair value recognised in the income statement.
The cost of retirement villages includes directly attributable construction costs and other costs necessary to bring the retirement
villages to working condition for their intended use. These other costs include professional fees and consents, interest during the
build period and head office costs directly related to the construction of the retirement villages. Where costs are apportioned across
more than one asset, the apportionment methodology is determined by considering the nature of the cost.
Land acquired with the intention of constructing investment property on it is classified as investment property from the date of
acquisition.
Rental income from investment property, being deferred management fees, is accounted for as described in Note 4.
Depreciation is not charged on investment property.
Note 6 provides details on capitalised borrowing costs.
Balance at beginning of period
Additions
Disposals
Fair value movement
Total investment property
Development land measured at fair value1
Retirement villages measured at fair value
Retirement villages under development measured at cost
Total investment property
2019
$000
2018
$000
2,585,049
2,069,662
356,713
305,492
-
(35)
165,252
209,930
3,107,014
2,585,049
2019
$000
2018
$000
305,148
212,923
2,580,855
2,204,354
221,011
167,772
3,107,014
2,585,049
1 Included in development land are pieces of land that were acquired close to balance date and as such were excluded from the CBRE valuation of investment property. These
pieces of land have been accounted for at cost, which has been determined to be fair value due to the proximity of the transaction to balance date. At 31 December 2019
the land at cost was $74.9 million (2018: $36.9 million).
Manager's net interest
Plus: revenue received in advance
Plus: liability for residents' loans
Total investment property
2019
$000
2018
$000
1,688,265
1,377,174
91,142
71,083
1,327,607
1,136,792
3,107,014
2,585,049
The Group is unable to reliably determine the fair value of non-land retirement villages under development at 31 December 2019
and therefore these are carried at cost. This equates to $221.0 million of investment property (2018: $167.8 million).
The fair value of investment property as at 31 December 2019 was determined by CBRE Limited, an independent registered valuer.
The fair value of the Group’s investment property is determined on a semi-annual basis, based on market values, being the estimated
amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s
length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
To assess the fair value of the Group’s interest in the village, CBRE has undertaken a cash flow analysis to derive a net present value.
There has been no change in valuation technique since the previous period.
74
ANNUAL REPORT 2019
Notes to the financial statements (continued)
As required by NZ IAS 40 - Investment Property, the fair value as determined by the independent registered valuer is adjusted for
assets and liabilities already recognised on the balance sheet, which are also reflected in the cash flow analysis.
Significant assumptions used by the valuer include a discount rate of between 13.5% and 16.5% (2018: 13.5% to 16.5%), and a long-
term nominal house price inflation rate (growth rate) of between 0% and 3.5% (2018: 0% to 3.5%). Other assumptions used by the
valuer include the average entry age of residents of between 72 years and 91 years (2018: 72 years and 90 years), and the stabilised
departing occupancy periods of retirement units of between 3.6 years and 8.8 years (2018: 3.7 years and 9.0 years).
As the fair value of investment property is determined using inputs that are unobservable, the Group has categorised investment
property as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement.
Sensitivity analysis to significant changes in unobservable inputs within Level 3 of the hierarchy
To assess the market value of the Group's interest in a retirement village, CBRE has undertaken a cash flow analysis to derive a net
present value. As the fair value of investment property is determined using inputs that are significant and unobservable, the Group
has categorised investment property as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 - Fair Value
Measurement.
The sensitivities of the significant assumptions are shown in the table below:
31 December 2019
Valuation ($000)
Difference ($000)
Difference (%)
31 December 2018
Valuation ($000)
Difference ($000)
Difference (%)
Adopted
value1
Discount rate
+50 bp
Discount rate
-50 bp
Growth rates
+50bp
Growth rates
-50bp
963,530
820,760
(34,320)
36,610
57,812
(52,994)
(3.6%)
3.8%
6.0%
(5.5%)
(29,680)
31,590
48,425
(43,500)
(3.6%)
3.8%
5.9%
(5.3%)
1 Completed retirement units excluding unsold stock.
Other key components in determining the fair value of investment property are the average entry age of residents and the average
occupancy of retirement units. A significant decrease (increase) in the occupancy period of retirement units would result in a
significantly higher (lower) fair value measurement, and a significant increase (decrease) in the average entry age of residents would
result in a significantly higher (lower) fair value measurement.
Operating expenses
Direct operating expenses arising from investment property during the period amounted to $34.3 million (2018: $29.3 million).
Security
At 31 December 2019, all investment property relating to registered retirement villages under the Retirement Villages Act 2003 are
subject to a registered first mortgage in favour of the Statutory Supervisor to secure the Group’s obligations to the occupation right
agreement holders.
FINANCIAL STATEMENTS
75
12. Trade and other payables
Trade and other payables are carried at amortised cost. Due to their short-term nature they are not discounted.
Trade payables
Accruals - development of retirement units and care centres
Accruals - other
Sundry payables
2019
$000
2,071
114,735
13,480
4,394
2018
$000
1,723
70,144
11,379
3,992
Total trade and other payables
134,680
87,238
13. Employee benefits
A provision is made for benefits accruing to employees in respect of wages, salaries, annual leave and short-term incentives when
it is probable that settlement will be required and the amount can be estimated reliably.
Leave liabilities
Other employee benefits
Total employee benefits
14. Interest rate swaps
2019
$000
5,755
5,679
11,434
2018
$000
5,037
4,415
9,452
The Group uses interest rate swaps to manage its risk associated with interest rate fluctuations. Interest rate swaps are initially
recognised at fair value on the date a contract is entered into and are subsequently measured at fair value on each reporting date.
The fair values of the interest rate swaps are determined based on cash flows discounted to present value using current market
interest rates.
Cash flow hedges
The Group has entered into interest rate swaps to manage its interest rate risk in relation to its floating rate debt. These interest rate
swaps qualify for cash flow hedge accounting. When interest rate swaps meet the criteria for cash flow hedge accounting, the
effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while the ineffective
portion is recognised in the income statement. Amounts taken to reserves are transferred out of reserves and included in the
measurement of the hedged transaction when the forecast transaction occurs. When interest rate swaps do not meet the criteria
for cash flow hedge accounting, all movements in fair value of the hedging instrument are recognised in the income statement.
Under the interest rate swap agreements that qualify for cash flow hedge accounting, the Group has a right to receive interest at
variable rates and to pay interest at fixed rates. At 31 December 2019, the Group had interest rate swap agreements in place with
a total notional principal amount of $377 million (2018: $354 million). Of the swaps in place, at 31 December 2019 $292 million (2018:
$267 million) are being used to cover approximately 49% (2018: 59%) of the floating rate debt principal outstanding. These
agreements effectively change the Group’s interest exposure on the principal covered by the interest rate swaps from a floating
rate to fixed rates, which range between 1.22% and 4.43% (2018: 2.78% and 4.43%).
The fair value of these agreements at 31 December 2019 is a $21.1 million liability, comprised of $22.6 million of swap liabilities and
$1.5 million of swap assets (2018: liability of $14.1 million, comprised of $14.1 million of swap liabilities and $0.0 million of swap assets).
Of this, a liability of $515,000 is estimated to be current (2018: $360,000). The agreements cover notional amounts for terms of
between one and ten years.
76
ANNUAL REPORT 2019
Notes to the financial statements (continued)
The notional principal amounts and the period of expiry of the cash flow hedge interest rate swap contracts are as follows:
Less than 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Between 5 and 6 years
Between 6 and 7 years
Between 7 and 8 years
Between 8 and 9 years
Between 9 and 10 years
Total
Current
Forward starting
Total
2019
$000
2018
$000
40,000
25,000
70,000
45,000
60,000
25,000
52,000
50,000
10,000
-
37,000
40,000
25,000
70,000
25,000
20,000
25,000
52,000
50,000
10,000
377,000
354,000
292,000
267,000
85,000
87,000
377,000
354,000
Fair value hedges
The Group has entered into interest rate swaps to manage its interest rate risk in relation to its fixed rate debt arising from the retail
bonds. The hedge is for the future fair value movements in the retail bonds as a result of market interest rate movements. The Group
has designated all of its $225.0 million retail bonds in fair value hedge relationships.
Both the hedging instrument (interest rate swap) and the hedged risk are recognised at fair value. The change in the fair value of
both items offset in the statement of comprehensive income to the extent the hedging relationship is effective. The increase in fair
value of the interest rate swaps of $8.0 million (2018: $3.4 million) has been recognised in finance costs and has been offset with
a similar fair value loss on the retail bonds to leave an ineffective amount in finance costs of $92,000 (2018: $57,000).
Under the interest rate swap agreements that qualify for fair value hedge accounting, the Group has a right to receive interest at
fixed rates and to pay interest at floating rates. At 31 December 2019, the Group had interest rate swap agreements in place with a
total notional principal amount of $225.0 million (2018: $225.0 million). Of the interest rate swaps in place, at 31 December 2019
$225.0 million (2018: $225.0 million) are being used to cover 100% (2018: 100%) of the fixed interest rate retail bonds outstanding.
The notional principal amounts and the period of expiry of the fair value hedge interest rate swap contracts are as follows:
Between 3 and 4 years
Between 4 and 5 years
Between 5 and 6 years
Between 6 and 7 years
Total
Current
Total
2019
$000
100,000
2018
$000
-
-
100,000
125,000
-
-
125,000
225,000
225,000
225,000
225,000
225,000
225,000
FINANCIAL STATEMENTS
77
15. Residents' loans
Residents’ loans are amounts payable under occupation right agreements. An occupation right agreement confers a right of
occupancy to a villa, apartment, serviced apartment or memory care apartment. The consideration received on the grant of an
occupation right agreement is allocated to the resident’s loan in full. These loans are non-interest-bearing and are payable when
both an occupation right agreement is terminated and there has been settlement of a new occupation right agreement for the same
retirement unit and the proceeds from the new settlement have been received by the Group. Residents’ loans are initially recognised
at fair value and subsequently measured at amortised cost.
The Group holds a contractual right to set-off the deferred management fee receivable on termination of an agreement against
the resident’s loan to be repaid. Residents’ loans are therefore recognised net of the deferred management fee receivable on the
balance sheet. Deferred management fees are payable by residents in consideration for the supply of accommodation and the right
to share in the use of community facilities. Deferred management fees are paid in arrears, with the amount payable calculated as
a percentage of the resident’s loan amount as per the resident’s occupation right agreement. Deferred management fee receivable
is calculated and recorded based on the current tenure of the resident and the contractual right to deferred management fee earned
at balance date. Refer to Note 4 for further detail on recognition of deferred management fee revenue.
Balance at beginning of period
2019
$000
2018
$000
1,355,535
1,134,069
Net receipts for residents' loans - resales of occupation right agreements
26,294
34,193
Receipts for residents' loans - new occupation right agreements
Total gross residents’ loans
Deferred management fees receivable
Total residents’ loans
Note 18 provides a split between current and non-current residents’ loans.
16. Leases
218,025
187,273
1,599,854
1,355,535
(272,247)
(218,743)
1,327,607
1,136,792
The leases to which NZ IFRS 16 applies are the leases of office premises and car parks occupied by the Group in New Zealand and
Australia. In respect of these leases, a right of use asset is disclosed along with a corresponding lease liability. The right of use assets
are depreciated on an SL basis, while the lease liability is measured at the present value of the lease payments that are not yet paid,
discounted using the Group's incremental borrowing rate.
The Group has elected not to recognise right of use assets and lease liabilities for short-term leases of office spaces, car parks and
information technology equipment that have a lease term of 12 months or less, or as a transitional expedient, have less than 12
months left on the lease term as at the date of application of NZ IFRS 16. The Group recognises the lease payments associated with
these leases as incurred as a rental expense over the lease term.
Right of use assets are classified as property, plant and equipment and lease liabilities are disclosed as such in the Group's statement
of financial position.
A one-off adjustment to retained earnings has been disclosed as at 1 January 2019, which reflects the cumulative impact of
recognising the Group's operating leases in line with the requirements of NZ IFRS 16. This adjustment is presented in the statement
of changes in equity.
The following practical expedients have been utilised in relation to the Group's operating leases as lessee:
•
•
•
A single discount rate has been applied to a portfolio of leases with reasonably similar characteristics
Leases with a term ending within 12 months of the date of application have been treated as short term leases
Initial direct costs have been excluded from the measurement of the right of use asset at the date of initial application
The weighted average incremental borrowing rates used to measure lease liabilities at the date of application are between 4.17%
and 4.67%.
When the Group has the option to extend a lease, management uses its judgment to determine whether or not an option would be
reasonably certain to be exercised. Management considers all facts and circumstances, including their past practice and any cost
that will be incurred to change the asset if an option to extend is not taken, to help determine the lease term. Other assumptions
and judgments used by management include calculating the appropriate discount rate.
78
ANNUAL REPORT 2019
Notes to the financial statements (continued)
As at 31 December 2019, a lease agreement relating to additional office space has been executed, but the lease period has not yet
commenced. The lease liability at the lease commencement date is expected to be approximately $0.9 million.
As a lessee
Right of use assets disclosed:
Balance at beginning of period
Additions
Depreciation charge for the year
Balance at end of period
Lease liabilities disclosed:
Less than 1 year
Between 1 and 5 years
More than 5 years
Total lease liabilities at end of period
Amounts recognised in the profit and loss:
Interest on lease liabilities
Expenses relating to short-term and low-value asset leases
Depreciation on right of use assets
Total amounts recognised in profit or loss
Reconciliation of the opening balance of the lease liability:
Operating lease commitment as at 31 December 2018
Expenses relating to short-term and low-value asset leases
Gross lease liability as at 1 January 2019
Discounting
Lease liability as at 1 January 2019
2019
Buildings
$000
8,557
646
(910)
8,293
2019
$000
919
4,106
5,435
10,460
2019
$000
442
125
910
1,477
12,247
(77)
12,170
(1,530)
10,640
As a lessor
The accounting policies applicable to the Group as a lessor in the comparative period were not different from NZ IFRS 16. The Group
acts as a lessor under occupation right agreements with village residents, along with a small amount of residential rental properties.
The assets leased by the group as a lessor are disclosed as investment property and lease income is generated in the form of deferred
management fees. The lease term is determined to be the greater of the expected period of tenure or the contractual right to
revenue. The Group uses the portfolio approach to account for leases of units to village residents and allocates individual leases to
different portfolios depending on the type of unit. The Group does not have any sub-leases.
FINANCIAL STATEMENTS
79
17. Interest-bearing loans and borrowings
Interest-bearing loans and borrowings include secured bank loans and unsubordinated fixed-rate retail bonds.
Interest-bearing loans and borrowings are recognised initially at fair value net of directly attributable transaction costs. Subsequent
to initial recognition, the borrowings are measured at amortised cost, with any difference between the initial recognised amount
and the redemption value being recognised in profit or loss over the period of the borrowing using the effective interest rate. The
retail bonds are designated in fair value hedge relationships, which means that any change in market interest rates result in a change
in the fair value adjustment on that debt. Retail bond issue expenses, fees and other costs incurred in arranging retail bond finance
are capitalised and amortised over the term of the relevant debt instrument.
Repayable after 12 months
Secured bank loans
Retail bond - SUM010
Retail bond - SUM020
Total loans and borrowings at face value
Issue costs for retail bonds capitalised:
Opening balance
Capitalised during the period
Amortised during the period
Total loans and borrowings at amortised cost
Fair value adjustment on hedged borrowings
Carrying value of interest-bearing loans and borrowings
Coupon
2019
$000
2018
$000
Floating
362,139
226,503
4.78%
4.20%
100,000
100,000
125,000
125,000
587,139
451,503
(3,290)
-
602
(1,840)
(1,874)
424
584,452
448,213
12,629
4,547
597,081
452,760
The non-cash movements included in the table above are the issue costs for retail bonds amortised during the period and the fair
value adjustment on hedged borrowings.
A summary of the changes in the Group's borrowings is provided below:
Borrowings at the start of the year
Net cash borrowed
Non-cash change in deferred financing costs
Non-cash change in fair value adjustment
Borrowings at the end of the year
2019
$000
2018
$000
452,760
347,170
135,637
103,664
602
8,082
(1,450)
3,376
597,081
452,760
The weighted average interest rate for the year to 31 December 2019 was 3.87% (2018: 4.17%). This includes the impact of interest
rate swaps (see Note 14).
The secured bank loan facility at 31 December 2019 has a limit of NZD$500.0 million (2018: $500.0 million). Lending of $185.0 million
expires in August 2020 and $315.0 million of lending expires in March 2022.
The Group has issued two retail bonds. The first retail bond was issued for $100.0 million in July 2017 and has a maturity date of
11 July 2023. This retail bond is listed on the NZX Debt Market (NZDX) with the ID SUM010. The second retail bond was issued for
$125.0 million in September 2018 and has a maturity date of 24 September 2025. This retail bond is listed on the NZDX with the ID
SUM020.
80
ANNUAL REPORT 2019
Notes to the financial statements (continued)
Security
The banks loans and retail bonds rank equally with the Group’s other unsubordinated obligations and are secured by the following
securities held by a security trustee:
•
•
•
•
•
•
a first-ranking registered mortgage over all land and permanent buildings owned (or leased under a registered lease) by each
New Zealand-incorporated guaranteeing Group member that is not a registered retirement village under the Retirement Villages
Act 2003;
a second-ranking registered mortgage over the land and permanent buildings owned (or leased under a registered lease) by
each New Zealand-incorporated guaranteeing Group member that is a registered retirement village under the Retirement
Villages Act 2003 (behind a first-ranking registered mortgage in favour of the Statutory Supervisor);
a first-ranking registered mortgage over all land and permanent buildings owned (or leased under a registered lease) by each
Australian-incorporated guaranteeing Group member;
a General Security Deed, which secures all assets of the New Zealand- incorporated guaranteeing Group members, but in respect
of which the Statutory Supervisor has first rights to the proceeds of security enforcement against all assets of the registered
retirement villages to which the security trustee is entitled;
a General Security Deed, which secures all assets of the Australian-incorporated guaranteeing Group members; and
a Specific Security Deed in respect of each marketable security of Summerset Holdings (Australia) Pty Limited, held by
Summerset Holdings Limited.
18. Financial instruments
Exposure to credit, market and liquidity risk arises in the normal course of the Group’s business. The Board reviews and agrees on
policies for managing each of these risks as summarised below.
Categories of financial instruments
Financial assets
All financial assets of the Group are classified at amortised cost except for interest rate swaps, which are classified as fair value
through profit and loss, and those assets that are designated in a hedge relationship.
Financial liabilities
All financial liabilities except interest rate swaps and retail bonds are classified as liabilities at amortised cost. Refer to Note 17 for
detail on the retail bonds.
Credit risk
Credit risk is the risk of financial loss to the Group if a resident or counterparty to a financial instrument fails to meet their contractual
obligations. The Group’s exposure to credit risk relates to receivables from residents and bank balances. The Group manages its
exposure to credit risk. The Group’s cash is held with its principal banker; with the level of exposure to credit risk considered minimal,
with low levels of cash generally held. Receivables balances are monitored on an ongoing basis and funds are placed with high-
credit-quality financial institutions. The level of risk associated with sundry debtors is considered minimal due to the recoverability
of this balance being assessed as high. The Group does not require collateral from its debtors and the Directors consider the Group’s
exposure to any concentration of credit risk to be minimal.
The carrying amount of financial assets represents the Group’s maximum credit exposure. The status of trade receivables is as
follows:
Not past due
Past due 31 to 60 days
Past due 61 to 90 days
Past due more than 90 days
Total
2019
2018
GROSS
RECEIVABLE
$000
IMPAIRMENT
$000
GROSS
RECEIVABLE
$000
IMPAIRMENT
$000
2,624
90
31
167
(31)
(33)
(26)
(79)
2,460
105
33
34
(34)
(21)
(21)
(41)
2,912
(169)
2,632
(117)
In summary, trade receivables are determined to be impaired as follows:
Gross trade receivables
Impairment
Net trade receivables
FINANCIAL STATEMENTS
81
2019
$000
2,912
(169)
2,743
2018
$000
2,632
(117)
2,515
Market risk
Market risk is the risk that changes in market prices such as interest rates will affect the Group’s income. The objective of market
risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
Interest rate risk
The Group’s exposure to interest rate risk is managed by seeking to obtain the most competitive rate of interest at all times. The
Group has entered into interest rate swap agreements in order to provide an effective cash flow hedge against the variability in
floating interest rates. The Group has also entered into other interest swap agreements to reduce interest rate repricing risk in relation
to retail bonds. See Note 14 for details of interest rate swap agreements.
To comply with the Group’s risk management policy, the hedge ratio is based on the interest rate swap notional amount to hedge
the same notional amount of bank loans or retail bonds. This results in a hedge ratio of 1:1. This is the same as used for actual risk
management purposes, and such a ratio is appropriate for the purposes of hedge accounting as it does not result in an imbalance
that would create hedge ineffectiveness.
In these hedge relationships the main sources of ineffectiveness are:
•
a significant change in the credit risk of either party to the hedging relationship;
• where the hedge instrument has been transacted on a date different to the rate set date of the bank loan or retail bonds, interest
rates could differ; and
•
differences in repricing dates between the swaps and the borrowings.
Other than these sources, due to the alignment of the hedged risk in the hedged item and hedged instrument, hedge ineffectiveness
is not expected to arise.
At 31 December 2019 it is estimated that a general increase of one percentage point in interest rates would decrease the Group’s
profit by $5.5 million (2018: decrease by $1.3 million) and decrease total comprehensive income by approximately $3.2 million (2018:
increase by $8.7 million).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity
by maintaining adequate reserves and undrawn banking facilities by continuously monitoring forecast and actual cash flows, and
matching the maturity profiles of financial assets and liabilities. The Group manages liquidity risk on residents’ loans and related
sundry debtors through the contractual requirements of occupation rights agreements, whereby a resident’s loan is repaid only on
receipt of the loan monies from the incoming resident.
82
ANNUAL REPORT 2019
Notes to the financial statements (continued)
The following table sets out the contractual cash flows for all financial liabilities for the Group (including contractual interest
obligations on bank loans):
Financial liabilities
Trade and other payables
Residents’ loans
2019
2018
LESS THAN
1 YEAR
$000
GREATER
THAN
1 YEAR
$000
LESS THAN
1 YEAR
$000
GREATER
THAN
1 YEAR
$000
134,680
-
87,238
-
113,278
1,214,329
90,213
1,046,579
Interest-bearing loans and borrowings
22,524
491,228
16,667
507,480
Interest rate swaps
Lease liability
Total
6,774
919
30,292
9,541
4,072
16,054
-
-
278,175
1,745,390
198,190
1,570,113
Residents’ loans are non-interest bearing and are not required to be repaid following termination of an occupation right agreement
until receipt of cash for the new resident loan from the incoming resident. The figures above have been calculated using best
estimates of resident loan repayments based on historical information. To date, cash for new residents’ loans received has always
exceeded cash to repay residents’ loans, net of deferred management fees.
Foreign currency risk
Foreign currency risk is the risk that the value of the Group's assets, liabilities and financial performance will fluctuate due to changes
in foreign currency rates.
The Group is primarily exposed to currency risk through its subsidiaries in Australia.
The risk to the Group is that the value of the overseas subsidiaries' financial position and financial performance will fluctuate in
economic terms and as recorded in the Group financial statements due to changes in foreign exchange rates. Due to limited activity
in the Australian subsidiaries in 2019, the Group did not have a material exposure to foreign exchange risk.
Fair values
The carrying amounts shown in the balance sheet approximate the fair value of the financial instruments, with the exception of
residents’ loans and retail bonds, shown below:
Residents’ loans
Retail bonds
Total
2019
2018
CARRYING
AMOUNT
$000
FAIR VALUE
$000
CARRYING
AMOUNT
$000
FAIR VALUE
$000
(1,327,607)
(932,932)
(1,136,792)
(781,659)
(234,942)
(239,817)
(226,257)
(230,208)
(1,562,548)
(1,172,749)
(1,363,049)
(1,011,867)
The fair value of residents’ loans is based on the present value of projected cash flows. Future cash flows are based on the assumption
that the average tenure periods are those disclosed above and have been discounted at 14% (2018: 14%). The fair value of
residents’ loans is categorised as Level 3 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement.
The fair value of retail bonds is based on the price traded at on the NZX market as at 31 December 2019. The fair value of the retail
bonds is categorised as Level 1 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement.
The fair value of interest rate swaps is determined using inputs from third parties that are observable, either directly (i.e. as prices)
or indirectly (i.e. derived from prices). Based on this, the Company and Group have categorised these financial instruments as Level
2 under the fair value hierarchy in accordance with NZ IFRS 13 – Fair Value Measurement.
FINANCIAL STATEMENTS
83
Capital management
The Group’s capital includes share capital, reserves and retained earnings. The objective of the Group’s capital management is to
ensure a strong credit position to support business growth and maximise shareholder value. The Group is subject to capital
requirements imposed by the bank lenders (through covenants in the Syndicated Facility Agreement) and bond holders (through
covenants in the Master Trust Deed). The Group has met all of these externally imposed capital requirements for the year ended
31 December 2019 (2018: all requirements met). The Group capital structure is managed, and adjustments are made, with Board
approval. There were no changes to objectives, policies or processes during the year ended 31 December 2019 (2018: none).
19. Share capital and reserves
At 31 December 2019, there were 226,827,675 ordinary shares on issue (2018: 225,415,662). All ordinary shares are fully paid and have
no par value. All shares carry one vote per share and carry the right to dividends.
Share capital
On issue at beginning of year
Shares issued under the dividend reinvestment plan
Shares paid under employee share plans
Other
Employee share plan option cost
On issue at end of year
Share capital (in thousands of shares)
On issue at beginning of year
Shares issued under the dividend reinvestment plan
Shares issued under employee share plans
On issue at end of year
2019
$000
2018
$000
269,467
257,414
11,100
2,214
37
1,256
9,460
1,879
-
714
284,074
269,467
2019
2018
221,734
219,740
1,795
721
1,352
642
224,250
221,734
The total shares on issue at 31 December 2019 of 226,827,675 for the Company differs from the share capital for the Group due to
shares held in 100% owned subsidiary, Summerset LTI Trustee Limited. As at 31 December 2019, 2,577,328 shares are held by
Summerset LTI Trustee Limited for employee share plans, which are eliminated on consolidation. Refer to Note 21 for further details
on employee share plans.
Revaluation reserve
The revaluation reserve is used to record the revaluation of care centre land and buildings.
Hedging reserve
The hedging reserve is used to record gains or losses on instruments used as cash flow hedges. The amounts are recognised in
profit and loss when the hedged transaction affects profit and loss.
Foreign currency translation reserve
The foreign currency translation reserve is used to record the gain on translation of foreign currency subsidiaries to the Group's
reporting currency.
Dividends
On 21 March 2019 a dividend of 7.2 cents per ordinary share was paid to shareholders and on 9 September 2019 a dividend of 6.4
cents per ordinary share was paid to shareholders (2018: on 22 March 2018 a dividend of 7.1 cents per ordinary share was paid to
shareholders and on 10 September 2018 a dividend of 6.0 cents per ordinary share was paid to shareholders).
A dividend reinvestment plan applied to the dividends paid. 866,704 ordinary shares were issued in relation to the plan for the March
2019 dividend and 928,017 ordinary shares were issued in relation to the plan for the September 2019 dividend. (2018: 810,284
ordinary shares were issued in March 2018 and 541,363 ordinary shares were issued in September 2018).
84
ANNUAL REPORT 2019
Notes to the financial statements (continued)
20. Earnings per share and net tangible assets
Basic earnings per share
Earnings ($000)
Weighted average number of ordinary shares for the purpose of earnings per share (in
thousands)
Basic earnings per share (cents per share)
Diluted earnings per share
Earnings ($000)
Weighted average number of ordinary shares for the purpose of earnings per share (in
thousands)
Diluted earnings per share (cents per share)
Number of shares (in thousands)
2019
2018
175,262
214,503
223,006
220,835
78.59
97.13
2019
2018
175,262
214,503
226,087
224,810
77.52
95.42
2019
2018
Weighted average number of ordinary shares for the purpose of earnings per share (basic)
223,006
220,835
Weighted average number of ordinary shares issued under employee share plans
3,081
3,975
Weighted average number of ordinary shares for the purpose of earnings per share
(diluted)
226,087
224,810
At 31 December 2019, there were a total of 2,577,328 shares issued under employee share plans held by Summerset LTI Trustee
Limited (2018: 3,681,569 shares).
Net tangible assets per share
Net tangible assets ($000)
Shares on issue at end of period (basic and in thousands)
Net tangible assets per share (cents per share)
2019
2018
1,125,761
972,171
224,250
221,734
502.01
438.44
Net tangible assets are calculated as the total assets of the Group less intangible assets and less total liabilities. This measure is
provided as it is commonly used for comparison between entities.
FINANCIAL STATEMENTS
85
21. Employee share plans
Senior employee share plan - share option scheme
Effective from 2018 , the Group operates an employee share plan granting share options to selected senior employees ("Participants").
The exercise price of the granted share options is determined from the volume weighted average price on the NZX during the ten
trading days prior to the grant date.
Commencement date
Exercise price at grant
Years the performance goals relate to
% of options vested
Vesting date of final tranche
Final exercise date of final tranche
SHARE
OPTION
PLAN
(2018
grant)
SHARE
OPTION
PLAN
(2019
grant)
10 Dec 2018
9 Dec 2019
$6.34
$7.62
2019 to 2021
2020 to 2022
0%
0%
31 Dec 2021
31 Dec 2022
30 Jun 2023
30 Jun 2024
The performance hurdles for the option grant made in 2019 are based on:
•
•
•
•
•
50% absolute earnings (cumulative actual underlying net profit after tax for the Group against budget)
20% relative earnings (earnings per share growth of the Group compared to a defined peer group)
10% clinical delivery
10% employee initiatives
10% customer initiatives
The performance hurdles above were consistent with those for 2018, with the exception of an extra 5% weighting towards clinical
delivery and 5% less weighting towards relative earnings.
While there is a requirement to remain employed by Summerset up to vesting date, there are no performance hurdles for vesting
of share options to senior management team members, other than the members of the Executive Leadership Team, whose
performance hurdles are described above.
There are no share options exercisable as at 31 December 2019 (2018: nil).
The share option scheme is an equity-settled scheme and measured at fair value at the date of the grant. The fair value determined
at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Group’s estimate
that the share options will vest. These options were valued using the Black-Scholes valuation model, and the option cost for the year
ending 31 December 2019 of $422,000 has been recognised in the income statement of the Company and the Group for that period
(2018: nil). The Group has no legal or constructive obligation to repurchase or settle the share options in cash.
2019
2018
SHARE
OPTION
PLAN
(2018 grant)
SHARE
OPTION
PLAN
(2019 grant)
SHARE
OPTION
PLAN
(2018 grant)
Options held at year end (in thousands)
1,154
1,064
1,154
Valuation assumptions
Discount to reflect options may not meet vesting criteria
Risk free rate of return
Volatility
15%
2%
23%
15%
1%
24%
15%
2%
23%
86
ANNUAL REPORT 2019
Notes to the financial statements (continued)
Balance at beginning of period
Granted during the year
Forfeited during the year
Balance at end of period
2019
2018
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF
OPTIONS
000's
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF
OPTIONS
000's
$6.34
$7.62
$6.34
$6.97
1,154
1,064
(70)
2,148
$0.00
$6.34
$0.00
$6.34
-
1,154
-
1,154
Senior employee share plan - share and loan scheme
Up to and including 2017, the Group operated employee share plans for selected senior employees (“Participants”) to purchase
shares in the Company (the "2013 share plan"). The shares for the plans are held by a nominee as share options on behalf of
Participants, until such time after the vesting of shares that the nominee is directed by the Participant that they wish to exercise
the share option, or the shares are sold or cancelled by the nominee if vesting criteria are not met. The shares carry the same rights
as all other ordinary shares.
The Group provided Participants with interest-free limited recourse loans to fund the acquisition of the shares for these plans. These
loans are held by Summerset LTI Trustee Limited and eliminate on consolidation.
The issue price of shares under the 2013 share plan was determined from the volume weighted average price on the NZX during
the ten trading days prior to issue.
Commencement date
Issue price
2013
SHARE PLAN
(2015
issue)
2013
SHARE PLAN
(2016
issue)
2013
SHARE PLAN
(2017
issues)
16 Dec 2013
16 Dec 2013
16 Dec 2013
$3.91
$4.76 $5.19 & $5.24
Expiry date of interest-free limited recourse loans
30 Jun 2020
30 Jun 2021
30 Jun 2022
Years the performance goals relate to
2016 to 2018
2017 to 2019
2018 to 2020
% of shares vested
Vesting date of final tranche
73%
83%1
50%1
31 Dec 2018
31 Dec 2019
31 Dec 2020
1 The final tranche of the December 2016 issue and the first tranche of the December 2017 issue had a vesting date of 31 December 2019 and a first release date of 27 February
2020.
The performance hurdles for each grant of shares under the 2013 share plan in 2015 to Executive Leadership Team members are
based on the Group’s total shareholder return relative to the performance of relevant peers and the NZX 50.
The performance hurdles for the grant of shares under the 2013 share plan between 2016 and 2017 to Executive Leadership Team
members are based on:
•
•
•
•
•
50% absolute earnings (cumulative actual underlying net profit after tax for the Group against budget)
25% relative earnings (earnings per share growth of the Group compared to a defined peer group)
10% employee initiatives
10% customer initiatives
5% clinical strategy initiatives
While there is a requirement to remain employed by Summerset up to vesting date, there are no performance hurdles for grants
of shares to senior management team members, other than the members of the Executive Leadership Team, whose performance
hurdles are described above.
A total of 866,717 shares were vested and eligible for exercise at 31 December 2019 (2018: 610,346). The exercise prices range from
$3.91 to $5.19 (2018: $2.68 to $3.91). An additional 802,293 shares were vested on 31 December 2019 but are not eligible for exercise
until 27 February 2020.
The share and loan scheme is an equity-settled scheme and is measured at fair value at the date of the grant. The fair value
determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, based on the Group’s
estimate that the shares will vest. These options were valued using the Black-Scholes valuation model, and the option cost for the
FINANCIAL STATEMENTS
87
year ending 31 December 2019 of $471,000 has been recognised in the income statement of the Company and the Group for that
period (2018: $480,000).
2013
SHARE PLAN
(2015
issue)
2019
2013
SHARE PLAN
(2016
issue)
341
0.2%
0-30%
2.8%
22%
718
0.3%
0-15%
2.5%
23%
2013
SHARE PLAN
(2017
issues)
1,194
0.5%
0-15%
2-2.5%
23%
2018
2013
SHARE PLAN
(2013
issue)
2013
SHARE PLAN
(2014
issue)
2013
SHARE PLAN
(2015
issue)
2013
SHARE PLAN
(2016
issue)
2013
SHARE PLAN
(2017
issues)
86
0.0%
329
0.1%
853
0.4%
868
0.4%
1,232
0.5%
30%
30%
0-30%
0-15%
0-15%
Shares held at year end (in thousands)
Shares held at year end as a percentage
of shares on issue
Valuation assumptions
Discount to reflect that shares may not
meet vesting criteria
Risk-free rate of return
Volatility
Shares held at year end (in thousands)
Shares held at year end as a percentage
of shares on issue
Valuation assumptions
Discount to reflect that shares may not
meet vesting criteria
Risk-free rate of return
3.8-4.1%
3.5-3.6%
Volatility
21-22%
21%
2.8%
22%
2.5%
23%
2-2.5%
23%
A total of 452,095 shares that did not meet vesting criteria were cancelled under the 2013 share plan on 5 April 2019. The range of
exercise prices at 31 December 2019 is $3.91 to $5.24 (2018: $2.68 to $5.24).
Balance at beginning of period
Exercised during the year
Forfeited during the year
Balance at end of period
2019
2018
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF
SHARES
000's
WEIGHTED
AVERAGE
EXERCISE
PRICE
NUMBER OF
SHARES
000's
$4.54
$3.34
$4.84
$4.89
2,936
(663)
(55)
2,218
$4.27
$3.02
$4.26
$4.54
3,769
(638)
(195)
2,936
All-staff employee share plan
The Group operates an all-staff employee share plan. A total of 1,060 employees participated in the share issue under the plan for
the year ending 31 December 2019 (2018: 932 employees). In 2019 the Group contributed $800 per participating employee (being
the total value of the shares issued). A total of 148,400 Company shares were issued under the scheme at $5.6938 per share (2018:
95,996 shares at $7.7435 per share). The shares are held by Summerset LTI Trustee Limited and vest to participating employees
after a three-year period.
88
ANNUAL REPORT 2019
Notes to the financial statements (continued)
The cost for the year ending 31 December 2019 of $366,000 has been recognised in the income statement of the Company and
the Group for that period (2018: $234,000).
22. Related party transactions
Refer to Note 21 for employee share plan details.
There were no related party transactions for the year ended 31 December 2019 (2018: nil).
23. Key management personnel compensation
The compensation of the key management personnel of the Group is set out below:
Directors’ fees
Short-term employee benefits
Share-based payments
Termination payments
Total
2019
$000
684
3,799
686
-
2018
$000
651
3,163
660
-
5,169
4,474
Refer to Note 21 for employee share plan details for key management personnel and for loans advanced to key management
personnel under the terms of employee share plans.
24. Commitments and contingencies
Guarantees
As at 31 December 2019, NZX Limited held a guarantee in respect of the Group, as required by the NZX Listing Rules, for $75,000
(2018: $75,000).
Summerset Retention Trustee Limited holds guarantees in relation to retentions on construction contracts on behalf of the Group.
As at December 2019, $8.0 million was held for the benefit of the retentions beneficiaries (2018: $7.5 million).
Capital commitments
At 31 December 2019, the Group had $133.1 million of capital commitments in relation to construction contracts (2018: $83.0 million).
Contingent liabilities
There were no known material contingent liabilities at 31 December 2019 (2018: nil).
25. Subsequent events
On 24 February 2020, the Directors approved a final dividend of $17.5 million, being 7.7 cents per share. The dividend record date
is 10 March 2020 with a payment date of 23 March 2020.
The Group completed a syndicated loan facility refinance, which brings the total bank debt facilities of the Group to approximately
$750 million, with an effective date of 24 January 2020. This is an increase from the $500 million syndicated loan facility previously
in place. The loan facility syndicate comprises ANZ Bank New Zealand Limited/Australia and New Zealand Banking Group Limited,
Bank of New Zealand/National Australia Bank, Commonwealth Bank of Australia, Industrial and Commercial Bank of China (New
Zealand) Limited and Westpac New Zealand Limited/Westpac Banking Corporation.
There have been no other events subsequent to 31 December 2019 that materially impact on the results reported .
FINANCIAL STATEMENTS 89
Independent auditor’s report to the Shareholders of Summerset Group
Holdings Limited
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Summerset Group Holdings Limited (“the company”) and its subsidiaries (together “the
Group”) on pages 56 to 88, which comprise the consolidated statement of financial position of the Group as at 31 December 2019,
and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended of the Group, and the notes to the consolidated financial statements including a
summary of significant accounting policies.
In our opinion, the financial statements on pages 56 to 88 present fairly, in all material respects, the consolidated financial position
of the Group as at 31 December 2019 and its consolidated financial performance and cash flows for the year then ended in
accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting
Standards.
This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so that we might state to the
company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's
shareholders, as a body, for our audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance
Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Ernst & Young provides other assurance related services to the Group. Partners and employees of our firm may deal with the Group
on normal terms within the ordinary course of trading activities of the business of the Group. We have no other relationship with, or
interest in, the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial
statements 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.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of
the audit 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 statements. 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
consolidated financial statements.
90
ANNUAL REPORT 2019
Property Valuation
Why significant
How our audit addressed the key audit matter
Summerset’s retirement villages and care centres have
a combined value of $3.2b and together make up 97%
of total assets. Management engages an independent
registered valuer, CBRE Limited, to determine the fair
value of these assets.
These valuations require the exercise of judgment. Key
amongst these judgements are:
•
•
for retirement village assets:
•
•
discount rate and
forecast long-term nominal house price inflation.
for care centres:
•
•
earnings per care bed and
capitalisation rates.
The highly judgmental and subjective nature of the
valuation coupled with the significance to the financial
statements results in this being an area of audit focus.
Retirement village valuations are performed every 6
months and care centres are valued at least once every 3
years. Care centres were last valued in December 2017.
Disclosures in relation to retirement village and care
facility assets are included in note 11 Investment property
and note 9 Property plant and equipment to the
consolidated financial statements respectively.
To address the key audit matter, we:
•
•
•
•
•
•
•
•
•
evaluated Summerset’s internal review of the external
valuation report;
assessed the competence, qualifications and objectivity
of the external valuer;
involved our real estate valuation specialists to assist us
in analysing and challenging the valuations for a sample
of villages and evaluating the underlying assumptions
across the portfolio of valuations against the market
based evidence available;
tested, on a sample basis, village specific information
relating to core data including sales, unsold stock and
occupancy data supplied by the Group to the external
valuer to the underlying records held by the Group;
assessed the significant input assumptions applied by
the valuer for reasonableness compared to previous
periods assumptions, the changing state of the village
sites and other market changes;
examined the allocation of costs from work in progress to
completed village units, care centres and other assets;
evaluated the Group’s review of work in progress for
impairment indicators
reviewed management’s assessment of care facility fair
value movement since the last valuation date; and
assessed the adequacy of the related financial statement
disclosures.
Deferred Management Fee Revenue Recognition
Why significant
How our audit addressed the key audit matter
Deferred management fee ("DMF") revenue is 34% of
Summerset’s total revenue. Summerset recognises
deferred management fee revenue from residents over
the longer of the expected period of tenure or the
contractual right to revenue in accordance with the terms
of the resident’s occupational right agreement.
The amount of revenue recognised in each year is subject
to the Group’s judgement of each resident’s expected
tenure in the village as well as the terms of the
occupational right agreement and the type of unit
occupied. A change in the assumed tenure may have a
material impact on revenue recognised in the year
Disclosures in relation to DMF revenue and the associated
DMF receivable and revenue in advance balances are
included in note 4 Revenue to the consolidated financial
statements.
To address the key audit matter, we:
•
•
•
•
•
for a sample of residents, assessed the accuracy of a
sample of the inputs to, and calculation of, the DMF
revenue recognised during 2019;
agreed the contractual terms used in the revenue
recognition calculation for a sample of residents to the
occupational right agreement;
assessed the movements year on year in revenue
recognised by each village based on an expectation
derived from underlying village data;
compared the Group’s assessment of assumed tenure
against actual observed tenure; and
assessed the adequacy of the related financial statement
disclosures.
FINANCIAL STATEMENTS
91
Information other than the financial statements and auditor’s report
The directors of the company are responsible for the Annual Report, which includes information other than the consolidated financial
statements and auditor’s report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained during the audit, or otherwise appears to be materially misstated.
If, based upon 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.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial
statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial
Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do
so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing
(New Zealand) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements.
A further description of the auditor’s responsibilities for the audit of the financial statements is located at the External Reporting
Board’s website: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/. This
description forms part of our auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is Grant Taylor.
Ernst & Young
Chartered Accountants
Wellington
24 February 2020
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ANNUAL REPORT 2019
GOVERNANCE 93
Governance
Summerset is committed to following best-practice governance structures and principles and to having good
governance of the way in which the Company operates. It also takes account of the Company’s listings on both the
NZX and ASX.
Summerset has adopted the principles below as an appropriate way to demonstrate its commitment to these
fundamental principles and to illustrate the transparency of the Company’s approach to corporate governance for
the benefit of its Shareholders and other stakeholders. These principles are from the NZX Corporate Governance
Code issued in January 2019 ("NZX Code"). Each principle of the NZX Code is set out below with an explanation on
how Summerset meets each principle.
As at 31 December 2019, Summerset considers that it was in full compliance with NZX Listing Rules and the NZX Code.
Summerset’s Board and Committee Charters, and a number of the policies and guidelines referred to in this section,
are available to view at https://www.summerset.co.nz/investor-centre/governance-documents/.
Principle 1: Code of ethical behaviour
“Directors should set high standards of ethical behaviour, model this behaviour and hold management accountable for these
standards being followed throughout the organisation.”
Ethical standards
The Board maintains high standards of ethical conduct and expects the Company’s employees to act legally and with
integrity in a manner consistent with the policies, guiding principles and values that are in place. These include the
following:
• Code of Ethics – This guide sets out the basic principles of legal and ethical conduct expected of all employees
and Directors. The Company encourages open and honest communication by staff about any current or potential
problem, complaint, suggestion, concern or question.
• Securities trading – In accordance with the Company’s Securities Trading Policy, the NZX Listing Rules, and
the Financial Markets Conduct Act 2013, Directors and employees of the Company are subject to limitations on
their ability to buy or sell Company shares.
• Diversity and inclusion – This policy outlines the Company’s guiding principles for diversity and inclusion. Refer
to Principle 2 for further details.
• Code of Conduct – This policy sets out the expected behaviours while in employment with the Company.
Company employees are expected to act honestly, conscientiously, reasonably and in good faith while at all times
having regard to their responsibilities, the interests of Summerset, and the welfare of our residents and
employees’ colleagues.
• Whistle blowing – This policy encourages employees to come forward if they have concerns regarding serious
wrongdoing, and ensures that employees have access to a confidential process in which they can report any
issues in relation to serious wrongdoing without fear of reprisal or victimisation.
• Conflicts of interest – Summerset's Code of Ethics outlines the standards of integrity, professionalism and
confidentiality to which all employees and Directors of the Company must adhere with respect to their work and
behaviour. To maintain integrity in decision-making, each Director must advise the Board of any potential conflict
of interest if such arises. If a significant conflict of interest exists, the Director concerned will have no involvement
in the decision-making process relating to the matter.
• Gifts, entertainment and inducements – This policy governs the acceptance and reporting of benefits given to
staff by third parties.
•
Interests Register – In accordance with the Companies Act 1993 and the Financial Markets Conduct Act 2013,
the Company maintains an Interests Register in which all relevant transactions and matters involving the Directors
are recorded.
The Code of Ethics Policy can be found on the Company’s website and internal intranet, and a copy is provided to all
new staff (including contractors).
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ANNUAL REPORT 2019
Principle 2: Board composition and performance
“To ensure an effective board, there should be a balance of independence, skills, knowledge, experience and perspectives.”
Role of the Board of Directors
The Board of Directors is elected by Shareholders, and has responsibility for taking appropriate steps to protect and
enhance the value of the assets of the Company in the best interests of its Shareholders. The Board has adopted a
formal Board Charter detailing its authority, responsibilities, membership and operation.
The key responsibilities of the Board include setting the overall direction and strategy of the Company, establishing
appropriate policies and monitoring performance of management. The Board appoints the Chief Executive Officer
and delegates the day-to-day operating of the business to the Chief Executive Officer. The Chief Executive Officer
implements policies and strategies set by the Board and is accountable to it. The Board also has responsibility for
ensuring the Company’s financial position is sound, financial statements comply with generally accepted accounting
practice, and that the Company adheres to high standards of ethical and corporate behaviour.
A summary of the Board mandate is as follows:
• A majority of the Board should be Independent Directors as defined in the NZX Listing Rules;
•
•
The Chair of the Board should be independent;
The Chair and the Chief Executive Officer should be different people;
• Directors should possess a broad range of skills, qualifications and experience, and remain current on how best
to perform their duties as Directors;
•
•
Information of sufficient content, quality and timeliness as the Board considers necessary shall be provided by
management to allow the Board to discharge its duties effectively;
The effectiveness and performance of the Board and its individual members should be re-evaluated on an annual
basis.
Directors receive an induction upon appointment to the Board to ensure their full knowledge of the Company and
the industry in which it operates. The Directors are expected to keep themselves abreast of changes and trends in
the business and to keep themselves up to date to ensure they best perform their duties as Directors of the Company.
All Directors have been issued letters setting out the terms and conditions of their appointment.
Delegation of authority
The Board delegates to the Chief Executive Officer responsibility for implementing the Board’s strategy and for
managing the Company’s operations. The Chief Executive Officer and management have Board-approved levels of
authority and, in turn, sub-delegate authority in some cases to direct reports. This is documented in the Delegated
Authority Policy.
Before approving the Company and Group's financial statements, a management representation letter is obtained
from the Chief Executive Officer and the Deputy Chief Executive Officer and Chief Financial Officer declaring that,
in their opinion, the financial records of the Company and Group have been properly maintained and the financial
statements comply with the appropriate accounting standards and give a true and fair view of the financial position
and performance of the Company and Group.
Retirement and re-election
In accordance with the Company’s Constitution and the NZX Listing Rules, Directors are required to retire three years
after their appointment or at the third Annual Shareholder Meeting following their appointment (whichever is later).
Directors who have been appointed by the Board must also retire at the next Annual Shareholder Meeting following
their appointment. Directors may offer themselves for re-election by Shareholders each year at the Annual
Shareholder Meeting. Procedures for the appointment and removal of Directors are also governed by the Constitution.
The Nomination and Remuneration Committee identifies and nominates candidates to fill Director vacancies for Board
approval. Information about candidates for election or re-election is included in the Notice of Meeting to assist
Shareholders in deciding whether or not to elect or re-elect the candidate.
Board composition
The Company’s Constitution prescribes that the Board shall be comprised of a minimum of three Directors, with at
least two Directors ordinarily resident in New Zealand. As at 31 December 2019, the Board was comprised of six non-
GOVERNANCE 95
executive Independent Directors. In determining whether a Director is Independent, the Board has regard to the NZX
Listing Rules.
The Board considers all current Directors to be Independent in that they are not executives of the Company and do
not have a direct or indirect interest or relationship that could reasonably influence, in a material way, their decisions
in relation to the Company.
As at 31 December 2019, the non-executive Independent Directors were Rob Campbell (Chair), Dr Andrew Wong,
Anne Urlwin, Gráinne Troute, James Ogden and Dr Marie Bismark.
The Board is comprised of Directors who have a mix of skills, knowledge, experience and diversity to adequately meet
and discharge its responsibilities and to add value to the Company through efficient and effective governance
leadership. The current Directors have a varied and balanced mix of skills relevant to the Group’s operations. A
summary of the key skills and experience held across the Board as at 31 December 2019, is set out below:
Rob
Campbell
Dr
Andrew
Wong
Anne
Urlwin
Gráinne
Troute
James
Ogden
Dr Marie
Bismark
Governance
Listed company governance experience
Executive Leadership
NZ and international business leadership and
CEO experience
Finance & Accounting
Senior executive or board experience in financial
accounting and reporting, corporate finance
and internal controls
Customer & Operations
Deep understanding of business operations and
sales, marketing and brand strategies
Health & Clinical
Health and clinical industry experience (in New
Zealand and/or Australian environments)
Property & Construction
Property, construction and development
management experience
Health & Safety
Experience and understanding of health and
safety and wellbeing requirements
Human Resources
People and performance strategy and
management experience
Digital & Technology
Experience overseeing IT and digital innovation
and an understanding of the opportunity and
risks associated with technological
development
Strategy
Experience in the development and execution
of growth strategies and the ability to assess
strategic options and business plans
More information on the Directors, including their interests, qualifications and security holdings, is provided in the
Board of Directors and Disclosures sections of this report.
The Board holds regular scheduled meetings. The Directors generally receive material for Board meetings five working
days in advance, except in the case of special meetings, for which the time period may be shorter owing to the urgency
of the matter to be considered.
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ANNUAL REPORT 2019
The Company Secretary attends all Board meetings, and in this capacity is accountable directly to the Board, through
the Chair, on all matters to do with the proper functioning of the Board.
All Directors have access to the Executive Leadership Team to discuss issues or obtain information on specific areas
in relation to items to be considered at Board meetings or other areas as considered appropriate. Key Executives and
managers are invited to attend and participate in appropriate sessions at Board meetings. Directors have unrestricted
access to Company records and information.
Directors are entitled to obtain independent professional advice relating to the affairs of the Company or other
responsibilities. Prior approval of the Chair is required before seeking such advice and Directors are expected to
ensure that the cost of such advice is reasonable.
Diversity and inclusion
The Company and its Board are committed to a workplace culture that promotes and values diversity and
inclusiveness. This is outlined in the Company’s Diversity and Inclusion Policy, which is available on the Company’s
website.
Diversity is defined as the characteristics that make one individual different from another. Diversity encompasses
gender, race, ethnicity, disability, age, sexual orientation, physical capability, family responsibilities, education, cultural
background and more.
Inclusion is defined as a sense of belonging, respecting and valuing all individuals, providing fair access to opportunity,
and removing discrimination and other barriers to involvement. The Board recognises that inclusion leads to a better
experience of work for Summerset’s employees, makes teams stronger, leads to greater creativity and performance,
contributes to a more meaningful relationship with residents, their families and stakeholders, and ultimately increases
value to Shareholders.
The Board believes that diversity across the workforce makes Summerset stronger and better able to connect with,
and bring the best of life to, residents on a day-to-day basis. When there is a variety of thinking styles, backgrounds,
experiences, perspectives and abilities, employees are more able to understand residents’ needs and to respond
effectively to them.
The Diversity and Inclusion Policy establishes the following objectives for achieving diversity:
•
•
•
Facilitate and promote equal employment opportunities at all levels, and identify and remove any barriers to equal
opportunity;
Facilitate and promote a merit-based environment in which all employees have the opportunity to develop and
perform to their full potential; and
Reward excellence and ensure all employees are treated fairly, evaluated objectively, and have equitable access
to opportunities for progression and promotion on the basis of performance.
Each year the Board reviews and assesses performance against these objectives. The Board considers that for the
year ended 31 December 2019, the objectives for achieving diversity have been met.
As at 31 December 2019 (and 31 December 2018 for the prior comparative period), the mix of gender of those
employed by the Company is set out below:
GOVERNANCE
97
Directors
Total
Senior Managers
Total
Executive Leadership Team
Total
All staff
Total staff
GENDER
Male
Female
Male
Female
Male
Female
Male
Female
2019
2018
3
3
6
2
-
2
6
2
8
3
3
6
2
-
2
6
2
8
349
1,199
1,548
338
1,100
1,438
Senior Managers of the Company are the Chief Executive Officer and the Deputy Chief Executive Officer and Chief
Financial Officer. The Executive Leadership Team comprises the Chief Executive Officer, the Deputy Chief Executive
Officer and Chief Financial Officer, and all General Managers who report to the Chief Executive Officer.
These figures include permanent full-time, permanent part-time, fixed-term and casual employees, but not
independent contractors.
Board performance
The Board undertakes an annual self-assessment of its performance, and its processes and procedures.
Executive Leadership Team performance
The Board evaluates annually the performance of the Chief Executive Officer. The Chief Executive Officer reviews
the performance of direct reports and reports to the Board on those reviews. The evaluation is based on criteria that
include the performance of the business and the accomplishment of longer-term strategic objectives. It may include
quantitative and qualitative measures. During the most recent financial year, performance evaluations were
conducted in accordance with this process.
Principle 3: Board committees
“The board should use committees where this will enhance its effectiveness in key areas, while still retaining board responsibility.”
Board committees
The Board has four standing committees: the Audit Committee, the Nomination and Remuneration Committee, the
Clinical Governance Committee, and the Development and Construction Committee. Each committee operates
under a charter approved by the Board, and any recommendations they make are recommendations to the Board.
The charter for each committee is reviewed annually. All Directors are entitled to attend committee meetings.
Audit Committee
While the ultimate responsibility to ensure the integrity of the Company’s financial reporting rests with the Board,
the Company has in place processes to ensure the accurate presentation of its financial position. These include:
• An appropriately resourced Audit Committee operating under a written charter with specific responsibilities for
financial reporting and risk management;
•
Review and consideration by the Audit Committee of the financial information and preliminary releases of results
to the market, which then makes recommendations to the Board;
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ANNUAL REPORT 2019
• A process to ensure the independence and competence of the Company’s external auditors and a process to
•
•
ensure their compliance with the Company’s Audit Independence Policy;
Responsibility for appointment of the external auditors residing with the Audit Committee;
The Audit Committee monitors the strength of the internal control environment by considering the effectiveness
and adequacy of Summerset’s internal controls, reviewing the findings of the external auditors’ review of internal
control over financial reporting, and being involved in setting the scope for the internal audit programme.
One of the main purposes of the Audit Committee is to ensure the quality and independence of the external audit
process. The Audit Committee make enquiries of management and the external auditors so that it is satisfied as to
the validity and accuracy of all aspects of the Company’s financial reporting. All aspects of the external audit are
reported back to the Audit Committee and the external auditors are given the opportunity at Audit Committee
meetings to meet with Directors.
The Audit Committee must comprise a minimum of three Directors, the majority of whom must be Independent.
The committee is chaired by an Independent Director who is not the Chair of the Board. The Committee currently
comprises of James Ogden (Chair), Anne Urlwin, Rob Campbell and Gráinne Troute.
The Audit Committee generally invites the Chief Executive Officer, Deputy Chief Executive Officer and Chief Financial
Officer, Head of Finance, internal auditors and external auditors to attend meetings. The Committee also meets and
receives regular reports from the external auditors without management present, concerning any matters that arise
in connection with the performance of their role.
Nomination and Remuneration Committee
The role of the Nomination and Remuneration Committee is to assist the Board in establishing and reviewing
remuneration policies and practices for the Company and in reviewing Board composition. Specific objectives
include:
• Assisting the Board in planning the Board’s composition;
•
•
Evaluating the competencies required of prospective Directors (both non-executive and executive);
Identifying those prospective Directors and establishing their degree of independence;
• Developing the succession plans for the Board, and making recommendations to the Board accordingly;
• Overseeing the process of the Board’s annual performance self-assessment and the performance of the Directors;
•
Establishing remuneration policies and practices, and setting and reviewing the remuneration of the Company’s
Chief Executive Officer, Executive Leadership Team and Directors.
The Nomination and Remuneration Committee must comprise a minimum of three Directors, the majority of whom
must be Independent. The Committee currently comprises Gráinne Troute (Chair), Dr Marie Bismark, James Ogden
and Anne Urlwin.
The Board’s policy is that the Board needs to have an appropriate mix of skills, experience and diversity to ensure that
it is well equipped. The Board reviews and evaluates on a regular basis the skill mix required, and identifies any existing
gaps.
Clinical Governance Committee
The role of the Clinical Governance Committee is to assist the Board in ensuring a systematic approach to maintaining
and improving the quality of care provided by the Company. Specific objectives include:
•
•
Providing oversight that appropriate clinical governance mechanisms are in place and are effective throughout
the organisation;
Supporting the leadership role of the Chief Executive Officer in relation to issues of quality, safety and clinical risk;
• Working with management to identify priorities for improvement;
•
•
Ensuring that the principles and standards of clinical governance are applied to the health improvement and health
protection activities of the Board;
Ensuring that appropriate mechanisms are in place for the effective engagement of representatives of residents
and clinical staff.
The Clinical Governance Committee must comprise a minimum of three Directors. The Committee currently
comprises Dr Marie Bismark (Chair), Anne Urlwin, Gráinne Troute and Dr Andrew Wong.
GOVERNANCE 99
Development and Construction Committee
The role of the Development and Construction Committee is to assist the Board in:
•
•
Supporting management to establish and achieve development and construction objectives within the
Company’s long-term plan;
Supporting management to develop and implement strategies to achieve the Company’s development and
construction objectives in line with best practice;
• Helping the Company maintain appropriate risk management strategies to identify, mitigate and manage
development and construction risks;
• Maintaining a good understanding of, and confidence in, the Company’s frameworks, systems, processes and
personnel required to manage the Company’s development and construction activities effectively, including
the assessment and realisation of opportunities and the application of appropriate risk management;
• Working with management to identify areas for improvement and innovation in construction and development
practices.
The Development and Construction Committee must comprise a minimum of three Directors. The Committee
currently comprises Anne Urlwin (Chair), James Ogden and Rob Campbell.
Attendance at Board and committee meetings
A total of six Board meetings, seven Audit Committee meetings, five Nomination and Remuneration Committee
meetings, three Clinical Governance Committee meetings and three Development and Construction Committee
meetings were held in 2019. Director attendance at Board meetings and committee member attendance at
committee meetings is shown below.
Total number of meetings held
Rob Campbell
Anne Urlwin
Dr Andrew Wong
Gráinne Troute
James Ogden
Dr Marie Bismark
Board
6
6
(Chair)
6
6
6
6
6
Audit
Committee
Nomination and
Remuneration
Committee
Clinical
Governance
Committee
Development
and Construction
Committee
7
7
7
7*
7
7
(Chair)
7*
5
5*
5
5*
5
(Chair)
5
5
3
3*
3
3
3
3*
3
(Chair)
3
3
3
(Chair)
3*
3*
3
2*
* attended the meeting as a non-committee member
Principle 4: Reporting and disclosure
“The board should demand integrity in financial and non-financial reporting, and in the timeliness and balance of corporate
disclosures.”
Making timely and balanced disclosures
The Company is committed to promoting Shareholder confidence through open, timely and accurate market
communication. The Company has in place procedures designed to ensure compliance with its disclosure obligations
under the NZX and ASX Listing Rules. The Company’s Market Disclosure and Communications Policy sets out the
responsibilities of the Board and management in disclosure and communication, and procedures for managing this
obligation.
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ANNUAL REPORT 2019
Copies of key governance documents, including the Code of Ethics, Securities Trading Policy and Guidelines, Board
and Committee Charters, Diversity and Inclusion Policy, Board and Executive Remuneration Policy, and Market
Disclosure and Communications Policy are all available on the Company’s website at https://www.summerset.co.nz/
investor-centre/governance-documents/.
Non-financial disclosures, such as the Company’s approach to health and safety, our people, the community and
the environment are included within this Annual Report. The Company recognises it is in the early stages of reporting
on non-financial information, and intends to continue to enhance future disclosure in this area.
Principle 5: Remuneration
“The remuneration of directors and executives should be transparent, fair and reasonable.”
Remuneration of Directors and the Executive Leadership Team is reviewed by the Board’s Nomination and
Remuneration Committee. Its membership and role are set out under Principle 3 above. The Committee makes
recommendations to the Board on remuneration packages, keeping in mind the requirements of the Board and
Executive Remuneration Policy.
The level of remuneration paid to the Directors and the Executive Leadership Team will be determined by the Board.
However, Directors’ fees must be within the limits approved by the Shareholders of the Company.
Further details on remuneration are provided in the Remuneration section of this Annual Report.
Principle 6: Risk management
“Directors should have a sound understanding of the material risks faced by the issuer and how to manage them. The Board should
regularly verify that the issuer has appropriate processes that identify and manage potential and material risks.”
Summerset has robust risk management and reporting frameworks in place whereby material business risks are
regularly identified, monitored and managed.
The members of Summerset’s Executive Leadership Team are required to regularly identify the major risks affecting
the business, record them in the risk register (which identifies the likelihood and consequence of each risk to
Summerset’s business), and develop structures, practices and processes to manage and monitor these risks.
Summerset engages KPMG to carry out internal audit work on various parts of the Group’s operations and all major
risk and internal control issues are reported on at each Board meeting.
Health and safety (including in relation to risks, performance and management) is discussed regularly at Board
meetings and specific reviews are sought as required. Monthly reporting is prepared and used to assist in risk
management, covering areas such as health and safety incidents, injury and near miss frequency rates, and actions
undertaken. Further information is covered in the health and safety section of this Annual Report.
Summerset has a Tax Governance Policy in place which sets out its tax risk management objectives, tax reporting
requirements to the Audit Committee and policies and processes to manage tax risk. This Tax Governance Policy is
reviewed by the Board every two years, it is next due for review in December 2020. The Board is satisfied that
Summerset has effective policies and processes in place to ensure the Company is meeting its obligations.
Summerset has considered whether it has any material exposure to economic, environmental and social sustainability
risks (as defined in the ASX Corporate Governance Principles) and has determined the following:
Economic sustainability
Summerset is subject to risk factors that are both related to its business and that are of a more general nature,
specifically:
•
Property market risk: property market factors could adversely affect sales, occupancy levels or revenue streams,
and have a flow on impact to the value of Summerset’s property assets and the associated investment property
valuation, which would in turn impact Summerset’s financial performance.
• Construction and development risk: Summerset faces construction and property development risks when
developing new villages, including: project delays, default risk, governance and design risk and potential labour
and materials shortages. The ability to meet growth targets is also dependent on Summerset’s ability to acquire
suitable sites for development.
GOVERNANCE 101
• Regulatory risk: changes in regulation could have a material impact on Summerset’s business operations.
• Reputational risk: Summerset operates in a sensitive market involving care of vulnerable members of society.
Summerset’s performance and reputation could be adversely impacted should it suffer adverse publicity,
particularly in respect of resident care or health and safety issues.
•
Industry competition risk: competitors making significant changes to their revenue models or pricing strategy
could impact on the revenue earned by Summerset.
Summerset actively monitors and manages these risks through the risk management and reporting frameworks
discussed above.
Environmental and social sustainability
Summerset is subject to the following environmental sustainability and social sustainability risks:
• Climate change risk: climate change risk relates to changes across average climate conditions in addition to
the frequency and severity of extreme climate events. Over the longer term, Summerset expects to operate in a
climate that will progressively depart from the weather conditions and events currently experienced, to more
acute challenges and risks arising from increasing climate variability. This is likely to have various impacts on the
longer-term plans and operation of the Group – specifically in relation to the design, build and construction of
villages, as well as in the provision of care services to frail residents and the overall lifestyle satisfaction enjoyed
in Summerset’s villages.
• Societal and investor expectations: failure to comply with regulatory, societal and investor expectations in
relation to corporate and environmental sustainability could impact Summerset’s reputation and financial
performance over the longer term.
Summerset actively monitors and manages these risks through the following initiatives:
•
•
•
Summerset is a certified carbonzero organisation. This requires us to measure our greenhouse gas emissions,
understand our carbon liabilities, and put in place management plans to reduce emissions within the organisation
and more widely through our supply chain.
Summerset’s Design Steering Group ensures climate change risk and sustainability are taken into account in
the design and development process.
Summerset is committed to integrating sustainability considerations into its business strategies and has
established a Green Team, which is responsible for developing and implementing sustainability initiatives across
existing and developing villages and corporate sites.
These measures and our approach to sustainability are discussed in more detail on page 43 of this report.
Principle 7: Auditors
“The board should ensure the quality and independence of the external audit process.”
The Board’s relationship with its auditors, both external and internal, is governed by the Audit Committee Charter,
Audit Independence Policy and the Internal Audit Charter. These charters and policies set out the types of
engagements that can be performed by the external and internal auditors.
The external auditor (Ernst & Young) attends the Company’s Annual Shareholder Meeting, and is available to answer
questions from Shareholders in relation to the external audit.
External audit work for the Group was tendered during 2017, with Ernst & Young remaining in this role.
KPMG was appointed in the role of internal auditor of the Company in December 2016, and its role is governed by
the Internal Audit Charter.
The primary objective of internal audit is to increase the strength of the Company’s control environment. This is guided
by a philosophy of adding value to improve the operations of the Company. It assists the Company in accomplishing
its objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of its
governance, risk management and internal controls.
The scope of the internal audit programme is set by the Audit Committee.
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ANNUAL REPORT 2019
Principle 8: Shareholder rights and relations
“The board should respect the rights of shareholders and foster constructive relationships with shareholders that encourage them
to engage with the issuer.”
Respecting the rights of Shareholders
The Company seeks to ensure that its Shareholders understand its activities by communicating effectively with them
and giving them ready access to clear and balanced information about the Company.
To assist with this, the Company’s website is maintained with relevant information, including copies of presentations
and reports. The Company’s key corporate governance policies are also included on the website.
The Company’s major communications with Shareholders during the financial year include its annual and half-year
reports and the Annual Shareholder Meeting. The annual and half-year reports are available in electronic and hard-
copy format.
Communicating with Shareholders
The Company welcomes communication and feedback from Shareholders. The Company’s investor centre (on its
website) provides a Company phone number and email address for communications from Shareholders and investor
relations enquiries. All Shareholder communications are responded to within a reasonable time frame.
The Company provides options for Shareholders to receive and send communications electronically, to and from
both the Company and its share and bond registrar. The Company’s investor centre includes contact details for Link
Market Services, through which all Company shares and bonds are managed.
Shareholder voting rights
Shareholders have the right to vote on major decisions as required by the NZX Listing Rules. Further information on
Shareholder voting rights is set out in the Company’s Constitution.
Notice of Annual and Special Shareholder Meetings
Notice of Annual and Special Shareholder Meetings are sent to Shareholders and published on the Company’s website
at least 20 working days prior to the relevant meeting.
GOVERNANCE 103
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ANNUAL REPORT 2019
Remuneration
Director remuneration
The Company distinguishes the structure of non-executive Directors’ remuneration from that of executive Directors.
The total amount of remuneration and other benefits received by each Director during the year ended 31 December
2019 is provided below.
Director
Board Fees1
Rob Campbell
Anne Urlwin
$176,333
(Chair)
$88,000
Dr Andrew Wong
$88,000
Gráinne Troute
$88,000
Audit
Committee
Clinical
Governance
Committee
Nomination and
Remuneration
Committee
Development
and Construction
Committee
$7,500
(Chair)
$7,500
(Chair)
James Ogden
$88,000
$17,000
(Chair)
Dr Marie Bismark
$88,000
$12,500
(Chair)
Total
remuneration
$176,333
$95,500
$88,000
$95,500
$105,000
$100,500
Total
$616,333
$17,000
$12,500
$7,500
$7,500
$660,833
1 Inclusive of additional fees of $1,333 per Director for additional duties relating to the expansion of operations into Australia
Directors’ fees were reviewed during 2019 and increases were approved by Shareholders, effective from 1 May 2019.
As at 31 December 2019, the maximum aggregate amount of remuneration payable by Summerset to Directors (in
their capacity as Directors) was $750,000 per annum for the non-executive Directors (2018: $650,000) and
annualised standard Directors’ fees were $678,000, inclusive of additional remuneration for committee Chairs (2018:
$602,500).
On 1 February 2020, Venasio-Lorenzo Crawley was appointed as a non-executive Independent Director. Accordingly,
the maximum aggregate amount of remuneration payable by Summerset to Directors (in their capacity as Directors)
was increased to $768,000 per annum with effect from 1 February 2020 and the annualised standard Directors’ fees
are currently $768,000.
As at 31 December 2019, the standard Director fees per annum are as follows:
Board of Directors
Audit Committee
Clinical Governance Committee
Nomination and Remuneration Committee
Development and Construction Committee
Position
Fees
(per annum)
Chair
$180,000
Member
$90,000
Chair
Chair
Chair
Chair
$18,000
$15,000
$7,500
$7,500
No additional fees are paid to committee members.
Directors’ fees exclude GST, where appropriate. Directors are entitled to be reimbursed for costs directly associated
with carrying out their duties, including travel costs.
REMUNERATION 105
Directors and Officers also have the benefit of Directors’ and Officers’ liability insurance. Cover is for damages,
judgments, fines, penalties, legal costs awarded and defence costs arising from wrongful acts committed while acting
for Summerset. There are some exclusions within the policy. The insurance cover is supplemented by the provision
of Director and Officer indemnities from the Company, but this does not extend to criminal acts.
Executive remuneration
The remuneration of members of the Executive Leadership Team (Chief Executive Officer and direct reports) is
designed to promote a high-performance culture and to align Executive reward to the development and achievement
of strategies and business objectives to create sustainable value for Shareholders.
The Board is assisted in delivering its responsibilities and objectives for Executive remuneration by the Nomination
and Remuneration Committee. The role and membership of this Committee is set out in the Statement of Corporate
Governance.
Summerset’s remuneration policy for members of the Executive Leadership Team provides the opportunity for them
to receive, where performance merits, a total remuneration package in the upper quartile for equivalent market-
matched roles. The Nomination and Remuneration Committee reviews the annual performance appraisal outcomes
for all Executive Leadership Team members, including the Chief Executive Officer. The review takes into account
external benchmarking to ensure competitiveness with comparable market peers, along with consideration of an
individual’s performance, skills, expertise and experience.
Total remuneration is made up of three components: fixed remuneration, short-term performance-based cash
remuneration and long-term performance-based equity remuneration.
Fixed remuneration
Fixed remuneration consists of base salary and benefits. Summerset’s policy is to pay fixed remuneration with
reference to the fixed pay market median.
Short-term incentives
Short-term incentives (STIs) are at-risk payments designed to motivate and reward for performance, typically in that
financial year. The target value of an STI payment is set annually, as a percentage of the Executive Leadership Team
member’s fixed remuneration. For 2019, the relevant percentages were 25% to 50%.
A proportion (80% for the Chief Executive Officer, 30% to 40% for other Executive Leadership Team members) of
the STI is related to achievement of annual performance metrics which aim to align executives to a shared set of key
performance indicators (KPIs) based on business priorities for the next 12 months. Target areas for the shared KPIs
for 2019 are outlined below:
Target
Underlying EBITDA
Retirement unit delivery
New sales development margin
Resales net cash
Customer satisfaction
Customer clinical quality of care
Health and safety
Staff - HR
Weighting
40%
20%
10%
10%
5%
5%
5%
5%
There are three performance levels within each target area - gate-opener, on-target and maximum performance -
with 100% of the amount allocated to that target area being payable when the on-target level is achieved. The
maximum performance levels allow employees to be rewarded for performance above target levels. The maximum
amount of an STI payment for an Executive Leadership Team member is 112% of the STI on-target amount for that
Executive Leadership Team member.
The balance of the STI is related to individual performance measures.
106
ANNUAL REPORT 2019
In the event that gate-opener underlying EBITDA performance against budget is not achieved, no STI payment will
be made.
Long-term incentives
Long-term incentives (LTIs) are at-risk payments through a share plan, designed to align the reward of Executive
Leadership Team members with the enhancement of shareholder value over a multi-year period.
LTI Plan from 2018 onwards
An LTI share option plan commenced in November 2018, of which the Executive Leadership Team members are
participants. Under this plan, Executive Leadership Team members are granted share options. These share options
are exercisable in relation to shares in Summerset Group Holdings Limited.
Option grants are made annually, with the value of each grant being set at the date of each grant and determined as
a percentage of the Executive Leadership Team member’s fixed remuneration. There have now been two option
grants under this plan. For 2019, the relevant percentages were 20% to 40% (2018: 15% to 40%). Vesting of the share
options is subject to achievement of performance hurdles, which are assessed over two and three-year periods.
The performance hurdles for the option grant made in 2019 are based on:
•
•
•
•
•
•
•
50% absolute earnings (cumulative actual underlying net profit after tax for the Group against budget);
20% relative earnings (earnings per share growth of the Group compared to a defined peer group);
10% clinical delivery;
5% staff engagement;
5% staff turnover;
5% customer satisfaction - village residents;
5% customer satisfaction - care centre residents
The performance hurdles above were consistent with those for 2018, with the exception of an extra 5% weighting
towards clinical delivery and 5% less weighting towards relative earnings.
Performance hurdles are set by the Board with the objective of aligning Executive reward to the development and
achievement of strategies and business objectives to create sustainable value for Shareholders. The Board considers
that the performance hurdles reflect the drivers of sustainable value for Shareholders.
In addition to the LTI share option plan in place for Executive Leadership Team members, Summerset also operates
an unhurdled LTI share option plan for other senior managers.
A total of 647,315 share options were granted to Executive Leadership Team members in December 2019. A total of
1,355,950 share options have been granted to Executive Leadership Team members in the 2018 and 2019 grants.
None of these share options are currently exercisable. The Executive Leadership Team includes the Chief Executive
Officer. The following section provides further details of share option movements under the LTI Plan for the Chief
Executive Officer.
LTI Plan prior to 2018
Prior to 2018, Executive Leadership Team members were able to purchase shares in Summerset Group Holdings
Limited under an LTI share purchase plan. The shares under this plan are held by a nominee on behalf of the Executive
Leadership Team members until such time after the vesting of shares that the nominee is directed by the Executive
Leadership Team member to transfer or sell the shares, or the shares are sold or cancelled by the nominee if vesting
criteria are not met. The shares carry the same rights as all other ordinary shares.
The Group has provided Executive Leadership Team members participating in the LTI share purchase plans with
interest-free limited recourse loans to fund the acquisition of the shares for these plans. These loans must be repaid
in full before shares are transferred to Executives from the nominee.
Grants under this plan were made annually, with performance measured over two and three-year periods. The value
of each grant was set at the date of the grant and determined as a percentage of the Executive Leadership Team
member’s fixed remuneration, ranging from 15% to 40%. Vesting of shares is subject to achievement of performance
hurdles, which are assessed over two and three-year periods.
The performance hurdles for each grant under the LTI plan made between 2013 and 2015 are based on Summerset’s
total shareholder return (TSR) relative to the performance of relevant peers and the NZX 50.
REMUNERATION 107
The performance hurdles for the grants made in 2016 and 2017 are based on:
•
•
•
•
•
50% absolute earnings (cumulative actual underlying net profit after tax for the Group against budget);
25% relative earnings (earnings per share growth of the Group compared to a defined peer group);
10% employee initiatives;
10% customer initiatives;
5% clinical strategy initiatives.
Performance hurdles are set by the Board with the objective of aligning Executive reward to the development and
achievement of strategies and business objectives to create sustainable value for Shareholders. The Board considers
that the performance hurdles reflect the drivers of sustainable value for Shareholders.
In addition to the LTI share purchase plan in place for Executive Leadership Team members, Summerset also operated
an unhurdled LTI share purchase plan for other senior managers.
A total of 1,958,026 shares are held by Summerset LTI Trustee Limited under the LTI share purchase plan on behalf
of the Executive Leadership Team as at 31 December 2019. 485,170 of these shares are unvested. The Executive
Leadership Team includes the Chief Executive Officer. The following section provides further details of share
movements under the LTI Plan for the Chief Executive Officer.
Chief Executive Officer remuneration
Remuneration for years ended 31 December 2017 to 2019
Fixed remuneration
Pay for performance
Salary
Other
benefits1
Subtotal
STI
LTI
Subtotal
Total
remuneration
FY2019
$623,405
$1,595
$625,000
$282,7342
$250,0003
$532,734
$1,157,734
FY2018
$547,720
$2,280
$550,000
$271,4004
$220,0005
$491,400
$1,041,400
FY2017
$545,400
$4,600
$550,000
$233,5586
$220,0007
$453,558
$1,003,558
1 Other benefits include medical insurance. The Chief Executive Officer chooses not to participate in KiwiSaver.
2 STI for FY2018 performance period (paid FY2019)
3 LTI value granted in FY2019 period (which will vest based on performance in FY2020 to FY2022)
4 STI for FY2017 performance period (paid FY2018)
5 LTI value granted in FY2018 period (which will vest based on performance in FY2019 to FY2021)
6 STI for FY2016 performance period (paid FY2017)
7 LTI value granted in FY2017 period (which will vest based on performance in FY2018 to FY2020)
Three-year summary
Total
remuneration
% STI awarded
against on-plan
performance
STI
performance
period
% LTI vested
against on-plan
performance
Span of LTI
performance
periods
FY2019
$1,157,734
102.8%
FY2018
$1,041,400
98.7%
FY2017
$1,003,558
103.8%
1 Vesting date 31 December 2018, release date 27 February 2019
2 Vesting date 31 December 2017, release date 26 February 2018
3 Vesting date 31 December 2016, release date 24 February 2017
FY2018
FY2017
FY2016
97.9%1
83.7%2
90.0%3
FY2016 - FY2018
FY2015 – FY2017
FY2014 – FY2016
The STI in the table above is based on amounts paid in the financial period. The LTI awarded in the table above refers
to shares eligible for vesting during the financial period.
108
ANNUAL REPORT 2019
Components of CEO remuneration
1,250,000
1,000,000
750,000
500,000
250,000
0
Fixed
On-plan
Maximum
Fixed
Annual variable
Long-term incentives
As at 31 December 2019, the Chief Executive Officer’s fixed remuneration comprised salary and taxable benefits set
at $625,000 per annum. The annual variable element pays out at 50% of fixed remuneration for on-plan performance
or 56% for maximum performance. The LTI element is based on the value granted in the FY2019, being 40% of fixed
remuneration, and will be based on performance in FY2020 to FY2022.
Description of Chief Executive Officer remuneration for performance for the year ended 31 December 2019
Plan
Description
Performance measures
Percentage awarded against
on-plan performance
STI
LTI
Set at 50% of fixed remuneration for
FY2019 on-plan performance, up to
a maximum of 1.12 times (equal to
56% of fixed remuneration), where
the highest levels of both company
and individual performance
measures are achieved.
In February 2019, vesting for 145,161
shares issued under the LTI Scheme
at $3.91 on 14 December 2015 was
assessed per the Plan Rules. The
assessment period was 1 January
2016 to 31 December 2018. The
vesting criteria were partially met
and 139,355 shares vested.
In February 2019, vesting for 128,571
shares issued under the LTI Scheme
at $4.76 on 12 December 2016 was
assessed per the Plan Rules. The
assessment period was 1 January
2017 to 31 December 2018. The
vesting criteria were met and all
shares vested.
80% based on the company target
areas (see table on page 123 for
weightings)
100.0%
20% based on individual measures
100.0%
50% measured against comparable
peer group TSR hurdle
96.0%
50% measured against NZX 50
group TSR hurdle
100.0%
50% based on absolute earnings
25% based on relative earnings
10% based on employee initiatives
10% based on customer initiatives
5% based on clinical strategy
initiatives
The above STI payment will be paid in FY2020.
Five year summary – total shareholder return (TSR) performance
REMUNERATION 109
)
0
0
1
o
t
d
e
s
a
e
e
r
(
x
e
d
n
l
I
400
320
240
160
80
4
1
0
2
-
2
1
-
1
3
5
1
0
2
-
2
1
-
1
3
Index NZX50
Index SUM
6
1
0
2
-
2
1
-
0
3
7
1
0
2
-
2
1
-
9
2
8
1
0
2
-
2
1
-
1
3
9
1
0
2
-
2
1
-
1
3
The TSR summary above shows the performance of Summerset’s shares against the NZX 50 between 31 December
2013 and 31 December 2018. TSR hurdles were only used for LTI issues up to 2015, the final vesting period for these
issues expired on 31 December 2018.
Chief Executive Officer LTI share movements for the year ended 31 December 2019
Dec 2014
issue
Balance at 1 January 2019
183,673
Forfeited
-
Dec 2015
issue
257,236
(5,806)
Loan repaid and shares
transferred to CEO
(183,673)
(112,075)
Dec 2016
issue
237,005
-
-
Dec 2017
issue
263,736
-
-
Total
941,650
(5,806)
(295,748)
Balance at 31 December 2019 -
139,355
237,005
263,736
640,096
Vesting status
Issue price
Vested
$2.68
Vested
$3.91
Vested
$4.76
Partially vested
$5.24
The table above includes shares issued under the LTI plan prior to 1 April 2014, when the Chief Executive Officer took
up this role (previously Chief Financial Officer).
251,291 shares were vested on 31 December 2019 (out of a potential 251,291 shares eligible to vest on that date). These
vested shares are not eligible for exercise until 27 February 2020.
110
ANNUAL REPORT 2019
Chief Executive Officer LTI share option movements for the year ended 31 December 2019
Balance at 1 January 2019
Forfeited
Granted
Exercised
Balance at 31 December 2019
Vesting status
Exercise price at grant
Dec 2018 grant
Dec 2019 grant
224,074
-
-
-
224,074
Unvested
$6.34
-
-
200,352
-
200,352
Unvested
$7.62
Employee remuneration
The number of employees or former employees (including employees holding office as Directors of subsidiaries), who
received remuneration and other benefits valued at or exceeding $100,000 during the financial year ended
31 December 2019 is specified in the table below.
The remuneration figures shown in the “Remuneration” column include all monetary payments actually paid during
the course of the year ended 31 December 2019. The table also includes the grant value of shares issued to individual
employees under Summerset’s LTI Plan during the same period. The table does not include amounts paid after
31 December 2019 that relate to the year ended 31 December 2019.
The method of calculating remuneration is consistent with the method applied for the previous year.
Remuneration
No. of employees
Remuneration
No. of employees
$100,000 to $109,999
$110,000 to $119,999
$120,000 to $129,999
$130,000 to $139,999
$140,000 to $149,999
$150,000 to $159,999
$160,000 to $169,999
$170,000 to $179,999
$180,000 to $189,999
$190,000 to $199,999
$200,000 to $209,999
$210,000 to $219,999
$220,000 to $229,999
$230,000 to $239,999
$240,000 to $249,999
31
47
31
17
18
6
8
8
2
4
4
2
1
3
2
$250,000 to $259,999
$260,000 to $269,999
$280,000 to $289,999
$290,000 to $299,999
$300,000 to $309,999
$320,000 to $329,999
$330,000 to $339,999
$360,000 to $369,999
$370,000 to $379,999
$400,000 to $409,999
$460,000 to $469,999
$500,000 to $509,999
$560,000 to $569,999
$810,000 to $819,999
$1,100,000 to $1,109,999
1
2
1
2
1
1
1
1
1
1
1
1
1
1
1
Pay gap
The pay gap represents the number of times greater the Chief Executive Officer remuneration is to the remuneration
of an employee paid at the median of all Summerset employees. For the purposes of determining the median paid
to all Summerset employees, all permanent full-time, permanent part-time and fixed-term employees are included,
with part-time employee remuneration adjusted to a full-time equivalent amount.
At 31 December 2019, the Chief Executive Officer’s base salary of $625,000 was 11.8 times (2018: 11.7 times) that of
the median employee at $53,040 per annum. The Chief Executive Officer’s total remuneration, including STI and LTI,
of $1,157,734, was 21.5 times (2018: 21.0 times) the total remuneration of the median employee at $53,840.
REMUNERATION 111
112
ANNUAL REPORT 2019
Disclosures
Director changes during the year ended 31 December 2019
There were no director changes during the year ended 31 December 2019.
Directors’ interests
Directors made the following entries in the Interests Register pursuant to Section 140 of the Companies Act 1993
during the year ended 31 December 2019:
Rob Campbell: Disclosed the following position in respect of the following entity: NZ Equity Management Limited
(Investment Committee Member). Disclosed he ceased to hold the following position in respect of the following entity:
Capital Markets Task Force (Member).
Anne Urlwin: Disclosed the following positions in respect of the following entities: Tararua Wind Power Limited
(Director), Waverley Wind Farm Limited (Director), Waverley Wind Farm (NZ) Holding Limited (Director), Precinct
Properties New Zealand Limited (Director). Disclosed she ceased to hold the following positions in respect of the
following entities: Chorus Limited (Director), Chorus New Zealand Limited (Director).
James Ogden: Disclosed he ceased to hold the following position in respect of the following entity: MMC Group
Holdings Limited and subsidiaries (Chair).
Dr Marie Bismark: Disclosed the following positions in respect of the following entities: Royal Children’s Hospital
Melbourne (Psychiatry Registrar), New Zealand Medical Council (Public Health Medicine Specialist).
Gráinne Troute: Disclosed she ceased to hold the following position in respect of the following entity: Evolve
Education Group Limited (Director).
Dr Andrew Wong: Disclosed the following position in respect of the following entity: MercyAscot Properties Limited
(Director). Disclosed he ceased to hold the following position in respect of the following entity: New Zealand Medical
Council (Public Health Medicine Specialist).
Information used by Directors
There were no notices from Directors of the Company requesting to disclose or use Company information received
in their capacity as Directors that would not otherwise have been available to them.
DISCLOSURES 113
Directors’ security holdings
Securities in the Company in which each Director has a relevant interest as at 31 December 2019 are specified in
the table below:
Director
Rob Campbell
Anne Urlwin
James Ogden
Dr Marie Bismark
Gráinne Troute
Dr Andrew Wong
Total
Ordinary shares
SUM010
retail bonds
SUM020
retail bonds
59,280
26,015
-
30,000
-
-
389,504
15,000*
100,000*
23,401
25,000
10,500
-
-
-
-
-
-
533,700
45,000
100,000
*James Ogden has a non-beneficial interest in 15,000 SUM010 retail bonds of which he is the registered holder in his capacity as
trustee of the Wakapua Trust. Clara Ogden has a legal and beneficial interest in 100,000 SUM020 retail bonds of which James Ogden
has the power to acquire or dispose.
Securities dealings of Directors
During the year, Directors disclosed the following transactions in respect of Section 148(2) of the Companies Act 1993.
These transactions took place in accordance with the Company’s Securities Trading Policy.
Director
Date of transaction
Number of securities
acquired/(disposed)
Rob Campbell
21 March 2019
9 September 2019
Anne Urlwin
21 March 2019
9 September 2019
430
433
188
189
James Ogden
21 March 2019
(20,000)
Consideration
Issue of shares under dividend reinvestment
plan at $6.56 per share
Issue of shares under dividend reinvestment
plan at $5.83 per share
Issue of shares under dividend reinvestment
plan at $6.56 per share
Issue of shares under dividend reinvestment
plan at $5.83 per share
On-market disposal of ordinary shares
at average price of $6.66 per share
Dr Marie Bismark
21 March 2019
9 September 2019
214
216
Issue of shares under dividend reinvestment
plan at $6.56 per share
Issue of shares under dividend reinvestment
plan at $5.83 per share
114
ANNUAL REPORT 2019
Director appointment dates
The date of each Director’s first appointment to the position of Director is provided below. Since the date of
appointment, Directors have been re-appointed at Annual Shareholder Meetings when retiring by rotation as required.
Director
Rob Campbell
Anne Urlwin
James Ogden*
Dr Marie Bismark
Gráinne Troute
Dr Andrew Wong
Appointment date
2 September 2011
1 March 2014
2 September 2011
1 September 2013
1 September 2016
1 March 2017
*James Ogden was also a Director from 1 October 2007 to 26 March 2009.
Indemnity and insurance
In accordance with Section 162 of the Companies Act 1993 and the Constitution of the Company, the Company has
arranged insurance for, and indemnities to, Directors and Officers of the Company, including Directors of subsidiary
companies, for losses from actions undertaken in the course of their legitimate duties or costs incurred in any
proceeding.
Directors of subsidiary companies
The remuneration of employees acting as Directors of subsidiaries is disclosed in the relevant banding of remuneration
set out under the heading ‘Employee remuneration’ in the Remuneration section of the Report. Employees did not
receive additional remuneration or benefits for acting as Directors during the year.
Julian Cook, Scott Scoullar, Aaron Smail and Robyn Heyman are Directors of all the Company’s New Zealand
incorporated subsidiaries as at 31 December 2019, with the exception of Summerset LTI Trustee Limited (the Directors
of which are Rob Campbell and Dr Marie Bismark). Julian Cook, Scott Scoullar, Paul Morris and Robyn Heyman are
Directors of all the Company’s Australian incorporated subsidiaries as at 31 December 2019. No extra remuneration
is payable to any Director of the Company for any Directorship of a subsidiary.
DISCLOSURES 115
Top 20 Shareholders as at 31 December 2019
Rank
Registered Shareholder
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
New Zealand Central Securities Depository Limited
124,434,606
54.86%
FNZ Custodians Limited
Forsyth Barr Custodians Limited
Custodial Services Limited
Custodial Services Limited
Investment Custodial Services Limited
New Zealand Depository Nominee Limited
Custodial Services Limited
Summerset LTI Trustee Limited
Motutapu Investments Limited
Custodial Services Limited
Paul Stanley Morris & Clive Stephen Morris
JBWere (NZ) Nominees Limited
Custodial Services Limited
ASB Nominees Limited
PT Booster Investments Nominees Limited
Leveraged Equities Finance Limited
Custodial Services Limited
Citicorp Nominees Pty Limited
Hibou Holdings Pty Limited
Total
6,320,541
5,907,206
5,601,058
5,576,465
2,948,487
2,780,430
2,707,264
2,541,987
1,974,185
1,931,523
1,690,973
1,417,613
1,261,235
1,049,913
975,439
920,632
915,727
869,505
690,454
2.79%
2.60%
2.47%
2.46%
1.30%
1.23%
1.19%
1.12%
0.87%
0.85%
0.75%
0.62%
0.56%
0.46%
0.43%
0.41%
0.40%
0.38%
0.30%
172,515,243
76.05%
Shareholders held through the NZCSD as at 31 December 2019
New Zealand Central Securities Depository Limited (NZCSD) provides a custodian depository service that allows
electronic trading of securities to its members and does not have a beneficial interest in these shares. As at
31 December 2019, the ten largest shareholdings in the Company held through NZCSD were:
Rank
Registered Shareholder
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
Tea Custodians Limited
Citibank Nominees (NZ) Limited
HSBC Nominees (New Zealand) Limited
JPMorgan Chase Bank
National Nominees New Zealand Limited
HSBC Nominees (New Zealand) Limited
Accident Compensation Corporation
New Zealand Superannuation Fund Nominees Limited
Cogent Nominees Limited
10
New Zealand Permanent Trustees Limited
21,064,981
18,439,586
15,534,721
11,013,959
9,690,345
9,516,381
9,139,509
7,532,482
6,202,542
5,502,852
9.29%
8.13%
6.85%
4.86%
4.27%
4.20%
4.03%
3.32%
2.73%
2.43%
116
ANNUAL REPORT 2019
Spread of Shareholders as at 31 December 2019
Shareholders
Number
Shareholders
%
Size of shareholding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Total
Shares
Number
1,193,806
11,116,461
10,662,369
18,113,492
5,165,139
180,576,408
27.08%
45.44%
15.67%
10.38%
0.80%
0.63%
100.00%
226,827,675
Shares
%
0.53%
4.90%
4.70%
7.99%
2.28%
79.60%
100.00%
Substantial product holder notices received as at 31 December 2019
According to the records kept by the Company and notices given under the Financial Market Conducts Act 2013,
the following were substantial holders in the Company as at 31 December 2019. The total number of voting products
on issue at 31 December 2019 was 226,827,675 ordinary shares.
Shareholder
Jarden Partners Limited
Harbour Asset Management Limited
Fisher Funds Management Limited
Relevant interest
% held at date
of notice
18,658,150
18,658,150
14,042,503
8.265%
8.265%
6.220%
Date of notice
19 July 2019
19 July 2019
9 May 2019
The notices disclosed above from Jarden Partners Limited and Harbour Asset Management Limited relate to the same
relevant interest as these companies are related bodies corporate.
Spread of bondholders as at 31 December 2019
SUM010
Size of bondholding
1 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Total
Bondholders
Number
Bondholders
%
9.03%
25.22%
54.40%
7.05%
4.30%
Bonds
Number
410,000
2,229,000
13,641,000
5,461,000
78,259,000
Bonds
%
0.41%
2.23%
13.64%
5.46%
78.26%
100.00%
100,000,000
100.00%
2,540
4,261
1,469
973
75
59
9,377
82
229
494
64
39
908
DISCLOSURES 117
Bonds
Number
230,000
1,222,000
15,104,000
6,295,000
102,149,000
Bonds
%
0.18%
0.98%
12.08%
5.04%
81.72%
SUM020
Size of bondholding
1 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Total
Bondholders
Number
Bondholders
%
46
128
525
74
80
853
5.39%
15.01%
61.54%
8.68%
9.38%
100.00%
125,000,000
100.00%
Waivers from the NZX Listing Rules
No waivers from the application of NZX Listing Rules have been utilised by the Company during the year ended
31 December 2019.
Credit rating
The Company has no credit rating.
Auditor fees
Ernst & Young Wellington has continued to act as auditors of the company. The amount payable by Summerset and
its subsidiaries to Ernst & Young Wellington in respect of FY19 audit fees was $194,000. No non-audit work was
undertaken by Ernst & Young during the year.
Donations
In accordance with section 211(1)(h) of the Companies Act 1993, Summerset records that it donated $58,000 in FY19.
Dividend reinvestment plan
The last date of receipt for a participation election from a shareholder who wishes to participate in the dividend
reinvestment plan is 11 March 2020.
This Annual Report is authorised for and on behalf of the Board by:
Rob Campbell
Director and Chair of
the Board
James Ogden
Director and Chair of the
Audit Committee
Authorised for issue on 24 February 2020
118
ANNUAL REPORT 2019
DIRECTORY 119
Directory
Summerset St Johns
188 St Johns Road, St Johns,
Auckland 1072
Phone (09) 950 7982
Waikato – Taupo
Summerset down the Lane
206 Dixon Road,
Hamilton 3206
Phone (07) 843 0157
Summerset Rototuna
39 Kimbrae Drive,
Rototuna North 3281
Phone (07) 981 7822
Summerset by the Lake
2 Wharewaka Road, Wharewaka,
Taupo 3330
Phone (07) 376 9470
Summerset Cambridge1
80 Laurent Road,
Cambridge 3493
Phone (07) 839 9482
Bay of Plenty
Summerset by the Sea
181 Park Road,
Katikati 3129
Phone (07) 985 6890
Summerset by the Dunes
Manawa Road,
Papamoa Beach, Tauranga 3118
Phone (07) 542 9082
New Zealand
Northland
Summerset Whangarei
Wanaka Street, Tikipunga,
Whangarei 0112
Phone (09) 470 0282
Auckland
Summerset Falls
31 Mansel Drive,
Warkworth 0910
Phone (09) 425 1200
Summerset Milldale1
Argent Lane, Milldale,
Wainui 0992
Phone (0800) 786 637
Summerset at Monterey Park
1 Squadron Drive, Hobsonville,
Auckland 0618
Phone (09) 951 8920
Summerset at Heritage Park
8 Harrison Road, Ellerslie,
Auckland 1060
Phone (09) 950 7960
Summerset by the Park
7 Flat Bush School Road,
Flat Bush 2019
Phone (09) 272 3950
Summerset at Karaka
49 Pararekau Road,
Karaka 2580
Phone (09) 951 8900
Summerset Parnell1
23 Cheshire Street, Parnell,
Auckland 1052
Phone (09) 950 8212
1 Proposed villages
120
ANNUAL REPORT 2019
Hawke’s Bay
Summerset in the Bay
79 Merlot Drive, Greenmeadows,
Napier 4112
Phone (06) 845 2840
Summerset in the Orchard
1228 Ada Street, Parkvale,
Hastings 4122
Phone (06) 974 1310
Summerset Palms
Corner Eriksen Road and Kenny Road,
Te Awa, Napier 4110
Phone: (06) 833 5852
Summerset in the Vines
249 Te Mata Road,
Havelock North 4130
Phone (06) 877 1185
Taranaki
Summerset Mountain View
35 Fernbrook Drive, Vogeltown,
New Plymouth 4310
Phone (06) 824 8900
Summerset at Pohutukawa Place
Pohutukawa Place, Bell Block,
New Plymouth 4312
Phone (06) 824 8532
Manawatu – Wanganui
Summerset in the River City
40 Burton Avenue, Wanganui East,
Wanganui 4500
Phone (06) 343 3133
Summerset on Summerhill
180 Ruapehu Drive, Fitzherbert,
Palmerston North 4410
Phone (06) 354 4964
Summerset by the Ranges
104 Liverpool Street,
Levin 5510
Phone (06) 367 0337
1 Proposed villages
Wellington
Summerset Waikanae1
Park Avenue,
Waikanae 5036
Phone (04) 293 0002
Summerset on the Coast
104 Realm Drive,
Paraparaumu 5032
Phone (04) 298 3540
Summerset on the Landing
Bluff Road, Kenepuru,
Porirua 5022
Phone (04) 230 6722
Summerset at Aotea
15 Aotea Drive, Aotea,
Porirua 5024
Phone (04) 235 0011
Summerset at the Course
20 Racecourse Road, Trentham,
Upper Hutt 5018
Phone (04) 527 2980
Summerset Lower Hutt1
Boulcott’s Farm, Military Road,
Lower Hutt 5010
Phone (04) 568 1442
Nelson – Tasman
Summerset in the Sun
16 Sargeson Street, Stoke,
Nelson 7011
Phone (03) 538 0000
Summerset Richmond Ranges
1 Hill Street North, Richmond,
Tasman 7020
Phone (03) 744 3432
Marlborough
Summerset Blenheim1
183 Old Renwick Road, Springlands,
Blenheim 7272
Phone (03) 520 6042
DIRECTORY 121
Australia
Victoria
Summerset Cranbourne North1
1435 Thompsons Road,
Cranbourne North,
Melbourne, Australia
Phone (1800) 321 700
Summerset Torquay1
Grossmans Road and Briody Drive,
Torquay,
Victoria, Australia
Phone (1800) 321 700
Canterbury
Summerset Rangiora1
141 South Belt, Waimakariri,
Rangiora 7400
Phone (03) 364 1312
Summerset at Wigram
135 Awatea Road, Wigram,
Christchurch 8025
Phone (03) 741 0870
Summerset at Avonhead
120 Hawthornden Road, Avonhead,
Christchurch 8042
Phone (03) 357 3202
Summerset on Cavendish
147 Cavendish Road, Casebrook,
Christchurch 8051
Phone (03) 741 3340
Summerset Prebbleton1
578 Springs Road,
Prebbleton 7676
Phone (03) 353 6312
Otago
Summerset at Bishopscourt
36 Shetland Street, Wakari,
Dunedin 9010
Phone (03) 950 3102
1 Proposed villages
122
ANNUAL REPORT 2019
Company
information
Statutory Supervisor
Public Trust
Bond Supervisor
The New Zealand Guardian Trust
Company Limited
Share Registrar
Link Market Services,
PO Box 91976, Auckland 1142,
New Zealand
Phone: +64 9 375 5998
Email: enquiries@linkmarketservices.co.nz
Directors
Rob Campbell
Dr Marie Bismark
Venasio-Lorenzo Crawley
James Ogden
Gráinne Troute
Anne Urlwin
Dr Andrew Wong
Company Secretary
Robyn Heyman
Registered offices
New Zealand
Level 27, Majestic Centre,
100 Willis Street, Wellington 6011,
New Zealand
PO Box 5187,
Wellington 6140
Phone: +64 4 894 7320
Email: reception@summerset.co.nz
www.summerset.co.nz
Australia
Deutsche Bank Place,
Level 4, 126 Phillip Street,
Sydney, NSW, 2000
Australia
Auditor
Ernst & Young
Solicitor
Russell McVeagh
Bankers
ANZ Bank New Zealand Limited
Australia and New Zealand Banking Group Limited
Bank of New Zealand
National Australia Bank
Commonwealth Bank of Australia
Westpac New Zealand Limited
Westpac Banking Corporation
Industrial and Commercial Bank of China (New Zealand)
Limited
COMPANY INFORMATION 123
124
ANNUAL REPORT 2019