1 TRANSPORT FRIENDLY SOCIETY ANNUAL REPORT Transport Friendly Society
2 02 ABOUT TRANSPORT FRIENDLY SOCIETY 13 DIRECTOR S REPORT Transport Friendly Society Ltd and Controlled Entities ABN CEO S REPORT 04 CHAIRMAN S REPORT 15 CORPORATE GOVERNANCE STATEMENT 17 FINANCIAL REPORT Transport Friendly Society FINANCIAL REPORT For the Year Ended 30 June 05 TRACEY GOODIE 06 TONY CUNNINGHAM 07 BOARD OF DIRECTORS 17 STATEMENT OF COMPREHENSIVE INCOME 18 STATEMENT OF FINANCIAL POSITION 19 STATEMENT OF CHANGES IN EQUITY 19 STATEMENT OF CASH FLOWS 20 NOTES TO THE FINANCIAL STATEMENTS 40 DIRECTORS DECLARATION 41 INDEPENDENT AUDIT REPORT TO THE MEMBERS 43 AUDITOR S INDEPENDENCE DECLARATION
3 1 2 Transport Friendly Society About TRANSPORT FRIENDLY SOCIETY Transport Friendly Society is a notfor-profit organisation dedicated to furthering the interests and welfare of the transport industry s workforce. Originally established in 1888 to serve the interests of the employees of Melbourne s tramways board, the society has developed to represent members of all arms of Australia s transport industry. The society s activities include: Transport Health Our core business, providing private health insurance to transport workers and their families. Transport Health offers great benefi ts on both hospital and ancillary treatment cover, and offers service nationwide through the AHSA network of providers. The Mornington Retirement Village Situated in Mornington on the picturesque peninsula of the same name, The Mornington comprises 169 independent living units and the Shearwater Apartments complex of 36 serviced apartments. Park Hill Gardens Park Hill Gardens, located on the beautiful Mornington Peninsula, offers exceptional nursing care for low care, high care and dementia specifi c needs. The purpose built facility is staffed 24 hours a day by registered RN Div 1 & Div 2 Nurses and qualifi ed PCAs. Dental on Swan Situated in Richmond, in Melbourne s inner east, the Dental on Swan clinic provides state-of-theart treatment in preventative, restorative and prosthetic dentistry.
4 3 4 CEO S REPORT Derek Cafferty In my career to date, I have been fortunate to have had a variety of leadership roles across several highly regulated industries. So, while the task of steering an organisation with interests in aged care, retirement living, private health insurance and dental is undoubtedly a challenging one, I hope my experience will help to prepare me for many of the issues I will face at TFSL. Since I took up the post in April, I have confi rmed beyond doubt my initial opinion that this was an organisation with signifi cant potential: in our history, in our standing within the industry, in our prudent leadership and sound fi nances, there is much on which we can build. The major challenge is to not sit back and refl ect on past achievements; we have to keep ahead of industry developments and ensure that we deliver credible, valued, high-standard services to the membership. That means we need to look critically at ourselves and identify areas where we can improve. In beginning this process, I interviewed all staff members at every level of the organisation. As I result, I feel I now understand the key issues from the perspective of those who must deal with them. Several recurring themes were identifi ed. Specifi cally, we needed to improve our communication systems, modernise our approach to risk management and involve staff and middle management in the planning process. In addition, our historic lack of promotion and low brand recognition presents a challenge, as does the lack of market research on which to base marketing campaigns. In all of these areas, work has begun and we are on our way to providing the business with the conditions that encourage growth. Strategically, our priorities are to continue the steady growth of Transport Health, which has experienced a 10 per cent increase in membership in two years, and to expand Mornington Retirement Village. In achieving both of these, it is important that the organisation takes decisions based on sound research and according to a strategic plan, rather than reacting to events as they arise. In the next 12 months I hope to deliver a fi ve-year blueprint for the organisation s development which builds on our strengths in people and fi nance. At the centre of this plan is the principle that, whichever businesses we are involved in, we should be viewed as exemplars. I believe that excellence comes from doing the basics well consistently: by recruiting the right people, by resourcing them adequately, by planning for the future and making decisions based on objective information. In endeavouring to make this a reality, I already feel that I have the support of staff at all levels of this organisation, and that they are keen to develop the business. That is always a good place to start. CHAIRMAN S REPORT Martyn Pickersgill Generally the year has progressed very well. We steadily increased our health fund membership and the introduction of iselect has boosted the membership intake substantially. Health fund membership, at the end of the year, sat just below the 4000 mark. We have also made some major decisions concerning the development at Mornington Retirement Village and the sale of Shearwater Serviced Apartments are progressing in accordance with our expectations. We must acknowledge that the year s most important developments have been in personnel, with the appointment of Derek Cafferty as CEO, following the resignation of Terry Rance, and also the internal appointment of Tracey Goodie as General Manager of the health fund. In any organisation, the arrival of a new chief executive would represent a major change, but for an organisation of our size, the impact has the potential to be seismic. In appointing Terry Rance s replacement, the board was keen to seize the opportunity to re-invigorate the company, the morale of its staff and provide new direction and leadership. We needed someone who believed in the mutual culture ; someone who wanted to be a part of the future development of TFSL; someone who would empower the management to make decisions; and someone who would provide an energetic and proactive style of leadership. In settling on Derek Cafferty, we believe we have made a sound choice and that the company is already seeing the benefi ts of the appointment. Derek s background includes experience in aged care and retirement, and a thorough understanding of the operations of non-profi t business, making him an ideal choice for TFSL. At interview, his calm and thoughtful responses revealed an action-oriented personality, but also someone who would provide the inclusive and collaborative approach we were seeking. Just prior to Derek s appointment, another major change in personnel was made with Tracey Goodie s promotion to General Manager of the health fund. Tracey had been with us since May 2007 in her capacity as Membership Manager, however her performance in that role and her solid experience with Australian Unity, prior to joining us, made her an ideal choice. Since Derek s appointment in April, the most noticeable change has been in the morale of staff, particularly that of senior management, while Tracey can count amongst her successes the smooth introduction of iselect which to date has provided a steady stream of new members who are new to health insurance, and also are in advantageous age ranges. With these two crucial positions fi lled, the friendly society and the health fund are now well positioned for both stability and growth. As a board, we feel that the health fund is and must remain the core of our business. We are one of the smallest health funds in the country but we are treated with respect by all participants in the industry because we emanate a confi dence that we belong where we are and we perform well for our members. However, to counteract the volatility associated with our current level of membership, it is necessary to grow the fund strategically, towards a manageable and profi table level of between 7,500 and 10,000. While we would still be small, the levels of volatility would be less. This growth, driven and supported by a reinvigorated management team, will build upon our key strength, namely the belief shared amongst staff of all levels that we provide for our members, that we matter and that what we are doing means something. In support of the growth of the core business, the board will continue to examine growth and investment opportunities in the remainder of our portfolio, particularly in the retirement sector. As mentioned, a decision had been made to proceed with the planned development of new ILUs at Mornington Retirement Village which we hope will provide a development profi t in the region of 3 million. We also examined in detail, before eventually rejecting, a proposal for development of a complex in Bendigo. We will continue to look for opportunities in this sector. In a fi nancial sense, TFSL is in a similar position to 12 months ago. Subsequent to balance sheet, we have decided to sell our fi nancial planning arm, On Track Financial. The sale will provide an injection of cash which will help to fi nance growth projects. This, coupled with the changes in personnel, mean that the company is well placed for a year of growth and development in 2011, and for continued stable growth beyond this fi nancial year.
5 5 6 GENERAL MANAGER TRANSPORT HEALTH Tracey Goodie Tracey Goodie s expertise in health insurance has been gained on the front line in a career spanning 17 years, culminating in her appointment as General Manager of Transport Health in February this year. Tracey started as a call centre supervisor at not-for-profi t fund Australian Unity, before moving into management. Her time there included wide-ranging business process reviews, responsibility for training staff, managing relations with providers and projects such as supervising the changeover from manual to online systems at AU branches. Since joining Transport Health in May 2007 as Membership Manager, she has continued in the same vein, over-hauling procedures and products, and introducing a marketing strategy which fi rst arrested and then reversed a decline in membership levels. In the last two years, the fund has grown by approximately 10 per cent and Tracey believes it is well placed to grow further. One of the biggest tasks we face is education, says Tracey. Many people who hold health insurance don t completely understand how it works, what they are covered for and what they are not. As providers, we have to take responsibility for that. We have to challenge the myths and assumptions around our product and our industry and ensure that more people see the value in what we do. However, we know from our recent experience with iselect that we have a product that compares well. Since we joined iselect in March it has helped us attract a large proportion of people new to health insurance a higher proportion than any other fund on their site. That clearly shows we have a simple, attractive product. language to strip away the mystery that surrounds our product. In addition to communications, Tracey and her team have also been working hard to improve Transport Health s internal systems, from claims processing to managing customer data. Major projects underway include a revamped website, which will include online claiming, to be launched in the coming months. While she believes such initiatives are vital to Transport Health, they should not detract from the business key strengths. Our advantage is in the level of personal service we can provide; both on the telephone, allowing members to speak to the same person each time, and in person through site visits by our sales staff. This is where being small has its advantages the big funds cannot offer this level of service. RETIRED DIRECTOR Tony Cunningham This year Transport Friendly Society bade farewell to its longest serving director, Tony Cunningham, who retired after 20 years of service. A long-serving employee of the Tramways and a prominent fi gure within the ETU, Tony joined TFS s then Committee of Management in 1985, before becoming a founding member of the revamped Board of Directors in In addition to his contributions to the health fund business, Tony was a driving force in the development of the Mornington Retirement Village and Shearwater Serviced Apartments development within that complex. Over the years both have provided considerable return to the society through both development profi t and the ongoing deferred management fee cashfl ow. Tony s hands-on commitment and attention to detail ensured that the project was a resounding success, in developing the greenfi eld site into the thriving village that it is today. The entire board would like to publicly acknowledge and thank him for his contribution over so long a period, and wish him well for retirement and whatever challenging (or less challenging) pursuits that may entail. Tony s place on the board has been taken by John Giraud. The challenge now is to talk to more people: about health insurance in general and our products in particular. We need to continue to develop our visibility within the industry and spread the message, using plain and simple
6 7 8 BOARD OF DIRECTORS CHAIRMAN, NON-EXECUTIVE DIRECTOR Martyn Pickersgill Martyn has been involved in Health Insurance both at ANA (now Australian Unity) and at IOOF, where he was Managing Director for 14 years, prior to joining the board of Transport Friendly Society. He has also been involved in Retirement Village operation and management, as Managing Director of IOOF Community Villages Friendly Society. As self employed management consultant for the past 15 years, Martyn consulted to small to medium companies, mainly dealing with business strategy and risk controls. During the last 15 years he has also run the industry association for Friendly Societies, and also managed a Friendly Society that owned and operated 12 retail pharmacies. Martyn is a qualifi ed accountant and has been involved in member based organisations since DEPUTY CHAIRMAN NON-EXECUTIVE DIRECTOR Paul Riboni Paul is an experienced company director having served on the boards of the Melbourne Metropolitan Transit Authority, the Tuen Mun Light Rail Authority in Hong Kong, Stafford Holdings Ltd, Eltham College and ECCA Sports Complex. As a senior business executive he has gained domestic and international experience as Company Secretary, Accounting Manager South East Asia Pacifi c, Financial Controller, Deputy Chairman, and Chairman in the fi elds of fi nance, hands-on management and planning. Paul presently runs his own successful accounting practice with medium and emerging companies.
7 9 10 BOARD OF DIRECTORS NON-EXECUTIVE DIRECTOR Nick Madden NON-EXECUTIVE DIRECTOR John Coulson NON-EXECUTIVE DIRECTOR John Giraud NON-EXECUTIVE DIRECTOR Geoff Scully NON-EXECUTIVE DIRECTOR Phil Altieri Employed for over 30 years by Ansett Transport Industries culminating as Finance Manager for Ansett Pioneer, Nick has accumulated vast experience in the transport industry primarily in management, operational analysis, finance, accounting and quality assurance. During a further period of over ten years as a self employed management and accounting consultant has installed quality assurance systems in a number of Australia s leading transport companies including Seafast and Comet. He also provides accounting and managerial services to diverse clients in semi-government and health service industries in additional to specialised accounting for self-managed superannuation funds. John is a chartered accountant and holds a masters degree in business administration. He has extensive consultancy experience focused on strategic planning and performance improvement projects for private and public sector organisations, government, not for profit, services and manufacturing sectors. Immediately prior to becoming a foundation director of HLB Mann Judd Consulting, John was managing partner (and managing director of the consulting arm) of Clarke and Company, chartered accountants and management consultants. Prior to that, he was consulting director at Touche Ross and KPMG management consultants. Earlier he was Group Manager - Finance of the Metropolitan Transit Authority of Victoria. A life-long member of the society, John brings a wealth of experience from the pharmaceutical industry, where he is currently employed by GlaxoSmithKline as Engineering Services Manager. John s career has familiarised him with working in highly-regulated industries and in mastering complex and interdependent processes within the operations of large-scale organisations. He has also managed large-scale, multi-million dollar projects through to successful completion. Geoff Scully is another lifelong member of the Society, and joined the board in 2000, bringing with him substantial experience at senior level with several national health care associations. Geoff is a past president of the Australasian Transplant Coordinators Association and a former committee member of the Australian Kidney Foundation. He also has direct exposure to health care administration, through his fourteen years employment at Vimy House Hospital, three years at St Vincents Hospital, and a further fourteen years coordinating organ transplants. Through his position as Assistant National Secretary of the Rail Tram and Bus Union-Victorian Branch, Phil provides the board with insight into the inner workings of the transport industry, particularly corporate strategy and policy formulation, infrastructure requirements, employment relations and occupational health and safety protocols. He has also held advisory roles on national transport issues to various levels of government. Phil has been a director of Transport Friendly Society since August 2008 and presently serves as a member of the Building and Properties Committee. After completing his apprenticeship with the then Melbourne and Metropolitan Tramways Board, Phil qualifi ed as a Bodymaker-1st Class and continued working in that role until moving to a position with the Rail Tram and Bus Union.
8 11 12 Transport Friendly Society Ltd and Controlled Entities ABN FINANCIAL REPORT For the Year Ended 30 June 13 DIRECTOR S REPORT 15 CORPORATE GOVERNANCE STATEMENT 17 FINANCIAL REPORT 17 STATEMENT OF COMPREHENSIVE INCOME 18 STATEMENT OF FINANCIAL POSITION 19 STATEMENT OF CHANGES IN EQUITY 19 STATEMENT OF CASH FLOWS 20 NOTES TO THE FINANCIAL STATEMENTS 40 DIRECTORS DECLARATION 41 INDEPENDENT AUDIT REPORT TO THE MEMBERS 43 AUDITOR S INDEPENDENCE DECLARATION
9 13 DIRECTORS REPORT Your directors present their report on the company for the year ended 30 June. Information on Directors 14 Directors Your directors present their report on the consolidated entity consisting of Transport Friendly Society Ltd and the entities it controlled at the end of, or during, the year ended 30 June. The directors for the whole of the fi nancial year and up until the date of this report were: Mr Phillip S. Altieri Mr John P. Coulson Mr Anthony J. Cunningham (resigned on 30/08/) Mr John A. Giraud (appointed 27/09/) Mr Nicholas B. Madden Mr Martyn R. Pickersgill Mr Paolo R. Riboni Mr Geoffrey W. Scully Chief Executive Officer Mr Derek Cafferty Company Secretary Mr John J. Corcoran Principal Activities During the year the principal continuing activities of the consolidated entity consisted of: (a) Health Insurance Fund (b) Dental Clinic (c) Financial Planning and Retirement Advice (d) Aged Care Facility (Nursing Home and Hostel Accommodation) (e) Retirement Village (f) Property Investment Dividends The Constitution of the company precludes the payment of dividends to members. Review of Operations and Activities The company has achieved a Consolidated profi t after tax of 323,339 (: profi t - 671,479). The strategic plans of the Consolidated entity are reviewed regularly and the directors continue to seek improved fi nancial returns on assets invested for the benefi t of members. Considering each activity: (a) Health Fund - Transport Health Pty Ltd Transport Health Pty Ltd, a wholly owned subsidiary of Transport Friendly Society Ltd has concluded the year with a profi t of 288,855 ( Profi t: 481,457). During the year we paid Member Benefi ts of 9,861,565 (: 9,075,344) The parent company, Transport Friendly Society Ltd, has charged a management fee of 805,649 ( 724,123) to Transport Health Pty Ltd to recover administration expenses, including wages and salaries, incurred for the operating cost of the Health Insurance Fund. (b) Dental Clinic Dental on Swan Dental on Swan continues to provide a great service to Members and is open to non Member patients as well. The clinic contributed a profi t before tax of 2,431 (: Profi t before tax of 2,994). (c) Financial Planning and Retirement Advice - Old Richmond Pty Ltd Old Richmond Pty Ltd formerly On Track Financial Pty Ltd has held Australian Financial Services Licence No since March The fi nancial planning operations contributed a profi t of 1,068 before tax (: Loss before tax 4,028). (d) The Mornington Retirement Village - incorporating Shearwater Serviced Apartments The Mornington Retirement Village contributed a profi t before tax of 23,130 (: profi t before tax of 5,307) in respect to the independent living units business. Shearwater Serviced Apartments incurred a profi t before tax of 22,280 (: profi t before tax of 37,053). (e) Aged & Hostel Accommodation - Park Hill Gardens Aged Care Facility Pty Ltd Although it achieved improved results, Park Hill Gardens has had a diffi cult year. The problem of inadequate Commonwealth Government funding continues as the major issue for operators of aged care facilities. This year Park Hill Gardens incurred a profi t before tax of 6,366 (: Loss before tax 195,576). (f) Head Office Administration The majority of costs associated with providing head offi ce administration services have been allocated to the various operational entities on a usage basis. The parent company has charged a management fee of 805,649 (: 724,123) to Transport Health Pty Ltd for the administration expenses, including wages and salaries, incurred by the parent company for the operating cost of the Health Insurance Fund. The overall Administration result for the year is a loss before tax of 191,630 (: Profi t before tax 303,400). (g) Optometry Retail - Maximeyes Optical Victoria Pty Ltd The company has not traded since the year ended 30 June Matters subsequent to the end of the financial year On 8 September, Transport Friendly Society Ltd sold the fi nancial planning business with a deposit being received on the signing of the contract and further amounts to be received. The contract provides that further payments are to be made on each of the fi rst and second anniversary dates of settlement subject to a clause that reduces these amounts by the amount that the trailing commission receipts on the fi nancial planning business sold fall below specifi ed targets. The company has taken security in respect to the outstanding amounts by way of a registered debenture charge over the company s assets of the purchaser as well as a personal guarantee and indemnity agreement provided jointly and severally by the benefi cial owners of the purchaser. Except for the matters above, no other matter or circumstance has arisen since 30 June that has signifi cantly affected, or may signifi cantly affect: (a) The consolidated entity s operations in future fi nancial years, or (b) The results of those operations in future fi nancial years, or (c) The consolidated entity s state of affairs in future fi nancial years. Likely Developments and Expected Results of Operations Information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. Environmental Regulation The operations of the consolidated entity are not subject to any particular or signifi cant environment regulations under a Commonwealth, State or Territory law. DIRECTOR QUALIFICATIONS EXPERIENCE SPECIAL RESPONSIBILITIES P. S. Altieri Non-Executive Director for 2 years Member of Building & Properties Committee. J. P.Coulson B.Econ, MBA, CPA, CA Non-Executive Director for 2 years Member of Audit Committee. Member of Compliance Committee. A. J. Cunningham Non-Executive Director for 22 years (resigned on 30/08/) Member of Building & Properties Committee. J.A. Giraud Diploma Mechanical Engineering Non-Executive Director (appointed on 27/09/) N. B. Madden FCPA Non-Executive Director for 8 years. Member of Audit Committee. Member of Compliance Committee. M.R. Pickersgill B.Comm, CPA, MAICD. Non-Executive Director for 3 years. Chairman of the Board since 25/08/2008. P.R. Riboni ARMIT, FCPA, FCIM, FTIA, CFTP Non-Executive Director for 9 years. (Senior), FTMA, FRES (London) G.W. Scully Advanced Diploma Human Non-Executive Director for 9 years. Resource Management All the above named directors are considered by the Board to constitute independent directors. - Chairman of Constitution, Nomination & Remuneration Committee. Chairman of Building & Properties Committee. Chairman of Audit Committee. Member of Constitution, Nomination & Remuneration Committee. Chairman of Compliance Committee. Member of Constitution, Nomination & Remuneration Committee. Meetings of Directors The numbers of meetings of the company s Board of Directors and each Board Committee held during the year ended 30 June, and the numbers of meetings attended by each director were: COMMITTEE MEETINGS CONSTITUTION, BUILDING & NOMINATION & BOARD MEETINGS AUDIT COMPLIANCE PROPERTIES REMUNERATION A B A B A B A B A B Mr P. S. Altieri ** ** ** ** 9 9 ** ** Mr J. P. Coulson ** ** ** ** Mr A. J. Cunningham (1) ** ** ** ** 6 9 ** ** Mr N. B. Madden ** ** ** ** Mr M. R. Pickersgill (2) Mr P. R. Riboni ** ** ** ** 1 1 Mr G. W. Scully ** ** 3 3 ** ** 1 1 A = Number of meetings attended B = Number of meetings held during the time the director held offi ce or was a member of the Committee during the year (1) = Resigned on 30/08/ (2) = Attended Audit Committee and Compliance Committee meetings in ex-offi cio capacity. ** = Not a Member of the relevant Committee During the year the Compliance Committee meetings were rescheduled to be held on a quarterly basis. The June quarterly meeting was held on 13 July and is therefore not included in the above count. Insurance of Officers and Auditors During the fi nancial year, the company paid a premium of 10,237 (: 9,912) to insure the directors and secretaries of the company and its controlled entities. The offi cers of the company covered by the insurance policy include current directors, the current secretary and Chief Executive Offi cer, and past directors, past secretaries and past Chief Executive Offi cers. The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the offi cers in their capacity as offi cers of the company and controlled entities. Auditor s Independence Declaration A copy of the auditor s independence declaration in accordance with section 307C of the Corporations Act 2001 is set out on page 43. This report is made in accordance with a resolution of directors. Mr Martyn R. Pickersgill Director Melbourne Dated this 20th day of October Mr Paolo R. Riboni Director
10 15 CORPORATE GOVERNANCE STATEMENT 16 Transport Friendly Society Ltd and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The relationship between the Board and senior management is important to the Group s long term success. Day to day management of the Group s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the Board to the Chief Executive Offi cer. The directors are responsible to the members for the performance of the company in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of members. A description of the company s main corporate governance practices is set out below. All these practices, unless otherwise stated, were in place for the entire year. The Board of Directors The Board is comprised seven non-executive directors. Non-executive directors bring a fresh perspective to the Board s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management. In recognition of the importance of independent views and the Board s role in supervising the activities of management the Chairman must be an independent non-executive director, the majority of the Board must be independent of management and all directors are required to bring independent judgement to bear in their Board decision making. The Chairman is elected by the full Board and meets regularly with the Chief Executive Offi cer. The company will maintain a mix of directors on the Board from different backgrounds with complementary skills and experience. The size of the Board is conducive to effective discussion and effi cient decision making. Directors must be members of the Health Fund. Responsibilities The responsibilities of the Board include: contributing to the development of and approving the corporate strategy reviewing and approving business plans, the annual budget and fi nancial plans including available resources and major capital expenditure initiatives overseeing and monitoring: organisational performance and the achievement of the Group s strategic goals and objectives progress of major capital expenditures and other signifi cant corporate projects including any acquisitions or divestments monitoring fi nancial performance including approval of the annual fi nancial reports and liaison with the company s auditors appointment, performance assessment and, if necessary, removal of the Chief Executive Offi cer ratifying the appointment and/or removal and contributing to the performance assessment for the members of the senior management team ensuring there are effective management processes in place and approving major corporate initiatives enhancing and protecting the reputation of the organisation ensuring the signifi cant risks facing the company, including those associated with its legal compliance obligations have been identifi ed and appropriate and adequate control, monitoring, accountability and reporting mechanisms are in place reporting to Members Term of office The company s Constitution specifi es that all directors must retire from offi ce no later than the third annual general meeting (AGM) following their last election. Where eligible, a director may stand for re-election. Independent professional advice Any director may take such independent legal, fi nancial or other advice as he/she considers necessary at Transport Friendly Society Ltd expense provided the advice sought is in writing, is directly relevant to Transport Friendly Society Ltd affairs and the Chairman s consent is fi rst requested and obtained. The consent of the Chairman will not be withheld unreasonably. (From Transport Friendly Society Ltd, Board Charter, 29 June ). Board Committees The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the Board are Audit Committee, Constitution, Nomination & Remuneration Committee, Compliance Committee, and Building & Properties Committee. The committee structure and membership is reviewed on an annual basis. A policy of rotation of committee members applies. Each of these committees has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. All of these charters are reviewed on an annual basis. All matters determined by committees are submitted to the full Board as recommendations for Board decision. Minutes of committee meetings are tabled at the immediately subsequent Board meetings. Additional requirements for specifi c reporting by the committees to the Board are addressed in the charter of the individual committees. Constitution, Nomination & Remuneration Committee The committee consists of the following non-executive directors: Martyn R. Pickersgill (Chairman) Paolo R. Riboni Geoffrey W. Scully The committee advises the Board on matters pertaining to the Constitution, nominations to fi ll casual vacancies on the Board, and remuneration policies and practices generally, and makes specifi c recommendations on remuneration packages and other terms of employment for senior executives and directors. The committee takes advice from external remuneration experts on developments in remuneration and related matters. Executive remuneration and other terms of employment are reviewed annually by the committee having regard to personal and corporate performance, contribution to long term growth, relevant comparative information and independent expert advice. As well as a base salary, remuneration packages include superannuation, retirement and termination entitlements, and fringe benefi ts (where applicable). Audit Committee The audit committee consists of three directors: Paolo R. Riboni (Chairman) John P. Coulson Nicholas B. Madden The audit committee has appropriate fi nancial expertise and all members have a working knowledge of the industries in which the company operates. The main responsibilities of the audit committee are to: review, assess and approve the annual reports, assist the Board in reviewing the effectiveness of the organisation s internal control environment covering: - effectiveness and effi ciency of operations - reliability of fi nancial reporting - compliance with applicable laws and regulations oversee the effective operation of the risk management framework recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance consider the independence and competence of the external auditor on an ongoing basis review and approve the level of non-audit services provided by the external auditors and ensure it does not adversely impact on auditor independence review and monitor related party transactions and assess their propriety report to the Board on matters relevant to the committee s role and responsibilities. In fulfi lling its responsibilities, the audit committee: receives regular reports from management and the external auditors meets with the external auditors at least twice a year or more frequently if necessary reviews any signifi cant disagreements between the auditors and management, irrespective of whether they have been resolved meets separately with the external auditors at least once a year without the presence of management provides the external auditors with a clear line of direct communication at any time to either the Chairman of the Audit Committee or the Chairman of the Board. The audit committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. Compliance Committee The committee consists of three directors: Geoffrey W. Scully (Chairman) John P. Coulson Nicholas B. Madden The committee assists the Board in fulfi lling corporate governance and oversight duties in relation to the company meeting all compliance obligations, and ensures that the company has a sound compliance regime which incorporates ongoing control and review measures. The committee reports quarterly to the Board. Building & Properties Committee The committee consists of three directors: Martyn R. Pickersgill (Chairman) Anthony J. Cunningham (resigned 30/08/) Phillip S. Altieri The committee assists the Board in fulfi lling corporate governance and oversight duties in relation to the company meeting properties obligations, and ensures that the company has a sound property management regime which incorporates ongoing control and review measures. The committee reports quarterly to the Board. The committee functions include assessing and reporting on development opportunities, oversight of contracts and project managers, oversight of construction budgets and costs, and supervision of agreed building programmes. Risk Assessment and Management The Board is responsible for ensuring there are adequate policies in relation to risk oversight and management, and internal control systems. Policies are designed to ensure strategic, operational, legal, reputation and fi nancial risks are identifi ed, assessed, addressed and monitored to enable achievement of the company s business objectives.
11 17 FINANCIAL REPORT Statement of Comprehensive Income For the Year Ended 30 June NOTES Revenue 6 19,704,813 18,257,698 5,491,250 5,065,864 Expenses Employee benefi ts (5,213,807) (5,446,736) (2,095,731) (2,323,214) Depreciation and amortisation 7 (302,565) (304,254) (243,643) (241,566) MRV cost of units/serviced apartments sold (264,873) 7,822 (264,873) 7,822 Benefi ts paid to Members (9,861,565) (9,075,344) - - Other expenses (3,833,519) (3,027,519) (3,030,793) (2,234,258) (19,476,329) (17,846,031) (5,635,040) (4,791,216) Profit/(Loss) before income tax expense 228, ,667 (143,790) 274,648 Income tax benefi t 8 94, , , ,597 Profit/(Loss) for the year 323, ,479 (24,105) 464,245 Other comprehensive income Net change in fair value of available-for-sale fi nancial assets 27 (a) 22,795 (130,207) 22,795 (130,207) Other comprehensive income for the year, net of income tax 22,795 (130,207) 22,795 (130,207) Total comprehensive income for the year 346, ,272 (1,310) 334,038 The above Statement of Comprehensive income should be read in conjunction with the accompanying notes. Statement of Financial Position As at 30 June NOTES Current assets Cash and cash equivalents 9 22,121,823 19,880,861 4,647,100 3,686,245 Receivables 10 3,822,761 3,788,408 3,149,232 3,021,851 Inventories , , , ,222 Other , , ,716 95,016 Total current assets 26,365,746 23,998,912 8,141,456 6,994,334 Non-current assets Receivables 13 4,434,156 4,206,346 4,434,156 4,206,346 Building under construction 14 19,286-19,286 - Other fi nancial assets , , , ,216 Property, plant and equipment 16 6,593,616 6,781,011 6,241,842 6,420,252 Investment property 1(n)&17 5,378,941 5,378,941 5,378,941 5,378,941 Intangible assets 18 36,392 49,678 29,527 39,631 Other 19 20,100 20, Total non-current assets 17,329,381 17,180,120 16,493,365 16,387,486 Total assets 43,695,127 41,179,032 24,634,821 23,381,820 Current liabilities Payables 20 1,209,581 1,221, , ,838 Interest bearing liabilities 21 1,281,352 1,332,531 1,281,352 1,332,531 Tax liabilities 22 39,687 86,799-19,935 Provisions 23 1,762,471 2,077, , ,484 Other 24 15,384,113 12,795,072 5,462,500 3,867,500 Total current liabilities 19,677,204 17,513,865 7,800,685 6,471,288 Non-current liabilities Deferred tax liabilities , , , ,502 Provisions 26 76,660 40,280 25,900 13,718 Total non-current liabilities 657, , , ,220 Total liabilities 20,334,239 18,164,278 8,603,819 7,349,508 Net assets 23,360,888 23,014,754 16,031,002 16,032,312 Equity Reserves 27 (a) 32,579 9,784 32,579 9,784 Retained profi ts 27 (b) 23,328,309 23,004,970 15,998,423 16,022,528 Total equity 23,360,888 23,014,754 16,031,002 16,032,312 The above Statement of Financial Position should be read in conjunction with the accompanying notes. 18
12 19 Statement of Changes in Equity For the Year Ended 30 June Consolidated NOTES TO THE FINANCIAL STATEMENTS 20 NOTES RETAINED PROFITS RESERVES TOTAL RETAINED PROFITS RESERVES TOTAL Balance at the beginning of the fi nancial year 23,004,970 9,784 23,014,754 22,333, ,991 22,473,482 Total comprehensive income for the year Profi t attributable to Members 27 (b) 323, , , ,479 Other comprehensive income: Revaluation of fi nancial assets 27 (a) - 22,795 22,795 - (130,207) (130,207) Total comprehensive income for the year 323,339 22, , ,479 (130,207) 541,272 Balance at the end of the fi nancial year 27 23,328,309 32,579 23,360,888 23,004,970 9,784 23,014,754 Parent Entity NOTES RETAINED PROFITS RESERVES TOTAL RETAINED PROFITS RESERVES TOTAL Balance at the beginning of the fi nancial year 16,022,528 9,784 16,032,312 15,558, ,991 15,698,274 Total comprehensive for the year Profi t attributable to Members 27 (b) (24,105) - (24,105) 464, ,245 Other comprehensive income: Revaluation of fi nancial assets 27 (a) - 22,795 22,795 - (130,207) (130,207) Total comprehensive income for the year (24,105) 22,795 (1,310) 464,245 (130,207) 334,038 Balance at the end of the fi nancial year 27 15,998,423 32,579 16,031,002 16,022,528 9,784 16,032,312 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. Statement of Cash Flows For the Year Ended 30 June INFLOWS/ (OUTFLOWS) INFLOWS/ (OUTFLOWS) INFLOWS/ (OUTFLOWS) INFLOWS/ (OUTFLOWS) NOTES Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) 19,025,594 15,917,861 5,374,672 3,775,704 Payments to suppliers and employees (inclusive of goods and service tax) (19,963,390) (17,328,862) (5,720,725) (4,716,284) Interest and dividends received 812,508 1,170, , ,611 Income tax (paid)/refunded 8,217 (26,424) 2,712 - Net cash inflow/(outflow) from operating activities 34 (117,071) (267,390) (192,264) (752,969) Cash flows from investing activities Payments for property, plant and equipment and intangibles (102,195) (104,186) (55,441) (74,406) Payments for investments in managed funds and equities (26,766) (20,057) (14,733) (20,057) Proceeds from disposal of physical assets Refunds/(Payments) for construction projects (19,286) 20,384 (19,286) 20,384 Net cash inflow/(outflow) from investing activities (148,247) (103,822) (89,460) (74,042) Cash flow from financing activities Net movements from retention of bonds 951, , Loans from residents serviced apartments 1,595,000 1,787,500 1,595,000 1,787,500 Current account with controlled entity - - (312,042) 792,876 Loan (payment)/advances controlled and related entity 10,800 10,800 10,800 (589,200) Net cash inflow/(outflow) from financing activities 2,557,459 2,717,030 1,293,758 1,991,176 Net increase/(decrease) in cash held 2,292,141 2,345,818 1,012,034 1,164,165 Cash and cash equivalents at the beginning the fi nancial year 18,548,330 16,202,512 2,353,714 1,189,549 Cash and cash equivalents at the end of the financial year 9 20,840,471 18,548,330 3,365,748 2,353,714 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Note 1. Statement of Significant Accounting Policies The fi nancial statements include the consolidated fi nancial statements and notes of Transport Friendly Society Ltd and controlled entities ( Consolidated ), and the separate fi nancial statements and notes of Transport Friendly Society Ltd as an individual parent entity ( Parent Entity ). Transport Friendly Society Ltd has applied the relief under Class Order CO 10/654 Inclusion of parent entity fi nancial statements in fi nancial reports allowing it to present the consolidated fi nancial statements to include the parent entity fi nancial statements as part of the full fi nancial report. Basis of Preparation The fi nancial statements are general purpose fi nancial statements that have prepared in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) of the Australian Accounting Standards Board (AASB) and the Corporations Act Australian Accounting Standards set out accounting policies that the AASB has concluded would result in fi nancial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the fi nancial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of the fi nancial statements are presented below and have been consistently applied unless otherwise stated. The fi nancial statements have been prepared on an accruals basis and are based on historical costs, modifi ed, where applicable, by the measurement at fair value of selected noncurrent assets, fi nancial assets and fi nancial liabilities. Accounting Policies (a) Principles of Consolidation The consolidated fi nancial statements incorporate the assets and liabilities of all entities controlled by Transport Friendly Society Ltd ( company or parent entity ) as at 30 June and the results of all controlled entities for the year then ended. Transport Friendly Society Ltd and its controlled entities together are referred to in this fi nancial report as the consolidated entity. The effects of all transactions between entities in the consolidated entity are eliminated in full. Outside equity interests in the results and equity of controlled entities are shown separately in the consolidated statement of fi nancial position respectively. Where a controlled entity has entered or left the economic entity during the year, its operating results have been included from the date control was obtained or until the date control ceased. (b) Acquisition of Assets The purchase method of accounting is used for all acquisitions of assets regardless of whether equity instruments or other assets are acquired. Cost is determined as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition, plus incidental costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their fair value as at the acquisition date. Transaction costs arising on the issue of equity instruments are recognised directly in equity. (c) Revenue Recognition Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised for major business activities as follows: (i) Benefi t Fund Revenue Revenue consists of premiums received from members, inclusive of the Government rebate. Revenue is recognised when earned over the period of the membership and include unclosed business premium income. Unclosed business premium in respect of general insurance contracts is recognised from the attachment date when it can be reliably estimated. (ii) Interest Received Interest is recognised on an accrual basis. (iii) Other Revenue Revenue is recognised when the services have been provided to the customer. (iv) Management Fees (a) The Mornington Retirement Village Independent Living Units Actual management fees from the resale of independent living units at the Mornington Retirement Village are recognised when the units are sold and settled. The entitlement of the company to these management fees is earned over the period of occupancy. Deferred management fees are recognised over the term of tenancy on a unit by unit basis and are booked over time as they are earned after allowance for actual management fees recognised during the period. This income is discounted to its present value based on the expected average tenancy term of 7 years and a discount rate of 5%. The contract of sale provides that 6 per cent of the initial purchase price is a management fee for the fi rst twelve months of ownership, being payable to the company on resale of the property during that period. Thereafter, the management fee entitlement accrues from a rate of 5% of the future resale price, and increases by 1% per quarter, or part, to a maximum of 27.5%. (b) Shearwater Serviced Apartments Lease tenants at Shearwater Serviced Apartments advance an interest free loan amount to the company against which a deferred management fee is charged progressively during the term of the lease. Management fees are recognised progressively and are calculated in accordance with a contracted schedule of deferred management fee rates as applied to the loan amount. The management fee rate in the fi rst year is 2% and increases by a further 3% per annum until reaching a maximum of 20% in the seventh year. (d) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Offi ce. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. (e) Receivables Debtors and other receivables are recognised at the amounts receivable as these are generally due for settlement within 30 days. Recoverability of trade debtors is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful debts is raised when some doubt as to collection exists. (f) Depreciation of property, plant and equipment Depreciation is calculated on a diminishing value basis to write off the net cost or revalued amount of each item of property, plant and equipment (excluding land), over its expected useful life to the company. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. The expected useful lives for each class of assets are as follows: CLASS OF ASSET USEFUL LIFE DEPRECIATION BASIS Buildings years Diminishing Value Plant and equipment 3-20 years Diminishing Value (g) Trade and other creditors These amounts represent liabilities for goods and services provided to the company prior to the end of the fi nancial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (h) Interest bearing liabilities Loans are carried at their principal amounts which represent the present value of future cash fl ows associated with servicing the debt. Interest is accrued over the period it becomes due and is recorded as part of other creditors. (i) Employee benefits (i) Wages and Salaries, Annual Leave and Sick Leave Liabilities for wages and salaries, including non-monetary benefi ts, annual leave including leave loading and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other creditors in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.
13 21 22 Note 1. Statement of Significant Accounting Policies (Cont d) (i) Wages and Salaries, Annual Leave and Sick Leave (cont d) Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid. (ii) Long Service Leave The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provision for employee benefi ts and is measured in accordance with (i) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefi ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outfl ows. (iii) Directors retirement benefi ts The company has capped Non-Executive Director related expenses at 500,000 per annum. Liabilities for director retirement benefi ts are accrued subject to the above capping. The directors have provided for 371,235 (: 321,000) in respect to directors retirement benefi ts at 30 June which the directors believe adequately covers an accrual for obligations under this arrangement. (iv) Superannuation contributions Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (j) Cash and Cash Equivalents For the purposes of the Statement of Cash Flows, cash and cash equivalents include cash on hand and deposits at call with fi nancial institutions and other liquid investments with short periods to maturity which are readily convertible to cash on hand and are subject to insignifi cant risk of changes in value, net of outstanding bank overdrafts. (k) Financial Instruments Recognition and Initial Measurement Financial instruments, incorporating fi nancial assets and fi nancial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for fi nancial assets that are delivered within timeframes established by marketplace convention. Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classifi ed as at fair value through profi t or loss. Transaction costs related to instruments classifi ed as at fair value through profi t or loss are expensed to profi t or loss immediately. Financial instruments are classifi ed and measured as set out below. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash fl ows expires or the asset is transferred to another party whereby the entity no longer has any signifi cant continuing involvement in the risks and benefi ts associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged, cancelled or expired. The difference between the carrying value of the fi nancial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of noncash assets or liabilities assumed is recognised in profi t or loss. Classifi cation and Subsequent Measurement (i) Financial assets at fair value through profi t and loss A fi nancial asset is classifi ed in this category principally for the purpose of selling short term or if so designated by management and within the requirements of AASB 139: Financial Instruments: Recognition and Measurement. Realised and unrealised gains and losses arising from changes in value of these assets are included in the statement of comprehensive income in the period in which they arise. (ii) Loans and receivables Loans and receivables are nonderivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative fi nancial assets that have fi xed maturities and fi xed or determinable payments, and it is the Group s intention to hold these investments to maturity. They are subsequently measured at amortised cost using the effective interest rate method. (iv) Available-for-sale fi nancial assets Available-for-sale fi nancial assets are non-derivative fi nancial assets that are either designated as such or that are not classifi ed in any of the other categories. They comprise investments in the equity of other entities where there is neither a fi xed maturity nor fi xed or determinable payments. (v) Financial liabilities Non-derivative fi nancial liabilities (excluding fi nancial guarantees) are subsequently measured at amortised cost using the effective interest rate method. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm s length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, the Group assesses whether there is objective evidence that a fi nancial instrument has been impaired. In the case of available-for-sale fi nancial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of comprehensive income. (l) Maintenance and Repairs Maintenance, repair costs and minor renewals are charged as expenses are incurred. (m) Inventories (i) Supplies and Materials Supplies and materials are stated at the lower of cost and net realisable value (n) Investment Property Investment property includes Shearwater Serviced Apartments held to earn rentals or for capital appreciation or both. Investment property is initially recognised at cost. Costs incurred subject to initial acquisition are capitalised when it is possible that future economic benefi ts in excess of the originally assessed performance of the asset will fl ow to the entity. Subsequent to the initial recognition at cost, investment property is carried at fair value determined by the Directors, with changes in the fair value recognised as income or expenses in the period in which they arise. The property is not depreciated. Rental revenue from the leasing of the investment property is recognised in the Statement of comprehensive income for the periods in which it is receivable, as this represents the pattern of service rendered through the provision of the properties. (o) Revaluation of non-current assets Subsequent to initial recognition as assets, land and buildings are measured at fair value being the amounts for which the assets could be exchanged between willing parties in an arm s length transaction. Revaluations are made with suffi cient regularity to ensure that the carrying amount of each piece of land and each building does not differ materially from its fair value at the reporting date. Annual assessment will be made by the directors, supplemented by independent assessments as required. Revaluation increments are credited directly to the asset revaluation reserve, except that, to the extent an increment reverses a revaluation decrement in respect of that class of asset previously recognised as an expense in net profi t or loss the increment is recognised immediately as revenue in net profi t or loss. Revaluation decrements are recognised immediately as expenses in net profi t or loss, except that, to the extent the credit balance exists in the asset revaluation reserve in respect of the same class of assets, they are debited directly to the asset revaluation reserve. Revaluation increments and decrements are offset against one another within a class of non-current assets, but not otherwise. A deferred tax liability in respect of potential capital tax gains is taken into account in determining the revaluation amounts in accordance with AASB 112: Income Taxes. (p) Income Tax The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income). The activities of the company include a dental clinic which is exempt based upon the mutuality principle of taxation. In respect of the other business activities of the company, the charge for current income tax expenses is based on the profi t for the year adjusted for any non-assessable or disallowed items. It is calculated using tax rates that have been enacted or substantively enacted by the statement of fi nancial position date. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the fi nancial statements. Deferred tax assets also result where amounts have been expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profi t or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profi ts will be available against which deductible temporary differences can be utilised. The amount of deferred income tax assets in relation to tax losses recognised in the statement of fi nancial position for the economic entity at 30 June amounted to 928,516 (: 727,307). The future income tax benefi t relating to tax losses is not carried forward as an asset unless the benefi t is virtually certain of realisation. In assessing the realisable amount, allowance is made for tax losses not eligible to be carried forward under tax legislation relating to exempt income of the Health Fund. (q) Intangible assets Under A-IFRS, an item of computer software which is not an integral part to the computer is classifi ed as an intangible asset. Computer software held as intangible assets is amortised over the expected useful life of the software. (r) Provisions (i) Outstanding Claims The provision for outstanding claims provides for claims received but not assessed and claims incurred but not received, estimated risk equalisation liability related to outstanding claims and estimated claims handling costs. The provision for outstanding claims is measured as the central estimate plus a risk margin which increases the overall probability of adequacy from 50% to 75%. No discounting is applied to the provision due to the generally short time period between claim incidence and settlement. In determining the outstanding claims liability, the Health Fund has adopted appropriate risk margins which are in line with those recommended for regulatory purposes, and directors have provided for an additional risk margin of 150,000. (ii) Other provisions Other provisions are recognised when the Health Fund has legal or constructive obligation, as a result of past events, for which it is probable that an outfl ow of economic benefi ts will result and that outfl ow can be reliably measured. Provisions are measured using the best estimate of the amount required to settle the obligation. (s) Unearned Premium Liability At balance date, the unearned premium liability is determined as follows: (i) Closed Business - Against the advanced premiums provision there is an assessment of the expected future cash fl ows relating to the potential future claims in respect of the relevant insurance (ii) contracts, plus the predicted associated member service costs, claims handling costs, risk equalisation liabilities and including a risk margin. Any negative balance from these calculations is shown as a liability. The risk margin increases the overall probability of adequacy from 50% to 75% as required by directors. (iii) Unclosed Business - Against the earned portion of the unclosed business liability there is a similar assessment as in (i) above including the equivalent risk margin with any negative balance from these calculations shown as a liability. (iv) Constructive Obligations - The assessment of constructive obligations is determined by class of business, being a portfolio of contracts that are broadly similar and managed together as a single portfolio. There is an assessment of contractual obligations up to the assumed date of the next premium change with expected future relevant premium income for each class of business assessed against the expected future cash fl ows relating to potential future claims in respect of the relevant class plus the predicted claims handling costs and risk equalisation liabilities including a risk margin. Any negative balance from these calculations is shown as a liability. The risk margin increases the overall probability of adequacy of the contractual obligations from 50% to 75% as required by directors. (t) Amounts Receivable from the Private Health insurance Risk Equalisation Trust Fund Amounts receivable from the Risk Equalisation Trust Fund represent amounts based on the defi cit attributable to the health insurer, net of amounts debited to the Risk Equalisation Trust Fund account for the fi nal quarter of the fi nancial year. (u) Impairment of Assets At each reporting date, management review the carrying values of the entities assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, is compared to the asset s carrying value. Any excess of the asset s carrying value over its recoverable amount is expensed to the statement of comprehensive income. (v) Comparative Figures Comparative fi gures have been reclassifi ed to conform with changes in presentation for the current fi nancial year. Note 2. Critical accounting estimates and judgements The key areas of signifi cant estimates and judgements and the methodologies used to determine key assumptions are set out below: (a) Uncertainty over estimate of outstanding claims provision Provision is made for the estimated cost of claims incurred and not settled at the balance date. The estimated cost of claims includes the direct expenses that are expected to be incurred in settling these claims and the risk equalisation liability that is expected to arise in relation to outstanding claims. All claims of material value are generally settled within twelve months of being incurred and no discount infl ation factors have been applied as a result. The estimation of outstanding claims liabilities is based largely on the assumption that the past developments are an appropriate measure and predictor of the future. Claims processed up to and including 31 July were taken into consideration when determining the outstanding claims liability at 30 June. Each type of business is examined separately taking into account historical trends in the development and incidence of the number of claims reported, number of claims fi nalised and the reported incurred costs. External actuarial review was conducted as at 31 July to provide an independent judgement. The calculations of outstanding claims are in conformity with Australian Actuarial guideline GN 650 which requires the actuary to provide a central estimate and an estimation of the uncertainty around the central estimate. The central estimate of uncertainty enables the actuary to advise directors on the provision requirements that conform to the directors probability of adequacy directions. Uncertainties arise due to the simplifi cation of actuarial models on complex claims management, assumptions about claiming patterns based on past data and random variation that can drive the differences between actual and projected results.
14 23 24 Note 2. Critical accounting estimates and judgements (Cont d) (b) Unexpired risk reserve The adequacy of the unearned premium liability is assessed against the present central estimate of the expected future cash fl ows relating to the potential future claims in respect of the relevant insurance contracts, plus the predicted associated member service and claim handling costs and an additional risk margin to refl ect the inherent uncertainty of the central estimate. If the unearned premium liability on the basis of the directors probability of adequacy directions is defi cient, then the resulting defi ciency is recognised in the statement of comprehensive income. The liability adequacy test is considered in two parts: The unearned business premium; which consists of the contribution in advance liability and the unearned unclosed business The contractual obligations through to the next rate change date The assessment is carried out by business class, being the portfolio of contracts that are broadly similar and community rated and managed together. Each class of business is examined separately taking into account historical claiming trends and actuarial projections. External actuarial review was conducted as at 30 June to provide an independent judgement. Note 3. Insurance contracts Risk Management policies and procedures The Board of Directors determine the company s overall risk assessment and approves the risk management strategies, policies and procedures to ensure that risks are identifi ed and managed appropriately. The Audit Committee is to oversee the risk management systems, practices and procedures to ensure effectiveness of risk identifi cation and management and compliance with internal guidelines and external requirements. The objectives of the committee are as follows: (i) Ensure Risk Management is adopted throughout the Health Fund as a regular management practice, (ii) Ensure that all employees are trained in Risk Management and understand their role in the Risk Management process, (iii) Develop a culture of risk prevention throughout the organisation, (iv) Protect the Health Fund from loss, by reducing the likelihood and consequence of risks occurring, and (v) Assist the Health Fund achieving its strategic and operational goals and objectives. (a) Health insurance risks The Health Fund s insurance risks primarily involve the underwriting of risks and claim management in private health insurance. New contracts are required to be accepted each year provided they meet the eligibility requirements and all policy renewals must be accepted. Guaranteed acceptance of insurance contracts provides risks such as potential claims experience being greater than assumed in the premium rates, random fl uctuations in claims and selective withdrawals whereby healthier members withdraw and less healthy members remain. Generally with ageing of membership, the average health status decreases and their claims costs increase. Adverse changes in demographics of the membership base can thereby result in increased claiming experience. The existence of the private health insurance risk equalisation trust fund reduces the impact of claims for older members and members whose claims costs are above a threshold. The business is also faced with the unlikely risk of extraordinary levels of claims arising from events such as natural disasters, terrorist activity and an outbreak of pandemic diseases. There are several key polices in place to mitigate the risks of health insurance contracts. Management information systems that provide up-to-date and reliable data on claims risks and actuarial models based on historical data are used to calculate premiums and monitor claims patterns. Comprehensive fi nancial and operational reports are monitored against budget and actuarial projections. Strict claims management procedures and internal controls ensure the timely and correct payment of claims in accordance with policies. Assets and liabilities are managed to attempt to match the expected pattern of claims payments with the maturity dates of assets backing health insurance liabilities. Regulatory solvency requirements include additional capital to provide for certain risk margins on liabilities and operational expenses, while capital adequacy requirements require different risk margins and a renewal option reserve. The company provides health insurance mainly to members residing in Australia. These members have been categorised into broad business classes; hospital only, ancillary only and combined hospital and ancillary products. These classifi cations are based on the similar risks contained within these segments. Note 4. New Accounting Standards for Application in Future Periods The AASB has issued new, revised and amended Standards and Interpretations that have mandatory application dates for future reporting periods and which the Group has decided not to early adopt. A discussion of those future requirements and their impact on the Group is as follows: AASB -5: Further amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8,101, 107, 117, 118, 136 &139] (applicable for annual reporting periods commencing from 1 January ). These standards detail numerous non-urgent but necessary changes to Accounting Standards arising from the IASB s annual improvement project. No changes are expected to materially affect the Group. AASB 9: Financial Instruments and AASB 11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013). These Standards are applicable retrospectively and amend the classifi cation and measurement of fi nancial assets. The Group has not yet determined any potential impact on the fi nancial statements. The changes made to accounting requirements include: simplifying the classifi cations of fi nancial assets into those carried at amortised cost and those carried at fair value; simplifying the requirements for embedded derivatives; removing the tainting rules associated with held-to-maturity assets; removing the requirements to separate and fair value embedded derivatives for fi nancial assets carried at amortised cost; allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profi t or loss and there is no impairment or recycling on disposal of the instrument; and requiring fi nancial assets and to be reclassifi ed where there is a change in an Group s business model as they are initially classifi ed based on: (a) the objective of the Group s business model for managing the fi nancial assets; and (b) the characteristics of the contractual cash fl ows. The Group does not anticipate early adoption of any of the above reporting requirements and does not expect them to have any material effect on the group s fi nancial statements. Note 5. Segment information Consolidated ADMINISTRATION DENTAL ON SWAN SHEARWATER SERVICED APARTMENTS MORNINGTON RETIREMENT VILLAGE PARK HILL GARDENS AGED CARE FACILITY OLD RICHMOND MAXIMEYES OPTICAL TRANSPORT HEALTH INTER SEGMENT ELIMINATION/ UNALLOCATED Sales to external customers 4,311 1,374, ,333 1,938,904 4,279, ,341-10,183,308-18,641,170 Intersegment sales 2,865, (2,865,509) - Total sales revenue 2,869,820 1,374, ,333 1,938,904 4,279, ,341-10,183,308 (2,865,509) 18,641,170 Other revenue 527, , , ,048 (408,580) 1,063,643 Total segment revenue 3,397,339 1,374, ,586 1,938,904 4,641, ,948-10,616,356 (3,274,089) 19,704,813 Segment results (191,630) 2,431 22,280 23,130 6,366 1, ,854 75, ,484 Income tax (expense) / benefi t (note 8) 119, (27,764) 2, ,855 Net profi t (71,945) 2,431 22,280 23,130 (21,398) 4, ,854 75, ,339 Segment assets 7,564, ,910 9,431,814 7,225,470 9,260, ,729-9,911,762 (22,100) 43,695,127 Segment liabilities 3,136,140 (1,991,713) 9,505,569 (2,297,383) 9,251,592 62, ,514 2,667,083 (876,514) 20,334,239 Acquisitions of property, plant & equipment, intangibles and other non-current segment assets 46,941 2,043 4,250 2,453 46, ,446 Depreciation/ amortisation expense 192,808 12,811 26,738 11,286 58, ,565 Consolidated ADMINISTRATION DENTAL ON SWAN SHEARWATER SERVICED APARTMENTS MORNINGTON RETIREMENT VILLAGE PARK HILL GARDENS AGED CARE FACILITY OLD RICHMOND MAXIMEYES OPTICAL TRANSPORT HEALTH INTER SEGMENT ELIMINATION/ UNALLOCATED Sales to external customers 4,853 1,239, ,327 1,921,905 4,208, ,743-9,159,049-17,152,354 Intersegment sales 3,051, (3,051,123) - Total sales revenue 3,055,976 1,239, ,327 1,921,905 4,208, ,743-9,159,049 (3,051,123) 17,152,354 Other revenue 546, , ,924 1, ,453 (498,301) 1,105,344 Total segment revenue 3,602,569 1,239, ,514 1,921,905 4,560, , ,717,502 (3,549,424) 18,257,698 Segment results 303,400 2,994 (37,053) 5,306 (195,576) (4,028) (144,942) 481, ,667 Income tax expense (note 8) 189, ,007 1, ,812 Net profi t 492,997 2,994 (37,053) 5,306 (126,569) (2,820) (144,942) 481, ,479 Segment assets 7,164,433 2,266,385 8,779,873 9,543,311 7,970, ,787 1,606 9,916,453 (4,617,707) 41,179,032 Segment liabilities 2,687, ,192 8,875,083 43,588 7,940,962 59, ,122 2,960,629 (5,395,312) 18,164,278 Acquisitions of property, plant & equipment, intangibles and other non-current segment assets 58,788 11,791-3,827 29, ,185 Depreciation/ amortisation expense 185,888 13,397 29,546 12,735 62, ,254 TOTAL TOTAL
15 25 26 Note 6. Revenue Revenue from operation Benefi t fund revenue 10,186,119 9,163, Other operating revenue 8,455,051 7,988,453 3,925,229 3,543,961 18,641,170 17,152,354 3,925,229 3,543,961 Revenue Others Management fees received , ,123 Interest 962,350 1,042, , ,835 Rent 82,506 50, , ,049 Dividends and distribution income 18,787 11,879 6,755 11,859 Net gain on disposal of property, plant and equipment ,063,643 1,105,344 1,566,021 1,521,903 Total Revenue 19,704,813 18,257,698 5,491,250 5,065,864 Note 7. Profit from Operation Net (gain)/loss and expenses Profi t from operation before income tax expense/(benefi t) includes the following specifi c net (gain)/loss and expenses: Net (gain)/loss on disposal property, plant and equipment 312 (37) 312 (37) Depreciation - Buildings 159, , , ,048 - Plant and equipment & leasehold improvements 127, ,366 71,961 76, , , , ,385 Amortisation 15,818 10,840 12,643 6,181 Total depreciation & amortisation 302, , , ,566 Change in fair value of investment in managed fund-decrement/(increment) (43,517) 82, Doubtful debts controlled entity , Other Provisions - Employee benefi ts 476, , , ,762 - Outstanding claims (275,000) 145, Unexpired premium liability 71,000 (377,000) - - Total other provisions 272, , , ,762 Note 8. Income Tax Expense/(Benefit) The income tax expense/(benefi t) for the fi nancial year differs from the amount calculated on the profi t. The differences are reconciled as follows: Profi t from ordinary activities before income tax expense 228, ,667 (143,790) 274,648 Income tax 30% ( - 30%) 68, ,500 (43,137) 82,394 Add tax effect of: Other non-allowable items - 207,011-57,184 Deferred tax recognised 151,974 30,825 96, ,009 Other assessable income 2,482 2, , , ,044 53, ,613 Less tax effect of: General business tax break - (2,239) - (1,336) Other allowable items (254,256) (611,925) (148,034) (467,455) Imputation credit (8,273) (9,692) (2,913) (3,419) Overprovision prior years (55,327) - (22,647) - Income tax expense/(benefi t) (94,855) (259,812) (119,685) (189,597) The components of tax expense/(benefi t) comprise: Current tax - 40, Deferred tax (39,528) (300,781) (97,038) (189,597) Under/(Over) provision in respect of prior years (55,327) - (22,647) - (94,855) (259,812) (119,685) (189,597) Note 9. Current Assets Cash and Cash Equivalents Cash on hand 4,900 4,900 2,100 2,100 Cash at bank 1,276,923 3,960, Cash on deposit 20,840,000 15,915,874 4,645,000 3,684,145 22,121,823 19,880,861 4,647,100 3,686,245 The above fi gures are reconciled to cash and cash equivalents at the end of the fi nancial year as shown in the statement of cash fl ows as follows: Balances as above 22,121,823 19,880,861 4,647,100 3,686,245 Less: Bank overdrafts (note 21) (1,281,352) (1,332,531) (1,281,352) (1,332,531) Balances as per statement of cash fl ows 20,840,471 18,548,330 3,365,748 2,353,714 Note 10. Current Assets Receivables Debtors 26,575 13,809 26,575 13,809 Less: Provision for doubtful debts ,575 13,809 26,575 13,809 Receivable from controlled entities - - 1,127, ,073 Less: Provision for doubtful debts - - (876,514) (800,529) ,206 91,544 Deferred management fees 2,772,963 2,850,609 2,772,963 2,850,609 Other receivables 1,023, ,990 98,488 65,889 3,796,186 3,774,599 2,871,451 2,916,498 3,822,761 3,788,408 3,149,232 3,021,851
16 27 28 Note 11. Current Assets Inventories Note 16. Non-current Assets Property, Plant and Equipment Inventories at cost 39,643 33,457 39,643 33,457 Land & buildings Unit held for resale at cost 157, , , , , , , ,222 At cost 7,126,797 7,126,797 7,126,797 7,126,797 Less: Accumulated depreciation (1,427,470) (1,268,422) (1,427,470) (1,268,422) Note 12. Current Assets Other Plant and equipment 5,699,327 5,858,375 5,699,327 5,858,375 At cost 2,039,527 1,940,174 1,126,166 1,074,251 Prepayments 135,955 55,199 87,240 37,608 Mortgage loan 22,000 22,000 22,000 22,000 GST receivable 65,799 61,222 38,476 35, , , ,716 95,016 Note 13. Non-current Assets Receivables Loan MRV Owners Corporation 19,800 30,600 19,800 30,600 Deferred management fees 4,414,356 4,175,746 4,414,356 4,175,746 4,434,156 4,206,346 4,434,156 4,206,346 Less: Accumulated depreciation (1,145,238) (1,017,538) (583,651) (512,374) 894, , , ,877 Total property and plant & equipment 6,593,616 6,781,011 6,241,842 6,420,252 Valuations of land and buildings Valuations of the company s properties were undertaken during the year ended 30 June. The basis of valuation of land and buildings is fair market value based on existing use. The valuations were performed by Mr. John Conrick AAPI B. App.Sc. PRM (Val) of Colliers International Consultancy and Valuation Pty Limited. The book carrying amounts of land and buildings were not amended to refl ect the valuation amounts. Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current and previous fi nancial year are set out below: Consolidated LAND AND BUILDINGS PLANT AND EQUIPMENT Carrying amount at 1 July 5,858, ,636 6,781,011 TOTAL Note 14. Non-current Assets Buildings under Construction Additions - 99,914 99,914 Disposals/Adjustments - (562) (562) Depreciation expense (note 7) (159,048) (127,699) (286,747) Carrying amount at 30 June 5,699, ,289 6,593,616 Work in progress construction at cost 19,286-19,286 - Consolidated Note 15. Non-current Assets Other Financial Assets LAND AND BUILDINGS PLANT AND EQUIPMENT TOTAL Other (non-traded) investments Shares in controlled entities at cost (note 33) ,100 22,100 Other investments Units in managed funds at fair value ** 479, , Investment in equities at fair value 367, , , , , , , , , , , ,216 ** There are no fi xed returns or fi xed maturity dates attached to these investments Carrying amount at 1 July ,017, ,473 7,002,896 Additions - 71,529 71,529 Disposals/Adjustments Depreciation expense (note 7) (159,048) (134,366) (293,414) Carrying amount at 30 June 5,858, ,636 6,781,011 Parent Entity LAND AND BUILDINGS PLANT AND EQUIPMENT Carrying amount at 1 July 5,858, ,877 6,420,252 Additions - 53,161 53,161 Disposal adjustments - (562) (562) TOTAL Depreciation expense (note 7) (159,048) (71,961) (231,009) Carrying amount at 30 June 5,699, ,515 6,241,842 Parent Entity LAND AND BUILDINGS PLANT AND EQUIPMENT TOTAL Carrying amount at 1 July ,017, ,465 6,613,888 Additions - 41,749 41,749 Depreciation expense (note 7) (159,048) (76,337) (235,385) Carrying amount at 30 June 5,858, ,877 6,420,252
17 29 30 Note 17. Investment Property Note 23. Current Liabilities Provisions Balance at beginning of year 5,378,941 5,378,941 5,378,941 5,378,941 Additions Fair value adjustments Balance at end of year 5,378,941 5,378,941 5,378,941 5,378,941 Employee benefi ts (i) 955,471 1,066, , ,484 Outstanding claims (ii) 708, , Unearned premium liability (iii) 99,000 28, ,762,471 2,077, , ,484 Note 18. Non-current Assets Intangible Assets Movements in provisions Movements in each class of provision during the fi nancial year are set out below. Computer software at cost 209, , , ,122 Less: accumulated amortisation (172,922) (157,106) (151,125) (138,491) 36,392 49,678 29,527 39,631 Licences at cost 304, , , ,850 Less: accumulated amortisation (304,850) (304,850) (304,850) (304,850) Total Intangibles Assets 36,392 49,678 29,527 39,631 Note 19. Non-current Assets Other EMPLOYEE BENEFITS OUTSTANDING CLAIMS UNEARNED PREMIUM LIABILITY Carrying amount at start of year 1,107, , , ,000 28, ,000 Additional provisions recognised (74,932) 230,219 (275,000) 145,000 71,000 (377,000) Carrying amount at end of year 1,032,131 1,107, , ,000 99,000 28,000 Represented by Current (note 23 (i) - (iii)) 955,471 1,066, , ,000 99,000 28,000 Non-current (note 26) 76,660 40, ,032,131 1,107, , ,000 99,000 28,000 Note 24. Current Liabilities Other Other interest bearing deposits 20,000 20, Computer software investment ,100 20, Note 20. Current Liabilities Payables Premiums in Advance 1,638,040 1,595, Resident Loans 5,462,500 3,867,500 5,462,500 3,867,500 Resident Bonds 8,283,573 7,331, ,384,113 12,795,072 5,462,500 3,867,500 Note 25. Non-current Liabilities Deferred Tax Liabilities Other payables 1,209,581 1,221, , ,135 Payable to controlled entities , ,703 1,209,581 1,221, , ,838 Note 21. Current Liabilities Interest Bearing Liabilities Secured Bank overdraft 1,281,352 1,332,531 1,281,352 1,332,531 1,281,352 1,332,531 1,281,352 1,332,531 Deferred tax liabilities 580, , , ,502 Note 26. Non-current Liabilities Provisions Employee benefi ts (note 23) 76,660 40,280 25,900 13,718 Bank Overdraft The Group has an overdraft facility of 1.2 million with the ANZ bank. An interest rate of 11.20% (: 9.29%) is chargeable on a total net overdraft balance for the Group cash accounts held with the ANZ bank. No overdraft interest was incurred in the current fi nancial year as there is an offset arrangement between the company account and other Group cash accounts held with the ANZ bank. At 30 June, none of the overdraft facility was used (: Nil). The overdraft is secured by a mortgage over the company s properties. Note 22. Current Liabilities Current Tax Liabilities Income tax payable 39,687 86,799-19,935
18 31 32 Note 27. Reserves and Retained Profits Note 28. Financial Instruments (Cont d) Net holding gain/(loss) on fi nancial instruments by category. (a) Reserve Asset revaluation At the beginning of the fi nancial year 50,455 50,455 50,455 50,455 Financial assets Revaluation adjustments At the end of the fi nancial year 50,455 50,455 50,455 50,455 Financial assets reserve At the beginning of the fi nancial year (40,671) 89,536 (40,671) 89,536 Cash and deposits 962,350 1,006, ,931 56,959 Loans and receivables - 36,628-36,628 Designated at fair value through profi t or loss 55,549 (82,572) - - Available-for-sale 24,631 (174,131) 24,631 (174,131) Revaluation of fi nancial assets 22,795 (130,207) 22,795 (130,207) At the end of the fi nancial year (17,876) (40,671) (17,876) (40,671) Financial liabilities 1,042, , ,562 (80,544) Total reserve 32,579 9,784 32,579 9,784 (b) Retained profits Retained profi ts at the beginning of the fi nancial year 23,004,970 22,333,491 16,022,528 15,558,283 Net profi t/(loss) attributable to members of Transport Friendly Society Ltd 323, ,479 (24,105) 464,245 Retained profi ts at the end of the fi nancial year 23,328,309 23,004,970 15,998,423 16,022,528 (c) Nature and purpose of reserves Asset revaluation reserve The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets, as described in note 1. Financial assets reserve Financial assets reserve records revaluation of fi nancial assets. Note 28. Financial Instruments (a) Financial risk management objectives and policies The Group s principal fi nancial instruments comprise of: cash assets cash on deposits local money market instruments short-term investments receivables payables loans to and from subsidiaries. Details of the signifi cant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised with respect to fi nancial instruments above are disclosed in Note 1 to the fi nancial statements. The activities of the Group expose it to market interest rate risks, credit risks and liquidity risks. The risk framework recognises the unpredictability of fi nancial markets and seeks to minimise the potential adverse effects on the fi nancial performance of the Group. The key objectives of the management of assets and liabilities is to ensure that suffi cient liquidity is maintained at all times to meet the settlement of insurance and other liabilities, and within these parameters, to optimise the investment return for members. The carrying amounts of the fi nancial assets and fi nancial liabilities by category are detailed as follows: Financial assets Cash and deposits 22,121,823 19,880,861 4,647,100 3,686,245 Loans and receivables 8,278,917 8,016,754 8,481,902 8,050,726 Designated at fair value through profi t or loss 479, , Available-for-sale 367, , , ,216 Shares in subsidiaries at cost ,100 22,100 At amortised cost (27,636) (17,428) - (53,721) (27,636) (17,428) - (53,721) The net holding gains or losses disclosed are determined as follows: For cash and cash equivalents, loans and receivables and other fi nancial assets, the net gain or loss is calculated by taking the interest revenue, minus any impairment recognised in the net result. For fi nancial liabilities measured at amortised cost, the net gain or loss is calculated by taking the interest expense. (i) Market risks The market risks the Group is exposed to through its fi nancial instruments are the market value risk and interest rate risk due to the nature of its investments. The Group is not exposed to foreign currency fl uctuations through its payables relating to purchases of supplies and consumables. Interest rate risk arises from interest bearing assets. Assets with fl oating rate interest expose the Group to cash fl ow interest risk. Fixed interest assets expose the Group to fair value interest rate risk. The Group s strategy is to invest in high quality, liquid, fi xed interest securities and cash and to actively manage the duration. The interest bearing assets are actively managed to achieve a balance between cash fl ow risk and interest rate risk, bearing in mind the liquidity requirements of the business. The Group held its assets in interest bearing securities and bank bills at the balance date which were suffi cient to cover all current liabilities and prudential capital requirements. The Group s exposure to interest rate risk and the effective weighted average interest rates on those fi nancial assets is provided in note 28. The Group is exposed to market value risk, particularly on its investments is addressed in the prudential capital requirements by the need to hold a Resilience Reserve. The carrying amounts of fi nancial assets and liabilities that are exposed to interest rate risk are detailed in the interest rate exposure of fi nancial instruments note below. Interest rate exposure of financial instruments The Group s exposure to interest rate risk, which is the risk that a fi nancial instrument s value will fl uctuate as a result of changes in market interest rate and the effective weighted average interest rate by maturity periods is set out in the following table. For interest rates applicable to each class of assets or liability refer to individual notes to the fi nancial statements. ** Resident accommodation bonds included in other liabilities are interest free unless refunds due are effected outside statutory period where average interest rate payable is 5%. Consolidated WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % CARRYING AMOUNT FIXED INTEREST MATURING IN 1 YEAR OR LESS FIXED INTEREST MATURING IN MORE THAN 1 YEAR VARIABLE INTEREST RATE NON INTEREST BEARING NOTES Financial assets Cash and cash equivalents ,121,823 20,840,000-1,276,923 4,900 Receivables 10, 13-8,256, ,256,917 Other-current assets Mortgage loan ,000-22, Other fi nancial assets , ,890 Other-non-current assets , , Other Financial Assets at amortised cost 20,000 20, Total financial assets 31,267,730 28,661,759 13,518,615 12,079,287 Financial liabilities 31,267,730 20,840,000 22,000 1,296,923 9,108,807 Financial liabilities At amortised cost 17,875,046 15,349,283 7,467,583 5,956,869 Total fi nancial liabilities 17,875,046 15,349,283 7,467,583 5,956,869 Net fi nancial assets/(liabilities) 13,392,684 13,312,476 6,051,032 6,122,418 Interest bearing liabilities note (a) ,281, ,281,352 - Payables 20-1,209, ,209,582 Other liabilities 24-15,384, ,384,113 17,875, ,281,352 16,593,695 Net financial assets/(liabilities) 13,392,683 20,840,000 22,000 15,571 (7,484,888)
19 33 34 Note 28. Financial Instruments (Cont d) Consolidated WEIGHTED AVERAGE EFFECTIVE INTEREST RATE % CARRYING AMOUNT FIXED INTEREST MATURING IN 1 YEAR OR LESS FIXED INTEREST MATURING IN MORE THAN 1 YEAR VARIABLE INTEREST RATE NON INTEREST BEARING NOTES Financial assets Cash and cash equivalents ,880,861 18,950, ,942 4,900 Receivables 10, 13-7,994, ,994,754 Other-current assets Mortgage loan ,000-22, Other fi nancial assets , ,044 Other-non-current assets , , ,661,759 18,950,019 22, ,942 8,743,798 Financial liabilities Interest bearing liabilities note (a) ,332, ,332,531 - Payables 20-1,221, ,221,680 Other liabilities 24-12,795, ,795,072 15,349, ,332,531 14,016,752 Net financial assets/(liabilities) 13,312,476 18,950,019 22,000 (386,589) (5,272,954) Note (a) Interest is chargeable on the overdraft balance if the Group overdraft balance exceeds the Group cash balances with the ANZ Bank. (ii) Credit risks Credit risk exposure is constantly monitored by the Audit Committee. All interest bearing securities and cash are held with fi nancial institutions as approved by the Audit Committee. The Group does not expect any investment counterparties to fail to meet their obligations given their strong credit rating. The Group does not engage in hedging for its fi nancial assets. Provision for impairment for fi nancial assets is calculated based on past experience, and current and expected changes in credit ratings. The carrying amount of fi nancial assets recorded in the fi nancial statements, net of any allowances for losses, represents the Group s maximum exposure to credit risk. As at the reporting date, there is no event to indicate that any fi nancial assets were impaired. The following table discloses the ageing of fi nancial assets: Ageing analysis of financial assets Consolidated CARRYING AMOUNT NOT PAST DUE AND NOT IMPAIRED LESS THAN 1 MONTH PAST DUE BUT NOT IMPAIRED 1-3 MONTHS 3 MONTHS OVER IMPAIRED Loans and Receivables Receivables current Debtors 26,575 26, Deferred Management Fees 2,772,963 2,772, Other receivables 1,023, , , ,732 15,710 - Current asset other Mortgage loan 22,000 22, Receivables non-current Loan associated entity 30,600 30, Deferred Management Fees 4,175,746 4,175, Total 8,051,107 7,752, , ,732 15,710 - Note 28. Financial Instruments (Cont d) Consolidated CARRYING AMOUNT NOT PAST DUE AND NOT IMPAIRED LESS THAN 1 MONTH PAST DUE BUT NOT IMPAIRED 1-3 MONTHS 3 MONTHS OVER IMPAIRED Loans and Receivables Receivables current Debtors 13,809 13, Deferred Management Fees 2,850,609 2,850, Other receivables 923, ,351 66,480 96,575 10,584 - Current asset other Mortgage loan 22,000 22, Receivables non-current Loan associated entity 30,600 30, Deferred Management Fees 4,175,746 4,175, Total 8,016,754 7,843,115 66,480 96,575 10,584 - Parent CARRYING AMOUNT NOT PAST DUE AND NOT IMPAIRED LESS THAN 1 MONTH PAST DUE BUT NOT IMPAIRED 1-3 MONTHS 3 MONTHS OVER IMPAIRED Loans and Receivables Receivables current Debtors 26,575 26, Receivables from controlled entities 1,127, , ,514 Deferred Management Fees 2,772,963 2,772, Other receivables 98,489 98, Current asset other Mortgage loan 22,000 22, Receivables non-current Loan associated entity 19,800 19, Deferred Management Fees 4,414,356 4,414, Total 8,481,903 7,605, ,514 Parent CARRYING AMOUNT NOT PAST DUE AND NOT IMPAIRED LESS THAN 1 MONTH PAST DUE BUT NOT IMPAIRED 1-3 MONTHS 3 MONTHS OVER IMPAIRED Loans and Receivables Receivables current Debtors 13,809 13, Receivables from controlled entities 892,073 91, ,529 Deferred Management Fees 2,850,609 2,850, Other receivables 65,889 65, Current asset other Mortgage loan 22,000 22, Receivables non-current Loan associated entity 30,600 30, Deferred Management Fees 4,175,746 4,175, Total 8,050,726 7,250, ,529 (iii) Liquidity risks At least 30% of the Group s funds are held in liquid and short term deposits with banks to meet its working capital requirements and ensure suffi cient funds are available to meet its obligations. Details of the fi nancial assets are provided in note 28. The Group minimises liquidity risk by maintaining suffi cient liquid assets to meet the prudential capital requirements.
20 35 36 Note 28. Financial Instruments (Cont d) The following table discloses the contractual maturity analysis for the fi nancial liabilities of the Group. Note 28. Financial Instruments (Cont d) Parent Consolidated MATURITY DATES CARRYING AMOUNT NOMINAL AMOUNT LESS THAN 1 MONTH 1-3 MONTHS MATURITY DATES 3 MONTHS - 1 YEAR 1-5 YEARS Payables CARRYING AMOUNT NOMINAL AMOUNT LESS THAN 1 MONTH 1-3 MONTHS 3 MONTHS - 1 YEAR 1-5 YEARS Payables Other payables 607, , , Other payables 1,209,582 1,209,582 1,209, Interest bearing liabilities Bank overdraft 1,281,352 1,281,352 1,281, Other Contribution in advance 1,638,040 1,638, , ,520 1,058,980 47,771 Resident loans 5,462,500 5,462,500-5,462, Resident bonds 8,283,573 8,283,573-8,283, Total 17,875,047 17,875,047 2,822,703 13,945,593 1,058,980 47,771 Consolidated CARRYING AMOUNT NOMINAL AMOUNT LESS THAN 1 MONTH 1-3 MONTHS MATURITY DATES 3 MONTHS - 1 YEAR 1-5 YEARS Payables Other payables 1,221,680 1,221,870 1,221, Interest bearing liabilities Bank overdraft 1,332,531 1,332,531 1,332, Other Contribution in advance 1,595,658 1,595, , ,394 1,039,080 75,632 Resident loans 3,867,500 3,867,500-3,867, Resident bonds 7,331,914 7,331,914-7,331, Total 15,349,283 15,349,473 2,838,953 11,395,808 1,039,080 75,632 Parent CARRYING AMOUNT NOMINAL AMOUNT LESS THAN 1 MONTH 1-3 MONTHS MATURITY DATES 3 MONTHS - 1 YEAR 1-5 YEARS Payables Other payables 650, , , Payables to controlled entities 73,307 73,307 73, Interest bearing liabilities Bank overdraft 1,281,352 1,281,352 1,281, Other Resident loans 5,462,500 5,462,500-5,462, Total 7,467,584 7,467,584 2,005,084 5,462, Payables to controlled entities 149, , , Interest bearing liabilities Bank overdraft 1,332,531 1,332,531 1,332, Other Resident loans 3,867,500 3,867,500-3,867, Total 5,956,869 5,956,869 2,089,369 3,867, (b) Net fair value of financial assets and liabilities On-balance sheet The net fair value of cash and cash equivalents and non-interest bearing monetary fi nancial assets and fi nancial liabilities of the Group approximates their carrying amounts. Listed investments have been valued at the quoted market bid price at balance date, adjusted for transaction costs expected to be incurred. Unlisted investments where there is no organised fi nancial market, are stated at cost. (c) Sensitivity Analysis Management believes that the following movements are reasonably possible over the next 12 months: A shift of +/- 1% in the market interest rates A shift of +/- 13% in other price risk The following table discloses the impact on net operating result and equity for each category of fi nancial instrument held by the Group at year end. Change in profi t Increase in interest rate by 1% (: 2%) 145, ,109 32,075 63,086 Decrease in interest rate by 1% (: 2%) (145,351) (308,109) (32,075) (63,086) Increase in fair value of investment through profi t or loss by 13% (: 15%) 62,332 63, Decrease in fair value of investment through profi t or loss by 13% (: 15%) (62,332) (63,589) - - Change in equity Increase in interest rate by 1% (: 2%) 145, ,109 32,075 63,086 Decrease in interest rate by 1% (: 2%) (145,351) (308,109) (32,075) (63,086) Increase in fair value of investment by 13% (: 15%) 47,464 33,612 47,464 33,612 Decrease in fair value of investment by 13% (: 15%) (47,464) (33,612) (47,464) (33,612) Note 29. Key Management Personnel Compensation Key Management Personnel includes Directors and key executive offi cers of parent and controlled entities. Short Terms Benefits Salary, superannuation and non-cash benefi ts 1,351,079 1,211,720 1,351,079 1,211,720 Post Employment Benefits Retirement, pensions benefi ts 102, , , ,278 Long Term Benefits Long service leave 162,314 29, ,314 29,036 Termination benefits 78,000 51,000 78,000 51,000 1,694,324 1,471,034 1,694,324 1,471,034