Oceania Healthcare – Half Year Result and Interim Report
MEDIA RELEASE 24 January 2020
Substantial Increase in First Half Unaudited Underlying
NPAT* for Oceania Healthcare.
Oceania Healthcare, Aged Care and Retirement Village Operator and Developer,
announced today an unaudited half year underlying net profit after tax* of $24.1 million for
the six months ending 30 November 2019, a substantial 17.6% ($3.6 million) increase
compared to the prior corresponding period (pcp).
Highlights
• Unaudited Underlying Net Profit after tax* (NPAT) of $24.1 million, up 17.6% ($3.6
million) on the pcp.
• Unaudited Reported Net Profit after tax (NPAT) of $14.9 million, up $13.6 million on
pcp.
• Operating Cash Flow of $57.0 million, up 21.0% ($9.9 million) on the pcp primarily
due to strong sales proceeds from the new developments completed in May 2019.
• Total assets increased to $1.5 billion, up 23.8% ($287.7 million) on November 2018
primarily due to significant development capital expenditure during the period.
• Interim dividend increased from 2.1 cents per share (unimputed) to 2.3 cents per
share (unimputed). The Dividend Reinvestment Plan will apply.
• Aged Care occupancy increased from 92.3% to 94.2% at centres not impacted by
redevelopment, up 1.9% on the pcp.
• Completion of 265 new retirement village units and aged care beds for the year
ending 31 May 2020 is on track with 90 care suites at Awatere, Hamilton already
completed in July and ten villas at Whitianga, Coromandel. Build rate is in line with
the prior corresponding period and skewed to second half, similar to FY2019.
• Standing consent granted by the OIO for residential land purchases.
• Preparation for a domestic retail bond issue has commenced and will be subject to
market conditions.
$ million
Half Year Ended
30 November
Growth
Unaudited
2019
2018
$m %
Reported Operating Revenue 97.9 96.4 1.5 1.6
Reported NPAT 14.9 1.3 13.6 1,046.2
Underlying NPAT* 24.1 20.5 3.6 17.6
Operating Cash Flow 57.0 47.1 9.9 21.0
Total Assets 1,496.5 1,208.8 287.7 23.8
Interim Dividend (cents/ share) 2.3 2.1 0.2 9.5
*From continuing operations. Adjustment is included to 2018 for sites divested during 2018
Oceania Healthcare CEO Earl Gasparich advised that “the first half of the financial year
reflects the strong sales momentum at our two new Auckland Villages, The Sands and
Meadowbank Stage 4, as well as continued strong demand for our new premium care suites
across the country”.
At The Sands, on the beachfront of Browns Bay on Auckland’s North Shore, 48% of the
retirement village apartments and, at Meadowbank Stage 4, 49% of the retirement village
apartments sold within the first six months of operation. “Sales volume and pricing at these
two luxury Auckland sites are to expectation and reflect their prime locations”, said Mr
Gasparich.
Aged care occupancy at centres not impacted by redevelopment increased to 94.2%,
compared to 92.3% last year, due to the ongoing investment being made to redevelop
Oceania Healthcare’s portfolio and in particular, converting older, standard aged care rooms
into premium care suites sold under occupation right agreements. “We opened 90 new care
suites at Awatere in Hamilton in August and they are already attracting demand, as are our
care suites at The BayView in Tauranga, The Sands and Meadowbank. We are very
pleased with the execution of our aged care strategy and the revenue streams being
generated from our new care suites.”
Operating Cash Flow was particularly strong over the period, increasing from $47.1 million to
$57.0 million (21.0%). Total assets also increased by $287.7 million to $1.497 billion
primarily reflecting the significant development capital expenditure invested in the portfolio
over the period. Net debt of $288.1 million as at 30 November 2019 represents a prudent
gearing level of 31.8% (net debt to debt plus equity).
Oceania Healthcare’s impressive development programme continues to be delivered on time
and on budget, with Oceania Healthcare on track to complete 265 aged care beds and
retirement village units by the end of this financial year, in line with previous guidance. It has
resource consents in hand for 86.6% of its 1,958 unit/bed development pipeline which are
planned to be delivered over the next six years.
In the second half of the year, Oceania Healthcare is scheduled to complete retirement
village apartments at Meadowbank Stage 5, Green Gables in Nelson, as well as the
extension of Gracelands Village in Hastings, Elderslea in Upper Hutt and Woodlands Village
in Motueka. The conversion of standard rooms to Care Suites will continue across a number
of sites and higher occupancy levels across the Care portfolio are expected as recently
completed developments are sold down.
*From continuing operations. Adjustment is included to 2018 for sites divested during 2018
“We are also pleased to announce that Oceania Healthcare has been granted a standing
consent for residential land purchases by the Overseas Investment Office. This will allow us
to make up to 12 transactions of residential land over the next three years without requiring
individual approvals from the Overseas Investment Office enabling us to acquire residential
land in a timely manner when attractive opportunities arise.
A domestic retail bond issue is also being explored to provide diversity of funding and tenor
and help facilitate Oceania Healthcare’s future growth, subject to market conditions.”
Oceania Healthcare Chair Liz Coutts advised the Board was pleased to increase the interim
dividend from 2.1 cents per share (unimputed) to 2.3 cents per share (unimputed). The
record date is 10 February 2020 and payment date 24 February 2020. The Dividend
Reinvestment Plan (DRP) will apply to the dividend payable on 24 February at a discount of
2.5% to the volume weighted average price of shares sold on the NZX Main Board over the
period of the five trading days starting 7 February 2020.
ENDS
For all media enquiries, please contact Kelly Bennett on 021 380 035.
This release should be read in conjunction with the Financial Statements contained within the Interim Report.
---
Oceania Healthcare Limited
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 8 May 2019
Results for announcement to the market
Name of issuer Oceania Healthcare Limited
Reporting Period 6 months to 30 November 2019
Previous Reporting Period 6 months to 30 November 2018
Currency NZD
Amount (000s) Percentage change
Revenue $97,948 1.6%
Total Revenue $97,948 1.6%
Underlying net profit after tax
from continuing operations
$24,145 17.6%
Total net profit/(loss) $14,852 1046.2%
Total Comprehensive
Income
$23,950 23.1%
Interim/Final Dividend
Amount per Quoted Equity
Security
2.3 cents
Imputed amount per Quoted
Equity Security
Not Applicable
Record Date 10 February 2020
Dividend Payment Date 24 February 2020
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.99 $0.86
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please refer to attached documents (unaudited consolidated
financial statements and interim report, media release and
results presentation).
Authority for this announcement
Name of person
authorised
to make this announcement
Anna Thorburn
Contact person for this
announcement
Anna Thorburn
Contact phone number +64 9 213 0122
Contact email address Anna.Thorburn@oceaniahealthcare.co.nz
Date of release through MAP
24/01/2020
Unaudited financial statements accompany this announcement.
---
Oceania Healthcare Limited
Distribution Notice
Updated as at 18 December 2019
Please note: all cash amounts in this form should be provided to 8 decimal places
Section 1: Issuer information
Name of issuer Oceania Healthcare Limited
Financial product name/description Ordinary Shares
NZX ticker code OCA
ISIN (If unknown, check on NZX
website)
NZOCAE0002S0
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year Quarterly
Half Year X Special
DRP applies X
Record date 10/02/2020
Ex-Date (one business day before the
Record Date)
07/02/2020
Payment date (and allotment date for
DRP)
24/02/2020
Total monies associated with the
distribution
1
$14,111,237
Source of distribution (for example,
retained earnings)
Retained Earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.02300000
Gross taxable amount
3
$0.02300000
Total cash distribution
4
$0.02300000
Excluded amount (applicable to listed
PIEs)
Na
Supplementary distribution amount Na
Section 3: Imputation credits and Resident Withholding Tax
5
Is the distribution imputed No imputation
1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Gross taxable amount” is the gross distribution minus any excluded income.
4
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
5
The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is
fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute
advice as to whether or not RWT needs to be withheld.
If fully or partially imputed, please
state imputation rate as % applied
6
Na
Imputation tax credits per financial
product
Na
Resident Withholding Tax per
financial product
$0.00759000
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
2.5%
Start date and end date for
determining market price for DRP
07/02/2020 13/02/2020
Date strike price to be announced (if
not available at this time)
14/02/2020
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
New Issue
DRP strike price per financial product
[TBC]
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
11/02/2020
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Anna Thorburn
Contact person for this
announcement
Anna Thorburn
Contact phone number +64 9 213 1022
Contact email address Anna.Thorburn@oceaniahealthcare.co.nz
Date of release through MAP
24/01/2020
6
Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.
---
INTERIM REPORT 2020
Contents
Oceania at a glance02
Highlights04
Chair and CEO's Report06
Three Year Summary13
Financial Statements14
Notes to the Consolidated
Interim Financial Statements19
Independent Review Report60
In the six months to 30 November 2019,
Oceania Healthcare has achieved 17.6%
growth in underlying net profit after tax
1
compared to the prior corresponding period,
continued our significant development
programme and provided outstanding care
to our 3,600 residents across New Zealand.
1
Unaudited
01
02Oceania Healthcare
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Interim Report 2020
At a glance
Oceania Healthcare is a leading provider
of premium healthcare services, with sites
located in metropolitan areas across
New Zealand. We are dedicated to delivering
exceptional and innovative hospitality services
that delight our residents.
Oceania Healthcare
|
Interim Report 202003
We have a strong platform
for growth with a substantial
development pipeline and
proven expertise and
experience in managing and
delivering construction projects.
We have sufficient land to build
1,958 new residences (1,388 net
of decommissions) with 86.6%
of these already consented.
As at 30 November 2019
2,595
Care beds and care suites
~2,700
Staff
1,209
Units
~3,600
Residents
We pride ourselves in being a
recognised industry leader in
the provision of clinical care to
our residents. In October 2019
we won the Excellence in Food
Award for the second year in a
row at the New Zealand Aged
Care Association Conference.
24
Existing sites with
mature operations
20
Existing sites with
brownfield developments
(current and planned)
2
Undeveloped
sites
46
Total sites
1
Unaudited.
2
Underlying net profit after tax – continuing operations contains a proforma
adjustment that excludes the earnings from sites divested in IHY 2019.
04Oceania Healthcare
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Interim Report 2020
$24.1m
Highlights
Financial
1
Underlying Net Profit after Tax – continuing operations
2
For the six months to
30 November 2019
Ahead of underlying net profit
after tax - continuing operations
2
of $20.5m for the six months to
30 November 2018
17.6%
As at 30 November 2019Higher than total assets of $1.2bn
as at 30 November 2018
$1.5bn
Total Assets
23.8%
For the six months to
30 November 2019
For the six months to
30 November 2019
Ahead of total comprehensive
income of $19.5m for the six
months to 30 November 2018
Above reported operating
cashflow of $47.1m for the six
months to 30 November 2018
$24.0m$57.0m
Reported Total
Comprehensive IncomeOperating Cash Flow
23.1%21.0%
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Sales
Resale Care Suites
63
New Care Suites
55
Resale Units
39
Developments
Units + Care Suites
100
COMPLETED
At Awatere (Hamilton)
and Whitianga.
Units + Care Suites
165
TO COMPLETE IN FY2020
A further 165 units and
care suites are due
to be completed at
Meadowbank (Auckland),
Green Gables (Nelson),
Gracelands (Hastings),
Elderslea (Upper Hutt)
and Woodlands (Motueka).
Units + Care Suites
601
CONSENT SECURED
Resource consents
at Waimarie St (Auckland)
76 apartments and
31 care suites, and
Elmwood (Auckland)
229 apartments and
142 care suites and other
resource consents relating
to 123 beds and units.
86.6%
of the total development
pipeline is now consented.
Units + Care Suites
444
UNDER CONSTRUCTION
444 units and care suites
under construction at
Meadowbank (Auckland),
Green Gables (Nelson),
Gracelands (Hastings),
Whitianga, Elderslea
(Upper Hutt), Woodlands
(Motueka), Windermere
(Christchurch), Eden
(Auckland), The BayView
(Tauranga) and Awatere
(Hamilton).
New Units
29
Total Sales
186
29.2%
Ahead of total sales
for the six months to
30 November 2018
For the six months to 30 November 2019
The key highlights for the first half of
FY2020 included:
–A 17.6% increase ($3.6m) in unaudited
underlying net profit after tax from
continuing operations compared
to the prior corresponding period
–Operating cash flow of $57.0m,
up 21.0% ($9.9m) compared to the
prior corresponding period
–Good progress in the sell down of
The Sands and Meadowbank Stage Four,
with 48% of the apartments at
The Sands and 49% of the apartments
at Meadowbank sold or under application
–Total sales growth of 29.2% compared
to the prior corresponding period
–On track to complete 265 new retirement
village units and aged care beds in the
year to 31 May 2020 with 90 new care
suites at Awatere, Hamilton already
completed in July 2019
–Capital expenditure of $71.4m on new
developments during the period
–Interim dividend of 2.3 cents per share
(not imputed) announced, an increase
of 0.2 cents per share compared to the
prior corresponding period, which will
have a record date of 10 February 2020
and be paid on 24 February 2020. The
Dividend Reinvestment Plan will apply
–Preparation for a domestic retail bond
issue, subject to market conditions, to
provide diversity of funding and tenor
and help facilitate Oceania Healthcare’s
future growth
–Standing consent granted by the OIO
for residential land purchases
–The appointment of Dr Frances Hughes
CNZM as General Manager Nursing and
Clinical Strategy to further strengthen
clinical leadership and delivery
Financial Performance
Our unaudited underlying net profit after
tax from continuing operations was $24.1m
for the six month period to 30 November
2019, representing a $3.6m or 17.6%
increase on the prior corresponding period
primarily due to strong sales momentum at
our two new Auckland Villages, The Sands
and Meadowbank Stage 4, as well as
continued strong demand for our new
premium care suites across the country.
Dear Shareholder,
We are pleased to present the Interim Report for the
six months to 30 November 2019, after what has been
another very active first half as we move through our
redevelopment cycle and execute our care strategy.
CHAIR AND CEO'S REPORT –––––––
06Oceania Healthcare
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Interim Report 2020
Our total assets are now $1.5bn,
representing 23.8% growth over the
prior corresponding period. Net debt
of $288.1m as at 30 November 2019
represents a prudent gearing level of
31.8%% (net debt to debt plus equity).
The Board has declared an interim dividend
of 2.3 cents per share (not imputed), an
increase of 0.2 cents per share compared to
the prior corresponding period. The record
date for entitlement is 10 February 2020 and
the dividend will be paid on 24 February
2020. The dividend reinvestment plan (DRP)
announced in July 2019 will apply to the
dividend payable on 24 February 2020 at
a discount of 2.5% to the volume weighted
average price of shares sold on the NZX
Main Board over a period of five trading
days starting on 7 February 2020.
Care
Aged Care is our core competency and it is
at the very heart of our business. Oceania
Healthcare is a recognised market leader in
the delivery of the highest levels of clinical
care, with a greater mix of hospital level
care beds in the portfolio compared to
other operators. Furthermore, as we
redevelop our sites into premium offerings,
we continue to maintain a higher weighting
of care on site compared to other providers.
The Care segment generated total revenue
for the first half of $81.3m, representing
84.2% of total operating revenue, and
underlying EBITDA of $9.5m. Adding $8.9m
of care suite development and resale gains
over the period (currently classified in the
Village segment), our total aged care related
underlying EBITDA of $18.4m was $0.1m
higher than the prior corresponding period.
Occupancy at care centres not impacted
by our redevelopment activity also
increased to 94.2% compared with 92.3%
in the corresponding period last year.
Over the past two years, we have delivered
new care centres with new care suites at
Meadowbank, The BayView, Tauranga,
The Sands and Awatere and we are well
underway with the construction of our new
care centres at Green Gables, Nelson and
Windermere, Christchurch. In the case of
Meadowbank, The Sands and Green
Gables, we decommissioned the existing
beds at the centres before demolishing the
buildings and constructing new buildings
which contain premium care suites. These
care suites are a superior product offering
and are more aligned to the needs of the
local population.
CHAIR AND CEO'S REPORT –––––––
Awatere, Hamilton
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Interim Report 2020
As we progress the "brownfields"
redevelopment of our premium locations,
there is a short term reduction in recurring
earnings from our existing beds when these
beds are decommissioned for the
redevelopment to be undertaken and we
incur increased operating costs to get the
new care centres established. Once the
redevelopment is complete and the care
suites are occupied by new residents, we
generate an upfront development margin
from first time sales of our care suites (a
feature of this interim result). Following this
stage, once the centre is fully occupied and
the care suites sold, we generate recurring
revenue from deferred management fees
on the occupation right agreements,
increasing earnings per bed.
While underlying earnings from the aged
care sector have come under pressure over
recent years due to increased wage costs
(attributable to equal pay, the minimum
wage and the shortage of registered
nurses) not fully funded by the Government,
we are responding to that challenge by
both improved workforce planning
(led by Dr Frances Hughes) as well as
increasing our sources of premium revenue,
which will reduce our exposure to
Government funding.
Going forward into FY2021 and beyond,
as more developments are completed and
care suites are sold down, aged care
earnings will increase as up front
development margins are realised and
higher recurring earnings generated from
the deferred management fees in the
longer term.
We are continuously innovating in our Care
service delivery. In October 2019 we were
pleased to win the Excellence in Food
award for the second year in a row at the
New Zealand Aged Care Association
Conference. The roll out of our Resident
Clinical Management System, e-Case, is
also progressing well. As at 30 November
2019, e-Case has been implemented at
23 of our care centres across the country.
Our centres are already enjoying the
benefits of this system, which means
that our staff can spend more time
interacting with residents and their families,
and less time completing paperwork at
the nurses’ station. We expect to have all
care centres using e-Case by the end of
this financial year.
CHAIR AND CEO'S REPORT –––––––
The BayView, Tauranga
08Oceania Healthcare
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Interim Report 2020
Village
The Village segment generated total
revenue for the first half of $14.6m and
underlying EBITDA of $33.8m due to the
sale of new retirement village apartments
at The Sands and Meadowbank (including
realised development margin and resale
gains on care suites). Our total sales were
29.2% ahead of the prior corresponding
period and sales at these two premium
locations (completed in May 2019) are
progressing to expectation. As at 30
November 2019, 49% of the apartments at
Meadowbank and 48% of the apartments
at The Sands have been sold or are under
application.
We completed the new care centre at
Awatere in July 2019 comprising 90 care
suites and, as at 30 November 2019, we
had sold eight new care suites to residents
under ORAs with a further 69 residents
having transferred from the old centre.
We have sold a further 31 new care suites
at centres throughout the country where
we have converted older, standard aged
care rooms into premium care suites.
Developments
We have continued to make excellent
progress with the execution of our
development pipeline during the six
month period to 30 November 2019.
We have a proven ability to design and
build our development projects on time
and on budget.
We are well positioned to deliver 265 aged
care beds and retirement village units by
the end of this financial year. The final stage
of 26 independent living apartments at
Meadowbank is progressing well and is
expected to be completed by May 2020.
This stage will bring the total number of
independent living apartments at
Meadowbank to 193.
The construction of 28 apartments and 61
care suites at Green Gables, Nelson is also
progressing well. This is another premium
site where we decommissioned the existing
aged care centre and are developing a new
integrated aged care centre and retirement
village. The site is in an excellent location
close to the city centre in Nelson in a high
value area of the region with good levels
of demand for aged care. Construction is
scheduled to be completed in May 2020.
CHAIR AND CEO'S REPORT –––––––
Windermere, ChristchurchGracelands, Hastings
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Interim Report 2020
Construction of 32 new villas at Gracelands,
Hastings is well advanced, with the first 17
villas nearing completion and the remaining
villas scheduled to be completed by the
end of the financial year. Gracelands is a
popular and well-established village located
close to Hastings and there has already
been a high level of interest from the local
community for these new villas.
In addition to these larger projects,
we completed 10 villas at Whitianga,
Coromandel in November 2019 and 12
villas at Elderslea, Upper Hutt in January
2020. We are also progressing well with
the construction of six villas and a new
community centre at Woodlands, Motueka
and this is expected to be completed by
May 2020.
Looking ahead to the next financial year, our
developments at Windermere (comprising
71 care suites and 22 apartments) and
Stage Two at The BayView (comprising
74 apartments and the community centre)
are progressing well and these are both
scheduled to be completed during FY2021.
We have recently started construction on
three new developments. Construction of
49 new apartments and a new community
centre is underway on land that we acquired
in 2018 at Eden, Auckland. We have started
work on the redevelopment of Lady Allum
Village in Milford, Auckland, with the first
stage of this redevelopment comprising
the construction of 113 new care suites.
The Stage Two works at Awatere have just
commenced, consisting of 63 retirement
village apartments and a new community
centre on the land where the previous care
centre was located. Construction of the
Eden and Awatere Stage Two projects, and
the first stage of Lady Allum Village, is
expected to be complete during FY2022.
We have made good progress in our
consenting activity during the six month
period to 30 November 2019, with resource
consents now obtained for 86.6% of the
development pipeline. We were pleased to
receive the resource consent to construct
76 apartments and 31 luxury care suites
at our Waimarie Street site in St Heliers,
Auckland, in August 2019. This development
is an integral part of Oceania Healthcare’s
growth plan and will be the first
“greenfields” development that we have
undertaken. Our team has started work on
the building consent documentation and
we expect to start construction in FY2021,
with completion scheduled for FY2023.
CHAIR AND CEO'S REPORT –––––––
Green Gables, Nelson
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Interim Report 2020
Resource consent was also granted for the
development of 229 apartments at our
Elmwood site in Manurewa, Auckland, in
addition to the resource consent previously
granted to construct a new 142 room care
centre on the land adjacent to the site that
was acquired in 2016. Elmwood is in an
excellent location adjacent to Auckland’s
botanical gardens and the redevelopment
will build upon Elmwood’s strong reputation
for delivering the highest quality care to
its residents.
We have been granted a standing consent
for residential land purchases by the
Overseas Investment Office. This will
allow Oceania Healthcare to make up
to 12 transactions of residential land over
the next three years without requiring
individual approvals from the Overseas
Investment Office. Although we have
sufficient land to execute our development
pipeline over the next six years, this consent
will provide additional flexibility and will
allow us to acquire properties in a timely
manner when good opportunities arise.
Our People
Oceania Healthcare is a people business
and we recognise that the passion of our
staff is the key to delivering outstanding
care to our residents. We have continued
to provide industry leading learning and
development programmes for our staff
and increase our wage rates for healthcare
assistants and registered nurses so that
they remain well-aligned with the public
sector and among the highest in the aged
care sector.
One of the highlights of the last six months
has been the appointment of Dr Frances
Hughes as General Manager Nursing and
Clinical Strategy at Oceania Healthcare.
Dr Hughes is a registered nurse who has
held senior management and nursing
positions on a global level and was formerly
the Chief Executive of the International
Council of Nurses. She has worked for the
World Health Organisation and was made
an Officer of the New Zealand Order of
Merit for services to mental health in 2005
and a Companion of the New Zealand
Order of Merit for services to mental health
and nursing in the 2020 New Year Honours.
We are delighted to have Frances join the
team and are excited about the skills and
experience that she will bring to lift our
service offering and enhance the quality
of care to our residents.
We implemented an employee share
scheme for our permanent employees
in September 2019 to recognise their
contribution to the success of Oceania
Healthcare. As part of the scheme, we
offered up to $800 of shares to eligible
employees at no cost to them. The shares
will vest to employees after three years
if the employee remains employed by
Oceania Healthcare. It was pleasing to
see over 70% of eligible employees enrol
in the scheme.
We maintain our strong focus on health
and safety and have recently developed
new initiatives to encourage staff to report
injuries and follow our injury management
processes. We have also strengthened our
health and safety team to enhance the
attention that our people give to keeping
themselves safe at work every day.
We would like to acknowledge and thank
directors and staff for their valuable
contribution.
Thank you again for your ongoing support.
Yours sincerely
Earl Gasparich
Chief Executive Officer
Elizabeth Coutts
Chair
CHAIR AND CEO'S REPORT –––––––
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Three Year Summary
For the six months ended 30 November 2019
Financial Metrics
$NZm
Unaudited
Nov 2019
Unaudited
Nov 2018
Unaudited
Nov 2017
Underlying net profit after tax
1
24.120.919.9
Underlying net profit after tax
2
–
continuing operations
24.120.518.8
Profit for the period14.91.342.5
Total comprehensive income24.019.542.9
Total assets1,496.51,208.8999.1
Operating cashflow57.047.117.1
Operating Metrics
$NZm
Unaudited
Nov 2019
Unaudited
Nov 2018
Unaudited
Nov 2017
Units1,2091,0881,023
Care Suites655451288
Care Beds1,9402,1292,293
Total3,8043,6683,604
New Sales846523
Resales1027969
Total18614492
Occupancy
3
94.2%92.3%90.1%
1
This is a non-GAAP measure, see note 2.1 in the consolidated interim financial statements
for further details.
2
Underlying net profit after tax – continuing operations contains a pro forma adjustment
that excludes the earnings from sites divested in the first half of FY2019.
3
Average annual occupancy in relation to sites not under development or conversion and
excluding leasehold sites.
Consolidated
Interim Financial
Statements
For the six months ended 30 November 2019
Consolidated Statement of Comprehensive Income 15
Consolidated Balance Sheet 16
Consolidated Statement of Changes in Equity 17
Consolidated Cash Flow Statement 18
Notes to the Consolidated Interim Financial Statements 19
Independent Review Report 60
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Consolidated Statement of Comprehensive Income
For the six months ended 30 November 2019
$NZ000s Notes
Unaudited
Six months
30 Nov 2019
Unaudited
Six months
30 Nov 2018
Revenue96,50994,282
Change in fair value of investment property
3.1
11,3651,624
Change in fair value of right of use investment property
1
3.4
10,196-
Other income 1,4392,132
Total income119,50998,038
Employee benefits and other staff costs63,02459,325
Depreciation and amortisation7,1474,329
Finance costs2,9112,014
Impairment of property, plant and equipment
3.2
1,0445,659
Rental expenditure in relation to right of use investment property
1
11,536-
Other expenses27,16129,966
Total expenses112,823101,293
Profit before income tax 6,686(3,255)
Income tax benefit
5.1
8,1664,507
Profit for the period14,8521,252
Other comprehensive income
Items that will not be subsequently reclassified
to profit or loss
Gain on revaluation of property, plant and equipment
for the period, net of tax3.2, 5.110,88418,197
Gain on revaluation of right of use asset for the period,
net of tax3.4112-
10,99618,197
Items that may be subsequently reclassified to
profit or loss
(Loss) / gain on cash flow hedges, net of tax(1,898)63
Other comprehensive income for the period, net of tax9,09818,260
Total comprehensive income for the period attributable to
shareholders of the parent23,95019,512
Basic earnings per share (cents per share)
4.2
2.40.2
Diluted earnings per share (cents per share)
4.2
2.40.2
1
This relates to the right of use asset, Everil Orr. In the comparative period the revaluation and transactions
in relation to this lease were included within investment property. The change in fair value of investment
property for the six months to 30 November 2018 included an uplift of $4.5m and other expenses included
a rental expense of $4.8m in relation to this lease. This change of classification has arisen on adoption of NZ
IFRS 16 Leases.
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the
accompanying notes.
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Consolidated Balance Sheet
As at 30 November 2019
$NZ000s Notes
Unaudited
30 Nov 2019
Audited
31 May 2019
Assets
Cash and cash equivalents13,36722,762
Trade and other receivables40,02343,541
Investment property
3.1
917,555881,674
Property, plant and equipment
3.2
480,434442,709
Right of use assets
3.4
35,089-
Intangible assets10,0198,668
Total assets1,496,4871,399,354
Liabilities
Trade and other payables41,06938,565
Derivative financial instruments5,1702,443
Deferred management fee
3.3
30,66227,002
Refundable occupation right agreements
3.3
493,805436,481
Leases liabilities
3.4
14,012-
Borrowings
4.3
286,672270,159
Deferred tax liabilities
5.1
6,86714,825
Total liabilities878,257789,475
Net assets618,230609,879
Equity
Contributed equity
4.1
583,072580,794
Retained deficit
(113,085)
(110,060)
Reserves148,243139,145
Total equity618,230609,879
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
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Consolidated Statement of Changes in Equity
For the six months ended 30 November 2019
$NZ000s Notes
Contributed
equity
Retained
deficit
Asset
revaluation
reserve
Cash flow
hedge
reserve
Total
equity
Balance as at 1 June 2018 (audited)
579,498(127,899)85,601(103)537,097
Profit for the period - 1,252 - -1,252
Other comprehensive income
Revaluation of cash flow hedge
net of tax
---6363
Revaluation of assets net of tax - -18,197-18,197
Total comprehensive income
- 1,25218,1976319,512
Transfer of revaluation reserve
for assets held for sale
-773(773)--
Transactions with owners
Dividends paid-(15,713)--(15,713)
Employee share scheme-70--70
Total transactions with owners-(15,643)--(15,643)
Balance as at 30 November 2018
(unaudited)
579,498(141,517)103,025(40)540,966
Balance as at 1 June 2019 (audited)
580,794(110,060)140,931(1,786)609,879
Impact of adoption of
NZ IFRS 16 Leases3.4, 5.2
-(2,211)--(2,211)
Profit for the period-14,852--14,852
Other comprehensive income
Revaluation of cash flow hedge
net of tax
---(1,898)(1,898)
Revaluation of assets net of tax
3.2, 5.1
--10,884-10,884
Revaluation of right of use
assets net of tax3.4
--112-112
Total comprehensive income-14,85210,996(1,898)23,950
Transactions with owners
Dividends paid
4.1
-(15,784)--(15,784)
Share issue: dividend
reinvestment scheme4.1
2,278---2,278
Share issue: employee share
scheme4.1
-118--118
Total transactions with owners2,278(15,666)--(13,388)
Balance as at 30 November 2019
(unaudited)
583,072(113,085)151,927(3,684)618,230
The above Consolidated Statement of Changes in Equity should be read in conjunction with the
accompanying notes.
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Consolidated Cash Flow Statement
For the six months ended 30 November 2019
$NZ000s
Unaudited
Six months
30 Nov 2019
Unaudited
Six months
30 Nov 2018
Cash flows from operating activities
Receipts from residents for village and care fees81,79686,208
Payments to suppliers and employees(89,729)(84,281)
Rental payments in relation to right of use investment property(11,535)(4,815)
Receipts from new occupation right agreements102,07073,712
Payments for outgoing occupation right agreements(22,061)(22,316)
Interest received10383
Interest paid(3,130)(1,520)
Interest paid in relation to right of use assets(525)-
Net cash inflow from operating activities56,98947,071
Cash flows from investing activities
Proceeds from sale and / or disposal of property,
plant and equipment and investment property(36)19,678
Payments for property, plant and equipment
and intangible assets(24,423)(40,811)
Payments for investment property
and investment property under development(46,949)(53,136)
Net cash outflow from investing activities(71,408)(74,269)
Cash flows from financing activities
Proceeds from borrowings77,20196,267
Repayment of borrowings(57,354)(61,000)
Transaction costs(41)-
Principal payments for right of use assets(1,276)-
Dividends paid(13,506)(15,713)
Net cash inflow from financing activities5,02419,554
Net increase in cash and cash equivalents(9,395)(7,644)
Cash and cash equivalents at the beginning of the period22,76218,288
Cash and cash equivalents at end of period13,36710,644
The Board of Directors of the Company authorised these consolidated financial
statements for issue on 24 January 2020.
For and on behalf of the Board
Elizabeth Coutts Alan Isaac
Chairman Director
The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes.
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Notes to the
Consolidated
Interim Financial
Statements
For the six months ended 30 November 2019
1. General Information 20
1.1 Basis of Preparation 20
1.2 Accounting Policies 22
1.3 Significant Events and Transactions 22
2. Operating Performance 23
2.1 Operating Segments 23
3. Property Assets 33
3.1 Village Assets: Investment Property 35
3.2 Care Assets: Property, Plant
and Equipment 40
3.3 Refundable Occupation
Right Agreements 44
3.4 Leases 45
4. Shareholder Equity and Funding 48
4.1 Shareholder Equity and Reserves 48
4.2 Earnings Per Share 50
4.3 Borrowings 51
5. Other Disclosures 53
5.1 Income Tax 53
5.2 New Accounting Standards 58
5.3 Contingencies and Commitments 59
5.4 Events After Balance Date 59
Independent Review Report 60
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
1. General Information
1.1 Basis of Preparation
(i) Entities Reporting
The consolidated interim financial statements of the “Group” are for the
economic entity comprising Oceania Healthcare Limited (the “Company”)
and its subsidiaries, together “the Group”. Refer to note 5.5 of the 31 May 2019
annual report for details of the Group structure.
The consolidated interim financial statements incorporate the assets and
liabilities of all subsidiaries of Oceania Healthcare Limited as at 30 November
2019 and the results of all subsidiaries for the six months then ended.
The Group owns and operates various care centres and retirement villages
throughout New Zealand. The Group's registered office is Affinity House,
2 Hargreaves Street, St Mary's Bay, Auckland 1011, New Zealand.
(ii) Statutory Base
Oceania Healthcare Limited is a limited liability company which is domiciled
and incorporated in New Zealand. It is registered under the Companies Act 1993
and is a FMC Reporting Entity under Part 7 of the Financial Markets Conduct
Act 2013. The Company is also listed on the NZX Main Board (“NZX”) and
the Australian Securities Exchange (“ASX”) as a foreign exempt listing.
The consolidated interim financial statements have been prepared in accordance
with the requirements of the NZX and ASX listing rules, and Part 7 of the
Financial Markets Conduct Act 2013.
The consolidated interim financial statements have been prepared in accordance
with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”).
They comply with New Zealand Equivalent to International Accounting Standard
34 Interim Financial Reporting (“NZ IAS 34”) and International Accounting
Standard 34 Interim Financial Reporting (“IAS 34”). The Group is a Tier 1
for-profit entity in accordance with XRB A1.
The accounting policies that materially affect the measurement of the
Consolidated Statement of Comprehensive Income, Consolidated Balance
Sheet and the Consolidated Cash Flow Statement have been applied on a
basis consistent with those used in the audited consolidated financial
statements for the year ended 31 May 2019.
The consolidated interim financial statements do not include all the notes
of the type normally included in the consolidated annual financial statements.
Accordingly, these consolidated interim financial statements are to be read
in conjunction with the consolidated annual financial statements for the year
ended 31 May 2019, prepared in accordance with New Zealand Equivalents
to International Financial Reporting Standards (“NZ IFRS”).
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The consolidated interim financial statements for the six months ended
30 November 2019 and comparatives for the six months ended 30 November
2018 are unaudited. The consolidated annual financial statements for the year
ended 31 May 2019 were audited and form the basis for the comparative figures
for that period in these statements. They are presented in New Zealand dollars
which is the Group’s presentation currency.
The consolidated interim financial statements have been prepared in accordance
with the going concern basis of accounting, which assumes that the Group will
be able to realise its assets and discharge its liabilities in the normal course of
business as they come due into the foreseeable future.
The Consolidated Balance Sheet has been prepared using a liquidity format.
(iii) Measurement Basis
These consolidated interim financial statements have been prepared under the
historical cost convention, as modified by the revaluation of certain assets and
liabilities, including investment properties, certain classes of property, plant and
equipment, right of use assets, assets held for sale and cash flow hedges.
(iv) Key Estimates and Judgements
The preparation of the consolidated interim financial statements in conformity
with IAS 34 and NZ IAS 34 requires the use of certain critical accounting
estimates. It also requires management to exercise their judgement in the
process of applying the Group’s accounting policies.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual results.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated interim financial
statements are disclosed in the following notes:
- Fair value of investment property and investment property under development
(note 3.1)
- Classification of accommodation with a care or service offering (note 3)
- Fair value of freehold land and buildings (note 3.2)
- Fair value of right of use assets (note 3.4)
- Revenue recognition of deferred management fees (note 3.3)
- Recognition of deferred tax (note 5.1)
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
1.2 Accounting Policies
(i) New and Amended Standards Adopted by the Group
During the period the Group adopted NZ IFRS 16 Leases. Refer to note 5.2 and
note 3.4 for further details. The Group has not early adopted any standards,
amendments or interpretations to existing standards that are not yet effective.
(ii) Measurement of Fair Value
The Group classifies its fair value measurement using the fair value hierarchy
that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy has the following levels.
Level 1: Quoted prices (unadjusted) in active markets for the identical assets
or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The carrying amount of all financial assets and liabilities is considered to
approximate their fair value.
1.3 Significant Events and Transactions
The financial position and performance of the Group were affected by the
following events and transactions during the six months to 30 November 2019:
• Adoption of NZ IFRS 16 Leases ("NZ IFRS 16") – This standard is effective for
reporting periods beginning on or after 1 January 2019. There has been no
impact on prior period comparatives. See notes 5.2 and 3.4 for further details.
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2. Operating Performance
2.1 Operating Segments
The Group's chief operating decision maker is the Board of Directors.
The operating segments have been determined based on the information
reviewed by the Board of Directors for the purposes of allocating resources
and assessing performance. The assets and liabilities of the Group are reported
to the chief operating decision maker in total not by operating segment.
The Group operates in New Zealand and comprises three segments; care
operations, village operations and other.
Information regarding the operations of each reportable segment is included
below. Amongst other criteria, performance is measured based on segmental
underlying earnings before interest, tax, depreciation and amortisation
(“EBITDA”), which is the most relevant measure in evaluating the performance
of segments relative to other entities that operate within the aged care and
retirement village industries.
Additional segmental reporting information
Capital expenditure: Refer to notes 3.1 and 3.2 for details on capital expenditure.
Goodwill: Goodwill is allocated to care cash generating units.
What is Total Comprehensive Income?
Total comprehensive income is a measure of the total performance of all
segments under NZ GAAP. It includes fair value movements relating to the
Group’s care centres and cash flow hedges.
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
CareVillageOther
ProductIncludes traditional care beds and care suites.Includes independent living and rental
properties.
N/A
ServicesThe provision of accommodation, care and
related services to Oceania’s aged care residents.
Includes the provision of services such as meals
and care packages to independent living
residents.
The provision of accommodation and
related services to independent residents
in the Group’s retirement villages.
Provision of support services to the
Group (includes administration,
marketing and operations).
In addition this segment includes the
provision of training by the Wesley
Institute of Learning.
Recognition of Operating
Revenue and Expenses
The Group derives Operating Revenue from the
provision of care and accommodation. The daily
fee is set annually by the Ministry of Health.
In relation to the provision of superior
accommodation above the Government
specification the Group derives revenue from
Premium Accommodation Charges (“PACs”) or,
in the case of care suites, through Deferred
Management Fees (“DMF”).
Operating Expenses primarily include staff
costs, resident welfare expenses and overheads.
The Group derives Operating Revenue
from weekly service fees and rental
income. Operating Revenue also
includes DMF accrued over the expected
occupancy period for the relevant
accommodation.
Operating Expenses include village
property maintenance, sales and
marketing, and administration related
expenses.
Includes support office and corporate
expenses and operating lease costs
relating to the Group’s three leasehold
sites.
Finance costs relate to the cost of bank
debt acquired for the purchase and
development of villages.
Income and expenditure relating to
the Wesley Institute of Learning is
recognised in this segment.
Recognition of Fair Value
movements on New
Developments
Fair value increases or decreases are recognised
in other comprehensive income (i.e. not in profit
or loss) for the fair value movement above
historic cost.
Impairments below historic cost are recognised
in comprehensive income (i.e. profit or loss).
Fair value movements are recognised
in comprehensive income (i.e. profit
or loss).
N/A
Recognition of Fair Value
movements on Existing
Care Centres and
Retirement Villages
Fair value movements are treated the same
as above.
When sites are decommissioned for
development this results in an impairment of
the buildings and chattels which is recognised
in comprehensive income (i.e. profit or loss).
Fair value movements are recognised
in comprehensive income (i.e. profit
or loss).
N/A
Recognition in Underlying
Profit (refer note 2.1 overleaf)
Fair value movements are removed.Fair value movements are removed.
Realised gains on resales and the
development margins from the sale of
independent living units and care suites
are included.
No material adjustments.
Asset CategorisationAssets used, or, in the case of developments,
to be used, in the provision of care are
recognised as property, plant and equipment.
Assets used for village operations are
recognised as investment property.
Support office assets are recognised as
property, plant and equipment. Assets
include intangibles (e.g. software).
2.1 Operating Segments (continued)
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CareVillageOther
ProductIncludes traditional care beds and care suites.Includes independent living and rental
properties.
N/A
ServicesThe provision of accommodation, care and
related services to Oceania’s aged care residents.
Includes the provision of services such as meals
and care packages to independent living
residents.
The provision of accommodation and
related services to independent residents
in the Group’s retirement villages.
Provision of support services to the
Group (includes administration,
marketing and operations).
In addition this segment includes the
provision of training by the Wesley
Institute of Learning.
Recognition of Operating
Revenue and Expenses
The Group derives Operating Revenue from the
provision of care and accommodation. The daily
fee is set annually by the Ministry of Health.
In relation to the provision of superior
accommodation above the Government
specification the Group derives revenue from
Premium Accommodation Charges (“PACs”) or,
in the case of care suites, through Deferred
Management Fees (“DMF”).
Operating Expenses primarily include staff
costs, resident welfare expenses and overheads.
The Group derives Operating Revenue
from weekly service fees and rental
income. Operating Revenue also
includes DMF accrued over the expected
occupancy period for the relevant
accommodation.
Operating Expenses include village
property maintenance, sales and
marketing, and administration related
expenses.
Includes support office and corporate
expenses and operating lease costs
relating to the Group’s three leasehold
sites.
Finance costs relate to the cost of bank
debt acquired for the purchase and
development of villages.
Income and expenditure relating to
the Wesley Institute of Learning is
recognised in this segment.
Recognition of Fair Value
movements on New
Developments
Fair value increases or decreases are recognised
in other comprehensive income (i.e. not in profit
or loss) for the fair value movement above
historic cost.
Impairments below historic cost are recognised
in comprehensive income (i.e. profit or loss).
Fair value movements are recognised
in comprehensive income (i.e. profit
or loss).
N/A
Recognition of Fair Value
movements on Existing
Care Centres and
Retirement Villages
Fair value movements are treated the same
as above.
When sites are decommissioned for
development this results in an impairment of
the buildings and chattels which is recognised
in comprehensive income (i.e. profit or loss).
Fair value movements are recognised
in comprehensive income (i.e. profit
or loss).
N/A
Recognition in Underlying
Profit (refer note 2.1 overleaf)
Fair value movements are removed.Fair value movements are removed.
Realised gains on resales and the
development margins from the sale of
independent living units and care suites
are included.
No material adjustments.
Asset CategorisationAssets used, or, in the case of developments,
to be used, in the provision of care are
recognised as property, plant and equipment.
Assets used for village operations are
recognised as investment property.
Support office assets are recognised as
property, plant and equipment. Assets
include intangibles (e.g. software).
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
2.1 Operating Segments (continued)
Six months ended 30 November 2019
(unaudited)
$NZ000s
Care
Operations
Village
OperationsOtherTotal
Revenue 81,32014,55163896,509
Change in fair value of
investment property
-11,365-11,365
Change in fair value of
right of use asset
-10,196-10,196
Other income1941,13581,337
Total income81,51437,247646119,407
Operating expenses(72,139)(19,701)(9,881)(101,721)
Impairment of property,
plant and equipment
(1,044)--(1,044)
Segment EBITDA8,33117,546(9,235)16,642
Interest income-2280102
Finance costs--(2,911)(2,911)
Depreciation and amortisation(6,691)-(456)(7,147)
Profit before income tax1,64017,568(12,522)6,686
Income tax benefit2542,1465,7668,166
Profit for the period
attributable to shareholders
1,89419,714(6,756)14,852
Other comprehensive income
Gain on revaluation of property,
plant and equipment for the
period, net of tax
10,884--10,884
Gain on revaluation of right of use
asset for the period, net of tax
112--112
Loss on cash flow hedges,
net of tax
--(1,898)(1,898)
Total comprehensive income
for the period attributable to
shareholders of the parent
12,89019,714(8,654)23,950
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Six months ended 30 November 2018
(unaudited)
$NZ000s
Care
Operations
Village
OperationsOtherTotal
Revenue 82,01912,263-94,282
Change in fair value of
investment property
-1,624-1,624
Change in fair value of
right of use asset
----
Other income8811,0051632,049
Total income82,90014,89216397,955
Operating expenses(68,250)(11,897)(9,144)(89,291)
Reversal of impairment of
property, plant and equipment
(5,659)--(5,659)
Segment EBITDA8,9912,995(8,981)3,005
Interest income-156883
Finance costs--(2,014)(2,014)
Depreciation and amortisation(4,075)-(254)(4,329)
Profit before income tax4,9163,010(11,181)(3,255)
Taxation (expense) / benefit (4,275)8,6651174,507
Profit for the period
attributable to shareholders64111,675(11,064)1,252
Other comprehensive income
Gain on revaluation of land and
buildings for the period, net of tax18,197--18,197
Gain on revaluation of right of use
asset for the period, net of tax----
Gain on cash flow hedges, net of tax--6363
Total comprehensive income
for the period attributable to
shareholders of the parent18,83811,675(11,001)19,512
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
2.1 Operating Segments (continued)
Underlying net profit after tax (“Underlying Profit”)
Underlying Profit is a non-GAAP measure of financial performance and
considered in the determination of dividends. The calculation of Underlying
Profit requires a number of estimates to be approved by the Directors in their
preparation. Both the methodology and the estimates may differ among
companies in the retirement village sector. Underlying Profit does not represent
cash flow generated during the period.
The Group calculates Underlying Profit by making the following adjustments to
reported Net Profit after Tax:
Net profit after tax
Add back /
remove
Change in fair value of investment property, right of use
investment property assets and cash flow hedges and
impairment / reversal of impairment of property, plant and
equipment and right to use property, plant and equipment
Add backImpairment of goodwill
RemoveDMF income in relation to right of use investment property assets
Add backRental expenditure in relation to right of use investment property
assets
Add back /
remove
Loss / gain on sale or decommissioning of assets
Add backDirectors’ estimate of realised gains on the resale of units and
care suites
sold under an occupation right agreement ("ORA")
Add backDirectors’ estimate of realised development margin on the first
sale of new ORA units or care suites following the development
of an ORA unit or care suite, conversion of an existing care bed
to a care suite or conversion of a rental unit to an ORA unit
Add backDeferred taxation component of taxation expense so that only
the current tax expense is reflected
=Underlying Profit
RemoveInterest income
Add backFinance costs (including lease interest under NZ IFRS16)
Add backDepreciation and amortisation (including right of use property,
plant and equipment)
=Underlying EBITDA
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Resale gain – Underlying Profit
The Directors’ estimate of realised gains on resales of ORA units and care suites
(i.e. the difference between the incoming resident’s ORA licence payment and
the ORA licence payment previously received from the outgoing resident) is
calculated as the net cash flow received, and receivable at the point that the
ORA contract becomes unconditional and has either “cooled off” (the contractual
period in which the resident can cancel the contract) or where the resident is in
occupation at balance date.
Development margin – Underlying Profit
The Directors’ estimate of realised development margin is calculated as the ORA
licence payment received, and receivable, in relation to the first sale of new ORA
units and care suites, at the point that the ORA contract becomes unconditional
and has either “cooled off” or where the resident is in occupation at balance
date, less the development costs associated with developing the ORA units and
care suites.
The Directors’ estimate of realised development margin for conversions is
calculated based on the difference between the ORA licence payment received,
and receivable, in relation to sales of newly converted ORA units and care suites,
at the point that the ORA contract becomes unconditional and has either
“cooled off” or where the resident is in occupation at balance date, and the
associated conversion costs.
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Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
2.1 Operating Segments (continued)
The table below describes the composition of development and conversion costs.
IncludedNew builds:
- the construction costs directly attributable to the relevant project,
including any required infrastructure (e.g. roads) and amenities related
to the units (e.g. landscaping) as well as any demolition and site
preparation costs associated with the project. The costs are apportioned
between the ORA units and care suites, in aggregate, using estimates
provided by the project quantity surveyor. The construction costs for
the individual ORA units or care suites sold are determined on a
prorated basis using gross floor areas of the ORA units and care suites;
- an apportionment of land value based on the gross floor area of the
ORA units and care suites developed. The value for Brownfield
2
development land is the estimated fair value of land at the time a
change of use occurred
3
(from operating as a care centre or retirement
village to a development site), as assessed by an external independent
valuer. Greenfield
4
development land is valued at historical cost; and
- capitalised interest costs to the date of project completion apportioned
using the gross floor area of ORA units and care suites developed.
Conversions:
- of care beds to care suites – the actual refurbishment costs incurred;
and
- of rental units to ORA units – the actual refurbishment costs incurred
and the fair value of the rental unit prior to conversion.
Excluded
- construction, land (apportioned on a gross floor area basis) and interest
costs associated with common areas and amenities or any operational
or administrative areas.
2
Brownfield land refers to land previously utilised by, or part of, an operational aged care centre
or retirement village.
3
The timing of a change of use is a Directors’ estimate. It is based on a range of factors including
evidence of steps taken to secure a resource consent and/or building consent for a particular
development or stage of a development and the decommissioning of existing operations (either
through the buy-back of existing village ORA units or decommissioning of an existing care centre).
Note the cost of buybacks is not included in the development cost as an independent fair value
of the land on an unencumbered basis is used as the value ascribed to the development land.
4
Greenfield land refers to land not previously utilised by, or as part of, an operational aged care
centre or retirement village. Greenfield land is typically bare (undeveloped) land at the time
of purchase.
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Six months ended 30 November 2019
(unaudited)
$NZ000s
Care
Operations
Village
OperationsOtherTotal
Total comprehensive income
for the period attributable to
shareholders of the parent
12,89019,714(8,654)23,950
Adjusted for Underlying
Profit items
Less: Change in fair value of
investment property, right of
use assets and cash flow hedges
and impairment of property,
plant and equipment
(9,952)(21,561)1,898(29,615)
Add: Impairment of goodwill----
Less: DMF in relation to right of
use investment property
-(638)-(638)
Add: Rental expenditure in
relation to right of use asset
-11,536-11,536
Add: (Gain) / loss on sale or
decommissioning of assets
148(11)-137
Add: Realised resale gain
5
-8,222-8,222
Add: Realised development margin
6
-18,719-18,719
Underlying net profit before tax3,08635,981(6,756)32,311
Less: Deferred tax benefit(254)(2,146)(5,766)(8,166)
Underlying net profit after tax2,83233,835(12,522)24,145
Less: Interest income-(22)(80)(102)
Add: Finance costs--2,9112,911
Add: Depreciation and amortisation6,691-4567,147
Underlying EBITDA9,52333,813(9,235)34,101
5
Includes $2.0m in relation to care suites.
6
Includes $6.9m in relation to care suites.
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2.1 Operating Segments (continued)
Six months ended 30 November 2018
(unaudited)
$NZ000s
Care
Operations
Village
OperationsOtherTotal
Total comprehensive income
for the period attributable to
shareholders of the parent 18,83811,675(11,001)19,512
Adjusted for Underlying
Profit items
Less: Change in fair value of
investment property
7
and swaps
and reversal of impairment of
property, plant and equipment
(12,538)(1,624)(63)(14,225)
Add: Impairment of goodwill----
Less: DMF in relation to right
of use asset
-(309)-(309)
Add: Rental expenditure in
relation to right of use asset
-4,815-4,815
Add: (Gain) / loss on sale or
decommissioning of assets
(590)-435(155)
Add: Realised gain on resale
8
-5,950-5,950
Add: Realised development margin
9
-9,861-9,861
Underlying net profit before tax5,71030,368(10,629)25,449
Add: Deferred tax expense /
(benefit)
4,275(8,665)(117)(4,507)
Underlying net profit after tax9,98521,703(10,746)20,942
Less: Interest income-(15)(68)(83)
Add: Finance costs--2,0142,014
Add: Depreciation and amortisation4,075-2544,329
Underlying EBITDA14,06021,688(8,546)27,202
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
7
Includes change in fair value of Everil Orr right of use asset.
8
Includes $1.7m in relation to care suites.
9
Includes $3.0m in relation to care suites.
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3. Property Assets
The Group operates care centres and retirement villages. As outlined in section
2.1, village sites are typically investment property and care sites are typically
property, plant and equipment.
What is Investment Property?
Land and buildings are classified as investment property when they are
held to generate revenue either through capital appreciation or through
rental income.
As residents occupying our retirement villages live independently, the level
of services provided is seen as secondary to the provision of accommodation.
Accordingly, these buildings are classified as investment property as they are
held primarily to generate DMF income.
What is Property, Plant and Equipment?
Land, buildings and chattels are classified as property, plant and equipment
when they are used to generate revenue through the provision of goods and
services or for administration purposes.
As residents occupying our care centres, including care suites, require services
including nursing care, meals and laundry the buildings in which they live are
considered to be operated by the Group to generate this revenue and are
classified as property, plant and equipment.
What is a Care Suite?
Care suites are a premium offering for a resident requiring rest home or
hospital level care. The care suite is located within a care centre. Rather than
pay a daily premium accommodation charge for the provision of the premium
room the residents enter into an ORA with a net management fee.
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3. Property Assets (continued)
Classification of Serviced Apartments and Care Suites
Where services are provided to residents who occupy accommodation under
an ORA, it is the Group’s policy to assess their level of significance in the context
of the overall income derived from the serviced apartment or care suite in
ascertaining whether the serviced apartment or care suite is freehold land and
buildings (referred to as property, plant and equipment) or investment property.
The Group applies the following principles when ascertaining the appropriate
accounting treatment to be applied:
CLASSIFICATION
CONSIDERATION OF SIGNIFICANCE OF CASHFLOWS
SCENARIO
Additional Services
are optional
Services are
compulsory but an
insignificant portion
of total revenue
from the unit.
Services are
compulsory and a
significant portion
of the total revenue
from the unit.
Full ARRC
1
funded
care is compulsory
for that unit/bed.
Independent living (villa or apartment)
Care suiteTraditional care bed
Qualitatively the
business model is the
provision of retirement
accommodation
Quantitatively
insignificant (a
guideline of under
20% of total revenue
is adopted) and
qualitatively the
business model is the
provision of
retirement
accommodation
Quantitatively
significant.
Qualitatively the
business model is
the provision of
care
Qualitatively the
business model is
the provision of care.
Quantitative
assessment not
relevant as price of
accommodation
does not change
overall purpose of
the accommodation
Investment Property
Village Assets
Property, Plant and
Equipment Care Assets
CLASSIFICATION
CONSIDERATION OF SIGNIFICANCE OF CASHFLOWS
SCENARIO
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
1
ARRC refers to age-related residential care.
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3.1 Village Assets: Investment Property
$NZ000s Notes
Unaudited
30 Nov 2019
Audited
31 May 2019
Investment property under development
at fair value
Opening balance101,460108,204
Transfer from / (to) property, plant and equipment
3.2
3,350(6,626)
Capitalised expenditure45,86789,396
Capitalised interest and line fees1,5004,910
Transfer to completed investment property(14,366)(105,532)
Change in fair value during the period –
developments as at balance date
3758,015
Change in fair value during the period –
developments completed during the period
1,6503,093
Closing balance139,836101,460
Completed investment property at fair value
Opening balance780,214647,357
Transfer from investment property
under development
14,366105,532
Transfer to property, plant and equipment
3.2
(17,592)(12,101)
Transfer to right of use assets
3.4
(14,006)-
Capitalised expenditure4,7323,930
Capitalised interest and line fees709-
Disposals(44)-
Change in fair value during the period –
existing villages
3,227(6,100)
Change in fair value during the period –
recently completed developments
1
6,11341,596
Closing balance777,719780,214
Total investment property917,555881,674
1
Recently completed developments refers to those developments which were being sold down
during the period.
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3.1 Village Assets: Investment Property (continued)
Change in Fair Value Recognised in the Consolidated Statement of
Comprehensive Income
$NZ000s
Unaudited
30 Nov 2019
Unaudited
30 Nov 2018
Increase in fair value of investment property35,88148,878
Add: Transfers to property, plant and equipment
and to right of use assets during the period
28,2481,086
Less: Capitalised expenditure including capitalised interest(52,808)(48,340)
Add: Disposals44-
Change in fair value recognised in Consolidated
Statement of Comprehensive Income11,3651,624
A reconciliation between the valuation and the amount recognised on the
Consolidated Balance Sheet as investment property is as follows:
$NZ000s
Unaudited
30 Nov 2019
Audited
31 May 2019
Investment Property under development
Valuation139,836101,460
139,836101,460
Completed Investment Property
Valuation341,954380,229
Add: Refundable occupation licence payments500,353456,349
Add: Residents' share of resale gains6,5106,900
Less: Management fee receivable(68,299)(61,745)
Less: Resident obligations for units not included
in valuation (2,799)(1,519)
777,719780,214
Total investment property at fair value917,555881,674
Where an incoming resident has an unconditional ORA in respect of a
retirement village unit and the corresponding outgoing resident for that same
accommodation has not yet been refunded, the CBRE Limited valuation is
adjusted for the incoming resident balances only. An adjustment of $2.8m
(31 May 2019: $1.5m) is included in the above reconciliation to reflect this.
The valuation of investment property is adjusted for cashflows relating to
refundable occupation licence payments, residents' share of resale gains and
management fee receivable recognised separately on the Consolidated Balance
Sheet and also reflected in the valuation model.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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Why do we adjust for the liability to residents?
In the CBRE Limited valuation the fair value of investment property includes
an allowance for the amount that is payable by the Group to residents
already in occupation within the property. However, this liability to existing
residents is recognised in the Group’s Consolidated Balance Sheet (referred
to as refundable occupation right agreements – see note 3.3). Accordingly,
the Group adds this net liability to residents to the CBRE Limited valuation
to “gross up” the fair value of investment property and avoid double counting
the liability to residents.
Valuation Process and Key Inputs
Investment Property under Development
CBRE Limited provided valuations of development land in respect of investment
property under development as at 31 October 2019.
The fair value of investment property is determined by the Directors having taken
into consideration the valuation conducted by CBRE Limited as an independent
registered valuer and the cost of work undertaken in relation to investment
property under development. As at 30 November 2019, in respect of two
development sites, the Directors determined a fair value that was, in aggregate,
$1.9m higher than the valuation midpoints provided by CBRE Limited but within
the valuation ranges provided by CBRE Limited.
The Directors do not judge there to have been a material movement in the adopted
land value between 31 October 2019 and 30 November 2019 and, therefore, no
adjustment has been made to this value. Any costs incurred to 30 November
2019 on the developments are included in arriving at the fair value as at 30
November 2019.
The Group has applied the following methodology in relation to the measurement
of investment property under development:
Practical completion not achieved
Where the development still requires substantial work such that practical
completion is not going to be achieved, and a reliable estimate of fair value
cannot be made, at or close to balance date, the fair value recognised is the fair
value of the development land per the Directors’ valuation plus the cost of any
work in progress. An amount of $71.3m as at 30 November 2019 (31 May 2019:
$33.5m) has been recognised in relation to these development sites.
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3.1 Village Assets: Investment Property (continued)
Where an individual development is of both investment property and freehold
buildings in nature, the fair value of land and work in progress is apportioned
between investment property under development and freehold land and
buildings under development, by applying the estimated gross floor area for
these respective areas of the development based on information obtained from
the project quantity surveyors at the planning and design stages.
Practical completion achieved
Where a development is practically completed, or likely to be completed at,
or close to, balance date the investment property is measured at its completed
fair value per the Directors’ valuation with an adjustment made for any estimated
costs, in accordance with the project budget, to be incurred to complete the
development, and is then transferred to completed investment property.
Completed Investment Property
The fair value of completed investment property includes the right of use
asset under a finance lease (Everil Orr per below).
As required by NZ IAS 40 Investment Property, the valuation of investment
property is adjusted for cash flows relating to refundable occupation licence
payments, residents’ share of resale gains and management fees receivable
recognised separately on the Consolidated Balance Sheet and also reflected
in the valuation model.
The Group's interest in all completed investment property was valued on
31 October 2019 by CBRE Limited (31 May 2019: 30 April 2019 by CBRE Limited),
at a total of $383.3m (31 May 2019: $403.2m). The CBRE Limited valuation has
been adjusted downwards for the impact of any sale, resale and repurchase of
ORAs between 1 November 2019 and 30 November 2019 of $14.1m (31 May 2019:
adjusted downwards by $23.0m), with a corresponding increase in refundable
occupation licence payments of $17.3m (31 May 2019: $34.0m), to arrive at the
fair value of completed investment properties at 30 November 2019.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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Property Specific Assumptions
Seismic and Weather Tightness Assessments
The CBRE Limited valuation, and accordingly the fair value of investment
property, incorporates an allowance in relation to remediation to properties
where seismic strength testing has been carried out in prior years.
Assets Held for Sale
Investment property assets are classified as held for sale when their carrying
amount is to be recovered principally through a sale transaction and a sale is
considered highly probable. They are stated at their fair value.
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3.2 Care Assets: Property, Plant and Equipment
$NZ000s Notes
Freehold
Land and
Buildings
Under
Development
Freehold
Land
Freehold
Buildings
Chattels and
Leasehold
Improvements Total
Period ended
30 November 2019
Opening net book
amount
70,29770,662282,41719,333442,709
Additions
12,206-4,9524,93322,091
Capitalised interest
and line fees
464-539-1,003
Disposals
---(114)(114)
Depreciation
--(4,310)(1,439)(5,749)
Transfer (to) right of
use assets
3.4
---(5,375)(5,375)
Transfer (to) / from
investment property
3.1
(3,350)57017,022-14,242
Revaluation surplus
Comprehensive income
Existing care centres
(853)15(102)-(940)
Care centres recently
developed / under
development
-(135)31-(104)
Other comprehensive
income
1
Existing care centres
270705127-1,102
Care centres recently
developed / under
development
-2411,545-11,569
Closing net book
amount (unaudited)
79,03471,841312,22117,338480,434
At 30 November 2019
(unaudited)
Cost
- - - 44,739 44,739
Valuation
79,03471,841312,221 - 463,096
Accumulated
depreciation
- - - (27,401)(27,401)
Net book amount
79,03471,841312,22117,338480,434
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
1
The revaluation noted in the Statement of Comprehensive Income differs from the above
due to deferred tax, refer note 5.1.
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$NZ000s Notes
Freehold
Land and
Buildings
Under
Development
Freehold
Land
Freehold
Buildings
Chattels and
Leasehold
Improvements Total
Year ended
31 May 2019
Opening net book
amount
44,36367,124177,69714,377303,561
Additions
57,66547,4857,35172,505
Capitalised interest
and line fees
2,858---2,858
Disposals
--(3)(295)(298)
Depreciation
--(5,797)(3,638)(9,435)
Transfer from / (to)
investment property
3.1
10,666(2,194)10,255-18,727
Reclassification within
property, plant and
equipment
(61,727)(2,180)62,3691,538-
Revaluation surplus
Comprehensive income
Existing care centres
-443(7,498)-(7,055)
Care centres recently
developed / under
development
--73-73
Other comprehensive
income
1
Existing care centres
1,9307,46530,390-39,785
Care centres recently
developed / under
development
14,542-7,446-21,988
Closing net book
amount (audited)
70,29770,662282,41719,333442,709
At 31 May 2019
(audited)
Cost
- - - 48,304 48,304
Valuation
70,29770,662282,417 - 423,376
Accumulated
depreciation
- - - (28,971)(28,971)
Net book amount
70,29770,662282,41719,333442,709
1
The revaluation noted in the Statement of Comprehensive Income differs from the above
due to deferred tax, refer note 5.1.
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3.2 Care Assets: Property, Plant and Equipment (continued)
Land and Buildings Under Development
A valuation in respect of development land was provided by CBRE Limited as
at 31 October 2019.
The Directors do not judge there to have been a material movement in the
land value between 31 October 2019 and 30 November 2019 and therefore no
adjustment has been made to this value. Any costs incurred to 30 November
2019 on the developments are included in arriving at the fair value as at 30
November 2019.
The Group has applied the following methodology in relation to the measurement
of land and buildings under development:
Practical completion not achieved
Where the development still requires substantial work such that practical
completion is not going to be achieved, and a reliable estimate of fair value
cannot be made, at or close to balance date, the fair value recognised is the fair
value of the development land per the Directors’ valuation plus the cost of any
work in progress. An amount of $26.2m as at 30 November 2019 (31 May 2019:
$13.5m) has been recognised in relation to these development sites.
Where an individual development is of both investment property and freehold
buildings in nature, the fair value of land and work in progress is apportioned
between investment property under development and freehold land and
buildings under development, by applying the estimated gross floor area for
these respective areas of the development based on information obtained from
the project quantity surveyors at the planning and design stages.
Practical completion achieved
Where a development is practically completed, or likely to be completed at, or
close to, balance date the land and buildings are measured at its completed fair
value per the Directors’ valuation with an adjustment made for any estimated
costs, in accordance with the project budget, to be incurred to complete the
development, and is then transferred to completed land and buildings.
Completed Land and Buildings
A valuation in respect of completed land and buildings was provided by
CBRE Limited as at 31 October 2019. The Directors do not judge there to have
been a material movement in the land value between 31 October 2019 and
30 November 2019 and therefore no adjustment has been made to this value.
The valuation of the Group’s care centres was apportioned to land, buildings,
chattels and goodwill. The fair value of land and buildings as calculated by CBRE
Limited is based on the level of rent able to be generated from the maintainable
net cash flow of the site subject to average efficient management.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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The fair value of the Group’s land and buildings as determined by the Directors
is based on these apportionments. However, chattels are carried at historic cost
less depreciation and the amount apportioned to goodwill by CBRE Limited is
not recorded in the consolidated interim financial statements. The CBRE Limited
valuation included $17.5m of goodwill (31 May 2019: $20.6m) in respect of
completed land and buildings.
The CBRE Limited valuation used in the determination of the fair value of
freehold buildings, incorporates an allowance in relation to remediation to
properties where seismic strength testing has been carried out in prior years.
Care Suites and Serviced Apartments
As discussed earlier in note 3, where services are provided to residents who
occupy accommodation under an ORA, it is the Group’s policy to look at the
significance of these services in the context of the overall revenue derived from
care suite or serviced apartment in ascertaining whether the care suite or
serviced apartment is property, plant and equipment or investment property.
Care suite residents occupying accommodation under an ORA receive a
significant level of services. Hence they are included in property, plant and
equipment. Care suite land and buildings are held at fair value.
In the 12 months to 31 May 2019 the valuer performed a review of the valuation
methodology for care suites with the outcome that the value of all cash flows
associated with the ORA have been allocated to freehold land and buildings.
This has resulted in a reduction in the level of goodwill in CBRE Limited’s
apportionment relating to care suites. The treatment of the cashflows under the
daily care fees remain unchanged. These continue to be apportioned to land,
buildings, chattels and goodwill in the same manner as traditional care beds.
Where a site is in its first few years of operation, the Directors assess the
appropriateness of the fair value of care suites by taking into consideration the
CBRE Limited valuation and applying different operating assumptions including
instances where care suites are occupied by residents paying a premium
accommodation charge. As at 30 November 2019 the Directors have adjusted
the CBRE Limited valuation in respect of two sites. This adjustment decreased
the CBRE Limited valuation by $12.1m (30 November 2018: nil).
The CBRE Limited valuation includes $0.4m of goodwill (31 May 2019: $0.4m).
This goodwill is not recognised in the consolidated financial statements.
Key Accounting Estimates and Judgements
All land and buildings have been determined to be Level 3 (31 May 2019: Level 3)
in the fair value hierarchy as the fair value is determined using inputs that are
unobservable.
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3.3 Refundable Occupation Right Agreements
What’s an ORA?
An ORA is a contract which sets out the terms and conditions of occupation
of an independent living unit or care suite. A new resident is charged a
refundable occupation licence payment in consideration for the right to
occupy one of the Group's units, apartments or care suites. On termination
of the ORA the occupation licence payment is repaid to the exiting resident.
What’s DMF?
An amount equal to a capped percentage of the occupation licence payment
is charged by the Group as a management fee for the right to use and enjoy
the common areas of the village. The deferred management fee is payable by
the resident on termination of the ORA.
$NZ000s
Unaudited
30 Nov 2019
Unaudited
31 May 2019
Village
Refundable occupation licence payments500,353456,349
Residents’ share of resale gains6,5106,900
Less: Management fee receivable (per contract)(94,870)(85,178)
411,993378,071
Care Suites
Refundable occupation licence payments97,38971,811
Accommodation rebate507738
Less: Management fee receivable (per contract)(16,084)(14,139)
81,81258,410
Total refundable occupation right agreements493,805436,481
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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Reconciliation of Management Fees recognised under NZ IFRS
and per ORA
$NZ000s
Unaudited
30 Nov 2019
Audited
31 May 2019
Village
Management fee receivable (per contract)(94,870)(85,178)
Deferred management fee26,57123,433
Management fee receivable (per NZ IFRS)(68,299)(61,745)
Care Suites
Management fee receivable (per contract)(16,084)(14,139)
Deferred management fee4,0913,569
Management fee receivable (per NZ IFRS)(11,993)(10,570)
3.4 Leases
What’s a right of use asset?
Right of use assets are assets held under a lease arrangement. It represents
the value of the lessee’s right to use an asset over the life of the lease. There
is a corresponding lease liability on the Balance Sheet which represents the
present value of the future lease payments.
The accounting treatment of leases has changed in the current period due
to the adoption of NZ IFRS 16, see note 5.2 for details.
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3.4 Leases (continued)
Right of use Assets
$NZ000s
30 Nov 2019Notes
Investment
Property
Land and
BuildingsChattelsTotal
Opening net book value ----
Recognition on adoption of
NZ IFRS 16 Leases
-5,4232295,652
Transfer from investment property
/ property, plant and equipment3.1, 3.2
14,006-5,37519,381
Additions481,0541,066
Depreciation-(311)(1,051)(1,362)
Revaluation for the period
1
10,196156-10,352
Net book value as at
30 November 2019 (unaudited)
24,2065,2765,60735,089
Cost--9,1579,157
Valuation24,2065,276-29,482
Accumulated depreciation--(3,550)(3,550)
Net book value as at
30 November 2019 (unaudited)
24,2065,2765,60735,089
Lease Liabilities
$NZ000s
30 Nov 2019Notes
Investment
Property
Land and
BuildingsChattelsTotal
Opening net book value ----
Recognition on adoption of
NZ IFRS 16 Leases
-8,4442788,722
Transfer from borrowings
4.3
--5,5175,517
Additions--1,0541,054
Interest-240262502
Lease payments made-(525)(1,258)(1,783)
Lease liabilities as at
30 November 2019 (unaudited)
-8,1595,85314,012
The maturity of these lease liabilities is as follows:
Lease Liabilities $NZ000s
Unaudited
30 Nov 2019
Less than one year 2,488
One to five years5,791
More than five years5,733
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
1
The revaluation noted in the Statement of Comprehensive Income differs from the above
due to deferred tax, refer note 5.1.
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Right of use assets and lease liabilities arising from a lease are initially measured on
a present value basis. Lease liabilities include the net present value of the remaining
lease payments. Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liabilities.
Right of use assets are initially recognised at cost, comprising of the initial amount
of the lease liability less any lease incentives received. Right of use leases relating
to equipment and motor vehicles are subsequently depreciated using the straight
line method from the commencement date to the end of the lease. Right of use
leases relating to care centres are subsequently measured at fair value by CBRE
Limited. In considering the lease term, the Group applies judgement in determining
whether it is reasonably certain that an extension or termination option will be
exercised.
The lease payments are discounted using the interest rate implicit in the lease.
If that rate cannot be readily determined the incremental borrowing rate at the
commencement of the lease is used.
Lease of Investment Property
The Group leases one site, Everil Orr, which meets the definition of investment
property. The site comprises both apartments and common facilities provided for
use by residents under the terms of an ORA. Payments to the lessor under this
lease are made as ORAs are sold. Subsequent cash flows upon the sale and resale
of the units are shared between the lessor and the Group.
Due to the variability of these payments both the right to use asset and the
corresponding lease liability were initially recognised at nil value. Rental payments
are recognised as a rental expense through the Consolidated Statement of
Comprehensive Income. The right to use asset is held at fair value in accordance
with NZ IAS 40 Investment Property and has been valued by CBRE Limited at
31 October 2019. The valuation has been adjusted by the Directors for the impact
of any sale of ORAs between 1 November 2019 and 30 November 2019 to arrive at
the fair value as at 30 November 2019 and any changes in fair value are taken to
the Consolidated Statement of Comprehensive Income.
The carrying value of the right to use asset as at 30 November 2019 in respect
of this leased site is $24.2m (31 May 2019: $14.0m), included within completed
investment property above, refer note 3.1
Lease of Property, Plant and Equipment
The Group leases three care centres which are valued as right of use assets as well
as various equipment and motor vehicles.
A valuation in respect of right of use property assets was provided by CBRE
Limited as at 31 October 2019.
The Directors do not consider there to have been a material movement in the right
of use asset value between 31 October 2019 and 30 November 2019 and therefore
no adjustment has been made to this value.
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4. Shareholder Equity and Funding
4.1 Shareholder Equity and Reserves
Unaudited
30 Nov 2019
Shares
Audited
31 May 2019
Shares
Unaudited
30 Nov 2019
$NZ000s
Audited
31 May 2019
$NZ000s
Share capital
Authorised, issued and
fully paid up capital613,532,055 610,254,535 583,072 580,794
Total contributed equity
613,532,055 610,254,535 583,072 580,794
Movements
Opening balance of
ordinary shares issued
610,254,535610,254,535580,794579,498
Shares issued for long
term incentive plan
--- 1,296
Shares issued for
employee share scheme
1,004,640---
Shares issued for dividend
reinvestment plan
2,272,880-2,278-
Closing balance of
ordinary shares issued
613,532,055610,254,535583,072580,794
Ordinary shares are classified as equity. Incremental costs directly attributable
to the issue of new shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
All ordinary shares are authorised and rank equally with one vote attached to
each fully paid ordinary share. The shares have no par value. The Company
incurred no transaction costs issuing shares during the period (31 May 2019: nil).
During the year to 31 May 2019 an amount of $1.3m was recognised in equity in
respect of 2,730,772 shares which had previously vested but for which the loan
was repaid in accordance with the terms of the 2015 Long Term Incentive Plan
(“LTIP”), see note 4.3 in the 31 May 2019 audited consolidated financial statements.
During the six months to 30 November 2019 1,004,640 shares were issued as
part of an employee share scheme (“ESS”). All permanent employees were
invited to participate. Full time employee participants were allocated $800 of
shares and part time employee participants were allocated $400 of shares with
a total of 1,004,640 shares issued under this scheme. The shares are held in trust
and will be transferred to the employee if the employee remains employed by
Oceania (or any of its subsidiaries) for the following three years.
2,272,880 shares with a value of $1.0018 per share were also issued in the
six months to 30 November 2019 in relation to the 31 May 2019 dividend
reinvestment plan.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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Recognition and Measurement
None of the above issued shares are held by the Group or its subsidiaries with
the exception of shares issued to OCA Employees Trustee Limited, a subsidiary,
on behalf of Oceania employees in relation to a long term incentive plan and in
relation to the ESS.
The shares issued for both the LTIP and ESS are classified as Treasury Shares
as the Group has a beneficial interest in the 4,169,196 shares until the vesting
conditions are met (1,004,640 ESS shares, 3,164,556 LTIP shares).
As at the time of signing the financial statements, the Board is considering
appropriate adjustments to lower the performance hurdle of the May 2020 LTIP,
in accordance with the scheme rules, to take into account changes to the business
since the time that the scheme was implemented; for example, the effect of
divested sites. The cumulative expense recognised of $0.4m continues to be
recognised within reserves as at 30 November 2019.
Group structure
The Group’s largest shareholder is Oceania Healthcare Holdings Limited (“OHHL”).
On 5 September 2018 OHHL sold 15.56% of its holding. On 22 May 2019 OHHL
sold a further 0.49% holding resulting in a remaining 40.94% shareholding as at
30 November 2019 (31 May 2019: 41.16%).
Dividends
On 24 January 2020, an interim dividend of 2.3 cents per share (not imputed)
was declared and will be paid on 24 February 2020. The record date for
entitlement will be 10 February 2020.
Unaudited
30 Nov 2019
cents per share
Unaudited
30 Nov 2019
$NZ000s
Audited
31 May 2019
cents per share
Audited
31 May 2019
$NZ000s
Final dividend for
the prior year
2.615,8672.615,867
Interim dividend for
the period --2.112,815
Total dividends
declared during
the period
1
15,86728,682
1
Total dividends declared during the period differs to dividends paid per the Consolidated Statement
of Changes in Equity as a result of dividends payable on LTIP scheme which remain within the Group
until vesting.
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4.1. Shareholder Equity and Reserves (continued)
Dividend Reinvestment Plan
On 25 July 2019, the Board approved the implementation of a dividend
reinvestment plan for New Zealand and Australian shareholders. This plan shall
also be effective for the dividend payable on 24 February 2020 and shall apply
to those shareholders who have provided a participation election by 5.00pm on
the dividend election date, being 11 February 2020.
Asset Revaluation Reserve
The asset revaluation reserve is used to record the revaluation of freehold land
and buildings and land and buildings under development.
Cash Flow Hedge Reserve
The cash flow hedge reserve is used to record gains or losses on instruments used
as cash flow hedges. The amounts are recognised in the Consolidated Statement
of Comprehensive Income when the hedged transaction affects profit or loss.
Refer note 5.6 of the 31 May 2019 audited consolidated financial statements.
4.2 Earnings per Share
Basic
Basic earnings per share is calculated by dividing the profit after tax of the
Group by the weighted average number of ordinary shares outstanding during
the period.
Unaudited
30 Nov 2019
Unaudited
30 Nov 2018
Profit after tax ($’000)14,8521,252
Weighted average number of ordinary shares
outstanding ('000s)608,656604,359
Basic earnings per share (cents per share)2.40.2
Diluted
Diluted Earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. As at 30 November 2019 there were no shares
with a dilutive effect (31 May 2019: nil).
Unaudited
30 Nov 2019
Unaudited
30 Nov 2018
Profit after tax ($’000)14,8521,252
Diluted weighted average number of ordinary shares
outstanding ('000s)608,656605,546
Diluted earnings per share (cents per share)2.40.2
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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4.3 Borrowings
$NZ000s
Unaudited
30 Nov 2019
Audited
31 May 2019
Secured
Bank loans287,457265,487
Capitalised loan costs(785)(845)
Finance leases-5,517
Total borrowings286,672270,159
Current-1,600
Non current287,457269,404
Total borrowings excluding capitalised loan costs287,457271,004
Recognition and Measurement
Bank Loans
Interest is charged using the BKBM Bill rate plus a margin and line fee. Interest
rates applicable in the six months to 30 November 2019 ranged from 2.36% to
2.83% (year to 31 May 2019: 2.94% to 3.48%).
Debt Financing
On 6 July 2018 an agreement was entered into with the banking syndicate to
increase total debt facility limits from $235m to $350m as follows:
(i) General Corporate Facility limit increased to $135m (formerly $75m); and
(ii) Development Facility limit increased to $215m (formerly $160m).
In addition to the above, the maturity of borrowings was extended to
31 July 2023.
Financing arrangements
At 30 November 2019, the Group held committed bank facilities with drawings
as follows:
Unaudited 30 Nov 2019Audited 31 May 2019
$NZ000sCommittedDrawnCommittedDrawn
General Corporate Facility135,000123,467135,000101,961
Development Facility215,000163,990215,000163,526
Total350,000287,457350,000265,487
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4.3 Borrowings (continued)
The Group’s revolving Development Facility is utilised to cover costs associated
with current development projects. The revolving General Corporate Facility is
used for general corporate purposes as well as for development land and initial
costs for projects not currently funded by the Development Facility.
Interest on the General Corporate Facility is typically payable quarterly. Interest
on the Development Facility is capitalised and repaid together with principal
using the ORA licence proceeds received upon settlement of initial sales of
newly developed units and care suites. Line fees are payable quarterly on the
committed General Corporate Facility and the Committed Development Facility.
The financial covenants in the Group’s senior debt facilities, with which the
Group must comply include:
a) Interest Cover Ratio – the ratio of Adjusted EBITDA to Net Interest Charges
is not less than 2.0x; and
b) Loan to Value Ratio – the ratio of total bank indebtedness shall not exceed
50% of the total property value of all Group’s properties (including the “as-
complete” valuations for projects funded under the Development Facility).
The covenants are tested half yearly. All covenants have been complied with
during the period. The Group has agreed with its banks that the calculation of
Adjusted EBITDA and Net Interest, for the purposes of the financial covenants,
shall be based on the accounting treatment in use before the introduction of
NZ IFRS 16.
Assets Pledged as Security
The bank loans of the Group are secured by mortgages over the Group’s care
home freehold land and buildings and rank second behind the Statutory
Supervisors where the land and buildings are classified as investment property
and investment property under development. There was no material change
to security arrangements as a result of the refinance.
Finance Lease
Finance lease liabilities relate to the lease of various equipment and motor
vehicles and are effectively secured as the rights to the leased asset revert
to the lessor in the event of default.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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5. Other Disclosures
5.1 Income Tax
What is Current Tax?
Current tax is an estimate of the tax that is payable to Inland Revenue for the
current financial period.
What is Deferred Tax?
Deferred tax is an estimate of income tax that will be payable or recoverable
in respect of temporary differences relating to the accounting and tax values
of the Group’s assets and liabilities. Deferred tax also includes the value of
tax losses that we consider we will use in the future to meet any income
tax obligation.
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5.1 Income Tax (continued)
$NZ000s
Unaudited
30 Nov 2019
Unaudited
30 Nov 2018
Income tax benefit
Current tax--
Deferred tax(8,166)(4,507)
(8,166)(4,507)
Taxation expense is calculated as follows:
Profit before income tax6,686(3,255)
Tax at the New Zealand tax rate of 28% 1,872(911)
Adjusted by the tax effect of:
Non-deductible impairment of goodwill--
Non-deductible expenditure16668
Capitalised interest deductible for tax(900)(739)
Taxable deferred management fees(435)630
Non-assessable revaluation of investment property(6,037)(455)
Taxable depreciation(2,519)(1,573)
Accounting depreciation1,6581,223
Right of use asset24-
Non-deductible impairment / (reversal of non-
deductible impairment) of fixed asset2921,585
Adjustment for timing difference of provisions133(333)
Other--
Losses recognised / (utilised)5,746505
Current tax expense--
Impact of movements in investment property(2,659)787
Impact of movements in property, plant and
equipment
(6)1,142
Impact of movements in right of use assets(60)-
Other adjustments(133)332
Deferred management fee438(630)
Prior period adjustments: treatment of DMF income-(6,138)
Losses utilised or (recognised) / derecognised(5,746)-
Deferred tax benefit(8,166)(4,507)
Income tax benefit (8,166)(4,507)
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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Movement in the Deferred Tax Balance:
$NZ000s
Balance
1 June
2019
Audited
Recognised in
Consolidated
Statement of
Comprehensive
Income
Recognised
in Other
Comprehensive
Income
Balance
30 Nov 2019
Unaudited
Investment property(9,264)2,659-(6,605)
Property, plant and equipment(22,504)6(1,787)(24,285)
Right of use assets-60816
1
876
Provisions and other assets /
liabilities
6,1231337637,019
DMF revenue in advance7,069(438)-6,631
Tax losses3,7515,746-9,497
Deferred tax liabilities
(14,825)8,166(208)(6,867)
$NZ000s
Balance
1 June
2018
Audited
Recognised in
Consolidated
Statement of
Comprehensive
Income
Recognised
in Other
Comprehensive
Income
Balance
31 May 2019
Audited
Investment property(9,624)360-(9,264)
Property, plant and equipment(18,470)1,636(5,670)(22,504)
Provisions and other assets /
liabilities
4,7597606046,123
DMF revenue in advance-7,069-7,069
Tax losses-3,751-3,751
Deferred tax liabilities
(23,335)13,576(5,066)(14,825)
Recognition and Measurement
No income tax was paid or payable during the period (30 November 2018: nil).
Key accounting judgements
Deferred Tax on Investment Property
Deferred tax on investment property is assessed on the basis that the asset
value will be realised through use (“Held for Use”).
An initial recognition exemption has been applied to newly developed village
sites in accordance with NZ IAS 12.
1
Includes the tax effect of the opening retained earnings adjustment on adoption of NZ IFRS 16
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5.1 Income Tax (continued)
The Group’s ORAs comprise two distinct cash flows (being an ORA deposit
upon entering the unit and the refund of this deposit upon exit). In determining
the tax base of investment property, the Group considered whether taxable cash
flows are received at the end of the ORA period (i.e. upon refund of the ORA
deposit by way of set off on exit by a resident) or at the beginning of the ORA
period (i.e. at time of the receipt of the ORA deposit). The Group has carefully
evaluated all the available information and considers it appropriate to recognise
and measure the tax base and associated deferred tax based on the taxable
cash flows being receivable at the end of the ORA period as this best represents
the Group’s contractual entitlement.
In calculating deferred tax under the Held for Use methodology, the Group has
made significant judgements to determine taxable temporary differences. The
carrying value of the Group’s investment property is determined on a discounted
cash flow basis and includes cash flows that are both taxable and non-taxable in
the future. The Group has recognised deferred tax on the cash flows with a
future tax consequence being DMF as provided by CBRE Limited, to the extent
that it arises from depreciable components (i.e. buildings) of the investment
property. The Group uses the council rateable valuations to estimate the
apportionment of cash flows arising from the depreciable (i.e. buildings) and
non-depreciable components (i.e. land).
Contractually, management fees are received upon refund of the ORA deposit
by way of set off on exit of a unit by a resident.
Recognition of Deferred Tax on Deferred Management Fee
The interpretation of New Zealand tax laws in relation to DMF involves significant
judgements and uncertainty. As at 31 May 2018, the Group recognised DMF for
tax purposes in a manner consistent with the Group’s revenue recognition policy.
As explained in the 31 May 2018 consolidated annual financial statements, Inland
Revenue was disputing the tax treatment adopted by the Group in respect of the
2016 income year.
During October 2018, the Group obtained a binding ruling from Inland Revenue,
applicable for ORAs entered into after 1 June 2018 with certain revisions to the
terms and conditions relating to the DMF. Pursuant to this ruling DMF revenue
is recognised as derived on the exit of a unit or care suite by a resident.
On 20 November 2018, as a result of the binding ruling and associated certainty
of the tax position going forward, the Group resolved the dispute with Inland
Revenue. The Group have included an adjustment in the 31 May 2018 tax return
to recognise tax on DMF in accordance with the contractual term of the
resident’s ORA.
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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This resulted in the recognition of a tax liability of $6.1m as at 30 November 2018,
being the tax effect of the cumulative difference between the two treatments
of $21.9m. This was fully met by the application of $21.9m of the $64.6m
available tax losses that had not previously been recognised on the Consolidated
Balance Sheet. A corresponding deferred tax asset of $6.1m was recognised at
this point for tax paid on DMF revenue in advance of its accounting recognition.
A movement of $0.9m was then recognised in the year to 31 May 2019 resulting
in a closing deferred tax asset of $7.1m in respect of DMF revenue as at
31 May 2019. A further movement of $0.4m was recognised in the six months
to 30 November 2019 resulting in a closing deferred tax asset of $6.6m as at
30 November 2019.
Recognition of Deferred Tax on Tax Losses
The Company and its subsidiaries exited the former OHHL tax consolidated
group from 31 May 2015. All tax losses incurred by the Company and its
subsidiaries until 31 May 2015 are tax losses of the OHHL consolidated tax group
(of which the Group is no longer a member).
On 5 September 2018 the Group forfeited all losses generated prior to the IPO
of the Company as a result of the sale of 15.56% of OHHL’s shareholding. This
resulted in the cessation of shareholder continuity.
The Group also utilised $21.9m of losses to offset additional taxable income
arising from the change in recognition of DMF revenue as noted above.
After allowing for the utilisation of losses to offset additional taxable income
arising from the change in recognition of DMF revenue, the forfeiture of losses
generated prior to IPO on 5 September 2018, and taking into consideration the
new losses generated in the six months to 30 November 2019, the Group now
has an estimated $46.1m (31 May 2019: $25.6m) of available tax losses at
30 November 2019. Of these total available tax losses, $12.2m may be forfeited
in the event of a further sale of shares by OHHL.
A deferred tax asset of $9.5m has been recognised as at 30 November 2019,
being the tax effect of the remaining $33.9m of tax losses (31 May 2019 : $3.8m).
These are effectively the tax losses generated after 5 September 2018 which will
be retained by the Group in the event of any further sale of shares by OHHL
provided there are no other significant shareholding changes.
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5.2 New Accounting Standards
New and amended standards adopted by the Group
In the current period, the Group adopted all mandatory new and amended
standards and interpretations, including:
NZ IFRS 16, Leases (effective for the Group from 1 June 2019)
The standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases. The objective of the standard is to ensure
that lessees and lessors provide relevant information in a manner that faithfully
represents those transactions.
The standard does not change the accounting treatment from the perspective
of lessors and the Group confirms that there is no change in recognition of
rental and DMF income.
The standard requires a lessee to recognise a lease liability on the balance
sheet reflecting the future lease payments and a right of use asset for all lease
contracts, except those which are of low value or short term. This standard
primarily effects the accounting of the Group’s operating leases. As at 31 May
2019 the Group had non-cancellable operating lease commitments of $13.1m
under operating leases. Many of the Group’s leases relate to leases of low value
assets however the Group currently leases three care centres and two
administrative buildings.
The Directors have elected to apply the modified retrospective approach.
Under this approach the cumulative effect of the initial recognition of NZ IFRS 16
is recognised as an adjustment to retained earnings as at 1 June 2019 and
comparative figures are not restated but instead continue to reflect the
accounting treatment under the previous standard. In addition, the Group has
utilised the following permitted practical expedients:
a) The recognition exemption for short-term leases (term up to one year) and
low-value leases (under $5k);
b) Not reassessing whether a contract is, or contains, a lease at the date of
initial application;
c) Leases which end within 12 months of the date of initial application.
The following impacts are noted in the context of the 30 November 2019
balances:
a) A straight-line operating lease expense of $0.6m would have been
recognised if the new standard had not been adopted, however instead there
is an additional depreciation charge of $0.4m and additional interest expense
on lease liabilities of $0.2m;
b) The repayment of the principal portion of all lease liabilities has been
classified as financing activities; and
Notes to the Consolidated Interim Financial Statements (continued)
For the six months ended 30 November 2019
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c) The Consolidated Balance Sheet has been impacted by the recognition of
additional right of use assets of $5.7m and corresponding additional lease
liabilities of $8.7m in respect of leases previously classified as operating
leases. Total right of use assets and corresponding liabilities are $35.1m and
$14.0m respectively. This results in a decrease in opening retained earnings
as at 1 June 2019 of approximately $3.0m (Net of tax: $2.2m).
The adoption of NZ IFRS 16 has had no impact on net cash flows of the Group.
See note 3.4 for further details.
5.3 Contingencies and Commitments
At 30 November 2019, the Group had no contingent liabilities or assets
(31 May 2019: nil).
At 30 November 2019, the Group has a number of commitments to develop
and construct certain sites totalling $131.6m (31 May 2019: $106.7m) of which
$131.6m (31 May 2019: $106.7m) relates to development sites.
As at 30 November 2019, a commitment of $9.3m (31 May 2019: $11.5m) exists in
relation to Stage One and $17.6m (31 May 2019: $27.2m) in relation to Stage Two
in the form of future lease payments in respect of the development of Everil Orr,
a leasehold site. Lease payment obligations arise as ORAs are sold. See note
3.4 for further details.
There are no significant unrecognised contractual obligations entered into
for future repairs and maintenance at balance date.
5.4 Events After Balance Date
Dividends
On 24 January 2020 an interim dividend of 2.3 cents per share (not imputed)
was declared and will be paid on 24 February 2020. The record date for
entitlement is 10 February 2020. The dividend reinvestment plan announced
in July 2019 will apply to the dividend payable on 24 February 2020 at a
discount 2.5% to the volume weighted average price of shares sold on the
NZX Main Board over a period of five trading days starting on 7 February 2020.
Refer note 4.1.
There have been no other significant events after balance date.
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Independent Review Report
To the shareholders of Oceania Healthcare Limited
Independent review report
To the shareholders of Oceania Healthcare Limited
Report on the consolidated interim financial statements
We have reviewed the accompanying consolidated interim financial statements of Oceania Healthcare
Limited (the “Company”) and its subsidiaries (the “Group”) on pages 15 to 59, which comprise the
consolidated balance sheet as at 30 November 2019, and the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated cash flow statement for
the six months ended on that date, and a summary of significant accounting policies and selected
explanatory notes.
Directors’ responsibility for the consolidated interim financial statements
The Directors are responsible on behalf of the Company for the preparation and fair presentation of
these consolidated interim financial statements in accordance with International Accounting Standard
34 Interim Financial Reporting (IAS 34) and New Zealand Equivalent to International Accounting
Standard 34 Interim Financial Reporting (NZ IAS 34) and for such internal control as the Directors
determine is necessary to enable the preparation of consolidated interim financial statements that are
free from material misstatement, whether due to fraud or error.
Our responsibility
Our responsibility is to express a conclusion on the accompanying consolidated interim financial
statements based on our review. We conducted our review in accordance with the New Zealand
Standard on Review
Engagements 2410 Review of Financial Statements Performed by the
Independent Auditor of the Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether
anything has come to our attention that causes us to believe that the consolidated interim financial
statements, taken as a whole, a re not prepared in all material respects, in accordance with IAS 34 and
NZ IAS 34. As the auditors of the Company, NZ SRE 2410 requires that we comply with the ethical
requirements relevant to the audit of the annual financial statements.
A review of consolidated interim financial statements in accordance with NZ SRE 2410 is a limited
assurance engagement. The auditor performs procedures, primarily consisting of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and
other review procedures.
The procedures performed in a review are substantially less than those performed in an audit
conducted in accordance with International Standards on Auditing (New Zealand) and International
Standards on Auditing. Accordingly, we do not express an audit opinion on these consolidated interim
financial statements.
We are independent of the Group. Our firm carries out other assurance services for the Group in the
areas of trustee reporting and agreed upon procedures in respect of proxy voting at the Annual
Shareholders Meeting. The provision of these other services has not impaired our
independence.
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
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PwC 3
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that these
consolidated interim financial statements of the Group do not present fairly, in all material respects,
the financial position of the Group as at 30 November 2019, and its financial performance and cash
flows for the six months then ended, in accordance with IAS 34 and NZ IAS 34.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our review work has been
undertaken so that we might state to the Company’s shareholders those matters which we are required
to state to them in our review report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the shareholders, as a body, for our
review procedures, for this report, or for the conclusion we have formed.
For and on behalf of:
Chartered Accountants Auckland
24 January 2020
oceaniahealthcare.co.nz
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1. Development margin & resale gains on care suites are included within the Village Segment for underlying profit and statutory reporting purposes as the ORAs are issued by Oceania Village Company
Limited. As these margins are in lieu of daily premium charges under the traditional model, these earnings are aggregated above to present a more complete picture for the Care segment.
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1.The right to use asset (Everil Orr village) is a lease arrangement under which Oceania is the village operator. Everil Orr also contributed $0.6m to DMF. There is corresponding rental expense of $11.5m.
Note these items are excluded from Underlying Profit.
2.Note that the depreciation rate used on freehold buildings is 3.0%. This rate reflects the estimated useful lives of the carebuilding as well as fit out. The depreciation expense would have been $1.5m
lower if we had adopted 2.0% as the depreciation rate.
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1.Rental expense of $11.5m in 1HY2020 relates to the right to use asset at Everil Orr village. There is a corresponding credit in IP which is also removed as part of this adjustment.
2.“Other” is an aggregation of line items that are individually less than $2.0m and includes: Gain on Sale/Loss on sale or disposal of decommissioned assets and DMF in relation to right to use asset. See note 2.1 of
the FY2019 financial statements for a further detail.
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1. Development margin & resale gains on care suites are included within the Village Segment for underlying profit and statutory reporting purposes as the ORAs are issued by Oceania Village Company
Limited. As these margins are in lieu of daily premium charges under the traditional model, these earnings are aggregated above to present a more complete picture for the Care segment.
1. Note Care Suite DMF is included in the Care segment but is also presented here to provide an aggregate view of DMF for theGroup.
Villa and Apartment DMF of $10.3m in 1HY2020 excludes $0.6m of DMF revenue at Everil Orr.
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1. Calculated as the current/estimated sale or resale price of all units/care suites as determined by CBRE –note FY2020 as at 31 October 2019. The FY2018 figure has been adjusted for the divestment of
Dunblane Village. 2. The value of unsold stock represents the sales prices of units/care suites which are not under contract,asthey either newly constructed or have been bought-back from the previous
outgoing residents.
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add: Adjustment for CBRE –Care Suites
less: Adjustment for Right of Use Assets
NZ$m
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NZ$m
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1.Comprising 44 operating villages and 2 undeveloped sites. Facility numbers as at 30 November 2019.
2.Current and planned developments as at 30 November 2019;
3.Includes 325care studios which may be initially sold with a PAC, and may subsequently be sold under an ORA
•
•
•
•
•
•
•
•
•
•
•
All care beds
(standard, PAC and care
suite) attract a fixed daily
payment
prescribed by the Government
dependent
upon the
level of care
required (hospital,
rest home or dementia).
•
The services funded by the daily fee are
generally the same for all residents of the
same level of care
•
The extent the resident pays for this is
determined by an asset level test.
Upfront
capital payment with DMF
that is
calculated monthly
Daily premium payment –ranges from $10-
$70 a day. Average in NZ is ~$20 a day
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1. Changes in capacity and pipeline now includes forecast care suite conversions in the pipeline. Totals for 1HY2020 reconcile to both the total existing and future post development portfolios on slide 39.
1. Net Buybacks is the difference between the gross ORA payments made in relation to units bought back (and not resold) during the year and the gross ORA receipts from units resold during the year that
were bought back in prior financial years
Underlying Profit is a non-GAAP measure used by the Group to monitor financial
performance and is a consideration in determining dividend distributions. Underlying
profit measures require a methodology and a number of estimates to be approved by
Directors in their preparation. Both the methodology and the estimates may differ
among companies in the retirement village sector that report underlying financial
measures. Underlying profit is a measure of financial performance and does not
represent business cash flow generated during the period.
Oceania calculates Underlying Profit by making the following adjustments to Net Profit
after Tax:
•Removing the change in fair value of investment properties (including right to use
investment property assets) and any impairment or reversal of impairment of
property, plant and equipment;
•Removing any impairment of goodwill;
•Removing any gains or loses from the sale or decommissioning of assets;
•Removing any DMF income and rental expenditure in relation to right to use
investment property assets;
•Adding back the Directors’ estimate of realised gains on resale of occupation right
agreement units and care suites ;
•Adding back the Directors’ estimate of realised development margin on first sale of
new ORA units or care suites following the development, or conversion of an existing
care bed to a care site or conversion of a rental unit to an ORA Unit; and
•Adding back the deferred taxation component of taxation expense so that only
current tax expense is reflected.
Directors’ estimate of realised gains on resales of ORA units and care suites (i.e. the
difference between the incoming residents ORA licence payment and the ORA licence
payment previously received from the outgoing resident) is calculated as the net cash
flow received, and receivable, at the point that the ORA contract becomes
unconditional and has either ‘cooled off’ or where the resident is in occupation at
balance date.
The Directors’ estimate of realised development margin is calculated as the cash
received, and receivable, in relation to the first sale of new ORA units and care suites, at
the point that the ORA contract becomes unconditional and has either ‘cooled off’ or
where the resident is in occupation at balance date, less the development costs
associated with developing the ORA units and care suites.
•Construction costs directly attributable to the relevant project, including any
required infrastructure (e.g. roading) and amenities related to the units (e.g.
landscaping) as well as any demolition and site preparation costs associated with
the project. The costs are apportioned between the ORA units and care suites, in
aggregate, using estimates provided by the project quantity surveyor. The
construction costs for the individual ORA units or care suites sold are determined on a
pro-rated basis using gross floor areas of the ORA units and care suites;
•An apportionment of land valued based on the gross floor area of the ORA units and
care suites developed. The value for Brownfield development land is the estimated
fair value of land at the time a change of use occurred (from operating as a care
facility or retirement village to a development site), as assessed by an external
independent valuer. Greenfield development land is valued at historical cost; and
•Capitalised interest costs to the date of project completion apportioned using the
gross floor area of ORA units and care suites developed.
Development costs do not include:
•Construction, land (apportioned on a gross floor area basis) and interest costs
associated with common areas and amenities or any operational or administrative
areas.
The Directors’ estimate of development margin for conversions of care beds to care
suites and rental units to ORAs is calculated based on the difference between the ORA
licence payment received on the settlement of sales of newly converted ORA units and
care suites and the associated conversion costs. Conversion costs comprise:
•In the case of conversion of care beds to care suites, the actual refurbishment costs
incurred; and
•In the case of conversions of rental units to ORA units, the actual refurbishment costs
incurred and the fair value of the rental unit prior to conversion.
A room or studio certified for the provision of care by the Ministry of
Health which has been licensed under an ORA
Earnings from continuing operations excludes the earnings from sites
divested in FY2019 in all reporting periods
Deferred management fees, charged under an ORA, which accrue to a
specified maximum and are deducted from the refund paid to the
departing resident upon resale of the unit or care suite. These are in
consideration for the right to use communal facilities etc over the entire
length of stay.
Dividend Reinvestment Plan
Employee Share Scheme
Health Care Assistant
Held for sale
Independent living units (villas and apartments) sold under an
Occupation Right Agreement
Investment Property
Initial Public Offering (of shares in Oceania)
Ministry of Health
Net Profit After Tax
A globally recognised metric for measuring customer satisfaction, the Net
Promoter Score system is designed to gauge customers’ willingness to
recommend a product or service to others.
An occupation right agreement that confers on a resident the right to
occupy a unit or care suite subject to certain terms and conditions set out
in the agreement
Premium accommodation charge on a care bed for accommodation
provided above the mandated minimum
Property, Plant and Equipment
Property Price Growth Rate
Resale gain, as included in the definition of underlying profit, divided by
the ORA licence payment previously received from the outgoing resident
Registered Nurse
Includes independent villas and apartments
Work in progress
This presentation has been prepared solely by Oceania Healthcare Limited
("Oceania"). You must read this disclaimer before making any use of this presentation
and the accompanying material or any information contained in it ("Document").
The presentation includes non-GAAP financial measures for development sales and
resales which assist the reader with understanding the volumes of units settled during
the period and the impact that development sales and resales during the period had
on occupancy as at the end of the period.
The addition of totals and subtotal within tables and percentage movements may
differ due to rounding.
The information set out in this Document is an overview and does not contain all
information necessary to make an investment decision. It is intended to constitute a
summary of certain information relating to the performance of Oceania for the period
ending 31 May 2019. Please refer to the Financial Statements for the period ended 31
May 2019 that have been released along with this presentation.
The information in this presentation does not purport to be a complete description of
Oceania. In making investment decisions, investors must rely on their own examination
of Oceania, including the merits and risks involved. Investors should consult their own
legal, tax and/or financial advisors in connection with any acquisition of financial
products.
The information contained in this presentation has been prepared in good faith by
Oceania. No representation or warranty, expressed or implied, is made to the
accuracy, adequacy or reliability of any statements, estimates or opinions or other
information contained in this presentation, any of which may change without notice. To
the maximum extent permitted by law, Oceania, its directors, officers, employees and
agents disclaim all liability and responsibility (including without limitation any liability
arising from fault or negligence on the part of Oceania, its directors, officers,
employees and agents) for any direct or indirect loss or damage which may be
suffered by any person through the use of or reliance on anything contained in, or
omitted from, this presentation.
This presentation is not a product disclosure statement, prospectus, investment
statement or disclosure document, or an offer of shares for subscription, or sale, in any
jurisdiction.
Receipt of this Document and/or attendance at this presentation constitutes
acceptance of the terms set out above in this disclaimer.
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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