Financial services, healthcare and retirement living company Australian Unity Limited (Australian Unity) has posted another year of strong organic and non-organic growth, resulting in a 16.6 percent increase in profit after tax at 30 June 2015 compared to the previous year.
Revenues1 $1.40 billion, up 7.5%
Operating earnings2 $40.3 million, up 13.7%
Profit before tax $42.9 million, up 22.4%
Profit after tax $34.6 million, up 16.6%
Members’ funds $542.9 million, up 6.8%
Health claims paid $685.7 million, up 4.7%
Funds under management, steady at $7.3 billion
Funds under advice $5.9 billion, up 70.2%
Big Sky Building Society total loans $638 million, up $62 million
Value of Retirement Living developments completed in 2015, $95 million
Value of ongoing Retirement Living development projects $464 million
Group Managing Director Rohan Mead said the investment in opportunities to develop the portfolio over recent years is flowing through to the positive results, with all segment areas reporting increases in adjusted EBITDA3 , ranging from an 8 percent increase in the Investments business to 70 percent in the Personal Financial Services division.
“Our business portfolio is connected by its focus on wellbeing and providing services to meet community needs that are growing. So, it is particularly encouraging to record such positive year-on-year growth across the portfolio, as this indicates we are providing products and services that are valued by our customers,” Mr Mead said.
“The overall results were achieved despite a slight decrease in policyholder numbers in our retail health insurance business—a reflection of our decision not to pursue the ‘acquire new customers at any cost’ approach of major competitors,” Mr Mead said.
“The operating earnings progress we have made during the year is very pleasing as it is spread across our businesses. Growing revenues and developing diverse income streams has been a focus for several years and the effects of this strategy are now revealing themselves in the Group’s financial performance,” Mr Mead said.
During the year the Group conducted numerous due diligence exercises and successfully executed a number of strategic acquisitions across each of the business platforms in order to add scale to the company’s operations.
“On 1 July 2015, the Group also acquired estate planning and administration specialists Flinders Australia Limited, which will support the Personal Financial Services business in making a full range of fiduciary services available to ordinary Australians,” Mr Mead said.
Mr Mead said he was also pleased at the level of organic revenue growth across the company. Examples include a 4 percent increase in policyholders in the corporate health insurance fund, GU Health, and continued demand for newly developed stock, together with above-industry occupancy rates for the Group’s retirement villages and aged care facilities.
The Group’s strong results were achieved notwithstanding the adverse impact of persistently low interest rates throughout the year and equity market uncertainty in the latter months.
The investment returns generated by the Group’s funds management activities, including its joint ventures, were generally very strong relative to the market context. The Investments business was also successful at building new investment products to support the company’s expansion of its retirement village footprint.
Business Unit Results and Highlights
The Retirement Living business had another very strong year and grew total segment revenue by 19.7 percent to $106.8 million. The business recorded $23.9 million in adjusted EBITDA, a 12.2 percent increase on the previous year.
Home Care was again an important growth area. Home Care revenue almost doubled during the year (2015: $18.9 million, 2014: $9.5 million) reflecting the benefit realisation of the acquisitions of Illawarra Nursing Service and Kenilworth Nursing Services, both of which commenced in the 2014 financial year and completed in 2015.
The Home Care business also had success during the year in winning valuable contracts and packages—particularly in New South Wales—where substantial Home and Community Care (HACC) tenders were secured.
“Our Home Care business now employs more than 430 staff—an increase of more than 75 percent compared to the previous year—and provides in excess of 400,000 hours of care each year. This is evidence of the solid scale this part of the business has achieved and reflects the continuing growth potential in home care services,” Mr Mead said.
The year’s highlights also included the official openings of Stage 1 of the $180 million Rathdowne Place Wellbeing Precinct in Carlton and Peninsula Grange Aged Care in Mornington and the commencement of Stage 2 of Rathdowne Place—The Residences—which will consist of 91 new independent living apartments over eight floors.
“Rathdowne Place and Peninsula Grange, while remarkably different in their built form, both redefine the traditional ways of thinking about aged care. Through our Better Together model of care, we are providing residents with both new levels of choice and more control over their daily lives, tailoring services as much as possible to individual needs and preferences,” Mr Mead said.
Also during the year, the out-of-date Wahroonga Aged Care facility in Glen Waverley, Victoria, was closed. The facility will be demolished, completely re-developed and open with the new name of Campbell Place in 2017. During the wind down, all residents were successfully relocated to alternative facilities.
During the year Retirement Living increased the total number of independent living units from 1,986 to 2,074. Growth during the year was driven by the continued development at Peninsula Grange (56 new units completed in 2015), Sienna Grange in Port Macquarie, New South Wales (six new units) and Victoria Grange in Vermont South in Victoria (26 new units). Elderslee, a village on the Central Coast of NSW, which Australian Unity has managed for some time, was also acquired during the year and is now owned and managed by Australian Unity.
High—and above industry average—occupancy levels continued to be recorded at both retirement villages and aged care facilities. Occupancy rates were over 97 percent in retirement villages and 98 percent in aged care facilities (after taking into account the ramp up period of newly developed facilities).
Australian Unity’s Healthcare business recorded adjusted EBITDA of $56.2 million which represents a 29.0 percent increase compared to the previous year (2014: $43.6 million). Total segment revenue for the Healthcare business increased by 5.0 percent to $828.3 million.
This change represents a return to better financial performance after material impacts from the external environment in prior periods and returns Healthcare’s EBITDA to comparable levels before government intervention and ensuing regulatory changes began to impact the sector in 2013 and 2014.
The number of policyholders in the retail health insurance fund decreased slightly, while GU Health, the corporate health insurance fund, increased policyholders by 4 percent.
“Australian Unity has made a conscious decision to differ from some of its major competitors by not sharing an ’acquire new customers at any cost’ approach. We have chosen rather to compete sensibly and strategically for new customers. For example, during the year Australian Unity joined forces with 14 other health funds to launch Members Own Health Funds. Members Own Health Funds has commenced a nationwide public awareness campaign to highlight the choices Australians have beyond health funds run primarily to benefit investors and overseas owners,” Mr Mead said.
“A significant amount of time was also invested during the year updating the systems and technology platform across retail health insurance to improve customer experience. The key benefits of this project included a new customer relationship management system—which is now driving a significant increase in sales conversions and service quality improvements—and the installation of a new telephony system. We believe these investments are creating increasing points of customer service differentiation for Australian Unity.”
GU Health recorded a year of solid policyholder growth. The business successfully retained its mining clients despite the economic downturn experienced by the sector and was able to gain a significant number of clients in the IT sector.
It was a year of significant achievement for Remedy Healthcare highlighted by the development of its mental health program and the acquisition of highly regarded physiotherapy aged care business, Physio Connect.
The mental health program is a stepped care telephone based program for people suffering from anxiety and depression and is based on a successful program being delivered in the United Kingdom. It will be officially launched in November 2015.
“We believe Remedy’s mental health program is vital because it fills the current gap between acute care and primary care. The ultimate goal is to provide this program to the broader healthcare industry, including the public health sector, in addition to Australian Unity members,” Mr Mead said.
Remedy Healthcare finalised the purchase of Physio Connect in March 2015. Based in Frankston, Victoria, Physio Connect’s physiotherapy and other allied health services extends to a number of aged care facilities across Victoria and New South Wales. This acquisition marked an important milestone in the business’ evolution and will accelerate its plans to expand its allied health business into aged care. Remedy Healthcare was also successful in winning a tender with Ballarat Health Services to provide physiotherapy to residents of publicly funded aged care facilities in Ballarat. Importantly, this now extends Remedy’s business services into the public health sector.
The strong result of Australian Unity’s dental business was also a highlight of the year. The Dental business expanded its network in September 2014 with the acquisition of an additional dental clinic in Hughesdale, Victoria. The number of patient visits during the year increased by 9.2 percent to 61,638 (2014: 56,439).
Australian Unity’s Investments business proved resilient in a year where low interest rates prevailed, general economic conditions remained choppy and—particularly in the last few months of the year—the crisis in the Eurozone continued to spook investors twinned with some downturn in China’s markets.
Investments’ funds under management was $7.3 billion (2014: $7.4 billion). Total segment revenue was $107.2 million, an increase of 3.9 percent on the previous year. Adjusted EBITDA was $14.8 million, which was up 7.9 percent on the previous year.
Big Sky Building Society finished the year with total on-balance sheet assets of $754 million (2014: $700 million). Focusing on its core expertise of building a strong and sustainable banking and advice business, Big Sky again achieved strong lending growth with total loans of $638 million, an increase of $62 million over the previous year.
Subsequent to 30 June, Standard & Poor’s announced a ‘BBB’ rating for Big Sky—the first time a rating has been obtained issued for the business.
In June 2015 a capital raising, facilitated by the Investments business, was completed for the new Retirement Village Development Fund.
“The new Retirement Village Development Fund is the first of its kind in Australia and will finance ‘The Residences’ at Rathdowne Place in Carlton. This innovative financing arrangement is helping Australian Unity to play a role in meeting the housing and infrastructure needs of Australia’s ageing population, in a manner that also supports the interests of investors,” Mr Mead said.
“We are well advanced on the implementation of our second such facility to support the development of another retirement community, Campbell Place.”
The Healthcare Property Trust continued to expand during the year and achieved a return of 7.9 percent. The Trust had gross assets of approximately $700 million at 30 June 2015. Strong support from investors and a scarcity of assets satisfying the businesses acquisition criteria saw the temporary suspension of new applications for Wholesale units in June in order to protect the interests of existing investors.
The Retail Property Fund achieved an 11.3 percent return for investors in the year to 30 June 2015. The second stage of the Waurn Ponds Shopping Centre expansion was completed in August 2014, with the expansion adding significantly to the asset and increasing its total value to $130 million, of which the Fund holds 50 percent.
The Australian Unity Office Property Fund achieved a return of 14.3 percent for the year to 30 June 2015. The Fund owns a portfolio of eight office assets and as announced in June, Australian Unity is developing a proposal to list the Fund on the Australian Securities Exchange, subject to approval by its board and the Fund’s unitholders.
In December Australian Unity Real Estate Investment acquired Owenlaw Trust, the manager of the $60 million Australian Unity Select Mortgage Income Fund (ex Owenlaw First Mortgage Income Fund), and the $20 million Australian Unity Pooled Mortgage Fund (ex Owenlaw Mortgage Trust).
During the year the Investments business continued to improve the efficiency and effectiveness of its operating platform. After an extensive market review, the business appointed BNP Paribas Securities Services, a wholly owned subsidiary of the BNP Paribas Group, as its custodian and administrator. The transition to BNP is ongoing and expected to be completed by December 2015.
Personal Financial Services
Australian Unity’s Personal Financial Services business was significantly strengthened by a number of strategic acquisitions during the year. Adjusted EBITDA increased by almost 70 percent to $3.9 million compared to the previous year (2014: $2.3 million). Funds under advice increased by 70.2 percent to $5.9 billion (2014: $3.5 billion), supporting a 42.7 percent increase in total segment revenue to $56.9 million (2014: $39.8 million).
“This has been a year of strong growth and activity for the Personal Financial Services business. The acquisitions of Premium Wealth Management, Waratah Insurance Brokers and Flinders Australia Limited have bolstered the business in a number of strategic operational areas. This acquisition activity adds to the existing strength of its position regarding opportunities emerging from the very significant regulatory and environmental changes impacting the financial advice sector,” Mr Mead said.
The acquisition of Flinders Australia Limited, estate planning and administration specialists, was completed on 1 July 2015. This acquisition provides Australian Unity with a broader platform of in-demand services for clients and members as well as the clients of their financial advisers and accountants.
“This acquisition strongly reflects one of Personal Financial Services’ principal business objectives: driving growth in complementary businesses that help improve financial wellbeing. As Australia’s population ages, estate planning and trustee administration services are increasingly in demand as the number of Australians and their families requiring protection, support and certainty grows,” Mr Mead said.
The Premium Wealth Management acquisition—completed in December 2014—increases Personal Financial Services’ financial advice capability and enhances its relationships with both accountants and their clients. With Premium now part of Personal Financial Services, the business now has 183 advisers (2014: 125), 102 financial planning practices (2014: 77) and 22 (2014: 21) mortgage brokers.
Personal Financial Services also acquired Waratah Insurance Brokers—a Sydney-based general insurance broker—in March 2015. The acquisition represented an important step for Personal Financial Services towards building a relevant presence in the general insurance broking space.