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  1. Australian Unity Annual Review 2019
  2. Board & Executive Reports
  3. Chief Financial Officer's Report

Chief Financial Officer's report

Darren Mann Darren Mann
Deputy Head of Finance
and Chief Financial Officer

In writing this report, my intention is to provide members with an overview of some of the key items that have influenced the year’s financial performance. As always, behind the headline financial results are a significant number of moving parts that arise from a complex amalgam, brought about by a diverse portfolio of operating businesses.

In the year under review, the Group was impacted by and responsive to multiple environmental factors, including political challenges, increased regulatory focus across many parts of the business, and both domestic and international economic conditions.

In the 2019 financial year the Group continued to progress its strategic objectives and realise benefits from investments made over recent years. In the previous financial year, we re-shaped the business to enhance risk management, control and digital capabilities in support of the diverse portfolio operations, and further enhance our customer-centred businesses. During the year, the Group focused on advancing its social infrastructure and human services agenda. To support current growth and service quality, there was also a focus on embedding business insights and efficient operating models across each of our business platforms, and enabling functions, underpinned by enhanced balance sheet resilience.

The financial statements contained in this report were prepared in accordance with the Corporations Act 2001 (Cth) and relevant accounting standards, and provide numerical insight into how the Group performed financially over the year.

For readers of the financial statements, any reference in the prior year's financial comparative data referring to discontinued operations relates to the sold Grand United Corporate Health Limited (GUCH) business. I encourage members to read the financial statements in detail to gain further insight into how the Group has performed, and to understand how we are executing our strategy.


Strong year-on-year growth across each of our business platforms

Across the three business platforms, the Group made notable progress on its strategic objectives and saw double digit year-on-year growth. Pleasingly for the largest of our newer businesses, Home & Disability Services (HDS), ongoing investment in technology and business insights and an enhanced operating model resulted in a material improvement in its financial position, finishing the period on track for sustainable customer growth.

For our Retail platform, performance was driven by a lower net claims experience and a continued focus on proactive strategies to lower commissions and operating expenses. Within the Banking business, we saw significant growth in the loan book as new customers were attracted to the Australian Unity Bank proposition, with solid interest margins driven by higher asset yields and an improved cost of funding.

For our Wealth & Capital Markets (W&CM) platform, we continued to make significant progress with the Herston Quarter project in Queensland. This platform also benefitted from a financial settlement within its Lifeplan business following the unanimous decision by the High Court against Ancient Order of Foresters in Victoria Friendly Society.

The Independent & Assisted Living (IAL) platform made a material improvement on the prior year's result, predominantly attributable to the HDS business—which delivered on its priority growth and efficiency initiatives, achieving a $39.8 million adjusted EBITDA improvement in comparison to the prior year. There was much movement across our asset base, with the Walmsley Aged Care facility closed for redevelopment, while development was completed at the

Sienna Grange and Racecourse Grange Aged Care facilities and The Grace Albert Park Lake retirement village.

Further information is provided in the operating and financial review and the financial statements.

Financial results

The overall profit after income tax for the year was $53.0 million, which reflected year-on-year growth of $1.5 million, or 2.8 percent. Given the sale of the GUCH business in the prior year, which was largely offset by accelerated depreciation and amortisation charges, it is important to understand the movement in profit for continuing operations.

The profit after tax from continuing operations was $53.0 million, which was a $68.3 million improvement on the prior corresponding period.

Total revenue and other income from continuing operations increased to $1.61 billion (2018: $1.49 billion). The Explanatory Notes (note 25) highlight that $1.37 billion of this revenue was attributable to members and $0.24 billion was attributable to benefit fund policyholders—with revenue attributable to members up $55.5 million, or 4.2 percent from the prior year. This result was mainly driven by higher services revenue within the IAL platform and improved investment earnings (see note 2).

Expenses from continuing operations of $1.49 billion were only $9.5 million (0.6 percent) higher than the prior year. Gross claims paid by our retail health insurance business of $612.3 million were in line with the prior corresponding period.

As detailed in note 3, depreciation and amortisation costs of $29.8 million were $31.2 million, or 51.1 percent lower than the prior year. This was due to a number of assets that were subject to accelerated amortisation and depreciation in the prior year.

Finance costs of $17.7 million were also less than the prior year by $2.8 million (13.6 percent) due to lower interest rates and a reduction in corporate debt.

A strong balance sheet

The Consolidated balance sheet details the Group’s assets and liabilities, along with equity. The 2019 financial year closed with Members’ funds up 6.7 percent to $718.4 million.

At 30 June 2019, the Group gearing ratio was 21.9 percent (see note 9(a)), compared with 21.3 percent at 30 June 2018. This remains positive for the Group as it provides greater balance sheet capacity for future strategic initiatives. It also reflects significant headroom from the covenant gearing ratio of 50 percent on our issued debt (Series B Australian Unity Bonds – Tranche 1 – ASX: AYUHB) of $250.0 million.

Corporate interest bearing debt at 30 June 2019 totalled $296.4 million, compared to $332.3 million in the prior year, which mainly reflected the repayment of $30.0 million of subordinated capital notes by a subsidiary in July 2018 (see note 9). Interest cover, or the proportion of earnings before interest, tax, depreciation and amortisation needed to make interest payments, was 6.58 times, compared to 6.77 times the previous year.

Intangible assets (see note 14), reduced in the current year to $323.8 million, from $329.0 million.

The Group continues to maintain strong liquidity and ended the year with $0.94 billion in cash and cash equivalents.

I hope this report provides you with a greater understanding of the key financial activities the Group undertook for the year. While the year ahead will remain challenging as a result of continuing regulatory and market pressures, I believe the Group is well placed to continue to advance its strategic objectives and capitalise on future opportunities.

darren mann signature

Darren Mann
Deputy Head of Finance and Chief Financial Officer

"Across the three business platforms, the Group made notable progress on its strategic objectives and saw double digit year-on-year growth."

Darren Mann
Deputy Head of Finance and Chief Financial Officer


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