AUSTRALIAN UNITY LIMITED — Annual Report 2011

Sep 20, 2011

Annual Report 2011 Social Value

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Australian Unity’s operations today:

Healthcare

Health insurance Dental care Preventative healthcare Chronic disease management

Financial Services

Investments Personal Financial Services

Retirement Living

Retirement villages Aged care Community care Respite care

Manchester Unity (VIC)

1840 Manchester Unity IOOF founded in Victoria. 1846 Dr F.A. Greeves becomes first Grand Master. Subsequently becomes Mayor of Melbourne. 1870 Manchester Unity granted Crown land to establish a home for aged and disadvantaged members. 1932 Prominent Manchester Unity building in Swanston Street, Melbourne, completed.

Australian Natives’ Association (VIC)

1871 Victorian Natives’ Association established. It was renamed Australian Natives’ Association (ANA) shortly after. 1888 ANA resolves to commemorate Foundation Day (26 January), now celebrated each year as Australia Day. 1890s ANA campaigns for Federation. 1901 ANA (NSW) member Edmund Barton becomes Australia’s first Prime Minister. 1903 ANA Victoria member Alfred Deakin becomes Australia’s second Prime Minister—serving three terms in office. 1931 ANA Victoria member Sir Isaac Isaacs becomes the first Australian-born Governor General.

Grand United (NSW)

1848 Grand United (GU) founded in NSW (research suggests that the first lodge was opened in 1844). 1888 First GU building completed at Castlereagh Street, Sydney. 1919 GU Order of Odd Fellows War Memorial built in Hyde Park and donated to Sydney Council. 1948 GU Order of Odd Fellows opens GU Centenary Centre—Homes for the Aged and War Memorial Nursing Home. 1998 Redevelopment of GU Centenary Centre— now known as Constitution Hill.

Lifeplan (SA)

1840-1880s First lodge of Manchester Unity IOOF, Ancient Order of Foresters’ Court Perseverance lodge, and HibernianAustralasian Catholic Benefit Society established, Order of the Rechabites opens an Adelaide branch, United Ancient Order of Druids opens the Good Intent lodge and the Australian Natives’ Association (ANA) opens first branch in Adelaide. 1984 Lifeplan Australia Friendly Society created from the merger of these and other friendly societies of South Australia.

Australian Unity

1993 ANA and Manchester Unity (Victoria) merge to form Australian Unity. 1996 Australian Unity Funds Management Limited established. 2001 Direct property funds management business established. 2001 Australian Unity Wellbeing Index developed in partnership with Deakin University. 2002 Australian Unity Financial Planning launches. 2004 Significant expansion of retirement living services with purchase of substantial operations in NSW. The Australian Unity Wellbeing Index receives 2004 Public Health Award for Excellence and Innovation. 2005 Grand United Friendly Society Limited merges with Australian Unity Limited. 2009 Lifeplan Australia Friendly Society Limited merges with Australian Unity Limited. 2010 Australian Unity Wellbeing Index celebrates its 10th anniversary.

Contents

About us 2 Annual highlights 3 Annual achievements 4 Chairman’s report 6 Group Managing Director’s report 8 Review of operations Healthcare 10 Retirement Living 16 Financial Services 20 Community 26 Sustainability 29 People 30 Board of Directors 32 Group leadership team 34 Governance statement 36 Financial overview 40 Financial report contents 41

1

About us

Australian Unity’s strategy is to build a leading, commercial, sustainable portfolio of businesses that foster wellbeing.

Australian Unity is a national healthcare, financial services and retirement living organisation that provides high trust products and services to more than half a million Australians. As a mutual company, Australian Unity Limited is a member based organisation. To be eligible for membership, customers need to hold a product such as a health insurance policy, or an investment bond for more than two years, or to own a unit in one of our retirement villages. Some 10,000 of Australian Unity’s 285,000 members have been with the company for more than 50 years.

social value to communities, adapting and growing over time in response to changing social needs. In the late 19th century the company’s antecedent organisations established homes for the aged when there was very little social housing available for the aged and infirm. After the Second World War, they offered affordable housing finance to meet the needs of a growing population when banks were reluctant to lend to young families.

In 2011, this social purpose guides strategic planning as the company—together with customers, members and the broader community—responds to the challenges of an ageing population, the rise of chronic disease and growing economic uncertainty.

Australian Unity’s goal is to build on its 170-year heritage to become Australia’s leading wellbeing company. From its earliest beginnings the company has aimed to provide

Annual highlights 2011

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Health claims paid Retirement units
for members ($m) and aged care beds #
500 2500
400 2000
300 1500
200 1000
100 500
357 385 421 435 474 2000 2166 2183 2206 2056
0 0
07 08 09 10 11 07 08 09 10 11
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Funds under management ($b)

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12
10
8
6
4
2
5.7 6.5 5.8 10.3 11.9
0
07 08 09 10 11
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$474m
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$11.9b

2,056

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Funds under advice ($m) Revenues ($m) Members’ funds ($m)
1000 1000 500
800 800 400
600 600 300
400 400 200
200 200 100
300 471 451 582 1020 684 617 617 934 1012 270 302 303 364 388
0 0 0
07 08 09 10 11 07 08 09 10 11 07 08 09 10 11
$1.02b $1.01b $388m
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Operating earnings ($m) Profit before tax ($m) Profit after tax ($m)
36 50 40
30 40
30
24 30
18 20 20
12 10
42.3 39.1 -2.9 18.5 27.8 10
6 0
21.2 19.4 9.9 23.7 31.7 32.1 32.3 1.1 17.1 25.6
0 -10 0
07 08 09 10 11 07 08 09 10 11 07 08 09 10 11
$31.7m $27.8m $25.6m
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Definition of terms

Funds under management: Investors’ funds managed by Australian Unity Investments and its joint venture partners.

Funds under advice: The total value of client funds invested through Australian Unity financial planners. Members’ funds: Net assets of the Group attributable to members.

Operating earnings: Profit before tax less investment income, borrowing costs and discontinued operations.

Notes to the annual highlights: Profits before tax and operating earnings exclude the impact of the Benefit funds which are required to be included in the financial statements but which have a zero impact on profit after tax.

• The year 2007 includes the results of the general insurance business which was sold in 2008, materially affecting the comparative results for 2007 and 2008, while 2010 includes 10 months of Lifeplan.

• The 2011 total is lower due to a management contract for a 178 unit village not being renewed during the year.

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Annual achievements

7% Won 2011 $120m Growth in retail health fund Funding raised through the Australian International Customer Service Professionals’ Employer of Choice for Women (industry average growth of some 3%) Unity Notes issue Outstanding Business Award

Employer of Choice for Women

GOAL Establish new channels and new geographic footprint

• RESULTS Extended reach into Queensland and New South Wales in our retail health fund

Achieved 7 percent growth in our retail health fund

Increased GU Health’s insurance customers by 19 percent

Established a joint venture to provide financial advice to rural families

Increased accountant referral partners for financial advice from 70 to 163

GOAL Strengthen customer understanding, responsiveness, and build first point resolution in Healthcare

RESULTS Developed first to market iPhone and iPad applications with photographic ability to submit extras claims faster

Won both the International Customer Service Professionals’ Platinum (large business) Award and the overall Outstanding Business Award for the second consecutive year

Launched Member Express, a customer service monitoring and improvement program

GOAL Strengthen brand presence

RESULTS Increased the visibility of our brand, including in new markets, by launching a campaign explaining the company’s 170-year history of providing social support and infrastructure

GOAL Develop new programs and services connected to wellbeing

• RESULTS Increased services at Australian Unity retirement villages and aged care facilities (eye testing, health checks, and computer and technology education)

Developed two new telephone-based support initiatives (Maternity Support Program and the Transition Care Program). Ninety-seven percent of patients rated the program ‘excellent’ or ‘good’ overall

Build financial strength

GOAL

RESULTS Achieved 8.3 percent growth in revenue Funds under advice hits $1 billion

Funds under management of almost $12 billion

GOAL Support whole-of-portfolio approach to capital management

Issued $120 million of Australian Unity Notes to support growth plans

RESULTS

Continue to develop a diversified portfolio of businesses and products

Increase infrastructure

GOAL

GOAL

and systems resilience

Established Retirement Village Property Fund

• Rigorously tested and then improved our disaster recovery site capabilities

RESULTS

RESULTS

Purchased the unlisted Diversified Property Fund previously owned by Westpac, offering investors a broader product range in the sector

GOAL Strengthen our position as a leading employer

• Broadened range of benefits available to staff, including 10 weeks paid parental leave

RESULTS

Strengthen risk and compliance systems

GOAL

Announced as a 2011 Employer of Choice for Women by the Equal Opportunity for Women in the Workforce Agency

• RESULTS Implemented new software to better understand and manage risk profile across the organisation

Strengthened development programs for our high performing leaders

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Chairman’s report

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I refer you to our Group Managing Director’s report and other parts of this annual report for details on operations and their results. Here, I would like to reflect on the broader purpose of Australian Unity as an organisation. Throughout our 170-year history, the organisation has existed to provide social infrastructure and services (in a commercially sustainable way) in order to improve the wellbeing of its members and of Australian society generally. Many of the services established by Australian Unity and our antecedent organisations over the decades, such as health insurance and the care of the elderly, have pre-dated governmentprovision of similar services and continue to remain complementary to government initiatives.

Australian Unity has had another successful year. As a mutual, our principal purpose is to deliver high trust services to our members and customers. We use a range of measures to assess our success, but primarily they relate to the quality of service delivery and growth in the services delivered more than to financial measures such as profit.

We group our suite of services into three main areas of business—healthcare, retirement living and financial services—and I am pleased to report that each of these business areas was successful in achieving growth and delivering new and more relevant services to our members and customers. With all this we have also been able to increase profitability, with a $25.6 million result in profit after tax, but I stress that this is all invested back into the growth of the services we deliver.

Today, there are many areas in which the objectives of Australian Unity Limited and its subsidiaries are aligned with growing community aspirations about investments in social infrastructure. For example, we are concerned with the implications of the rise of chronic disease and an ageing population on the sustainability of the economy generally and on the Australian way of life. Part of our response to

these concerns is to invest in commercially sustainable initiatives in the health and ageing sphere that seek to ease the pressure on the welfare system and to provide high quality, affordable services to hundreds of thousands of Australians. By way of example, we have invested some $36 million over the past four years in preventative health benefits and in our Remedy Healthcare business in establishing evidence based chronic disease management programs. In addition, we have invested many hundreds of millions of dollars to create integrated retirement and aged care communities that efficiently provide care services, including direct healthcare, to thousands of older Australians.

It remains the intention of the board of Australian Unity Limited to continue to use profits generated from all of our businesses to further invest in these services for social benefit.

One of the misconceptions that sometimes occurs about mutuals is that they have difficulty attracting capital to fund growth initiatives and instead can only rely on their own generated profits. I am especially proud therefore to report that this year we broke new ground for a mutual by launching the Australian Unity Notes, an unsecured debt instrument listed on the Australian Securities Exchange. This $120 million issue enabled us to repay a number of other debt facilities and has also given us additional funds to continue our growth plans. The majority of this Note issue was subscribed by large institutional investors but it was also open to the general public and of course to members and employees. It was especially pleasing to me to learn that hundreds of members invested in the Notes. Together with the other fund raising facilities that we have developed, such as our Retirement Village Investment Notes, we are developing a suite of products which assist us as a mutual to continue to invest in new businesses and new activities without being limited to using only our reinvested profits.

I want to mention that all of these achievements depend upon the skills and hard work of our staff. We work constantly to enhance our employees’ skills and to attract the most talented workforce possible, which in some areas is quite a challenge as there is a substantial shortage of skilled professionals in many of our areas of activity. We understand that in order to deliver the highest quality

products and services to members and customers, and to innovate and generate new service ideas, we need to invest in building talented and dedicated teams of professionals. To do this, we need to provide a high quality working environment as well as appropriate remuneration and to continue to support our employees to enhance their wellbeing.

Obviously we are always seeking to improve what we do and although we could always do better, I do feel that overall Australian Unity is recognised as a high quality organisation. We have come a long way in the past 18 years since Australian Unity was formed through merger and since then have had two more substantial mergers. This year we announced that we were in discussions to consider another prospective merger with Big Sky Credit Union. That proposal is currently the continuing subject of examination by Big Sky and its members. Should the respective boards, Big Sky members and regulators approve the merger, the Australian Unity Group will include a significant and highly regarded Authorised Deposit-taking Institution which will add to our strength and value to members.

The current year has started positively and with growth and improvement planned across all of our activities 2011–2012 should prove to be another successful and exciting year.

Mr Warren French has decided to not seek re-election at this year’s annual general meeting and will thus retire from the board at that time. Warren joined our board with the merger with Grand United in 2005 after serving as Grand United chairman for many years. I am pleased he will continue an association with us in several areas, and on behalf of the board I wish to thank him for his contribution in so many ways to our boards over the years.

I conclude by thanking all our members, including those still actively involved in our fraternal organisations for their support, and all of our executives and staff, and my fellow directors for their efforts over the year.

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Alan Castleman

Chairman

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Group Managing Director’s report

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The past year has been another positive year for the company, a year in which each of our businesses demonstrated their continued resilience facing a dynamic external environment and the ongoing relevance of their products and services to our customers and members.

I am pleased to report a solid result in our trading performance for the 2010–2011 financial year, as shown in revenue of $1,012 million (up from $934 million); operating earnings of $31.7 million (up from $23.7 million); and profit after tax of $25.6 million (up from $17.1 million). This demonstrates that we have continued to build upon the company’s results in previous years as we responded to and absorbed the shock of the global financial crisis. Our financial result this year contained no significant one-offs, such as divestment of businesses or major mergers, and thus it provides a valuable perspective on the developing dynamics, and resilience, of our revenues.

Global and local turmoil has continued to impact economies across the world, including Australia, but our recent trading experience has shown us that our business approach (which provides services connected with three of the most significant challenges of our time: ageing population, financing health, retirement savings) is robust and able to withstand temporary setbacks and so we remain positive about the company’s growth objectives.

This year, as the Chairman has mentioned, we were successful in launching the Australian Unity Notes, an instrument that has replaced our corporate bank debt with longer-dated financing and established another avenue of funding for the development of our operations. The strength of the market response to the issue of these Notes has given us important feedback about our capacity to utilise a broader mix of funding to invest in our businesses. It is also an indicator of the resonance of our brand and the readiness of investors to invest in our corporate strategy.

There are many areas of success across our businesses that I am pleased to report to you about. Our Healthcare business has had a notable year of growth in both the retail and corporate health insurance funds, increasing the number of policyholders by 7 percent, or 11,489 policyholders, in the retail fund and 19 percent, or 3,451 people, in our corporate fund, GU Health. By way of comparison, the average for the whole industry this year was some 3 percent. This growth in sales followed a multi-year process that focused on improving our systems and processes, developing marketleading product benefits, and delivering outstanding customer service including 24 hour claims processing times.

Over the past four years we have also invested a substantial proportion of our profits into Remedy Healthcare, a preventative health and chronic disease management business—the only one of its kind operating at scale in Australia and that is firmly evidence-based. We are beginning to see some exciting results from Remedy’s approach, including demonstrated reductions in hospitalisations of our members.

Our strategic move to deliver more direct-care services is also evident in our Retirement Living business. At the time of writing this report we have welcomed our first residents to the Peninsula Grange retirement village in Mornington, Victoria, a development that we hope will grow to become an important part of its local community. With Peninsula Grange, we are continuing our pioneering philosophy of providing an integrated continuum of care: accommodation allied with care and support services provided within the villages and to the surrounding community.

These important infrastructure developments and innovations are part of our long term efforts and objectives to contribute social value and to assist communities (and governments) to prepare for Australia’s demographic challenges in the decades ahead.

Our Investments business has continued to develop soundly despite a further year of economic and securities’ market volatility. In commercial property, we have expanded our reach with the acquisition of the unlisted Diversified Property Fund, a $380 million retail property fund previously owned by Westpac. Post this report’s balance date, we also announced that we have become the responsible entity of an additional $430 million commercial property business, taking over from Investa Property Group. Our continued approach to expand the diversity of our financial services business has also led to discussions with Big Sky Credit Union about a possible merger, which Big Sky members are set to vote on this year. The benefit of such a merger would be our ability to offer an expanded set of deposit and loan products to our members and customers. Big Sky also has a strong history of providing financial advice to its members, and we therefore see opportunities to complement our own ambitions in this area. Australian Unity’s Personal Financial Services business reached a significant milestone during the year: passing more than $1 billion in funds under advice with more than 70 authorised representatives now supporting clients of this business.

We have also continued with our investment in the capacity and skills of our people. Our staff are performing strongly across operations that are significantly more complex than even a few years ago. Through both targeted and broad development programs, we are adding to and deepening the capabilities of our workforce and strengthening a culture based on delivering wellbeing to members and customers. I believe this focus has led to Australian Unity developing more prominently as a leading employer. One example of this development was the recognition during the year of Australian Unity as an ‘Employer of Choice for Women’ from the Equal Opportunity for Women in the Workplace Agency. This commendation recognises, in one aspect, our efforts to create a diverse work environment where different backgrounds, experiences and contributions are valued.

Our progress on operational activities throughout the year allowed us to consider reinvesting in the direct promotion of our brand. We have focused our advertising and promotion efforts towards emphasising our long and stable heritage as a trusted service provider, while targeting markets outside of our traditional base in Victoria and a younger audience for our health fund in particular.

Australian Unity remains a company that aims to become Australia’s leading wellbeing company and continues to make a meaningful contribution to social value in the community. We plan to do this by continuing tangible contributions to three broad areas: healthcare; financial security; and retirement and aged care services. I reiterate the Chairman’s thanks to you for your continued support and also extend a thank you to my colleagues. We look forward to further developing the company on your behalf.

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Rohan Mead Group Managing Director

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Review of Operations

Healthcare

Australian Unity Healthcare is one of the nation’s oldest health funds and has one of the most comprehensive range of chronic disease management and wellness benefits of any health fund in Australia. These evidence-based programs are saving lives and reducing the cost of illness for the individuals concerned by reducing the number of claims and slowing health inflation.

Australian Unity continues to help members combat the increasing number of lifestyle diseases—such as osteoporosis, type 2 diabetes and heart disease—through market-leading preventative health benefits. These benefits include rebates on the cervical cancer vaccine, personal health coaching, bone density testing and mammogram screening, as well as quit smoking and weight loss programs.

retail and corporate insurance businesses and the allied health business, was $590,785,000 for the year ended 30 June 2011 (2010: $528,174,000). These strong results were driven by a combination of factors including an increase in membership and improved fraud management, as well as positive results from preventative health programs.

Australian Unity won both the International Customer Service Professionals’ Platinum (large business) Award and the overall Outstanding Business Award for the second consecutive year. The awards recognise the world class best practices of Australia and New Zealand’s best and most innovative customer service businesses.

Australian Unity’s Healthcare operations recorded an adjusted Earnings Before Interest, Tax, Depreciation and Amortisation* of $55,020,000 for the year ended 30 June 2011 (2010: $50,891,000). Total segment revenue for the combined Healthcare business, which includes

Highlights

> Our membership base in New South Wales and Queensland increased by 20.9 percent.

> Our retail fund grew by 6.9 percent and our corporate fund by 18.9 percent.

> We invested $36 million over the past four years in preventative health and chronic disease management.

Health insurance—growth in membership

Over the past four years, Australian Unity has increased its focus on recruiting new members and expanding its member base outside Victoria.

The strategy of growing the fund outside Victoria is in line with Australian Unity’s long term ambition to expand the company’s customer base and deliver products and services on a national basis. This led to slightly higher management expenses.

A key part of this growth strategy was to attract younger members, in an effort to reduce claims inflation. As a result, Australian Unity has experienced growth outside its main

Victorian market, expanding into Queensland and New South Wales, contributing to an overall net growth in membership of 6.9 percent (2010: 1.6 percent). It followed multi-year business-wide improvements to our customer service and operations.

This growth was helped by the launch of new marketing initiatives. Private Health Insurance sales between the start of February 2011 to the end of June 2011 were up 77 percent against the corresponding period last year.

• We developed two new preventative health programs through Remedy Healthcare.

> We invested in service and technology to provide members with Simple.Useful. healthcare.

• Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and other non-recurring expenditure.

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FAST FACT

The incidence of cancer in Australia is predicted to increase by 10 percent every ten years, until population ageing peaks around the middle of the century.

Review of Operations

Healthcare (continued)

Dental

Corporate health

GU Health, Australian Unity’s corporate health fund provider, is the only fund in Australia that caters solely to the corporate market.

Australian Unity opened its fourth Victorian dental centre in Rowville, Victoria, increasing members’ access to dental health. The new addition has already contributed to 3,000 more patient visits compared with the same period last year.

GU Health’s health insurance business policyholders increased from 18,274 as at 30 June 2010 to 21,725 as at 30 June 2011—a growth of 18.9 percent (2010: 12 percent) with no drop-off of corporate clients for three consecutive years.

During the year, GU Health introduced a wellness program for its corporate clients’ employees. The program, implemented through workplace health checks, identifies and offers targeted interventions such as chronic disease management programs, which are delivered over the telephone by Australian Unity’s preventative health business Remedy Healthcare.

Service innovation

In line with Australian Unity’s Simple.Useful. approach, Australian Unity launched a free iPhone and iPad application allowing customers to have claims assessed and processed within one business day. The application also allows members to view their policy details and make extras claims by submitting a photo of their invoice. (To access this, search iTunes for Australian Unity.)

Total claims paid to members ($m)

Medical services incurring no out-of-pocket expenses (%)

Australian Unity Health Management Expense Ratio (%)

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500 100
400 80
300 60
200 40
100 20
357 385 421 435 474 90 87 82 87 94
0 0
07 08 09 10 11 07 08 09 10 11
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10
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$474m

94%

11.5%

Advocacy and public policy

In February 2011, the task force released a paper titled Using Microeconomic Reform to Deliver Patient-Centred Health Care . The task force supports the need for an evidence-based framework to give Australia one of the best, most efficient and cost-effective health services in the world and believes business can make an expert contribution to improving outdated systems and practices.

During the year, Australian Unity monitored the Federal Government’s proposed Fairer Private Health Insurance Incentives Bill that aimed to means test the private health insurance rebate. Australian Unity made representations in multiple forums about the undesirability of this proposed change because of its potential to endanger the valuable balance between the public and private sectors in Australia’s healthcare system.

Australian Unity works with the Business Council of Australia’s Healthy Australia task force, to promote the need for health sector reform that delivers better value and better health outcomes for the community.

Top 5 individual member claims

Diabetes	$150,742
Digestive system	$149,320
Respiratory	$147,435
Infection	$129,884
Thyroid	$119,272

Most common ailments experienced by members

0 2 4 6 8 10	9% Year-on-year increase in health claims paid to members (%) 11 10 09 08 07 6.1 7.6 9.5 3.3 9.0	2008 2009 2010 2011
		Digestive system
		Patients 18,758 19,853 20,619 20,931
		Beneftspaid(m) $29.3 $26 $27.8 $28.8
		Average per patient $1,564 $1,309 $1,347 $1,375
		Musculoskeletal
		Patients 7,725 8,051 8,121 8,797
		Beneftspaid(m) $52.8 $53.4 $54.1 $61.3
		Average per patient $6,832 $6,634 $6,667 $6,964
		Circulatory (including cardiac)
		Patients 5,720 5,774 5,947 5,882
		Beneftspaid(m) $46.4 $51.1 $50.5 $53.1
		Averageperpatient $8,111 $8,857 $8,489 $9,024

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FAST FACT

Someone is admitted to hospital with an osteoporotic fracture every 5-6 minutes, averaging 262 hospitalisations per day.

Review of Operations

Remedy Healthcare

Preventative health and chronic disease management

Australian Unity was among the first health insurers to take a more preventative approach to health. Many costly and disabling conditions—including cardiovascular disease, cancer, type 2 diabetes and chronic respiratory disease—can be linked back to preventable lifestyle risk factors. By actively contributing to its members’ health, Australian Unity can reduce the risk of hospitalisation, and thus claims, with these savings invested back into additional preventative health and chronic disease management programs.

Australian Unity’s preventative health and chronic disease management business, Remedy Healthcare (Remedy), provides health coaching for primary prevention and chronic disease, maternity support, early discharge and in-home rehabilitation services for Australian Unity health insurance members and external customers.

Remedy’s programs often contribute to early diagnosis of conditions that might otherwise have gone undetected. During the year, graduates of Remedy’s Bone Health Program were shown to have significantly improved their health and reduced the likelihood of hospital readmission.

Clinical Outcomes (%) Initial assessment Bone Health Program Graduation First 200 graduates

To date, more than 350 patients have graduated from the program. The first 200 graduates were reviewed and results showed a significant improvement in vitamin D levels, daily intake of calcium and the proportion of people being prescribed and taking best practice osteoporosis medication.

Remedy’s Coronary Artery Disease Program continued its strong focus on behavioural change, using techniques specifically targeted to address any barriers the patient experiences in self-management of their condition. Remedy is also conducting a randomised control trial with Flinders Medical Centre and Lyell McKewen hospitals in Adelaide. The trial will assess the effectiveness of a clinical support program delivered via the telephone to people with coronary artery disease. The trial is expected to be completed in December 2012 with evaluation thereafter.

During the year, Remedy developed two new telephonebased support initiatives, the Maternity Support Program and the Integrated Care Program.

Average annual (all cause) hospital benefit payments for members with osteoporosis ($)

The Maternity Support Program provides expectant and new parents with support, education and guidance from an experienced midwife during pregnancy and up until the baby’s first birthday. The program provides women diagnosed with gestational diabetes during their pregnancies with additional support, to help them reduce the risk of developing type 2 diabetes later in life.

The Integrated Care Program is for health insurance members who have a high rate of hospital readmission. It aims to reduce the likelihood of readmission by providing advice on medications and linking members with services available in their community to help them stay well, safe at home and out of hospital.

Pleasingly, Remedy’s telephonic programs achieved outstanding patient satisfaction results. Since the inception of the programs, 97 percent of patients have rated the programs ‘excellent’ or ‘good’ overall.

Rehability: care co-ordination for private health insurers

Another key part of Remedy’s activities is the care co-ordination business, Rehability (a 50 percent joint venture), which now offers its services to 21 private health insurers. Rehability’s flagship Rehabilitation at Home Program offers patients a range of individualised services in the privacy and safety of their own homes, reducing stress and aiding faster recovery, and operates in Victoria, South Australia and New South Wales with plans for further expansion.

Rehability also provides an early and supported discharge program for clinically eligible members following a hospital stay. For Australian Unity Health and GU Health fund members, this program offers home nursing, personal care, wound management, meals, allied health and home assistance.

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100 8000
80
6000
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4000
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20 < Bone Health
35 76 20 52 39 72 45 82 48 83 30 58 Program begins
0 0
Bone Mass Strengthening 30 min Vitamin D Calcium Medication 03 04 05 06 07 08 09 10 11
Density exercise Targets Targets
(last 2 years) (daily) Bone Health Program participants Comparison group
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Review of Operations

Retirement Living

Australian Unity builds and operates retirement communities, many of them integrated with aged care or other support services. The business now runs 16 retirement communities and has a $400 million continuing program of new developments. Whether new or established, both have the same goal: to create communities that support older Australians to live well.

On 8 August 2011 the Productivity Commission released its final report on the aged care system. It notes that ‘older people want to age at home, and there is growing interest in retirement-specific living options that offer integrated (and potentially more efficient) modes of delivering community care’. Australian Unity is better placed than many operators to assist residents to age in the one place by providing flexible and integrated care services. The choices range from fully independent living, to in-home care, through to fully supported aged services. As well as health services, residents enjoy participation in arts, music and other forms of social connection.

Australian Unity’s Retirement Living business recorded an adjusted Earnings Before Interest, Tax, Depreciation and Amortisation of $9,948,000 for the year ended 30 June 2011 (2010: $10,155,000). The business has a solid foundation for sustainable growth through recent investment in systems and process improvements, along with continuing capital maintenance and unit refurbishment, this year totalling $3.7 million. There was also a greater focus on widening the range of care services and high-quality sustainable living options in response to increasing demand.

The business converted some bonded beds into transition care beds that attract no bond, and still reported an increase in accommodation bonds from $71 million to $72 million.

Highlights

• Village occupancy rose from 94 percent to 95 percent. Residential care occupancy was maintained at 98 percent.

• We launched the Retirement Village Property Fund for institutional investors, in conjunction with our Investments business. Post year-end we entered into a contract to purchase a village and also entered a conditional agreement (subject to due diligence) to purchase a second village. Together, these villages have more than 200 units.

• Our Victoria Grange development in Vermont, Victoria, continues its high market acceptance and the first stages of the new Peninsula Grange development in Mornington, Victoria, were fully pre-sold during the year.

• Our Community Care services continue to expand and represent 5 percent of revenue for the year.

Increase in sales and occupancy levels

The business operates 16 retirement communities including four aged care facilities in Victoria and New South Wales, offering more than 1,605 home units, 451 aged care beds and 180 ambulatory and community care places.

Occupancy rates at retirement villages and aged care sites consistently met or surpassed industry averages, with occupancy rates at retirement villages increasing from 94 to 95 percent and residential care maintained at 98 percent.

Current developments

Retirement Living has some $400 million in development projects now under way, which will provide more than 600 independent living units and 238 aged care beds. Retirement Living holds 226 Federal Government provisional bed licences for these aged care places, making it possible to offer the places to the community as soon as the buildings are constructed and operational.

In Victoria, the first four stages of Victoria Grange in Vermont are complete, with construction on the community centre to begin in the 2012 financial year.

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FAST FACT

In Australia there are nearly as many people living in retirement villages as in residential aged care (138,000 and 162,000 respectively).

Review of Operations

Retirement Living (continued)

Our operations

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Ambulatory and Community Care packages* Residential Aged Care places Village units

The 2011 total is lower due to a management contract for a 178 unit village not being renewed during the year.

• Including community aged care packages, extended aged care at home packages, day respite services, in-home respite services, residential-based transition care and consumer directed care packages.

Peninsula Grange retirement community in Mornington, which will include 278 independent living units and 90 aged care places, is also on track, with the first 50 units either sold or under deposit. Construction of five units at the Oaks in Croydon began in February 2011 to complement the existing established community.

Retirement Living is also developing a wellbeing precinct in Carlton, Victoria, which will provide aged and assisted care accommodation options, retirement living and services promoting health and wellbeing. The Carlton Project forms a key element of the Victorian Government’s $180 million Carlton Housing Redevelopment Project, and will create around 150 permanent jobs and house some 400 residents.

In New South Wales, Sienna Grange in Port Macquarie is approaching 50 percent completion. When fully constructed, Sienna Grange will have 67 independent living units.

Increased services

During the year, Australian Unity increased the services on offer in its retirement villages and aged care facilities to include eye testing, health checks, and computer and technology education.

The continuing focus on sub-acute services resulted in an extension to our alliance with Eastern Health, providing an additional 19 beds at Victoria Grange Aged Care in Vermont, Victoria, to the eight-bed Transition Care Unit at Walmsley Aged Care in Kilsyth, Victoria. This sub-acute support has enhanced the broader health and ageing network in the eastern region of Melbourne.

Australian Unity’s palliative care services received a $35,000 Federal Government grant to assist residents with high quality care needs to stay in a familiar environment, and reduce the need to seek care in alternative facilities. The palliative care unit is expected to assist the community through better access to information and expertise.

Community care

During June 2011, Australian Unity was awarded six Consumer Directed Care Community Packages (three low care, two high care and one dementia) for the New South Wales central coast. Australian Unity, with its commitment to personal wellbeing, is delighted to be able to participate in the early introduction of such people-centred initiatives. The company now has 134 active community care and 40 ambulatory care packages across New South Wales and Victoria.

Respite care

Federal funding for the Day Respite Program at Constitution Hill in Parramatta, New South Wales, was extended for another 12 months. The program operates on a day-care basis and offers a break for carers supporting older people in the community.

Sustainability

Australian Unity Retirement Living has developed a sustainability framework for its retirement and aged care portfolio to address issues such as energy and water usage, social factors, materials, indoor environmental quality, waste and transport.

Australian Unity aims to be an industry leader in delivering sustainable practices in all of its retirement villages and aged care facilities. New developments adhere to strict environmental guidelines and include energy efficient designs and energy saving initiatives.

All established facilities will undergo energy, water and waste audits. The results of audits will enable site specific action plans to help reduce operating costs for residents and create more environmentally sustainable communities. In June 2011, a pilot audit commenced at Walmsley Friendship Village. The Village, comprising 198 single storey independent living units and a 122 bed residential aged care facility, will be used as a benchmark to manage the sustainability of established villages.

Advocacy and public policy

Australian Unity welcomed the Productivity Commission’s Inquiry, Caring for Older Australians, which considered the challenges facing the aged care industry. Retirement Living engaged with both the Productivity Commission and the industry to work towards establishing a health and ageing system that will deliver the support and flexibility of service older Australians deserve.

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Peninsula Grange

The newest addition to Australian Unity’s Retirement Living portfolio, Peninsula Grange, welcomed its first residents, Susanne and Kevin La Fontaine in early August 2011.

Located in the seaside town of Mornington, Peninsula Grange has around one-third of the site dedicated to parks, gardens and a lake.

Once complete, key features for the village will include a community centre with an indoor heated lap pool, gym, hairdressing and beauty therapy rooms, library, craft room and workshop. Other private facilities within the community will include a bowling green, putting green, bocce area and outdoor barbecue areas.

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Review of Operations

Highlights

Financial Services

Financial security is one of the most important ingredients in wellbeing, as it allows individuals flexibility in responding to life’s challenges. Sound investments are based on solid portfolio strategies. Through a number of joint venture partnerships with specialist asset managers, Australian Unity Investments is building a diversified portfolio of products that both lead and respond to today’s economic circumstances.

Australian Unity is also building a business offering personal financial services and advice to our members and customers.

Investments

Equities

Australian Unity Investments helps its customers reach their financial goals by providing a diverse range of strong investment opportunities.

Microcap manager Acorn Capital increased its funds under management to $1.3 billion as at 30 June 2011 (2010: $1.0 billion), and the Acorn Microcap Trust (Wholesale) returned 25.37 percent for the year to 30 June 2011.

While investment markets continued to struggle, with the industry experiencing an overall 0.5 percent decline in total flows for the year[1] , Australian Unity Investments increased funds under management from $10.3 billion to $11.9 billion. The business recorded an adjusted Earnings Before Interest, Tax, Depreciation and Amortisation of $14,068,000 for the year ended 30 June 2011 (2010: $10,481,000).

Australian equities manager Platypus Asset Management had $1.6 billion in funds under management for the year ended 30 June 2011 (2010: $1.6 billion), and the Platypus Australian Equities Trust (Wholesale) returned 11.91 percent for the year ended 30 June 2011.

International equities manager Wingate Asset Management had $45 million in funds under management as at 30 June 2011, and the Wingate Global Equity Fund (Wholesale) returned 1.31 percent for the year ended 30 June 2011 after allowing for the impact of the strong Australian dollar, which reached new heights during the year.

The business continued to expand, including by forming joint ventures and strategic alliances. This distinctive business model provides investors with access to a range of expert investment managers, each focused on a different sector or investment style. These managers include Acorn Capital, Vianova Asset Management, Platypus Asset Management, Wingate Asset Management, Seres Asset Management and Altius Asset Management.

Wingate received a special commendation for innovation in investment management from the Australian Centre for Financial Studies. The judges said the strategy was ‘one of the most innovative seen in recent years and appears to be validated to date by solid performance’.

Wingate also finalised its Investment Advisory Committee with the high-profile appointments of Saul Eslake, Ron Liling and Paul Laband. The committee’s role is to stimulate new ideas, challenge old ones and provide the Wingate investment team with expertise from industry leaders.

Asian equities manager Seres Asset Management launched its first fund, the Seres Asian Equity Opportunities Fund. The business had $47 million in funds under management for the year ended 30 June 2011.

Seres also participated in its first major capital introduction conferences with Morgan Stanley in Beijing and Merrill Lynch in Hong Kong, and was fully booked for investor presentations at both conferences. Interest in this boutique manager continues to grow.

> Our joint venture partner, Wingate Asset Management, received a special commendation for innovation in investment management from the Australian Centre for Financial Studies.

> We launched a sixth joint venture partnership, Altius Asset Management.

> We purchased the unlisted Diversified Property Fund, previously owned by Westpac.

> Our Retirement Village Property Fund for institutional investors was jointly launched by Retirement Living and Investments.

Fixed interest

Vianova Asset Management increased funds under management to $5 billion as at 30 June 2011 (2010: $3.8 billion), and the Vianova Strategic Fixed Interest Trust (Wholesale) returned 4.94 percent for the year to 30 June 2011.

Australian Unity Investments joined with an experienced fixed interest team to launch Altius Asset Management. Australians continue to be under-represented in this important asset class, but over time investors are likely to start moving out of cash holdings into term deposits and other fixed interest investments.

1 Plan for Life Analysis of Retail Managed Funds as at March 2011

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Review of Operations

Financial Services (continued)

In June, Australian Unity announced that it was holding merger discussions with Big Sky Credit Union. An evaluation committee comprising directors and senior executives of both organisations has been formed to review strategic opportunities to create a strengthened mutual group. Should a more formal proposal develop from these discussions, it would then be subject to review and approval by respective boards, regulators and the members of Big Sky Credit Union.

Property

Australian Unity Investments continued to strengthen its position in unlisted property, expecting this sector to be a high growth area for investors. The total value of the property portfolio increased to $1.4 billion as at 30 June 2011 (2010: $1.1 billion).

As part of this growth strategy, the business purchased the unlisted Diversified Property Fund, previously owned by Westpac, offering investors a broader product range in the sector. After the purchase the fund gained its first research rating and held two withdrawal offers for investors, the first liquidity offering since 2007.

Australian Unity Investments continued its dominance in the healthcare property sector, with the Healthcare Property Trust retaining the highest research ratings in the market. This trust has remained liquid throughout the global financial crisis, and has been providing investors with consistent distributions for almost a decade, returning 8.10 percent (wholesale) for the year to 30 June 2011.

The business also began raising the $67 million needed for the Retail Property Fund to finance an expansion of the Waurn Ponds Shopping Centre. As at 30 June 2011, $43 million had been raised from new and existing investors.

Australian Unity seeks to utilise the diverse capabilities within the group. During the year the Investments team joined with Retirement Living to launch the Retirement Village Property Fund for institutional investors.

Together these two group businesses are responsible for a commercial property portfolio of more than 80 properties with a collective value of $2 billion (as at 30 June 2011), a solid base from which to launch this new fund.

Mortgages

While investors continue to favour Commonwealth Government guaranteed products, mortgage trusts continued as a stable option. With the share market down almost 40 percent from its pre-global financial crisis level, Australian Unity’s mortgage trusts held steady, still returning dollar for dollar.

Australian Unity continued to improve liquidity for investors in these mortgage trusts. Following the implementation of monthly withdrawal facilities for the Mortgage Income Trust in 2010, a regular monthly withdrawal facility for the High Yield Mortgage Trust was introduced in 2011. This offered 3 percent of the trust’s net assets for withdrawals each month, giving investors regular access to their capital. The mortgage trusts had total funds under management of $0.8 billion for the year ended 30 June 2011 (2010: $0.9 billion).

Investors in the Mortgage Income Trust with an average balance of $50,000 who participated in all withdrawal offers since December 2008 were paid out their full balance at 100 cents in the dollar in November 2010.

Investors in the High Yield Mortgage Trust with an average balance of $50,000 who participated in all withdrawal offers since December 2008 had received approximately 60 percent of their balance at 100 cents in the dollar at 30 June 2011.

Lifeplan

Lifeplan is Australia’s largest provider of investment bonds and education savings plans. In a low return environment it has focused on offering tax-effective, innovative solutions to make the most of investors’ money.

Funds under management at 30 June 2011 (%)

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46.5 Fixed interest 5.4 Mortgages 24.5 Australian equities 0.8 International equities 12.0 Property 0.3 Other 10.5 Lifeplan

Following the merger with Australian Unity in September 2009, Lifeplan completed a post-implementation optimisation and restructure to ensure the business performs soundly. Part of the review involved enhancing the sales capability of the business to achieve future growth. Lifeplan also substantially increased its presence with financial advisers and dealer groups, leveraging from the existing relationships Australian Unity has in place. It also launched a new program for funeral directors who distribute Lifeplan’s funeral bond products.

Wingate Asset Management

Wingate Asset Management was formed in 2005 as a joint venture between Australian Unity Investments and a group of international equities specialists.

There was interest in Lifeplan products despite poor investor sentiment and challenging market conditions and, with the inclusion of Australian Unity’s bond products, had a total of $2 billion in funds under management and administration at 30 June 2011 (2010: $2 billion).

Since inception Wingate has provided investors with positive returns and benchmark outperformance via its flagship offering, the Wingate Global Equity Fund.

Advocacy and education

The fund is a long-term investor in high-quality, blue-chip international equities, and also incorporates a unique strategy that lowers investment risk. It defines risk as ‘losing money’, and has delivered on its objectives of participating in strong markets yet minimising losses in times of market weakness.

Today’s investors are taking more personal responsibility for their savings and superannuation. In an environment continuing to produce low returns, it is important that people have access to information to help them make educated decisions when investing. Australian Unity doesn’t claim to predict movements in investment markets, but does approach the markets thoughtfully and carefully to ensure investors are provided with useful information—allowing people the freedom to choose what is right for them.

Australian Unity Investments is operating in an environment of changed regulations and increased community debate about the role of financial advisers. The business welcomes many of the current financial reforms (such as the Future of Financial Advice) which aim to tackle conflicts of interest that may impact on the quality of financial advice that is provided to Australian investors, and will continue to work with other industry leaders to ensure all outcomes are in the best interests of investors. To this end, Australian Unity Investments chief executive officer David Bryant presented at the annual Financial Services Council conference in August 2010, arguing for an increased commitment to investor education.

In 2011, Wingate received a special commendation for innovation in investment management from the Australian Centre for Financial Studies.

The business also held face-to-face investor presentations, adviser teleconferences and webinars during the year. These seminars gave people a chance to hear directly from property managers and to ask questions about their own investments.

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FAST FACT

Review of Operations

A couple retiring today will need to spend $55,000 per annum to achieve a ‘comfortable’ lifestyle. A single person will need to spend more than $40,000 per annum to achieve the same level of comfort.

• Comfortable retirement lifestyle—enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of things such as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

Personal Financial Services

Australian Unity’s financial planning business continued to improve its performance, with a 76 percent increase in funds under advice to $1.02 billion (2010: $582 million) despite a challenging external economic environment. The business continued to grow strongly with heavy investment in new advisers and accounting practices. As the great majority of this investment is treated for accounting purposes as an expense, the business recorded an adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) loss of $4,556,000 for the year ended 30 June 2011 (2010: adjusted EBITDA loss of $5,621,000), reflecting continued investment in the

expansion of the financial advisory business. The business continues to tread purposefully on its investment path, reducing its EBITDA loss by more than $1 million on last year, continuing a trend over the previous three years. This was largely due to an increased focus on revenue growth resulting in a $2 million or 30 percent increase on last year from $7 million to $9 million. Based on current performance indicators, the business remains on track to generate profits by 2013. The board is satisfied that the growth in value of the business supports this investment.

Increased business

Personal Financial Services almost doubled the size of its business during the year. This was a result of recruiting established advisers, increasing adviser productivity and acquiring financial planning practices.

The business has had great success with its accountant referral program. The business increased its accountant referral partners from 70 as at 30 June 2010 to 163 as at 30 June 2011. Australian Unity’s strong brand continued to attract financial advisers, with a 42 percent increase from 50 to 71 in practices across New South Wales, Queensland, South Australia, Victoria, Western Australia and the Australian Capital Territory.

The mortgage broking division acquired four loan books totalling $140 million, including 10 finance brokers. This, together with new business, increased the loan book by 107 percent from $150 million to $311 million.

With a significant generational shift taking place in rural Australia, Personal Financial Services—with Next Rural, a strategic partner of accounting firm Grant Thorton— launched a new joint venture, Next Rural Financial Management.

The joint venture will help families to transfer their farms to the next generation while allowing retiring farmers to achieve their lifestyle and retirement goals. It will ensure there are risk protection programs in place to help protect the family members involved, and that debt structuring and financial advice is also available through the restructuring process. Helping to properly manage this transition will significantly enhance the financial and emotional wellbeing of these families.

Increased efficiency and productivity

Cost saving initiatives and organisational changes implemented in the 2010 financial year continued to deliver savings, allowing the business to achieve growth with virtually no change in its operating costs.

To improve on efficiencies, the company introduced a new revenue management and reporting system, which has minimised the need for manual intervention. This has reduced the risk of human error and significantly freed up resources. It has automated the revenue sharing process between advisers and their accountant referral partners and has improved reporting capabilities.

Highlights

• Our funds under advice increased by 76 percent from $582 million to $1.02 billion.

• Our gross revenue increased by 30 percent.

• Our network of accountant referral partners grew from 70 to 163.

• Our loan book increased by 107 percent from $150 million to $311 million.

• We launched a joint venture ‘Next Rural Financial Management’ to supply financial advice and finance broking services to agricultural families embarking on business continuance strategies.

Next Rural has the support of farming groups such as the New South Wales Farmers Association and AgForce in Queensland and will be the preferred provider of succession planning services to their members.

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Community

Australian Unity has a proud history of working to improve community wellbeing. Since 2001, the Australian Unity Wellbeing Index has examined the impact of social isolation, financial insecurity and other circumstances on the lives of individual Australians.

The Australian Unity Wellbeing Index celebrated 10 years of research this year with the production of the ‘What Makes Us Happy?’ report. The index explores eight domains that contribute to an individual’s subjective wellbeing: achievements in life, standard of living, future security, health, safety, relationships, community connectedness, and religion or spirituality. The results of this research have guided the development of the products and services Australian Unity offers today, as well as our community involvement.

Australian Unity Foundation

The Australian Unity Foundation was created in 2006 to help staff and members back worthwhile community activities. Each year, nominated community groups are awarded grants so they can continue their vital work. Since its inception, Australian Unity Foundation grants have contributed more than $760,000 to the community.

This year, grants of up to $25,000 were awarded to six groups: Australian Quadriplegic Association Victoria Ltd, Carers Victoria, Australian Community Safety & Research Organisation, The Reach Foundation, the Beacon Foundation and PivotWest Health Services.

Public policy

Rohan Mead, in his role as chairman for the Business Council of Australia’s Healthy Australia task force, featured throughout the year in newspaper articles and forums. He strongly advocated the need to dramatically reform Australia’s health care sector, if it is to meet the needs of an ageing population and the rising demand for sophisticated care.

We have sponsored the Australia Davos Connection Forum’s Future Summit for the past four years. The summit provides a collaborative platform for people to share ideas, exchange views and create defined outcomes to improve Australia’s future. At this year’s Summit, Derek McMillan, chief executive officer for Australian Unity Retirement Living, led a round table discussion on maintaining adequate health and welfare outcomes for the aged.

We continue to be the leading sponsor of the Australian Centre for Health Research. During the year the Centre published three reports on health matters, arranged related press conferences, and organised a workshop and roundtable discussion.

Australia Day

Australian Unity has celebrated Australia Day since 1888, after one of its founding organisations, the Australian Natives’ Association, successfully lobbied for a national holiday to celebrate what it meant to be Australian. This year, we again supported the popular Australia Day People’s March in Melbourne, and hosted the Great Australia Day Breakfast. Many distinguished Australians have addressed this breakfast, a tradition dating back more than 50 years. This year the Honourable Marilyn Warren AC, Chief Justice of the Supreme Court of Victoria, addressed participants.

The Australian Unity Great Australia Day Swim this year had an almost 50 percent increase in competitors, and provided a fun day for the whole family. Together with Rotary, the event raised $65,000 for Les Twentyman’s 20th Man charity and local Bayside children’s charity, Bayciss.

Measuring our contribution

Over the year Australian Unity assisted more than 80 state and national community organisations provide services and support to members of the community.

Our community contribution is measured using the London Benchmarking Group, an internationally recognised standard for measuring and evaluating a corporation’s community investment. This year we invested almost $1 million directly into the community, down slightly from the previous year.

Supporting staff in supporting the community

To encourage community engagement, Australian Unity provides employees with one day’s paid community leave per year to volunteer with an organisation that needs support. We also give all employees time to donate blood every 12 weeks. This year our staff contributed to saving the lives of 225 Australians by making 75 blood donations to the Australian Red Cross Blood Bank.

We continued to support staff by matching any contributions made to charity through our workplace giving program. This year, staff raised $186,918.90 (including Australian Unity’s contribution), with more than $155,000 going to the Queensland Premier’s Disaster Relief Fund and the Australian Red Cross Victorian Flood Appeal.

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Our community contribution at a glance

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93% Cash 4% In-kind support 3% Staff time

2011 Total $971,483

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94% Cash 3% In-kind support 3% Staff time 2010 Total $1,071,176

Areas we support 2011 (% of $)

50.87% Health 14.81% Social welfare 13.97% Education & young people 8.16% Emergency relief 7.43% Arts & culture 3.58% Economic development 0.85% Other 0.33% Environment

Community (continued)

Community partnerships

We continued our partnership with Swim Australia’s Learn To Swim school program. Now in its fourth year, the program promotes the importance of water safety to more than 600 schools. It provides schools with teaching aids and development programs to help spread the water safety message in an enjoyable way.

Continuing our support of the arts, Australian Unity again sponsored Bell Shakespeare and began a new partnership with the Australian Brandenburg Orchestra (pictured). The companies performed in retirement villages including Constitution Hill, Willandra, The Governors, Walmsley, Bateau Bay, Lifestyle Manor Bondi and Mt Eymard.

We are working for the fifth year with Greatconnections, a community organisation that pairs experienced, executive volunteers with not-for-profit organisations in need of their skills.

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Sustainability

During 2010-2011 Australian Unity continued to seek ways to reduce its environmental footprint across all areas of the business to ensure a sustainable future for current and future generations.

At Australian Unity we are committed to reducing the environmental impact of our portfolio of properties.

Investment property assets

This year, improvements were made to 20 Smith Street, Parramatta and 121 Henry Street, Penrith, in New South Wales.

Retirement living property

Australian Unity places significant importance on providing sustainable retirement and aged care village living.

As part of the Building Energy Overhaul Project, both buildings received extensive upgrades which resulted in significant savings in energy and a reduction in green house emissions.

All new developments are designed to be environmentally sustainable and established facilities are being assessed to enable the development of site specific action plans to help reduce operating costs for residents and create more environmentally sustainable communities.

Works on 121 Henry Street improved its NABERS* rating from a 1 star energy rating in 2009 to a 3.5 star energy and a 2.5 star water rating as at June 2010. We anticipate lifting our NABERS rating to 4.5 stars by September 2011. The works are anticipated to save 870 tonnes per annum of carbon emissions with an estimated 900 tonnes saved to date.

Units at Australian Unity’s newest development, Peninsula Grange, located on the Mornington Peninsula in Victoria, has a 6 star energy rating. The energy efficient house designs will use passive solar design principles, including north facing living areas, natural cross ventilation and a focus on natural lighting. The designs also include a central rainwater collection system providing residents with the equivalent of an average of 3,000 litres of rainwater storage per unit.

Australian Unity’s head office continued to improve its performance on previous years’ recycling and energy saving initiatives. In line with our sustainability strategy, coloured landfill and recycling bins were introduced. The introduction of reusable cups was promoted to further reduce landfill impact. Sensor lighting was fitted on each level within the head office car park to help reduce energy consumption.

Photographer: Steven Godbee

• NABERS is the National Australian Built Environment Rating System

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People

At Australian Unity, we understand that building a reputation as a leading employer benefits our members and customers as it enables us to attract high calibre employees who are dedicated to providing excellence in products and services to customers.

During the year, we broadened the range of benefits available to staff. This included 10 weeks paid parental leave for the primary carer and one week paid parental leave for the secondary carer.

Engagement

During the year we improved our recruitment procedures and introduced measures to help the business develop new standardised recruitment processes. An increase in referrals through the employee referral program indicated the high engagement employees have with the company. More than 100 new employees have been recruited through this program since its inception.

In February, a Wellbeing Expo provided employees with health checks, bone density testing, zinc testing and nutritional information. Through voluntary employee health risk assessments, those employees identified with high risk factors associated with heart disease or diabetes were offered targeted health coaching and support through our preventative health business, Remedy Healthcare. All staff offered this program have chosen to participate.

Our employee engagement over the past five years has been consistently high. In the last ‘Our People Survey’, 78 percent of employees reported they were engaged and committed to their role and the business. The latest survey of staff was conducted in September 2011 and will provide more insights and highlight where further improvements can be made.

People development

We value our people and encourage talented and motivated individuals to reach their full potential. The Australian Unity Business School continued to build leadership capability through programs such as advance, evolve and inspire. These programs focus on contemporary leadership techniques for new and experienced leaders, and provide participants with an understanding of leadership practice.

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In July we said goodbye to long serving employees, Serena and Jim Ryan, who headed off into retirement.

Serena and Jim, who have also had a long and happy marriage to each other, provided our members and staff with a combined total of 25 years’ service. For 15 years Serena was the ‘face of the organisation’ in her role as our front desk receptionist at our head office in South Melbourne. Jim spent four years providing service to our health insurance customers, and another six providing document management control services. We wish them both a happy retirement.

Diversity

The company has developed a diversity policy and formed a diversity reference group, with representatives from across the company.

During the year the company was recognised as one of 98 organisations selected by the Equal Opportunity for Women in the Workplace Agency as an Employee of Choice for Women. The company fulfilled a number of criteria relating to the policies, culture, training and practices that support diversity. In addition the strength of gender balance at different levels of management also contributed to this outcome. During the year some 60 percent of participants in leadership programs were women.

Industrial relations

We developed our systems in order to comply with the Federal Government’s Fair Work Act, National Employment Standards and Modern Awards. We have aligned the company to the Modern Awards. For example, the Retirement Living Enterprise Agreement in New South Wales was endorsed by 98 percent of voting employees, and approved by the Fair Work Commission.

Health and safety

We place great emphasis on providing safe working environments for all our employees. During the year, the governance of Occupational Health and Safety (OHS) was further strengthened by the implementation of an updated framework and policy. Our position is now well prepared for the harmonisation of national OHS legislation planned for 2012.

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Our people
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Staff 70% Women 30% Men

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Non-executive Directors 78% Men 22% Women

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Executives 60% Men 40% Women

Total staff

1,515

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Board of Directors

Alan

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Castleman

B Comm, Dip Elec Eng, FIE (Aust.), FAICD, FAIM

Mr Castleman

is Chairman of

Australian Unity Limited. He is chairman of a number of Australian Unity Limited subsidiaries and chairs the Human Resources, Remuneration and Nominations Committee and is an ex-officio member of all other board committees. He chairs the Australian Centre for Health Research Limited, a company of which Australian Unity Limited is a member. He is chairman of VEMCO Australia Pty Ltd and is a director and principal of the ProNed organisation involved in board advisory activities. Over the last 18 years he has been chairman of over 15 public or private companies including two ASX listed companies and advisory boards outside the Australian Unity Group and a non executive director of several other companies. Before 1993, his executive career was at BHP where he held a number of senior executive positions. Mr Castleman has not held any directorships of listed entities during the last three years.

Rohan Mead Group Managing Director & CEO

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Mr Mead was appointed Group Managing Director

of Australian Unity Limited on 1 July 2004. As Group Managing Director, he is a member of subsidiary boards and most committees. Mr Mead is chairman of Platypus Asset Management, deputy chair of Acorn Capital, a director of Seres Asset Management (Hong Kong) and a director of the Australian Centre for Health Research Limited. He is chairman of the Business Council of Australia’s Healthy Australia task force and is a director of the Australian Health Insurance Association. Prior to joining Australian Unity, Mr Mead was employed by Perpetual Trustees Australia Limited (1996–2003) in a range of senior roles. Prior to his work at Perpetual, Mr Mead headed marketing and communications at Blake Dawson. Mr Mead has not held any directorships of listed entities in addition to

Glenn Barnes

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BAg Sc (Melb), CPM, FAMI, FAIM, FAICD, SF Fin, FRSA

Mr Barnes was appointed to the board of Australian

Unity Limited on 16 October 2009. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Investment Committee and the Human Resources, Remuneration and Nominations Committee. He is a professional director and consultant and is currently a director of Ansell Limited and a number of private interest companies. Mr Barnes has 20 years of governance experience in banking and financial services, business information, consumer goods and the not-for-profit sector. He was involved in the packaged goods, banking and financial services sectors for over 30 years, as an executive, business leader and director in Australia, New Zealand, the United Kingdom, United States of America, Republic of Ireland, Japan and China. He has also held a number of regional and global leadership roles. Mr Barnes was previously a director of Lion Nathan Ltd. Mr Barnes has not held any directorships of listed entities in addition to those set out above during the last three years.

John Butler

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FCPA, FIFS, FAICD

Mr Butler was appointed to the board of Australian Unity Limited on

31 August 2009 following the merger with Lifeplan Australia Friendly Society Limited, of which he was chairman. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Audit and Compliance Committee and the Risk Committee. The majority of Mr Butler’s career was as the chief executive of the Druids Friendly Society in South Australia which operated in the health insurance, building society, retirement accommodation and nursing homes industries. He is currently a director of Beach Energy Ltd, North Eastern Community Hospital,

SA Druids Grand Lodge and a trustee of the James Brown Memorial Trust which operates a retirement village and three aged care facilities, as well as maintaining his role as chairman of Lifeplan Australia group of companies. For many years he was chairman of National Pharmacies. He is president of the Flagstaff Hill Golf Club in Adelaide. Mr Butler has not held any directorships of listed entities in addition to those set out above during the last three years.

Eve Crestani

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Dip Law (BAB), FAICD Ms Crestani was appointed to the board of Australian Unity Limited in 1996.

She is a director of a number of Australian Unity Limited subsidiaries, chairman of the Risk Committee and a member of the Human Resources, Remuneration and Nominations Committee. She is a director of Mercer Investment Nominees Limited and a director of Booking.com Limited. Ms Crestani is qualified in law and management, and is a member of the ASX Disciplinary Tribunal and chairman of several compliance committees. She consults in finance, strategic planning, marketing and management. She is a founding fellow of the Australian Institute of Company Directors, and an emeritus trustee of the Committee for the Economic Development of Australia. Ms Crestani has not held any directorships of listed entities in addition to those set out above during the last three years.

Ian Ferres

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FIAA, FAICD

Mr Ferres was appointed to the board of Australian Unity Limited in 1999 and was Group

Managing Director from 2002 to 2004. He is a director of a number of Australian Unity Limited subsidiaries, chairman of the Investment Committee, and a member of the Audit and Compliance Committee. An actuary by profession, Mr Ferres worked with the National Mutual Group for

34 years, including as executive manager of all worldwide investment, property, unit trust, and banking and finance operations from 1975 to 1988, and as an executive director from 1983 to 1990. Mr Ferres is currently a consultant with TressCox Lawyers, a director of Contango Microcap Limited, and the Committee for the Economic Development of Australia, and chair and/or director of several other organisations. He was previously president of Monash Medical Centre, and a director of St Vincent’s Health (Melb). Over the past 40 years he has served as chair, director or member of almost 50 private and public sector boards. Mr Ferres has not held any directorships of listed entities in addition to those set out above during the last three years.

Warren French

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GAICD, AIMM

Mr French was appointed to the board of Australian Unity Limited in 2005

following the merger with Grand United Friendly Society Limited, of which he was chairman. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Human Resources, Remuneration and Nominations Committee and Risk Committee. Mr French has also served as a director of other mutual and charitable organisations and as a member of the Ministerial Advisory Committee for Cooperatives in New South Wales. He is a director of the Australian Unity Foundation and is active with other associations in raising funds for charitable and community organisations. Mr French has not held any directorships of listed entities in addition to those set out above during the last three years.

Stephen Maitland

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OAM, RFD, BEc, MBus, LLM, FCPA, FAICD, FCIS, FAIM, FFin

Mr Maitland was

appointed to the board of Australian Unity Limited in 2005 following the merger with Grand United Friendly Society Limited. He is a director of a number of Australian Unity Limited subsidiaries, chairman of the Audit and Compliance Committee, and a member of the Investment Committee and Risk Committee. He is a director of Buderim Ginger Limited, the Royal Automobile Club of Queensland Limited, RACQ Insurance, and several private companies, and chairman of the Surf Life Saving Foundation Inc. He is also a councillor of the Queensland Division of CPA Australia, chair of the Audit and Risk Committee of the Public Trustee of Queensland, and is an independent member of several audit and compliance committees. Mr Maitland is the principal of Delphin Associates, a business consultancy specialising in strategic planning, risk management, corporate governance and business transition. He has over 35 years experience in the banking and finance industries and was chief executive officer of the Queensland Office of Financial Supervision between 1992 and 1999. Mr Maitland has not held any directorships of listed entities in addition to those set out above during the last three years.

Kate Spargo

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LLB (Hons), BA, FAICD

Ms Spargo was appointed to the board of Australian Unity Limited

on 16 October 2009. She is a director of a number of Australian Unity Limited subsidiaries and a member of the Audit and Compliance Committee and Investment Committee. She is chairman of the Accounting Professional and Ethical Standards Board and a director of the International Ethics Standards Board for Accountants. She is a director of Australian Energy Market Operator, Pacific Hydro Pty

Ltd, Investec Bank (Australia) Ltd, Suncorp Portfolio Services Ltd, Sonic Healthcare Ltd and UGL Ltd. She is also a director of Coinvest Ltd and an adviser to the board of patent attorney firm Griffith Hack. Ms Spargo conducts the Listed Company Director Program for the ASX and AICD throughout Australia. She also has an interest in international corporate ethics and governance. She was previously chairman of HomeStart Finance in South Australia and a director of IOOF Holdings, Transfield Services Infrastructure Ltd and Franklyn Scholar Pty Ltd. Ms Spargo has not held any directorships of listed entities in addition to those set out above during the last three years.

Warren

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Stretton

FAICD, FCPA, FCIS, FTIA, FAMI CPM

Mr Stretton was appointed to the

board of Australian Unity Limited in 2005 following the merger with Grand United Friendly Society Limited. He was Managing Director of Grand United Friendly Society which operated in the private health insurance and aged care industries. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Audit and Compliance Committee and the Investment Committee. Mr Stretton was a director of Australian Hearing from 2004 to 2010 and has gained wide commercial experience working in the motor, computer and entertainment industries for organisations including Ford, Honeywell and Amalgamated Holdings Group. Mr Stretton has not held any directorships of listed entities in addition to those set out above during the last three years.

those set out above during the last three years.

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Group Leadership Team

Rohan Mead

Group Managing Director

Biography on page 32

Sharon Beaumont

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BSc (physiotherapy), Grad Dip OHS, MBA, GAICD Group Executive, Human Resources

Ms Beaumont joined Australian Unity in 2007. As Group Executive, Human Resources, she is responsible for the management of the Group’s people and culture strategies and processes. She is a director of a number of Australian Unity Limited subsidiaries including Remedy Healthcare Group Pty Limited, Australian Unity Personal Financial Services Limited, Australian Unity Retirement Living Services Limited and Australian Unity Retirement Living Management Pty Limited. Ms Beaumont has more than 15 years experience in health, risk management and human resource management. Before joining Australian Unity, Ms Beaumont worked in various roles in these areas for state governments, ColesMyer and BHP.

David Bryant GAICD Chief Executive Officer, Investments & Chief Investment Officer

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Mr Bryant joined Australian Unity in 2004. As Chief Executive Officer, Investments, he is responsible for all of the investment management businesses and activities across Australian Unity’s financial and property assets. He is a director of a number of Australian Unity Limited subsidiaries including Australian Unity Funds Management Limited, Australian Unity Property Limited and Australian Unity Finance Limited and most of its Investment Joint Venture subsidiaries. Mr Bryant is a member of the Financial Services Council Policy and Investment Board Committees,

and has 25 years experience in investment and financial services with high profile organisations such as Westpac, State Street and Intech. Before joining Australian Unity, Mr Bryant was chief operating officer Personal Financial Services at Perpetual Limited.

Anthony

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Connon

BA (Oxon), FCA, FAICD Chief Financial Officer

Mr Connon joined Australian Unity

in 1995. As Chief Financial Officer, he is responsible for all elements of Australian Unity’s finance function with special emphasis on reporting, capital management, taxation and the development of corporate structures for prudential and regulatory purposes. He is a director of the majority of the Australian Unity Limited subsidiaries. Mr Connon has more than 30 years experience in senior finance and administrative roles within various organisations including PriceWaterhouseCoopers, Grindlays Bank, and Elders Finance Group. Before joining Australian Unity, Mr Connon was financial controller of the Australian Wheat Board. Mr Connon is a non-executive director of Calliden Group Limited, the honorary treasurer of Friendly Societies Australia Inc and is a member of the board of the Lord Mayor’s Charitable Foundation.

Steve Davis

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General Manager, Personal Financial Services

Mr Davis joined Australian Unity

in February 2009 as Head of Practice Development and in August 2009 he was promoted to the role of General Manager Personal Financial Services. Mr Davis is responsible for the operations and growth of the Group’s Personal Financial Services business, which delivers high quality financial planning, finance broking and life risk insurance services to clients through a

network of financial advisers, accountants and finance brokers. Mr Davis has more than 29 years experience in financial services and prior to joining Australian Unity he operated his own financial planning business and worked with Perpetual Limited for more than 14 years in a range of senior management roles.

Amanda Hagan

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BSc (BIT), SIA, GAICD Chief Executive Officer, Healthcare

Ms Hagan joined Australian Unity in May 2006. As Chief Executive Officer, Healthcare and Chief Executive Officer and director of Australian Unity Health Limited and Grand United Corporate Health Limited, she is responsible for all elements of Australian Unity’s healthcare operations and strategic development of the business. She is a director of a number of Australian Unity Limited subsidiaries including Remedy Healthcare Group Pty Limited and Australian Unity Retirement Living Services Limited. She is a director of the Australian Health Service Alliance (a cooperative hospital contracting company formed by 24 health insurance funds). Ms Hagan has more than 15 years experience in senior roles consulting on strategic projects for a range of companies including AGL, American Express and Energy Australia. Before joining Australian Unity, Ms Hagan held various executive roles with Perpetual Limited.

Kimina Lyall

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GAICD

Group Executive, Corporate Development

Ms Lyall joined Australian Unity in 2007. Appointed as Group Executive - Corporate Development in August 2008, she is responsible for group strategy, corporate communications, member relations and the development of the corporate brand. She is a director of Australian Unity Retirement Living Services Limited and Australian Unity Personal Financial Services Limited. Prior to joining Australian Unity Ms Lyall worked as a journalist for 15 years. She worked for Time Australia and The Australian newspaper, where she held senior reporting, foreign correspondent and management positions. She holds positions in a voluntary capacity as a director and company secretary of the Dart Centre for Journalism and Trauma (Asia Pacific) and is a director of Greatconnections.

Tahir Tanveer

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M InfoTech, BA Econ, Grad Dip Info Sys Group Executive, Business Technology

Mr Tanveer joined Australian Unity in July 2008 as the Head of Solutions Delivery and in October 2009, he was appointed General Manager , Business Technology before being appointed Group Executive , Business Technology in October 2010. Mr Tanveer is responsible for the management of the business technology group which deploys the company’s technology infrastructure and analyses and translates strategies into appropriate solutions. He is also a director of Health Providers Australia Pty Limited (Rehability). Mr Tanveer has more than 20 years of extensive experience in developing strategies, managing change and implementing technology solutions in the financial services sector. He is also a qualified

project director certified by the Australian Institute of Project Management and has managed multi-million dollar projects. Prior to joining Australian Unity, Mr Tanveer worked with Perpetual Limited as chief technology officer and held senior roles at Commonwealth Securities Limited, Skandia Australia and Westpac Bank.

Derek

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McMillan

BSc (Hons), Dip Ed Chief Executive Officer, Retirement Living

Mr McMillan joined Australian Unity in 1999. He held a number of executive positions before being appointed as Chief Executive Officer, Retirement Living in 2005. He is responsible for all elements of the operations and development of the retirement living business, spanning retirement villages, residential aged care and community care. He is a director of a number of Australian Unity Limited subsidiaries including Australian Unity Retirement Living Services Limited, Australian Unity Health Limited, Remedy Healthcare Group Pty Limited and Australian Unity Personal Financial Services Limited. Mr McMillan was elected to the Board of the Retirement Villages Association in 2007 and currently holds the position of vice president. Mr McMillan has more than 20 years commercial experience in leading organisations in the health and ageing, financial services and agricultural industries.

Kirsten Mander

LLM, ACIS, FAICD, MRMIA General Counsel & Company Secretary

Ms Mander was appointed General Counsel and Company Secretary of Australian Unity Limited in June 2009. She is responsible for Group Governance Services, including legal and company secretarial affairs, risk management and compliance. Ms Mander has had extensive experience as a senior executive, general counsel and company secretary of a number of Australia’s top companies, including Sigma Pharmaceuticals, TRUenergy, Smorgon Steel Group and WMC Resources. She is also chair of the Victorian Assisted Reproductive Treatment Authority and a director on several other boards including the Consultative Council for Human Research Ethics and MEGT Australia.

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Governance statement

Australian Unity Limited is a mutual company comprising 280,000 members as at 30 June 2011, with a number of wholly owned and closely-held subsidiaries carrying out the major operational business activities of the Australian Unity Group.

Approach to corporate governance

ASX requirements

Australian Unity is committed to maintaining high corporate governance standards and adheres to the Australian Securities Exchange (ASX) Corporate Governance Principles and Recommendations and other ASX requirements, as relevant to its status as a mutual company and as required for its Australian Unity Notes, which are quoted on the exchange. The board has adopted a governance charter that reflects many of these principles.

Regulators

Australian Unity’s business operations are primarily and extensively regulated by the Private Health Insurance Administration Council (health), Australian Prudential Regulation Authority (APRA) (friendly society benefit funds, building society and life insurance), Australian Securities and Investments Commission (corporate and financial services) and ASX (in connection with the listed Australian Unity Notes), in addition to state regulation (retirement living services), Commonwealth regulation (aged care), and the regulation of trade practices by the Australian Competition and Consumer Commission.

Australian Unity is required to comply with a wide range of regulations that apply across its various business activities, including for example, APRA Governance Prudential Standards APS 510 (for authorised deposittaking institutions) and LPS 510 (for life insurers) and the Governance Standard for private health insurance in Schedule 1 of the Private Health Insurance (Insurer Obligations) Rules 2009.

Australian Unity Limited board of directors

Board composition and expertise

As at 30 June 2011 there were ten directors on the Australian Unity Limited board, each with specific expertise and experience relevant to the Group’s activities. The board comprises a majority of directors who are non-executive and judged by the board to be independent and free of material relationships that might influence their ability to act in the interests of the Group and its members.

The personal qualities required of Australian Unity’s directors are: honesty and integrity; strategic insight; capacity to relevantly question, probe and challenge; and a commitment to both the values of the Group and the highest standards of corporate governance. Each director must also possess particular skills or experience relevant to the business operations of the Group. These may include specific skills, knowledge and experience in one or more of insurance, healthcare, retirement living services, investment management and financial services, as well as general skills, knowledge and experience in management, legal, financial, accounting, actuarial, regulatory, human resources, marketing and commercial disciplines.

The board, led by the Chairman, reviews the skills represented by the directors on the board from time to time to ensure that the mix of skills remains appropriate to achieve the Company’s objectives. It is intended that the board will at all times be made up of directors with a broad range of skills, expertise and experience, and from a diverse range of backgrounds, including gender.

Board role and responsibilities

The role of the Australian Unity Limited board is to promote and protect the interests of the Company and its members. It does so by strategically directing and soundly governing the Group’s activities and by seeking the highest standards of ethical conduct and service from employees.

The role and responsibilities of the board are formalised in the board charter. Some of the key matters the board has reserved for itself include:

• Appointment and terms of appointment of the Group Managing Director;

• Approval of Group and business unit strategies;

• Approval of Group and business unit annual operating plans, including capital and operating budgets and the overall salaries and benefits budget;

• Approval of delegated authorities;

• Approval of financial expenditures and allocations and changes to the Group’s capital structure above the Group Managing Director’s delegated limits;

• Approval and adoption of annual group accounts;

• Approval of new subsidiaries and subsidiary board members;

• Setting and monitoring the Group risk management framework, control and accountability policies and systems;

• Approval of Group policies;

• Approval of matters reserved for the board committees by their terms of reference; and

• Approval of any other matter that, in the opinion of the board, is necessary from time to time to maintain a high standard of corporate governance.

Role of the Chairman

The Chairman, an independent non-executive director, is responsible for the efficient conduct of the board’s meetings, setting the agenda, facilitating the work of the board at its meetings and ensuring that the procedures and standards of the board are observed.

Meetings of the board

The Australian Unity Limited board has 10 scheduled meetings each year, each usually scheduled over two days, and where necessary will meet between scheduled meetings to deal with matters as and when appropriate. Once a year the board meets to approve the strategic plan and its application for the year ahead.

Avoidance of conflicts of interests

In addition to their standing notices, directors must declare any specific conflicts of interest arising from the business of a particular meeting.

Retirement and re-election of directors

Directors (other than the Group Managing Director) serve for a term of not more than three years from the conclusion of the annual general meeting at which they are elected. No director (other than the Group Managing Director) shall retain office past the third annual general meeting following the director’s appointment, although they may offer themselves for re-election at that time.

Committees

The board has established committees that are necessary to assist it in monitoring, and where relevant advising, the management of the Group and maintaining appropriate standards. Each committee comprises the individual directors determined by the board to be best suited to fulfil the committee’s terms of reference.

The Chairman of Australian Unity is either a member or an ex-officio member of each committee. Each committee is chaired by a non-executive director appointed by the board. Each committee provides regular reports to the board about the activities of the committee. The minutes of the committee are tabled at the following board meeting. The current key committees established by the board to assist it in the performance of its duties are outlined on the following page.

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Governance statement (continued)

Audit and Compliance Committee

The Audit and Compliance Committee (A&C Committee) approves the annual internal audit plan and monitors the Group Audit department’s performance against this plan. The main objective of the A&C Committee is to oversee the credibility and objectivity of financial reporting and the compliance with Group obligations. The A&C Committee assists the board in fulfilling its fiduciary responsibilities relating to corporate accounting and reporting practices of the Group. Other goals are:

• To oversee and appraise the quality of the audits conducted by both the Group’s internal and external auditors;

• To determine the adequacy of the Group’s controls and evaluate adherence;

• To ascertain the adequacy of management financial reports;

• To serve as an independent and objective party to review the financial information presented to members, regulators and the general public; and

• To maintain open lines of communication with the external auditor.

Risk Committee

The Risk Committee oversees the risk management framework for identifying, assessing, mitigating and monitoring material risks arising from the business activities of the Group, and promotes a greater awareness and commitment to risk management practices within the Group. The Risk Committee is also involved in shaping the Group’s risk appetite and guiding the Group’s strategy in line with its determined risk profile.

Investment Committee

The Investment Committee reviews and monitors the performance of Australian Unity Investments and any investment managers utilised by it. It also approves the investment policies, strategies and other guidelines for the Group’s own investible assets. The Investment Committee plays a critical role in assessing and reviewing the Group’s investment approach and outlook to support appropriateness and compliance with relevant covenants.

Human Resources, Remuneration and Nominations Committee

The Human Resources, Remuneration and Nominations Committee (HR Committee) is responsible for evaluating the performance of the board as a whole, its committees, the Chairman, individual directors and its governance process. In addition, the HR Committee periodically considers and identifies suitable candidates for board appointment as successors to current directors or to supplement and renew the skills and experience of the board. The HR Committee also recommends the remuneration of the Group Managing Director to the full board along with the remuneration for Group Executives.

The HR Committee works to ensure that Australian Unity has remuneration policies and practices that fairly, responsibly and competitively reward executives and staff. The HR Committee’s considerations on reward structures are based on business performance, external competitiveness, compliance with legal obligations, and high standards of corporate governance. All members of the HR Committee are independent non-executive directors. Independent remuneration consultants are engaged to assist the HR Committee as necessary, providing specialist market information and technical advice. Refer to the Remuneration report on page 46 for further information about remuneration consultants engaged by the HR Committee.

Remuneration

Australian Unity’s remuneration policy, which was developed by the board on the advice of the HR Committee, sets the framework for rewarding all directors, officers and employees of Australian Unity.

The Remuneration report sets out the key objectives and principles of the remuneration policy. The report also outlines the executive remuneration structure, which comprises fixed remuneration and at-risk remuneration components, in addition to details about non-executive directors’ remuneration and other information specifically required under the Corporations Act 2001.

Audit, risk and compliance

External auditor

Ernst & Young has been appointed to conduct an audit of the financial report and to report to members in accordance with the requirements set out in the Corporations Act 2001. Its audit report is provided at the end of the financial report.

A representative from Ernst & Young attends the annual general meeting and is available to answer questions from members on the conduct of the audit, the preparation and content of the auditor’s report, accounting policies adopted in the preparation of the financial statements and Ernst & Young’s independence in relation to the conduct of the audit of the Group’s financial statements.

Internal audit

The Group’s Audit department provides independent, objective assurance and consulting services to the Group’s operations. The Group Audit department assesses whether the Group’s network of risk management, control and governance processes is adequate and functioning in a manner that supports various aims including: the appropriate identification, reporting and management of risks; the accuracy, reliability and relevance of financial, managerial and operating information; and that employees’ actions are in compliance with policies, standards, procedures and applicable laws and regulations.

Risk management

Australian Unity is committed to the identification and quantification of risk throughout its business units and controlled entities. The board has established a comprehensive enterprise risk management policy and framework covering significant business risks and strategic considerations. The underpinning processes are consistent with the principles of the relevant Standard (AS/NZS ISO 31000).

As part of the risk management framework, all business units maintain, regularly review and update their risk registers and provide annual presentations to the board’s Risk Committee on their existing and emerging risks, associated mitigation strategies and status of implementation. Higher rated risks are reviewed by the Risk Committee each quarter.

Risk identification, measurement and mitigation strategies are included in all business-related proposals considered by the board and form a part of the project management framework. There are also a number of programs in place to manage risk in specific areas, such as capital management, business continuity and emerging regulation.

The potentially adverse financial impacts associated with catastrophic risk exposures are reduced by the purchase of appropriate insurance cover.

The Group’s risk management framework is periodically revised to facilitate a continued proactive and consistent approach to risk management across all areas of activity.

Compliance

Australian Unity has a well developed and implemented compliance framework. Compliance managers are in place in specific business units where appropriate. The focus of this function is to ensure ongoing compliance with all laws and regulatory requirements, with particular focus on industry specific requirements. Group wide compliance is also supported by a Group compliance training system and the computer-based compliance database.

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Financial overview

The financial statements tell the story, in numbers, of the success of the Group in achieving its objectives. I am pleased to present these accounts, which follow all relevant accounting standards, and also to provide some introductory comments.

The financial statements are divided into sections. First there is the Directors’ report, which outlines the activities during the year and key governance matters. This is followed by the four key statements (comprehensive income, balance sheet, changes in equity and cash flow). The Notes to the financial statements then describe the accounting policies and the risk profile of the Group (notes 1 to 3) as well as details of many of the individual figures reported in the four key statements (notes 4 to 34). The final set of notes (35 to 46) describe other details of the Group not related to specific financial figures, including the structure of the Group’s companies and transactions between them. Finally, the report includes certificates from the directors and independent auditors.

The consolidated balance sheet is a snapshot as at the last day of the year. A key balance sheet test is whether current assets exceed current liabilities—if not then corrective action would be needed within the next year. As at 30 June 2011, Australian Unity had 2.5 times as many current assets as current liabilities.

Our total assets of $3.13 billion include 35 percent cash, 35 percent marketable securities, 4 percent loans and 18 percent properties (including retirement villages and aged care facilities) and equipment. Deferred or intangible assets make up only 4 percent of our total assets.

Our interest bearing borrowings of $290 million include the recent $120 million issue of Australian Unity Notes, $62 million of Retirement Village Investment Notes and $80 million of deposits in Lifeplan Australia Building Society. The terms of the Australian Unity Notes issue stipulate that the ratio of the borrowings (excluding the deposits) to members’ funds plus borrowings must not be more than 45 percent. At 30 June 2011 that ratio was 36.6 percent.

This year, the consolidated statement of comprehensive income demonstrates that revenues have exceeded $1 billion for the first time and are 8.3 percent more than last year. This is because of growth in all businesses, but especially due to an increase in members in our health funds.

The amounts in this statement cover both the businesses owned by the members of Australian Unity Limited and the benefit funds owned by the policyholders. The split between the members and the benefit fund policyholders is set out in note 45.

The consolidated statement of changes in equity shows the changes in equity in the group over the last year. Members’ funds grew by $26 million just by the addition of the profit for the year. By way of comparison, last year members’ funds also grew by $46 million as a result of the merger with Lifeplan Australia Friendly Society Limited.

Finance costs are shown separately to identify just how much of the revenues are needed to pay for the borrowings the Group has incurred.

The consolidated statement of cash flows should be read alongside the statement of comprehensive income—it is quite possible for a company to report a good profit and yet run out of cash. Australian Unity is not in this position and generated net cash from trading operations of $97 million during the year compared with $33 million in the previous year.

Our share of the net profits of associates (companies we own less than 50 percent of and our joint venture partnerships) is in addition to the profits from our own revenues.

Profit after tax has increased by 50 percent compared with last year. This profit increased members’ funds by 7 percent, which is more than inflation during the last year.

The statement also shows that the Group invested a further $16 million in new assets, primarily computer systems and equipment plus the purchase of Westpac Property Funds

Management Ltd and financial planning practices. It is difficult to compare this with last year because the effect of the merger with Lifeplan Australia Friendly Society added oneoff elements to the figures relating to cash and investments.

A major component during the year was the continuing investment in retirement villages of $34 million. The fees provided by new residents to retirement villages and aged care facilities are a substantial source of funding for this investment.

The final part of the consolidated statement of cash flows identifies the extent to which the group has financed its activities from borrowings or repaid them. As a mutual, Australian Unity does not have the inflows from share issues or outflows of dividends which would also be included in this section by a shareholder company. The Australian Unity Notes issue, less the partial use of it to repay existing borrowings, features as the major component of the positive cash flow this year.

I encourage members to read the financial statements in the pages that follow.

Anthony Connon Chief Financial Officer

Financial report for year ended 30 June 2011

Contents

Other financial assets 88 Property, plant and equipment 88 Investment properties 89 Deferred tax assets 90 Intangible assets 91 Other non-current assets 92 Current liabilities Trade and other payables 92 Interest bearing liabilities 93 Current tax liabilities 93 Provisions 93 Other current liabilities 94 Non-current liabilities

Directors’ report 42 Other financial assets 88 Auditor’s independence declaration 45 Property, plant and equipment 88 Remuneration report 46 Investment properties 89 Overview from the Chairman 46 Deferred tax assets 90 Key terms 47 Intangible assets 91 Remuneration framework 47 Other non-current assets 92 Senior executive remuneration 48 Current liabilities Non-executive director remuneration 50 Trade and other payables 92 Remuneration tables 51 Interest bearing liabilities 93 Independent remuneration Current tax liabilities 93 consultant’s report 53 Provisions 93 Consolidated statement Other current liabilities 94 of comprehensive income 54 Non-current liabilities Consolidated balance sheet 55 Interest bearing liabilities 94 Consolidated statement Deferred tax liabilities 96 of changes in equity 56 Provisions 96 Consolidated statement Other non-current liabilities 97 of cash flows 57 Notes to the consolidated Reserves and retained earnings 97 financial statements 58 Non-controlling interest 97 Summary of significant Reconciliation of profit after income accounting policies 58 tax to net cash inflow/(outflow) from operating activities 98 Critical accounting estimates and judgements 68 Related party transactions 98 Financial risk management 69 Subsidiaries 99 Segment information 74 Key management personnel disclosures 100 Business combination 78 Commitments 101 Revenue 79 Contingencies 102 Expenses 80 Events occurring after Income tax expense 80 the reporting period 102 Remuneration of auditors 102 Current assets Health insurance 103 Cash and cash equivalents 81 Trade and other receivables 82 Benefit fund policy liabilities 104 Inventories 83 Disaggregated information – Benefit funds 109 Current tax assets 83 Reconciliation of profit attributable to Loans and receivables 83 members of Australian Unity Limited 116 Financial assets at fair value Parent entity financial information 117 through profit or loss 84 Directors’ declaration 118 Non-current assets Independent auditor’s report Loans and receivables 85 to the members 119 Investments in associates 87

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Directors’ report

Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Australian Unity Limited (Parent entity or Company) and the entities it controlled at the end of, or during, the year ended 30 June 2011.

Directors

The following persons were directors of Australian Unity Limited during the whole of the financial year and up to the date of this report:

Alan Castleman, Chairman Rohan Mead, Group Managing Director Glenn Barnes, Director John Butler, Director Eve Crestani, Director Ian Ferres, Director Warren French, Director Stephen Maitland, Director Kate Spargo, Director Warren Stretton, Director

Company secretaries

Kirsten Mander and Catherine Visentin were company secretaries of Australian Unity Limited at 30 June 2011.

Principal activities

The principal continuing activities of the Group during the year were the provision of a range of products and services to serve members and customers with their savings, financial security, healthcare and retirement living needs. These products and services included investments and loan facilities, health and life insurance, financial planning, allied health and dental services, aged care and retirement living facilities.

Dividends

Australian Unity Limited is a mutual company owned by, and for the benefit of, its members. It does not pay dividends but reinvests profits for future growth initiatives for the benefit of members.

During the year ended 30 June 2011, subsidiary companies paid dividends totalling $12,903,000 (2010: $38,342,000) to Australian Unity Limited.

After the end of the reporting period, a number of subsidiary companies declared and paid final ordinary dividends totalling $13,490,000 to Australian Unity Limited. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial reports.

Review of operations

In 2011 the Group continued to focus on its principal activities and achieved a solid increase in profit after tax which rose to $25,624,000 from $17,128,000 in 2010. This financial result was again based on investment in customer service and the development of our business activities.

Investments in our businesses have included the continuing expansion of our allied health business, Remedy Healthcare Group; the establishment of a new funds management joint venture with the launch of fixed interest manager Altius Asset Management; extension of our community care services for ageing Australians; and increased momentum in the development program for our retirement village and aged care communities.

During the year we issued the Australian Unity Notes, new five year debt securities issued by Australian Unity Limited and quoted on the Australian Stock Exchange. The initial proposed issue of $100 million was increased to $120 million due to the level of demand shown by investors and closed oversubscribed. The Australian Unity Notes are an important part of the Group’s strategy to raise capital in the capital market to fund planned growth, while retaining our structure as a mutual with a history that dates back 170-years. The proceeds from the capital raising have been used to repay existing bank debt and provide additional funds for working capital and further developments. The issue of Australian Unity Notes has also diversified the Group’s funding sources and increased the average tenor of Australian Unity’s funding profile.

Key aspects of each of the Group’s activities during the year are found on pages 10 to 25 of this report.

Significant changes in the state of affairs

Total Members’ funds increased to $388,073,000 at 30 June 2011 (2010: $363,609,000), an increase of $24,464,000 during the financial year. This movement reflects the profit for the year offset by movements in reserves and entitlements of non-controlling interests.

Matters subsequent to the end of the financial year

On 8 August 2011, the Group announced that it had entered into an agreement to acquire the Responsible Entity of three unlisted retail property funds with $430 million of funds under management from Investa Property Group. Settlement is expected in September 2011.

On 14 April 2011, the Parent entity issued $120 million in Australian Unity Notes, which are structured to pay a coupon interest rate of the three month BBSW rate plus a fixed margin of 3.55% per annum. Given the exposure to interest rate movements in relation to the Notes, on 9 August 2011 it entered into a partial hedge arrangement to swap the variable interest component of $60 million of the Notes at 4.65%. The hedge is effective from 14 October 2011, which is the next interest rate reset date, and will expire on maturity of the Australian Unity Notes. The fixed margin component was not hedged.

The Australian Unity Group is currently evaluating a possible merger with Big Sky Credit Union.

The board is not aware of any other matter or circumstance arising since 30 June 2011 which has significantly affected or may significantly affect the financial status or results of the Group and which has not been separately disclosed in this report.

Likely developments and expected results of operations

The board is not aware of any developments which may affect the Group’s operations and expected results of operations which can be disclosed without prejudicing unreasonably their likelihood of success or violating commercial confidences.

The Group is subject to vagaries of a wide variety of markets, particularly financial markets and property markets. Note 3 contains an explanation of the Group’s approach to market risk management and an evaluation of potential effects of market volatility.

Environmental regulation

No significant environmental regulations apply to the Parent entity. The property operations within both the retirement living services business and in investment syndicates and trusts for which a controlled entity acts as Responsible Entity or Manager are, however, subject to environmental regulations under Australian law. There have been no known reportable breaches of these regulations.

Company directors

Please see page 32 and 33 for Directors’ biographies.

Company secretaries

Kirsten Mander

Please see page 33 for biography.

Catherine Visentin , Assistant Company Secretary

Ms Visentin joined Australian Unity in 1988. She was appointed Assistant Company Secretary of various Australian Unity Limited Group companies in 2004. She has over 15 years of involvement with the Australian Unity Limited Company Secretarial function.

Meetings of directors

The number of meetings of the Company’s board of directors and of each board committee held during the year ended 30 June 2011, and the number of meetings attended by each director were:

						Human Resources,
		Audit and Compliance				Remuneration and
	Board	Committee	Risk Committee	Investment	Committee	Nominations Committee
	A	B A	B A B	A	B	A B
Alan Castleman	14	14 –	– – –	–	–	4 4
Rohan Mead	14	14 –	– 4 4	6	6	– –
Glenn Barnes	13	14 –	– – –	6	6	4 4
John Butler	14	14 8	8 4 4	–	–	– –
Eve Crestani	14	14 –	– 4 4	–	–	4 4
Ian Ferres	12	14 7	8 – –	5	6	– –
Warren French	13	14 –	– 4 4	–	–	4 4
Stephen Maitland	13	14 7	8 4 4	6	6	– –
Kate Spargo	12	14 6	8 – –	6	6	– –
Warren Stretton	14	14 8	8 – –	6	6	– –

A = Number of meetings attended

B = Number of meetings held during the time the director held office or was a member of the committee during the year Leave of absence had been granted in all cases where the directors were unable to attend meetings.

Alan Castleman is Chairman of the Company and of the Human Resources, Remuneration and Nominations Committee, and an ex-officio member of all other board committees; Stephen Maitland is chairman of the Audit and Compliance Committee; Eve Crestani is chairman of the Risk Committee and Ian Ferres is chairman of the Investment Committee. Rohan Mead regularly attends all meetings of the Audit and Compliance Committee and the Human Resources, Remuneration and Nominations Committee at the invitation of the Committees.

Alan Castleman’s attendances at board committees in an ex-officio capacity and the attendance of other directors who are not members of the particular committee, are not reported above.

Certain directors are also directors of the following subsidiaries as at the date of this report:

Australian Unity Capital Management Limited	Alan Castleman (Chairman), Ian Ferres, Rohan Mead and Warren Stretton.
Australian Unity Finance Limited	Ian Ferres (Chairman), Rohan Mead and Warren Stretton.
Australian Unity Funds Management Limited	Alan Castleman (Chairman), Glenn Barnes, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Australian Unity Health Limited	Alan Castleman (Chairman), John Butler, Eve Crestani, Warren French, Stephen Maitland, Rohan Mead
	and Kate Spargo.
Australian Unity Investment Bonds Limited	Alan Castleman (Chairman), Glenn Barnes, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Australian Unity Property Limited	Alan Castleman (Chairman), Glenn Barnes, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Australian Unity Property Fund Management Pty Ltd	Alan Castleman (Chairman), Glenn Barnes, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Campana Pty Ltd	John Butler (Chairman), Glenn Barnes, Alan Castleman, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Funeral Plan Management Pty Ltd	John Butler (Chairman), Glenn Barnes, Alan Castleman, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Grand United Corporate Health Limited	Alan Castleman (Chairman), John Butler, Eve Crestani, Warren French, Stephen Maitland, Rohan Mead
	and Kate Spargo.
Lifeplan Australia Building Society Limited	John Butler (Chairman), Glenn Barnes, Alan Castleman, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Lifeplan Australia Friendly Society Limited	John Butler (Chairman), Glenn Barnes, Alan Castleman, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.
Lifeplan Travel Pty Ltd	John Butler (Chairman), Glenn Barnes, Alan Castleman, Ian Ferres, Stephen Maitland, Rohan Mead and Warren Stretton.

Rohan Mead is also a director of all other entities within the Group.

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Directors’ report (continued)

Remuneration of directors and other key management personnel

Details of the Group’s remuneration policy in respect of the directors and other key management personnel are included in the Remuneration report on pages 46 to 53. Details of the remuneration paid to directors and other key management personnel are also detailed in the Remuneration report. The Remuneration report is incorporated in and forms part of this Directors’ report.

Directors’ interests and benefits

Since the end of the previous financial year and to the date of signing this report, no director of the Company has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by directors or related party transactions shown in the Group’s financial statements) by reason of a contract made by the Company with the director or with a firm of which the director is a member, or with a company in which the director has a substantial interest, except as specified in the key management personnel disclosures in note 37.

Insurance and indemnification of directors and officers

During the financial year, the Group paid a premium for a contract insuring the directors, company secretaries and executive officers of the Group to the extent permitted by the Corporations Act 2001 . In accordance with common commercial practice the insurance policy prohibits disclosure of the nature of the liabilities covered and the amount of the premium.

In accordance with the constitution of the Company and under a separate deed, the directors and officers are indemnified to the extent permitted by law against any liability incurred by them in connection with the proper discharge of their duties, other than for conduct involving a lack of good faith.

Non-audit services

The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important.

Details of the amounts paid or payable to the auditor (Ernst & Young) for non-audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with advice received from the Audit and Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• All non-audit services have been reviewed by the Audit and Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and

• None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants .

During the year the following fees were paid or payable for non-audit services provided by the auditor of the parent entity, its related practices and non-related audit firms:

services provided by the auditor of the parent entity, its practices and non-related audit frms:	related
2011	2010
$	$
Ernst & Young Australian frm: Audit of regulatory returns 118,971	100,666
Tax compliance services 222,125	254,305
Other taxation services 284,864	530,293
Other services 36,980	299,768
Total remuneration for non-audit services 662,940	1,185,032

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 45.

Rounding of amounts

The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the directors’ report and financial statements. Amounts in the directors’ report and financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

This report is made in accordance with a resolution of directors.

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Alan Castleman

Chairman

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Rohan Mead

Group Managing Director South Melbourne 8 September 2011

Auditor’s independence declaration

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Remuneration report

The Remuneration report, which is part of the Directors’ report, sets out the remuneration information for Australian Unity Limited and the entities it controls (Australian Unity or Group) for the year ending 30 June 2011 (year). It has been prepared and audited as required by the Corporations Act 2001 . The report covers all key management personnel of the Group, including the top five remunerated executives.

1 Overview from the Chairman - Alan Castleman

To support these businesses the Company operates a significant number of subsidiary companies necessitated by the complexity of the regulatory, financial and legal environments in which we must operate. In addition, Australian Unity, together with the investment trusts which it administers but which are not consolidated into this report, has around 20 financing facilities in place, representing approximately $900 million from 10 financial institutions. The Company’s directors and senior executives serve on the boards and committees of a variety of subsidiaries and joint venture companies.

The board of Australian Unity Limited considers that its remuneration framework plays an important part in driving the successful performance of the Group and in turn the creation and delivery of value for members. In establishing the overall remuneration framework, the board and its Human Resources, Remuneration and Nominations Committee (HR Committee) have had particular regard to the fact that Australian Unity Limited is a mutual company. As such it is run for the benefit of its members, who are the customers and employees of the company. Its objectives include social objectives, such as the enhancement of the wellbeing of its members and the provision of important social infrastructure, rather than just maximising profit.

As a result, Australian Unity requires a high level of dedication and professional skill from a large team of managers and directors. To ensure the attraction and retention of this calibre of staff, the HR Committee must set remuneration structures that are competitive in the Australian marketplace. The HR committee believes the existing remuneration structures and the rates of remuneration paid to directors and senior executives and staff are appropriate in the competitive environment in which they operate for the level of skill and time demanded of our people.

The board and the HR Committee have also had regard to the fact that Australian Unity is a significant and complex Australian business with several different business streams. The range and complexity of its activities may not be adequately appreciated simply from a study of its financial accounts. On any reasonable measure of activity and complexity, Australian Unity is among Australia’s substantial public companies. Some of the dimensions and characteristics are set out below:

The remuneration arrangements have also been designed to maintain alignment with the members’ interests (both short term and long term) and to ensure remuneration remains competitive. Accordingly, executive remuneration is made up of both short and long term elements, as well as elements which are fixed and elements where payment is variable according to performance levels, and at-risk elements. These arrangements enable Australian Unity to retain and attract talented people who are vital to delivering current services, a sustainable and successful future, and achieving the Company’s strategic objectives.

• In its health related businesses, the Group operates its well-known and successful health funds, of which the retail fund ranks sixth nationally and its corporate fund is the leading corporate health fund in Australia. In addition, the Group operates a number of dental clinics, and is developing a unique preventative health and hospital substitution business, Remedy Healthcare Group. The sector is highly regulated and constantly changing. The challenge of building and successfully operating this business and providing high quality services to members is substantial;

Alan Castleman

• In its retirement related businesses, the Group operates 16 retirement communities, including four aged care facilities across New South Wales and Victoria, and has a number of contemporary new facilities under construction. These operations, together with a growing provision of care services to support people in their homes, places Australian Unity as a leader in this high growth area of activity in Australia. The successful delivery of retirement living and aged care services requires a high level focus on the wellbeing of residents and responsiveness to significant regulatory complexity and change; and

Chairman, HR Committee

• The Group’s financial services businesses have been growing substantially in recent years, notwithstanding the global financial crisis. Australian Unity Investments is today recognised as one of the leading fund managers in Australia. This business includes the direct management of approximately $2 billion of property in the form of hospitals, shopping centres, industrial and office properties. In total approximately $12 billion of investors’ and members’ funds is invested through 92 managed investment schemes and benefit funds and six specialised investment joint ventures. Management of this complex business requires high levels of skill as well as attention to fiduciary obligations. The Group is also building a financial advisory business, Personal Financial Services, which utilises a fee-for-service model, and also operates within strict and often changing regulatory frameworks.

2 Key terms

Throughout this report, the following terms have the meaning indicated below:

‘Company’ means Australian Unity Limited

‘Key management personnel’ or ‘KMP’ means those persons having authority and responsibility for planning, directing and controlling the activities of Australian Unity Limited and the Group, directly or indirectly. During the year the key management personnel were:

or indirectly. During the year	the key management personnel were:
Non-executive directors	Position
Alan Castleman	Non-executive Chairman
Glenn Barnes	Non-executive director
John Butler	Non-executive director
Eve Crestani	Non-executive director
Ian Ferres	Non-executive director
Warren French	Non-executive director
Stephen Maitland	Non-executive director
Kate Spargo	Non-executive director
Warren Stretton	Non-executive director
Executives	Position
Rohan Mead	GroupManagingDirector & CEO
TonyConnon	Chief Financial Ofcer
David Bryant	CEO Investments
Amanda Hagan	CEO Healthcare
Derek McMillan	CEO Retirement Living

‘Senior executives’ means the Group Managing Director and all executives who report to the Group Managing Director. This includes all senior managers (within the meaning of the Act) and all key management personnel except non-executive directors.

3 Remuneration framework

3.1 Human Resources, Remuneration and Nominations Committee

Australian Unity’s remuneration framework is overseen by the HR Committee, which is composed of four non-executive directors with significant experience in remuneration matters. The HR Committee is responsible for making recommendations on director and executive remuneration policy and structure to the boards of the Company and each of its subsidiaries.

The composition and functions of the HR Committee are set out in the HR Committee’s charter and are described in Australian Unity’s corporate governance statement.

3.2 Advisers to the HR Committee

The HR Committee seeks advice from external advisers from time to time. For advice on matters pertaining to the remuneration of Key Management Personnel, the HR Committee has retained the services of Godfrey Remuneration Group Pty Limited (Godfrey Remuneration). During the year, Godfrey Remuneration was retained by the HR Committee to review and provide it with a recommendation in relation to the remuneration of each of the senior executives. Godfrey Remuneration was paid fees of $17,640 during the Year for this report.

Godfrey Remuneration is an independent remuneration adviser, and is engaged to provide only remuneration advice to Australian Unity. To ensure that the making of its remuneration recommendations are free from any possible or perceived influence by management,

Godfrey Remuneration is retained directly by the HR Committee and reports directly to it, through the chairman of the Committee. As a term of its retainer, the HR Committee obtained confirmation from Godfrey Remuneration that it was suitable for appointment as an independent adviser, that it had not provided advice to Australian Unity or any of its management team over the last three years except in this capacity, that it did not have a relationship with any member of the management team, and that it would not provide advice to management of Australian Unity during the period of its appointment as an independent adviser. As a result, the board is satisfied that its remuneration recommendations were made free from undue influence by members of the KMP to whom the recommendations relate.

3.3 Remuneration Policy, Principles and Relationship with Company Performance

Australian Unity’s remuneration framework applies to all directors, officers and employees within Australian Unity. It includes a Remuneration Policy, which outlines how employees are rewarded for their contribution and achievement in the organisation. The policy is reviewed by the HR Committee and board on an annual basis. The key principles of the policy are:

• to provide competitive rewards to attract, motivate and retain highly skilled employees;

• to apply goals and measures of performance which support Australian Unity’s strategy; and

• to balance fixed and variable (short and long term) rewards to encourage behaviour that supports the long-term strategic development, sustainability and financial soundness of Australian Unity.

As highlighted in the overview above, Australian Unity Limited is a mutual company and as such it is run for the benefit of its members, who are the customers and employees of the company. For most shareholding companies, their primary objective is to maximise the direct financial return to shareholders, who have purchased shares in the company and to whom dividends are payable. Profitability for Australian Unity however, is a means to an end, not the end itself.

As a mutual, people become members of Australian Unity Limited by reason of becoming a customer or employee (subject to certain conditions). Australian Unity’s objectives, therefore, are strongly based around providing services to members in their capacity as customers, with a particular focus on services and benefits that contribute to their wellbeing. Australian Unity aims to generate internal profits; but as a means to provide the capital security necessary to sustain and extend member services over the long term. As a result, Australian Unity’s strategic objectives, are set by reference to both financial and nonfinancial objectives and performance is likewise assessed by reference to both financial and non-financial objectives.

In so far as financial objectives are concerned, the short term performance measures for KMP are primarily profitability based and the long term performance measures for KMP are primarily net asset growth based. In respect of the short term measures, the Group’s financial performance over the year (measured by profit after income tax) has been strong, despite the difficult economic environment, growing from $17,128,000 in FY2010 to $25,624,000 in FY2011. The Group’s net asset position attributable to members (sometimes referred to as Members’ Funds) over the long term has likewise shown a steady increase.

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Remuneration report (continued)

3 Remuneration framework (continued)

Members’ funds ($m)

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500
400
300
200
100
270 302 303 364 388
0
07 08 09 10 11
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As noted, the board and the HR Committee also have regard to non-financial objectives. In particular they have regard to the fact that Australian Unity is a substantial Australian business with several business streams, which in recent years have been growing strongly and which are being structured for continued substantial growth. The board and the HR Committee also have regard to relative complexity and challenges associated with operating in the business streams in which the relevant KMP operate.

Over the year, Australian Unity has achieved good growth in customer and member services, in both volume and breadth, continuing the steady growth over past years. A number of the other relevant key performance highlights are set out in the overview and so will not be repeated here. The Group’s performance this year across all measures has been very strong and this is reflected in the remuneration structure for senior executives and KMP.

4 Senior Executive Remuneration

4.1 Remuneration Mix

Senior executive remuneration comprises fixed remuneration and at-risk remuneration. There are two components of the at-risk remuneration, a short term incentive and a long term incentive.

		Senior executive remuneration
Fixed	remuneration	At-risk remuneration
Fixed	Remuneration	Short Term Incentive Long Term Incentive (usually3years)

The precise mix of fixed and at-risk remuneration varies depending on the role and seniority of the executive and the nature of their goals and responsibilities. For all executives, it is possible that no at-risk remuneration will be earned if the performance conditions are not met. For further details of the relative proportion of fixed and performance based remuneration of KMP see table 6.1.

All remuneration, both fixed and at-risk, is cash based. No director or executive has shares or options in Australian Unity Limited.

4.2 Fixed Remuneration

Each senior executive’s fixed remuneration comprises base salary and benefits such as the superannuation guarantee, which are agreed as part of any appointment, or review. Fixed remuneration is set based on the individual’s role, job accountability and experience, and similar roles in the job market.

To ensure that senior executive remuneration remains consistent with Australian Unity’s remuneration policy, remuneration is reviewed annually by the HR Committee and, where needed, external remuneration advisors. In conducting the remuneration review the following are considered:

• company and business unit performance against financial, strategic and operational goals;

• individual skills and competencies, together with performance against goals in the short term incentive program; and

• external market data.

As noted, Godfrey Remuneration was engaged by the HR Committee to assist it in developing a recommendation to the board regarding the remuneration packages for senior executives during the year.

Further details of individual KMP fixed remuneration during the year are set out in table 6.1.

4.3 At-risk remuneration

In addition to fixed reward, each senior executive may be offered the opportunity to participate in a short term incentive (STI) and long term incentive (LTI) scheme.

Payment under each scheme is dependent upon the executive achieving minimum performance hurdles. The board can also adjust these at-risk components of remuneration downwards, to zero if appropriate, if such adjustments are necessary to protect the financial soundness of Australian Unity or to respond to significant unexpected or unintended events.

4.3.1 Short term incentive —senior executives except

Group Managing Director

Australian Unity’s STI scheme is designed to reflect and reward the achievement of annual goals and the quality of contributions to Australian Unity’s growth and development. Senior executives and selected managers at Australian Unity who have a significant impact on the business and its success may be invited to participate in a short term incentive scheme. Under the scheme, participants have the opportunity to receive an annual cash incentive depending on that individual’s performance during the year and their duties and responsibilities undertaken.

The annual performance goals and measures of senior executives are set by the Group Managing Director in consultation with the HR Committee. These performance conditions are designed to support growth and the provision of sustainable and high quality services to its customers and members. They must include the following:

• Group financial performance (for example profit before tax and profit after tax);

• Customers, people and operations (for example customer satisfaction and staff engagement);

• Business or support unit financial performance and other key financial metrics (for example business unit profit);

• Risk and compliance management; and

• Strategy and vision.

The performance of each executive is reviewed by the Group Managing Director in consultation with the HR Committee at the end of each year, taking into account achievement of the set performance conditions.

In each case, actual reward received is dependent on achieving minimum performance outcomes, and to achieve maximum reward,

the recipient must achieve exceptional business and individual performance outcomes. No reward is paid to anyone who, prior to the payment date, has resigned, given notice, or has been dismissed. Exceptions may apply in certain limited circumstances beyond the executive’s control.

4.3.2 Long term incentive —senior executives except Group Managing Director

Australian Unity’s LTI scheme is designed to reflect and reward executives’ and managers’ medium to long term goals and contributions to the Company.

It is designed to motivate and reward performance against longerterm goals, including longer term value creation, support for Australian Unity’s risk management framework and long-term financial soundness.

A number of ‘performance rights’ are allocated to participating executives and managers, providing them with a right to earn a reward if Australian Unity is successful in achieving targeted levels of growth. Each year the Group Managing Director, in consultation with the HR Committee, determines the participants who will be offered the opportunity to receive performance rights, as well as the number of performance rights they will be offered, based on their job size, nature and the balance of their remuneration package.

The performance rights are subject to achievement of two conditions, a continuous service condition (usually three years from grant, with some limited provisions for early no-fault termination) and a performance condition, based on the compound annual growth rate in the Group’s members’ funds from the date of grant to the maturity date (Growth Rate). Growth Rate was selected as the measure because it provides a simple yet effective measure of the performance and growth of Australian Unity over time, and the success of the executives in continuing the development of a robust and sustainable organisation capable of providing top quality services to its customers and members.

The performance rights will be cancelled if the service condition is not achieved. They also will have no value unless a threshold Growth Rate is achieved before the maturity date.

The LTI operates as follows:

Grant: a specified number of performance rights are allocated to the selected participants. The following requirements are set by the board, reflecting their assessment of the appropriate levels of performance incentive, having regard to prevailing economic circumstances and the needs and challenges facing the Group in the medium and long term:

• Performance Period: a required continuous service period of (usually) three years from a Commencement Date (1 July of the financial year of grant) through to a Maturity Date (usually 30 June of the third financial year).

• Threshold Rate: a Threshold Growth Rate, reflecting its base level growth expectation for the Group. By way of example, under the LTI granted in October 2010, the required Threshold Growth Rate was 7.0 percent per annum compound.

• Target Rate: a Target Growth Rate, reflecting the target rate the board wants the participants to work towards. By way of example, under the LTI granted in October 2010 the required Target Growth Rate was 8.75 percent per annum compound.

Maturity:

• Number Available for Exercise: if the Threshold Rate is not achieved by the Maturity Date, no performance rights may be exercised. If the Target Rate is achieved or exceeded, all performance rights may be exercised. Between Threshold Rate and Target Rate the number of performance rights which may be exercised increases on a straight line between the Threshold Rate (at which zero percent are available) and the Target Rate (at which one hundred percent are available).

• Value on Maturity: the value of each performance right on maturity is calculated as follows:

• The value of a notional performance right is calculated, being $10 augmented by the Adjusted Growth Rate (compound percentage per annum) over the Performance Period. ‘Adjusted Growth Rate’ means the actual Growth Rate, provided it is equal to or below the Target Rate. If the actual Growth Rate exceeds the Target Rate, the Adjusted Growth Rate equals the Target Rate plus 50 percent of any excess over the Target Rate;

• A notional strike price is calculated, being $10, augmented by the Threshold Rate over the Performance Period; and

• The notional strike price is deducted from the notional performance right value to determine the value of each performance right.

Illustrative Example (based on 2010 LTI scheme)

Assuming the Threshold Rate was 7.0% and the Target Rate was 8.75% (a spread of 1.75%), then if, for example, an executive was awarded 100,000 performance rights and then a growth rate of 7.7% per annum compound was achieved over the 3 year Performance Period:

Number of Rights available for exercise = 40% of award

(as the excess over the Threshold Rate equates to 40% of the spread)

• Value on Maturity of one Performance Right

• = $12.49 (being $10 x (1.00 increased by 3 compound increments of 7.7%)) less the strike price of $12.25 (being $10 x (1.00 increased by the Threshold Rate of 7.0% per annum)) = $0.24

• Total Value on Maturity of all Performance Rights = $0.24 x 100,000 x 40% = $9,600

Further details of KPI incentive remuneration in respect of the last five years are set out in table 6.3.

4.3.3 Incentives—Group Managing Director

The Group Managing Director participates in different at-risk incentive schemes to other senior executives. The components are as follows:

1. Short term incentive—The Group Managing Director has the opportunity to earn an annual cash incentive, depending on performance against performance conditions set by the board as described below. The incentive is payable in one annual payment.

2. Long term incentive—The Group Managing Director has the opportunity to earn a deferred and longer term cash incentive depending on performance against performance conditions set by the board as described below. The incentive is payable in three tranches over three calendar years, providing employment in the company continues in those payment periods.

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Remuneration report (continued)

4 Senior executive remuneration (continued)

The goals and performance measures, and the quantum of both short and long term incentives are set by the board in consultation with the HR Committee. The performance conditions include group financial performance (such as profitability, sustainability and the strength of the Group’s capital position) as well as performance across nonfinancial metrics such as Group strategy and growth, stakeholder management, support of management, business reputation and the culture and capability of the Group. These performance conditions are set to encourage the desired financial performance and create the conditions where high quality services are provided to the Group’s members and customers and are broader and longer term in nature than other executive performance conditions to encourage long term financial soundness as well as setting up the Group for sustained growth.

For the short term incentive the Group Managing Director’s performance is reviewed by the board in consultation with the HR Committee at the end of each financial year and for the long term incentive at the end of each calendar year.

In each case actual reward received is dependent on achieving minimum performance outcomes and to achieve maximum reward, the Group Managing Director must achieve exceptional business and individual performance outcomes. The incentives are also subject to a service condition, no reward is paid if prior to assessment the Group Managing Director has resigned, given notice, or been dismissed. Exceptions may apply in certain limited circumstances beyond his control.

Further details of the Group Managing Director’s incentive remuneration in respect of the last three years are set out in table 6.4.

Non-monetary benefits

The Group also makes available certain other non-monetary benefits through salary packaging (including in-house products, salary sacrifice options) and wellbeing and community related matters. All benefits are structured in accordance with the appropriate legislation, including taxation legislation. Details of any such benefits to KMP during the Year are set out in table 6.1.

5 Non-executive director remuneration

Australian Unity Limited’s constitution and board charter require that directors meet a variety of standards in order to be eligible to remain directors of the board. These include membership of Australian Unity and meeting ‘fit and proper’ standards under legislation and prudential standards. The constitution also provides that non-executive directors are to be paid fees as remuneration for their services as directors, subject to the aggregate fees not exceeding the annual sum last approved at a general meeting. Members last approved an increase in the aggregate fees payable to non-executive directors at the annual general meeting on 25 October 2007, when they approved the sum of up to $1.2 million in aggregate fees per financial year, to be divided between the non-executive directors in such appropriate manner as determined by the directors.

Non-executive director remuneration is reviewed annually by the HR Committee, taking into account the duties, responsibilities and demands on directors, organisation performance, trends, industry standards, and fees paid by comparable organisations. No incentives or options are payable to non-executive directors.

In addition to the above, directors appointed before the Company’s 2004 annual general meeting are entitled to a retirement allowance pursuant to the Non-Executive Directors’ Retirement Scheme, which was on foot prior to that time and which was closed to new directors in 2004. Under that scheme, participants are entitled to a retirement benefit equivalent to 2.2 times the average of their highest three consecutive years’ remuneration, after six years of service. Accordingly, each of Alan Castleman, Eve Crestani and Ian Ferres is entitled to receive a retirement allowance.

Details of individual non-executive director allowances, payments and entitlements are set out in table 6.1.

6 Remuneration Tables - Key Management Personnel (directors and relevant executives)

6.1 Remuneration for the years ended 30 June 2011 and 2010

The following table provides the remuneration details required by section 300A(1)(c) & (e) of the Corporations Act 2001 .

			Post-
		Short-term benefts	employment	Long-term benefts
			benefts
		Cash salary Cash bonus (Annual incentive	Non monetary Super- annuation contribu-	Cash bonus (Deferred incentive or Total remu- Increase in long service leave provi- Increase in retirement benefts	At-risk
Name	Year	and fees1 or STI)1	benefts1,4 tions2	LTI)3 neration sion3 provision2,5	related
		$ $	$ $	$ $ $ $	%
Non-executive directors
Alan Castleman, Chairman	2011	197,626 –	1,887 40,486	– 240,000 – –	–
	2010	192,124 –	1,860 56,017	– 250,000 – 5,074	–
Glenn Barnes	2011	120,000 –	– –	– 120,000 – –	–
(appointed 16 October 2009)	2010	84,615 –	– –	– 84,615 – –	–
John Butler	2011	86,413 –	– 33,587	– 120,000 – –	–
(appointed 31 August 2009)	2010	73,150 –	– 27,331	– 100,481 – –	–
Eve Crestani	2011	107,956 –	2,327 9,716	– 120,000 – –	–
	2010	112,629 –	2,231 10,137	– 124,997 – 4,585	–
Ian Ferres	2011	114,149 –	1,851 4,000	– 120,000 – –	–
	2010	81,007 –	1,755 42,238	– 125,000 – 18,235	–
Warren French	2011	71,556 –	2,004 46,440	– 120,000 – –	–
	2010	76,171 –	1,973 46,855	– 125,000 – –	–
Stephen Maitland	2011	108,276 –	1,979 9,745	– 120,000 – –	–
	2010	112,929 –	1,908 10,164	– 125,000 – –	–
Kate Spargo	2011	110,092 –	– 9,908	– 120,000 – –	–
(appointed 16 October 2009)	2010	77,629 –	– 6,987	– 84,616 – –	–
Warren Stretton	2011	81,095 –	630 38,275	– 120,000 – –	–
	2010	79,624 –	– 45,376	– 125,000 – –	–
Bruce Siney (ceased 27 October 2009)	2010	39,936 –	700 3,594	– 44,231 – 2,106	–
Sub-total	2011	997,162 –	10,680 192,158	– 1,200,000 – –
Non-executive directors	2010	929,813 –	10,428 248,698	– 1,188,940 – 30,000
Executives
Rohan Mead,	2011	879,274 300,000	2,410 25,000	383,333 1,590,017 21,756 –	42
GroupManagingDirector	2010	772,720 –	2,280 25,000	200,000 1,000,000 16,632 –	20
Anthony Connon	2011	484,968 172,100	2,855 45,784	205,239 910,945 10,751 –	41
	2010	452,854 –	2,685 14,461	– 470,000 (2,322) –	-
David Bryant	2011	612,351 312,000	92,097 15,784	399,287 1,431,518 18,549 –	49
	2010	517,020 –	118,519 14,461	– 650,000 12,256 –	–
Amanda Hagan	2011	461,361 210,000	2,754 15,245	171,901 861,261 9,202 –	44
	2010	405,016 –	523 14,461	– 420,000 4,805 –	-
Derek McMillan	2011	426,882 154,000	6,143 15,784	217,407 820,215 15,663 –	44
	2010	364,677 –	5,862 14,461	– 385,000 355 –	–
Total	2011	3,861,998 1,148,100	116,937 309,753	1,377,167 6,813,955 75,921 –
	2010	3,442,100 –	140,297 331,543	200,000 4,113,940 31,726 30,000

• 1 Short-term benefits

• 2 Post-employment benefits

• 3 Long-term benefits

• 4

• 5

• Non-monetary benefits refers to salary packaged benefits such as motor vehicles, car parking, health insurance. Mr Bruce Siney received a retirement payment of $257,450 from the provision for directors’ retirement benefits during the year ended 30 June 2010. Payroll tax on the retirement benefit was also met from the provision. Current retirement benefit entitlements total $550,000 for Mr Alan Castleman, $275,000 for Ms Eve Crestani and $275,000 for Mr Ian Ferres.

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Remuneration report (continued) Independent remuneration consultant’s report

Remuneration report (continued)

6 Remuneration Tables - Key Management Personnel (directors and relevant executives) (continued)

6.2 Contract terms for relevant executives

The following table provides the prescribed details in relation to the relevant executives contract terms.

Name	Employee initiated noticeperiod1	Employer initiated noticeperiod2	Termination beneft3
Rohan Mead, Group Managing Director	6 months	12 months	none
Anthony Connon, Chief Financial Ofcer	1 month	12 months	none
David Bryant, CEO Investments	3 months	3 months	none
Amanda Hagan, CEO Healthcare	3 months	6 months	none
Derek McMillan, CEO Retirement Living	1 month	1 month	none

• 1 All relevant executives have contract durations with no set term.

• 2 Payment in lieu of notice may be made and the Group’s redundancy policies may also apply.

• 3 Entitlement to at-risk incentives is set out in section 4.3 above.

6.3 Details of remuneration - 2011 performance related incentives for relevant executives other than the Group Managing Director

The following table sets out for each STI or LTI paid during the year, the percentage of the available incentive that was paid and the percentage that was forfeited because the applicable performance and service criteria were not met to the extent required for the maximum payment. These criteria are set out in section 4.3 above. The table also shows details of LTI granted but which have yet to mature, including their maximum possible value on maturity.

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Short Term Incentive Long Term Incentive
Number of Maximum total
Date when LTI performance Date when LTI value of LTI yet
Name Paid in 2011 [1] Forfeited in 2011 was granted rights fully matures Paid in 2011 Forfeited in 2011 to mature [2]
% % % % $
Anthony Connon 73 27 1 October 2010 346,180 1 October 2013 – – 211,500
1 October 2009 412,440 1 October 2012 – – 211,500
1 October 2008 227,840 1 October 2011 – – 211,500
1 October 2007 – 1 October 2010 68 32 –
1 October 2006 – 1 October 2010 51 49 –
David Bryant 80 20 1 October 2010 744,730 1 October 2013 – – 455,000
1 October 2009 887,270 1 October 2012 – – 455,000
1 October 2008 525,170 1 October 2011 – – 487,500
1 October 2007 – 1 October 2010 68 32 –
1 October 2006 – 1 October 2010 51 49 –
Amanda Hagan 100 – 1 October 2010 343,720 1 October 2013 – – 210,000
1 October 2009 409,510 1 October 2012 – – 210,000
1 October 2008 226,230 1 October 2011 – – 210,000
1 October 2007 – 1 October 2010 68 32 –
1 October 2006 – 1 October 2010 51 49 –
Derek McMillan 80 20 1 October 2010 441,110 1 October 2013 – – 269,500
1 October 2009 525,540 1 October 2012 – – 269,500
1 October 2008 311,060 1 October 2011 – – 288,750
1 October 2007 – 1 October 2010 68 32 –
1 October 2006 – 1 October 2010 51 49 –
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• 1 The STIs were awarded on 1 October 2010.

• 2 The per annum compound Threshold Rates for Performance Rights granted 1 October 2008, 2009 and 2010 were 5.00%, 6.00% and 7.00% respectively. The per annum compound Target Rates for Performance Rights granted 1 October 2008, 2009 and 2010 were 6.25%, 7.50% and 8.75% respectively.

6.4 Details of remuneration - 2011 performance related incentives for the Group Managing Director

The following table sets out for each annual incentive or deferred incentive paid during the year, the percentage of the available amount that was paid and the percentage that was forfeited because the applicable performance and service criteria were not met to the extent required for the maximum payment. These criteria are set out in section 4.3.3 above. The table also shows details of deferred incentive which is not yet due.

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Short Term Incentive Long Term Incentive
Maximum total value
Calendar Date when final of Deferred Incentive
Name Paid in 2011 [1] Forfeited in 2011 award year Paid in 2011 Forfeited in 2011 tranche due [2] not yet due
% % % % $
Rohan Mead 63 37 2010 100 – 31 January 2013 266,667
2009 100 – 31 January 2012 100,000
2008 100 – – –
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• 1 Mr Rohan Mead’s annual incentive was awarded on 1 October 2010.

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• 2 Mr Rohan Mead’s deferred incentive is paid in three equal annual tranches commencing in the January following the calendar year of award, as set out in section 4.3.3.

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Consolidated statement of comprehensive income For the year ended 30 June 2011

For the year ended 30 June 2011
		2011	2010
	Notes	$’000	$’000
Revenue	6	1,012,021	934,049
Expenses, excluding fnance costs		(945,558)	(895,876)
Finance costs	7	(16,110)	(11,006)
Share of netprofts of associates	16	2,075	3,419
Proft before income tax		52,428	30,586
Income tax expense	8	(26,804)	(13,458)
Proft after income tax		25,624	17,128
Other comprehensive income
Transfers of reserves	32(a)	13	–
Income tax relatingto components of other comprehensive income	32(a)	(4)	–
Other comprehensive income for theyear, net of tax		9	–
Total comprehensive income for theyear		25,633	17,128
Proft for the year is attributable to:
Members of Australian Unity Limited		25,624	17,128
Non-controlling interest		–	–
Allocated topolicyholder equity		–	–
		25,624	17,128
Total comprehensive income for the year is attributable to:
Members of Australian Unity Limited		25,633	17,128
Non-controlling interest		–	–
Allocated topolicyholder equity		–	–
		25,633	17,128

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes, specifically the allocation of the consolidated income statement between Members’ Funds and Benefit Funds outlined in note 45.

Consolidated balance sheet

As at 30 June 2011

Consolidated balance sheet As at 30 June 2011
		2011	2010
	Notes	$’000	$’000
ASSETS
Current assets
Cash and cash equivalents	9	1,097,688	1,056,469
Trade and other receivables	10	99,131	91,248
Inventories	11	604	534
Current tax assets	12	–	3,010
Loans and receivables	13	7,962	5,423
Financial assets at fair value throughproft or loss	14	1,008,983	899,584
Total current assets		2,214,368	2,056,268
Non-current assets
Financial assets at fair value through proft or loss	14	98,559	112,570
Loans and receivables	15	102,527	106,754
Investments in associates	16	19,023	20,044
Other fnancial assets	17	1,690	1,637
Property, plant and equipment	18	66,587	70,855
Investment properties	19	502,853	458,805
Deferred tax assets	20	61,769	72,560
Intangible assets	21	65,632	59,337
Other non-current assets	22	616	1,892
Total non-current assets		919,256	904,454
Total assets		3,133,624	2,960,722
LIABILITIES
Current liabilities
Trade and other payables	23	71,915	47,820
Interest bearing liabilities	24	99,731	79,600
Current tax liabilities	25	6,793	–
Provisions	26	55,651	58,806
Other current liabilities	27	413,987	376,730
Beneft fundpolicyliabilities	43	230,141	223,645
Total current liabilities		878,218	786,601
Non-current liabilities
Interest bearing liabilities	28	190,629	140,547
Deferred tax liabilities	29	50,392	48,797
Provisions	30	5,731	5,563
Other non-current liabilities	31	950	–
Beneft fundpolicyliabilities	43	1,615,918	1,615,605
Total non-current liabilities		1,863,620	1,810,512
Total liabilities		2,741,838	2,597,113
Net assets		391,786	363,609
EQUITY
Members’ balances	5(d)	215,513	215,513
Reserves	32(a)	2,475	2,466
Retained earnings	32(c)	170,085	145,630
Members’ balances and reserves attributable to members of Australian Unity Limited		388,073	363,609
Non-controllinginterest	33	3,713	–
Total equity		391,786	363,609

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 year ended 30 June 2011

Consolidated statement of changes in equity For the year ended 30 June 2011	Consolidated statement of changes in equity For the year ended 30 June 2011	Consolidated statement of changes in equity For the year ended 30 June 2011	Consolidated statement of changes in equity For the year ended 30 June 2011
Attributable to members of Australian Unity Limited
Members’ balances	Reserves	Retained earnings	Total	Non-controlling interest	Total equity
Notes $’000	$’000	$’000	$’000	$’000	$’000
Balance at 1 July 2009 169,049 Adjustment due to change of accounting standard 32 – Other adjustment 32 –	2,462 – –	131,099 (2,422) (175)	302,610 (2,422) (175)	– – –	302,610 (2,422) (175)
169,049	2,462	128,502	300,013	–	300,013
Proft for the year – Other comprehensive income –	– 4	17,128 –	17,128 4	– –	17,128 4
Total comprehensive income –	4	17,128	17,132	–	17,132
Transactions with members in their capacity as members: Increase in members’ balances 47,537 Adjustment subsequent to acquisition inprioryear 5(d) (1,073)	- -	- -	47,537 (1,073)	– –	47,537 (1,073)
46,464	-	-	46,464	–	46,464
Balance at 30 June 2010 215,513	2,466	145,630	363,609	–	363,609
Balance at 1 July 2010 215,513 Proft for the year – Other adjustment 32 – Other comprehensive income –	2,466 – – 9	145,630 25,624 (1,169) –	363,609 25,624 (1,169) 9	– – – –	363,609 25,624 (1,169) 9
Total comprehensive income –	9	24,455	24,464	–	24,464
Transactions with members in their capacity as members: Sale of non-controllinginterest in subsidiary 33 –	–	–	–	3,713	3,713
–	–	–	–	3,713	3,713
Balance at 30 June 2011 215,513	2,475	170,085	388,073	3,713	391,786

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows

For the year ended 30 June 2011

For the year ended 30 June 2011
		2011	2010
	Notes	$’000	$’000
Cash fows from operating activities
Receipts from customers		822,757	715,435
Payments to suppliers and employees		(222,424)	(283,177)
		600,333	432,258
Life investment contracts - Contributions received		162,939	202,104
Life investment contracts - Withdrawals		(227,464)	(222,642)
Life insurance - Premiums received		708	800
Life insurance - Policy claims paid		(2,683)	(2,592)
Dividends and distributions received		13,599	8,287
Interest received		8,271	4,446
Claims and benefts paid		(442,131)	(401,618)
Borrowing costs paid		(13,716)	(14,838)
Other income received		–	21,681
Income tax refund/(payments)		(3,260)	4,684
Net cash infow from operating activities	34	96,596	32,570
Cash fows from investing activities
Cash infow/(payments) on business combination	5	(6,267)	401,514
Payments for property, plant and equipment	18	(2,911)	(2,957)
Payments for investments		(618,158)	(1,548,254)
Payments for intangible assets		(7,253)	(6,683)
Payments for investment properties		(34,297)	(19,517)
Payments for purchase of investments in associates		(4,437)	(3,382)
Loans to related entities		(7,031)	(7,777)
Proceeds from sale of property, plant and equipment		454	554
Proceeds from sale of investments		520,411	1,815,021
Proceeds from sale of investment in subsidiary		6,024	-
Proceeds from disposal of intangible assets		-	92
Proceeds from disposal of investments in associates		-	14,550
Net cash infow/(outfow) from investing activities		(153,465)	643,161
Cash fows from fnancing activities
Receipts from borrowings net of repayments		70,213	64,416
Receipts from refundable lease deposits and resident liabilities		27,875	42,329
Net cash infow from fnancing activities		98,088	106,745
Net increase in cash and cash equivalents		41,219	782,476
Cash and cash equivalents at the beginningof the fnancialyear		1,056,469	273,993
Cash and cash equivalents at the end of the fnancialyear	9	1,097,688	1,056,469

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

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Notes to the consolidated financial statements For the year ended 30 June 2011

1 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Australian Unity Limited (Parent entity) and its subsidiaries, referred to in these financial statements as the Group.

(a) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and the Corporations Act 2001 .

Compliance with IFRS

The consolidated financial statements of the Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property.

Critical accounting estimates

The preparation of financial statements in conformity with Australian Accounting Standards 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 areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

(b) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Australian Unity Limited as at 30 June 2011 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, (refer to note 1(f)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, balance sheet and statement of changes in equity respectively.

(ii) Investments in associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the Parent entity’s financial statements using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (refer to note 16).

The Group’s share of its associates’ post-acquisition profits/(losses) is recognised in the profit or loss, and its share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the Parent entity’s profit or loss, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(iii) Life insurance benefit funds

The Group’s life insurance operations are conducted within separate benefit funds as required by the Life Insurance Act 1995 . The assets, liabilities, revenue and expenses of the benefit funds are included within the consolidated financial statements. Revenue and expense transactions between the benefit funds and other entities within the Group are not eliminated. Balances outstanding between benefit funds and other entities within the Group are eliminated.

(iv) Changes in ownership interests

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with members of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to members of Australian Unity Limited.

When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(c) Benefit fund policy liabilities

(i) Classification

The Group’s life insurance liabilities are held within separate benefit funds as required by the Life Insurance Act 1995 . The activities of the benefit funds are aggregated within the consolidated financial statements but are governed separately. Life insurance liabilities are classified for accounting purposes as either life insurance contract liabilities, participating life investment contract liabilities or non-participating life investment contract liabilities in accordance with AASB 1038 Life Insurance Contracts .

Life insurance contracts are contracts, which transfer significant insurance risk at the inception of the contract. Insurance risk is considered to be significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance.

Life investment contracts are contracts regulated under the Life Insurance Act 1995 but that do not transfer significant insurance risk. Life investment contracts are further categorised into participating and non-participating contracts. Participating life investment contracts are contracts that contain a discretionary participation feature (‘’DPF’’). A DPF is a contractual right to receive as a supplement to guaranteed benefits, additional benefits: (i) that are likely to be a significant portion of the total benefits; (ii) whose amount or timing is contractually at the discretion of the issuer; and (iii) that are based on the performance of a specified pool of assets.

Participating life investment contract liabilities are classified and accounted for in the same manner as life insurance contract liabilities, that is under the requirements of AASB 1038 Life Insurance Contracts and are referred to in these financial statements as life insurance contract liabilities. Non-participating life investment contract liabilities are classified and accounted for under the requirements of AASB 139 Financial Instruments and are referred to in these financial statements as life investment contract liabilities.

Life investment contract liabilities include investment-linked contracts in which the Group issues a contract where the benefit amount is directly linked to the market value of the investments held by the benefit fund. While the underlying assets are registered in the name of the benefit fund and the investment linked policyowner has no direct access to the specific assets, the contractual arrangements are such that the investment linked policyowner bears the risks and rewards of the benefit fund’s investment performance. The Group derives fee income from the administration of the investment-linked contracts.

Non-investment linked business is business in which the Group issues a policy contract where the insured benefit is not directly linked to the market value of the investments held. These benefits are payable on death, or on the occurrence of an insured event.

(ii) Valuation

The fair value of life insurance contract liabilities are determined using a projection method. This involves estimates of policy cash flows projected into the future. The policy liability is calculated as the net present value of these projected cash flows (premiums, benefits, expenses and profit margins to be released in future periods) using best estimate assumptions about the future. A minority of life

insurance contract liabilities are determined using a Margin on Services methodology.

The participating investment contract liabilities, which are classified as life insurance contracts, are valued under an accumulation method whereby policyholder liabilities are equal to the value of the assets backing the liabilities. The liability reported under this approach is equal to the account balance pre-bonus plus the current bonus plus the difference between the value of the assets and the preceding items.

The unit-linked funds are classified as life investment contract liabilities and measured at fair value. The contracts consist of a financial instrument and an investment management services element both of which are measured at fair value. The liability to policyholders is linked to the performance and value of the assets that back the liabilities. The liabilities are therefore the same as the fair value of the assets.

Further details of the actuarial assumptions used in the calculation of policy liabilities are set out in note 43.

(iii) Claims expense

For life insurance contract liabilities and participating investment contract liabilities, claims are recognised when the liability to the policyholder under the contract has been established (i.e. on notification of death, at time of admittance, or when payment is due).

For life investment contract liabilities there are no claims expense. Surrenders and withdrawals are not included in the profit or loss but are instead deducted from investment contract liabilities.

(d) Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

(e) Borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received.

After initial recognition, loans and borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

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Notes to the consolidated financial statements For the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(f) Business combinations

The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the Group’s share of the fair value of the net identifiable assets of the subsidiary acquired, and the measurement of all amounts has been reviewed, the difference is recognised directly in the profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified as either equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in the profit or loss.

(g) Cash and cash equivalents

For the purpose of presentation in the statements of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

(h) Deferred acquisition costs

Acquisition costs incurred in obtaining health insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the profit or loss in subsequent reporting periods.

Deferred acquisition costs are amortised systematically in accordance with the expected pattern of the incidence of risk under the insurance contracts to which they relate. This pattern of amortisation corresponds to the earning pattern of the corresponding premium revenue.

(i) Derivatives and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 3. Movements in the hedging reserve in members’ equity are shown in note 32.

(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain/(loss) relating to the ineffective portion is recognised immediately in the profit or loss within other income or other expenses.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated in reserves as equity. The gain/(loss) relating to the ineffective portion is recognised immediately in the profit or loss within other income or other expenses.

Amounts accumulated in equity are reclassified in the profit or loss in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place).

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain/(loss) existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain/(loss) that was reported in equity is immediately transferred to the profit or loss.

(iii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the profit or loss and are included in other income or other expenses.

(j) Employee benefits

Employees engaged in the Group’s operations are employed by related entities, Australian Unity Group Services Proprietary Limited and Lifeplan Australia Friendly Society Limited. Accordingly, liabilities for employee benefits are recognised in the balance sheets as part of provisions.

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of each reporting period are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of each reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of each reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of each reporting period are discounted to present value.

(iv) Superannuation

The Group contributes to the Australian Unity Staff Superannuation Plan (a sub plan of the Freedom of Choice Employer Sponsored Superannuation Plan), the Hesta Superannuation Fund and other complying superannuation funds nominated by employees. The Australian Unity Staff Superannuation Plan is open to new members and is an accumulation fund, where the employer contributions are fully vested in the member. The Hesta Superannuation Fund is an industry based fund for employees working in the retirement village complexes and aged care facilities. The Group is required to contribute to the above mentioned plans in accordance with the Superannuation Guarantee Legislation.

(k) Financial guarantee contracts

A financial guarantee contract is a contract requiring the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make a payment when due in accordance with terms of the debt instrument.

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would

be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

(l) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s operations are measured using the currency of the primary economic environment in which it operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Australian Unity Limited’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains/(losses) resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain/ (loss). For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in the profit or loss as part of the fair value gain/(loss) and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are included in other comprehensive income and accumulated in reserves as equity.

(m) Goods and Services Tax (GST)

Revenue, expenses and assets are recognised net of the amount of Goods and Services Tax (GST) except:

• When the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• Receivables and payables, which are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(n) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the profit or loss on a straight-line basis over the expected lives of the related assets.

(o) Health insurance

(i) Classification

Health insurance contracts are defined as those containing significant insurance risk at the inception of the contract, or those where at the inception of the contract there is a scenario with commercial substance where the level of insurance risk may be significant over time. The significance of insurance risk is dependent on both the probability of an insurance event and the magnitude of its potential effect.

Once a contract has been classified as a health insurance contract, it remains as a health insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during the period.

The Group has determined that all current contracts with health insurance policyholders are health insurance contracts.

(ii) Claims expense

Health insurance claims include all claim losses occurring during the year, whether reported or not, and any adjustments to claims outstanding from previous years.

(p) Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

(q) Income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period.

Deferred income tax is provided on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

• When the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• When the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carrying forward of unused tax credits and unused tax losses can be utilised, except:

• When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or

• When the deductible temporary difference is associated with investments in subsidiaries, associates or interest in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

On 1 July 2002, the Parent entity and its wholly-owned Australian controlled entities formed a tax consolidation group, as allowed under the tax consolidation legislation.

The Parent entity, as head entity, and the controlled entities in the tax consolidation group continue to account for their own current and deferred tax amounts. The Group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group.

In addition to its own current deferred tax amounts, the Group also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed

from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details of the tax funding agreement are disclosed in note 8.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

(r) Intangible assets

(i) Goodwill

Goodwill represents the excess of the consideration transferred of a business combination over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains/(losses) on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which goodwill is so allocated represents the lowest level within the Group at which goodwill is monitored for internal management purposes according to operating segments refer to note 4.

Impairment is determined by assessing the recoverable amount, based on value-in-use calculations, of the cash-generating unit to which the goodwill relates. When the recoverable amount of the cashgenerating unit is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash-generating unit and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed and of the portion of the cash-generating unit retained.

Impairment losses recognised for goodwill are not subsequently reversed.

(ii) Aged care bed licences

Bed licences for aged care facilities are recognised at cost of acquisition. No amortisation has been provided as these licences are perpetual and so the Group considers the useful life of these assets to be indefinite. Bed licences are reviewed annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

(iii) Management rights

Management rights relating to managed investment schemes are recorded at cost and are amortised over the period of expected benefit, less any adjustments for impairment losses.

(iv) Computer software

Computer software is initially recognised at cost and amortised over the period of expected benefit, less any adjustments for impairment losses.

(v) Other intangibles

Other intangibles are initially recognised at cost and amortised over the period of expected benefit, less any adjustments for impairment losses.

Other intangibles with a finite life are tested for impairment if events or changes in circumstances indicate that the asset might be impaired. Other intangibles with an indefinite life are not amortised. Instead, they are tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired.

(s) Interests in wholly-owned subsidiaries

The Parent entity has valued its investment in wholly-owned subsidiaries at cost less any adjustments for impairment losses.

(t) Inventories Inventories are stated at the lower of cost and net realisable value on a first in and first out basis.

(u) Investment properties

Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition investment properties are stated at fair value.

Gains/(losses) arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.

Investment properties are derecognised when they have either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains/(losses) on the derecognition of an investment property are recognised in the profit or loss in the year of derecognition.

Retirement village investment property relates to interests in retirement village independent living units and aged care facilities where the aged care facilities are managed by operators which are not part of the Group. These investments are initially measured at cost and when the facilities are complete, or substantially complete, they are stated at fair value. The fair value represents the present value of future cash flows based upon statistical modelling of incoming and outgoing residents and includes assumptions in respect of a number of factors, such as average length of residence and expected changes in property prices.

Land held for development purposes of investment property is also classified as investment property.

(v) Investments and other financial assets

Classification

The Group classifies its investments into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are expected to be settled within 12 months of the end of the reporting period; otherwise they are classified as non-current.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets.

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. They are included in non-current assets, except for those with maturities within 12 months of the end of the reporting period, which are classified as current assets.

(iv) Available-for-sale financial assets

Available-for-sale financial assets comprise marketable and non-marketable equity securities and floating rates notes, that are either designated in this category or not classified in any of the other categories. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term. They are included in non-current assets unless the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period.

Recognition and derecognition

Purchases and sales of investments are recognised on trade date, which is the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and there has been a transfer of substantially all the risks and rewards of ownership. When available-for-sale financial assets are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss.

Measurement

Financial assets are initially measured at fair value plus, where they are not financial assets at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs of financial assets at fair value through profit or loss are expensed. Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using the effective interest method. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains/(losses) arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the profit or loss in the period in which they arise. Gains/(losses) arising from changes in the fair value of the available-for-sale financial assets are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income

are reclassified to the profit or loss as gains/(losses) from investment securities in the period in which they arise.

The fair values of quoted investments are based on closing bid prices. If the market prices are not available (e.g. for unlisted securities), the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

Impairment

At the end of each reporting period, the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on these financial assets previously recognised in the profit or loss) is removed from equity and recognised in the profit or loss. Impairment losses recognised in the profit or loss on equity instruments are not reversed through the profit or loss in subsequent period.

(w) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis over the period of the lease (net of any incentives from the lessor).

Finance leases

Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the Group are capitalised at the present value of the minimum lease payments and included in property, plant and equipment. A lease liability of equal value is also recognised.

(x) Outstanding claims liability

The liability for outstanding claims is measured as the central estimate of the present value of expected future payments against claims incurred at the end of each reporting period under insurance contracts issued by the Group, with an additional risk margin to allow for the inherent uncertainty in the central estimate.

The expected future payments include those in relation to claims reported but not yet paid, claims Incurred But Not Reported (IBNR), claims Incurred But Not Enough Reported (IBNER) and anticipated claims handling costs.

Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs.

The expected future payments of claims expected to be settled within one year are not discounted as the undiscounted value approximates their present value. The expected future payments of other claims are discounted to present value using a risk free rate.

A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the central estimate of the outstanding claims liability.

(y) Outwards reinsurance

Amounts paid to reinsurers under insurance contracts held by the Group are recorded as an outwards reinsurance expense and are recognised in the profit or loss from the attachment date over the period of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk ceded.

Premium ceded to reinsurers is recognised as outwards reinsurance expense from the attachment date over the period of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk.

(z) Property, plant and equipment

(i) Cost and valuation

Freehold land and buildings on freehold land are measured on a fair value basis. The fair value is based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. At the date of revaluation, any accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. At the end of each reporting period, the value of each asset in these classes is reviewed to ensure that it does not materially differ from the asset’s fair value at that date.

Increases in the carrying amounts arising on revaluation of land and buildings are credited to other comprehensive income and accumulated in the asset revaluation reserve in equity. To the extent that the increase reverses a decrease previously recognised in the profit or loss, the increase is first recognised in the profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining reserve attributable to the asset; all other decreases are charged to the profit or loss.

All other classes of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.

(ii) Depreciation

Land is not depreciated. Depreciation on other property, plant and equipment is calculated on a straight line basis to write off the net cost or revalued amount of each asset over its expected useful life. Estimates of remaining useful lives are reassessed annually for major items.

The expected useful lives are as follows:

Category Useful life Buildings 40 years Plant and equipment 5 - 20 years Leasehold improvements 5 years

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains/(losses) on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts included in other reserves in respect of those assets to retained earnings.

Non-property assets under construction are recorded at cost within plant and equipment. These assets are transferred to an appropriate asset category on completion and depreciation commences only when the assets come into operational service.

(aa) Provisions

Provisions are recognised when the Group has a legal, equitable or constructive obligation to make future sacrifice of economic benefits as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability.

When discounting is used, the subsequent increase in the provision due solely to the passage of time is recognised as an interest charge.

(ab) Refundable lease deposits

Retirement village residents, upon entering certain accommodation types, provide a deposit from which fees are deducted in respect of the provision of certain services and facilities. The actual amount refundable upon departure from the retirement village is determined by the terms of the existing tenancy contracts. As these amounts are payable on demand, they are treated as a current liability and are carried at amortised cost using the effective interest method even though they relate to occupancy of the investment properties which are non-current assets and on average only a small proportion is repaid in any one year.

(ac) Reinsurance and other recoveries receivable

Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, IBNR, IBNER and unexpired risk liabilities are recognised as revenue.

Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims. Recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims.

(ad) Resident loans

Retirement village residents, upon entering certain accommodation types, provide a loan to the village operator, from which deferred management fees are deducted in respect of the provision of certain services and facilities. The actual amount repayable upon departure from the accommodation is determined by the terms of the existing tenancy contracts. In certain cases, the amount repayable includes the resident’s share of any increase in the value of the property occupied by the resident during the period of tenancy. As these amounts are payable on demand, they are treated as a current liability and are carried at amortised cost using the effective interest method even though they relate to occupancy of the investment properties which are non-current assets and on average only a small proportion is repaid in any one year.

(ae) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

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Notes to the consolidated financial statements

For the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(i) Aged care income

Income and government subsidies for the provision of aged care facilities and related services are recognised as the services are provided.

(ii) Deferred management fee

Deferred management fee represents income relating to managed retirement village assets is recognised on the turnover from one resident to another of independent living units in the retirement village and is linked to the resale value of a resident’s unit and the resident’s length of occupancy of the unit.

(iii) Dividends

Dividend revenue is recognised when the Group’s right to receive the dividend is established. This applies even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence, refer note 1(p).

(iv) Fair value increments

Fair value gains on investment properties are recognised when they arise.

(v) Health insurance premium revenue

Health insurance premium revenue is recognised in the profit or loss from the attachment date, as soon as there is a basis on which it can be reliably measured. Revenue is recognised in accordance with the pattern of the incidence of risk expected over the term of the contract.

The proportion of premium received or receivable not earned in the profit or loss at the end of each reporting period is recognised in the balance sheet as unearned premium liability.

(vi) Interest income

Interest income is recognised using the effective interest method when the Group has control of the right to receive the interest payment.

(vii) Life insurance premium revenue and fees

For life insurance contract liabilities and participating investment contract liabilities, premiums are recognised when the liabilities arising from them are created.

For life investment contract liabilities, amounts collected as premiums are reported as deposits to investment contract liabilities in the balance sheets (rather than being included in the profit or loss).

(viii) Other revenue

Commissions from reinsurance are recognised when the Group’s right to receive the commission is established.

(ix) Property, funds management and administration fee income

Fee income is recognised based upon the contractual obligations of the Responsible Entity/Trustee to perform certain tasks.

(x) Rental income

Rental income from investment properties is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives granted are recognised as an integral part of the total rental income.

Rental income from the lease of aged care facilities to aged care facility operators is recognised on a straight-line basis over the lease term.

(xi) Resident levies

Income from the provision of services to retirement village residents is recognised as the services are provided.

(xii) Retirement village and aged care facility management fees

Fees for the management of retirement villages and aged care facilities are recognised as management services are provided.

(xiii) Sale of goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the customer and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

• (xiv) Share of profits of property development contracts – retirement village developments

During the construction phase, the Group’s share of development profits is recognised based upon cumulative development sales revenue as a proportion of total expected development sales revenue. On completion of a property development, all of the previously unrecognised share of development profits is recognised in the profit or loss.

(af) Risk equalisation trust fund

Under the provisions of the Private Health Insurance Act 2007 , stipulated in the Private Health Insurance (Risk Equalisation Administration) Rules 2007, which became effective from 1 April 2007, all health insurers must participate in the Risk Equalisation Trust Fund (RETF). These rules charge a levy to all health insurers and share a proportion of the hospital claims on a sliding scale (by age) for all persons aged 55 years and over regardless of their length of stay in hospital. In certain circumstances, these rules also provide for a High Cost Claimants Pool.

The amounts receivable from the RETF are determined by the Private Health Insurance Administration Council after the end of each calendar quarter. Estimated provisions for amounts payable and income receivable are recognised on an accruals basis.

(ag) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided as part of the monthly management reporting document. The chief operating decision maker has been identified as the Group Executive Committee that has delegated responsibility from the board for the achievement of the business strategic and operational plans approved by the board.

(ah) Trade and other payables

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid. These payables, which are generally settled on 30-90 day terms and are unsecured, are carried at amortised cost. They are presented as current liabilities unless payment is not due within 12 months after the end of each reporting period.

(ai) Trade and other receivables

Trade and other receivables, which are generally settled on 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in

payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate at the date of recognition of the receivable. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.

The amount of the impairment loss is recognised in the profit or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the profit or loss.

(aj) Unexpired risk liability

At the end of each reporting period the Group assesses whether the unearned premium liability is sufficient to cover all expected future cash flows relating to future claims against current insurance contracts. This assessment is referred to as the liability adequacy test and is performed separately for each group of contracts subject to broadly similar risks and managed together as a single portfolio.

If the present value of the expected future cash flows relating to future claims, plus the additional risk margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability less related intangible assets and related deferred acquisition costs, then the unearned premium liability is deemed to be deficient. The Group applies a risk margin to achieve the same probability of sufficiency for future claims as is achieved by the estimate of the outstanding claims liability.

The entire deficiency, net of reinsurance, is recognised immediately in the profit or loss. The deficiency is recognised first by writing down any related intangible assets and then related deferred acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk liability.

(ak) New accounting standards and interpretations

The Australian Accounting Standards Board (AASB) has issued the following amendments to Australian Accounting Standards:

AASB	Title	Operative Date
AASB 9, AASB 2009-11 and AASB 2010-7	Financial Instruments and Amendments to Australian AccountingStandards arisingfrom AASB 9	1 January2013
Revised AASB 124 and AASB 2009-12	Related PartyDisclosures and Amendments to Australian AccountingStandards	1 January2011
AASB 2009-14	Amendment to Australian Interpretation - Prepayments of a Minimum FundingRequirement	1 January2011
AASB 1053 and AASB 2010-2	Application of Tiers of Australian Accounting Standards and Amendments to Australian Accounting Standards	1 July 2013
	arisingfrom reduced disclosure requirements
AASB 2010-4	Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project	1 January 2011
	[AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]
AASB 2010-5	Amendments to Australian AccountingStandards	1 January2011
AASB 2010-6	Amendments to Australian AccountingStandards - Disclosures on Transfers of Financial Assets	1 July2011
AASB 2010-8	Amendments to Australian AccountingStandards - Deferred Tax: Recoveryof UnderlyingAssets	1 January2012
AASB 1054, AASB 2011-1 and AASB 2011-2	Australian Additional Disclosures, Amendments to Australian Accounting Standards arising from Trans-Tasman	1 July 2011
	Convergence Project and Amendments to Australian Accounting Standards arising from Trans-Tasman
	Convergence Project - Reduced Disclosure Requirements

The above standards are not yet effective for the annual reporting year ended 30 June 2011 and have not been applied in preparing the Group’s financial statements. Where applicable, the Group will apply the amendments to the annual reporting periods beginning on or after the operative dates set out above. Apart from AASB 9, application of these amendments is not expected to require any changes to accounting policies.

AASB 9 requires all financial assets to be recognised at fair value except for debt instruments with basic features. Where debt instruments’ contractual cash flows are solely payments of principal and interest on the outstanding principal, these instruments are recognised at amortised cost. For financial assets at fair value, any movements in fair value must be recognised in the profit or loss. Only fair value movements of those equity instruments that are not held for trading are permitted to be recognised in other comprehensive income. AASB 9 and the relevant amendments are not applicable until 1 January 2013, therefore the Group is unable to assess their full impact. However, based on the existing recognition of financial assets, the Group does not expect a material impact.

The following are new and revised IFRS issued during the year by the International Accounting Standard Board which are not yet effective for the annual reporting year ended 30 June 2011. The AASB has not issued the equivalent Australian standards. The Group does not presently intend to adopt the standards before the operative dates of the equivalent Australian standards.

IFRS	Title	Operative Date
Revised IFRS 9	Fair Value Option for Financial Liabilities	1 January2013
IFRS 10	Consolidated Financial Statements	1 January2013
IFRS 11	Joint Arrangements	1 January2013
IFRS 12	Disclosure of Interests in Other Entities	1 January2013
Revised IAS 27	Separate Financial Statements	1 January2013
Revised IAS 28	Investments in Associates	1 January2013
IFRS 13	Fair Value Measurement	1 January2013
Revised IAS 19	Employee Benefts	1 January2013
Revised IAS 1	Presentation of Financial Statements	1 July2012

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Notes to the consolidated financial statements For the year ended 30 June 2011

1 Summary of significant accounting policies (continued)

(al) Parent entity financial information

The financial information for the Parent entity, Australian Unity Limited, disclosed in note 46 has been prepared on the same basis as the consolidated financial statements.

2 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(i) Impairment of goodwill and intangibles with indefinite useful lives

The Group tests annually whether goodwill or other intangibles has suffered any impairment. This requires an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated in accordance with the accounting policy stated in note 1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions.

(ii) Retirement village investment property

The fair value of retirement village investment property is determined as the present value of future cash flows based upon statistical modelling of incoming and outgoing residents and includes assumptions in respect of a number of factors, including average length of residency and expected changes in property prices. Further information is detailed in note 19.

(iii) Insurance liabilities

The estimates, uncertainties and judgements arising as a result of the Group’s health and life insurance operations are detailed in notes 42 and 43.

(iv) Long service leave provision

The liability for long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the end of each reporting period. In determining the present value of the liability, attrition rates and pay increases as a result of projected inflation have been taken into account.

(v) Income taxes

The Group is subject to income taxes in Australia. There are certain transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(b) Critical judgements in applying the Group’s accounting policies

(i) Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences. The Group considers it probable that future taxable profits will be available to utilise these temporary differences.

(ii) Classification of life insurance liabilities

Life insurance liabilities held within benefit funds managed by the Group are classified for accounting purposes as either life insurance contract liabilities, participating life investment contract liabilities or non-participating life investment contract liabilities in accordance with AASB 1038.

(iii) Leases

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties and has thus classified the leases as operating leases.

3 Financial risk management

The board of directors has overall responsibility for the establishment and oversight of the risk management framework. The board has established the Group Risk Committee, which is responsible for developing and monitoring risk management policies.

The Group Risk Committee reviews the adequacy of the risk management framework in relation to the risks faced by the Group and reports regularly to the board on its activities.

Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

In addition, the board has established the Group Investment Committee to oversee the particular activities and risks associated with the Group’s investment responsibilities.

The Group Audit and Compliance Committee oversees how management monitors compliance with the Group’s risk management policies and procedures. The Group Audit and Compliance Committee is assisted in its role by Group Audit, Group Compliance and Group Finance. Group Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, Group Compliance oversees compliance with controls and procedures and Group Finance measures the quantitative aspects of the controls. The results of these reviews are reported to the Group Audit and Compliance Committee and the board.

The Group holds the following financial instruments:

2011	2010
$’000	$’000
Financial assets Cash and cash equivalents 1,097,688	1,056,469
Trade and other receivables 99,131	91,248
Financial assets at fair value through proft or loss 1,107,542	1,012,154
Loans and receivables 110,489	112,177
Other fnancial assets 1,690	1,637
2,416,540	2,273,685
Financial liabilities Trade and other payables 71,915	47,820
Borrowings 290,360	220,147
Refundable lease deposits 64,466	64,103
Resident loans 247,174	219,662
673,915	551,732

(ii) Price risk

(a) Market risk

Price risk is the risk that the fair value of future cash flows of a financial instrument may fluctuate because of changes in market prices. The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified on the balance sheet as financial assets at fair value through profit or loss. The Group is not directly exposed to commodity price risk.

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: price risk, foreign currency risk and interest rate risk. Market risk is managed and monitored using sensitivity analysis, and minimised through ensuring that all investment activities are undertaken in accordance with established mandates and investment strategies.

To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is achieved in accordance with investment policies overseen by the Investment Committee, the objective of which is to manage risk within acceptable limits.

Financial instruments held by the benefit funds managed by the Group does not expose the Group to market risk as these financial instruments are matched with policyholder liabilities in the benefit funds; any movement in the carrying value of financial instruments held by the benefit funds has an equal and opposite effect on policyholder liabilities.

The majority of the Group’s equity investments are held through investments in trusts managed by related entities. The equity investments held by these trusts are publicly traded and are included within market indices such as the Standard & Poor’s ASX 200 Index.

(i) Foreign exchange risk

Foreign exchange risk is the risk that the fair value of future cash flows of an overseas financial instrument will fluctuate as a result of movements in international exchange rates. The Group does not operate internationally and is not directly exposed to any material foreign exchange risk, however, there are small exposures through various International Share Fund Trust Investments and Investments in Associates which are also immaterial.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

3 Financial risk management (continued)

The table below summarises the impact of increases/(decreases) of the index on the Group’s post-tax profit for the year and on equity. The analysis is based on the assumption that the equity index had increased/(decreased) by 15% at the end of the reporting period (2010: 10%) with all other variables held constant and all the Group’s equity instruments moved according to the historical correlation with the index.

	Impact on post-tax proft	Impact on post-tax proft	Impact on equity
Index	2011	2010	2011	2010
	$’000	$’000	$’000	$’000
ASX 200 + 15%	8,440	–	8,440	–
ASX 200 - 15%	(8,440)	–	(8,440)	–
ASX 200 + 10%	–	6,581	–	6,581
ASX 200 - 10%	–	(5,767)	–	(5,767)

The price risk for the unlisted securities is immaterial in terms of the possible impact on profit or loss or total equity. It has therefore not been included in the sensitivity analysis. The assumptions used in the sensitivity analysis are based on an analysis of published economic data.

(iii) Cash flow and fair value interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s main interest rate risk arises from cash and cash equivalents and borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group analyses variable interest rate exposures on borrowings and will hedge at a fixed rate using interest rate swaps where this is in line with current management view of potential benefit. During the years ended 30 June 2011 and 2010, the Group’s borrowings at variable rate were denominated in Australian Dollars. As at the end of each reporting period, the Group had the following variable rate borrowings and interest rate swap contracts outstanding:

	30 June 2011		30 June 2010
	Weighted average		Weighted average
	interest rate	Balance	interest rate	Balance
	%	$’000	%	$’000
Amounts due to preferential unit holders	–	–	5.32	10,000
Australian Unity Notes	8.48	120,000	–	–
Call deposits	3.36	12,478	2.97	11,705
Cash advance facility	–	–	6.38	45,000
Development fnance loan	6.92	9,855	6.84	1,604
Subordinated capital notes (a)	4.87	25,000	3.82	25,000
Interest rate swaps (notionalprincipal amount)	(5.07)	(25,000)	–	–
Net exposure to cash fow interest rate risk		142,333		93,309

(a) The Subordinated capital notes carry a 4.90% fixed margin resulting in a total interest rate at 30 June 2011 of 9.77% (2010: 8.72%). Only the variable portion is hedged via an interest rate swap.

On 9 August 2011, the Parent entity entered into an interest rate swap to hedge the variable interest component of 50% of the $120 million of Australian Unity Notes at 4.65%. The hedge is effective from 14 October 2011 and will expire on maturity of the Australian Unity Notes. The fixed margin component of 3.55% was not hedged.

The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. The scenarios are run only for interest bearing liabilities. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the board and monitored by management.

Based on the various scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional principal amounts.

At 30 June 2011 and 2010, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

and equity would have been affected as follows:
	Impact on post-tax proft		Impact on equity
Judgements of reasonably possible movements:	2011	2010	2011	2010
	$’000	$’000	$’000	$’000
+ 0.50% (50 basis points)	(1,204)	–	(1,204)	–
- 0.50% (50 basis points)	1,204	–	1,204	–
+ 0.75% (75 basis points)	–	(1,026)	–	(1,026)
- 0.75% (75 basispoints)	–	1,026	–	1,026

The movements in profit are due to higher/lower interest costs from variable rate debt and higher/lower interest income from cash equivalents and other interest bearing investments. The assumptions used in the sensitivity analysis are based upon an analysis of published economic data.

(b) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk is managed on a group basis to ensure that this risk is minimised. Credit risk arises from derivative financial assets, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A-’ are accepted. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, an internal assessment is made in relation to the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The compliance with credit limits by wholesale customers is regularly monitored by line management. Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk.

Trade and other receivables

The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables.

There is generally no significant concentration of credit risks as the organisation transacts with a large number of individually immaterial debtors. This is further mitigated in relation to health insurance policy debtors where the credit risk will only continue during the grace period as specified by legislation and/or in the policy document, after this period the policy is either paid up or terminated.

In relation to any other individually material debtors, it is the Group’s policy that any customers who are likely to have such material balances owing and wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters set by the board. These risk limits are regularly monitored.

In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Mortgage and policy loans held by the benefit funds managed by the Group do not expose the Group to credit risk as these financial instruments are matched with policyholder liabilities in the benefit funds; any movement in the carrying value of financial instruments held by the benefit funds has an equal and opposite effect on policyholder liabilities.

Credit risk further arises in relation to financial guarantees given to certain parties. Such guarantees are only provided in exceptional circumstances and are subject to specific board approval.

The maximum exposure to credit risk at the end of each reporting period is the carrying amount of the financial assets. The credit risk on financial assets of the Group which have been recognised in the balance sheet, other than investments in shares, is generally the carrying amount, net of any provisions for impairment. Credit risk for physical securities and derivative instruments are monitored by exposure limits to counterparties. These limits are determined by reference to third party credit ratings.

(c) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets.

Maturities of financial liabilities

The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the contractual maturities remaining at the end of each reporting period.

The amounts disclosed in the tables are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

	Less than	6 -	12 months	Between	Between	Over 5 years	Carrying
	6 months			1 and 2 years	2 and 5 years		Amount
At 30 June 2011	$’000		$’000	$’000	$’000	$’000	$’000
Non-derivatives
Non-interest bearing	383,555		–	–	–	–	383,555
Variable rate	12,478		633	7,792	121,452	25,000	167,355
Fixed rate	49,754		35,579	23,035	14,404	233	123,005
	445,787		36,212	30,827	135,856	25,233	673,915
At 30 June 2010
Non-derivatives
Non-interest bearing	331,585		–	–	–	–	331,585
Variable rate	22,724		–	–	45,585	25,000	93,309
Fixed rate	44,704		22,173	39,714	18,979	1,268	126,838
	399,013		22,173	39,714	64,564	26,268	551,732

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Notes to the consolidated financial statements For the year ended 30 June 2011

3 Financial risk management (continued)

(d) Fair value measurement

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes, therefore information relating to the estimation of fair values is provided in the relevant note to the accounts.

The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant.

AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);

• (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2); and

• (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).

The following table presents the Group’s financial assets and financial liabilities measured and recognised at fair value at 30 June 2011 and 30 June 2010.

and 30 June 2010.
	Level 1	Level 2	Level 3	Total
At 30 June 2011	$’000	$’000	$’000	$’000
Financial Assets
Financial assets at fair value through proft or loss
Fixed interest securities	345,121	–	18,353	363,474
Equities	487,251	–	–	487,251
Mortgage trusts	49,967	81,911	–	131,878
Property syndicates and trusts	85,628	8,598	–	94,226
Debt securities	755	–	29,958	30,713
Other fnancial assets	863	–	–	863
Total fnancial assets	969,585	90,509	48,311	1,108,405
	Level 1	Level 2	Level 3	Total
At 30 June 2010	$’000	$’000	$’000	$’000
Financial Assets
Financial assets at fair value through proft or loss
Fixed interest securities	221,256	13,013	24,927	259,156
Equities	436,850	–	–	436,850
Mortgage trusts	86,663	110,312	–	196,975
Property syndicates and trusts	59,968	2,258	–	62,226
Debt securities	26,018	–	30,140	56,158
Futures contract	749	–	–	749
Other fnancial assets	810	–	–	810
Total fnancial assets	832,314	125,583	55,067	1,012,964
Reconciliation of Level 3 fair value movements:			2011	2010
			$’000	$’000
Opening balance			55,067	–
Purchases			–	11,730
Transfer from other categories			7,239	44,742
Sales			(11,836)	(533)
Principal repayments			(2,159)	(872)
Closingbalance			48,311	55,067

reporting period. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for long-term debt for disclosure purposes. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period. These instruments are included in level 2 and comprise debt investments and derivative financial instruments. In the circumstances where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in level 3.

(e) Capital risk management

Capital is represented by members’ funds and comprises earnings retained in relation to past activities of Australian Unity Limited. It is the board’s policy to maintain a strong capital base so as to maintain member, stakeholder, creditor and market confidence and to sustain future development of the business.

Capital management plays a central role in managing risk to create member value whilst also ensuring that the interests of all stakeholders including investors, policyholders, lenders and regulators are met.

Capital is utilised to finance growth, non-current asset acquisitions and business plans and also provides support if adverse outcomes arise from health insurance, investment performance or other activities.

The appropriate level of capital is determined by the board based on both regulatory and economic considerations.

Legislation requires a number of the controlled entities to maintain certain levels of capital, the specific details of which are discussed in the relevant individual controlled entities’ financial statements. Throughout the 2011 financial year and currently, these controlled entities have maintained capital in excess of prudential requirements at all times. For entities not subject to specific legislation, capital risk management is determined in conjunction with the above mentioned considerations, the economic, operational and capital needs of the business.

There were no changes in the Group’s approach to capital management during the year.

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

Investments in unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts. These instruments are included in level 1 and level 2 depending on the redemption terms of the manager.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each

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Notes to the consolidated financial statements

For the year ended 30 June 2011

4 Segment information

(a) Description of segments

Management has determined the operating segments based on the reports reviewed by the Group Executive Committee that are used to make strategic decisions including the allocation of resources and to assess the performance of an operating segment.

For management reporting purposes the Group is organised into six reportable operating segments based on their products and services. The Group’s reportable operating segments are as follows:

Corporate Functions	Provision of shared services, fraternal activities and management of properties and other strategic investments and group liquidity.
Allied Health	Provision of dental and other healthcare services.
Health Insurance	Provision of private health insurance and management of the customer service centre.
Investments	Management of investment funds in property, mortgages, Australian equities, international equities, fxed interest securities and bonds.
Personal Financial Services	Provision of fnancial planning and fnance broking services.
Retirement Living	Provisions of aged care facilities, support services and independent living units.

Although the Personal Financial Services and Corporate Functions segments do not meet the quantitative thresholds required by AASB 8 Operating Segments , the board has concluded that these segments should be reported, as they are closely monitored by management.

(b) Segment information

The segment information provided to the Group Executive Committee for the reportable operating segments for the year ended 30 June 2011 is as follows:

Corporate	Allied Health	Health	Investments	Personal	Retirement	Total
Functions		Insurance		Financial	Living
and				Services
Eliminations
30 June 2011 $’000	$’000	$’000	$’000	$’000	$’000	$’000
Total segment revenue (13,423) Inter-segment revenue 7,932	19,373 (4,367)	571,412 (265)	79,984 (1,670)	9,231 –	59,083 (1,630)	725,660 –
Revenue from external customers (5,491)	15,006	571,147	78,314	9,231	57,453	725,660
Adjusted EBITDA (28,510) Depreciation and amortisation (3,042) Interest expense (6,565) Investment income (5,543) Segment management report shared services 11,235 Income tax beneft/(expense) 9,685	1,190 (789) – (165) (512) 132	53,830 (3,490) (2,472) 7,759 (4,199) (15,280)	14,068 (4,744) (5,200) 3,329 (2,984) 4,579	(4,556) (328) (76) 3 (820) 1,694	9,948 (1,842) (1,809) 6,769 (2,720) (2,951)	45,970 (14,235) (16,122) 12,152 – (2,141)
Proft after income tax (22,740)	(144)	36,148	9,048	(4,083)	7,395	25,624
Share of proft/(loss) from associates after tax (included in adjusted EBITDA) – Total segment assets include: Income producing assets 32,853 Working capital assets 5,692 Non-interest bearingassets 19,835	28 1,052 981 1,274	– 254,634 48,473 23,589	2,134 144,118 31,350 125,970	– 1,453 1,308 3,474	(680) 7,338 9,167 252,096	1,482 441,448 96,971 426,238
Total segment assets 58,380	3,307	326,696	301,438	6,235	268,601	964,657
Total segment liabilities include: Borrowings 172,941 Working capital liabilities 19,052 Non-interest bearingliabilities 21,991	(1,100) 1,294 –	25,000 161,967 6,475	136,135 24,628 3,203	400 1,920 6	(36,684) 16,098 19,545	296,692 224,959 51,220
Total segment liabilities 213,984	194	193,442	163,966	2,326	(1,041)	572,871

The segment information provided to the Group Executive Committee for the reportable operating segments for the year ended 30 June 2010 is as follows:

	Corporate Functions and Eliminations	Allied Health	Health Insurance	Investments	Personal Financial Services	Retirement Living	Total
30 June 2010	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Total segment revenue	(6,694)	15,282	512,892	70,410	7,139	53,724	652,753
Inter-segment revenue	4,176	(2,020)	836	(1,508)	(18)	(1,466)	–
Revenue from external customers	(2,518)	13,262	513,728	68,902	7,121	52,258	652,753
Adjusted EBITDA	(30,919)	(1,511)	52,402	10,481	(5,621)	10,155	34,987
Depreciation and amortisation	(5,185)	(424)	(4,139)	(4,127)	(374)	(1,712)	(15,961)
Interest expense	(3,092)	–	(2,180)	(5,274)	–	(737)	(11,283)
Investment income	(6,556)	(157)	13,891	2,404	(3)	1,202	10,781
Segment management report shared services	11,568	(575)	(4,980)	(3,083)	(656)	(2,274)	–
Income tax beneft/(expense)	7,774	851	(15,851)	5,567	2,115	(1,852)	(1,396)
Proft after income tax	(26,410)	(1,816)	39,143	5,968	(4,539)	4,782	17,128
Share of proft from associates
after tax (included in adjusted EBITDA)	–	(10)	–	2,956	–	(144)	2,802
Total segment assets include:
Income producing assets	1,207	271	215,407	154,723	1,125	7,347	380,080
Working capital assets	(6,362)	1,292	49,815	15,466	991	9,126	70,328
Non-interest bearingassets	20,798	1,235	26,753	103,076	379	229,264	381,505
Total segment assets	15,643	2,798	291,975	273,265	2,495	245,737	831,913
Total segment liabilities include:
Borrowings	100,930	400	26,200	137,213	800	(45,397)	220,146
Working capital liabilities	20,221	1,041	150,922	16,176	546	10,095	199,001
Non-interest bearingliabilities	22,817	–	5,548	3,050	7	17,830	49,252
Total segment liabilities	143,968	1,441	182,670	156,439	1,353	(17,472)	468,399

(c) Other segment information

Management reviews monthly reports for the purposes of assessing the performance of an operating segment and to make decisions regarding allocation of resources and plans for the segment.

Management monthly reports exclude information relating to the benefit funds that are managed by the Group, as the revenues, expenses, assets and liabilities of Benefit Funds are not attributable to the members of the Group. In accordance with AASB 1038 Life Insurance Contracts the revenues, expenses, assets and liabilities of benefit funds managed by the Group are included in the consolidated financial statements.

Management monthly reports present investment property on a net basis with resident liabilities and refundable lease deposits of the retirement village residents. In accordance with AASB 101 Presentation of Financial Statements investment property assets, resident liabilities and refundable lease deposit liabilities are disclosed on a gross basis within the consolidated financial statements.

Hence, the primary reconciling differences between operating segment results and the financial statements relates to the treatment of investment property assets, resident liabilities, refundable lease deposit liabilities and benefit funds.

(i) Segment revenue

Revenue transactions between segments are carried out at arm’s length and eliminated on consolidation. The revenue from external parties reported to management is measured in a manner consistent with that in the profit or loss, except for dividends and distributions and other net investment gains/(losses) which are presented below the adjusted EBITDA line. Included in segment revenue from external customers is interest expense on external borrowings.

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Notes to the consolidated financial statements For the year ended 30 June 2011

4 Segment information (continued)

Segment revenue reconciles to total revenue as follows:

	2011	2010
	$’000	$’000
Total segment revenue	725,660	652,753
Fair value amortisation adjustment on non-interest bearing revenue	10	8
Dividends and distributions (note 6)	9,672	9,483
Other net investment gains/(losses) (note 6)	11,485	(3,700)
Adjustment to independent living unit valuations	–	(1,013)
Rental income	271	268
Retirement aged care facility income	–	(144)
Building society investment income in segment revenue	(5,877)	–
Share of joint venture proft/(loss)	(680)	–
Revenue from Lifeplan trust	–	8,687
Internal commission elimination	–	(281)
Other	(3)	(108)
Revenue attributable to members of Australian Unity Limited (note 45)	740,538	665,953
Revenue from beneft funds (note 45)	271,483	268,096
Total revenue	1,012,021	934,049

(ii) Adjusted EBITDA

Management assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes the effects of depreciation and amortisation, interest on external borrowings and investment income. It also excludes other non-recurring expenditure.

(iii) Segment assets

Segment assets provided are split into three categories: income producing assets, working capital assets and non-interest bearing assets. Income producing assets include cash and investments including those held in funds managed by related entities. Working capital assets include trade debtors, inventory, reinsurance receivables, and inter-entity trading. Non-interest bearing assets include property, plant and equipment, investment property, intangible assets, investments in associates, intercompany investments and other non-current assets.

The amounts provided to management with respect to total assets are measured in a manner consistent with that of the financial statements, except for investment property which is presented on a net basis of investment property, resident liabilities and refundable lease deposits. All assets are allocated based on the operations of the segment.

Reportable segments’ assets are reconciled to total assets as follows:

2011	2010
$’000	$’000
Segment assets 964,657	831,913
Gross up Investment property for resident liabilities and refundable lease deposits (note 29) 311,558	283,765
GST payable (984)	(1,538)
Resident accounts recurrent charge 575	–
Grand United Centenary Centre –	962
Receivables reclassifed 450	1,247
Inter entity trading balances reclassifed (80)	(26,901)
Loan establishment costs reclassifed (6,322)	–
Other - reclassifcation between assets and liabilities (16,094)	1,476
Total assets attributable to members of Australian Unity Limited 1,253,760	1,090,924
Beneft fund assets (note 44) 1,879,864	1,868,128
Total assets 3,133,624	2,959,052

A reconciliation of adjusted EBITDA to operating profit before income tax is provided as follows:

(iv) Segment liabilities

2011 2010 $’000 $’000 Adjusted EBITDA 45,970 34,987 Depreciation & Amortisation: Depreciation and amortisation expense (note 7) (14,152) (13,869) Net gain/(loss) on disposal of assets (note 7) (93) (226) Fair value amortisation adjustment on non-interest bearing revenue 10 8 Transfer from general expenses within adjusted EBITDA – (1,284) Transfer to interest expense – (590) (14,235) (15,961) Interest expense: Finance costs (note 7) (16,110) (11,006) Retirement village investment notes interest adjustment – (663) Retirement village trust accommodation bond charge – (194) Trust interest expense – (10) Transfer from depreciation and amortisation – 590 (16,110) (11,283) Investment income: Dividends and distributions (note 6) 9,672 9,483 Other net investment gains/(losses) (note 6) 11,485 (3,700) Impairment of investment (3,606) (2,296) Adjustment to share in associates proft 478 – Building society investment income in adjusted EBITDA (5,877) – Adjustment to independent living unit valuations – (1,103) Investment income - Lifeplan trusts – 8,397 12,152 10,781 Other (12) – Proft before income tax attributable to members of Australian Unity Limited (note 45) 27,765 18,524 Proft before income tax of beneft funds (note 45) 24,663 12,062 Proft before income tax 52,428 30,586	Segment liabilities provided are split into three categories: borrowings, working capital liabilities and non-interest bearing liabilities. Borrowings include those held externally and also inter-entity lending. Working capital liabilities include trade creditors, claims and other payables, current provisions and other liabilities and unearned income. Non-interest bearing liabilities include non-current provisions and resident ingoing fees. The amounts provided to management with respect to total liabilities are measured in a manner consistent with that of the fnancial statements, except for resident liabilities and refundable lease deposits which are not considered to be segment liabilities. Rather they are managed on a net basis with investment property and thus included in segment assets reported to management. These liabilities are allocated based on the operations of the segment. Reportable segments’ liabilities are reconciled to total liabilities as follows: 2011 2010 $’000 $’000
	Segment liabilities 572,871 468,399 Resident liabilities and refundable lease deposits (note 27) 311,558 283,765 Resident accounts recurrent charge 575 – GST payable (984) (1,538) Grand United Centenary Centre – 962 Receivables reclassifed 450 1,247 Ofset against equity for statutory reporting purposes – (1,343) Loan establishment costs reclassifed (6,322) – Inter entity trading balances reclassifed (80) (26,901) Other - reclassifcation between assets and liabilities (16,094) 1,651
	Total liabilities attributable to members of Australian Unity Limited 861,974 726,242
	Beneft fund liabilities (note 44) 33,805 28,878 Beneft fundpolicyliabilities (note 44) 1,846,059 1,839,250
	Total liabilities 2,741,838 2,594,370

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Notes to the consolidated financial statements

For the year ended 30 June 2011

5 Business combination

(a) Australian Unity Property Limited

Summary of acquisitions

On 30 September 2010 Australian Unity Property Limited acquired 100% of the issued shares in Australian Unity Property Funds Management Limited (formerly Westpac Funds Management Limited) for $10,000,000. The principal activities of the acquired entity are managing funds and acting as the responsible entity for trusts. The acquisition is expected to increase the Group’s market share and reduce cost through economies of scale.

Details of the purchase consideration, the net assets acquired and goodwill / management rights are as follows:

	$’000
Purchase consideration
Cashpaid	10,000
Totalpurchase consideration	10,000

The assets and liabilities recognised as a result of the acquisition are as follows:

The assets and liabilities recognised as a result of the acquisition are as follows:
	Fair value
	$’000
Cash and cash equivalents	5,504
Add: Goodwill / management rights	4,496
Net assets acquired	10,000

Revenue and profit contribution

The acquired businesses contributed revenues of $695,574 and net profit of $259,440 to the Group for the period from the acquisition date to 30 June 2011.

(c) Cash flow information

	$’000
Outfow of cash to acquire subsidiary and businesses, net of cash acquired and acquisition costs
Cash consideration	11,426
Cash acquired	(5,504)
Acquisition related costs	345
Outfow of cash - investing activities	6,267

(d) Adjustment subsequent to the acquisition in the previous reporting period

On 31 August 2009, Australian Unity Limited merged with Lifeplan Australia Friendly Society Limited. There was no cash consideration for this business combination as it was a merger of two mutual entities. The purchase consideration represented the fair value of members’ interest of $47,999,000.

The fair value of net identifiable assets acquired totalled to $47,999,000 (at book value of $47,537,000) and no goodwill was recognised from this merger.

On 31 August 2010, details of the purchase price accounting for the merger were finalised, resulting in a $1,073,000 adjustment to net identifiable assets acquired from those figures previously disclosed. This adjustment affected the Group’s liabilities and equity as follows:

Cash and cash equivalents increased by $1,639,000 to $1,056,469,000;

The acquisition accounting will be finalised within 12 months of the purchase.

Acquisition-related costs

Acquisition-related costs of $247,430 are included in expenses in the profit or loss.

Trade and other payables increased by $2,712,000 to $47,820,000; and

• Members’ balances decreased by $1,073,000 to $215,513,000.

6 Revenue

Revenue and profit contribution

The acquired entity has contributed revenues of $1,157,000 and net profit of $386,000 to the Group for the period from 1 October to 30 June 2011. If the acquisition had occurred on 1 July 2010, contributed revenue and net profit for the year ended 30 June 2011 would have been $1,543,000 and $514,000 respectively.

(b) Australian Unity Personal Financial Services Limited

Summary of acquisition

Australian Unity Personal Financial Services Limited acquired the businesses of John Barker Pty Ltd and McIntosh Financial Planning Pty Ltd on 1 September 2010 and 1 October 2010, respectively, for a total amount of $2,637,000. The acquired businesses are both financial planning businesses. The acquisition is expected to increase the Group’s market share.

Details of the purchase consideration, the net assets acquired and goodwill / management rights are as follows:

Details of the purchase consideration, the net assets acquired and goodwill / management rights are as follows:
	$’000
Purchase consideration
Cash paid	1,426
Cashpayments due within twoyears, subject to anyreduction related to the under-achievement of revenue targets (i)	1,042
Totalpurchase consideration	2,468

2011	2010
$’000	$’000
Contributions and premiums (note 42) 570,496	513,187
Commission received 9,879	20,606
Dental sales 14,909	13,266
Dividends and distributions 9,672	9,483
Fair value gains on investment property 9,350	10,890
Management fees income 59,569	55,517
Investment gains/(losses) 11,485	(3,700)
Other revenue 5,267	3,749
Rental income 5,369	4,577
Retirement village fees and subsidies 44,542	38,378
Revenue of beneft funds (note 43) 271,483	268,096
1,012,021	934,049

(i) The amount of the above liability may be affected by any reduction in the total purchase consideration due to the under-achievement of revenue targets within two years.

The assets recognised as a result of the acquisition are as follows:

	$’000
Property,plant and equipment	15
Net identifable assets acquired	15
Add: Goodwill / management rights	2,453
Net assets acquired	2,468

The acquisition accounting will be finalised within 12 months of the purchase.

Acquisition related costs

Acquisition related costs of $97,321 are included in expenses in the profit or loss.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

7 Expenses

Notes to the consolidated fnancial statements For the year ended 30 June 2011 7 Expenses
	2011	2010
	$’000	$’000
Expenses, excluding fnance costs, included in the proft or loss classifed by nature:
Advertising costs	15,639	11,208
Bank charges	2,841	2,491
Claims expense	470,117	433,209
Commission expense	22,352	17,010
Communication costs	4,409	4,309
Computer and equipment costs	7,610	7,964
Depreciation and amortisation expense	14,152	13,869
Employee benefts expense	123,111	116,549
Expenses in relation to beneft funds (note 43)	246,820	256,034
Financial and insurance costs	1,514	1,624
Fund manager and administration fees	9,258	9,302
Impairment of investment in associate (note 16)	3,606	2,296
Legal and professional fees	9,168	15,420
Occupancy costs	8,716	8,559
Other direct expenses	26,565	21,504
Net loss on disposal of assets	93	226
Net risk equalisation trust fund recoveries	(26,047)	(29,590)
Other expenses	5,634	3,892
	945,558	895,876
Proft before income tax includes the following specifc expenses:
Depreciation
Buildings	962	992
Leasehold improvements	2,966	3,383
Plant and equipment	2,318	2,271
Total depreciation	6,246	6,646
Amortisation
Computer software	7,139	6,537
Management rights	767	686
Total amortisation	7,906	7,223
Total depreciation and amortisation expense	14,152	13,869
Finance costs
Interest and fnance charges paid/payable	16,700	11,531
Amount capitalised (note (a))	(590)	(525)
Finance costs expensed	16,110	11,006

(a) Capitalised borrowing costs

The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year, in this case 6.92% (2010: 6.84%).

8 Income tax expense

	2011	2010
	$’000	$’000
(a) Income tax expense
Current tax	(2,350)	(2,750)
Current tax - beneft funds	14,592	6,820
Deferred tax	2,926	4,705
Deferred tax - beneft funds	9,459	5,512
Adjustments for current tax of prior periods	1,566	(560)
Adjustments for current tax ofpriorperiods - beneft funds	611	(269)
Income tax expense	26,804	13,458
Deferred income tax expense/(revenue) included in income tax expense comprises:
Decrease in deferred tax assets (note 20)	10,726	3,887
Increase in deferred tax liabilities (note 29)	1,659	6,330
	12,385	10,217

2011	2010
$’000	$’000
(b) Reconciliation of income tax expense to prima facie tax payable Proft before income tax expense 52,428	30,586
Less: proft in beneft funds (24,662)	(12,063)
27,766	18,523
Tax at the Australian tax rate of 30% (2010: 30%) 8,330	5,557
Non-assessable income (5,023)	(2,907)
Other assessable amounts 1,198	530
Non-deductible expenditure 1,549	1,102
Other deferred tax adjustment (2,223)	60
Other deductible expenditure 1	(99)
Tax in beneft funds 24,662	12,063
Tax credits (1,690)	(1,767)
Overprovision inprioryears –	(1,081)
Income tax expense 26,804	13,458
(c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in the proft or loss or other comprehensive income but directly debited or credited to equity: Current tax - debited/(credited) directly to equity –	–
Net deferred tax - debited/(credited) directlyto equity(notes 20 and 29) –	(1,038)
–	(1,038)
(d) Tax losses Unused tax losses for which no deferred tax asset has been recognised –	48
Potential tax beneft at 15% –	7

All unused tax losses were incurred by Australian entities that are not part of the tax consolidated group.

(e) Tax consolidation legislation

Australian Unity Limited and its wholly-owned Australian controlled entities have formed a tax consolidated group with effect from 1 July 2002. Australian Unity Limited is the head entity of the tax consolidated group. The accounting policy in relation to this legislation is set out in note 1(q).

On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Australian Unity Limited. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Australian Unity Limited for any current tax payable assumed and are compensated by Australian Unity Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Australian Unity Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/(payable) under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables.

9 Current assets - Cash and cash equivalents

	2011	2010
	$’000	$’000
Cash at bank and on hand	740	551
Bank balances	30,578	16,140
Deposits at call	1,066,370	1,039,778
	1,097,688	1,056,469

(a) Deposits at call

Deposits at call include $565,767,000 (2010: $569,934,000) held in the Australian Unity Wholesale Cash Fund.

At 30 June 2010, deposits at call included future margin deposits held with brokers as collateral against open future contracts. The balance amounted to $248,000 of which $22,000 was restricted against margin requirements.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

9 Current assets - Cash and cash equivalents (continued)

(b) Risk exposure

The Group’s exposure to interest rate risk is discussed in note 3.

(c) Fair value

The carrying amount of cash and cash equivalents equals their fair value.

10 Current assets - Trade and other receivables

	2011	2010
	$’000	$’000
Net trade receivables
Trade receivables	43,841	40,357
Provision for impairment of trade receivables	(221)	(356)
	43,620	40,001
Other receivables
Sundry debtors	24,318	25,122
Risk equalisation trust fund receivable	10,448	9,648
Interest receivable	733	198
	35,499	34,968
Prepayments
Prepayments	4,736	3,243
Prepaid reinsurance	18	6
Management fees receivable	9,967	8,125
Deferred acquisition costs	3,891	2,655
	18,612	14,029
Property receivables
Propertydeposits	1,400	2,250
	1,400	2,250
	99,131	91,248

(a) Impaired trade receivables

Trade receivables are non-interest bearing and are generally on 30-90 day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired.

At 30 June 2011, current trade receivables of the Group with a nominal value of $221,000 (2010: $356,000) were impaired. An impairment provision of $221,000 (2010: $356,000) has been recognised.

The ageing of these trade receivables is as follows:

	2011	2010
	$’000	$’000
Up to 3 months	177	311
Over 6 months	44	45
	221	356

Movements in the provision for impairment of trade receivables are as follows:

	2011	2010
	$’000	$’000
Balance at the beginning of the fnancial year	356	379
Provision recognised/(reversed) during the year	(135)	65
Receivables written-of duringtheyear as uncollectible	–	(88)
Balance at the end of the fnancialyear	221	356

The creation of the provision for impaired receivables has been included in financial and insurance costs in the profit or loss. The release of the provision for impaired receivables has been included in other revenue in the profit or loss. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

(b) Past due but not impaired

The ageing of these trade receivables is as follows:

	2011	2010
	$’000	$’000
Up to 3 months	2,293	6,771
3 to 6 months	47	1,401
6 to 12 months	135	268
	2,475	8,440

The other classes within trade and other receivables do not contain impaired assets and are not past due. Based on the credit history of these other classes, it is expected that these amounts will be received when due.

(c) Interest rate risk

Information about the Group’s exposure to interest rate risk in relation to trade and other receivables is provided in note 3.

(d) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. Information about the Group’s exposure to credit risk and the credit quality in relation to trade and other receivables is provided in note 3.

11 Current assets - Inventories

	2011	2010
	$’000	$’000
Inventories at cost - Allied Health	511	465
Other inventories	93	69
	604	534

12 Current assets - Current tax assets

12 Current assets - Current tax assets
	2011	2010
	$’000	$’000
Current tax assets	–	3,010

13 Current assets - Loans and receivables

	2011	2010
	$’000	$’000
Mortgage loans	5,449	3,460
Other receivables	2,310	1,720
Loan to associate	203	243
	7,962	5,423

(a) Mortgage loans

The mortgage loans are secured on real property. The loans mature at various dates up to 30 June 2012 and earn interest at annual interest rates between 5.65% and 10.63% (2010: between 6.65% and 7.59%).

(b) Other receivables

The other receivables are personal loans and secured and unsecured line of credit loans. The loans mature at various dates up to 30 June 2012 and earn interest at annual fixed rates between 7.69% and 14.50% (2010: between 9.75% and 14.25%).

(c) Loan to associate

Loan to associate comprises a receivable from Health Providers Australia Pty Ltd (trading as “Rehability”). This loan is repayable on or before 10 December 2011 and accrues interest on a quarterly basis at the 90 day bank bill rate plus a margin of 1.5% set on the first day of each quarter; at 30 June 2011 the rate for the quarter ending 30 June 2011 amounted to 4.93% (2010: 5.77%).

(d) Impaired receivables

As at 30 June 2011, current other receivables with a nominal value of $30,000 (2010: $23,000) were impaired. An impairment provision of $30,000 (2010: $23,000) has been recognised.

At 30 June 2011, trade receivables of $2,475,000 (2010: $8,440,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

13 Current assets - Loans and receivables (continued)

The maturities of these receivables are as follows:

	2011	2010
	$’000	$’000
Up to 3 months	4	4
3 - 6 months	–	1
6 - 12 months	26	18
	30	23
Movements in the provision for impairment of receivables are as follows:
Balance at the beginning of the fnancial year	23	–
Acquisition of subsidiary	–	53
Provision recognised/(released) during the year	26	10
Receivables written-of duringtheyear as uncollectible	(19)	(40)
Balance at the end of the fnancialyear	30	23

The creation of the provision for impaired receivables has been included in other expenses in the profit or loss. The releases of the provision for impaired receivables has been included in other revenue in the profit or loss. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

(b) Securities held in funds managed by related entities comprise the following:

2011	2010
$’000	$’000
Fixed interest securities 67,748	40,028
Equities 33,724	30,434
Mortgage trusts 25,220	30,723
Property syndicates and trusts 25,906	22,880
Debt securities 37	–
152,635	124,065

The above analysis shows the proportionate share on a ‘look through’ basis of the underlying investments in funds that subsidiaries have invested in via units in the funds.

(c) Current and non-current split

The redemption terms for investments in certain managed trusts have been varied during the year by their responsible entities in response to prevailing market conditions. Consequently those investments which it is not possible to redeem entirely within one year from the end of each reporting period are allocated between current and non-current in accordance with the maximum percentage redeemable within one year as per the most recent advice from the manager at the end of each reporting period.

The carrying amounts of the above financial assets have been designated at fair value on initial recognition and are classified as follows:

(e) Past due but not impaired

At 30 June 2011, loans and receivables of $157,000 (2010: $190,000) were past due but not impaired. These relate to a number of borrowers from whom there is no recent history of default.

The ageing of these receivables is as follows:

	2011	2010
	$’000	$’000
Up to 3 months
Mortgages	104	186
Other receivables	53	4
	157	190

	2011	2010
	$’000	$’000
Current	1,008,983	899,584
Non-current	98,559	112,570
	1,107,542	1,012,154

(d) Risk exposure

Information about the Group’s exposure to credit risk and price risk is provided in note 3.

Further information on the fair value measurement basis is provided in note 3.

15 Non-current assets - Loans and receivables

(f) Risk exposure

Information about the Group’s exposure to credit risk and interest rate risk in relation to loans and receivables is provided in note 3.

14 Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are all held for trading and include the following:

	2011	2010
	$’000	$’000
Securities held by beneft funds	954,907	887,340
Securities held in funds managed by related entities	152,635	124,065
Futures contracts	–	749
	1,107,542	1,012,154

Changes in fair values of financial assets at fair value through profit or loss are recorded in investment gains/(losses) in the profit or loss.

(a) Securities held by benefit funds comprise the following:

(a) Securities held by beneft funds comprise the following:
	2011	2010
	$’000	$’000
Fixed interest securities	295,727	219,160
Equities	453,527	406,416
Mortgage trusts	106,658	166,252
Property syndicates and trusts	68,319	39,346
Debt securities	30,676	56,158
Other securities	–	8
	954,907	887,340

2011	2010
$’000	$’000
Loan to associate –	435
Loans to related entities 35,231	27,765
Mortgage loans 65,360	73,309
Policy loans 84	218
Other receivables 1,852	5,027
102,527	106,754

Further information relating to loans to related parties and key management personnel is set out in notes 35 and 37, respectively.

(a) Loan to associate

The loan to associate comprised a loan receivable from Vianova Asset Management Pty Ltd. This loan was secured by a fixed and floating charge and was repayable on or before 16 February 2012. Vianova Asset Management Pty Ltd is a wholly owned subsidiary of Vianova Unit Trust. The Group owns 50% of the issued units in Vianova Unit Trust (refer to note 16).

Interest on this loan facility was charged at a rate equal to the 90 day bank bill swap rate plus a margin of 0.75% per annum until 1 February 2010 at which time the margin increased to 2.0% per annum. At 30 June 2010 the interest rate was 6.88%. The loan was repaid in full in the 2011 financial year.

(b) Loans to related entities

The loans to related entities were made for the purpose of the development of a retirement village under a joint development arrangement. These loans are secured by a second mortgage on the properties of the related entities and by personal guarantees from the directors of the related entities. Included in these loans are fixed rate loans of $6,586,000 (2010: $2,343,000) which accrue interest on a monthly basis at a fixed rate of 15% (2010: 15%) and fixed rate loans of $28,645,000 (2010: $25,422,000) which accrue interest on a monthly basis at a fixed rate of 12% (2010: 12%).

The recoverability of this receivable is based on the completion of the retirement village development project. Completion of the project is dependent on continued debt funding to the related entities. As at the date of this report a two year funding facility expiring on 30 June 2013 has been provided by the Bank of Western Australia to the related entities.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

15 Non-current assets - Loans and receivables (continued)

(c) Mortgage loans

The mortgage loans are receivable by a controlled entity and by benefit funds managed by a controlled entity and are secured on real property. These loans mature at various dates up to 2 May 2040 and earn interest at annual interest rates between 5.65% and 10.63% (2010: between 5.40% and 9.34%).

(d) Policy loans

The policy loans are receivable by benefit funds managed by a controlled entity and are secured on real property. These loans mature at various dates up to 1 April 2039 and earn interest at annual interest rates between 4.63% and 7.25% (2010: between 4.63% and 7.25%).

(e) Other receivables

The other receivables are personal loans and secured and unsecured line of credit loans receivable by a controlled entity. These loans mature at various dates up to 24 May 2020 and earn interest at annual interest rates between 7.80% and 14.50% (2010: between 6.65% and 14.25%).

(f) Impaired receivables

At 30 June 2011, non-current other receivables with a nominal value of $14,000 (2010: $22,000) were impaired. An impairment provision of $14,000 (2010: $22,000) has been recognised.

The maturities of these impaired receivables are as follows:

	2011	2010
	$’000	$’000
1 to 2 years	1	2
2 to 5 years	3	5
Over 5years	10	15
	14	22

Movements in the provision for impairment of other receivables are as follows:

	2011	2010
	$’000	$’000
Balance at the beginning of the fnancial year	22	–
Acquisition of subsidiary	–	30
Provision reversed duringtheyear	(8)	(8)
Balance at the end of the fnancialyear	14	22

The creation of the provision for impaired receivables has been included in other expenses in the profit or loss. The releases of the provision for impaired receivables has been included in other revenue in the profit or loss. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

(g) Past due but not impaired

At 30 June 2011, loans and receivables of $3,412,000 (2010: $1,743,000) were past due but not impaired. These relate to a number of borrowers for whom there is no recent history of default.

The ageing of these loans and receivables is as follows:

	2011	2010
	$’000	$’000
Up to 3 months
Mortgages	3,341	1,591
Other receivables	71	152
	3,412	1,743

(h) Fair values

The fair values and carrying values of current and non-current loans and receivables are as follows:

	2011	2011	2010	2010
	Carrying amount	Fair value	Carrying amount	Fair value
	$’000	$’000	$’000	$’000
Loan to associate	203	203	678	678
Loans to related entities	35,231	35,231	27,765	27,765
Mortgage loans	70,809	70,809	76,769	76,769
Policy loans	84	84	218	218
Other receivables	4,162	4,162	6,747	6,747
	110,489	110,489	112,177	112,177

(i) Risk exposure

Information about the Group’s exposure to credit risk and interest rate risk is provided in note 3.

16 Non-current assets - Investments in associates

(a) Carrying amounts

		Ownership interest	Ownership interest	Value of investment
		2011	2010	2011	2010
Name of company	Principal activity	%	%	$’000	$’000
Listed
Calliden Group Limited (i)	General insurance underwriting	13	13	8,967	12,961
Unlisted
Acorn Capital Limited	Investment management	50	50	1,930	1,759
Altius Asset Management Pty Ltd	Investment management	50	–	922	–
Health Providers Australia Pty Ltd	Rehabilitative health services	50	50	389	361
Lifestyle Manor Anglesea Pty Ltd (ii)	Property development	51	51	500	500
Next Rural Financial Management Pty Ltd	Financial planning and fnance broking	50	–	240	–
Platypus Asset Management Pty Limited	Investment management	50	50	1,707	1,073
Seres Asset Management Limited	Investment management	50	50	2,785	1,971
Vianova Unit Trust	Investment management	50	50	1,310	1,045
Wingate Asset Management PtyLimited	Investment management	45	45	273	374
				19,023	20,044

Each of the above associates is incorporated in Australia, except for Seres Asset Management Limited which is incorporated in Hong Kong.

• (i) The Group appoints one member to the Calliden board of directors and Group entities distribute Calliden insurance products and provide Calliden with some office accommodation on commercial terms. Consequently, the Group recognises the investment in Calliden as an investment in an associate.

• (ii) The Group has beneficial ownership of 51% of the issued share capital of Lifestyle Manor Anglesea Pty Ltd (LMA), but nominates only 50% of available board positions. Consequently, the Group is unable to exercise control over LMA but has significant influence over the operating and financial policy decisions of LMA.

(b) Movements in carrying amounts

	2011	2010
	$’000	$’000
Balance at the beginning of the fnancial year	20,044	34,227
Investments acquired during the year	4,437	3,382
Provision for impairment of investment	(3,606)	(2,296)
Share of net profts after income tax	2,075	3,419
Dividends received	(3,927)	(4,108)
Disposals	–	(14,580)
Balance at the end of the fnancialyear	19,023	20,044
(c) Fair value of listed investments in associates
Calliden GroupLimited	6,029	6,631

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Notes to the consolidated financial statements

For the year ended 30 June 2011

16 Non-current assets - Investments in associates (continued)

(d) Summarised financial information of associates

The Group’s share of the results of its principal associates and their aggregated assets (including goodwill) and liabilities are as follows:

		Group’s	share of:
	Assets	Liabilities	Revenue	Proft after tax
	$’000	$’000	$’000	$’000
2011
Total	84,652	62,826	62,664	2,075
2010
Total	77,628	57,953	61,369	3,419

17 Non-current assets - Other financial assets

	2011	2010
	$’000	$’000
Unlisted investments	863	810
Term deposits	827	827
	1,690	1,637

The term deposits represent deposits placed with the bank for long-term guarantees. These deposits earn interest at annual rates between 4.42% and 6.10% (2010: between 4.27% and 5.95%).

Unlisted investments comprise investments in unlisted shares.

18 Non-current assets - Property, plant and equipment

	Land	Buildings	Plant and equipment	Leasehold improvements	Total
	$’000	$’000	$’000	$’000	$’000
At 1 July 2009
Cost	–	–	18,992	18,528	37,520
Valuation	17,644	40,946	–	–	58,590
Accumulated depreciation	–	(5,990)	(8,031)	(8,094)	(22,115)
Net book amount	17,644	34,956	10,961	10,434	73,995
Year ended 30 June 2010
Opening net book amount	17,644	34,956	10,961	10,434	73,995
Acquisition of subsidiary	4,900	9,315	1,057	18	15,290
Additions	–	825	1,779	353	2,957
Disposals	–	(52)	(492)	(235)	(779)
Transfer to investment properties	(4,900)	(9,035)	(6)	(21)	(13,962)
Other transfers	1,050	(1,047)	–	(3)	–
Depreciation charge	-	(992)	(2,271)	(3,383)	(6,646)
Closingnet book amount	18,694	33,970	11,028	7,163	70,855
At 30 June 2010
Cost	–	–	24,915	18,583	43,498
Valuation	18,694	40,952	–	–	59,646
Accumulated depreciation	–	(6,982)	(13,887)	(11,420)	(32,289)
Net book amount	18,694	33,970	11,028	7,163	70,855
Year ended 30 June 2011 Opening net book amount Acquisition of businesses Additions Disposals Transfers from/to investment properties Transfers Depreciation charge	18,694 – – – – 295 –	33,970 – 992 – 2 (295) (962)	11,028 14 876 (329) (403) – (2,318)	7,163 1 825 – – – (2,966)	70,855 15 2,693 (329) (401) – (6,246)
Closingnet book amount	18,989	33,707	8,868	5,023	66,587

	Land	Buildings	Plant and equipment	Leasehold improvements	Total
	$’000	$’000	$’000	$’000	$’000
At 30 June 2011
Cost	–	–	24,224	19,409	43,633
Valuation	18,989	41,651	–	–	60,640
Accumulated depreciation	–	(7,944)	(15,356)	(14,386)	(37,686)
Net book amount	18,989	33,707	8,868	5,023	66,587

(a) Valuations of land and buildings

The Group generally obtains independent valuation for its land and buildings at least every three years.

In the 2009 and 2010 financial years, the Group engaged CB Richard Ellis (V) Pty Ltd, an accredited independent valuer to determine the fair value of its land and buildings. Fair value is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. Fair value is determined by direct reference to recent market transactions on arm’s length terms for land and buildings comparable in size and location to those held by the Group, and to market based yields for comparable properties. The independent valuations support the Group’s carrying value.

(b) Carrying amounts that would have been recognised if land and buildings were stated at cost

If freehold land and buildings were stated on the historical cost basis, the amounts would be as follows:

2011	2010
$’000	$’000
Land Cost 16,437	16,437
Net book amount 16,437	16,437
Buildings Cost 40,452	39,695
Accumulated depreciation (7,993)	(6,981)
Net book amount 32,459	32,714

19 Non-current assets - Investment properties

2011	2010
$’000	$’000
At fair value Balance at the beginning of the fnancial year 458,805	414,436
Acquisitions 34,765	19,517
Net fair value movements 8,882	10,890
Transfers from owner occupiedproperty 401	13,962
Balance at the end of the fnancialyear 502,853	458,805

(a) Amounts recognised in the profit or loss for investment properties

	2011	2010
	$’000	$’000
Revenue	34,210	21,685
Expenses	(21,204)	(16,679)
Changes in fair value recognised inproft or loss	9,350	10,890
	22,356	15,896

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Notes to the consolidated financial statements

For the year ended 30 June 2011

19 Non-current assets - Investment properties (continued)

(b) Valuation basis

Investment properties comprise the Group’s interests in retirement village independent living units, the aged care facility at Victoria Grange in Victoria, development sites and other non-owner occupied property. A related party, not part of the wholly owned Group, has an interest in the Victoria Grange aged care facility. The Group’s other aged care facilities are managed by operators within the Group and so are included in property, plant and equipment as owner-occupied property, refer to note 18.

In the period between purchase and first valuation properties are carried at cost in the balance sheet. Subsequently investment properties are stated at fair value. At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent valuations. The directors determine a property’s value within a range of reasonable fair value estimates.

Fair value for completed retirement villages is determined using a financial model which calculates the net present value of future discounted cash flows. The financial model incorporates information from a variety of sources including:

• (i) Current prices in an active market for properties of a similar nature; and

• (ii) Resident turnover based on business experience including the expected average length of residence based on mortality assumptions and voluntary turnover, average incoming ages and distribution.

Fair value of the Victoria Grange aged care facility and other non-owner occupied property is based on periodic, but at least triennial, valuations by external accredited independent valuers.

Development sites are initially recorded at cost as proxy for fair value. Subsequently the carrying value is measured against the present value of future cash flows, being the final estimated development value less the remaining cost of development, using a value in use calculation in order to determine fair value. This comparison is reassessed at specific milestones during the development process. In the event that carrying value is greater than the present value of future cash flows, an impairment charge is made.

(c) Summarised information of investment properties

	2011	2010
	$’000	$’000
Investments in properties is held as follows:
Retirement village independent living units	355,375	332,752
Residential aged care facilities	26,176	22,173
Development sites	105,302	87,880
Non-owner occupiedproperty	16,000	16,000
	502,853	458,805

20 Non-current assets - Deferred tax assets

	2011	2010
	$’000	$’000
The balance comprises temporary diferences attributable to:
Accrued expenses	4,447	4,602
Capitalised assets	4,957	5,001
Capitalised professional fees	1,488	980
Depreciable professional fees	1,332	1,113
Other assessable items	2,703	2,176
Policy bonus credits	3,614	5,445
Provisions	5,105	5,897
Risk equalisation	1,616	1,273
Tax losses	8,838	10,181
Unallocated income	5,286	4,498
Unrealised losses	22,383	31,394
Total deferred tax assets	61,769	72,560

	2011	2010
	$’000	$’000
Movements:
Balance at the beginning of the fnancial year	72,560	34,349
Acquisition of subsidiaries	–	41,268
Charged to the proft or loss (note 8)	(10,726)	(3,887)
Credited to equity (note 8)	–	1,038
Other transfers	(65)	(208)
Balance at the end of the fnancialyear	61,769	72,560
Deferred tax assets to be recovered within 12 months	1,835	5,202
Deferred tax assets to be recovered after more than 12 months	59,934	67,358
	61,769	72,560

21 Non-current assets - Intangible assets

21 Non-current assets - Intangible assets
	Goodwill / management rights	Computer software	Aged care bed licences	Total
	$’000	$’000	$’000	$’000
At 1 July 2009
Cost	11,228	51,262	10,832	73,322
Accumulated amortisation	(161)	(20,880)	–	(21,041)
Net book amount	11,067	30,382	10,832	52,281
Year ended 30 June 2010
Opening net book amount	11,067	30,382	10,832	52,281
Acquisition of subsidiaries	6,261	1,501	–	7,762
Additions	–	6,683	–	6,683
Refund	–	–	(92)	(92)
Transfers	–	(74)	–	(74)
Amortisation charge	(686)	(6,537)	–	(7,223)
Closingnet book amount	16,642	31,955	10,740	59,337
At 30 June 2010
Cost	18,187	62,693	10,740	91,620
Accumulated amortisation	(1,545)	(30,738)	–	(32,283)
Net book amount	16,642	31,955	10,740	59,337
Year ended 30 June 2011
Opening net book amount	16,642	31,955	10,740	59,337
Acquisition of subsidiaries	4,496	–	–	4,496
Acquisition of businesses	2,453	–	–	2,453
Additions	190	7,044	–	7,234
Amortisation charge	(749)	(7,139)	–	(7,888)
Closingnet book amount	23,032	31,860	10,740	65,632
At 30 June 2011
Cost	25,326	69,737	10,740	105,803
Accumulated amortisation	(2,294)	(37,877)	–	(40,171)
Net book amount	23,032	31,860	10,740	65,632

Residential Care Places (high care and low care) under the Aged Care Act 1997 (bed licences) purchased from other approved providers are valued at cost. Residential Care Places (high care and low care) under the Aged Care Act 1997 (bed licences) granted to the Group ab initio by the Department of Health and Ageing are not ascribed a value. At 30 June 2011, the Group held 231 purchased licences and 446 granted licences (2010: 231 purchased licences and 446 granted licences).

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Notes to the consolidated financial statements

For the year ended 30 June 2011

21 Non-current assets - Intangible assets (continued)

(a) Impairment tests for goodwill

The carrying amount of goodwill is allocated to the Group’s cash generating units (CGUs) identified according to entities within each business segment.

A segment-level summary of the goodwill allocation is presented below:

	2011	2010
	$’000	$’000
Healthcare	1,355	1,355
Retirement living	5,229	5,229
Investments	13,829	10,058
Personal fnancial services	2,821	–
	23,234	16,642

The recoverable amount of a CGU is determined based on a value-in-use calculation using cash flow projections based upon financial budgets approved by the directors, covering a four year period. Cash flows beyond the four year period commencing 1 July following balance date are extrapolated using estimated growth rates appropriate for the CGU.

(b) Key assumptions used for value-in-use calculations

The average discount rate of 7.85% (2010: 8.10%) applied to cash flow projections was equal to a five year government bond rate plus a risk margin appropriate to the operations of the CGU. A 3% growth rate was applied to cash flows beyond the four-year period for which financial budgets were available.

(c) Impact of possible changes in key assumptions

It is recognised that actual time value of money may vary to what has been estimated. It is believed that no reasonably possible change in the discount rate would cause the recoverable amount of goodwill to fall below its carrying amount.

22 Non-current assets - Other non-current assets

	2011	2010
	$’000	$’000
Borrowingarrangement costs	616	1,892

Borrowing arrangement costs represent the costs incurred in raising financing for the Group. These costs will be amortised over the term of the relevant borrowings. The carrying value of these borrowing arrangement costs approximate their fair value.

23 Current liabilities - Trade and other payables

	2011	2010
	$’000	$’000
Trade payables	19,388	11,292
Risk equalisation trust fund payable	4,047	3,042
Accrued expenses	47,950	33,455
GSTpayable	530	31
	71,915	47,820

(a) Trade payables

Trade payables are generally non-interest bearing and are on 30-90 day settlement terms.

24 Current liabilities - Interest bearing liabilities

24 Current liabilities - Interest bearing liabilities
2011	2010
$’000	$’000
Unsecured Call deposits 12,478	11,705
Development fnance loan 633	1,019
Retirement village investment notes 29,275	5,094
Term deposits 57,345	61,782
Total unsecured current borrowings 99,731	79,600

(a) Call deposits

The call deposits are repayable on demand and accrue interest on a daily basis. At 30 June 2011, this rate amounted to between 0% to 6% (2010: between 0% and 5.75%).

(b) Development finance loan

In December 2010, the Group sourced financing from Bendigo and Adelaide Bank Limited to fund the development of a retirement village site in Port Macquarie, New South Wales (Sienna Grange). The loan facility is up to $743,000 which will expire on 14 June 2012. At 30 June 2011, the balance of this loan amounted to $632,500 bearing interest at 7.56% per annum.

The balance at 30 June 2010 represented a loan facility from Suncorp-Metway Ltd at a maximum amount of $8,979,000 to finance the development of the Sienna Grange retirement village site. The annual interest rate on this loan was 8.03%. The loan was fully repaid in the 2011 financial year.

(c) Retirement village investment notes

The 30 June 2011 balance represents the second issue of the Series 1 Retirement Village Investment Notes (RVINs) which mature on 30 November 2011, the first issue of the Series 2 RVINs which mature on 31 December 2011 and the second issue of the Series 2 RVINs which mature on 31 March 2012, all of which incur interest at an annual fixed rate of 8.50%, plus the first issue of the Series 3 RVINs which mature on 31 March 2012 and the second issue of the Series 3 RVINs which mature on 30 June 2012, both of which incur interest at an annual fixed rate of 8.00%. Additional prospectuses will be issued prior to maturity to facilitate the raising of replacement funds to the extent that existing investors elect not to roll over their investments.

The 30 June 2010 balance represents the first issued Series 1 RVINs which matured on 30 November 2010 and incurred interest at an annual fixed rate of 8.75%. For further information refer to note 28.

(d) Term deposits

The term deposits are repayable on maturity and accrue interest on a monthly basis with annual fixed interest rates at 30 June 2011 ranging between 1.75% and 8.20% (2010: between 1% and 8.40%).

(e) Risk exposures

Details of the Group’s exposure to risk arising from current interest bearing liabilities are set out in note 3.

(f) Fair value disclosures

Details of the fair value of borrowings for the Group are set out in note 28.

25 Current liabilities - Current tax liabilities

25 Current liabilities - Current tax liabilities
	2011	2010
	$’000	$’000
Current tax liabilities	6,793	–

26 Current liabilities - Provisions

(b) Fair value disclosures

Due to the short term nature of these trade and other payables, their carrying value is assumed to approximate their fair value.

(c) Risk exposure

Details of the Group’s exposure to risk arising from current trade and other payables are set out in note 3.

26 Current liabilities - Provisions
	2011	2010
	$’000	$’000
Employee benefts	7,773	8,115
Outstanding claims	44,808	43,908
Otherprovisions	3,070	6,783
	55,651	58,806

(a) Outstanding claims provision

Provision is made for claims outstanding at the end of the financial year, being claims for services incurred but not yet reported, the economic cost of which will arise in a later period. Claims reported but not yet paid are included as provisions. Claims provisions are determined on an actuarial basis and amounts paid or payable are recognised as part of expenses in the profit or loss.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

26 Current liabilities - Provisions (continued)

(b) Other provisions

Other provisions relate to capital maintenance, provision for legal fees and general provisions.

(c) Movements in provisions

Movements in the outstanding claims provision during the financial year is provided in note 42(c).

Movements in provisions during the financial year, other than the employee benefits and outstanding claims provisions, are set out below:

	2011	2010
	$’000	$’000
Balance at the beginning of the fnancial year	6,783	3,950
Charged to proft or loss	1,441	5,149
Payments duringtheyear	(5,154)	(2,316)
Balance at the end of the fnancialyear	3,070	6,783

27 Current liabilities - Other current liabilities

27 Current liabilities - Other current liabilities
	2011	2010
	$’000	$’000
Unearned income	99,531	87,770
Refundable lease deposits	64,466	64,103
Resident loans	247,174	219,662
Other	2,816	5,195
	413,987	376,730

(a) Unearned income

Unearned income represents health insurance premium revenue not yet recognised in the profit or loss.

(b) Refundable lease deposits

Refundable lease deposits are non-interest bearing and are repayable within 14 days of the resident’s departure from the facility.

(c) Resident loans

Resident loans relate to residents who occupy the investment properties referred to in note 19. These liabilities represent the initial ingoing contribution less accrued deferred management fees. Resident loans are repayable at the earlier of a subsequent resident leasing the unit or a maximum repayment date. The maximum repayment date can vary between agreements however the typical repayment term is two years from vacation of the unit.

(d) Fair value

Due to the short term nature of these other current liabilities, their carrying value is assumed to approximate their fair value.

(e) Risk exposures

Details of the Group’s exposure to risk arising from other current liabilities is set out in note 3.

28 Non-current liabilities - Interest bearing liabilities

28 Non-current liabilities - Interest bearing liabilities
	2011	2010
	$’000	$’000
Secured
Lease liabilities	22	–
Total secured non-current borrowings	22	–
Unsecured
Australian Unity Notes	120,000	–
Australian Unity Notes establishment costs	(6,332)	–
Cash advance facility	–	45,000
Development fnance loan	9,222	585
Preferential units	–	10,000
Retirement village investment notes	32,505	55,036
Subordinated capital notes	25,000	25,000
Term deposits	10,212	4,926
Total unsecured non-current borrowings	190,607	140,547
Total non-current borrowings	190,629	140,547

(a) Australian Unity Notes

Australian Unity Limited issued 1.2 million unsecured redeemable notes at a face value of $100 each (Australian Unity Notes) on 14 April 2011 pursuant to the prospectus dated 11 March 2011, raising $120 million (excluding issue costs). The Australian Unity Notes are listed on the Australian Securities Exchange and will mature on 14 April 2016. The notes bear interest at the three-month bank bill rate (BBSW) plus a margin of 3.55% per annum. The interest is payable quarterly in arrears on 14 January, 14 April, 14 July and 14 October each year. The notes are redeemable by the issuer at the face value and any interest payable plus an early redemption payment pursuant to the prospectus.

Under the terms of the notes, Australian Unity Limited is required to maintain a Gearing Ratio of less than 45% as at 30 June and 31 December each year. The Gearing Ratio represents the aggregate of interest-bearing liabilities and guarantees divided by the aggregate of interest-bearing liabilities and guarantees plus total equity. The Gearing Ratio is calculated based on the financial position of the Group, excluding Lifeplan Australia Building Society Limited. As at 30 June 2011, the Gearing Ratio was 36.6%.

(b) Cash advance facility

At 30 June 2010, the Group’s borrowings comprised a revolving cash advance facility, from Westpac Banking Corporation of $50,000,000 for a term of three years ending 15 June 2013, of which $45,000,000 had been drawn down with a floating interest rate between 7.90% and 7.98% per annum. The facility was fully repaid and the bank loan contract was terminated in April 2011.

(c) Development finance loan

In the 2010 financial year, the Group sourced financing from Bendigo and Adelaide Bank Limited to fund the development of a retirement village site in Mornington, Victoria (Peninsula Grange Retirement Village). The loan facility is up to $19 million which will expire on 6 June 2013. At 30 June 2011, the balance of this loan amounted to $6,177,000 (2010: $585,000) bearing interest at 7.04% per annum (2010: 6.88%).

In December 2010, the Group sourced financing from National Australia Bank Limited to fund the development of a residential development site in Cranbourne, Victoria. The loan facility is up to $8,500,000 which will expire on 30 November 2012. At 30 June 2011, the balance of this loan amounted to $1,615,000 bearing interest at 7.20% per annum.

In December 2010, the Group sourced financing from Bendigo and Adelaide Bank Limited to fund the development of a retirement village site in Vermont South, Victoria (Victoria Grange Retirement Village). The loan facility is up to $7.8 million which will expire on 5 December 2013. At 30 June 2011, the balance of this loan amounted to $1,430,000 bearing interest at 7.16% per annum.

(d) Preferential units

At 30 June 2010, the Group’s borrowings comprised $10 million preferential units issued by controlled entities, Australian Unity Aged Care Trust #1, Australian Unity Aged Care Trust #2 and Australian Unity Aged Care Trust #3 in order to fund their operations. The preferential units were held by Grand United Centenary Centre Limited, a related entity. Interest on the preferential units was payable quarterly at an annual interest rate equal to the BBSY plus a margin of 1.5% set on the first day of each quarter. The rate for the quarter ending 30 June 2010 amounted to 5.92% per annum. The preferential units were fully repaid in May 2011.

(e) Retirement Village Investment Notes

The Retirement Village Investment Notes (RVINs) are debt obligations issued by the Group and are secured in the form of a registered security over specific assets. These assets are loans made by the Group to a related entity, Australian Unity Retirement Living Investments Limited, which have been utilised for the purpose of acquiring units in the Australian Unity Retirement Village Trust #1 (AURVT#1), the Australian Unity Retirement Village Trust #2 (AURVT#2) and for lending to Australian Unity Retirement Living Services Limited (AURLSL), a related entity, to expand its retirement living business.

AURVT#1 comprises three retirement villages – Willandra Village and Willandra Bungalows in New South Wales and Walmsley Friendship Village in Victoria, whilst AURVT#2 comprises three other villages – Constitution Hill, Karagi Court and Kiah Lodge, all located in New South Wales. All of these villages are managed by a related entity Australian Unity Retirement Living Management Pty Ltd. The Group does not hold any security over these retirement village assets nor any other assets of AURVT#1, AURVT#2 or AURLSL.

The Series 1 RVINs are payable to investors on four separate fixed maturity dates, being 30 November 2011, 2012, 2013 and 2015. Interest is payable at annual fixed rates of 8.50% for the RVINs repayable in 2011, 9.00% for the RVINs repayable in 2012, 8.25% for the RVINs repayable in 2013 and 8.75% for the RVINs repayable in 2015.

The Series 2 RVINs are payable to investors on two separate fixed maturity dates, being 31 December 2011 and 31 March 2012. Interest is payable at an annual fixed rate of 8.50%.

The Series 3 RVINs were issued under four separate prospectuses. The first issue of Series 3 RVINs are repayable to investors on three separate maturity dates being 31 March 2012, 2014 and 2016. Interest is payable at annual fixed rates of 8.00% for the RVINs repayable in 2012, 8.25% for the RVINs repayable in 2014 and 8.50% for the RVINs repayable in 2016.

The second issue of Series 3 RVINs are repayable to investors on three separate maturity dates being 30 June 2012, 2014 and 2016. Interest is payable at the same annual fixed rates as for the first issue of Series 3.

The third issue of the Series 3 RVINs are repayable to investors on these separate maturity dates being 31 December 2012, 2014, 2016. Interest is payable at the same annual fixed rates as for the first issue of Series 3.

The fourth issue of Series 3 RVINs are repayable to investors on two separate maturity dates being 30 June 2014 and 2016. Interest is payable at annual fixed rates of 8.50% for the RVINs repayable in 2014 and 8.75% for the RVINs repayable in 2016.

(f) Subordinated capital notes

On 11 July 2008, the Group issued $25,000,000 of subordinated capital notes. The subordinated capital notes have a maturity of 10 years with a non-call five year period and incur a floating interest rate equal to the 90-day BBSW rate plus a margin of 4.90% per annum. After the non-call period, this rate increases to the 90-day BBSW rate plus a margin of 6.90% per annum. The interest rate is set quarterly on 11 July, 11 October, 11 January and 11 April. As at 30 June 2011, the interest rate applicable to the quarter commencing 11 April 2011 was 9.80% (2010: 9.82%). The floating interest rate on these subordinated capital notes was hedged using interest rate swaps commencing in July 2010.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

28 Non-current liabilities - Interest bearing liabilities (continued)

(g) Term deposits

Term deposits are repayable on maturity and accrue interest on a monthly basis with annual fixed interest rates at 30 June 2011 ranging between 3.00% and 8.20% (2010: between 3% and 8.20%).

(h) Fair value

The carrying amounts and fair values of interest bearing borrowings (current and non-current) at the end of the reporting period are:

	2011	2011	2010	2010
	Carrying amount	Fair value	Carrying amount	Fair value
	$’000	$’000	$’000	$’000
Australian Unity Notes	120,000	120,000	–	–
Australian Unity Notes establishment costs	(6,332)	(6,332)	–	–
Cash advance facility	–	–	45,000	45,000
Call deposits	12,478	12,478	11,705	11,705
Development fnance loans	9,855	9,855	1,604	1,604
Lease liabilities	22	22	–	–
Preferential units	–	–	10,000	10,000
Retirement village investment notes	61,780	61,780	60,130	60,130
Subordinated capital notes	25,000	25,000	25,000	25,000
Term deposits	67,557	67,557	66,708	66,708
	290,360	290,360	220,147	220,147

As at 30 June 2011, Australian Unity Notes were quoted at $103.80 each on the ASX. At this price, if Australian Unity Limited were to repurchase the Notes on market it would cost $124,560,000 (but accrued interest to 30 June 2011 of $1.81 per Note totalling $2,172,000 would not be subsequently paid), however, the Company is under no obligation to repurchase on market and has no present intention to do other than redeem the Notes at face value of $100 each on maturity.

(i) Risk exposures

Information about the Group’s exposure to risk arising from borrowings is set out in note 3.

29 Non-current liabilities - Deferred tax liabilities

29 Non-current liabilities - Deferred tax liabilities
	2011	2010
	$’000	$’000
The balance comprises temporary diferences attributable to:
Cost adjustment on consolidation	1,013	1,013
Deferred acquisition costs	1,211	1,087
Fixed assets and investment properties	32,875	35,809
Investments in associates	–	514
Other deductible items	380	365
Risk equalisation trust fund	5,461	4,720
Tax deferred	2,250	1,592
Unrealisedgains	7,202	3,697
Total deferred tax liabilities	50,392	48,797
Movements:
Balance at the beginning of the fnancial year	48,797	40,680
Acquisition of subsidiaries	–	1,755
Amount charged to the proft or loss (note 8)	1,659	6,330
Other transfers	(64)	32
Balance at the end of the fnancialyear	50,392	48,797
Deferred tax liabilities to be settled within 12 months	68	304
Deferred tax liabilities to be settled after more than 12 months	50,324	48,493
	50,392	48,797

30 Non-current liabilities - Provisions

30 Non-current liabilities - Provisions
	2011	2010
	$’000	$’000
Employee benefts	4,974	4,840
Outstandingclaims	757	723
	5,731	5,563

31 Non-current liabilities - Other non-current liabilities

	2011	2010
	$’000	$’000
Interest rate swaps (a)	35	–
Other liabilities	915	–
	950	–

(a) Interest rate swaps

A subsidiary company entered into an interest rate swap transaction to hedge exposures to fluctuations in interest rates in relation to the subordinated capital notes (refer to note 28). The hedging instrument was effective during the 2011 financial year and up to its maturity on 11 July 2013.

32 Reserves and retained earnings

32 Reserves and retained earnings
2011	2010
$’000	$’000
(a) Reserves Asset revaluation reserve 2,462	2,462
General reserve for credit loss 13	4
2,475	2,466
Movements: Asset revaluation reserve Balance at the beginningof the fnancialyear 2,462	2,462
Balance at the end of the fnancialyear 2,462	2,462
General reserve for credit loss Balance at the beginning of the fnancial year 4	-
Transfer from net proft 13	5
Tax expense (4)	(1)
Balance at the end of the fnancialyear 13	4

(b) Nature and purpose of reserves

(i) Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements on the revaluation of land and buildings used by the Group as owner-occupied property as described in note 1(z).

(ii) General reserve for credit loss

The general reserve for credit loss, is required under Prudential standards, to cover risks inherent in the loan portfolios, as described in note 3(b).

(c) Retained earnings

Movements in retained earnings were as follows:

	2011	2010
	$’000	$’000
Balance at the beginning of the fnancial year	145,630	131,099
Adjustments due to change of accounting standard	–	(2,422)
Other adjustment	(1,169)	(175)
Proft for theyear	25,624	17,128
Balance at the end of the fnancialyear	170,085	145,630

33 Non-controlling interest

33 Non-controlling interest
	2011	2010
	$’000	$’000
Interest in:
Non-controllinginterest	3,713	–

In June 2011, the Group sold a 30% shareholding in a subsidiary to a related party which is not part of the consolidated entity.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

34 Reconciliation of profit after income tax to net cash inflow from operating activities

Notes to the consolidated fnancial statements For the year ended 30 June 2011 34 Reconciliation of proft after income tax to net cash infow from operating activities
	2011	2010
	$’000	$’000
Proft after income tax for the year	25,624	17,128
Depreciation and amortisation	14,152	13,869
Impairment provision	4,171	1,823
Financing charges	111	233
Investment gains	(2,680)	(2,576)
Fair value gains on investment property	(9,350)	(10,890)
Net loss on sale of non-current assets	93	227
Share of profts of associates	(2,640)	(2,946)
Dividends received from associates	3,927	3,806
Business acquisition related expenses	345	–
General reserve on credit loss	9	–
Changes in operating assets and liabilities:
Increase in trade and other receivables	(7,883)	(16,618)
Decrease/(increase) in inventories	(70)	1
Decrease in deferred tax asset	10,791	3,887
Decrease/(increase) in other operating assets	11,501	(282)
Increase in trade and other payables	24,094	4,817
Increase/(decrease) in current tax liabilities	9,803	(4,207)
Increase in deferred tax liabilities	1,595	6,330
Increase/(decrease) in provisions	(2,986)	8,439
Increase in other operatingliabilities	15,989	9,529
Net cash infow from operatingactivities	96,596	32,570

35 Related party transactions

(a) Parent entity

Australian Unity Limited is the parent entity and the ultimate parent entity of the Australian Unity Group.

(b) Subsidiaries

Interests in subsidiaries are set out in note 36.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 37.

(d) Transactions and balances with related parties

Transactions and balances between the Group and other related parties were as follows:

Dividends received from associates, $3,926,429 (2010: $4,108,000).

In June 2011, the Group sold a 30% shareholding in a subsidiary to a related party for $7,530,000 of which $6,024,000 was settled prior to 30 June 2011 with the balance due in two tranches of $753,000 each payable by 30 June 2012 and 30 June 2013 respectively.

In May 2011, preferential units totalling $10,000,000 were redeemed from a related entity.

Investment management fees charged by associates, $6,839,782 (2010: $5,430,120).

Commission, director fees and occupancy costs charged to an associate, $636,501 (2010: $506,865).

During the year $2,550,000 was paid to an associate in settlement of a sale contract.

At 30 June 2011, loans of $203,171 (2010: $678,524) were receivable from associates.

At 30 June 2011, loans of $35,231,346 (2010: $27,764,697) were receivable from related entities.

36 Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1:

	Country of incorporation	Holding	Equity holding
			2011	2010
Name of entity			%	%
Wholly owned by the Parent entity
Australian Unity Capital Management Limited	Australia	Shares	100	100
Australian Unity Dispensaries Friendly Society Limited	Australia	Shares	100	100
Australian Unity Personal Financial Services Limited	Australia	Shares	100	100
Australian Unity Finance Limited	Australia	Shares	100	100
Australian Unity Funds Management Limited	Australia	Shares	100	100
Australian Unity Group Services Proprietary Limited	Australia	Shares	100	100
Australian Unity Health Limited	Australia	Shares	100	100
Australian Unity Health Care Limited	Australia	Shares	100	100
Australian Unity Nominees Pty Ltd (trustee company)	Australia	Shares	100	100
Australian Unity Property Limited	Australia	Shares	100	100
Australian Unity Property Management Proprietary Limited	Australia	Shares	100	100
Australian Unity Property Syndicate (Finance) Pty Limited	Australia	Shares	100	100
Australian Unity Retail Network Proprietary Limited	Australia	Shares	100	100
Australian Unity Retirement Living Investments Limited	Australia	Shares	100	100
Australian Unity Retirement Living Services Limited	Australia	Shares	100	100
Australian Unity Staf Superannuation Pty Ltd (trustee company)	Australia	Shares	100	100
Australian Unity Strategic Holdings Pty Limited	Australia	Shares	100	100
Grand United Corporate Health Limited	Australia	Shares	100	100
Remedy Healthcare Group Pty Ltd	Australia	Shares	100	100
ACN 006 778 114 Pty Ltd	Australia	Shares	100	100
ACN 085 260 986 Pty Ltd	Australia	Shares	100	100
ACN 092 219 068 Pty Ltd	Australia	Shares	100	100
ACN 101 805 305 Pty Ltd	Australia	Shares	100	100
Not wholly owned by the Parent entity
Australian Unity Aged Care Trust #1	Australia	Units	100	100
Australian Unity Aged Care Trust #2	Australia	Units	100	100
Australian Unity Aged Care Trust #3	Australia	Units	100	100
Australian Unity Aged Care Trust #4	Australia	Units	100	100
Australian Unity Aged Care Trust #5	Australia	Units	100	100
Australian Unity Aged Care Trust #6	Australia	Units	100	100
Australian Unity Bondi Trust	Australia	Units	100	100
Australian Unity Bowral Development Pty Ltd	Australia	Shares	100	100
Australian Unity Care Provider Holdings Pty Ltd (formerly ACN 113 090 467 Pty Ltd)	Australia	Shares	100	100
Australian Unity Care Services Pty Ltd	Australia	Shares	100	100
Australian Unity Greenfelds Pty Ltd	Australia	Shares	100	100
Australian Unity Cranbourne Development Trust	Australia	Units	100	100
Australian Unity Investment Bonds Limited	Australia	Shares	100	100
Australian Unity Investments Management Administration Pty Limited (formerly Westpac Funds Management Administration Pty Ltd)**	Australia	Shares	100	–
Australian Unity Investment Trust	Australia	Units	100	100
Australian Unity Lilydale Development Trust	Australia	Units	100	100
Australian Unity Property Funds Management Limited (formerly Westpac Funds Management Limited)**	Australia	Shares	100	–
Australian Unity Retirement Development Management Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 1 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 2 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 3 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 4 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 5 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 6 Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Development No. 7 Pty Ltd	Australia	Shares	100	100

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Notes to the consolidated financial statements For the year ended 30 June 2011

36 Subsidiaries (continued)

For the year ended 30 June 2011 36 Subsidiaries (continued)
	Country of incorporation	Holding	Equity holding
			2011	2010
Name of entity			%	%
Australian Unity Retirement Living Management Pty Ltd	Australia	Shares	100	100
Australian Unity Retirement Village Trust #1	Australia	Units	100	100
Australian Unity Retirement Village Trust #2	Australia	Units	100	100
Australian Unity Retirement Village Trust #5	Australia	Units	100	100
Australian Unity Retirement Village Trust #6	Australia	Units	100	100
Australian Unity Retirement Village Trust #7	Australia	Units	100	100
Campana Pty Ltd	Australia	Shares	100	100
Cash Enhanced Plus Internal Investment Trust	Australia	Units	100	100
Centennial Road Development Pty Ltd	Australia	Shares	100	100
Couhe Unit Trust	Australia	Units	100	100
Credit Enhanced Internal Investment Trust	Australia	Units	100	100
Diversifed No. 1 Internal Investment Trust	Australia	Units	100	100
Funeral Plan Management Pty Ltd	Australia	Shares	100	100
Grand United RVO Pty Ltd	Australia	Shares	100	100
Greglea Village Management Pty Limited	Australia	Shares	100	100
High Yield Plus Internal Investment Trust	Australia	Units	100	100
Lifeplan Australia Building Society Limited	Australia	Shares	100	100
Lifeplan Australia Friendly Society Limited	Australia	Shares	100	100
Lifeplan Travel Pty Ltd	Australia	Shares	100	100
Long Duration Internal Investment Trust	Australia	Units	100	100
Mortgages No. 1 Internal Investment Trust	Australia	Units	100	100
Other Securities Internal Investment Trust	Australia	Units	100	100
Retirement Management Services Pty Limited	Australia	Shares	100	100
Short Term Securities Internal Investment Trust	Australia	Units	100	100
The Australian Unity Mornington Development Trust	Australia	Units	100	100
The Australian Unity Sienna Grange Development Trust	Australia	Units	100	100
The Australian Unity Victoria Grange Development Trust	Australia	Units	100	100
The Governor’s Retirement Resort Pty Ltd	Australia	Shares	100	100
Willandra Village Management Pty Ltd	Australia	Shares	100	100
National FriendlySocietyLimited*	Australia	–	–	–

(b) Other transactions with key management personnel

Information on transactions with key management personnel or entities related to them, other than compensation, are set out below.

In accordance with rule 5.15.1 of the Parent entity’s constitution, the Parent entity has determined at its Annual General Meeting that the maximum aggregate annual amount of remuneration payable by the Parent entity to non-executive directors of the Parent entity as fees for their services as directors is $1,200,000 per financial year. The actual amounts paid to non-executive directors of the Parent entity excluding retirement allowances for the 2011 financial year amounted to $1,200,000 (2010: $1,188,940). Directors’ remuneration includes superannuation contributions in accordance with the Superannuation Guarantee Legislation. Information relating to the Group’s superannuation funds is set out in note 1(j).

The Group has also set aside a provision for directors’ retirement allowances. At 30 June 2011, this provision amounted to $944,702 (2010: $944,702). During the 2011 financial year, no director received a retirement payment from the provision for directors’ retirement allowances (2010: one director, Mr Bruce Siney, $257,450). There is no liability for retirement allowances in respect of directors appointed after the 2004 Annual General Meeting. The provision for directors’ retirement allowances is included in the provision for employee entitlements.

During the 2011 financial year, Mr Warren French received an honorarium of $30,000 (2010: $30,000) in his capacity as Grand Secretary of the Grand United Order of Oddfellows, which was funded by the Parent entity.

During the 2011 financial year, Lifeplan Australia Building Society Limited, a wholly-owned subsidiary, advanced a $500,000 loan to Mr John Butler. The loan was for five years, bearing interest at 7.19 percent per annum fixed for three years. At 30 June 2011, the balance outstanding was $467,046. There are no other loans to key management personnel at 30 June 2011 (2010: none).

From time to time the directors of the Parent entity and its controlled entities may purchase or subscribe to the various products or securities offered by the Group. These transactions are on the same terms and conditions as those entered into by other Group employees or customers and are trivial or domestic in nature.

38 Commitments

(a) Capital commitments

Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities as follows:

2011	2010
$’000	$’000
Payable within one year: Investment property 9,455	5,451
Intangible assets 747	1,200
10,202	6,651
Payable later than one year but not later than fve years: Intangible assets 747	-
Total capital commitments 10,949	6,651

• Australian Unity Limited controls the composition of the board of National Friendly Society Limited and so controls the company, although no equity interest is held.

** Australian Unity Property Limited acquired control of Australian Unity Property Funds Management Limited and its subsidiary, Australian Unity Investments Management Administration Pty Limited, on 30 September 2010. Refer to note 5 for further information.

The Parent entity investment in wholly-owned subsidiaries is at cost, in accordance with the accounting policy described in note 1(s).

In addition to the investments in associates (note 16) and subsidiaries, various entities in the Group invest in managed investment schemes for which the members of the Group act as the responsible entity. In determining whether such investments require to be consolidated as subsidiaries in the event of an equity holding exceeding 50% of the total equity of any such scheme, a distinction is drawn between those holdings which are beneficially owned by the Members of Australian Unity Limited and those which are beneficially owned by the policyholders of the benefit funds operated by subsidiaries in the Group even though both types of holding are legally owned by the Group. It is only when the holding beneficially owned by Members of Australian Unity Limited exceeds 50% of the total equity that the scheme is consolidated irrespective of whether a combined holding exceeds 50% of the total equity. This approach of distinguishing between legal and beneficial ownership relative to investments held by benefit funds parallels the requirement for responsible entities of managed investment schemes to act in the interests of the investors of those schemes irrespective of the legal ownership of or the ability to control the assets of the scheme.

Information on related party transactions is included in note 35.

37 Key management personnel disclosures

(b) Lease commitments: where a Group company is the lessee

Commitments for minimum lease payments in relation to non-cancellable operating leases contracted for at the end of the reporting period but recognised as liabilities are payable as follows:

	2011	2010
	$’000	$’000
Within one year	2,469	2,379
Later than one year but not later than fve years	4,006	5,274
Later than fveyears	4,172	3,104
	10,647	10,757

The Group leases various commercial premises under non-cancellable operating leases with an average outstanding lease term of three years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

(c) Lease commitments: where a Group company is the lessor

Future minimum lease payments receivable under non-cancellable operating leases are as follows :

(a) Key management personnel compensation

(a) Key management personnel compensation
	2011	2010
	$	$
Short-term employee benefts	5,127,035	3,582,397
Post-employment benefts	309,753	361,543
Long-term benefts	1,453,088	231,726
	6,889,876	4,175,666

	2011	2010
	$’000	$’000
Within one year	371	178
Later than one year and not later than fve years	835	-
Later than fveyears	24	-
	1,230	178

These leases relate to commercial property owned or leased by the Group.

Detailed remuneration disclosures are provided in the Remuneration report in the Directors’ report.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

39 Contingencies

Contingent liabilities

Contingent liabilities exist in relation to future anticipated calls on shares held by the Group in the associates, Wingate Asset Management Pty Limited, Seres Asset Management Limited and Altius Asset Management Pty Ltd.

As at 30 June 2011, the contingent liabilities are as follows:

• Wingate Asset Management Pty Limited amounted to $372,600 for 6,210,000 shares at 6 cents each (2010: $745,200 for 6,210,000 shares at 12 cents each);

• Seres Asset Management Limited amounted to $1,000,686 for 38,750,000 shares at 2.60 cents each (2010: $2,732,125 for 38,750,000 shares at 7.05 cents each); and

• Altius Asset Management Pty Ltd amounted to $1,243,874 for 2,324,998 shares at 53.5 cents each (2010: $nil).

Guarantees

The Parent entity provides a financial guarantee of up to $5 million for computer equipment lease transactions entered into by a wholly-owned subsidiary company. This guarantee will expire in July 2012.

Guarantees in relation to the $50 million loan facility reported in 2010 were cancelled in April 2011 following the repayment of the loan.

The Group had no other contingent assets or liabilities at 30 June 2011 (2010: $nil).

40 Events occurring after the reporting period

On 8 August 2011, the Group announced that it had entered into an agreement to acquire the Responsible Entity of three unlisted retail property funds with $430 million of funds under management from Investa Property Group. Settlement is expected in September 2011.

On 14 April 2011, the Parent entity issued $120 million in Australian Unity Notes, which are structured to pay a coupon interest rate of the three month BBSW rate plus a fixed margin of 3.55% per annum. Given the exposure to interest rate movements in relation to the Notes, on 9 August 2011 it entered into a partial hedge arrangement to swap the variable interest component of $60 million of the Notes at 4.65%. The hedge is effective from 14 October 2011, which is the next interest rate reset date, and will expire on maturity of the Australian Unity Notes. The fixed margin component was not hedged.

After the end of the reporting period, a number of subsidiary companies declared and paid final ordinary dividends totalling $13,490,000 to Australian Unity Limited. The financial effect of these dividends has not been brought to account in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial reports.

The Australian Unity Group is currently evaluating a possible merger with Big Sky Credit Union.

The board is not aware of any other matter or circumstance arising since 30 June 2011 which has significantly affected or may significantly affect the financial status or results of the Group and which has not been separately disclosed in this report.

41 Remuneration of auditors

During the year the following fees were paid or payable for services provided by the auditor of the Parent entity, its related practices and non-related audit firms:

	2011	2010
	$	$
(a) Audit services
Ernst & Young Australian frm
Audit and review of fnancial statements and other audit work under the_Corporations Act 2001_	1,710,462	1,227,157
Audit of regulatoryreturns	118,971	100,666
Total remuneration for audit services	1,829,433	1,327,823
(b) Taxation and other services
Ernst & Young Australian frm
Tax compliance services, including review of income tax returns	222,125	254,305
Other taxation services	284,864	530,293
Other assurance services	36,980	299,768
Total remuneration for taxation and other services	543,969	1,084,366
Total auditors’ remuneration	2,373,402	2,412,189

It is Australian Unity Limited’s policy to employ Ernst & Young on assignments additional to their statutory audit duties only where Ernst & Young’s expertise and experience with Australian Unity Limited’s business are essential to the efficient completion of the assignment; these assignments are principally the completion of tax returns. It is Australian Unity Limited’s policy to seek competitive tenders for all major consulting projects.

42 Health insurance

The disclosures below relate only to the health insurance activities of the relevant controlled entities and do not therefore include the non-insurance activities of the healthcare businesses.

(a) Details of income and expenses

	2011	2010
	$’000	$’000
Premium revenue	570,496	513,187
Claims expense	(474,475)	(435,227)
Net risk equalisation trust fund recoveries	26,047	29,590
State levies	(2,936)	(2,536)
Net claims incurred	(451,364)	(408,173)
Acquisition costs	(37,182)	(24,114)
Other underwritingexpenses	(2,245)	(1,938)
	(39,427)	(26,052)
Underwriting result	79,705	78,962
Net investment revenue	8,496	14,534
Employee benefts expense	(15,701)	(13,935)
Other expenses from ordinary activities	(21,248)	(20,801)
Finance costs	(2,540)	(2,250)
	(30,993)	(22,452)
Proft before income tax	48,712	56,510
Income tax expense	(14,461)	(16,508)
Proft after income tax	34,251	40,002

(b) Net Risk Equalisation Trust Fund (RETF) receivable

	2011	2010
	$’000	$’000
Movement in net RETF receivable
Balance at the beginning of the fnancial year	6,606	7,468
Net RETF raised during the year	26,047	29,590
Net RETF received duringtheyear	(26,252)	(30,452)
Balance at the end of the fnancialyear	6,401	6,606

(c) Outstanding claims provision

	2011	2010
	$’000	$’000
Outstanding claims - central estimate of the expected present value of future payments for claims incurred	39,508	39,097
Risk margin	4,173	3,717
Claims handlingcosts	1,127	1,094
Gross outstandingclaims liability	44,808	43,908
Movement in the gross outstanding claims provision
Balance at the beginning of the fnancial year	43,908	41,258
Claims incurred during the year	474,475	435,227
Claimspaid duringtheyear	(473,575)	(432,577)
Balance at the end of the fnancialyear	44,808	43,908
Current	44,808	43,908

The expected future payments for claims incurred are expected to be settled within one year and as such the undiscounted value approximates their present value.

The risk margin of $4,173,000 (2010: $3,717,000) combined with the central estimate, is estimated to equate to a probability of adequacy of at least 95% (2010: 95%). The risk margin has been based on an analysis of the Group’s past experience. This analysis modelled the volatility of past payments and the results are assumed to be indicative of future volatility.

The outstanding claims estimate for the retail health business is derived using all data combined in an aggregate model. As such, diversification benefits have been implicitly allowed for in this process. The outstanding claims liability has been estimated using both a stochastic model, based on historical experience, and the modified chain ladder method. Subsequent judgement is then applied to both the outcomes in determining the value of the liability to hold. Consequently, changes in assumptions will not have a material impact on the estimate.

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Notes to the consolidated financial statements

For the year ended 30 June 2011

42 Health insurance (continued)

The outstanding claims estimate for the corporate health business is derived using separate calculations on the data for hospital claims and ancillary claims. The outstanding claims liability has been estimated based on historical experience using the modified chain ladder method.

The weighted average expected term to settlement of claims from the end of the reporting period is estimated to be 2 months (2010: 1.7 months).

Impact of changes in key variables

The following table shows the impact on amounts recognised in the financial statements of the Group’s health insurance subsidiaries arising from movements in selected key variables.

movements in selected key variables.
	Movement	Proft/(loss) after tax	Net assets
	in variable	$’000	$’000
Central estimate	+5%	(1,383)	(1,368)
Central estimate	-5%	1,383	1,368
Claims handling	+10%	(79)	(76)
Claims handling	-10%	79	76

(d) Unexpired risk liability

The calculation of the liability adequacy test has found that there is no need to provide for an unexpired risk liability at 30 June 2011 (2010: $nil) at a 75% (2010: 75%) and below probability of adequacy. The lower level of probability of adequacy used in the liability adequacy test compared to that used in the outstanding claims liability calculation is due to the Group accepting a lower level of certainty given that actions can be taken to reduce the impact of an adverse event should it occur in future periods.

43 Benefit fund policy liabilities

The Group’s life insurance disclosures are set out below and reflect the operations of the benefit funds managed by the Group.

(a) Analysis of policy liabilities

	2011	2010
	$’000	$’000
Life investment contract liabilities	601,900	586,037
Life insurance contract liabilities	1,215,246	1,207,295
Unvestedpolicyholder liabilities	28,913	45,918
Totalpolicy liabilities	1,846,059	1,839,250
Expected to be realised within 12 months	230,141	223,645
Expected to be realised in more than 12 months	1,615,918	1,615,605
	1,846,059	1,839,250

(b) Reconciliation of changes in policy liabilities

	2011	2010
	$’000	$’000
Life investment contract liabilities
Balance at the beginning of the fnancial year	586,037	60,144
Acquisition of subsidiary	–	522,420
Increase/(decrease) recognised in the proft or loss	24,224	12,651
Premiums recognised as a change in contract liabilities	73,450	77,225
Claims recognised as a change in contract liabilities	(81,811)	(86,403)
Balance at the end of the fnancialyear	601,900	586,037
Life insurance contract liabilities
Balance at the beginning of the fnancial year	1,207,295	370,837
Acquisition of subsidiary	–	823,786
Increase/(decrease) recognised in theproft or loss	7,951	12,672
Balance at the end of the fnancialyear	1,215,246	1,207,295
Unvested policyholder benefts
Balance at the beginning of the fnancial year	45,918	22,976
Acquisition of subsidiary	–	11,522
Increase/(decrease) recognised in theproft or loss	(17,005)	11,420
Balance at the end of the fnancialyear	28,913	45,918
Netpolicyliabilities at the end of the fnancialyear	1,846,059	1,839,250

(c) Analysis of policy liability revenue and expenses

	2011	2010
	$’000	$’000
Revenue
Total life insurance and participating contract premium revenue	90,851	125,679
Reinsurance recoveries	(359)	(408)
Total life insurance contract premium and related revenue	90,492	125,271
Financial assets held at fair value through proft or loss
– Interest income	6,956	2,226
– Distribution income	76,598	62,362
– Realised losses	(14,757)	(18,322)
– Unrealised gains/(losses)	41,160	30,715
Other investment income	71,034	65,844
Total revenue from life insurance business	271,483	268,096
Expenses
Total life insurance andparticipatingcontract claims expense	148,336	138,149
Life insurance contract claims expense	148,336	138,149
Policy maintenance expenses - life insurance contracts	(131)	13
Other expenses	83,445	81,130
Movement in life insurance contracts	7,950	12,672
Movement in unvested policyholder liabilities	(17,004)	11,419
Movement in investment contract liabilities	24,224	12,651
Total expenses from life insurance business	246,820	256,034

and any surplus transfer to the Management Fund will be recommended each year in the valuation report.

(d) Actuarial methods and assumptions

The effective date of the actuarial report on policy liabilities and solvency reserves is 30 June 2011. The actuarial report was prepared by the appointed actuary Mr Barry Robertson, FIAA, Principal, Authorised Representative #303768 of Mercer Investment Nominees Limited AFS Licence #235906. The appointed actuary is satisfied as to the accuracy of the data from which the amount of policy liabilities has been determined. The policy liabilities have been determined in accordance with the requirements of the Life Insurance Act 1995 consistent with the relevant accounting standards.

The benefit fund rules of the Assurance Benefit Fund, the Life Assurance Benefit Fund and the Central Sick and Funeral Fund allow asset based fees to be payable to the Management Fund.

The benefit fund rules of the Whole of Life Funeral Fund appear to expect all surplus to be used to enhance members’ benefits and do not appear to anticipate surplus will be transferred to the Management Fund. The Management Fund receives specified fees from the funds to cover expenses. All remaining surplus is to be used to provide benefits to members and hence there is no profit and consequently, no need for a profit carrier.

Policy Liability Valuations for Defined Benefit Funds

The defined benefit funds comprise the following:

The benefit fund rules for the Funeral and Ancillary Fund allows fees to be payable to the management fund and also appears to expect all remaining surplus to be transferred to the Management Fund and does not appear to anticipate surplus will be used to enhance member benefits. As a practical solution, no profit carrier will be established and any surplus transfer to the Management Fund will be recommended each year in the valuation report.

Assurance Benefit Fund, Endowment and Funeral Fund - Funeral Fund (denoted as the Funeral Fund), Life Assurance Benefit Fund, Central Sick and Funeral Fund, Whole of Life Funeral Fund, Funeral and Ancillary Benefits Fund, Personal Risk Insurance Fund, Travel Protection Fund, and Accidental Death Benefits Fund, Adult Accident Fund and Student Accident Fund, collectively referred to as the “Accident Funds”.

The benefit fund rules for the Personal Risk Insurance Fund, the Travel Protection Fund and the three Accident Funds appear to expect all surplus to be transferred to the Management Fund and do not appear to anticipate surplus will be used to enhance member benefits. As a practical solution, no profit carrier will be established and any surplus transfer to the Management Fund will be recommended each year in the valuation report.

The policy liabilities for the defined benefit funds are determined in accordance with Prudential Standard LPS 1.04 issued by the Australian Prudential Regulation Authority (“APRA”) under the Life Insurance Act 1995 .

Under a projection method, estimates of future cash flows (i.e. premium, expenses, interest and benefits) are projected into the future. The policy liability is then calculated as the net present value of these projected cash flows. Allowance has been made for tax and fees where appropriate.

The benefit fund rules of the Assurance Benefit Fund, the Funeral Fund, the Life Assurance Benefit Fund and the Central Sick and Funeral Fund appear to allow surplus to be transferred to the Management Fund and also to be to used to enhance member benefits. As a practical solution, no profit carrier will be established

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Notes to the consolidated financial statements

For the year ended 30 June 2011

43 Benefit fund policy liabilities (continued)

The key assumptions for the policy liability calculations for the various defined benefit funds at 30 June 2011 were as follows:

		Mean		Discount Rate
	Discount	Liability	Fees	Net of Tax	Mortality
Fund Name	Basis1	Term (Yrs)	Discount Rate (% of Assets)	Tax Rate and Fees	Basis2
Assurance Beneft Fund	Swap Rate	15	6.19% 1.80%	30.00% 3.07%	50% of ALT0507
Endowment and Funeral Fund - Funeral Fund	Swap Rate	18	6.12% 0.00%	0.00% 6.12%	50% of ALT0507
Life Assurance Fund	Swap Rate	14	6.15% 2.25%	30.00% 2.73%	50% of ALT0507
Central Sick and Funeral Fund	Swap Rate	11	6.04% 2.00%	0.00% 4.04%	50% of ALT0507
Funeral and Ancillary	Swap Rate	14	6.15% 2.00%	0.00% 4.15%	80% of ALT0507
Travel Protection	Swap Rate	13	6.11% 0.00%	0.00% 6.11%	85% of ALT0507
Whole of Life Funeral	Swap Rate	13	6.11% 1.50%	0.00% 4.61%	70% of ALT0507

The key assumptions for the policy liability calculations for the various defined benefit funds at 30 June 2010 were as follows:

		Mean				Discount Rate
	Discount	Liability		Fees		Net of Tax	Mortality
Fund Name	Basis1	Term (Yrs)	Discount Rate	(% of Assets)	Tax Rate	and Fees	Basis2
Assurance Beneft Fund	Swap Rate	16	5.78%	1.80%	30.00%	2.79%	60% of ALT0507
Endowment and Funeral Fund - Funeral Fund	Swap Rate	14	5.79%	0.00%	0.00%	5.79%	50% of ALT0002
Life Assurance Fund	Swap Rate	15	5.81%	2.25%	30.00%	2.49%	60% of ALT0002
Central Sick and Funeral Fund	Swap Rate	12	5.76%	2.00%	0.00%	3.76%	50% of ALT0002
Personal Risk Fund	Swap Rate	1	4.92%	0.00%	30.00%	3.44%	70% of ALT0002
Funeral and Ancillary	Swap Rate	13	5.78%	0.00%	0.00%	-	85% of ALT0507
Travel Protection	Swap Rate	12	5.76%	1.00%	0.00%	-	85% of ALT0507
Whole of Life Funeral	Swap Rate	13	5.78%	1.50%	0.00%	-	85% of ALT0507

Notes:

The policy liabilities for benefit funds are determined in accordance with Prudential Standard LPS 1.04 issued by APRA under the Life Insurance Act 1995 .

The benefit fund rules for all these funds appear to expect all surplus to be used to enhance members’ benefits and do not appear to anticipate surplus will be transferred to the Management Fund. The Management Fund receives specified fees from the funds to cover expenses. All remaining surplus is to be used to provide benefits to members and hence there is no profit and consequently, no need for a profit carrier.

For the investment account funds other than the funeral funds, the policy liabilities are valued using the accumulation method and are equal to the contributions made by members, net of contribution fees, together with bonus additions to date. The balance of the fund is then described as unallocated members’ benefits or surplus. The current bonus declaration simply results in a movement from unallocated members’ benefits to a policy liability.

The Growth Fund has no policy liabilities and no net assets at the valuation date. This fund is midway through a termination process. As the fund has not been formally terminated it is still necessary to report its liabilities and assets at this valuation date.

The Grand Bonds Assurance Fund has an additional death benefit and bonus guarantee. The liability for bonus guarantees has been evaluated by inspecting individual policies that may give rise to bonus guarantees. The liability for additional death benefits was calculated assuming mortality and discounting. The liability for death benefits was then subjected to a minimum equal to the largest exposure to a single member in the fund. The minimum was adopted.

In addition to the above, for the Flexishield Bond Fund and the Community Bond Fund a small liability for early death risk is maintained.

As well, a deferred tax liability in respect of future termination bonuses is included in the policy liability for the Education Savings Plan. For the seven funeral funds, the policy liability has been valued using the same discounted cash flow methods adopted for the defined benefit funds. The key assumptions for the policy liability calculations for the funeral funds at 30 June 2011 were as follows:

		Mean				Discount Rate
	Discount	Liability		Fees		Net of Tax	Mortality
Fund Name	Basis1	Term (Yrs)	Discount Rate	(% of Assets)	Tax Rate	and Fees	Basis2
Capital Guaranteed Funeral Bond (Non Taxable)	Swap Rate	8	5.91%	2.05%	0.00%	3.86%	105% of ALT0507
Capital Guaranteed Funeral Bond (Taxable)	Swap Rate	7	5.86%	2.05%	30.00%	2.67%	115% of ALT0507
Capital Secure Funeral Bond	Swap Rate	6	5.74%	1.53%	0.00%	4.21%	100% of ALT0507
Funeral Bond	Swap Rate	7	5.86%	1.50%	0.00%	4.36%	85% of ALT0507
Prepaid Funeral Fund	Swap Rate	7	5.86%	1.50%	0.00%	4.36%	110% of ALT0507
Funeral Fund No 2 - Non taxable	Swap Rate	7	5.86%	2.00%	0.00%	3.86%	120% of ALT0507
Funeral Bond No 2 - Taxable	Swap Rate	7	5.86%	2.00%	30.00%	2.70%	120% of ALT0507
Tax Minimiser Funeral Fund	Swap Rate	5	5.63%	1.50%	30.00%	2.89%	200% of ALT0507

1 The mid-swap rate corresponding to the mean liability term.

2 ALT0507: Australian Life Tables (Male and Female) 2005-2007; ALT0002: Australian Life Tables (Male and Female) 2000-2002.

The following additional assumptions also apply:

For the Adult Accident Fund and Student Accident Fund the policy liability is equal to the unearned net premium plus the outstanding claim liability, determined by reference to the past delay pattern of claim payments.

For the Funeral and Ancillary Fund, the proportion married varies by age as set out in the relevant valuation report; and

For the Funeral and Ancillary Fund, where benefits are indexed to inflation (as required by the benefit fund rules) the future inflation assumption is 3% (2010: 3%) per annum; and

Policy Liability Valuation for Defined Contribution Funds

The defined contribution funds comprise the following:

For the Travel Protection Fund, the proportion of claims (arising from each death) is 5.5% (2010: 6%) and the average claim amount is $1,025 (2010: $900) inflating at 3% (2010: 3%) per annum.

Bonus Accumulation Fund, Bonus Bond, Capital Guaranteed Bond, Capital Guaranteed Deferred Annuity Fund, Capital Guaranteed Mortgage Bond, Community Bond Fund, Education Savings Plan, Flexishield Bond Fund, Grand Bonds Assurance Fund, Growth Fund, NextGen Investments Capital Guaranteed Fund, Telecom Rollover Fund, Capital Guaranteed Funeral Fund (Non Taxable), Capital Guaranteed Funeral Fund (Taxable), Capital Secure Funeral Fund, Funeral Bond Fund, Prepaid Funeral Fund, Funeral Fund No. 2 and Tax Minimiser Funeral Fund.

These assumptions were derived by analysis of the recent past experience of the funds, the experience of similar funds and actuarial judgment. The fee assumptions were based on the allowable fee transfers to the Management Fund in the fund rules.

The best estimate policy liability for the Personal Risk Insurance Fund equals 100% the net of reinsurance annual premium.

The last seven funds are referred to as defined contribution funeral funds. The remaining funds are referred to as defined contribution investment account funds.

For the Accidental Death Benefits Fund the policy liability is equal to the unearned net premium.

The key assumptions for the policy liability calculations for the funeral funds at 30 June 2010 were as follows:

		Mean				Discount Rate
	Discount	Liability		Fees		Net of Tax	Mortality
Fund Name	Basis1	Term (Yrs)	Discount Rate	(% of Assets)	Tax Rate	and Fees	Basis2
Funeral Bond	Swap Rate	8.5	5.64%	1.00%	0.00%	n/a	90% of ALT0507
Prepaid Funeral	Swap Rate	7.5	5.59%	1.00%	0.00%	n/a	110% of ALT0507
Funeral Fund No 2	Swap Rate	8	5.62%	2.00%	30.00%	2.53%	122.5% of ALT0507
Tax Minimiser - New Business	Swap Rate	8.5	5.64%	1.50%	30.00%	2.90%	300% of ALT0507
Tax Minimiser - Remainder Business	Swap Rate	8.5	5.64%	1.50%	30.00%	2.90%	200% of ALT0507

Notes:

1 The mid-swap rate corresponding to the mean guaranteed liability term.

2 ALT0507 refers to Australian Life Tables (Male and Female) 2005-2007.

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Notes to the consolidated financial statements For the year ended 30 June 2011

43 Benefit fund policy liabilities (continued)

The assumptions were derived by analysis of the recent past experience of the funds, the experience of similar funds and actuarial judgment. The fee assumptions were based on the allowable fee transfers to the Management Fund in the fund rules.

For the Capital Guaranteed Funeral Bond (Taxable), a deferred tax benefit in respect of future termination bonuses is added to policy liability.

As well, a deferred tax liability in respect of future termination bonuses is included in the policy liability for the Tax Minimiser Funeral Fund and Funeral Benefits Fund No. 2.

Taxation

Rates of taxation in Australia are assumed to continue at current levels, in accordance with legislation known at the valuation date.

Surrender values

Where a surrender option exists, surrender values are based on the provisions specified within the policy contract. Surrender values assumed are those current at the end of the reporting period. Discontinuance rates are based on the fund’s experience.

Profit carriers

Each benefit fund contributes to the management fund via any fee transfers authorised in the benefit fund rules and transfers of a part of surplus disclosed in authorised fund valuations. Profit is equivalent to the authorised surplus transfers to the management fund and therefore profit carriers are not applicable. For the investment account funds there is no provision in the funds’ rules for any surplus to be transferred to the management fund. The management fund receives specified fee transfers from the funds to cover expenses. All remaining assets are to be used to provide benefits to members and hence there is no profit and consequently, no need for a profit carrier.

Restrictions on assets

Assets held in benefit funds for the benefit of policyholders can only be used in accordance with Life Insurance Act 1995 regulations.

Assets backing policy liabilities

Assets backing benefit fund policy liabilities are measured at fair value through profit or loss. All of the assets backing life insurance and investment contract liabilities are included within the benefit funds and are separately identifiable.

Future participating benefits

The bonus rates assumed are those supported by policy liabilities. The bonus rates are based on investment returns net of ongoing expenses and taxation after allowing for a suitable safety margin.

The level of future bonus rates are not guaranteed. Given the nature of the underlying assets held by the various benefit funds the level of any future bonuses declared will be subject to the performance of the investment markets and assets that the benefit funds are invested in.

Sensitivity analysis

The Group has no material sensitivity analysis to disclose. If experience varies from expectations then the member liabilities and the unvested policyholder liabilities will change by equal and opposite amounts, except as noted above for PRF. As the Group maintains sufficient unallocated surplus to cover fluctuations in experience, there is no impact on equity.

Effects of changes in assumptions

There are no material changes in actuarial assumptions which affect the valuation of policy liabilities at 30 June 2011. Actuarial assumptions are derived by analysis of the experience of the funds, the experience of similar funds and actuarial judgement. The expense assumptions are based on the allowable fee transfers to the management fund in the fund rules.

(e) Nature of risks arising from insurance contracts

The benefit funds are exposed to insurance risk and the principal risk arising under insurance contracts is that benefit payments exceed the carrying amount of insurance liabilities.

Life insurance contracts included within the benefit funds include endowments, contracts for lump sum risk and benefits paid for death or ill health. For endowment contracts the sum assured plus bonuses is paid automatically upon reaching required age. For whole of life endowment contracts the sum assured plus bonus is paid on death. For lump sum risk and benefits paid on death or ill health, benefits are payable upon death, disablement or defined trauma events.

Some benefit funds limit exposure to insurance risk by ceding part of the liabilities assumed through reinsurance. For the unit-linked business the financial risks on these contracts are borne by the policyholder because there is a direct link between the investments and the liability obligations.

Bonuses declared are recommended and reviewed by the Group’s Investment Committee. The Group also uses the appointed actuary’s annual financial condition report to inform decisions on capital management issues.

Changes in economic conditions and demographics may alter the unallocated surplus. The Capital Requirements are designed to ensure there is sufficient unallocated surplus to cover the effect of these changes. The equity will not change. For all the defined benefit funds other than the PRF, if experience varies from expectation, then the member liability and the unallocated benefit funds will change by equal and opposite amounts. As the management fund has sufficient unallocated benefit funds to cover fluctuations in experience, the equity will not change. Due to the simplifications employed in the valuation of the PRF, reasonable changes in assumptions will not impact the liability. Due to the small size of the fund, any changes in equity will not be significant for the Group.

Concentrations

The Group is not exposed to large concentrations of insurance risk. Mortality risk is adequately reinsured with highly rated counterparties thereby reducing concentration risk.

Interest rate risk

The management of the risks associated with investments undertaken by benefit funds, including interest rate risk, is subject to the requirements of the relevant regulatory requirements, which are governed by the Life Insurance Act 1995 . This includes satisfying solvency requirements, which requires statutory reserves to be held specifically to address interest rate risk to the extent that assets are not matched against liabilities.

Credit risk

Credit risk arises in relation to investments in financial assets. Credit risk is monitored by exposure limits to counter parties. These limits are determined by reference to third party credit ratings. The Group does not have any significant concentrations of credit risk. The maximum exposure to credit risk at balance date in relation to financial assets is the carrying amount of those assets as indicated in the balance sheet.

(f) Solvency and capital adequacy information

Under the Life Insurance Act 1995 , the Group is required to hold prudential reserves over and above their policy liabilities, as a buffer against adverse experience and poor investment returns. The minimum level of reserves required to be held are specified by the Life Insurance Act 1995 and the accompanying Prudential Standards. These standards are Prudential Standards LPS 2.04 and LPS 3.04. These standards have been met for all benefit funds as at 30 June 2011 and 30 June 2010.

For each benefit fund subject to a solvency requirement, the figures in note 43 below represent the ratio of the solvency reserve requirement to the assets available for solvency.

The Group has maintained adequate levels of capital in accordance with the prudential standards specified by the Life Insurance Act 1995 .

(g) Disaggregated information - Benefit funds

Note 44 details the income statement and balance sheet for the individual benefit funds aggregated within these financial statements.

44 Disaggregated information - Benefit funds

(a) Non-investment linked benefit funds

30 June 2011	Net Premium $’000	Revenue Investment $’000	Other $’000	Expenses Claims Other $’000 $’000	Expenses Claims Other $’000 $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Accidental death benefts	112	91	–	–	130	73	–
Adult accident	14	21	–	2	22	11	–
Assurance beneft fund	–	675	–	180	319	176	–
Central sick and funeral fund	–	304	–	231	73	–	–
Endowment fund	–	17	–	863	(852)	6	–
Funeral and ancillary benefts	12	1,409	–	699	722	–	–
Funeral fund	–	659	–	387	272	–	–
Life assurance fund	–	632	–	257	323	52	–
Personal risk fund	80	18	–	15	173	(90)	–
Student accident	28	54	–	12	43	27	–
Travel protection funeral	102	47	–	17	86	46	–
Whole of life funeral	1	58	–	20	40	(1)	–
Total non-investment linked beneft fund - Life insurance contracts	349	3,985	–	2,683	1,351	300	–
30 June 2010
Accidental death benefts	153	55	(51)	–	104	53	–
Adult accident	21	13	–	2	22	10	–
Assurance beneft fund	–	1,007	–	527	202	278	–
Central sick and funeral fund	–	706	–	312	401	(7)	–
Endowment fund	–	32	–	77	(55)	10	–
Funeral and ancillary benefts	15	1,121	–	649	487	–	–
Funeral fund	–	901	–	359	542	–	–
Life assurance fund	–	1,301	–	634	420	247	–
Personal risk fund	41	17	–	–	171	(113)	–
Student accident	43	32	(4)	9	43	19	–
Travel protection funeral	119	36	–	9	109	37	–
Whole of life funeral	–	37	–	14	22	1	–
Total non-investment linked beneft fund - Life insurance contracts	392	5,258	(55)	2,592	2,468	535	–

108

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Notes to the consolidated financial statements

For the year ended 30 June 2011

44 Disaggregated information - Benefit funds (continued)

30 June 2011	Assets Financial Other $’000 $’000	Assets Financial Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %
Accidental death benefts	162	690	732	120	–	48
Adult accident	37	154	181	10	–	30
Assurance beneft fund	7,251	4,485	11,333	403	–	82
Central sick and funeral fund	4,551	1,475	6,016	10	–	90
Funeral and ancillary benefts	8,903	4,270	13,070	103	–	95
Funeral fund	7,195	3,290	10,484	1	–	89
Life assurance fund	10,186	2,055	11,647	594	–	90
Personal risk fund	–	361	307	54	–	81
Student accident	96	346	429	13	–	31
Travel protection funeral	–	750	750	–	–	56
Whole of life funeral	425	261	668	18	–	79
Total non-investment linked beneft fund - Life insurance contracts	38,806	18,137	55,617	1,326	–
30 June 2010
Accidental death benefts	179	676	842	13	–	18
Adult accident	40	174	209	5	–	22
Assurance beneft fund	10,581	851	11,216	216	–	86
Central sick and funeral fund	5,599	458	6,054	3	–	90
Endowment fund	510	355	883	(18)	–	97
Funeral and ancillary benefts	5,125	9,366	12,716	1,775	–	89
Funeral fund	9,983	311	10,368	(74)	–	92
Life assurance fund	10,463	1,594	11,585	472	–	91
Personal risk fund	106	67	313	(140)	–	78
Student accident	106	388	485	9	–	26
Travel protection funeral	142	565	664	43	–	64
Whole of life funeral	154	395	549	–	–	96
Total non-investment linked beneft fund - Life insurance contracts	42,988	15,200	55,884	2,304	–

(b) Investment linked benefit fund - Life investment contracts with discretionary participating features

30 June 2011	Deposits $’000	Revenue Investment $’000	Other $’000	Expenses Claims Other $’000 $’000	Expenses Claims Other $’000 $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Bonus accumulation	1,175	10,005	500	28,997	(20,454)	3,137	–
Bonus Bond no 1	1,754	2,933	154	12,171	(7,329)	(1)	–
Capital guaranteed bond	430	7,926	–	15,557	(9,109)	1,908	–
Capital guaranteed deferred annuity	–	80	–	79	(9)	10	–
Capital guaranteed funeral bond (non-taxable)	173	2,056	–	3,622	(1,378)	(15)	–
Capital guaranteed funeral bond (taxable)	6,652	2,536	–	3,951	4,771	466	–
Capital guaranteed mortgage bond	206	1,965	–	5,783	(4,139)	527	–
Capital secure funeral bond	76	1,506	–	3,452	(1,859)	(11)	–
Community bond	1,060	4,317	322	10,571	(6,264)	1,392	–
Education savings plan	1,906	685	–	2,122	346	123	–
Flexishield bond	377	2,501	99	5,876	(3,675)	776	–
Funeral Benefts no 2	1,626	21,196	31	22,095	(5,637)	6,395	–
Funeral Bond	70	950	–	474	546	–	–
Grand bonds assurance fund	18	322	–	447	(185)	78	–
Growth fund	–	5	–	110	(106)	1	–
NextGen investments capital guaranteed	18,806	2,894	278	14,950	6,225	803	–
Prepaid funeral	7	863	–	649	222	(1)	–
Tax minimiser funeral	55,807	5,122	604	14,557	46,139	837	–
Telecom rollover	–	111	5	190	(86)	12	–
Total Investment linked beneft fund - Life investment contracts with discretionary participating features	90,143	67,973	1,993	145,653	(1,981)	16,437	–
30 June 2010
Bonus accumulation	2,996	7,604	(389)	28,042	(20,275)	2,444	–
Bonus Bond no 1	3,303	2,610	(215)	18,594	(12,896)	–	–
Capital guaranteed bond	458	6,863	–	12,550	(6,857)	1,628	–
Capital guaranteed deferred annuity	–	60	(9)	93	(48)	6	–
Capital guaranteed funeral bond (non-taxable)	117	2,735	–	3,657	(745)	(60)	–
Capital guaranteed funeral bond (taxable)	6,569	2,937	–	3,829	5,029	648	–
Capital guaranteed mortgage bond	234	1,800	–	3,116	(1,568)	486	–
Capital secure funeral bond	49	2,036	–	3,544	(1,413)	(46)	–
Community bond	1,290	2,761	458	10,416	(7,034)	1,127	–
Education savings plan	2,355	472	(78)	1,400	1,340	9	–
Flexishield bond	720	1,759	(100)	4,840	(3,045)	584	–
Funeral Benefts no 2	2,092	14,157	(2,197)	23,003	(8,039)	(912)	–
Funeral Bond	61	585	16	546	117	(1)	–
Grand bonds assurance fund	17	267	–	329	(91)	46	–
Growth fund	–	5	–	–	4	1	–
Neaten investments capital guaranteed	45,439	1,465	(281)	12,671	33,593	359	–
Prepaid funeral	–	552	–	686	(134)	–	–
Tax minimiser funeral	59,179	2,162	(491)	8,843	52,006	1	–
Telecom rollover	–	80	(9)	80	(18)	9	–
Total Investment linked beneft fund - Life investment contracts with discretionary participating features	124,879	50,910	(3,295)	136,239	29,926	6,329	–

110

111

A U S T R A L I A N U N I T Y A N N U A L R E P O R T 2 0 1 1 – S O C I A L V A L U E

Notes to the consolidated financial statements

For the year ended 30 June 2011

44 Disaggregated information - Benefit funds (continued)

30 June 2011	Assets Financial Other $’000 $’000	Assets Financial Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %
Bonus accumulation	212,246	5,437	213,549	4,134	–	100
Bonus Bond no 1	24,938	25,646	50,271	313	–	96
Capital guaranteed bond	28,176	119,070	145,148	2,098	–	99
Capital guaranteed deferred annuity	302	1,087	1,377	12	–	95
Capital guaranteed funeral bond (non-taxable)	33,561	13,245	46,685	121	–	100
Capital guaranteed funeral bond (taxable)	43,935	18,472	62,039	368	–	100
Capital guaranteed mortgage bond	17,949	18,529	35,929	549	–	99
Capital secure funeral bond	24,335	9,368	33,600	103	–	100
Community bond	27,407	50,058	75,795	1,670	–	99
Education savings plan	3,816	9,027	12,666	177	–	99
Flexishield bond	26,161	21,240	41,570	5,831	–	99
Funeral Benefts no 2	195,469	54,325	248,932	862	–	100
Funeral Bond	5,998	2,415	8,406	7	–	100
Grand bonds assurance fund	–	5,901	5,819	82	–	100
Growth fund	–	9	8	1	–	–
NextGen investments capital guaranteed	67,304	343	65,504	2,143	–	100
Prepaid funeral	5,325	2,077	7,304	98	–	100
Tax minimiser funeral	131,003	3,238	132,898	1,343	–	100
Telecom rollover	2,271	127	2,365	33	–	99
Total Investment linked beneft fund - Life investment contracts with discretionary participating features	850,196	359,614	1,189,865	19,945	–
30 June 2010
Bonus accumulation	231,446	14,836	235,890	10,392	–	100
Bonus Bond no 1	27,193	32,070	57,519	1,744	–	99
Capital guaranteed bond	53,267	104,040	155,829	1,478	–	99
Capital guaranteed deferred annuity	524	892	1,350	66	–	100
Capital guaranteed funeral bond (non-taxable)	35,586	13,204	48,732	58	–	100
Capital guaranteed funeral bond (taxable)	41,342	16,916	58,046	212	–	100
Capital guaranteed mortgage bond	30,385	10,346	40,284	447	–	99
Capital secure funeral bond	26,019	9,742	35,772	(11)	–	100
Community bond	21,015	64,039	83,171	1,883	–	99
Education savings plan	2,352	10,234	12,431	155	–	100
Flexishield bond	13,365	32,717	44,709	1,373	–	100
Funeral Benefts no 2	145,567	108,898	253,685	780	–	100
Funeral Bond	1,209	5,737	6,935	11	–	100
Grand bonds assurance fund	–	6,100	6,057	43	–	100
Growth fund	–	116	114	2	–	96
Neaten investments capital guaranteed	61,106	(1,135)	59,656	315	–	100
Prepaid funeral	1,160	5,207	6,349	18	–	100
Tax minimiser funeral	87,437	997	88,316	118	–	100
Telecom rollover	2,462	86	2,484	64	–	99
Total Investment linked beneft fund - Life investment contracts with discretionary participating features	781,435	435,042	1,197,329	19,148	–

(c) Investment linked benefit fund - Investment contracts

30 June 2011	Net Premium $’000	Revenue Investment $’000	Other $’000	Expenses Claims Other $’000 $’000	Expenses Claims Other $’000 $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Balanced growth bond	–	1,249	–	–	1,453	(204)	–
Capital base	–	1,813	(485)	–	823	505	–
Conservative growth bond	–	725	–	–	642	83	–
Education bond long-term portfolio	–	459	–	–	511	(52)	–
Education bond medium-term portfolio	–	121	–	–	110	11	–
Education bond short-term portfolio	–	16	–	–	15	1	–
Education savings plan	–	22,281	(40)	–	22,210	31	–
Flexigrowth	–	3,183	–	–	3,184	(1)	–
Growth investment	–	2,361	(245)	–	1,646	470	–
High growth bond	–	231	–	–	338	(107)	–
Income	–	2,281	–	–	2,277	4	–
Managed investment	–	10,579	(859)	–	6,997	2,723	–
NextGen investments	–	49,934	(776)	–	47,832	1,326	–
Select strategies	–	13,656	(1,742)	–	9,168	2,746	–
TaxSmart	–	1,301	(10)	–	1,081	210	–
Wealth builder	–	965	42	–	827	180	–
Total Investment linked beneft fund - Investment contracts without discretionary participating features	–	111,155	(4,115)	–	99,114	7,926	–
30 June 2010
Balanced growth bond	–	3,042	–	–	2,194	848	–
Capital base	–	3,809	(301)	–	2,675	833	–
Conservative growth bond	–	1,161	–	–	831	330	–
Education bond long-term portfolio	–	525	–	–	389	136	–
Education bond medium-term portfolio	–	155	–	–	112	43	–
Education bond short-term portfolio	–	14	–	–	10	4	–
Education savings plan	–	17,784	123	–	17,884	23	–
Flexigrowth	–	3,065	(143)	–	2,922	–	–
Growth investment	–	1,007	(213)	–	654	140	–
High growth bond	–	364	–	–	270	94	–
Income	–	2,646	(96)	–	2,551	(1)	–
Managed investment	–	1,541	(761)	–	440	340	–
NextGen investments	–	43,217	(504)	–	42,910	(197)	–
Select strategies	–	12,494	(1,594)	–	8,554	2,346	–
TaxSmart	–	2,286	(73)	–	2,042	171	–
Wealth builder	–	470	(11)	–	371	88	–
Total Investment linked beneft fund - Investment contracts without discretionary participating features	–	93,580	(3,573)	–	84,809	5,198	–

112

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Notes to the consolidated financial statements

For the year ended 30 June 2011

44 Disaggregated information - Benefit funds (continued)

30 June 2011	Assets Financial Other $’000 $’000	Assets Financial Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Liabilities Life insurance Other $’000 $’000	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %	Equity Retained Earnings/ Policyholder Equity Coverage of Solvency Reserve $’000 %
Balanced growth bond	29,849	1,357	31,185	21	–	–
Capital base	45,860	783	45,500	1,143	–	–
Conservative growth bond	14,122	383	14,070	435	–	–
Education bond long-term portfolio	5,915	424	6,303	36	–	–
Education bond medium-term portfolio	1,410	94	1,474	30	–	–
Education bond short-term portfolio	112	31	130	13	–	–
Education savings plan	64,393	5,007	66,906	2,494	–	–
Flexigrowth	4,817	15,445	18,237	2,025	–	–
Growth investment	26,153	1,104	27,008	249	–	–
High growth bond	3,906	365	4,227	44	–	–
Income	13,286	7,973	21,189	70	–	–
Managed investment	93,442	490	92,962	970	–	–
NextGen investments	93,067	866	91,033	2,900	–	–
Select strategies	150,370	10,683	160,266	787	–	–
TaxSmart	3,271	11,223	13,191	1,303	–	–
Wealth builder	6,438	465	6,896	7	–	–
Total Investment linked beneft fund - Investment contracts without discretionary participating features	556,411	56,693	600,577	12,527	–
30 June 2010
Balanced growth bond	31,688	1,072	32,547	213	–	–
Capital base	52,034	601	52,207	428	–	–
Conservative growth bond	15,295	162	15,238	219	–	–
Education bond long-term portfolio	6,129	319	6,422	26	–	–
Education bond medium-term portfolio	1,507	66	1,554	19	–	–
Education bond short-term portfolio	123	37	139	21	–	–
Education savings plan	50,305	5,410	54,103	1,612	–	–
Flexigrowth	11,013	9,697	20,616	94	–	–
Growth investment	24,983	2,195	26,918	260	–	–
High growth bond	4,247	200	4,429	18	–	–
Income	17,443	7,563	24,940	66	–	–
Managed investment	93,729	3,819	96,224	1,324	–	–
NextGen investments	50,304	(364)	49,541	399	–	–
Select strategies	159,895	22,977	180,425	2,447	–	–
TaxSmart	5,633	8,047	13,716	(36)	–	–
Wealth builder	6,253	1,081	7,018	316	–	–
Total Investment linked beneft fund - Investment contracts without discretionary participating features	530,581	62,882	586,037	7,426	–

(d) Summarised information by investment type

30 June 2011	Revenue Net Premium / Deposits Investment $’000 $’000	Other $’000	Other $’000	Expenses Claims Other $’000 $’000	Expenses Claims Other $’000 $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Non-investment linked beneft fund - Life insurance contracts	349 3,985		–	2,683	1,351	300	–
Investment linked beneft fund - Life investment contracts with discretionary participating features	90,143 67,973	1,993		145,653	(1,981)	16,437	–
Investment linked beneft fund - Investment contracts	– 111,155	(4,115)		–	99,114	7,926	–
Total	90,492 183,113	(2,122)		148,336	98,484	24,663	–
30 June 2010
Non-investment linked beneft fund - Life insurance contracts	392 5,258	(55)		2,592	2,468	535	–
Investment linked beneft fund - Life investment contracts with discretionary participating features	124,879 50,910	(3,295)		136,239	29,926	6,329	–
Investment linked beneft fund - Investment contracts	– 93,580	(3,573)		–	84,809	5,198	–
Total	125,271 149,748	(6,923)		138,831	117,203	12,062	–
30 June 2011	Assets Financial $’000	Other $’000		Liabilities Life insurance $’000		Equity Other Retained Earnings/ Policyholder Equity $’000 $’000
Non-investment linked beneft fund - Life insurance contracts	38,806	18,137		55,617		1,326	–
Investment linked beneft fund - Life investment contracts with discretionary participating features	850,196	359,614		1,189,865		19,945	–
Investment linked beneft fund - Investment contracts	556,411	56,693		600,577		12,527	–
Total	1,445,413	434,444		1,846,059		33,798	–
30 June 2010
Non-investment linked beneft fund - Life insurance contracts	42,988	15,200		55,884		2,304	–
Investment linked beneft fund - Life investment contracts with discretionary participating features	781,435	435,042		1,197,329		19,148	–
Investment linked beneft fund - Investment contracts	530,581	62,882		586,037		7,426	–
Total	1,355,004	513,124		1,839,250		28,878	–

114

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A U S T R A L I A N U N I T Y A N N U A L R E P O R T 2 0 1 1 – S O C I A L V A L U E

Notes to the consolidated financial statements

For the year ended 30 June 2011

45 Reconciliation of profit attributable to members of Australian Unity Limited

Notes to the consolidated fnancial statements For the year ended 30 June 2011 45 Reconciliation of proft attributable to members of Australian Unity Limited
	2011
Attributable to members of Australian Unity Limited	Attributable to Beneft Fund policyholders		Consolidated Proft or Loss
$’000		$’000	$’000
Revenue 740,538 Direct life insurance premium revenue – Outwards reinsurance expense – Deposits received - investment contracts with DPF – Investment income – Other –*		– 708 (359) 90,143 183,113 (2,122)	740,538 708 (359) 90,143 183,113 (2,122)
Total revenue 740,538		271,483	1,012,021
Life insurance claims expense – Benefts and withdrawals paid - investment contracts with DPF – Distribution to policyholders – Expenses excludingfnance costs 698,738*		2,683 145,653 20,550 77,934	2,683 145,653 20,550 776,672
Total expenses, excluding fnance costs 698,738		246,820	945,558
Finance costs (16,110) Share of netprofts of associates 2,075		– –	(16,110) 2,075
Proft before income tax 27,765 Income tax expense (2,141)		24,663 (24,663)	52,428 (26,804)
Proft after income tax 25,624		–	25,624
Non-controllinginterest –		–	–
Proft after income tax and non-controlling interest 25,624		–	25,624

*DPF = Discretionary Participating Feature

		2010
	Attributable to members of Australian Unity Limited	Attributable to Beneft Fund policyholders	Consolidated Proft or Loss
	$’000	$’000	$’000
Revenue	665,953	–	665,953
Direct life insurance premium revenue	–	800	800
Outwards reinsurance expense	–	(408)	(408)
Deposits received - investment contracts with DPF*	–	124,879	124,879
Investment income	–	149,748	149,748
Other	–	(6,923)	(6,923)
Total revenue	665,953	268,096	934,049
Life insurance claims expense	–	2,592	2,592
Benefts and withdrawals paid - investment contracts with DPF*	–	136,239	136,239
Distribution to policyholders	–	23,085	23,085
Expenses excludingfnance costs	639,842	94,118	733,960
Total expenses, excluding fnance costs	639,842	256,034	895,876
Finance costs	(11,006)	–	(11,006)
Share of netprofts of associates	3,419	–	3,419
Proft before income tax	18,524	12,062	30,586
Income tax expense	(1,396)	(12,062)	(13,458)
Proft after income tax	17,128	–	17,128

46 Parent entity financial information

(a) Summary financial information

The individual financial statements for the Parent entity show the following aggregate amounts:

2011	2010
$’000	$’000
Balance sheet Current assets 38,210	13,249
Non-current assets 545,213	497,088
Total assets 583,423	510,337
Current liabilities 109,981	82,594
Non-current liabilities 127,778	77,106
Total liabilities 237,759	159,700
Members’ balances 215,220	215,220
Retained earnings 130,444	135,417
Total equity 345,664	350,637
Proft/(loss) for theyear (4,973)	24,179
Total comprehensive income (4,973)	24,179

(b) Guarantees entered into by the Parent entity

The parent entity provides a financial guarantee of up to $5 million for computer equipment lease transactions entered into by a wholly-owned subsidiary company. This guarantee will expire in July 2012.

(c) Contingent liabilities of the Parent entity

The parent entity did not have any contingent liabilities as at 30 June 2011 and 2010.

(d) Commitments entered into by the Parent entity

The parent entity did not have any commitments as at 30 June 2011 and 2010.

*DPF = Discretionary Participating Feature

116

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A U S T R A L I A N U N I T Y A N N U A L R E P O R T 2 0 1 1 – S O C I A L V A L U E

Directors’ declaration

30 June 2011

In the directors’ opinion:

• (a) the financial statements and notes set out on pages 54 to 117 are in accordance with the Corporations Act 2001 , including:

• (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

• (ii) giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance, for the financial year ended on that date; and

• (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and

(c) there are reasonable grounds to believe that the Parent entity will be able to pay its debts as and when they become due and payable.

The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by section 295A of the Corporations Act 2001 .

This declaration is made in accordance with a resolution of the directors.

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Alan Castleman Chairman

Rohan Mead Group Managing Director

South Melbourne, 8 September 2011

Independent auditor’s report to the members for the year ended 30 June 2011

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118

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A U S T R A L I A N U N I T Y A N N U A L R E P O R T 2 0 1 1 – S O C I A L V A L U E

Independent auditor’s report to the members for the year ended 30 June 2011

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Fast fact references

Pg no.:		Source:
13	Fast fact	Growing Cancer Knowledge Research Highlights, Cancer Council of Australia, June 2008.
15	Fast fact	The Burden of Brittle Bones: Epidemiology, Costs & Burden of Osteoporosis in Australia, 2007, prepared for Osteoporosis Australia
		bythe Universityof Melbourne, 2007.
19	Fast fact	Retirement living, Industry trends & prospects, Grant Thornton, January 2011, and Service integrated housing for Australians in later life,
		A Jones, A Howe, C Tilse, H Bartlett, B Stimson, January2010.
25	Fast fact	Association of Superannuation Funds of Australia Retirement Standard, June 2011 quarter.

120

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13 29 39 Australian Unity Limited ABN 23 087 648 888

114 Albert Road South Melbourne VIC 3205 australianunity.com.au

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