AUSTRALIAN UNITY LIMITED - Annual Report 2013

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Annual Report 2013

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Enabling millions to enjoy wellbeing

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Enabling millions to enjoy wellbeing

Since its very earliest days more than 170 years ago, Australian Unity has had large ambitions on behalf of its members and has contributed in major ways to the development of the nation. Australian Unity continues to aspire to make significant contributions into the future.

Contents
Annual highlights	3	Community responsibility	34
Chairman’s report	4	People	40
Group Managing Director’s report	6	Organisation chart	42
Our businesses	8	Board of directors	44
Healthcare	10	Governance statement	46
Retirement Living	16	Financial overview	50
Investments	22	Financial report contents	52
Personal Financial Services	30

Australian Unity Annual Report 2013

We imagine a nation where all Australians live with the greatest possible personal and community wellbeing.

We are an independent mutual company that operates on commercial principles with a social purpose governed by our members.

We play our part in building community.

We reinvest our profits into wellbeing products and services.

We reach as many families as possible with high trust products and services.

Our ambition is to become Australia’s leading wellbeing company.

Our strategy is to build a leading, commercial, sustainable, portfolio of businesses that foster wellbeing.

Wellbeing is at the heart of everything we do.

Annual highlights 2013

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Revenues ($m) $1.21b
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Members’ funds ($m)

$479m

Health claims paid ($m) $599m

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1200 500 600
1000 400 500
800 400
300
600 300
200
400 200
100
200 100
0 0 0
2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Revenues: comprise revenue and other income receipts Members’ funds: Net assets of the Group attributable
(shown as the bottom section of the bar chart) as shown in to members.
the statement of comprehensive income in the annual report
plus life investment contract premium receipts (shown as the
top section of the bar chart). The latter receipts are recorded as
movements in benefit fund policy liabilities in the balance sheet
and not through the statement of comprehensive income.
Retirement units and aged care beds [#] 2,382 Operating earnings ($m) $31.6m Profit before tax ($m) $35.4m
2600 35 50
30 40
1950
25
30
20
1300 20
15
10
10
650
5 0
0 0 -10
2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Operating earnings: Profit before tax less investment income,
borrowing costs and discontinued operations and business
acquisition costs.
1212 449 479 535 599
934 1012 1120 364 388 421 435 474
302 303 385
617 619
2166 2183 2206 2056 2350 2382 32.1 34.6 31.6 39.1 35.4
24.4
27.8
19.4 18.5 22.2
-2.9
9.9
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$35.4m

Funds under management ($b)

$7.13b

Funds under advice ($m) $3.1b

Profit after tax ($m)*

$29.4m

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14 3000 40
12 2500
30
10
2000
8
1500 20
6
1000
4
10
2 500
0 0 0
2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013
Funds under management: Investors’ funds managed Funds under advice: The total value of client funds invested
by the Australian Unity investments business and its through Australian Unity financial planners.
joint venture partners.
3100
11.9 12.2
32.3
10.3 29.4
1960 25.6
7.13
6.5 5.8 471 451 582 17.1 22.3
1020 1.1
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The year 2008 includes the sale of general insurance business in that year, materially affecting the comparative results for 2008, while 2010 includes 10 months of Lifeplan. # The 2011 total was lower due to a management contract for a 178 unit village not being renewed during that year.

Australian Unity Annual Report 2013

Chairman’s report

2013 has been another year of significant progress for the Australian Unity Group. Not only has the Group recorded a solid financial result, in a challenging environment, but we have also taken on the task of better articulating and planning our growth profile in areas of community wellbeing over a ten year horizon.

L ike most Australian businesses we have found the political environment very challenging in recent times —none more than in the past twelve months. Policy developments and changes by government across most areas of our operations have impacted customer service delivery and have been disruptive and costly to implement. Some of the changes will have negative impacts on our business and the people we seek to serve for years to come. However, we are not passively accepting either poorly conceived policy changes or the avoidance, by our politicians, of the big issues confronting our society—no matter what political party they represent. To this end our directors and senior managers are actively engaging, along with other business leaders, in the development of potential solutions to our country’s pressing challenges—particularly in the areas of retirement savings, health and ageing. We seek to have an informed public and politicians working in unison to develop, debate and implement innovative and practical solutions to Australia’s challenges of the 21st century.

As a mutual company established by and for its members, Australian Unity measures more than just its financial performance. Given the importance of sustainability, however, we are unambiguously a commercially minded mutual. It is in this context that I am pleased to report our strong financial results this year, but also discuss our progress on other measures important to the company and to wider community wellbeing.

The Group’s profit after tax was $29.4 million, an increase of 31.7 percent compared to the previous year and largely attributable to organic growth of core activities.

Australian Unity rose four places to be the[ranked company in the ] 2013 BRW 'Top 500 41[st] Private Companies'

Environmental challenges

This was an encouraging result in a difficult environment. Although the economy has continued to record growth, business and consumer confidence remains patchy and reflects the continuing fallout from the global financial crisis of the late 2000s. As I have mentioned, regulatory hurdles that affected our business areas were also raised to new heights. Most notable was further legislation affecting private health insurance. We believe these new laws will add financial burden to our customers and significant additional operating costs to the company’s activities. However, we remain determined in our aim to offer high-value, competitive—and prevention focused—health benefits to the customers of our health funds. The Future of Financial Advice laws, along with others, have added further administrative burdens on our financial services businesses. New legislation affecting the aged care sector has also been passed and will require significant operational responses in the months and years ahead, while in our view doing little to aid fixed capital formation and service development.

Strategic responses

Notwithstanding these constraints, each of our business areas has remained focused on our core strategy: to serve the wellbeing needs of Australians. In each of our areas of operation: retirement savings; healthcare financing and management; retirement, community and aged care—the company is involved in very long run challenges for the nation. In this context, during the year the board asked management to develop multi-year plans to extend the reach of our company’s products and services further. We have set ourselves the long term goal to “enable millions of Australians to enjoy wellbeing”. Our strategy will involve continuing to build on the successes of the past, while remaining open to opportunities for new partnerships and related businesses.

Social context

Australian Unity has always sought to play its part in Australia’s social and economic development. From the organisation’s earliest days in the nineteenth century, members have demonstrated and acted on the philosophy of supporting each other in building self-reliance. Each of the company’s products and services are constructed with this outcome in mind. We believe that over the many decades we have been operating, we have built up considerable expertise in wellbeing services. We have a deep understanding of the challenges Australia faces, challenges created by a shifting demographic that threatens to dramatically increase the number of people at risk of dependency on a health and welfare system that is increasingly unsustainable.

Risk

Risk is an inevitable part of the modern business environment and Australian Unity continues to operate in a complex risk environment. The board of directors regularly reviews the company’s risk management framework in order to protect the major assets of the company. We do this mindful of the many negative risks involved in operating large and complex businesses in a changeable economic environment. We seek to balance this agenda with proper engagement with the positive risks and service opportunities that are generated through the alignment of our expertise and the unfolding demographically driven social needs. The company’s decision last financial year to be recognised by one of our major regulators, the Australian Prudential Regulation Authority (APRA), as a “non-operating holding company” means that we are also regularly engaged in robust and productive APRA reviews of the company’s risk appetite and mechanisms for managing risk.

Governance

During the year, board renewal continued. It is vital that we recruit directors with relevant experience and skills for the future to replace directors who retire and who have a long history with, and understanding of, the company. Peter Promnitz joined the board during the year, bringing with him a wealth of experience through an executive career as an actuary and spanning investment, superannuation, actuarial

and human resources management. I welcome Peter to the team. John Butler retires this year as a non-executive director of the company. We thank John for his many years of service as a director of Lifeplan as well as Australian Unity and his leading role in the merging and integration of Lifeplan into the Group.

Leadership

We continue to invest in the development of our people across the company and in the capability and potential of our senior leaders. As part of this program our Group Managing Director & CEO, Rohan Mead, will undertake the Harvard University Advanced Management Program during the current financial year. We continue to build the diversity of our leadership and governance teams without compromising on talent. I would like to thank my fellow directors and the members of the group leadership team for their stewardship of the company over the past year and all employees for their contribution to our ongoing success.

Outlook

The board of directors remains positive about the prospects for the company and in our ability, as a mutual organisation, to remain focused on the long term needs of our customers and communities. In a challenging environment, we remain confident in our suite of wellbeing products to meet the needs of our current and future customers, and the ability of our employees to deliver valued services.

Glenn Barnes Chairman

Australian Unity Annual Report 2013

Group Managing Director’s report

I am pleased to present this positive set of financial and development results for the year. It is heartening to note that our position remains sound in an environment that remains uncertain and at times significantly challenging.

R evenues increased by more than 8 percent to $1.21 billion reflecting organic growth of core activities across the portfolio, with strong investment performance supporting the solid profit result.

The financial results are also pleasing because they were achieved notwithstanding a number of material external and internal factors. These included higher claims costs in the healthcare business; continued multi-million dollar business investments; regulatory adjustments that affected the majority of the Group’s businesses; and costs incurred by our decision to simplify some of the entity structures within the Group. The impact of these factors on our trading result, however, was significantly offset by the underlying growth and development of our activities and in the investment management performance, resulting in our operating earnings decreasing only 8.7 percent to $31.6 million. Profit before tax increased by 59.5 percent to $35.4 million.

Strengths

Australian Unity’s products and services have developed over more than a century to cover a broad range of member and customer wellbeing needs. Over this time the company has evolved responsively and responsibly, considering these changing needs and adapting our focus accordingly. As a consequence we now have a rare level of understanding, in the Australian social and economic context, of the connected set of issues concerning personal and community wellbeing. We are involved in the policy and operational aspects of fixed capital formation for major social infrastructure, such as hospitals and retirement accommodation. We are involved in the asset management required to properly manage that infrastructure. We are involved in the operational aspects of

Customer numbers have increased from 200,000 to around[in 10 years] 600,000

delivering quality care services, particularly to the sick and frail. More generally, we are involved in individuals’ needs for retirement savings and healthcare financing. And, through the Australian Unity Wellbeing Index, we have invested over more than a dozen years in building a scientific basis for the understanding of the community’s sense of wellbeing.

Building for the long term

Our structure allows us to focus on the long term—and this capacity is vital to our ability to contribute valuably to challenges in these major policy areas: areas whose shape, impacts and dynamics are more visible over decades rather than one month, or one year, to the next.

Business achievements

Notwithstanding our structure and long term development focus, providing quality services daily and managing our businesses for financial sustainability remains fundamental.

The financial result reported here is pleasing as it represents sound performance from across the portfolio of businesses. An indication of the portfolio’s overall resilience is evidenced by the fact that our largest operating business experienced an anticipated decline in financial performance, while the Group as a whole reported an increase in profit.

The year included a significant milestone for the Personal Financial Services business, which reported a full-year positive financial contribution for the first time, as planned, after some years of investment. The business also achieved industryleading growth rates on a number of measures highlighted by a 58 percent growth in Funds Under Advice to $3.1 billion and an increase in revenue of some 86 percent to $34 million.

Our Investments business expanded its operations with the establishment of a new platform, Federation Alliance, to offer a flexible, independent alternative to the larger investment administration platforms currently in the market. The Investments business reported a drop in Funds Under Management (FUM)

for the first time in a decade: the result of resignations of key staff of Vianova Asset Management, a fixed interest fund manager. The impact on FUM did not result in a material effect on profits because of the lower margins in that particular asset class. The FUM result was also offset in part by large mandates won by other of our joint venture asset managers, including Platypus Asset Management. Overall, Investments recorded a modest increase in its contribution compared to the previous year.

The company also undertook a program of structural simplification during the year and, following 30 June, successfully merged our two friendly societies into a single entity, reducing the complexity of the company and creating future operational, regulatory and compliance efficiencies.

Development of the company’s flagship inner-urban retirement and care centre, the Carlton Wellbeing Precinct, in Melbourne, also progressed with its first stage, the 161-bed facility, due to be completed during the current financial year. The Retirement Living business also significantly expanded its home care operations with a major acquisition during the year followed by license allocation announcements in July. Together, these developments effectively triple our clients and staff in home care.

Our healthcare operations were able to announce health insurance premium increases below the industry average, the tenth time in 12 years that this has been achieved. The Healthcare business also maintained an industry-leading growth rate in both its retail and corporate health funds. For the third successive year both funds outstripped the industry growth rate of 3.1 percent. These achievements occurred notwithstanding considerable challenges occasioned by further restrictive legislation that diluted our business development focus and is increasing costs for our customers. Despite this success, the healthcare segment result is down on the prior year, due to higher health insurance claims and continued investments in preventative health. The higher claims costs were not unanticipated, in part reflecting high levels of customer growth in previous years, a positive circumstance that nevertheless can change claiming patterns for a period, given that newer policyholders, for example, may need to serve out waiting periods before making claims.

Advocacy

As the chairman has mentioned, during the year our parliaments were busy legislating further changes that affect all of our operations. Despite robust submissions from us and others in our sectors, these changes were passed largely without material positive amendment and without addressing many practical implementation inputs from industry. We believe that this is unfortunate and we will continue to work with all governments to seek to ensure that our sectors of operation are sustainable over coming years.

People

Reflecting the diversity of the company, Australian Unity employees are diverse in experience, skillset and qualifications. While allowing each of our specialist workforces the appropriate level of autonomy and flexibility, we invest significantly in a culture that seeks to create an engaging work environment and consistent customer experiences. I would like to thank my executive colleagues and staff for their efforts over the past year and for their continuing engagement with, and support for, the company’s long term goals.

Outlook

I am confident that the company we are continuing to develop is shaped appropriately to understand and play a role in addressing the complex demographic, policy and service delivery challenges facing the community. By doing this, we plan to continue to provide you and all our customers with relevant and valuable services.

Rohan Mead Group Managing Director & CEO

Australian Unity Annual Report 2013

Our businesses

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“ Our strategy is to build a leading, commercial, sustainable portfolio of businesses that foster wellbeing”

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Healthcare

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

» page 10

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

Retirement Living

» page 16

Strategy

We seek to empower customers to improve their health and change the way healthcare is delivered.

Strategy

We integrate development, asset management, operations and care delivery to provide flexible and comprehensive services for the accommodation and care needs of an ageing population.

Areas of operation

Australian Unity health insurance (retail)
GU Health (corporate health insurance)
Allied Health (including Remedy Healthcare, Rehability and dental)

Business model

We compete with other health insurers by providing a higher quality of product benefits and customer service. We supplement our traditional insurance business with evidence-based chronic disease and preventative health services that are designed to improve health outcomes and reduce the pressure of claims inflation.

Outlook

Increasing pressure on government budgets means that consumers will be forced to fund more and more of their healthcare costs. Our evidence-based health programs are designed to actively intervene to improve wellbeing and reduce customer hospitalisations through preventative programs. The success of our model provides opportunities for us to extend and transfer our expertise into other private and public health systems.

Retirement villages
Residential aged care facilities
Home care

Business model

We create service-rich communities that provide a continuum of care to allow older Australians to age in place and in a community of their choosing.

Outlook

Currently, each day more than 360 Australians turn 75. In ten years, that number is projected to increase to almost 600. This environment will create the requirement for new models of care and service and further policy reform to respond to the needs of this rapidly growing segment of the community. We see a future of significantly more empowered consumers, rightfully seeking flexible and tailored support for their wellbeing in the setting of their choice. This future will challenge the current regime of arbitrary rationing and paternalistic policy. Our business has been designed to be responsive to major shifts such as these.

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Rohan Mead Group Managing Director & CEO

The company’s operations are intimately linked with some of the most significant challenges of our times: the ageing demographic; sufficiency of retirement savings; the rise of chronic disease; the growing demand for community care and the urgent need for investments in related, or what can be termed “social”, infrastructure. We plan to play a part in addressing these challenges.

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Investments

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

» page 22

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Steve Davis CFP Chief Executive Officer, Personal Financial Services

Personal Financial Services » page 30

Strategy

We seek to build and manage an “all-weather” portfolio of products for long-term personal and institutional investors, increasing retirement savings and supporting the establishment of social infrastructure. We aim to provide products that are resilient through economic cycles.

Areas of operation

Funds management
Property and mortgages
Specialised products (including Lifeplan)
Big Sky Building Society

Business model

We operate in the direct, retail and institutional markets with in-house asset management skills in property and specialised products. We have built a boutique asset management structure to provide access to a suite of highly-sought after asset managers. Our asset managers, investment products, operating model and ownership structure are genuinely different to the rest of the market. We have the flexibility of a boutique investment house and benefit, as part of the wider Australian Unity Group, from the capability and resources of a substantial corporation.

Outlook

Today’s investment landscape is changing rapidly. More than ever, investors are seeking fund managers with valuable intelligence and integrity. Australian Unity Investments plans to continue to develop its services and operations to meet this need.

Strategy

Working closely with other professional advisers, we seek to provide professional strategic advice to help our clients improve their current financial position and ultimately achieve their long term lifestyle goals.

Areas of operation

Financial planning advice
Finance and mortgage broking
Life insurance advice
General insurance

Business model

We create a compliant, resource-rich and thought-leading environment for our Australia-wide network of experienced self-employed and employed financial advisers. This environment enables providers to operate efficiently and confidently.

Outlook

The growth of high quality client-focused advice businesses will be sustained by the burgeoning personal financial services needs of business owners, “generation X”, baby boomers considering retirement, and the beneficiaries of intergenerational wealth transfer. Addressing this growing demand requires the development of strong relationships with accountants and other professionals serving these segments of the market. Australian Unity Personal Financial Services is well placed to deliver consistent growth in the long term.

Australian Unity Annual Report 2013

Operating and Financial Review

Healthcare

Australian Unity’s retail and corporate health funds make it one of Australia’s largest private health insurance providers, with 223,279 policyholders throughout Australia. Services are delivered almost entirely by telephone and online, which helps the funds operate with a lower administrative cost structure.

Building on retail and corporate health insurance policyholder growth and activity in the dental business and Remedy Healthcare, total segment revenue for the combined Healthcare business was $735.22 million in the latest year (2012: $668.99 million).

Other legislative changes included the exclusion of the Lifetime Health Cover loading from premiums eligible for the Federal Government rebate. This became effective on 1 July 2013 with minimal time afforded to the industry to prepare for its implementation.

Higher claims costs in the retail fund and continued investment in preventative health, chronic disease management and in-home services contributed to a decline in Australian Unity Healthcare’s adjusted EBITDA to $47.82 million for the year ended 30 June 2013 (2012: $55.19 million). To a significant degree, higher claims were the result of higher rates of growth in policyholders over recent years. These higher growth rates have later year effects on claims levels, so the increase in claims had been anticipated.

More new rules are on the way, with indexation of the private health insurance rebate scheduled to begin on 1 April 2014, a change that will affect every health fund policyholder.

A series of legislative changes to private health insurance dominated the activity of Australian Unity’s Healthcare operations in the year to 30 June 2013.

Means testing of the Federal Government’s private health insurance rebate, introduced on 1 July 2012, was one of a number of new rules that affected the fund. Many Australian Unity customers pre-paid their policies for up to 18 months to delay the impact of these changes on their household budgets.

We achieved:

higher growth in both health funds than the industry average for the third successive year
the effective integration of systems designed to help us strategically respond to the means testing of the PHI rebate
the successful launch of two new preventative health programs

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Australian Unity Annual Report 2013

Operating and Financial Review

Healthcare continued

The fundamental nature of these changes created a high administrative workload and additional costs for Australian Unity Healthcare, with no benefits for members or customers.

Looking ahead, Australian Unity Healthcare is confident of continued growth in its customer base because of its high quality, innovative services, including market-leading preventative health programs.

However, fund profitability is under increasing pressure from rapidly rising medical and healthcare costs, an ageing population and recent government imposed rule changes, which have added to the complexity of fund administration.

The average premium increase for Australian Unity customers, at 5.2 percent, was kept below the industry average of 5.6 percent, and below the average of all major competitors.

This was the tenth time in 12 years Australian Unity Healthcare lifted premiums at a lower rate than the industry average. In 2013 this was achieved despite an inflation rate of 8.5 percent in the cost of health, medical, hospital and dental services.

Despite the distraction and the need to expend millions of dollars on preparing for regulatory changes, Australian Unity continued to deliver industry-leading claims processing turnaround times for customers.

These changes have also made product offers increasingly difficult for customers to understand, which is another risk to growth.

Retail health insurance

The number of retail health fund policyholders increased by 3.5 percent to 196,796 at 30 June 2013 (2012: 190,097). The increase in policyholders outstripped the industry growth rate for the third successive year and was driven by growth outside Victoria.

Benefits were increased in a number of areas, including dental benefits and remedial massage. Australian Unity also expanded its health support programs, which help members stay healthy, recover faster or better manage serious medical conditions.

Australian Unity also continued to make significant investments in customer care and operational efficiencies to ensure customers receive the best service possible.

During the year, the retail fund trialled a new program known as Australian Unity Connect with 5,000 customers. The program involves outbound calls to put customers in touch with community healthcare services in their local area relevant to their age and likely needs. Unlike a preventative health program, the contact is not driven by a recent claim or medical history. This new service is a further example of the business continuing to create new ways to add value to customers and support them to improve their health.

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7.3
6.5
5.5
5.1
4.7
$7.3m
2009 2010 2011 2012 2013
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Claims paid for no gap preventative dental claims ($million)

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2.0
1.9
1.3
1.2 1.2
$2m
2009 2010 2011 2012 2013
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Hospital avoidance benefits (including Hospital Care at Home and Rehab at Home) ($million)

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599
535
474
421 435
$599m
2009 2010 2011 2012 2013
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Total claims paid to members
($million)
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Corporate health insurance – GU Health

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

The number of GU Health’s policyholders increased by 4.5 percent to 26,483 at 30 June 2013 (2012: 25,344).

Legislative change was also a burden for GU Health. The fund worked with clients to maximise the benefits of a new payments system that allows corporate clients to split premium payments with their employees. This new feature was launched in the previous year in response to the introduction of means testing of the private health insurance rebate.

Preventative healthcare – Remedy Healthcare

Australian Unity is a leader in preventative healthcare programs that help members stay healthy, speed recovery and better manage disease and illness.

Over the past six years, more than $71 million was invested in the development of a range of programs and payment of preventative health benefits. These programs are designed to not only make members healthier, but to reduce the level of claims and contain rises in premiums.

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Chronic disease management programs 4.7
and health coaching benefits
increased to 3.5
2.1
$
0.4 0.3
4.7million
2009 2010 2011 2012 2013
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Twelve thousand people have now participated in one or more programs over the past six years.

Australian Unity’s preventative health expertise is in strong demand from other health insurers and is made available by commercial arrangement through Australian Unity’s preventative health business, Remedy Healthcare.

Where we were challenged:

overall profitability was lower compared to last year as a result of the impacts of government regulations and higher customer claims
we argued against further proposed government changes to the private health insurance rebate but ultimately to no avail—changes that we believe are bad public policy will be introduced in the current year

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100%
94 94 93
90 87
82
80
2009 2010 2011 2012 2013 93%
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Medical services incurring no out-of-pocket expenses (%)

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Australian Unity Annual Report 2013

Operating and Financial Review

Healthcare continued

Remedy provides health coaching for primary prevention and chronic disease, maternity support, early discharge services, hospital care at home, and in-home rehabilitation.

Two new programs were introduced in the past year for customers with Chronic Obstructive Pulmonary Disease and Peripheral Vascular Disease.

Another highlight of the year was the Integrated Care Program, launched initially in 2012. The program is designed for members who have had three or more hospital admissions in the previous 12 months. Phone coaching by a registered nurse helps participants identify their health risks and better manage their conditions.

Dental

Australian Unity operates four dental clinics, located in the Melbourne CBD, South Melbourne, Box Hill and Rowville. The number of patient visits during the year increased by 4 percent to 54,382 (2012: 52,284). As part of our planned capital works program, the Melbourne CBD practice, which opened in late 2002, has been upgraded with a fresh new look, and state-of-the-art patient chairs and clinical delivery systems. All practices will, over the coming year, benefit from a number of exciting change initiatives designed to maintain the level of quality care delivered to, and enhance the service

experience for, all of our patients. In addition, and in response to customer feedback, we plan to progressively expand interstate in the near to medium term.

Healthcare’s strategies and outlook

Australian Unity Healthcare’s strategy is to empower customers to improve their health and change the way healthcare is delivered. To do so Australian Unity Healthcare must compete with other health insurers by providing a higher quality of product benefits and customer service and to supplement the traditional insurance business with evidence-based chronic disease and preventative health services that are designed to improve health outcomes and reduce the pressures of claims inflation.

Customers who responded to the means testing of the private health insurance rebate last year by pre-paying their premiums will be coming off these prepayment schedules over the first six months of the current financial year. During this time more policyholders may choose to downgrade their existing cover or drop it altogether. Despite the challenges facing the sector, Australian Unity believes its strategic approach of focusing on value, product and service expansion and innovation is the appropriate and best response in a period when increasing pressure on government budgets means that consumers will be forced to fund more and more of their healthcare costs.

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10%
9.00
7.96
7.58
8
6.72 6.68
7.85
6 6.79 5.68 4.87 4.99 5.57 5.06 5.60
4.52 6.02 5.78
4 5.44 4.65 3.76 4.91 4.55 5.23
2.82
3.84 2.32 2.53
3.17 3.23
2
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Private health insurance premium increases (%)
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Industry Australian Unity Healthcare GU Health

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18.9
16.7
6.9
6.1
4.5
3.2 3.7 3.1 3.5
2011 2012 2013
Policyholder growth (%)
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Industry Australian Unity Healthcare GU Health

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Early intervention gets Fay on track

Fay Winson (66 years old) enrolled in Remedy’s Diabetes Action Program just two weeks after being diagnosed with type 2 diabetes.

Fay was shocked by her diagnosis. Despite being a former registered nurse and having cared for her diabetic mother, the advances in treatment meant there was a lot of which she wasn’t aware.

“ Fortunately I was put in touch with Remedy early on and avoided much of the confusion and stress associated with a new illness. Remedy’s guidance set me on the right track from the start.

“ My main goal was to self-manage my condition well enough that I avoided needing daily insulin. This would require significant weight loss through a low GI diet.

“ With the support of my Remedy clinician and monthly phoneconsultations, I found the extra motivation required to stick to the eating plan we’d developed together.

“ Through lifestyle changes, Remedy helped me take control of my condition now and for the long-term. Six months later and 23 kilograms lighter, I’ve avoided the need for daily insulin injections, which is a huge win for me and my family.

“ I’m a much healthier person now for having done the Remedy program,” she said.

In the next year we plan to:

redefine the PHI market while remaining compliant with new government regulations
expand GU Health’s partnerships
increase Remedy Healthcare’s product and service offerings

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Australian Unity Annual Report 2013

Operating and Financial Review

Retirement Living

Australian Unity Retirement Living continued to grow organically and through acquisition during the year, and increase its financial contribution to Group results.

S egment revenue grew by 14 percent to $73.07 million while adjusted EBITDA increased to $12.63 million in the year to 30 June 2013 (2012: $7.80 million). These improvements were due to the increasing occupancy of completed stages of retirement villages under development, continuing high occupancy levels at existing retirement villages and residential aged care facilities and the impact of a quiet, but improving residential property market on retirement village price growth.

Retirement communities

The business owns and operates 18 retirement communities, including four aged care facilities, in Victoria and New South Wales.

The total number of home units increased to 1,931 (2012: 1,899) with the completion of construction of another 32 units at Mornington and Vermont South in Victoria, and Port Macquarie in New South Wales. The number of aged care beds was unchanged at 451.

Home care

Home care is growing rapidly to meet rising consumer demand for assistance in the home with caring for the elderly and those recovering from illness or hospitalisation. It is also in demand from primary care givers in need of respite.

Home care, formerly known as community care, was a key growth area of the business. Australian Unity Retirement Living provides home care in retirement villages and in the general community, either in its own right or on behalf of other organisations such as local councils, local health services and not-for-profit organisations.

The home care services are accredited by ACIMSS (Attendant Care Industry Management System Standard), which provides clients and funders with a high level of assurance about the systems and service quality.

Retirement Living almost doubled the size of its home care business with the December 2012 acquisition of Melbourne-based Better at Home Care. The number of home care staff increased from 72 to 162 following the acquisition.

We achieved:

a doubling in size of our home care operations
significant progress at key development sites
a successful pilot of a new customer-centred care model

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Australian Unity Annual Report 2013

Operating and Financial Review

Retirement Living continued

Total home care revenue increased sharply to $4.98 million (2012: $3.39 million) and this segment now generates approximately seven percent of all Retirement Living revenue.

Australian Unity’s home care business plans to grow in the current financial year and beyond, building on tenders won during the year, and a further allocation of 99 Home Care Packages in New South Wales and Victoria, announced in July 2013.

The growth of the sector is highlighted by Federal Government projections for demand for publicly subsidised services, where it has budgeted for a rise from 60,000 to 100,000 Home Care Packages over a five year period (2017-2018 to 2021-2022) in the Forward Estimates.

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Aged care – Better Together

Australian Unity Retirement Living developed an innovative model of care that was trialled at Wahroonga Aged Care during the year. Better Together is an alternative to the traditional service model in residential aged care enabling more resident choice and service flexibility. The 12-month pilot started in January at the remodelled 18-bed section of the facility, which has been created to be more home-like with a central open living room, domestic style kitchen and dining designed to support residents’ longer term mobility and independence.

In August the trial program received the prestigious national 2013 HESTA Aged Care Awards for team innovation. This award recognises the Wahroonga Aged Care team’s unique initiative aimed at creating a home-like environment for residents where they have greater control and choice over their activities and excellence in delivering better outcomes for aged care residents.

Where we were challenged:

despite considerable advocacy efforts we had hoped the content of the federal government’s aged care reforms had been more consumer-orientated than what was legislated

Development

Construction at a number of retirement communities continued during the year, with a highlight being progress at the $180 million Carlton Wellbeing Precinct. The first stage, a 161-bed aged care facility, is due for completion at the end of calendar 2013. The first stage also includes a public cafe, medical and allied health services, gym, hydrotherapy pool, and a day respite centre.

At Peninsula Grange at Mornington, construction is complete on 55 independent living units and a new community centre. Work on a 102-bed aged care facility began at the end of the year in review.

The “continuum of care” vision for Victoria Grange at Vermont South is nearing completion. A community centre and the final stage of independent living units were completed during the year and construction commenced on the independent living apartments, which will complement the villa housing and residential care accommodation options on site. Work is due to be completed by 2015. In addition, construction continued on the 70 unit retirement community, Sienna Grange, in Port Macquarie, New South Wales. There are now 29 units completed at this village.

Retirement Living current construction pipeline

Development and construction timeline

	$	%
Carlton Aged Care Facility	67m	(12%)
Carlton Retirement Village(Stage 1)	57m	(10%)
Carlton Retirement Village(Stage 2)	56m	(10%)
Lifestyle Manor Bondi	61m	(11%)
Lifestyle Manor Anglesea	46m	(8%)
Peninsula Grange Retirement Village	163m	(28%)
Peninsula Grange Aged Care Facility	25m	(4%)
Sienna Grange Retirement Village	28m	(5%)
Victoria Grange Retirement Village	70m	(12%)
Total	$573m	100%

Australian Unity Annual Report 2013

Operating and Financial Review

Retirement Living continued

Sales

In New South Wales, solid progress was made with sales at the Lifestyle Manor Village in Bondi, a premium development undertaken as a joint venture with private investors. Full occupancy of the first phase of the project is expected in early 2014.

Occupancy rates across the portfolio of properties continued to meet or exceed industry levels, with an average of 95.5 percent at Australian Unity retirement villages and 97.5 percent at aged care facilities.

Sales of independent living units achieved solid price growth, despite a sluggish residential property market for most of the year.

Operational improvements

A number of improvements were made to the core of the business, including the rollout of the PeoplePoint system for client management and billing across all locations.

Operational staff were reorganised into geographical regions to provide better support for the integrated care business model. New regional managers have responsibility for client service and business development, which is expected to lead to further improvements in business growth and customer satisfaction.

Retirement Living’s strategies and outlook

Australian Unity Retirement Living aims to build on its knowledge of development, asset management, operations and care delivery to provide an integrated response to the accommodation and care needs of an ageing population through the creation of service-rich communities that provide a continuum of care to allow older Australians to age in place in their homes or communities.

Australian Unity’s aged care occupancy rates across the portfolio of properties continued to exceed industry levels.

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100
98 98 98
95 95
94 Occupancy %
3.2 3.7 3.1 Stewart Brown []
90 Australian Unity
2011 2012 2013
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5.0
Home care revenue
increased to 3.4
2.7
2.1
1.6
$
5.0 million
2009 2010 2011 2012 2013
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StewartBrown is a recognised leader in providing financial performance benchmarking in the aged and community care sector through its quarterly Aged and Community Care Financial Benchmarking Surveys.

The Federal Government’s Living Longer, Living Better aged care reforms were passed at the end of the year under review. While Australian Unity believes the reforms are a step in the right direction, they are too limited in scope and policy concerns expressed by those in the sector have not been adequately addressed at this stage. The recommendations of the 2011 Productivity Commission’s review into aged care, Caring for Older Australians , should be revisited and used to guide further reform with the purpose of increasing consumer access to, and control of, services, and establishing a more sustainable infrastructure platform.

In the next year we plan to:

further expand our home care operations
complete and open the Carlton Wellbeing Precinct’s aged care facility
investigate opportunities to further expand our portfolio of retirement communities

Looking ahead, completion of the first stage of the Wellbeing Precinct at Carlton and further growth in home care are important near-term goals for the business.

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Australian Unity Annual Report 2013

Operating and Financial Review

Investments

Australian Unity Investments offers a wide range of high quality managed investment opportunities. Through Big Sky Building Society it also provides banking products such as home loans, savings accounts and term deposits together with investment advice and insurance services.

D uring the year under review financial markets performed well for investors, with the Australian sharemarket experiencing its strongest rally in six years.

The main benchmark of market performance, the S&P/ASX200 index, increased by 22.75 percent and gained as much as 25 percent before a downturn in the final weeks of the year.

In general, market and economic trends were flat, though patchy. There was some nervousness about United States Government moves to wind down its economic support programs. Locally, there has also been unease about the outlook for the Australian economy beyond the mining investment boom.

The total value of funds under management was also reduced by the return of capital to investors following the decision to close the Mortgage Income Trust and High Yield Mortgage Trust.

Despite the reduction in funds under management the business recorded a 23 percent increase in revenue to $111.66 million and an increase in adjusted EBITDA to $15.35 million for the year ended 30 June 2013 (2012: $12.49 million). The Australian Unity Investments team also manages the investment portfolio of the Australian Unity Group, and during the year achieved a return of 7.3 percent on the Group’s investment assets, 4.0 percent ahead of its benchmark, contributing further to the Group’s overall profit result.

However, there are indications that the US and Australian economies may make a successful transition and that the new financial year may be rewarding for investors.

Funds under management decreased during the year to $7.11 billion at 30 June 2013 (2012: $12.2 billion), predominantly attributable to a decrease in funds under management within one of the joint venture partners—Vianova Asset Management—after members of the investment team resigned. Given the relatively low margins earned on fixed interest investments (along with growth in other product areas) there was limited impact on the profitability of Australian Unity Investments.

We achieved:

the launch of our new Federation Alliance platform joint venture
the launch of our Pro-D investment program for financial advisers
the completion of the merger of the second industrial trust and the office property fund

Australian Unity Annual Report 2013 23

Operating and Financial Review

Investments continued

The broad trend for Australian Unity Investments was of above-average performance across the portfolio. The strong investment performance was typified by the results of its balanced growth portfolio, which produced a return of 17.78 percent for the year. This exceeded the return of 14.7 percent for the average Australian superannuation fund balanced option.

Superannuation funds’ balanced investment options, those with between 60 percent and 76 percent in growth assets, returned 14.7 percent after fees and taxes in the year under review, according to preliminary figures from SuperRatings. The last time super funds performed better was in the 2007 financial year, when funds returned 15.7 percent (Source: SuperRatings).

A highlight for the year was the launch of the Pro-D range of managed funds for financial advisers, which was developed in conjunction with Australian Unity Personal Financial Services. The Pro-D funds are a cost effective and tax efficient range of diversified investment funds with more sophisticated asset allocation strategies than generally available with most

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Funds Under Management 11.9 12.2
at 30 June 2013 10.3
decreased to 7.11
$ 5.8
7.11billion
2009 2010 2011 2012 2013
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off-the-shelf managed investment products. The Pro-D range helps financial advisers provide a more sophisticated solution for clients with lower investment balances and reflects a key shift in market trends towards smarter but simpler managed funds that offer value for money.

Australian Unity Investments also teamed with Australian Unity Personal Financial Services to launch Federation Managed Accounts, an investment platform that allows financial advisers to select a portfolio of complementary investments, including diverse options such as managed funds.

Australian Unity Investments provides investors with access to a diverse range of expert investment managers, each focused on a different sector or investment style. This is achieved through its “in house” expertise as well as with its joint venture partnerships. Its investment offering currently includes: Australian Unity Property and Mortgages, microcap equities in Australia and small cap equities in Asia managed by Acorn Capital, fixed interest managed by Altius Asset Management, Australian equities managed by Platypus Asset Management, international equities managed by Wingate Asset Management and Asian equities managed by Seres Asset Management.

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Australian Unity launched Federation Managed Accounts which allow financial advisers to select a portfolio of complementary investments

Equities

Platypus Asset Management

Australian equities manager, Platypus Asset Management, experienced an increase in funds under management and advice to $1.5 billion (2012: $950 million), thanks to a new mandate from a global asset allocation adviser and rising equity values.

The Platypus Australian Equities Trust (wholesale) returned 19.95 percent for the year to 30 June 2013 marginally below the benchmark return of 21.90 percent for the S&P ASX 300 Accumulation Index.

Acorn Capital

Acorn Capital launched the Acorn Capital Asia Small Cap Fund during the year. The Asia Small Cap Fund has achieved a return since its inception of 14.84 percent for the eight months to 30 June 2013. The benchmark return for the same period was 18.37 percent.

Where we were challenged:

adjusted EBITDA increased from $12.49 million to $15.35 million despite a reduction in Funds Under Management compared to previous years

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15.35
14.07
12.49
Investments’
adjusted EBITDA 10.83 10.48
increased to
$
15.35 million
2009 2010 2011 2012 2013
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Australian Unity Annual Report 2013

Operating and Financial Review

Investments continued

The small and microcap sector of the ASX experienced significant losses during the year. The sector is broadly composed of industrials and small cap resources companies. Both sectors went through challenging periods of readjustment, particularly small cap resources following the slowing of the resources boom. Acorn was not immune to this trend, with the Acorn Microcap Trust (wholesale) fund returning -12.79 percent, slightly above the benchmark of -14.07 percent for the year.

Funds under management was $977 million, down from $1.2 billion, reflecting the fall in equity prices.

Wingate Asset Management

International equities manager Wingate increased funds under management to $78 million from $56 million during the year. Wingate’s fund performed in line with its objectives, providing investors with a less volatile, smoother return profile. The performance of Wingate’s global equity fund also benefited (later in the year) from the decline of the Australian dollar with the fund being unhedged.

For the 12 months to 30 June the Wingate Global Equity Fund returned 29.59 percent versus the MSCI Index return of 33.10 percent. This is in line with the fund’s approach to provide investors with most of the market’s gains and exposure to less of its downside.

Seres Asset Management

Asian equities manager, Seres, increased funds under management from $40 million to $51 million. The Seres Asian Equities Opportunity Fund returned 35.11 percent for the year to 30 June 2013 outperforming its benchmark the MSCI ACFM Asia Index by 6.44 percent.

Fixed interest

Altius Asset Management

Altius’ Funds Under Management increased from $364 million to $531 million at year end.

The Altius Bond Fund returned 4.26 percent for the year ended 30 June 2013. This compared favourably with the Fund’s cash benchmark, which returned 3.28 percent and outperformed the funds bond’s benchmark, which returned 2.78 percent.

In late January 2013 Altius took over the management of the Strategic Fixed Interest Trust following the resignation of Vianova’s key executives. Altius is managing the Trust in line with its stated investment objectives.

The Strategic Fixed Interest Trust returned 2.16 percent for the year, compared to its benchmark of 2.78 percent.

Australian Unity Property and Mortgages

The flagship of Australian Unity’s unlisted property portfolio is the Healthcare Property Trust. The fund achieved a strong return of 9.22 percent for the year to 30 June 2013.

The fund continues to enjoy strong support from the adviser and investor community because of its stable returns, long lease terms and strong research ratings.

The fund owns 24 high-quality properties across Australia. During the year, it successfully completed a number of largescale developments in high growth regions, including major extensions to the Beleura Hospital in Mornington, Peninsula Private Hospital in Frankston and Valley Private Hospital in Mulgrave, all in Victoria.

The Retail Property Fund achieved a 6.14 percent return for investors in the year to 30 June 2013, which was a strong result considering the difficult conditions endured by the Australian retail sector. In May 2013, work began on a $65 million expansion of the Waurn Ponds shopping centre in Geelong, Victoria. The property is already the Retail Property Fund’s largest investment and will be expanded to become a major regional shopping centre, with 35,000 square metres of retail space, plus offices and services.

The Australian Unity Office Property Fund achieved a return of 11.66 percent for the year to 30 June 2013.

Total funds under management in Australian Unity Investments’ unlisted property portfolio decreased during the year to $1.5 billion (2012: $1.7 billion). The reduction in funds under management can be largely attributed to the sale of three properties: 80 Stirling Street, Perth, 218 Bannister Road, Canning Vale, Western Australia and 706 Lorimer Street, Port Melbourne, Victoria.

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Property
Risk
Return
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Australian Unity offers a range of funds that cater for the needs of investors with differing risk appetite. The Group offers retail banking facilities and term deposits through Big Sky at low risk end of the spectrum. At the riskier end of the spectrum the Group offers a variety of Australian and international equity products. In the middle of the range Australian Unity offers several property funds with various levels of speciality. The product suite is rounded out by balanced funds that combine asset classes so as to meet investor needs and expectations.

Acorn Altius Platypus Seres Wingate FUM: FUM: FUM: FUM: FUM: $977 million $531 million $1.5 billion $51 million $78 million Decrease: Increase: Increase: Increase: Increase: $223 million $167 million $550 million $11 million $22 million

Australian Unity Annual Report 2013

Operating and Financial Review

Investments continued

Mortgages

Investors in Australian Unity’s mortgage trusts continue to receive their scheduled six-monthly payments in line with the decision to wind up the Mortgage Income Trusts and High Yield Mortgage Trust, and return capital to investors. The mortgage trust industry was negatively affected by the Global Financial Crisis in 2008 and the introduction of a Federal Government guarantee on bank deposits. It has still not regained its appeal for investors. At this stage it is anticipated that the capital in the Australian Unity mortgage trusts will be returned by 2015, when the last of the mortgages in the funds are due to be refinanced.

Lifeplan

Lifeplan Australia Friendly Society is Australia’s largest provider of investment bonds and education savings plans. The Australian Unity Investment Bond business was merged into the Lifeplan business on 3 July 2013. The combination allows the delivery of more efficient, streamlined and improved services to members of both friendly societies.

Big Sky Building Society

Big Sky Building Society Limited was effectively formed on 1 March 2012 when the business of Big Sky Credit Union was combined with an existing wholly owned building society subsidiary of the Group.

In its first full year as part of Australian Unity Investments, Big Sky Building Society has total on-balance sheet assets of $618 million at 30 June 2013 (2012: $655 million). The reduction in assets reflected a combination of low demand for credit in the Australian economy and strategically managing down high cost excess liquidity. Big Sky also has $569 million in funds under advice (FUA) through its financial planning arm, Big Sky Financial Planning (2012: $258 million). The significant increase in FUA was the result of the acquisition of Brisbane-based financial planning company HN Financial Partners Pty Ltd in June.

Investment was made in Big Sky’s digital strategy through upgrading online banking functionality to a standard more comparable with the major banks.

Funds under management and administration were steady at $1.9 billion (2012: $1.9 billion).

Lifeplan’s NextGen Investment product will be introduced to its financial planners by another major financial institution, allowing more than 1500 new financial planners to have access to the product.

Lifeplan’s funds under management[billion] were steady $1.9

Big Sky has a total of

million on-balance sheet assets $618

Investments’ strategies and outlook

Australian Unity Investments’ strategy is to build and manage an “all-weather” portfolio of products for long term personal and institutional investors, supporting the establishment of social infrastructure and increasing retirement savings and aiming for cyclical resilience.

There are a number of risks inherent in operating investment businesses; nevertheless, Australian Unity Investments remains confident that its diversified business model, strongly focused on portfolio performance will continue to offer value for investors.

In the next year we plan to:

build on our investment specialist capabilities to drive penetration of our investment management businesses in all markets including retail and institutional
develop a direct to consumer channel using the reach of the Australian Unity Group and our banking relationships via the Big Sky Building Society
improve our interactions with our customers with a focus on our digital and web capabilities

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Australian Unity Annual Report 2013

Operating and Financial Review

Personal Financial Services

Australian Unity’s financial advice business, Personal Financial Services, continued to record exceptional growth and achieved its first annual surplus.

F (2012: $1.96 billion) during 2013, leading to an unds under advice grew by 58 percent to $3.1 billion 86 percent increase in segment revenue to $33.69 million (2012: $18.03 million).

After several years of careful investment in building the business, Australian Unity Personal Financial Services achieved a positive contribution as planned in the year under review. The success of the business is built on its position as a trusted source of advice with the ability to provide a full range of services.

EBITDA increased to $2.09 million in the year to 30 June 2013, compared to a loss of $2.64 million in 2012.

Advisers

The number of advisers grew from 109 to 118. This is a slower growth rate than previous years and reflected the effort of replacing a number of less effective advisers with more experienced advisers. As a direct result, average revenues and funds under advice per adviser have increased significantly.

Accountants

The accounting industry continued to be an important source of growth. The number of accounting firms in the Australian Unity Personal Financial Services referral partner program increased by 14 percent to 277 at 30 June 2013 (2012: 242).

Mortgage broking and general insurance

Mortgage broking contributed to the increase in earnings. The business now has 21 brokers, with $492 million in loans under advice at 30 June 2013, compared to $432 million a year earlier.

During the year, the business also assumed responsibility for Australian Unity’s retail general insurance and car insurance services. General insurance broking will be added to the range of services in the 2014 financial year.

Regulatory reforms

Throughout the year, the business also had to invest significant time and effort in complying with a range of regulatory reforms, including the Future of Financial Advice reforms; the Stronger Super reforms; the Tax Agents Services Act; and the Accountants’ licensing reforms.

We achieved:

a positive financial annual contribution to the Australian Unity Group for the first time
a 58 percent increase in funds under advice, to $3.1 billion
almost doubled revenue to $34 million

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Australian Unity Annual Report 2013 31

Operating and Financial Review

Personal Financial Services continued

guidance (in all aspects of their personal finances) to set, and keep them, on the path to financial wellbeing. We create a compliant, resource-rich and thought-leading environment for our Australia-wide network of experienced self-employed and employed financial advisers to enable them to efficiently and confidently provide each of their clients a detailed, robust and tailored blueprint for financial success.

Most of these legislative reforms had a planned start date of 1 July 2013, although in late June implementation of the Tax Agents Services Act was deferred for 12 months.

Unfortunately the bulk of these reforms do little to improve investor protection and have added significantly to the volume of paperwork and costs associated with the advice process. However, as a result of the work undertaken, Australian Unity is well positioned to take advantage of opportunities arising from the consolidation of the industry that is occurring as a result of smaller advisory groups being unable to adapt and operate profitably in the new environment.

Looking ahead, revenues of the business are planned to continue significant growth over the next year based on continued strong growth in funds under advice. Growth will flow from further increases in the number of advisers and referral partners, and the launch of the Federation Managed Accounts, in partnership with Australian Unity Investments and joint venture partner Fedinvest Pty Limited.

Personal Financial Services’ strategies and outlook

Working closely with other professional advisers, Australian Unity Personal Financial Services provide professional strategic advice to help our clients improve their current financial position and ultimately achieve their long term lifestyle goals. Clients are offered regular financial mentoring and ongoing

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3.6
2.4
1.3
0.7
0.5
$3.6b
2009 2010 2011 2012 2013
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Where we were challenged:

compared to previous years the increase in our number of financial advisers was slower while revenue per adviser increased

Funds under advice and loan book (2009-2013) ($b)

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34.0
18.0
9.23
7.12
5.46
$34m
2009 2010 2011 2012 2013
Gross revenue (2009-2013) ($m)
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The outlook for the medium to long term is encouraging. There are risks to achieving growth objectives, such as a sharp downturn in global financial markets or unforeseen impacts on industry revenues from the introduction of the federal government’s legislative changes to the industry, known as the Future of Financial Advice and MySuper, from 1 July 2013. However, it is likely the competitive advantages of the Australian Unity Personal Financial Services business model will be strengthened relative to others in the context of these recent legislative changes.

In the next year we plan to:

consolidate and grow our positive financial results
significantly grow the network of advisers, finance brokers and accountants and materially improve the productivity of these relationships

Australian Unity has moved to number

in the Australian top 100 40 dealer groups

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Measured by advisers
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Australian Unity Personal Financial Services growth compared to industry at March 2013

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68
57
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Australian Unity at March 2013 Industry at March 2013

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24
10
2
-1
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Revenue growth Insurance sales growth (%) versus prior year (%) versus prior year

Funds under advice growth (%) versus prior year

Source: Comparator Quarterly Benchmarking for Financial Planning Businesses March Quarter 2013

Australian Unity Annual Report 2013

Community responsibility

Australian Unity understands that people feel happier and more connected when they are part of a community. That community can come in many forms, from the local neighbourhood to a shared sport, hobby or interest. This understanding drives Australian Unity’s involvement with community organisations.

O ver the year in review, Australian Unity invested a total of $1.14 million into community organisations, as measured by the London Benchmarking Group, an internationally recognised community investment model which measures activity, outcomes and community impact. This was steady compared to the previous year (2012: $1.2 million).

Assistance was provided to 48 state and national community organisations through a combination of sponsorships, grants, in-kind support and time volunteered by staff members.

Australian Unity Foundation

The Foundation was established in 2006 to assist Australian Unity staff and members to support worthwhile community initiatives and activities that foster happy and safe environments for people to reach their full potential. Since its inception $1.2 million has been donated to such groups.

Grant recipients this year were: Sylvanvale Foundation, Many Rivers Microfinance, FareShare, Children’s Protection Society, Anam Cara House, Arts Health Institute, Palms Australia, Spectrum Migrant Resource Centre and Soldier On.

The Foundation also awarded a $50,000 Heritage Fellowship grant to Associate Professor Caroline Marshall of The University of Melbourne, in support of a study on improving the use of antibiotics in aged care.

The Heritage Fellowship was established by Australian Unity in 2011 to fund post graduate research in health, ageing, financial security and wellbeing. The grants are available only to Australian Unity members and their immediate families.

Australian Unity Wellbeing Index

Working on one’s intimate relationships, managing one’s finances effectively and having a job or other interest that offers a true sense of purpose—these are the three pillars of wellbeing, the “golden triangle of happiness”. This formula for personal wellbeing is one of the consistent findings of the Australian Unity Wellbeing Index, which for the last 13 years has provided insights into the subjective wellbeing of Australians.

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The Australian Unity Wellbeing Index remains the nation’s most highly-regarded measure of wellbeing and is internationally renowned. A joint project between Australian Unity and Deakin University’s Australian Centre on Quality of Life it examines, among other things, Australians’ sense of connectedness to their community, how safe and financially secure they feel, and how they are faring in their relationships. Individuals can measure their overall wellbeing against the national average, and broader social questions are canvassed in additional surveys of 2,000 people every six months.

Surveys during the year compared Australians’ sense of wellbeing to the length of time they had been married and found wellbeing is lowest for people in their first year of marriage. Another survey, which found that an extra hour of sleep for those who average only six hours per night can lead to a substantial boost to wellbeing, provides important data for social policy makers and employers looking at productivity.

Supporting staff as they help community

Australian Unity’s employees are provided with one day’s paid community leave per year to volunteer for community organisations.

Further, Australian Unity’s Community Leave Week program allows staff to submit a proposal for a week’s paid leave in a setting where they can apply their professional skills to aid a community organisation. The program is incorporated into the employees’ professional development. Under the program, an Australian Unity manager travelled to the Northern Territory to work with the Western Desert Nganampa Walytja Palyantjaku Tjutaku Aboriginal Corp Inc. (WDNWPT). This name loosely translates as “making all our families well” and the organisation aims to build and run kidney dialysis units in Indigenous communities. The manager will support the organisation in marketing, fundraising and the creation of a charitable foundation.

Another staff member, who is a midwife, travelled to Mongolia under the program to train women in remote village communities to provide vital midwifery skills.

Staff are also encouraged to donate to charity through the workplace giving program. All donations are matched dollar for dollar by Australian Unity. This year, charities received some $30,000.

Australian Unity Annual Report 2013

Community responsibility continued

Areas of support 2013 (% of $)

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44.33 Health 17.95 Social welfare 18.78 Education and young people 16.7 Arts and culture 2.18 Economic development

Australia Day

The celebration of Australia Day each 26 January, is inextricably linked to Australian Unity’s own history.

Australian Unity has a strong connection with Australia Day, which began in 1888 (initially as Foundation Day) thanks to a campaign by the Australian Natives’ Association, one of the founding antecedents of today’s organisation.

This year Australian Unity again supported the Melbourne Australia Day People’s March, which attracted over 12,000 participants, and sponsored the Australia Day Breakfast at Parliament House in Melbourne. Australian Unity also partnered with the Australia Day Council of New South Wales on a national campaign encouraging Australians to reflect on what they most appreciate about their country. These reflections, either through a photo or a personal recorded message, were uploaded to a digital archive, Aussievault.com.au.

Australian Unity also supported the fourth Great Australia Day Swim at Brighton, run by Brighton Rotary. The event continues to grow, with a record 820 swimmers participating. A total of $35,000 was raised for charities.

Community partnerships

For the sixth year running, Australian Unity partnered with Swim Australia to encourage all Australians to learn to swim. This includes subsidies towards the cost of teaching aids at over 600 registered Swim Australia schools.

Australian Unity continued its partnership with Bell Shakespeare, providing support for learning and development programs for children in regional schools. As part of the partnership, the Bell Shakespeare Actors at Work perform at a number of Australian Unity retirement villages in New South Wales and Victoria, bringing performances to elderly residents who may not otherwise be able to experience performing arts.

Australian Unity also strengthened its partnership with the Australian Brandenburg Orchestra, with a number of performances for residents of retirement villages in New South Wales and Victoria.

Advocacy

This year has seen Australian Unity accelerate its public advocacy efforts across the nation’s health and ageing agenda. Engaging in policy debate is one of the most important ways Australian Unity can influence the future for the benefit of its members and the broader community.

Facing further changes to the Private Health Insurance system this year, Australian Unity not only made submissions to a Senate Inquiry outlining the harmful consequences, including putting further pressure on the already stretched public system, but also asked members to write to their federal MP to register their concern. Thousands of members took the opportunity to do so.

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References and resources on Australian Unity’s advocacy and other initiatives can be found at: www.australianunity.com.au/about-us/News-and-Views/Advocacy

Group Managing Director, Rohan Mead, continued to advance the case for a re-think of the way healthcare is governed in Australia, pressing for the consideration of a long-term model along the lines considered by the National Health and Hospitals Reform Commission in 2009 as “Medicare Select”, which he says would put the patient at the centre of the system, deliver better quality care, improve productivity, quality and safety, and at the same time take pressure off the public purse.

In both his own and in adjunct roles, the Group Managing Director also pressed for greater consideration of “patientcentred care’’ in published opinion pieces and speeches, including at the Australian Medical Association’s annual conference. And as a consortium member of Agenda Victoria, a group of leading business people seeking to shape the Victorian economy over the next decade, he advised on the healthcare and medical research changes needed to revitalise that state’s economy.

Australian Unity was also active in pressing for an aged care system that will facilitate greater quality rather than the current focus on compliance with regulation. Australian Unity Retirement Living Chief Executive Officer, Derek McMillan, appeared before a Senate Committee and in the national press to argue the negative impact the federal government’s Living Longer Living Better legislation will have on investment in residential aged care.

Sustainability

Australian Unity is committed to a sustainable future for all of our stakeholders —our members, customers, people, the community and the environment. During 2012-2013 the company continued to build on its investment in, and commitment to, sustainability across its portfolio of businesses.

During the year Australian Unity Investments’ property at 10 Valentine Avenue, Parramatta, commenced an $800,000 overhaul to improve energy efficiency and cut power use. These initiatives should result in annual savings of $130,000 in electricity costs.

The Parramatta property was the first building in New South Wales to enter into an Environmental Upgrade Agreement (EUA) with the New South Wales Government’s Office of Environment and Heritage, under which energy efficiency improvements are made and costs reimbursed through council rates. The upgrade will save tenants an estimated 65 percent on their lighting bills and also reduce heat load and maintenance costs.

Earlier in the year the property at 40 Allara Street, Canberra, received a final ’Green Building Grant’ payment from the Australian Government’s Department of Industry, Innovation, Science, Research and Tertiary Education after extensive refurbishments that will boost energy efficiency.

Our community contributions at a glance

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2013 Total
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$1.14m
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2012 Total $1.17m
91% Cash
5.5% In-kind support
3.5% Staff time
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94.04% Cash
3.56% In-kind support
2.4% Staff time
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Australian Unity Annual Report 2013

Community responsibility continued

The Waurn Ponds Shopping Centre expansion includes a system to help efficiently control electricity consumption, rain collection, and features air conditioning packaged units that are more energy efficient than those currently used in the existing centre. In addition, the design of the building will maximise natural light throughout the year and reduce energy loads for heating and cooling.
The boiler/chiller upgrade at 20 Smith Street, Parramatta resulted in an increase in the National Australian Built Environment Rating System (NABERS) rating from 3 stars in February 2012 to 4 stars in December 2012. Australian Unity Investments is continuing to undertake some minor lighting upgrades and is in the process of recommissioning the chilled water and main air distribution at the property in order to achieve a 4.5 star NABERS rating in December 2013.
Australian Unity Retirement Living’s newest facility, Peninsula Grange Residential Aged Care, located in Mornington, Victoria, is currently under construction. The facility’s design incorporates a range of sustainability initiatives including electrolysed water technology to minimise the reliance on cleaning chemicals, solar hot water and hydronic heating systems to reduce carbon emissions, and rain water harvesting for irrigation to minimise potable water use. Design features such as augmented roof eaves, thermal insulation and double glazing will reduce air-conditioning requirements and energy consumption.

Our heritage	Our heritage	Our heritage
,	1840	Manchester Unity IOOF founded in Victoria and
		frst lodge MUIOOF
		established in Adelaide
,	1848	Grand United Order of Odd Fellows founded
		in New South Wales
,	1870	Manchester Unity granted Crown land to establish
		homes for aged and
		disadvantaged members
,	1871	Australian Natives’ Association Victoria
		(ANA) established
,	1888	ANA resolves to commemorate Foundation Day (26 January) – now celebrated each year as Australia Day	,	1901	Australian Federation achieved and ANA member Edmund Barton becomes Australia’s frst Prime Minister
,	1890s	ANA campaigns for Federation

Image: The Big Picture by Tom Roberts. The Opening of the First Parliament of the Commonwealth of Australia by H.R.H. The Duke of Cornwall and York , Melbourne, 9 May 1901

The Carlton Wellbeing Residential Aged Care Facility, currently under construction, will also feature leading sustainability technology. The facility will include features such as electrolysed water technology to minimise the reliance on cleaning chemicals, solar water heating and condensing hot water systems to reduce water heating energy consumption, energy efficient lighting, rainwater harvesting as well as on site contained vertical waste management and recycling. The internal environment will feature centralised air-conditioning with mixed mode ventilation to control room comfort for each resident.
Australian Unity is continually working to minimise the environmental impact of its activities and reduce overall energy consumption of its headquarters at 114 Albert Road, South Melbourne.

In 2011-2012 construction of a new data centre and technology platform was completed. Cooled by two gas powered turbines offering an environmentally friendly energy source to supplement the main electricity supply, the data centre is now fully operational and performing at an industry best practice level, tier 3, compared to its pre-upgrade tier 1 level.

Australian Unity’s business critical technology and core applications can now operate on three different and mutually exclusive power sources: main feed, gas turbine and diesel generator, guaranteeing their availability at all times. The new data centre provides a sustainable energy solution that balances business and environmental objectives.


,	1903	ANA member Alfred Deakin becomes Australia’s second	,	1964	ANA and MU Permanent Building Societies	,	2001	Australian Unity Wellbeing Index launched
		Prime Minister – serving			established in Victoria
,	1931	three terms in ofce ANA Victoria member Sir Isaac Isaacs becomes the frst Australian-born	,	1971	BP and BHP credit unions formed – predecessors to Big Sky	,	2002	Australian Unity Financial Planning launched (now Australian Unity Personal Financial Services)
		Governor General				,	2005	Grand United NSW merges with Australian Unity
,	1932	Landmark Manchester Unity building in Swanston Street	,	1984	Lifeplan Australia Friendly Society created from mergers of South Australian	,	2008	Australian Unity launches Remedy Healthcare
		Melbourne completed			friendly societies
,	1940s	Friendly societies set up Housing Co-operatives – forerunner to	,	1986	Grand United Victoria merges with Manchester	,	2009	Lifeplan Australia Friendly Society merges with Australian Unity
		building societies			Unity Victoria	,	2012	Big Sky Credit Union joins Australian Unity to form
,	1948	Grand United opens GU Centenary Centre – Homes for the Aged and War Memorial Nursing Home	,	1993	Australian Unity formed from merger of Manchester Unity and ANA in Victoria	,	2012	Big Sky Building Society Australian Unity acquires Better at Home Care

Australian Unity Annual Report 2013

People

Employee value proposition

Australia Unity’s workforce is diverse. Employees include fund managers, nurses, civil engineers, physiotherapists, cooks, accountants, bank tellers, dieticians, and actuaries, just to name a few. This diversity is a source of great vitality and strength for the company’s operations. It also means that in the competition for talent in the workforce market, Australian Unity must compete with a diverse range of companies across a very wide range of Australian workplaces. The company’s employee value proposition must be robust, yet flexible enough to meet the diverse needs of these potential and current employees.

Australian Unity’s approach is to build a strong and consistent internal culture across our entire operations, centred on wellbeing. We adapt some specific elements of this approach, while retaining the wellbeing focus, to suit the different and varied parts of our workforce and to ensure the company is well understood and recognised in the employment market. Taking this approach to the company’s workforce strategy has also resulted in a deeper level of understanding of the core capabilities required by the different and varied parts of the company’s business operations.

A key part of our employee value proposition, measured using entry, exit and engagement surveys, is the organisation’s external ambitions and goals, which are centred around the wellbeing of customers and members. This social purpose, together with our commercial operating principles, is key to attracting and retaining talented staff.

Wellbeing, engagement and performance

The commitment of Australian Unity’s people to the organisation’s ambition and values is reflected in their high level of sustainable engagement. This is measured every 18 months and benchmarked against other businesses worldwide. Our People Survey 2013 revealed an average sustainable engagement level of 80 percent, which is higher than the average for Australia’s largest businesses and at or just below the average of the world’s highest performing companies. High levels of sustainable engagement are required for long term, superior business performance and they provide valuable indicators of employee wellbeing.

Australian Unity employee engagement results 2013

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73% 83%
Energised Engagement
People’s level of How our people
energy and resilience think, feel and act in
at work Sustainable a way that supports
Engagement Australian Unity
80%
83%
Enabled
How effectively
Australian Unity
removes barriers to
high performance
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To further support employee wellbeing and to better understand the link between wellbeing and performance, Australian Unity has begun a two-year program to measure the impact of different wellbeing activities in employee engagement, productivity and performance.

This pioneering program will be delivered in four stages—health; future security; achievements; and community and relationships—and draws heavily on Australian Unity’s expertise, as well as specific products and services. The first step on this program is a health risk assessment, and the deployment of personal health coaching by Remedy Healthcare for those at higher risk of illness.

Growth

The number of people employed by Australian Unity’s operations continued to grow over the past year, with the total number of staff reaching 1,805 at 30 June 2013. This is an increase of more than 200 positions compared to the previous year.

Over the past five years, Australian Unity’s workforce has increased by more than 600 people.

People development

The Australian Unity Business School is another important ingredient in the organisation’s development approach and has been strengthening leadership and management capacity for six years, since its inception as a major, internally managed, learning and development initiative.

In addition to general management education and skills development, the Business School fosters innovation and collaboration, factors that are critical to Australian Unity’s ability to thrive in challenging markets and in emerging or very dynamic operating areas. The number and scope of the Business School’s programs increased during the year.

More than 450 managers from all levels of the organisation and all business areas have participated in various programs since the initiative began.

Diversity

Australian Unity believes workplace diversity encompasses gender, culture, ethnic background, disability, as well as a diverse mix of experience, thinking styles and backgrounds. Our consideration of diversity is founded on the principle and practice of mutual respect and accommodation. Australian Unity believes that a diverse workforce is essential for innovation and effective risk management.

Over the year, the diversity reference group promoted cultural awareness and supported the formation of a formalised women’s network group.

Australian Unity has a long record of creating opportunities for women at all levels of the organisation. Australian Unity maintained its external recognition from the Workplace Gender Equality Agency as an Equal Opportunity for Women in the Workplace Employer of Choice.

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Women at Australian Unity

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100%
79 % of total in each category
75
62 Non-executive directors
50 Executives
50
36 33 41 Senior managersManagers
25 Professional/sales
13
Supervisors/team leaders
0 Frontline/admin/nursing
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Risk management

Australian Unity continually strives to make our various and diverse workplaces as safe as possible for all people.

As part of our safety strategy, Australian Unity requested an independent review be conducted during the year to ensure people risks are appropriately identified and managed across the many diverse roles in the organisation. Many recommendations from the review have already been implemented and this process will be completed in the current financial year.

Health risk assessments

employees completed a free health and 513 wellbeing assessment this year

Roles filled over the year (%)

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17 Customer service 20 Clinicians and care support 6 Site services 3 Investment management 16 Professional services 8 Operations management 9 Technology 9 Business development 12 Administration

Australian Unity Annual Report 2013

Organisation chart

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Australian Unity Limited Board of Directors
Glenn Barnes Rohan Mead John Butler Eve Crestani Ian Ferres
Chairman Group Managing Director FCPA, FIFS, FAICD Dip Law (BAB), FAICD FIAA, FAICD
& CEO
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Group Managing Director & CEO
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Revenue Units
David Bryant Amanda Hagan
GAICD BSc (BIT), SIA, GAICD
Chief Executive Officer, Investments Chief Executive Officer,
and Chief Investment Officer Healthcare
Investments Healthcare
Steve Davis Derek McMillan
CFP BSc (Hons), Dip Ed
Chief Executive Officer, Chief Executive Officer,
Personal Financial Services Retirement Living
Personal Financial Services Retirement Living
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Stephen Maitland OAM RFD, BEc, MBus, LLM, FCPA, FAICD, FCIS, FAIM, FFin

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Peter Promnitz Warren Stretton Greg Willcock BSc (Hons), AIAA, FAICD FAICD, FCPA, FCIS, FCSA, FTIA, BComm, FCPA, GAICD, MAIM, FFin FAMI CPM

Board Committees

Audit and Compliance Committee Chairman: Stephen Maitland

Human Resources, Remuneration and Nominations Committee Chairman: Eve Crestani

Investments Committee Chairman: Ian Ferres

Risk Committee Chairman: Eve Crestani

Support Units

Sharon Beaumont Kimina Lyall Kirsten Mander BSc (physiotherapy), Grad Dip BA (Journ), GAICD LLM, FAICD, FCIS, FRMIA OHS, MBA, GAICD Group Executive, General Counsel Group Executive, Corporate Development and Company Secretary Human Resources Human Resources Corporate Development Group Governance Anthony Connon Kevin McCoy Tahir Tanveer BA (Oxon), FCA, FAICD BComm, HDip Acc, CA, PMP, GAICD M InfoTech, BA Econ, Grad Dip Info Sys Chief Financial Group Executive, Strategic Group Executive, Officer Business Development Business Technology and Deputy CFO Group Finance Strategic Business Development Business Technology

Australian Unity Annual Report 2013

Board of directors

Australian Unity Limited Board of Directors

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Glenn Barnes Rohan Mead John Butler Chairman Group Managing Director & CEO

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Eve Crestani

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Ian Ferres

Glenn Barnes

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

Mr Barnes was appointed Chairman of Australian Unity Limited on 1 June 2012. He is chairman of a number of Australian Unity Limited subsidiaries, a member of the Human Resources, Remuneration and Nominations Committee and an ex-officio member of all other board committees. He is a professional director and consultant and is currently Chairman of Ansell Limited and a director of 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.

Rohan Mead

Group Managing Director & CEO

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. He is also a director of the Centre for Independent Studies and the Australian Brandenburg Orchestra. Prior to joining Australian Unity, Mr Mead was employed by Perpetual Trustees Australia Limited (19962003) in a range of senior roles. Mr Mead has not held any directorships of listed entities in addition to those set out above during the last three years.

John Butler 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, 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 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, and chairman of both the Risk Committee and Human Resources, Remuneration and Nominations Committee. She is also chairman of Mercer Superannuation Australia Limited, a director of Mercer Outsourcing Pty Limited, a director of Zurich Australia 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. 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

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

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Stephen Maitland

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Peter Promnitz

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Warren Stretton

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Greg Willcock

consultant with TressCox Lawyers, Chairman of Australian Healthcare Investment Company and Medica Radiology & Nuclear Medicine, 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.

Stephen Maitland 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 the Royal Automobile Club of Queensland Limited, RACQ Insurance, Centrepoint Alliance Finance Ltd and of several private companies. 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 40 years’ experience in the banking and finance industries and was chief executive officer of the Queensland Office of Financial Supervision between 1992 and

He was previously a director of Buderim Ginger Limited. Mr Maitland has not held any directorships of listed entities in addition to those set out above during the last three years.

Peter Promnitz

BSc (Hons), AIAA, FAICD

Mr Promnitz was appointed to the board of Australian Unity Limited on 1 January 2013. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Investment Committee and Human Resources, Remuneration and Nominations Committee. He is a director of Marsh Mercer Holdings (Australia) Pty Ltd, SFG Australia Limited and Elite Superannuation Services Pty Ltd. He was formerly Regional Head of Mercer in Asia Pacific and a member of the global Executive Committee, a role he retired from in December 2012. Mr Promnitz is a qualified actuary. Prior to his senior executive role in Asia Pacific with Mercer, his business experience includes a diverse career in financial services in Australia and New Zealand. He has led investment, superannuation, actuarial and human resource consulting businesses in both executive and non-executive capacities with a personal focus on clients, diversity and governance. He has not held any directorships of listed entities in addition to those set out above during the last three years.

Warren Stretton

FAICD, FCPA, FCIS, FCSA, 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 and during his tenure was

instrumental in restructuring, developing and focusing the operations on the Private Health Insurance and Aged Care Industries. He is a director of a number of Australian Unity Limited subsidiaries, a member of the Audit and Compliance Committee, Human Resources, Remuneration and Nominations Committee and the Investment Committee. Mr Stretton holds a Government appointment to the Medical Radiation Practice Council of NSW. 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. He consults in areas of probity, risk management and strategic planning. Mr Stretton has not held any directorships of listed entities in addition to those set out above during the last three years.

Greg Willcock

BComm, FCPA, GAICD, MAIM, FFin

Mr Willcock was appointed to the board of Australian Unity Limited on 1 March 2012. He is Chairman of Big Sky Building Society Limited, a director of Big Sky Financial Planning Pty Ltd and a member of the Audit and Compliance Committee. Mr Willcock has over 33 years’ experience in banking and financial services in Australia, United States of America and the United Kingdom including seven years in general management roles at National Australia Bank in the areas of risk management, strategy and change management. Mr Willcock has not held any directorships of listed entities in addition to those set out above during the last three years.

Australian Unity Annual Report 2013

Governance statement

Australian Unity Limited is a mutual company with a number of wholly owned and closely-held subsidiaries carrying out the major operational business activities of the Australian Unity Group. Good corporate governance is a fundamental part of the culture and business practices of the Group. The key aspects of the Group’s corporate governance framework and practices are set out below.

Regulatory framework

ASX Listing Rules

Australian Unity Limited is listed on the Australian Securities Exchange (ASX) as a Debt Listing, following the issue and quotation of its Australian Unity Notes in April 2011. The Company is committed to maintaining high corporate governance standards and has adopted a governance framework that meets the ASX requirements applicable to its Notes and reflects many of the ASX Corporate Governance Principles and Recommendations as relevant to its Australian Unity Notes.

Regulators

Australian Unity’s business operations are extensively regulated, including by the Australian Prudential Regulation Authority (APRA) (parent company, friendly society benefit funds, building society and life insurance); Private Health Insurance Administration Council (health insurance); Australian Securities and Investments Commission (corporate and financial services); ASX (the Notes), state regulators (retirement living services); commonwealth regulators (aged care); and the regulation of trade practices by the Australian Competition and Consumer Commission. Australian Unity Limited is also registered as a non-operating holding company under subsection 28A(3) of the Life Insurance Act 1995 , and regulated by APRA under that designation.

These various regulatory regimes mean that Australian Unity is required to comply with a wide range of standards and regulations that apply across its various business activities, including, for example, APRA Governance Prudential Standards APS 510 (for authorised deposit-taking 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

The board of directors of the Company is responsible for the governance of the Group.

Board composition and expertise

As at 30 June 2013, there were nine 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 and be ’fit and proper’ within the meaning of Australian legislation and regulatory regimes applicable to the Group’s business operations. 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 regularly to ensure that the mix of skills remains appropriate to achieve the Company’s objectives. It is intended that the board will 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 directing strategically and governing soundly 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 to 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 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 to 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 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 as follows.

Australian Unity Annual Report 2013

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 investable assets. The Investment Committee plays a critical role in assessing and reviewing the Group’s investment approach and outlook to support their appropriateness and compliance with relevant covenants.

Human Resources, Remuneration and Nominations Committee

The Human Resources, Remuneration and Nominations Committee (HR Committee) is responsible for assisting the board and Chairman in relation to remuneration, nomination and related matters. These matters include evaluation of the performance of the board as a whole, its committees, individual directors and its governance process. They also include the identification and consideration of 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 performance measures, evaluation and remuneration of the Group Managing Director to the full board and approves 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 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 (contained in the Directors’ 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 .

External auditor

Ernst & Young (EY) 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 EY 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 EY’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 regularly identify, evaluate and develop action plans to manage their business risks, maintain risk registers, which are regularly reviewed and updated not less than quarterly. Higher rated risks are reviewed by the Risk Committee each quarter in addition to annual risk reviews by the board’s Risk Committee, including existing and emerging risks, associated mitigation strategies and status of implementation.

Business-related proposals to be considered by the board require proposing officers to be individually accountable for the identification, measurement and mitigation of all risk involved and risk registers form 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, with regard to certain aspects of the company’s activities are also attenuated 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 attention to industry specific requirements.

Group-wide compliance is supported by a Group compliance training system and the computer-based compliance database.

Australian Unity Annual Report 2013

Financial overview

The financial statements tell the story, in numbers, of the success of the Group in achieving its objectives. There are many different audiences for a financial report. New members may wish to gain an appreciation of Australian Unity’s financial size and strength. Experienced investors may enjoy taking the time to understand the financial reports. Financial analysts will want to compare Australian Unity’s performance with other institutions.

T he experienced analyst will know where to find what they are looking for, given that these financial reports are prepared in accordance with all of the requirements of the Corporations Act 2001 and the relevant accounting standards.

The first time reader will find that the financial statements are divided into sections. First there is the Directors’ Report, which outlines the activities during the year and key governance matters. Then come the four key Statements of financial results and status (comprehensive income, balance sheet, changes in equity and cash flow) supported by 48 explanatory notes. The first three notes describe the accounting policies and the risk profile of the Group. Notes 4 to 35 provide the details of many of the individual figures reported in the four key statements. There follows a set of notes (36 to 41) not related to specific financial figures but which describe related parties, the structure of the Group’s companies, and transactions between them. Finally notes 43 to 48 provide additional detail in respect of three specific business areas (Health Insurance, Benefit Funds and Big Sky Building Society) as well as the parent entity and an important reconciliation of the profit attributable to the members of Australian Unity.

The financial statements’ content is supported by a declaration from the directors as to their compliance with statutory requirements and the Group’s solvency, plus a report from the independent auditors on their examination of the Group’s accounts.

There is no one page summary but there is also no need to read the report in any particular order. A good starting point is to review the Statement of comprehensive income (page 66) and Balance Sheet (page 67) and then read the Operating and Financial Review in the Directors’ Report (detailed descriptions of the individual businesses are to be found on pages 10 to 33).

The Statement of comprehensive income shows that revenues (excluding premiums from life investment contracts) have grown by over 10 percent again this year primarily as a result of continuing growth in our Health Insurance and Personal Financial Services businesses, a full year of Big Sky Building Society which joined the group part way through last year and investment income. Growth in expenses, excluding finance costs, reflected similar factors but was pared back to 9.2 percent from 10.4 percent last year. Finance costs are shown separately and having nearly doubled in the prior year because of a full year of the Australian Unity Notes on issue, dropped back by 10 percent this year reflecting the Reserve Bank of Australia cuts to interest rates. A full year’s contribution from our 70 percent holding in Certainty Financial added an extra $3 million this year to our share of the net profits of associates (companies we own less than 50 percent of and our joint venture partnerships) which are additional to the profits from our own revenues.

Other comprehensive income includes a small credit (previously a charge) relating to revaluation of cash flow hedges which is taken directly to reserves. The net charge will unwind when the hedges mature. The amounts shown in the Statement of comprehensive income cover both the businesses owned by the members of Australian Unity Limited and the benefit funds owned by the policyholders (the split between them is set out in note 46).

Profit after tax rose by 32 percent having fallen last year by 13 percent and so members’ funds rose by 6.6 percent (2012: 5 percent) which is higher than inflation. Members’ funds are represented by a combination of the Group’s assets and liabilities set out in the balance sheet, which is a snapshot as at the end of the financial 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 2013, Australian Unity had 1.6 times as many current assets as current liabilities, the same multiple as last year. Total assets of $3.83 billion include 27 percent cash, 33 percent marketable securities, 14 percent loans and 19 percent properties (including retirement villages and aged care facilities) and equipment. Deferred or intangible assets make up only 3 percent of total assets. Interest bearing borrowings of $791 million, representing 52 percent of liabilities (excluding the benefit funds), include $120 million of Australian Unity Notes, $62 million of Retirement Village Investment Notes, $25 million of subordinated notes and $562 million of deposits in Big Sky Building Society.

These schedules and narrative should enable the reader to form an appreciation of what has been happening during the year and the comparative sizes of the company’s assets and liabilities. A key indicator is the gearing ratio. The terms of the Australian Unity Notes issue stipulate that the ratio of the borrowings (excluding the building society deposits) to members’ funds plus borrowings must not be more than 45 percent. At 30 June 2013 that ratio was 35.9 percent (compared to 37.9 percent last year).

A first glance at the Statement of cash flows suggests that, far from a cash profit, there was an outflow this year of $37.2 million from operating activities. But that includes the contributions and withdrawals from life investment contracts which belong to benefit fund members. The cash movement relating to operations was actually an inflow of $50.8 million. A simple comparison with last year is not possible as the 2012 figures are distorted by the merger with Big Sky.

The Statement of cash flows also shows investing activities of $106 million which include payments for buildings of $21.7 million, plant and equipment of $3 million, and $9.4 million for computer software. The buildings’ cost and the investment properties’ outflow of $31.8 million reflect Australian Unity’s continuing strong investment in retirement villages and aged care facilities.

There is a wealth of additional information contained in the Directors’ Report and the notes (for instance, any significant events since year end are recorded in note 41). I encourage members to become familiar with any details of interest.

Anthony Connon Chief Financial Officer

The Statement of changes in equity shows the movements in members’ funds over the last year. Because Australian Unity is a mutual, all of the comprehensive income of $29.7 million contributes to members’ funds. Last year as a result of the merger with Big Sky, members’ funds increased by an additional $41.6 million.

Australian Unity Annual Report 2013

Financial report for the year ended 30 June 2013

These financial statements are the consolidated financial statements of the Group consisting of Australian Unity Limited and its subsidiaries. The financial statements are presented in the Australian currency. Australian Unity Limited is a company limited by shares and guarantee, however no shares have been issued. The company is incorporated and domiciled in Australia and its registered office and principal place of business is: 114 Albert Road, South Melbourne VIC 3205

A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on pages 53 to 55 which is not part of these financial statements. The financial statements were authorised for issue by the directors on 27 August 2013.

Directors’ report	53	Current assets		Reserves and retained earnings	112
Auditor’s independence declaration	56	Cash and cash equivalents	96	Non-controlling interest	112
Remuneration report	57	Trade and other receivables	97	Reconciliation of proft after income
Overview	57	Inventories	98	tax to net cash infow/outfow
Key terms	58	Loans and advances	98	from operating activities	113
Remuneration framework	58	Current tax assets	99	Related party transactions	113
Senior Executive remuneration	59	Financial assets at fair value		Subsidiaries	114
Non-executive director remuneration	61	through proft or loss	99	Key management personnel disclosures	115
Remuneration tables	62	Held-to-maturity investments	100	Commitments	116
Independent remuneration		Non-current assets		Contingencies	116
consultant’s report	65	Loans and advances	100	Events occurring after
Financial statements	66	Investments in associates		the reporting period	117
Consolidated statement		and joint ventures	101	Remuneration of auditors	117
of comprehensive income	66	Other fnancial assets	102	Health insurance	118
Consolidated balance sheet	67	Property, plant and equipment	103	Beneft fund policy liabilities	119
Consolidated statement of changes in equity	68	Investment properties Deferred tax assets	104 105	Disaggregated information – Beneft funds	123
Consolidated statement of cash fows	69	Intangible assets Other non-current assets	105 106	Reconciliation of proft attributable to members of Australian Unity Limited	130
Notes to the consolidated		Current liabilities		Building society fnancial information	131
fnancial statements Summary of signifcant accounting policies Critical accounting estimates and judgements	70 70 81	Trade and other payables Interest bearing liabilities Current tax liabilities Provisions	106 106 107 108	Parent entity fnancial information Directors’ declaration Independent auditor’s report to the members	132 133 134
Financial risk management	82	Other current liabilities	108
Segment information	89	Non-current liabilities
Business combination	93	Interest bearing liabilities	109
Revenue and other income	94	Deferred tax liabilities	111
Expenses	95	Provisions	111
Income tax expense	95	Other non-current liabilities	111

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 2013.

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 (unless otherwise stated):

Glenn Barnes, Chairman Rohan Mead, Group Managing Director John Butler, Director Eve Crestani, Director Ian Ferres, Director Stephen Maitland, Director Peter Promnitz, Director (appointed 1 January 2013) Warren Stretton, Director Greg Willcock, Director

Company secretaries

Kirsten Mander and Catherine Visentin were company secretaries of Australian Unity Limited at 30 June 2013.

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.

No dividend was paid by the majority-owned subsidiary to a non-controlling interest during the year (2012: $389,000).

Operating and financial review

In 2013 the Group’s effective conduct of its core activities led to an increase in profit after income tax to $29,410,000, 31.7 percent above 2012’s $22,332,000. This strong financial result was due to the ongoing operational development of our activities and investments in customer service across the Group’s portfolio of businesses despite still patchy economic conditions and notwithstanding increasing, and costly, regulatory restrictions.

Revenue and other income increased by more than 10 percent to $1,141,787,000, with revenue growth experienced across all of Australian Unity’s businesses and improved investment returns more than offsetting the expanding business’ cost increases. Total expenses, including health insurance claims, were 9 percent higher at $1,063,897,000.

The focus in 2013 has largely been one of organic growth in pursuit of our strategy of serving the wellbeing needs of Australians. Longer term plans are in development to extend the reach of services and products to enable millions to enjoy wellbeing.

The strategy requires us to continue to build a commercial, sustainable portfolio of businesses that foster wellbeing.

Healthcare provides private health insurance, dental and other healthcare services, such as preventative health and chronic disease management services. Retirement Living is a provider of aged care facilities, support services and independent living units. Investments manages investment funds in property, Australian and international equities, fixed interest and bonds. Investments also operates a building society. Personal Financial Services provides financial planning and finance broking services.

Key aspects of the operating, financial and strategic performance and business risks of each Group business are set out in pages 10 to 33.

In assessing the performance of its operating business segments the Group uses a measure of adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). As the name indicates, this measure excludes the effects of depreciation and amortisation, interest on external borrowings and investment income. It also excludes other non-recurring expenditure.

Significant changes in the state of affairs

Total members’ funds increased to $478,675,000 at 30 June 2013 (2012: $448,993,000), an increase of $29,682,000. This movement reflects 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 3 July 2013, the Australian Prudential Regulatory Authority (APRA) approved the total transfer of the business of Australian Unity Investment Bonds Limited (AUIBL) to Lifeplan Australia Friendly Society Limited (LAFS) under the Financial Sector (Business Transfer and Group Restructure) Act 1999 . As this was a voluntary transfer at the request of AUIBL and LAFS there was no consideration paid and, as the transfer took place wholly within the Group, there was no impact on the Group’s financial position or results.

On 11 July 2013, the Group repaid the $25,000,000 subordinated capital notes outstanding as at 30 June 2013 and issued $30,000,000 of new subordinated capital notes. The new notes have a maturity of 10 years with a non-call 5 year period and bear a floating interest rate equal to the 90-day BBSW rate plus a margin of 3.00 percent per annum. On the same day, the Company entered into a hedge contract for five years to swap the variable component of the interest rate at 3.71 percent per annum. With the hedge contract, the effective interest rate of the new notes is fixed at 6.71 percent per annum until 11 July 2018.

The board is not aware of any other matter or circumstance arising since 30 June 2013 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 existing prudential capital requirements applicable to the Group’s health insurance entities will be replaced by new capital standards effective 1 January 2014. The new proposed standards generally increase the solvency and capital adequacy requirements. In June 2013 the Private Health Insurance Administration Council (PHIAC) released two papers for comment in relation to the review of the solvency and capital adequacy standards applicable to private health insurers. The Group expects its health insurance entities to be able to meet the new requirements.

The board is not aware of any other 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’s operations are conducted through four business segments: Healthcare, Retirement Living, Investments and Personal Financial Services.

Australian Unity Annual Report 2013

Directors’ report continued

Many of the businesses in the Group operate in areas which are subject to substantial government regulation and/or participation. Australian Unity competes at times in areas where free market forces are not always the sole determinant of outcomes.

The Group is subject to 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.

Environmental regulation

No significant environmental regulations apply to the Parent entity. The property operations within both the Retirement Living services business and 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.

Information on directors

Please see pages 44 to 45 for directors’ biographies.

Company secretaries

Kirsten Mander, LLM, FAICD, FCIS, FRMIA,

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.

Catherine Visentin, CSA(Cert), 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 18 years of involvement with the Australian Unity Limited company secretarial function.

Meetings of directors

The numbers of meetings of the Company’s board of directors and of each board committee held during the year ended 30 June 2013, and the numbers of meetings attended by each director were:

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
Glenn Barnes 11 Rohan Mead 11 John Butler 11 Eve Crestani 11 Ian Ferres 11 Stephen Maitland 10 Peter Promnitz 5 Warren Stretton 11 GregWillcock 11	11 – 11 – 11 5 11 – 11 5 11 5 5 – 11 5 11 5	– – – – – – 5 4 4 – 4 4 5 – – 5 4 4 – – – 5 – – 5 – –	– – – – – – – – 6 6 5 6 2 2 6 6 – –	5 5 – – – – 5 5 – – – – 1 1 5 5 – –

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.

Glenn Barnes is Chairman of the Company and is a member 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 the Human Resources, Remuneration and Nominations Committee and Ian Ferres is Chairman of the Investment Committee. Rohan Mead is an ex-officio member of all committees.

Glenn Barnes’ and Rohan Mead’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.

Remuneration report

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 57 to 65. 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 Director’s 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 38.

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.

Parent entity

Australian Unity Limited is a company limited by shares and guarantee, however no shares have been issued. The liability under the guarantee of the members in a winding up is limited to $1 per member while being a current member and within one year afterwards.

Provision of non-audit services by the auditor

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.

During the period 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:

	2013	2012
	$	$
Ernst & Young Australian frm:
Audit of regulatory returns	285,089	267,451
Tax compliance services	443,436	288,520
Tax consulting services	505,868	468,976
Other services	69,043	168,644
Total remuneration for non-audit services	1,303,436	1,193,591

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 56.

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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Glenn Barnes
Chairman
Rohan Mead
Group Managing Director & CEO
South Melbourne, 27 August 2013
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Details of the amounts paid or payable to the auditor (Ernst & Young) for audit and non-audit services provided during the period 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 .

Australian Unity Annual Report 2013

Auditor’s independence declaration

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Remuneration report

This Remuneration report relates to Company performance for the year ending June 2013. This means that where information is included on individual remuneration it is a combination of incentive payments (where applicable) for the financial year ending 2012 that were paid in October 2012, together with ongoing remuneration paid during the financial year ending 2013.

Overview
Key terms
Remuneration framework
Senior Executive remuneration
Non-executive director remuneration
Remuneration tables

This Remuneration 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 2013 (’Year’). It has been prepared and audited as required by the Corporations Act 2001 (’the Act’). The report covers all Key Management Personnel of the Group.

1 Overview

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, including its governance, the board and its Human Resources, Remuneration and Nominations Committee (’HR Committee’) have had particular regard to the purpose and structure of the company, the business’ strategies, market conditions and expectations of relevant stakeholders. The remuneration framework has remained consistent from the 2012 year and has been benchmarked and monitored to ensure it is:

Effective in connecting remuneration arrangements with both Group and business unit short and long term performance and risk management;
Effective in attracting and retaining the talent required for sustainable business performance and growth; and
Reflective of relevant and current market practices.

Australian Unity is an independent mutual company that operates on commercial principles. The Group operates with a social purpose and is governed by its members. Profits are reinvested into the growth of member wellbeing services and products and we aim to reach as many people as possible with high trust products and services.

The Australian Unity business is a substantial and complex one with several different business streams that span a number of industries. Each of the business areas is heavily regulated and has complex market dynamics. In understanding the rationale behind the remuneration structures it is useful to consider the following dimensions of the Australian Unity group:

It operates Australia’s sixth largest retail private health insurance fund servicing over 196,000 customers;
The Company also operates Australia’s leading corporate health fund (GU Health);
It continues to develop a significant preventative health and hospital substitution business, Remedy Healthcare Group. This is a unique business that provides evidence based health care to members, corporates and other private health funds across Australia. This growing business has already provided services to more than 12,000 patients;
The Group develops and currently operates 18 retirement communities, including four aged care facilities across New South Wales and Victoria, with growth planned for more communities;
Australian Unity is growing the retirement and aged care services provided to the community and in people’s homes;
The Group manages and develops property in retirement and aged care, and also as part of a number of property trusts across all property sectors including healthcare, industrial, office and retail. The aggregate development pipeline being managed by the Group currently exceeds $515 million;
Australian Unity operates a diversified financial services business with over $7 billion of investors’ and members’ funds invested in many different managed investment schemes, benefit funds, a building society and specialised investment joint ventures;
The Group manages Big Sky Building Society Limited, a medium sized operation with a range of personal banking products and services;
The Group has built a material financial advisory business, including personal financial planning and risk advice, advising on client portfolios with a total of more than $3.1 billion; and
Overall, the Group provides services to some 324,000 members
and more than 650,000 customers.

As a result of the Company structure, complex industry environments and the diverse set of business activities, Australian Unity requires a high level of skill and competence from a large team of managers and directors. High quality executives, senior managers and specialists are required to run these businesses effectively, efficiently and productively. Stringent regulatory fit and proper requirements for directors and some staff are mandatory.

To attract and retain this calibre of staff, the HR Committee sets remuneration structures that are competitive in the Australian marketplace. The HR Committee believes the existing remuneration framework and the rates of remuneration paid to directors, senior executives, and staff are appropriate in the competitive environment.

The remuneration arrangements have 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. 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 Australian Unity’s strategic objectives.

Eve Crestani

Chairman, HR Committee

Australian Unity Annual Report 2013

Remuneration report continued

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:

Non-Executive Directors	Position
Glenn Barnes	Non-executive Director – Chairman
John Butler	Non-executive Director
Eve Crestani	Non-executive Director
Ian Ferres	Non-executive Director
Stephen Maitland	Non-executive Director
Peter Promnitz1	Non-executive Director (partyear)
Warren Stretton	Non-executive Director
GregWillcock	Non-executive Director
Executives	Position
Rohan Mead	GroupManagingDirector & CEO
David Bryant	CEO Investments
AnthonyConnon	Chief Financial Ofcer
Amanda Hagan	CEO Healthcare
Derek McMillan	CEO Retirement Living

1 Appointed 1 January 2013

’ 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, each with significant experience in remuneration matters and risk management. The HR Committee is responsible for the Group’s remuneration policy and structure and making recommendations on director, executive and key risk personnel remuneration arrangements to the boards of the Company and its relevant subsidiaries.

The composition and functions of the HR Committee are set out in the HR Committee’s charter and 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 provided advice to the HR Committee on the remuneration practices for Executives, taking account of the competitive environment. The benchmarking advice provided indicated that both the remuneration structure and actual remuneration paid to executives was in line with the relevant markets.

The amount paid to the Godfrey Remuneration Group during the Year was $24,850. They have also provided similar services in relation to this report that are post balance date and ongoing. These amounts will be disclosed in the 2014 report.

Godfrey Remuneration is an independent remuneration adviser. 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 has obtained confirmation from Godfrey Remuneration that it was suitable for appointment as an independent adviser, that it has not provided advice to Australian Unity or any of its management team over the last three years except in this capacity, that it does 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.

3.3 Remuneration policy, principles and relationship with company performance and risk management

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 to and achievement in the organisation. The policy is reviewed by the HR Committee and board on an annual basis and has remained consistent this year with prior years. Relevant external advice is sought on the remuneration framework and market practices are reviewed to ensure it remains relevant and comparable to the market. The key principles of the policy are to:

Provide competitive rewards to attract, motivate and retain highly skilled employees;
Establish goals and apply measures of performance which support Australian Unity’s strategy; and
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, Australian Unity Limited is a mutual company and is run for the benefit of its members. People become Australian Unity members by becoming a customer or employee (subject to certain conditions). Australian Unity’s business strategies and objectives are strongly based on providing services to members in their capacity as customers, with a particular focus on services and benefits that contribute to their wellbeing.

To deliver high quality wellbeing products and services in a sustainable manner the Group needs to be commercially successful and grow the business while effectively managing risk. Australian Unity generates profits 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 non-financial objectives, and performance is assessed by reference to both financial and non-financial objectives.

In so far as financial objectives are concerned, the short term performance measures for Key Management Personnel 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 2012 year (measured by Profit after Income Tax) is relevant. The short term performance payments in this report were paid to reward the $22,332,000 profit achieved in 2012. This profit was a decrease from the 2011 year and the short term incentives paid recognised varying performance of the different divisions. It should be noted that short term incentives were not paid to the Group Managing Director and two of the Executives leading divisions that did not meet their internally set performance targets. This outcome demonstrates the clear links between pay and performance in

the Group’s remuneration structure. The results in 2013, reported in other sections of this report, will form the basis for remuneration decisions that will be reported in the 2014 remuneration report.

The Group’s net asset position attributable to members over the long term (sometimes referred to as members’ funds) has shown a steady increase. Refer to figure 1. This metric is used to determine the payment of long term incentives and is related to the rate of growth over the prior three years. Figure 1: Members’ funds over the last five years

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Members’ funds ($m) $479m
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500
400
300
200
100
0
2009 2010 2011 2012 2013
479
449
388
364
303
----- End of picture text -----

When approving remuneration increases, the board and the HR Committee also have regard to non-financial objectives, which include customer satisfaction with the services provided, staff engagement and productivity, brand growth together with risk and compliance management. Over the 2012 year, Australian Unity achieved steady growth in customer and member services, in both volume and breadth, continuing the steady growth of recent years. A number of the other relevant key performance highlights are set out in the 2012 annual report which is available online at australianunity.com.au.

The Group’s performance during the 2012 year across all measures was solid, and this is reflected in the remuneration outcomes for Senior Executives and Key Management Personnel included in this report. This assessment has been made by the board taking the business context into account, together with the relative complexity and challenges associated with operating in the business areas in which the relevant KMP operate. In particular, consideration was given to the fact that Australian Unity has several business areas, which in recent years have been growing strongly and are structured for continued substantial growth.

4 Senior Executive remuneration

4.1 Remuneration mix

Senior Executive remuneration comprises fixed remuneration and variable remuneration. There are two components of the variable remuneration: a short term incentive and a long term incentive.

	Senior Executive remuneration
*Fixed remuneration*	*Variable remuneration*
Fixed remuneration	Short Term Incentive (1year assessmentperiod) Long Term Incentive (3year assessmentperiod)

The precise mix of fixed and variable remuneration varies depending on the role and seniority of the executive and the nature of his or her 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 6.2.

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 required, external remuneration advisers. In conducting the remuneration review the following factors are considered:

Group 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.

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

4.3 Variable remuneration

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

Payment under each scheme is dependent upon the executive achieving minimum performance hurdles. The board can adjust these variable components of remuneration downwards, to zero if appropriate, if such adjustments are necessary to protect the financial soundness of the Group or to respond to significant unexpected or unintended events. These events can take into account prior years’ outcomes. Participation in the scheme is also subject to all relevant laws in respect to remuneration.

4.3.1 Short Term Incentive: Senior Executives except Group Managing Director

Australian Unity’s short term incentive (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 and are in line with market practice. They include the following:

Group financial performance (for example profit before tax and profit after tax);
Divisional financial performance and other key financial metrics (for example divisional profit);
Customers, people and operations (for example customer satisfaction and staff engagement);
Risk and compliance management; and
Strategy development and implementation.

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

Australian Unity Annual Report 2013

Remuneration report continued

4 Senior Executive remuneration continued

The performance of each executive is reviewed by the Group Managing Director in consultation with the HR Committee at the end of each year. This review assesses achievements against the set performance conditions. In each case, actual reward received is dependent on achieving minimum performance outcomes. To achieve maximum reward, the recipient must achieve exceptional business and individual performance outcomes. A reward is not 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 long term incentive (LTI) scheme is designed to reflect and reward executives’ and managers’ medium to long term goals and contributions to the Group.

It is designed to motivate and reward performance against longer term 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 cash 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 the 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 long term 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. When issuing performance rights, the board considers and applies a Growth Rate that recognises actual and forecast market conditions, the general interest rate environment, business growth plans and the mix of short term and long term assets being held by the Group in accordance with long term strategic developments.

The performance rights will be cancelled if the service condition is not met. The performance rights also will have no value unless a threshold Growth Rate is achieved before the maturity date. The board can adjust the LTI arrangements to address any unusual changes in members’ funds, for example related to the disposal or acquisition of assets. Performance rights may be forfeited for any action that would justify termination of employment or the like.

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 its assessment of the appropriate levels of performance incentive. These requirements also reflect the 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 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 the board’s base level growth expectation for the Group. For example, under the LTI granted in October 2012, the required Threshold Growth Rate was 7.0 percent per annum compound; and
Target Rate: A Target Growth Rate, reflecting the target rate the board wants the participants to achieve. By way of example, under the LTI granted in October 2012 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 Growth 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 is available) and the Target Rate (at which 100 percent is 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, equal to $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;
The notional strike price is set at $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

Assuming the Threshold Rate was 7.0% and the Target Rate was 8.75%, and 100,000 performance rights were allocated to an executive;

And assuming an actual growth rate of 7.7% was achieved over the period of the three-year performance plan;

Then:

The number of rights available for exercise would be 40%, or 40,000 (this is because the 7.7% actual growth rate amounts to 40% of the difference between the Threshold Rate and the Target Rate);
Each performance right would be worth $0.24. This is calculated using the formula: notional performance right less notional strike price;
Notional performance right is $10.00 plus three compounding increments of the actual growth rate (in this case 7.7%) = $12.49;
Notional strike price is $10.00 plus three compounding increments of the threshold growth rate (in this case 7.0%) = $12.25;
Therefore each performance right is $12.49 less $12.25 = $0.24; and
Total value at Maturity of all Performance Rights
= $0.24 x 40,000 = $9,600

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

4.3.3 Incentives: Group Managing Director

The Group Managing Director participates in different variable incentive schemes to other Senior Executives. There are short and long term components, the short term being a cash amount payable annually and the long term being a deferred cash amount payable over three years. The quantum of each scheme is set to a maximum of 50 percent of the fixed remuneration amount. The Group Managing Director’s compensation in all usual circumstances is therefore capped at a maximum of no more than twice his fixed remuneration (base salary plus superannuation) in any one year. As is evident, from the remuneration tables in this report, the amount of variable compensation available to the Group Managing Director above the fixed compensation is indeed subject to significant variation dependent upon achievements against goals and performance measures. Further information on each scheme is set out below.

Short term incentive: The Group Managing Director has the opportunity to earn an annual cash incentive, depending on his performance against performance conditions set by the board as described below. The incentive is payable in one annual payment; and
Long term incentive: The Group Managing Director has the opportunity to earn a deferred cash incentive based on his performance against performance conditions set by the board as described below. The incentive is determined during the year and is payable in three tranches over three calendar years, providing employment in the company continues in those payment periods. The board reserves the right to review and potentially reduce to zero future payments of the award in certain circumstances.

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 sustainable profitability, cash generation and the strength of the Group’s capital position. It also includes performance across non-financial metrics such as company strategy and growth, risk management, stakeholder management, business reputation and the culture and capability of the Group. These performance conditions are set to encourage the desired financial performance and create conditions where high quality services are provided to the Group’s members and customers. These conditions are deliberately broader and longer term in nature than other executive performance conditions to encourage long term financial soundness as well as positioning the company 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 LTI at the end of each calendar year.

4.4 Non-monetary benefits

Australian Unity also makes available certain other non-monetary benefits through salary packaging (including in-house products, salary sacrifice options) and wellbeing and community related benefits. 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 Limited and meeting stringent ’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. At this meeting members approved the sum of up to $1.2 million in aggregate fees per financial year, to be divided between the non-executive directors in an appropriate manner as determined by the directors. This amount has not changed since that time.

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 STI, LTI or any other 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. This scheme was applicable prior to that time but 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. Eve Crestani and Ian Ferres are the only directors entitled to receive a retirement benefit when they retire.

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

In each case the actual reward received is dependent on achieving minimum performance outcomes. To reach the 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.

Australian Unity Annual Report 2013

Remuneration report continued

6 Remuneration tables

6.1 Remuneration for the years ended 30 June 2013 and 2012

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

The following table provide	s the rem	uneration deta	ils required by s	ection 300A(1)(c)	and (e) of the_Corporations Act_	and (e) of the_Corporations Act_	2001.
	Year		Fixed		Variable		Total	Increase	Increase in
					Cash bonus	Cash bonus	remuneration	in long	retirement
Name		Cash salary and fees1	Non-monetary benefts1,4	Superannuation contributions2	(Annual incentive or	(Deferred incentive or		service leave provision3	benefts provision2,5
					STI)1	LTI)3
		$	$	$	$	$	$	$	$
Non-executive directors
Glenn Barnes, Chairman	2013	250,000	–	–	–	–	250,000	–	–
	2012	140,096	–	–	–	–	140,096	–	–
John Butler	2013	101,929	–	23,071	–	–	125,000	–	–
	2012	94,676	–	35,324	–	–	130,000	–	–
Eve Crestani	2013	112,408	2,475	10,117	–	–	125,000	–	18,101
	2012	116,968	2,505	10,527	–	–	130,000	–	20,121
Ian Ferres	2013	125,000	–	–	–	–	125,000	–	18,117
	2012	128,038	1,962	–	–	–	130,000	–	19,821
Stephen Maitland	2013	114,590	97	10,313	–	–	125,000	–	–
	2012	117,311	2,131	10,558	–	–	130,000	–	–
Peter Promnitz	2013	56,898	–	5,121	–	–	62,019	–	–
(appointed 1 January2013)
Warren Stretton	2013	104,559	–	20,441	–	–	125,000	–	–
	2012	89,679	82	40,239	–	–	130,000	–	–
Greg Willcock	2013	112,617	2,247	10,136	–	–	125,000	–	–
	2012	38,286	95	3,446	–	–	41,827	–	–
Non-executive directors whose appointment ceased			during 2012
Alan Castleman (ceased 31 May2012)	2012	188,353	1,455	50,000	–	–	239,808	–	51,077
Warren French (ceased 25 October 2011)	2012	27,110	719	16,594	–	–	44,423	–	–
Kate Spargo (ceased 31 December 2011)	2012	61,927	–	5,573	–	–	67,500	–	–
Sub-total	2013	978,001	4,819	79,199	–	–	1,062,019	–	36,218
Non-executive directors	2012	1,002,444	8,949	172,261	–	–	1,183,654	–	91,019
Executives
Rohan Mead,	2013	985,886	2,396	24,999	–	370,833	1,384,114	27,237	–
GroupManagingDirector	2012	940,866	2,363	25,000	400,000	343,333	1,711,562	36,156	–
David Bryant	2013	641,820	95,585	16,470	–	114,329	868,204	17,554	–
	2012	624,643	92,082	15,775	213,000	115,380	1,060,880	23,328	–
Anthony Connon	2013	499,415	2,396	16,470	95,625	53,145	667,051	15,629	–
	2012	487,148	2,806	15,775	228,250	50,057	784,036	19,457	–
Amanda Hagan	2013	552,629	2,836	16,470	196,000	52,768	820,703	15,546	–
	2012	527,181	2,772	15,775	250,000	49,703	845,431	20,314	–
Derek McMillan	2013	500,940	5,990	16,470	–	67,719	591,119	15,719	–
	2012	474,008	5,945	15,775	168,750	68,340	732,818	22,601	–
Total	2013	4,158,691	114,022	170,078	291,625	658,794	5,393,210	91,685	36,218
	2012	4,056,290	114,917	260,361	1,260,000	626,813	6,318,381	121,856	91,019

1 Short term benefits
2 Post-employment benefits
3 Long term benefits
4 Non-monetary benefits refers to salary packaged benefits such as motor vehicles, car parking, health insurance.
5 As noted in section 5 above, a directors’ retiring allowance scheme, for which provision has been made over the years, was closed to new appointees in 2004. The provision relates solely to the discounted values of the future retirement benefit entitlements of $275,000 for Ms Eve Crestani and $275,000 for Mr Ian Ferres.

6.2 Details of remuneration – Short and long term performance related incentives for relevant executives other than the Group Managing Director

The table shows details of the proportions of total remuneration represented by the variable and fixed components if maximum entitlements were to be paid and the proportions of both short and long term incentives which were paid or not earned.

The table also shows total remuneration paid either by way of variable or fixed components. For this purpose only the fixed component includes any increase in long service leave provisions.

	2013
Name	STI LTI Total Fixed	Total	STI	LTI	Total	Fixed	Total
	variable remuneration remuneration				variable	remuneration	remuneration
David Bryant
Maximum entitlement	27% 28% 54% 46%	100%	25%	30%	55%	45%	100%
Proportion of entitlement paid	0% 25% 13%	53%	50%	24%	36%		64%
Proportion of entitlement not earned	100% 75% 87%		50%	76%	64%
The variable proportion of	total remuneration paid in the year 2013 was 13 percent (2012: 30	percent),
as a result of the implementation of the company’s incentive policies outlined in this report.
Anthony Connon
Maximum entitlement	26% 21% 47% 53%	100%	25%	22%	47%	53%	100%
Proportion of entitlement paid	38% 25% 32%	68%	93%	24%	61%		81%
Proportion of entitlement not earned	62% 75% 68%		7%	76%	39%
The variable proportion of	total remuneration paid in the year 2013 was 22 percent (2012: 35	percent),
as a result of the implementation of the company’s incentive policies outlined in this report.
Amanda Hagan
Maximum entitlement	26% 20% 46% 54%	100%	25%	21%	46%	54%	100%
Proportion of entitlement paid	70% 25% 51%	77%	100%	24%	65%		84%
Proportion of entitlement not earned	30% 75% 49%		0%	76%	35%
The variable proportion of	total remuneration paid in the year 2013 was 30 percent (2012: 35	percent),
as a result of the implementation of the company’s incentive policies outlined in this report.
Derek McMillan
Maximum entitlement	24% 26% 50% 50%	100%	22%	29%	51%	49%	100%
Proportion of entitlement paid	0% 25% 13%	56%	75%	24%	46%		73%
Proportion of entitlement not earned	100% 75% 87%		25%	76%	54%
The variable proportion of	total remuneration paid in the year 2013 was 11 percent (2012: 31	percent),
as a result of the implementation of the company’s incentive policies outlined in this report.

Australian Unity Annual Report 2013

Remuneration report continued

6 Remuneration tables continued

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

The table shows details of LTI granted but which have yet to mature, including their maximum possible value on maturity.

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Long Term Incentive
Maximum total value of LTI yet to
Name Date when LTI was granted Number of performance rights Date when LTI fully matures
mature [1]
$
David Bryant 1 October 2012 595,582 1 October 2015 363,875
1 October 2011 581,056 1 October 2014 355,000
1 October 2010 744,730 1 October 2013 455,000
Anthony Connon 1 October 2012 369,932 1 October 2015 226,013
1 October 2011 360,909 1 October 2014 220,500
1 October 2010 346,180 1 October 2013 211,500
Amanda Hagan 1 October 2012 419,424 1 October 2015 256,250
1 October 2011 491,033 1 October 2014 300,000
1 October 2010 343,720 1 October 2013 210,000
Derek McMillan 1 October 2012 377,482 1 October 2015 230,625
1 October 2011 515,585 1 October 2014 315,000
1 October 2010 441,110 1 October 2013 269,500
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1 The per annum compound Threshold Rates for performance rights granted 1 October 2010, 2011 and 2012 were 7.00 percent, 7.00 percent and 7.00 percent respectively. The maximum total value of LTI yet to mature equates to the amount payable if the per annum compound Target Rate is achieved. The per annum compound Target Rates for performance rights granted 1 October 2010, 2011 and 2012 were 8.75 percent, 8.75 percent and 8.75 percent respectively.

6.4 Details of remuneration – 2013 performance related incentives for the Group Managing Director

The following table sets out for each annual incentive or deferred incentive paid during the year ended 30 June 2013, 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
Name Paid in Forfeited in Calendar Deferred incentive Deferred Date when Value of deferred Maximum total value
2013 [1] 2013 award year paid or payable incentive tranche due [2] incentive paid in of deferred incentive
forfeited 2013 not yet due
% % % % $ $
Rohan Mead – 100 2012 75 25 31 January 2013 127,500 –
31 January 2014 – 127,500
31 January 2015 – 127,500
2011 67 33 31 January 2013 110,000 –
31 January 2014 – 110,000
2010 100 – 31 January 2013 133,333 –
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1 Mr Rohan Mead’s annual incentive was awarded on 1 October 2012.

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. The variable proportion of total remuneration paid in the year 2013 was 26 percent (2012: 43 percent), as a result of the implementation of the company’s incentive policies outlined in this report.

6.5 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
David Bryant, CEO Investments	3 months	3 months	none
Anthony Connon, Chief Financial Ofcer	1 month	12 months	none
Amanda Hagan, CEO Healthcare	3 months	6 months	none
Derek McMillan, CEO Retirement Living	3 months	6 months	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 variable incentives is set out in section 4.3 above.

Independent remuneration adviser’s report

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Australian Unity Annual Report 2013

Financial statements

Consolidated statement of comprehensive income

For the year ended 30 June 2013

For the year ended 30 June 2013
	Notes	2013 $’000	2012 $’000
Revenue and other income	6	1,141,787	1,034,275
Expenses, excluding fnance costs	7	(1,063,897)	(974,550)
Finance costs	7	(19,316)	(21,563)
Share of netproft of associates andjoint ventures	17	4,349	1,327
Proft before income tax		62,923	39,489
Income tax expense	8	(33,513)	(17,157)
Proft after income tax		29,410	22,332
Other comprehensive income
Items that may be reclassifed to proft or loss
Cash fow hedges	33(a)	394	(3,550)
Income tax relatingto components of other comprehensive income	33(a)	(118)	1,064
Other comprehensive income for theyear, net of tax		276	(2,486)
Total comprehensive income for theyear		29,686	19,846
Proft for the year is attributable to:
Members of Australian Unity Limited		29,406	22,231
Proft attributable to non-controllinginterest		4	101
		29,410	22,332
Total comprehensive income for the year is attributable to:
Members of Australian Unity Limited		29,682	19,745
Non-controllinginterest		4	101
		29,686	19,846

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 46.

Consolidated balance sheet

As at 30 June 2013

	Notes	2013 $’000	2012 $’000
ASSETS
*Current assets*
Cash and cash equivalents	9	1,017,336	1,125,181
Trade and other receivables	10	89,632	105,135
Inventories	11	619	641
Loans and advances	12	23,626	25,633
Current tax assets	13	2,556	–
Financial assets at fair value through proft or loss	14	1,213,034	1,092,689
Held-to-maturityinvestments	15	69,736	95,378
Total current assets		2,416,539	2,444,657
*Non-current assets*
Financial assets at fair value through proft or loss	14	43,466	86,837
Loans and advances	16	517,740	514,247
Investments in associates and joint ventures	17	42,783	37,552
Other fnancial assets	18	268	1,138
Property, plant and equipment	19	93,492	73,296
Investment properties	20	617,109	586,565
Deferred tax assets	21	8,672	21,177
Intangible assets	22	92,449	87,182
Other non-current assets	23	20	143
Total non-current assets		1,415,999	1,408,137
Total assets		3,832,538	3,852,794
LIABILITIES
*Current liabilities*
Trade and other payables	24	79,782	66,902
Interest bearing liabilities	25	586,194	627,202
Current tax liabilities	26	–	9,070
Provisions	27	68,543	62,993
Other current liabilities	28	546,064	536,219
Beneft fundpolicyliabilities	44	221,513	225,453
Total current liabilities		1,502,096	1,527,839
*Non-current liabilities*
Interest bearing liabilities	29	204,372	201,243
Deferred tax liabilities	30	28,215	17,331
Provisions	31	3,421	2,991
Other non-current liabilities	32	2,808	24,906
Beneft fundpolicyliabilities	44	1,611,718	1,628,262
Total non-current liabilities		1,850,534	1,874,733
Total liabilities		3,352,630	3,402,572
Net assets		479,908	450,222
EQUITY
Members’ balances		255,919	255,919
Reserves	33(a)	1,681	1,188
Retained earnings	33(c)	221,075	191,886
Members’ balances and reserves attributable to members of Australian Unity Limited		478,675	448,993
Non-controllinginterests	34	1,233	1,229
Total equity		479,908	450,222

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Australian Unity Annual Report 2013

Financial statements continued

Consolidated statement of changes in equity

For the year ended 30 June 2013

For the year ended 30 June 2013
		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 2011		215,513	2,475	170,085	388,073	3,713	391,786
Proft for the year		–	–	22,231	22,231	101	22,332
Other comprehensive income	33(a)	–	(2,499)	–	(2,499)	–	(2,499)
Total comprehensive income		–	(2,499)	22,231	19,732	101	19,833
Transactions with owners in their capacity as owners:
Increase in ownership of majority owned subsidiary		–	–	–	–	(2,585)	(2,585)
Dividends provided for or paid	33(c)	–	–	(389)	(389)	–	(389)
Additions from business combination		40,406	1,171	–	41,577	–	41,577
Transfers within equity	33	–	41	(41)	–	–	–
		40,406	1,212	(430)	41,188	(2,585)	38,603
Balance at 30 June 2012		255,919	1,188	191,886	448,993	1,229	450,222
Balance at 1 July 2012		255,919	1,188	191,886	448,993	1,229	450,222
Proft for the year		–	–	29,406	29,406	4	29,410
Other comprehensive income	33(a)	–	276	–	276	–	276
Total comprehensive income		–	276	29,406	29,682	4	29,686
Transactions with owners in their capacity as owners:
Transfers within equity	33	–	217	(217)	–	–	–
Balance at 30 June 2013		255,919	1,681	221,075	478,675	1,233	479,908

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 2013

For the year ended 30 June 2013
		2013	2012
	Notes	$’000	$’000
Cash fows from operating activities
Receipts from customers		948,764	932,586
Claims and benefts paid		(566,617)	(507,387)
Payments to suppliers and employees		(297,390)	(271,431)
Life investment contracts – Contributions received		131,833	180,201
Life investment contracts – Withdrawals		(219,813)	(224,716)
Life insurance – Premiums received		292	239
Life insurance – Policy claims paid		(1,688)	(1,984)
Net receipts from loans asset		900	9,435
Net receipts from deposits liability		(36,684)	9,482
Interest received		46,851	21,204
Dividends and distributions received		8,426	12,809
Interest and fnance charges paid		(38,183)	(32,691)
Income taxpayments		(13,882)	(4,286)
Net cash infow/(outfow) from operating activities	35	(37,191)	123,461
Cash fows from investing activities
Cash outfow from business combination		(2,592)	(217)
Payments for investments		(898,688)	(867,520)
Payments for property, plant and equipment		(25,816)	(15,075)
Payments for investment properties		(31,773)	(98,300)
Payments for intangible assets		(14,253)	(11,875)
Payments for investments in associates and joint ventures		(9,468)	(11,583)
Payments for additional shares in subsidiaries		–	(3,581)
Loans to related entities		–	(1,422)
Receipts from investments		859,963	801,980
Proceeds from sale of investment properties		11,810	25,095
Dividends received from associates and joint ventures		4,451	2,204
Proceeds from sale of property, plant and equipment		27	462
Proceeds from disposal of intangible assets		356	–
Net cash outfow from investing activities		(105,983)	(179,832)
Cash fows from fnancing activities
Receipts from borrowings		(1,195)	11,198
Receipts from refundable lease deposits and resident liabilities		36,524	73,055
Dividendpaid to non-controllinginterest		–	(389)
Net cash infow from fnancing activities		35,329	83,864
Net increase/(decrease) in cash and cash equivalents		(107,845)	27,493
Cash and cash equivalents at the beginningof the fnancialyear		1,125,181	1,097,688
Cash and cash equivalents at end of the fnancialyear	9	1,017,336	1,125,181

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

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

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 periods presented, unless otherwise stated. Where appropriate, comparatives have been reclassified to enhance comparability with current year disclosures. 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 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 2013 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 acquisition method of accounting is used to account for business combinations 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 the 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) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 percent and 50 percent of the voting rights. Investments in associates are accounted for 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.

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 as reduction in 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) Joint ventures

The interest in a joint venture partnership is accounted for using the equity method after initially being recognised at cost. Under the equity method, the share of the profits or losses of the partnership is recognised in profit or loss, and the share of post-acquisition movements in reserves is recognised in other comprehensive income.

(iv) 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.

(v) 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 and managed 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. Nonparticipating 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 44.

(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.

(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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

1 Summary of significant accounting policies continued

The excess of the consideration transferred, the amount of any noncontrolling 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 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 either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

(g) Cash and cash equivalents

For the purpose of presentation in the statement 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:

Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges), or
Hedges of a particular risk associated with the cash flows of recognised assets and liabilities and 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 33. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

(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 to 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 profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain/ (loss) that was reported in equity is immediately reclassified to 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 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, Big Sky Building Society Limited and Lifeplan Australia Friendly Society Limited.

(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.

The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.

(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 to 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 the 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.

One of the Group’s subsidiaries makes contributions to an external defined benefit superannuation fund that provides defined benefit amounts for employees on retirement. This fund is closed to new members from the Group. The net obligation in respect of this defined benefit fund is calculated separately for each of the relevant Group employees by estimating the amount of future benefits that they have earned in return for their service in the current and prior periods. The benefit is discounted in order to determine its present value and the fair value of any plan assets is deducted. All actuarial gains and losses are recognised directly in equity. The Group does not consider its net obligation in respect of this defined benefit fund to be material as at the end of each reporting period.

(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)

Revenues, expenses and assets are recognised net of the amount of associated 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.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.

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

(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 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 profit or loss on a straight-line basis over the expected lives of the related assets.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

1 Summary of significant accounting policies continued

(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

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

Current income 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 in the financial statements.

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. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Tax consolidation legislation

The Parent entity and the majority of its wholly-owned Australian controlled entities have 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 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 cash generating 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 acquired separately are initially recognised at cost. The cost of management rights acquired in a business combination is their fair value as at the date of acquisition. Management rights with finite lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight line method to allocate the cost of management rights over their estimated useful lives, which vary from 4 to 20 years. These management rights are assessed for impairment whenever there is an indication that they may be impaired. Management rights with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

(iv) Computer software

Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised as computer software. Computer software is initially recognised at cost. Following initial recognition, computer software is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight line method to allocate the cost of software and licences over their estimated useful lives, which vary from 4 to 7 years.

(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 advances, 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.

(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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

1 Summary of significant accounting policies continued

(ii) Loans and advances

Loans and advances 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.

Any sale or reclassification of a more than insignificant amount of heldto-maturity investments would result in a reclassification of all heldto-maturity investments as available-for-sale, other than certain sales or reclassifications, such as those that are close to an asset’s maturity or those that are attributable to an isolated event that could not have been reasonably anticipated (for example, a significant deterioration in an issuer’s credit worthiness). Following a sale or reclassification of held-to-maturity investments to available for sale in circumstances other than those noted above, the Group would be prevented from classifying financial assets as held-to-maturity in the financial year of the sale or reclassification and the following two financial years.

(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 advances 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. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

(i) Loans and advances

Loans and advances are subject to recurring review and assessed for possible impairment. Indicators of objective impairment include an accumulation of repayment defaults, knowledge of financial difficulty of borrowers, probability of bankruptcy of borrowers and difficulties with the borrower to negotiate arrangements to repay arrears or pay out the loan balance. Impairment is assessed for assets that are individually significant (or on a portfolio basis for small value loans) and then on a collective basis for those exposures not individually known to be impaired. Exposures that are assessed collectively are placed in pools of similar assets with similar risk characteristics. The required provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data such as changed economic conditions. The provision also takes account of the impact of inherent risk of large concentrated losses within the portfolio and an assessment of the economic cycle.

If there is objective evidence that an impairment loss on the assets has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred but including an allowance for proceeds of realisation of collateral and other credit enhancements) discounted at the original effective interest rate for fixed rate loans and at the current effective interest rate for variable rate loans. The carrying amount of the assets is reduced through the use of a provision account and the amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

In the case where a loan is restructured, the process may involve extending payment arrangements and agreement of new loan conditions. Once the terms have been renegotiated, the arrears profile of the member is extinguished after six months if the member has complied with the renegotiated terms.

When there is no realistic prospect of future recovery and all collateral has been realised, impaired loans are written off against the relevant provision for impairment.

(ii) Held-to-maturity investments

The Group assesses individually whether there is objective evidence of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the profit or loss. If in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognised, any amounts formerly charged are credited to the profit or loss.

(iii) Available-for-sale financial assets

In the assessment for impairment, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the assets are impaired.

If there is objective evidence of impairment 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 that financial asset previously recognised in profit or loss) is removed from equity and recognised in profit or loss. Impairment losses on equity instruments that were recognised in profit or loss are not reversed through profit or loss in a subsequent period.

If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.

(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.

Group as a lessee

Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the leased assets’ fair value or the present value of the minimum lease payments. The corresponding lease obligations, net of finance charges, are included in liabilities. Each lease payment is allocated between the lease liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The assets acquired under finance leases are depreciated over their useful life. However, if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term, the assets are depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight line basis over the period of the lease.

Group as a lessor

Lease income from operating leases is recognised in income on a straightline basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.

(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 any revaluation adjustment made, 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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

1 Summary of significant accounting policies continued

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) Reserve for credit losses

The reserve for credit losses is used by a subsidiary company (the Building Society) to recognise an additional impairment allowance for credit losses required by the Australian Prudential Regulation Authority (APRA) when reporting financial results to this regulatory authority. It is recognised as an appropriation of retained earnings to non distributable reserves. This additional impairment allowance is not permitted by Australian Accounting Standards to be recognised as an impairment charge against loans and overdrafts or recognised as an expense in the Statement of Comprehensive Income.

(ae) 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.

(af) 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:

(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.

The effective interest rate method calculates the amortised cost of a financial asset or financial liability and allocates the interest income or interest expense over the expected life of the financial asset or financial liability so as to achieve a constant yield on the financial asset or liability.

(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 sheet (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.

(ag) 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.

(ah) Securitisation

The Group participates in a loan securitisation program whereby mortgage loans are sold as securities to a third party. The Trustee of the securitisation program has funded the purchase of housing mortgage loans through the issue of securities. The securities issued by this entity do not represent deposits or liabilities of the Group. The Group does not guarantee the capital

value or performance of the securities, or the assets of that entity. The Group does not guarantee the payment of the interest or the repayment of principal due on the securities. The Group is not obliged to support any losses incurred by investors in that entity and does not intend to provide such support. The risks and rewards of each security do not rest with the Group. Accordingly, the Group no longer hold the relevant mortgage loans in its balance sheet (refer to derecognition of financial assets disclosed in note 1(v)). In accordance with contractual arrangements, the Group receives income from the third party to service the loans which is included in non-interest income.

(ai) 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.

(aj) 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.

(ak) 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.

(al) 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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

1 Summary of significant accounting policies continued

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.

(am) New accounting standards and interpretations

The Australian Accounting Standards Board (AASB) has issued numerous amendments to the Australian accounting standards that are not mandatory for 30 June 2013 reporting periods. The table below sets out the standards that are relevant to the Group.

AASB	Title	Operative Date
AASB 1053	Application of Tiers of Australian Accounting Standards	1 July 2013
AASB 2010-2	Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements
AASB 2011-2	Amendments to Australian Accounting Standards arising from Trans Tasman Convergence Project – Reduced Disclosure Requirements
AASB 2011-6	Amendments to Australian Accounting Standards – Extending Relief from Consolidation, the Equity Method & Proportionate Consolidation Reduced Disclosure Requirements
AASB 2011-11	Amendments to AASB 119 arising from Reduced Disclosure Requirements
AASB 2012-1	Amendments to Australian Accounting Standards – Fair Value Measurement – Reduced Disclosure Requirements
AASB 2012-7	Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements
AASB 2012-11	Amendments to Australian AccountingStandards – Reduced Disclosure Requirements and Other Amendments
AASB 9	Financial Instruments	1 January 2015
AASB 2009-11	Amendments to Australian Accounting Standards arising from AASB 9
AASB 2010-7	Amendments to Australian Accounting Standards arising from AASB 9 (December 2010), and
AASB 2012-6	Amendments to Australian AccountingStandards – MandatoryEfective Date of AASB 9 and Transition Disclosures
AASB 10	Consolidated Financial Statements	1 January 2013
AASB 11	Joint Arrangements
AASB 12	Disclosures of Interest in Other Entities
AASB 13	Fair Value Measurement
AASB 2011-8	Amendments to Australian Accounting Standards Arising from AASB 13
Revised AASB 127	Separate Financial Statements
Revised AASB 128	Investments in Associates and Joint Ventures
AASB 2011-7	Amendments to Australian AccountingStandards arisingfrom the Consolidation and Joint Arrangements Standards
AASB 119	Employee Benefts	1 January 2013
AASB 2011-10	Amendments to Australian AccountingStandards Arisingfrom AASB 119
AASB 2011-4	Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure	1 July 2013
	Requirements
AASB 2012-2	Amendments to Australian AccountingStandards – Disclosures – OfsettingFinancial Assets and Financial Liabilities	1 January2013
AASB 2012-3	Amendments to Australian AccountingStandards – OfsettingFinancial Assets and Financial Liabilities	1 January2014
AASB 2012-5	Amendments to Australian AccountingStandards arisingfrom Annual Improvements 2009–2011 Cycle	1 January2013
AASB 2012-10	Amendments to Australian AccountingStandards – Transition Guidance and Other Amendments	1 January2013

The above standards are not yet effective for the annual reporting for the year ended 30 June 2013. Apart from AASB 1053 and its related amendments, the Group has not applied the above standards in preparing the current year 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.

The following is the Group’s assessment on the potential impacts of the major amendments in the standard requirements. Apart from AASB 10, application of the new standards above is not expected to impact the amounts reported in the consolidated financial statements or require changes in the Group’s accounting policies.

(i) AASB 1053 and related amendments

AASB 1053 establishes a differential financial reporting framework consisting of two Tiers of reporting requirements:

Tier 1: Australian Accounting Standards; and
Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements.

Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1, but with substantially reduced disclosures requirements. Tier 2 is applicable to for-profit, private sector entities which are not publicly accountable.

A number of the controlled entities in the Group have early adopted AASB 1053 and the relevant amendments arising from this standard for the financial year beginning on 1 July 2011. The adoption of these standards allowed the company to remove a number of disclosures. There was no other impact on the current or prior year financial statements.

(ii) AASB 9 Financial Instruments and related amendments

AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities. The standard 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 is not applicable until 1 January 2015 but is available for early adoption. The Group intends to apply this standard from its operative date, which means that it will be applied in the annual reporting period ending 30 June 2016. Based on the existing recognition of financial assets and liabilities, the Group does not expect a material impact from the application of this standard.

(iii) AASB 10 Consolidated Financial Statements and related amendments

AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements , and Interpretation 12 Consolidation - Special Purpose Entities . The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Control exists when the investor can use its power to affect the amount of its returns. The standard includes application guidance regarding situations in which control is difficult to assess, including situations involving potential voting rights, agency relationships, relationships with structured entities and control without a majority of voting rights. The Group will adopt this new standard in the annual reporting period ending 30 June 2014.

Based on its assessment of AASB 10, the Group does not expect a material impact from the application of this standard as it has concluded that the Group’s relationship with managed investment schemes for which members of the Group act as the responsible entity is one of an agent rather than a principal and, consequently, the Group does not have the power to control these managed investment schemes.

(iv) AASB 11 Joint Arrangements

AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account for their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. The Group’s investments in the joint ventures will be classified as joint ventures under the new rules. As the Group already applies the equity method in accounting for these investments, AASB 11 will not have any impact on the amounts recognised in its financial statements. The Group will adopt this new standard in the annual reporting period ending 30 June 2014.

(v) AASB 12 Disclosure of Interests in Other Entities

AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of this standard by the Group will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group’s investments. The Group will adopt this new standard in the annual reporting period ending 30 June 2014.

(vi) AASB 13 Fair Value Measurement

AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. The standard does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. It also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Based on the existing recognition of financial assets and liabilities at fair value, the Group does not expect a material impact from the application of this standard on the amounts recognised in the financial statements. However, there will be additional disclosures on the methodology for determining the fair value which includes the assessment on annual valuation, valuation inputs, valuation process and fair value hierarchy. The Group will adopt this new standard in the annual reporting period ending 30 June 2014.

(an) Parent entity financial information

The financial information for the Parent entity, Australian Unity Limited, disclosed in note 48 has been prepared on the same basis as the consolidated financial statements, except as set out below.

Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Australian Unity Limited. Dividends received from associates are recognised in the Parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments.

(ao) Comparative information

To enhance comparability with current year disclosures, certain comparative amounts in the financial statements have been reclassified.

The Group presents the deferred tax assets and deferred tax liabilities as a net amount of deferred tax assets or liabilities. The comparative amounts have been reclassified to be comparable with the figures stated in the current year. This change has no impact on the Group’s profit or net assets.

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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

2 Critical accounting estimates and judgements continued

(i) Fair value of financial instruments

In the measurement of financial instruments, the best evidence of fair value is a quoted price in an active market. In the event that there is no active market for the instrument, the fair value is measured based on present value estimates or other market accepted valuation techniques. The valuation models incorporate the impact of bid/ask spread, counterparty credit spreads and other factors that would influence the fair value determined by a market participant. The majority of valuation techniques employ only observable market data. However, in the case where market observable data for certain valuation component is not available, the fair value is determined using data derived and extrapolated from market data and tested against historic transactions and observed market trends. These valuations are based upon assumptions established by application of professional judgement to analyse the data available to support each assumption. Changing the assumptions may change the resulting estimate of fair value.

(ii) Estimated impairment of loans and advances

The accounting policy, as explained in note 1(v), relating to measuring the impairment of loans and advances, requires the Company to assess impairment at least at each reporting date. The provisions raised (individual and collective) represent management’s best estimate of the losses incurred in the loan portfolio at balance date based on experienced judgement. Individual provisioning is applied when the full collectability of a loan is identified as being doubtful. The collective provision is estimated on the basis of historical loss experience for assets with credit characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data and events and an assessment of the impact of model risk. The provision also takes into account the impact of large concentrated losses within the portfolio and the economic cycle. The use of such judgements and reasonable estimates is considered by management to be an essential part of the process and does not impact on reliability.

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

The Group tests annually whether goodwill or other intangibles have 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(p). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions.

(iv) 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 expected cash flows from 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 20.

(v) Insurance liabilities

The estimates, assumptions and judgements arising as a result of the Group’s health and life insurance operations are detailed in notes 43 and 44.

(vi) 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.

(vii) 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, Life Insurance Contracts .

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.

(a) Market 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.

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.

(i) Foreign exchange risk

Foreign exchange risk is the risk that the fair value of future cash flows of an overseas financial investment will fluctuate as a result of movements in international exchange rates. The Company’s main foreign exchange risk arises from its holding in foreign investment funds.

As at 30 June 2013, if the foreign exchange rates increase or decrease by 10 percent, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows:

	Impact on post-tax proft	Impact on post-tax proft	Impact on equity	Impact on equity
Judgements of reasonably possible movements:	2013 $’000	2012 $’000	2013 $’000	2012 $’000
+10% (2012: +10%)	(870)	(125)	(870)	(125)
-10% (2012: -10%)	1,055	141	1,055	141

(ii) Price 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.

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 Group Investment Committee, the objective of which is to manage risk within acceptable limits.

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.

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 10 percent at the end of the reporting period (2012: 10 percent) 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	Impact on equity
Index	2013 $’000	2012 $’000	2013 $’000	2012 $’000
ASX 200 + 10% (2012: +10%)	4,126	6,506	4,126	6,506
ASX 200 – 10% (2012: -10%)	(3,757)	(6,487)	(3,757)	(6,487)

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 2013 and 2012, the Group’s borrowings at variable rate were denominated in Australian Dollars.

As at the end of the reporting period, the Group had the following financial assets and liabilities exposed to variable interest rate risk:

2013	2012
$’000	$’000
Financial assets Cash and cash equivalents 286,950	311,672
Financial assets at fair value through proft or loss 104,191	87,050
Held-to-maturity investments –	4,943
Loans and advances 444,525	430,465
835,666	834,130
Financial liabilities Deposits 308,688	282,642
Development fnance loans (iii) 22,473	17,003
Cash advance facility –	8,000
Loan payable to related entity 2,800	2,800
Australian Unity Notes (i) 120,000	120,000
Subordinated Capital Notes (ii) 25,000	25,000
Interest rate swap, at notionalprincipal amounts (115,000)	(115,000)
(363,961)	(340,445)
Net exposure 471,705	493,685

(i) The Australian Unity Notes issued in April 2011 carry a 3.55 percent fixed margin resulting in a total interest rate at 30 June 2013 of 6.59 percent (2012: 7.79 percent). As at 30 June 2013 and 2012, only the variable portion of $90 million Notes were hedged via interest rate swaps.

(ii) The subordinated capital notes carry a 4.90 percent fixed margin resulting in a total interest rate at 30 June 2013 of 7.99 percent (2012: 9.14 percent). Only the variable portion is hedged via an interest rate swap.

(iii) The interest rate of the development finance loans related to Carlton amounting to $6,380,000 as at 30 June 2013 is hedged via an interest rate swap effective on 25 September 2013.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

3 Financial risk management continued

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 2013 and 2012, 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:

been affected as follows:
	Impact on post-tax proft		Impact on equity
	2013	2012	2013		2012
	$’000	$’000	$’000		$’000
Judgements of reasonably possible movements:
+ 0.25% (2012: + 0.50%)	9	364	9	364
– 0.25% (2012: – 0.50%)	(9)	(364)	(9)	(364)

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

Loans and advances

Loans and advances are largely secured by physical property and advanced on conservative LVR (Loan Value Ratio). The Building Society holds collateral when required, as security for its residential, commercial and personal loans, thus reducing the amount of financial loss that may arise from any defaults. The maximum exposure to credit risk at the end of each reporting period is the carrying amount of loans and advances, net of any provisions for impairment. Loan mortgage insurance is generally taken out for any residential mortgages with an LVR in excess of 80 percent. Accordingly, the financial effect of these measures is that remaining credit risk on loans is very low. Some lending products will be mostly unsecured (e.g. personal loans). Loans impairment experience supports the assignment of a credit risk rating of satisfactory or better. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Group Board. The compliance with credit limits by wholesale customers is regularly monitored by management.

The following table represents the credit quality of financial assets:

The following table represents the credit quality of fnancial assets:
	Neither past due nor impaired High grade $’000 Other grade $’000		Past due or impaired $’000	Total $’000
At 30 June 2013
Cash and cash equivalents	1,017,336	–	–	1,017,336
Trade receivables	583	84,764	4,287	89,634
Financial assets at fair value through proft or loss	333,505	922,995	–	1,256,500
Held-to-maturity investments	69,736	–	–	69,736
Loans and advances	442,252	81,475	17,639	541,366
Investments in associates and joint ventures	–	42,783	–	42,783
Other fnancial assets	–	268	–	268
	1,863,412	1,132,285	21,926	3,017,623
At 30 June 2012
Cash and cash equivalents	1,125,181	–	–	1,125,181
Trade receivables	89	99,106	5,940	105,135
Financial assets at fair value through proft or loss	289,913	882,541	7,072	1,179,526
Held-to-maturity investments	95,378	–	–	95,378
Loans and advances	479,831	44,297	15,987	540,115
Investments in associates and joint ventures	–	37,552	–	37,552
Other fnancial assets	–	1,138	–	1,138
	1,990,392	1,064,634	28,999	3,084,025

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.

Credit risk further arises in relation to irrevocable loan commitments provided to the customers of Building Society. The irrevocable loan commitments are binding contracts to extend credit to customers as long as no violation of any condition in the contracts exists. The maximum credit risk exposure of the loan commitments is the full amount of irrevocable approved undrawn loans of $11,841,000 (2012 : $14,113,000).

The Group provides financial guarantees to certain parties amounting to $12,604,222 (2012: $13,191,607). These financial guarantees are only provided in exceptional circumstances and are subject to specific board approval. The maximum exposure to credit risk is the maximum amount that could be paid if the guarantee is called on.

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.

(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 Group expects that certain liabilities will be settled at maturities which are different to their initial contractual maturities, including deposits where the Group expects (as part of the Subsidiary’s normal banking operations) that a large proportion of these balances will roll over.

The amounts disclosed in the table are the contractual undiscounted cash flows which represent principal and interest cash flows and hence may differ compared to the amounts reported on the balance sheet. Balances due within 12 months equal their carrying amounts as the impact of discounting is not significant.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

3 Financial risk management continued

3 Financial risk management continued
	Less than 6			Between 1 and		No specifc
	months	6 –	12 months	5 years	Over 5 years	maturity	Total
	$’000		$’000	$’000	$’000	$’000	$’000
At 30 June 2013
Trade and other payables	79,782		–	–	–	–	79,782
Interest bearing liabilities	553,038		50,141	229,097	5,999	–	838,275
Beneft fund policy liabilities	128,409		93,104	–	–	1,611,718	1,833,231
Other liabilities	421,219		–	5,651	–	–	426,870
	1,182,448		143,245	234,748	5,999	1,611,718	3,178,158
At 30 June 2012
Trade and other payables	66,902		–	–	–	–	66,902
Interest bearing liabilities	578,878		71,054	226,318	27,596	–	903,846
Current tax liabilities	9,070		–	–	–	–	9,070
Beneft fund policy liabilities	124,824		100,629	–	–	1,628,262	1,853,715
Other liabilities	393,838		–	5,651	–	–	399,489
	1,173,512		171,683	231,969	27,596	1,628,262	3,233,022

(d) Fair value measurements

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, held-to-maturity investments and trade 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

The following table presents the Group’s assets and liabilities measured and recognised at fair value at 30 June 2013 and 30 June 2012:

30 June 2013	Level 1 $’000	Level 2 $’000	Level 3 $’000	Total $’000
Financial assets
Financial assets at fair value through proft or loss
Fixed interest securities	334,094	–	–	334,094
Equities	743,028	–	–	743,028
Mortgage trusts	2,019	43,687	–	45,706
Property syndicates and trusts	65,159	16,312	–	81,471
Debt securities	52,201	–	–	52,201
Other fnancial assets	–	–	268	268
Total fnancial assets	1,196,501	59,999	268	1,256,768
Financial liabilities
Interest rate swaps	–	3,157	–	3,157
Life investment contractpolicyliabilities	–	633,905	–	633,905
Total fnancial liabilities	–	637,062	–	637,062
30 June 2012
Financial assets
Financial assets at fair value through proft or loss
Fixed interest securities	281,802	11,645	7,072	300,519
Equities	658,898	–	–	658,898
Mortgage trusts	39,176	37,032	–	76,208
Property syndicates and trusts	120,321	9,807	–	130,128
Debt securities	13,773	–	–	13,773
Other fnancial assets	–	–	199	199
Total fnancial assets	1,113,970	58,484	7,271	1,179,725
Financial liabilities
Interest rate swaps	–	3,550	–	3,550
Life investment contractpolicyliabilities	–	595,968	–	595,968
Total fnancial liabilities	–	599,518	–	599,518
			2013	2012
Reconciliation of Level 3 fair value movements:			$’000	$’000
Opening balance			7,271	48,311
Transfer from/(to) other categories			–	(24,645)
Revaluation through proft or loss			1,160	(4,658)
Sales			(8,163)	(11,286)
Principal repayments			–	(451)
Closingbalance			268	7,271

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 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 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.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

3 Financial risk management continued

(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 2013 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.

(f) Insurance risk

The health insurance segment of the Group provides private health insurance which provides benefits to cover costs arising from a range of services, including hospital services, medical services, prostheses and ancillary services. Some contracts cover all services, some cover only ancillary services and others cover all services excluding ancillary services. The benefits are provided under two types of contracts, health insurance contracts and health related insurance contracts. The latter provides cover for overseas visitors.

Insurance risk is managed through appropriate product design, claims management, close monitoring of insurance risk and experience, holding capital in excess of prudential requirements, risk equalisation, varying premiums and the operation of preventative health programs.

Product design

Robust product development and review processes including appropriate sign-off requirements are applied to mitigate the risk of the insurer’s products attracting a disproportionally large number of high claimers.

Claims management

Comprehensive claims management procedures and controls are applied to ensure correct and timely settlement of claims in accordance with policy conditions and provider contracts. Claims are monitored on a monthly basis to track the experience of the portfolios.

Insurance risk and experience monitoring

The Group’s Risk Committee and the board review the monthly financial and operational results, including insurance operating measures and prudential capital requirements. The insurance risks and experience for the industry are also monitored by the Private Health Insurance Administration Council (PHIAC).

Prudential capital requirements

Private health insurers must comply with prudential capital requirements providing a safeguard against certain adverse experience. The board has adopted a conservative approach by applying a target level of capital in excess of the prudential requirements.

Risk equalisation

The Private Health Insurance Act 2007 requires resident private health insurance contracts to meet community rating requirements, prohibiting health insurers from discriminating between people on the basis of their health status, gender, race, sexual orientation, religious belief, age, lifestyle, frequency of need for treatment or claims history. To support these restrictions, all private health insurers must participate in the Risk Equalisation Trust Fund under which the cost of proportions of the eligible claims of all persons aged 55 years and over and those claims meeting the high cost claim criteria are shared across all private health insurers.

Concentration of insurance risk

The health insurance contracts written cover a large number of members across Australia. The Group has no exposure to concentration of risk.

Ability to vary premium rates

The Group is able to vary premium rates annually under a process which requires the approval of the Minister for Health and Ageing for all premium changes.

Preventative health programs

The Group operates preventative health programs to contribute to members’ health and reduce the risk of hospitalisation and thus claims.

(g) Operational risk management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This includes legal risk, and the risk of reputational loss or damage arising from inadequate or failed internal processes, people and systems, but excludes strategic risk.

While the Group Risk Committee has delegated responsibility for developing and monitoring risk management policies and reviewing the adequacy of the risk management framework, each business unit has a risk officer and risk management processes and practices which provide oversight of operational risk undertaken in each business. Each business unit works closely with the Group Risk Management team. There are documented risk procedures to manage and maintain oversight of operational risks. These procedures include thresholds for escalation and monitoring. Group Risk is responsible for exercising governance over operational risk through the management of the group risk management framework, policy development, risk analysis, fraud prevention and reporting of risk matters to the Group Risk Committee. The Group’s risk framework is supported by specific policies and procedures with the effectiveness of the framework assessed through a series of independent assurance reviews conducted by Group Audit.

The Group has adopted an operational risk management process which consists of a staged approach involving establishing the context, identification, analysis, assessment, treatment and monitoring of current, emerging and potential future operational risks.

Business disruption is a critical risk to the ability to operate, so the Group has comprehensive business continuity, recovery and crisis management plans. These are intended to ensure critical business functions can be maintained, or restored in a timely fashion, in the event of material disruptions arising from internal or external events.

The Group obtains insurance cover from third party providers to cover those operational risks where cost effective premiums can be obtained, however, insurance is not treated as a guaranteed mitigation for operational risk.

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 ofproperties and other strategic investments andgroupliquidity.
Allied Health	Provision of dental and other healthcare services, including preventative health and chronic disease management services.
Health Insurance	Provision ofprivate health insurance and management of the customer service centre.
Investments	Management of investment funds in property, mortgages, Australian equities, international equities, fxed interest and bonds.
	Operation of Approved Deposit-takingInstitution.
Personal Financial Services	Provision of fnancialplanningand fnance brokingservices.
Retirement Living	Provision of aged care facilities, support services and independent livingunits.

Although the Allied Health, 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 segments for the year ended 30 June 2013 is as follows:

	Corporate				Personal
	Functions and	Allied	Health		Financial	Retirement
	eliminations	Health	Insurance	Investments	Services	Living	Total
2013	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Total segment revenue	(15,081)	27,436	707,780	111,656	33,688	73,069	938,548
Inter-segment revenue	10,311	(6,932)	(1,102)	(1)	(358)	(1,918)	–
Revenue from external customers	(4,770)	20,504	706,678	111,655	33,330	71,151	938,548
Adjusted EBITDA	(29,367)	3,850	43,968	15,346	2,090	12,627	48,514
Depreciation and amortisation							(17,248)
Interest expense							(23,379)
Investment income							27,476
Income tax beneft/(expense)							(5,953)
Proft after income tax							29,410
Share of proft/(loss) after tax from associates and joint ventures (included in adjusted EBITDA)							2,799
Total segment assets include:
Income producing assets	13,033	1,395	319,842	677,887	2,067	15,208	1,029,432
Working capital assets	14,027	1,744	52,528	25,478	2,675	2,458	98,910
Non-interest bearingassets	100,716	745	8,876	51,824	24,805	307,760	494,726
Total segment assets	127,776	3,884	381,246	755,189	29,547	325,426	1,623,068
Total segment liabilities include:
Borrowings and net inter segment lending	168,281	–	15,000	539,908	–	71,115	794,304
Working capital liabilities	24,015	1,095	193,621	28,397	9,126	12,665	268,919
Non-interest bearingliabilities	22,451	–	7,969	2,685	–	46,821	79,926
Total segment liabilities	214,747	1,095	216,590	570,990	9,126	130,601	1,143,149

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

4 Segment information continued

The segment information provided to the Group Executive Committee for the reportable segments for the year ended 30 June 2012 is as follows:

	Corporate				Personal
	Functions and	Allied	Health		Financial	Retirement
	eliminations	Health	Insurance	Investments	Services	Living	Total
2012	$’000	$’000	$’000	$’000	$’000	$’000	$’000
Total segment revenue	(9,514)	23,800	645,193	90,758	18,032	64,199	832,468
Inter-segment revenue	5,334	(5,495)	2,227	–	–	(2,066)	–
Revenue from external customers	(4,180)	18,305	647,420	90,758	18,032	62,133	832,468
Adjusted EBITDA	(20,258)	2,474	52,711	12,491	(2,644)	7,795	52,569
Depreciation and amortisation							(19,694)
Interest expense							(25,318)
Investment income							14,615
Income tax beneft/(expense)							160
Proft after income tax							22,332
Share of proft/(loss) after tax from associates and joint ventures (included in adjusted EBITDA)							888
Total segment assets include:
Income producing assets	3,581	4,232	338,472	715,531	1,598	8,908	1,072,322
Working capital assets	(15,133)	920	56,778	39,544	2,947	22,287	107,343
Non-interest bearingassets	98,945	720	13,032	52,023	22,941	290,170	477,831
Total segment assets	87,393	5,872	408,282	807,098	27,486	321,365	1,657,496
Total segment liabilities include:
Borrowings and net inter segment lending	158,930	–	18,500	599,285	(300)	56,828	833,243
Working capital liabilities	13,978	1,461	231,080	29,336	12,800	29,234	317,889
Non-interest bearingliabilities	21,540	–	7,505	2,953	2	24,063	56,063
Total segment liabilities	194,448	1,461	257,085	631,574	12,502	110,125	1,207,195

(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 Building Society interest expense on external borrowings.

Segment revenue reconciles to total revenue as follows:

2013	2012
$’000	$’000
Total segment revenue 938,548	832,468
Dividends and distributions (note 6) 8,426	12,809
Investment income (note 6) 24,642	4,905
Accommodation bond interest reclassifcation (2,778)	(3,456)
Building society investment gains in adjusted EBITDA (484)	(484)
Fair value amortisation adjustment on non-interest bearing asset –	(408)
Investment revaluation included in segment revenue (5,008)	–
Management fee rebate reclassifcation (1,984)	–
Share of net proft of associates and joint ventures (1,109)	(1,133)
Rental income 321	304
Retirement village revaluation and other reclassifcation 527	673
Other 3	(9)
Revenue attributable to members of Australian Unity Limited (note 46) 961,104	845,669
Revenue from beneft funds (note 46) 180,683	188,606
Total revenue and other income 1,141,787	1,034,275

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

2013	2012
$’000	$’000
Adjusted EBITDA 48,514 Depreciation and amortisation expense: Depreciation and amortisation expense (note 7) (15,391) Net loss on disposal of assets (note 7) (282) Fair value amortisation adjustment on non-interest bearing asset – Merger and acquisition expenses (1,392) Other (183)	52,569 (14,853) (1,378) (408) (3,055) –
(17,248)	(19,694)
Interest expense Finance costs (note 7) (19,316) Accommodation bond interest classifcation (2,778) Joint venture interest revaluation included in adjusted EBITDA (959) Other (326)	(21,563) (3,456) – (299)
(23,379)	(25,318)
Investment income: Dividends and distributions (note 6) 8,426 Other net investment gains (note 6) 24,642 Impairment reversals/(losses) of investment in associates and joint ventures (note 7) 205 Building society investment losses in adjusted EBITDA (484) Investment revaluation included in adjusted EBITDA (5,008) Other (305)	12,809 4,905 (2,615) (484) – –
27,476	14,615
Proft before income tax of beneft funds (note 46) 27,558	17,317
Proft before income tax 62,921	39,489

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

4 Segment information continued

(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 and joint ventures, 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:

Reportable segments’ assets are reconciled to total assets as follows:
2013	2012
$’000	$’000
Segment assets 1,623,068	1,657,496
Resident liabilities and refundable lease deposits (note 28) 384,429	349,019
GST payable (1,287)	(1,730)
Resident accounts recurrent charge 1,149	958
Withdrawal deposits reclassifed –	1,378
Receivables reclassifed (69)	(63)
Retirement Village Property Fund consolidation 36,723	36,455
Loan establishment costs reclassifed –	(5,078)
Other – reclassifcation between assets and liabilities (23,735)	(19,918)
Other – netting of eligible deferred tax balances (31,837)	(36,230)
Other (11)	(79)
Total assets attributable to members of Australian Unity Limited 1,988,430	1,982,208
Beneft fund assets (note 45) 1,855,356	1,873,748
Nettingof eligible deferred tax balances (11,248)	(3,162)
Total assets 3,832,538	3,852,794

(iv) Segment liabilities

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 financial 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:

2013	2012
$’000	$’000
Segment liabilities 1,143,149	1,207,195
Resident liabilities and refundable lease deposits (note 28) 384,429	349,019
GST payable (1,287)	(1,730)
Resident accounts recurrent charge 1,149	958
Withdrawal deposits reclassifed –	1,378
Receivables reclassifed (69)	(63)
Retirement Village Property Fund consolidation 36,723	36,455
Loan establishment costs reclassifed –	(5,078)
Other – reclassifcation between assets and liabilities (23,735)	(19,918)
Other – nettingof eligible deferred tax balances (31,837)	(36,230)
Total liabilities attributable to members of Australian Unity Limited 1,508,522	1,531,986
Beneft fund liabilities (note 45) 22,125	20,033
Netting of eligible deferred tax balances (11,248)	(3,162)
Beneft fundpolicyliabilities (note 44) 1,833,231	1,853,715
Total liabilities 3,352,630	3,402,572

5 Business combination

Current year

(a) Better Home Care Pty Ltd

Summary of acquisition

In November 2012, Better Home Care Pty Ltd (formerly AU Care Provider Holdings Pty Ltd) acquired the business assets of Ultima Services (Aust) Pty Ltd (trading as Better at Home Seniors Care). The principal activity of Better at Home Seniors Care is the provision of personalised home care services (ie. personal care, household tasks, mobility and medical needs) to senior citizens located in Melbourne. The assets acquired comprised business records, contracts and arrangements, and office equipment. As part of the agreement, all the key personnel and the majority of carers were transferred to the acquirer. Through this acquisition the Group has expanded the range of aged care services.

Details of the purchase consideration, the assets acquired and goodwill / management rights recognised in the preliminary accounting for the business combination are as follows:

combination are as follows:
	$’000
Purchase consideration
Cash paid and payable	1,753
Contingent consideration	750
	2,503

The $750,000 contingent consideration is payable in three deferred payments conditional upon the achievements of financial targets within the next three years as follows:

Year 1: if the business achieves a minimum gross profit of $888,000 with a gross profit margin in the range of 32 percent to 37.5 percent, then 40 percent of the amount by which the Year 1 gross profit exceeds $540,000 will be paid, up to a maximum of $750,000;
Year 2: if the business achieves minimum revenue of $2.2 million in Year 1 and $2.8 million in Year 2, each with a gross profit margin in the range of 32 percent to 37.5 percent, then 70 percent of the amount by which the Year 2 gross profit exceeds Year 1 gross profit will be paid, up to a maximum of $750,000 less the Year 1 deferred payment; and
Year 3: if the business achieves the financial target for Year 2, minimum revenue of $2.8 million in Year 2 and $4.1 million in Year 3, each with a gross profit margin in the range of 32 percent to 37.5 percent, then $750,000 less the Year 1 and Year 2 deferred payments will be paid.

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
Ofce equipment	28
Goodwill / management rights	2,475
Net assets required	2,503

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

Acquisition-related costs

Acquisition-related costs of $42,000 are included in expenses in the profit or loss.

Revenue and profit contribution

The acquired entity has contributed revenue of $1,123,000 and a net loss of $127,000 to the Group for the period from 1 December 2012 to 30 June 2013.

If the acquisition had occurred on 1 July 2012, contributed revenue and net loss for the year ended 30 June 2013 would have been $2,116,000 and $39,000 respectively.

(b) Big Sky Financial Planning Pty Ltd

Summary of acquisition

On 30 June 2013, Big Sky Financial Planning Pty Ltd acquired the business assets of HN Financial Planners Pty Ltd (HNFP). The principal activities of HNFP are providing financial planning services in Australia. The assets acquired include business records, business contracts, office equipment and intellectual property. As part of the agreement, the key personnel of HNFP were transferred to the acquirer. The acquisition is expected to increase the Group’s market share in the financial planning industry.

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

5 Business combination continued

Details of the purchase consideration, the assets acquired and goodwill/management rights recognised in the preliminary accounting for the business combination are as follows:

	$’000
Purchase consideration
Cash payable	2,957
Contingent consideration	1,209
	4,166

The $1,209,000 contingent consideration is payable by 4 September 2014 or later date as agreed by both parties. The amount of the contingent consideration is conditional upon the achievements of revenue targets during the period 1 August 2013 to 31 July 2014 as follows:

If the recurring revenue is equal to or greater than $1,558,000 but does not exceed $1,722,000, then the contingent consideration will be $1,209,000;
If the recurring revenue is below $1,558,000, then the contingent consideration will be $1,209,000 less 2.75 times the amount by which the recurring revenue attributed to personal planning business is less than $890,000 and less 2.00 times the amount by which the recurring revenue attributed to corporate superannuation business is less than $750,000; and
If the recurring revenue is above $1,722,000, then the contingent consideration will be $1,209,000 plus 2.75 times the amount by which the recurring revenue attributed to personal planning business is more than $890,000 and plus 2.00 times the amount by which the recurring revenue attributed to corporate superannuation business is more than $750,000.

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

The assets recognised as a result of the acquisition are as follows:
	$’000
Ofce equipment	136
Goodwill / management rights	4,030
	4,166

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

Acquisition-related costs

Acquisition related costs of $315,000 are included in expenses in the profit or loss.

(c) Cash flow information

(c) Cash fow information
	$’000
Outfow of cash to acquire business, net of cash acquired
Cash consideration	1,750
Direct costs related to the acquisition	42
Cash outfow - investing activities	1,792

6 Revenue and other income

6 Revenue and other income
2013	2012
$’000	$’000
Commission income 36,268	18,718
Dental sales 19,952	18,075
Dividends and distributions 8,426	12,809
Fair value gains on investment property 10,281	8,999
Health insurance premium revenue (note 43) 706,315	646,457
Interest income of building society 34,512	17,124
Investment income 24,642	4,905
Management fees revenue 61,552	61,156
Rental income 2,386	4,554
Retirement village fees and subsidies 53,931	45,565
Revenue of beneft funds (note 44) 180,683	188,606
Other income 2,839	7,307
1,141,787	1,034,275

7 Expenses

7 Expenses
2013	2012
$’000	$’000
Expenses, excluding fnance costs, included in the proft or loss classifed by nature: Bank charges 2,107 Commission expense 45,874 Communication costs 4,357 Computer and equipment costs 10,561 Depreciation and amortisation expense 15,391 Employee benefts expense 147,269 Expenses in relation to beneft funds (note 44) 153,125 Financial and insurance costs 3,853 Fund manager and administration fees 12,284 Health insurance claims expense 593,038 Impairment losses/(reversal) of investment in associates and joint ventures (note 17) (205) Interest expense of building society 18,990 Legal and professional fees 10,907 Marketing expenses 13,953 Net loss on disposal of assets 282 Net risk equalisation trust fund recoveries (22,370) Occupancy costs 10,150 Other direct expenses 26,124 Other expenses 18,207	2,270 32,623 4,216 9,625 14,853 128,211 171,289 3,253 14,178 530,380 2,615 11,566 10,818 11,223 1,378 (19,120) 9,411 21,964 13,797
1,063,897	974,550
Proft before income tax includes the following specifc expenses: *Depreciation* Buildings 1,049 Leasehold improvements 2,192 Plant and equipment 2,096	1,016 2,656 2,107
Total depreciation 5,337	5,779
*Amortisation* Computer software 8,798 Management rights 1,256	7,458 1,616
Total amortisation 10,054	9,074
Total depreciation and amortisation 15,391	14,853
*Finance costs* Interest and fnance charges 21,073 Amount capitalised (1,757)	22,827 (1,264)
Finance costs expensed 19,316	21,563

8 Income tax expense

8 Income tax expense
2013	2012
$’000	$’000
(a) Income tax expense
Current tax (2,109)	(892)
Current tax – beneft funds 13,881	12,315
Deferred tax 11,551	4,486
Deferred tax – beneft funds 15,405	6,116
Adjustments for current tax of prior periods (3,487)	(3,754)
Adjustments for current tax ofpriorperiods – beneft funds (1,728)	(1,114)
33,513	17,157
Deferred income tax expense included in income tax expense comprises:
Decrease in deferred tax assets (note 21) 16,205	6,712
Increase in deferred tax liabilities (note 30) 10,751	3,890
26,956	10,602

Australian Unity Annual Report 2013

Notes to the consolidated financial statements

For the year ended 30 June 2013

8 Income tax expense continued 2013	2012
$’000	$’000
(b) Reconciliation of income tax expense to prima facie tax payable
Proft before income tax 62,923	39,489
Less:proft in beneft funds (27,558)	(17,317)
35,365	22,172
Tax at the Australian tax rate of 30% (2012: 30%) 10,610	6,652
Non-assessable income (5,802)	(9,581)
Other assessable amounts 2,999	1,264
Non-deductible expenditure 1,882	7,044
Other deductible expenditure –	116
Other deferred tax adjustments (2,123)	(4,515)
Tax in beneft funds 27,558	17,317
Tax credits (1,188)	(1,140)
Overprovision inprioryears (423)	–
Income tax expense 33,513	17,157

(c) Tax consolidation legislation

Australian Unity Limited and the majority of 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

9 Current assets – Cash and cash equivalents
	2013	2012
	$’000	$’000
Cash at bank and on hand	1,049	1,873
Bank balances	37,010	38,065
Deposits at call	979,277	1,085,243
	1,017,336	1,125,181

(a) Deposits at call

Deposits at call include $547,938,000 (2012: $685,274,000 ) held in the Australian Unity Wholesale Cash Fund.

(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

2013	2012
$’000	$’000
Net trade receivables Trade receivables 37,535 Provision for impairment of trade receivables (a) (247)	49,686 (233)
37,288	49,453
Prepayments Deferred acquisition costs 5,928 Management fees prepayments 6,305 Prepaid reinsurance – Prepayments 5,884	5,924 3,287 23 6,579
18,117	15,813
Other receivables GST receivable 607 Interest receivable 1,507 Property deposits 888 Risk equalisation trust fund receivable 11,300 Seed capital 5,997 Sundrydebtors 13,928	– 941 1,400 10,900 6,497 20,131
34,227	39,869
89,632	105,135

(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 2013, current trade receivables of the Group with a nominal value of $247,000 (2012: $233,000) were impaired. An impairment provision of $247,000 (2012: $233,000) has been recognised.

The ageing of these trade receivables is as follows:

	2013	2012
	$’000	$’000
Up to 3 months	180	176
3 – 6 months	67	57
	247	233

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

Movements in the provision for impairment of trade receivables are as follows:
	2013	2012
	$’000	$’000
Balance at the beginning of the fnancial year	233	221
Provision recognised duringtheyear	14	12
Balance at the end of the fnancialyear	247	233

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 income 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

At 30 June 2013, trade receivables of $4,287,000 (2012: $5,940,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

The ageing of these trade receivables is as follows:

	2013	2012
	$’000	$’000
Up to 3 months	2,526	1,988
3 – 6 months	1,454	1,204
6 – 12 months	307	2,748
	4,287	5,940

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

10 Current assets – Trade and other receivables continued

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.

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

(c) 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

11 Current assets – Inventories
	2013	2012
	$’000	$’000
Inventories at cost- Allied Health	518	541
Other inventories	101	100
	619	641

12 Current assets – Loans and advances

12 Current assets – Loans and advances
2013	2012
$’000	$’000
Loan to associate 203	–
Mortgage loans 15,609	16,698
Personal loans 7,991	9,170
Provision for impairment (177)	(235)
23,626	25,633

(a) Loan to associate

The loan to associate represents loan receivable from Health Providers Australia Pty Ltd (trading as "Rehability"). This loan is repayable on or before 30 June 2014 and accrues interest on a quarterly basis at the 90 day bank bill rate plus a margin of 1.5 percent. At 30 June 2013 the interest rate amounted to 4.29 percent per annum.

(b) Mortgage loans

The mortgage loans are secured on real property. The loans earn interest at annual interest rates between 4.81 percent and 9.34 percent (2012: between 5.14 percent and 9.34 percent).

(c) Personal loans

The personal loans earn interest at annual fixed rates between 5.80 percent and 13.78 percent (2012: between 5.50 percent and 16.90 percent).

(d) Impaired loans and advances

As at 30 June 2013, current other loans and advances with a nominal value of $177,000 (2012: $235,000) were impaired. An impairment provision of $177,000 (2012: $235,000) has been recognised. This provision comprises a total of $177,000 for individual accounts (2012: $191,000) and $nil for collective accounts (2012: $44,000).

The contractual maturities of these loans and advances are as follows:

The contractual maturities of these loans and advances are as follows:
2013	2012
$’000	$’000
Up to 3 months 105	38
3 – 6 months 5	84
6 – 12 months 67	113
177	235
Balance at the beginning of the fnancial year 235	31
Additions from business combination –	195
Provision recognised during the year 281	9
Provision reversed duringtheyear (339)	–
Balance at the end of the fnancialyear 177	235

The creation of the provision for impaired loans and advances is included in other expenses in the profit or loss. The release of the provision for impaired loans and advances is 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.

(e) Past due but not impaired

At 30 June 2013, loans and advances of $928,000 (2012: $1,080,000) 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 loans and advances is as follows:

2013	2012
$’000	$’000
Up to 3 months Mortgage loans 482	475
Personal loans 368	605
3 - 6 months Mortgage loans 20	–
Personal loans 15	–
6 - 12 months Mortgage loans 12	–
Personal loans 31	–
928	1,080

(f) Risk exposure

Information about the Group’s exposure to credit risk and interest rate risk in relation to loans and advances is provided in note 3.

13 Current assets – Current tax assets

13 Current assets – Current tax assets
	2013	2012
	$’000	$’000
Income tax receivable	2,556	–

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:

14 Financial assets at fair value through proft or loss Financial assets at fair value through proft or loss are all held for trading and include the following:
	2013	2012
	$’000	$’000
Securities held by beneft funds	1,092,225	1,022,963
Securities held in funds managed byrelated entities	164,275	156,563
	1,256,500	1,179,526

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:
2013	2012
$’000	$’000
Fixed interest securities 286,042	214,893
Equities 707,937	635,837
Mortgage trusts 31,351	58,420
Property syndicates and trusts 50,925	100,040
Debt securities 15,970	13,773
1,092,225	1,022,963

(b) Securities held in funds managed by related entities comprise the following:

(b) Securities held in funds managed by related entities comprise the following:
2013	2012
$’000	$’000
Fixed interest securities 48,052	48,952
Equities 35,091	23,061
Mortgage trusts 14,355	17,788
Property syndicates and trusts 30,546	30,087
Debt securities 36,231	36,675
164,275	156,563

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

14 Financial assets at fair value through profit or loss continued

(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:

	2013	2012
	$’000	$’000
Current	1,213,034	1,092,689
Non-current	43,466	86,837
	1,256,500	1,179,526

(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 Held-to-maturity investments

15 Held-to-maturity investments
	2013	2012
	$’000	$’000
Bank bills	23,269	47,136
Term deposits	46,467	48,242
	69,736	95,378

Fair value and credit risk

Due to the short-term nature of these investments, 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 the investments. Information about the Group’s exposure to credit risk and the credit quality in relation to these investments is provided in note 3.

16 Non-current assets – Loans and advances

16 Non-current assets – Loans and advances
2013	2012
$’000	$’000
Loan to associate –	201
Loans to related entities 29,593	29,595
Mortgage loans 457,755	461,353
Personal loans 27,647	22,738
Advances 2,745	360
517,740	514,247

Further information relating to loans to related parties and key management personnel is set out in notes 36 and 38, respectively.

(a) Loan to associate

The 2012 loan to associate comprised a receivable from Health Providers Australia Pty Ltd (trading as "Rehability"). Refer to note 12 for further information of this loan.

(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 $7,593,919 (2012: $7,596,221) which accrue interest on a monthly basis at an annual fixed rate of 15 percent (2012: 15 percent) and fixed rate loans of $21,999,042 (2012: $21,999,042) which accrue interest on a monthly basis at an annual fixed rate of 12 percent (2012: 12 percent).

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 30 June 2013, the related entities have a two years funding facility from BankWest expiring on 30 June 2015.

(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 18 June 2043 and earn interest at annual interest rates between 4.81 percent and 9.34 percent (2012: between 5.14 percent and 9.34 percent).

100

(d) Personal loans

The personal loans mature at various dates up to 31 May 2021 and earn interest at annual rates between 5.80 percent and 13.78 percent (2012: between 5.50 percent and 16.90 percent).

(e) Past due but not impaired

At 30 June 2013, loans and advances of $16,534,000 were past due but not impaired (2012: $14,672,000). These relate to a number of borrowers from whom there is no recent history of default.

The ageing of these loans and advances is as follows:

The ageing of these loans and advances is as follows:
2013	2012
$’000	$’000
Up to 3 months Mortgage loans 14,181	13,131
Personal loans 1,267	1,541
3 - 6 months Mortgage loans 578	–
Personal loans 51	–
6 - 12 months Mortgage loans 351	–
Personal loans 106	–
16,534	14,672

(f) Fair values

The fair values and carrying values of current and non-current loans and advances are as follows:

	2013	2013	2012	2012
	Carrying amount	Fair value	Carrying amount	Fair value
	$’000	$’000	$’000	$’000
Loan to associate	203	203	201	201
Loans to related entities	29,593	29,593	29,595	29,595
Mortgage loans	473,364	473,830	478,051	478,433
Personal loans	35,461	35,461	31,673	31,673
Advances	2,745	2,425	360	360
	541,366	541,512	539,880	540,262

(g) Risk exposure

Information about the Group’s exposure to credit risk and interest rate risk is provided in note 3.

17 Non-current assets – Investments in associates and joint ventures

(a) Carrying amounts

(a) Carrying amounts
		Ownership interest		Value of investment
		2013	2012	2013	2012
Name of entity	Principal activity	%	%	$’000	$’000
*Listed*
Calliden Group Limited (i)	General insurance	13	13	6,183	5,658
*Unlisted*
Acorn Capital Limited	Investment management	48	50	3,444	2,503
Altius Asset Management Pty Ltd	Investment management	47	47	1,728	1,491
Certainty Financial (ii)	Financial planning and fnance broking	70	70	21,273	19,422
Fedinvest Pty Ltd	Investment platform	50	–	239	–
Health Providers Australia Pty Ltd	Rehabilitative health services	50	50	469	441
Lifestyle Manor Anglesea Pty Ltd (iii)	Property development	51	51	500	500
Next Rural Financial Management Pty Ltd	Financial planning and fnance broking	50	50	371	360
Platypus Asset Management Pty Limited	Investment management	50	50	1,618	1,738
Seres Asset Management Limited	Investment management	46	50	5,542	3,509
Vianova Unit Trust	Investment management	50	50	938	1,603
Wingate Asset Management PtyLimited	Investment management	44	45	478	327
		569	526	42,783	37,552

101

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

17 Non-current assets – Investments in associates and joint ventures continued

Each of the above associates and joint ventures 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 the 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. A provision of impairment has been made for the investment in Calliden in accordance with the Group’s policy as set out in note 1(p) and after consideration of movements in the fair value of the holding.
(ii) On 3 January 2012 the Group acquired 70 percent of the issued and fully paid shares of Certainty Financial Pty Limited and a 70 percent interest in each of the Certainty Financial Victorian Joint Venture and Certainty Financial NSW Joint Venture (jointly Certainty). However, the Group nominates only 50 percent of available positions of the board of directors. It has no majority control through the voting rights or control over the financial and operational decisions. As these ’Joint Ventures’ are unincorporated tax law partnerships, the interests held by the Group represents an interest in the assets of the ’Joint Ventures’. The agreement with the other investors also includes call and put options. The Group has a call option to purchase the remaining shares and ownership interest in Certainty, while the other parties have a put option to require the Group to purchase the remaining shares and ownership interest in Certainty. These call and put options are exercisable any time after 1 January 2015 and have no expiry date.
(iii) The Group has beneficial ownership of 51 percent of the issued share capital of Lifestyle Manor Anglesea Pty Ltd (LMA), but nominates only 50 percent of available board of directors 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

(b) Movements in carrying amounts
2013	2012
$’000	$’000
Carrying amount at the beginning of the fnancial year 37,552	19,023
Investments acquired during the year 5,129	22,021
Impairment reversal/(provision) 205	(2,615)
Share of net profts after income tax 4,349	1,327
Dividends received (4,452)	(2,204)
Carryingamount at the end of the fnancialyear 42,783	37,552
(c) Fair value of listed investments in associates and joint ventures
Calliden GroupLimited 9,043	3,617

(d) Summarised financial information of associates and joint ventures

The Group’s share of the results of its principal associates and joint ventures and the aggregated assets (including goodwill) and liabilities are as follows:

		Group’s	share of:
	Assets	Liabilities	Revenue	Proft after tax
	$’000	$’000	$’000	$’000
2013 Total	79,419	58,137	71,523	4,349
2012 Total	84,012	64,058	68,254	1,327

18 Non-current assets – Other financial assets

18 Non-current assets – Other fnancial assets
	2013	2012
	$’000	$’000
Unlisted investments	268	1,138

Unlisted investments comprise investments in unlisted shares.

102

19 Non-current assets – Property, plant and equipment

			Plant and	Leasehold
	Land	Buildings	equipment	improvements	Total
	$’000	$’000	$’000	$’000	$’000
At 1 July 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
Year ended 30 June 2012
Opening net book amount	18,989	33,707	8,868	5,023	66,587
Acquisition of business	–	–	239	522	761
Additions	8,385	1,978	4,347	365	15,075
Disposals	–	(419)	(77)	(26)	(522)
Transfer to investment properties	(2,450)	(370)	(6)	–	(2,826)
Other transfers	588	(588)	–	–	–
Depreciation charge	–	(1,016)	(2,107)	(2,656)	(5,779)
Closingnet book amount	25,512	33,292	11,264	3,228	73,296
At 30 June 2012
Cost	–	–	29,028	20,765	49,793
Valuation	25,512	42,128	–	–	67,640
Accumulated depreciation	–	(8,836)	(17,764)	(17,537)	(44,137)
Net book amount	25,512	33,292	11,264	3,228	73,296
Year ended 30 June 2013
Opening net book amount	25,512	33,292	11,264	3,228	73,296
Acquisition of business	–	–	16	10	26
Additions	–	21,685	2,959	1,172	25,816
Disposals	–	(5)	(107)	(197)	(309)
Other transfers	–	1,083	(3,064)	1,981	–
Depreciation charge	–	(1,049)	(2,096)	(2,192)	(5,337)
Closingnet book amount	25,512	55,006	8,972	4,002	93,492
At 30 June 2013
Cost	25,512	64,891	28,470	23,021	141,894
Accumulated depreciation	–	(9,885)	(19,498)	(19,019)	(48,402)
Net book amount	25,512	55,006	8,972	4,002	93,492

(a) Valuations of land and buildings

The Group generally obtains independent valuation for its land and buildings at least every three years.

In the 2013 and 2012 financial years, the Group engaged CB Richard Ellis (V) Pty Ltd and Savills Valuations Pty Ltd respectively, accredited independent valuers, 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:

If freehold land and buildings were stated on the historical cost basis, the amounts would be as follows:
2013	2012
$’000	$’000
Land Cost 24,231	24,231
Net book amount 24,231	24,231
Buildings Cost 61,682	41,186
Accumulated depreciation (10,441)	(9,023)
Net book amount 51,241	32,163

103

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

20 Non-current assets – Investment properties

2013	2012
$’000	$’000
At fair value Balance at the beginning of the fnancial year 586,565	502,853
Acquisitions 31,773	98,300
Disposals (11,810)	(26,413)
Net fair value movements 10,281	8,999
Transfers from owner occupied property –	2,826
Transfer from intangible assets 300	–
Balance at the end of the fnancialyear 617,109	586,565

(a) Amounts recognised in profit or loss for investment properties

(a) Amounts recognised in proft or loss for investment properties
	2013	2012
	$’000	$’000
Revenue	31,772	25,142
Expenses	(21,415)	(15,584)
Changes in fair value recognised inproft or loss	10,281	8,999
	20,638	18,557

(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 19.

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 using a reasonable fair value estimate as applicable to each type of investment property.

Fair value for completed retirement villages is determined using a financial model which calculates the net present value of future cash flows rather than a valuation by an external accredited independent valuer. 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 rates based on business experience including the expected average length of residence based on mortality assumptions and voluntary turnover, average incoming ages and distributions.

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. 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

Investments in properties are held as follows:

Investments in properties are held as follows:
2013	2012
$’000	$’000
Retirement village independent living units 392,189	374,158
Retirement village property funds 52,373	51,013
Residential aged care facilities 23,041	22,912
Development sites 144,895	133,882
Non-owner occupiedproperty 4,611	4,600
617,109	586,565

104

21 Non-current assets – Deferred tax assets

21 Non-current assets – Deferred tax assets
2013	2012
$’000	$’000
The balance comprises temporary diferences attributable to: Accrued expenses 397	335
Capitalised expenditure 192	112
Policy bonus credits 3,088	–
Provisions 288	111
Tax losses –	404
Trust distribution (1,765)	(1,374)
Unrealised gains/losses on investments (5,511)	12,575
Other assessable items 13,444	10,901
Other deductible items (1,461)	(1,887)
Total deferred tax assets 8,672	21,177
Movements: Balance at the beginning of the fnancial year 21,177	26,429
Charged to the proft or loss (note 8) (16,205)	(6,712)
Other transfers 3,700	1,460
Balance at the end of the fnancialyear 8,672	21,177

22 Non-current assets – Intangible assets

22 Non-current assets – Intangible assets
	Goodwill / management
	rights	Computer software	Aged care bed licences	Total
	$’000	$’000	$’000	$’000
At 1 July 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
Year ended 30 June 2012
Opening net book amount	23,032	31,860	10,740	65,632
Acquisition of business	2,645	299	–	2,944
Additions	1,128	10,447	–	11,575
Disposals	16,105	–	–	16,105
Amortisation charge	(1,616)	(7,458)	–	(9,074)
Closingnet book amount	41,294	35,148	10,740	87,182
At 30 June 2012
Cost	50,347	81,006	10,740	142,093
Accumulated amortisation	(9,053)	(45,858)	–	(54,911)
Net book amount	41,294	35,148	10,740	87,182
Year ended 30 June 2013
Opening net book amount	41,294	35,148	10,740	87,182
Acquisition of business	6,505	2	–	6,507
Additions	107	9,363	–	9,470
Disposals	–	(356)	–	(356)
Transfer to investment property	(300)	–	–	(300)
Amortisation charge	(1,256)	(8,798)	–	(10,054)
Closingnet book amount	46,350	35,359	10,740	92,449
At 30 June 2013
Cost	56,125	86,725	10,740	153,590
Accumulated amortisation	(9,775)	(51,366)	–	(61,141)
Net book amount	46,350	35,359	10,740	92,449

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) initially granted to the Group by the Department of Health and Ageing are not ascribed a value. At 30 June 2013, the Group held 231 purchased licences and 446 granted licences (2012: 231 purchased licences and 446 granted licences).

(a) Impairment tests for goodwill

The carrying amount of goodwill and management rights is allocated to the Group’s cash generating units (CGUs) identified according to entities within each business segment.

105

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

22 Non-current assets – Intangible assets continued

A segment-level summary of the goodwill and management rights allocation is presented below:

2013	2012
$’000	$’000
Healthcare 1,312	1,354
Retirement living 10,206	7,731
Retirement village property funds –	300
Investments 32,276	29,189
Personal fnancial services 2,556	2,720
46,350	41,294

The recoverable amount of a CGU is determined based on a value in use calculation using cash flow projections based upon financial forecast approved by the directors, covering a four year financial period. Cash flows beyond the four year financial period are extrapolated using estimated growth rates appropriate for the CGU.

(b) Key assumptions used for value-in-use calculations

The discount rate of 9.00 percent applied to cash flow projections represents the Group’s weighted average cost of capital (2012: 6.30 percent). A 2.5 percent growth rate (2012: 3 percent) 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. Based on this, it is concluded that any possible change in the discount rate of up to 13.80 percent per annum would not cause the recoverable amount of goodwill to fall below its carrying amount.

23 Non-current assets – Other non-current assets

23 Non-current assets – Other non-current assets
	2013	2012
	$’000	$’000
Borrowingarrangement costs	20	143
24 Current liabilities – Trade and other payables
	2013	2012
	$’000	$’000
Trade payables	20,961	19,683
Risk equalisation trust fund payable	5,686	5,076
Accrued expenses	48,838	41,319
GST payable	–	234
Otherpayables	4,297	590
	79,782	66,902

(a) Trade payables

Trade payables are generally non interest bearing and are on 30-90 day settlement terms.

(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 trade and other payables are set out in note 3.

25 Current liabilities – Interest bearing liabilities

25 Current liabilities – Interest bearing liabilities
2013	2012
$’000	$’000
Unsecured Call deposits 303,688	281,543
Term deposits 205,778	270,994
Mortgage ofset savings accounts 37,220	35,152
Retirement Village Investment Notes 7,727	16,071
Cash advance facility –	8,000
Development fnance loans 3,981	12,642
Loan payable to related entity 2,800	2,800
Subordinated capital notes 25,000	–
Total unsecured current borrowings 586,194	627,202

106

(a) Call deposits

The call deposits are repayable on demand and accrue interest on a daily basis. At 30 June 2013, this rate amounted to between nil percent and 4.50 percent (2012: between nil percent and 4.50 percent).

(b) Term deposits

The term deposits are repayable on maturity and accrue interest on a monthly basis with annual fixed interest rates at 30 June 2013 ranging between 2.75 percent and 8.09 percent (2012: between 3.00 percent and 8.20 percent).

(c) Mortgage offset savings accounts

The amounts represent customer savings accounts with the interest offsetting the interest of the respective mortgage loan accounts.

(d) Retirement Village Investment Notes (RVIN)

The balance represents the current portion of Retirement Village Investment Notes (RVIN). Refer to note 29 for further information.

The following table summarises the details of RVIN:

Name			Prospectus		Maturity date	Interest rate	2013	2012
							$’000	$’000
Series	1	RVIN	1	30	November 2012	9.00%	–	8,990
			3	30	November 2013	8.25%	1,286	–
Series	3	RVIN	1		31 March 2014	8.25%	120	–
			2		30 June 2014	8.25%	498	–
			3	31	December 2012	8.00%	–	7,081
			5		30 June 2014	8.50%	5,823	–
Total							7,727	16,071

(e) Cash advance facility

The 2012 balance of cash advance facility represented a bank loan bearing interest rate at 5.28 percent per annum as at 30 June 2012. This facility was repaid in January 2013.

(f) Development finance loans

The 2013 balance of the development finance loan represented the bank loan facility for the development of a retirement village site in Vermont South, Victoria (Victoria Grange). As at 30 June 2013, the interest rate of the loan was 5.03 percent per annum (2012: 5.79 percent). The loan will mature in June 2014.

The 2012 balance of development finance loans comprised bank loan facilities for the development of retirement village sites in Mornington, Victoria (Peninsula Grange) and Port Macquarie, New South Wales (Sienna Grange). As at 30 June 2012, the loan facility for Peninsula Grange amounted to $12,118,000 bearing interest at 5.73 percent per annum. The loan which initially matured in June 2013 has been extended to June 2016 (refer to note 29). As at 30 June 2012, the loan facility for Sienna Grange amounted to $524,000 bearing interest at 6.19 percent per annum. This loan was expired and fully repaid in May 2013.

(g) Loan payable to related entity

The loan payable to related entity matures on 31 August 2013 and accrues interest on a monthly basis at the 90 day bank bill rate plus a margin of 1 percent. At 30 June 2013 this rate amounted to 4.05 percent (2012: 5.34 percent).

(h) Subordinated capital notes

The balance represented subordinated capital notes issued on 11 July 2008 with initial maturity of 10 years. The Group opted to repay the notes in July 2013. Refer to note 29 for further details.

(i) Risk exposures

Details of the Group’s exposure to risks arising from current interest bearing liabilities are set out in note 3.

(j) Fair value disclosures

Details of the fair value of borrowings for the Group are set out in note 29.

26 Current liabilities – Current tax liabilities

26 Current liabilities – Current tax liabilities
	2013	2012
	$’000	$’000
Income taxpayable	–	9,070

107

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

27 Current liabilities – Provisions

	2013	2012
	$’000	$’000
Employee benefts	14,019	11,820
Outstanding claims	51,012	47,608
Otherprovisions	3,512	3,565
	68,543	62,993

(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.

(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 43(c).

Movements in each class of provision during the financial year, other than employee benefits and outstanding claims provisions, are set out below:

2013	2012
$’000	$’000
Balance at the beginning of the fnancial year 3,565	3,070
Additions from business combination –	1,641
Amounts charged to/(reversed in) proft or loss 2,398	(73)
Payments duringtheyear (2,451)	(1,073)
Balance at the end of the fnancialyear 3,512	3,565

28 Current liabilities – Other current liabilities

2013	2012
$’000	$’000
Unearned income 113,472	142,381
Refundable lease deposits 72,525	68,771
Resident loan liabilities 348,694	315,924
Interest rate swaps 349	–
Others 11,024	9,143
546,064	536,219

(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 loan liabilities

Resident loan liabilities relate to residents who occupy the investment properties referred to in note 20. These liabilities represent the initial ingoing contribution less accrued deferred management fees. Resident loan liabilities 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) Interest rate swaps

The balance represented the current portion of interest rate swaps liability. Refer to note 32 for further details.

(e) Fair value

Due to the short term nature of these other current liabilities, their carrying value is assumed to approximate their fair value.

(f) Risk exposures

Details of the Group’s exposure to risk arising from other current liabilities is set out in note 3.

108

29 Non-current liabilities – Interest bearing liabilities

29 Non-current liabilities – Interest bearing liabilities
2013	2012
$’000	$’000
Secured Lease liabilities 13	18
Total secured non-current borrowings 13	18
Unsecured Australian Unity Notes 120,000	120,000
Australian Unity Notes establishment costs (3,738)	(5,078)
Development fnance loans 18,492	4,361
Retirement Village Investment Notes 54,053	45,709
Subordinated capital notes –	25,000
Term deposits 15,552	11,233
Total unsecured non-current borrowings 204,359	201,225
Total non-current borrowings 204,372	201,243

(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 percent 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 percent 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 Big Sky Building Society Limited (formerly Lifeplan Australia Building Society Limited). As at 30 June 2013, the Gearing Ratio was 35.9 percent (2012: 37.9 percent).

Given the exposure to interest rate movements, the Company has entered into arrangements to hedge the variable interest component of the majority of the notes. On 9 August 2011, the Company swapped the variable interest component of $60 million of the notes at 4.65 percent per annum maturing on 14 April 2016. On 7 December 2011, the Company swapped the variable interest rate of $30 million of the notes at 3.8092 percent per annum maturing on 14 January 2014.

(b) Development finance loans

The 2013 balance of development finance loans comprised bank loan facilities for the development of a retirement village site in Mornington, Victoria (Peninsula Grange) and a retirement and aged care facilities site in Carlton (Carlton RACF).

The loan facility for Peninsula Grange is up to $19 million which will expire in June 2016. As at 30 June 2013, this loan amounted to $12,113,000 bearing interest at 5.03 percent per annum (2012: 5.73 percent). The loan was classified as current liability in prior year.

The loan facility for Carlton RACF is up to $49 million which will expire in July 2017. As at 30 June 2013, this loan amounted to $6,380,000 bearing interest at 4.77 percent per annum. The Group has entered into an arrangement to swap the interest rate at 2.97 percent per annum effective on 25 September 2013 up to 25 November 2014.

The 2012 balance of development finance loan represented the bank loan facility for the development of a retirement village site in Vermont South, Victoria (Victoria Grange). Refer to note 25 for further details of this loan.

(c) Retirement Village Investment Notes (RVIN)

The Retirement Village Investment Notes (RVIN) are debt obligations issued by the Group and are secured in the form of a registered security over specific assets. The proceeds from RVIN issue were utilised by the Group for the purpose of expanding the retirement living business. The RVIN are secured by a first ranking registered security interest over intra-group loans in relation to the RVIN proceeds and the mortgages, granted as security for the loans, over allotments of units held in Australian Unity Retirement Village Trust #1 (in respect of Series I and 2 Notes) and Australian Unity Retirement Village Trust #2 (in respect of Series 3 Notes).

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.

109

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

29 Non-current liabilities – Interest bearing liabilities continued

The following table summarises the details of RVIN.

			Prospectus		Maturity date	Interest rate	2013	2012
Name							$’000	$’000
Series	1	RVIN	3	30	November 2013	8.25%	–	1,286
			3	30	November 2015	8.75%	3,808	3,808
			4	30	November 2014	8.25%	8,581	8,581
			4	30	November 2016	8.50%	1,318	1,318
			5	30	November 2015	7.00%	2,962	–
			5	30	November 2017	7.50%	620	–
			5	30	November 2019	7.50%	5,408	–
Series	2	RVIN	3	31	December 2014	8.25%	4,118	4,118
			3	31	December 2016	8.50%	770	770
			4		31 March 2015	8.00%	2,909	2,909
Series	3	RVIN	1		31 March 2014	8.25%	–	120
			1		31 March 2016	8.50%	145	145
			2		30 June 2014	8.25%	–	498
			2		30 June 2016	8.50%	890	890
			3	31	December 2014	8.25%	130	130
			3	31	December 2016	8.50%	233	233
			5		30 June 2014	8.50%	–	5,823
			5		30 June 2016	8.75%	3,521	3,521
			6		31 March 2015	8.00%	4,514	4,514
			7		30 June 2015	7.50%	7,045	7,045
			8	31	December 2015	7.00%	6,751	–
			8	31	December 2017	7.50%	315	–
			8	31	December 2019	7.50%	15	–
Total							54,053	45,709

(d) 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 5 year period and incur a floating interest rate equal to the 90-day BBSW rate plus a margin of 4.90 percent per annum. After the non-call period, this rate increases to the 90-day BBSW rate plus a margin of 6.90 percent per annum. The interest rate is set quarterly on 11 July, 11 October, 11 January and 11 April. As at 30 June 2013, the interest rate applicable to the quarter commencing 11 April 2013 was 7.99 percent (2012: 8.39 percent). The variable component of the interest rate on these subordinated capital notes was hedged using an interest rate swap at 5.0675 percent per annum commencing on 19 July 2010 up to 11 July 2013.

During the year the Group opted to call the notes at the end of the non-call period and repaid them on 11 July 2013. Refer to note 41 for further details.

(e) Term deposits

Term deposits are repayable on maturity and accrue interest on a monthly basis with annual fixed interest rates at 30 June 2013 ranging between 2.75 percent and 8.09 percent (2012: between 3.00 percent and 8.20 percent).

(f) Fair value

The carrying amounts and fair values of borrowings (current and non-current) at the end of the reporting period are:

	2013	2013	2012	2012
	Carrying amount	Fair value	Carrying amount	Fair value
	$’000	$’000	$’000	$’000
Australian Unity Notes	120,000	124,200	120,000	123,000
Australian Unity Notes establishment costs	(3,738)	(3,738)	(5,078)	(5,078)
Cash advance facility	–	–	8,000	8,000
Call deposits	303,688	303,688	281,543	281,543
Development fnance loans	22,473	21,320	17,003	16,517
Lease liabilities	13	13	18	18
Loan payable to related entity	2,800	2,800	2,800	2,800
Mortgage ofset savings accounts	37,220	37,220	35,152	35,152
Retirement Village Investment Notes	61,780	62,532	61,780	60,882
Subordinated capital notes	25,000	25,000	25,000	27,349
Term deposits	221,330	220,946	282,227	280,307
	790,566	793,981	828,445	830,490

110

(g) Risk exposures

Information about the Group’s exposure to risk arising from borrowings is set out in note 3.

30 Non-current liabilities – Deferred tax liabilities

30 Non-current liabilities – Deferred tax liabilities
2013	2012
$’000	$’000
The balance comprises temporary diferences attributable to: Accrued expenses (5,025) Allocable cost adjustment on consolidation 1,013 Capitalised expenditure (9,328) Deferred acquisition costs – Fixed assets and investment properties 40,221 Investment in associates and joint ventures (1,648) Other assessable items 10,966 Other deductible items 1,639 Policy bonus credits (11,104) Provisions (7,344) Risk equalisation trust fund 3,796 Tax losses (3,812) Trust distribution 1,333 Unallocated income – Unrealisedgains on investments 7,508	(3,025) 1,013 (9,172) 29 34,944 (2,676) 7,763 990 (8,618) (5,047) 4,239 (7,425) 1,147 (354) 3,523
Total deferred tax liabilities 28,215	17,331
Movements: Balance at the beginning of the fnancial year 17,331 Charged to the proft or loss (note 8) 10,751 Charged/(credited) to other comprehensive income 118 Other transfers 15	15,052 3,890 (1,070) (541)
Balance at the end of the fnancialyear 28,215	17,331

31 Non-current liabilities – Provisions

31 Non-current liabilities – Provisions
	2013	2012
	$’000	$’000
Employee benefts	2,583	2,190
Outstandingclaims	838	801
	3,421	2,991

32 Non-current liabilities – Other non-current liabilities

	2013	2012
	$’000	$’000
Unearned income	–	15,705
Interest rate swaps	2,808	3,550
Other liabilities	–	5,651
	2,808	24,906

(a) Unearned income

Unearned income represents health insurance premium revenue not yet recognised in the profit or loss.

(b) Interest rate swaps

The Company entered into arrangements to hedge swap the variable interest component of the majority of the $120 million Australian Unity Notes (refer to note 29). On 9 August 2011, the Company swapped the variable interest component of $60 million of the notes at 4.65 percent per annum maturing on 14 April 2016. On 7 December 2011, the Company swapped the variable interest rate of $30 million of the notes at 3.8092 percent per annum maturing on 14 January 2014.

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 29). The subsidiary company swapped the variable interest component of the $25 million subordinated capital notes at 5.0675 percent per annum maturing on 11 July 2013.

111

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

33 Reserves and retained earnings

33 Reserves and retained earnings
2013	2012
$’000	$’000
(a) Reserves
Asset revaluation reserve 2,462	2,462
Reserve for credit losses 1,429	1,212
Cash fow hedges reserve (2,210)	(2,486)
1,681	1,188
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
Reserve for credit losses
Balance at the beginning of the fnancial year 1,212	13
Additions from business combination –	1,171
Transfer from retained earnings 217	41
Transfer from/(to) net proft –	(19)
Tax beneft/(expense) –	6
Balance at the end of the fnancialyear 1,429	1,212
Cash fow hedges reserve
Balance at the beginning of the fnancial year (2,486)	–
Revaluation 394	(3,550)
Tax beneft (118)	1,064
Balance at the end of the fnancialyear (2,210)	(2,486)

(b) Nature and purpose of other 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) Reserve for credit losses

The reserve for credit losses is required under Prudential standards to cover risks inherent in the loan portfolios as described in note 1(ad).

(iii) Cash flow hedges reserve

The cash flow hedges reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as described in note 1(i(ii)). The amounts are recognised in the profit or loss when the associated hedged transaction affects profit or loss.

(c) Retained earnings

Movements in retained earnings were as follows:

2013	2012
$’000	$’000
Balance at the beginning of the fnancial year 191,886	170,085
Dividends from a subsidiary to a non-controlling interest –	(389)
Transfer to reserve for credit losses (217)	(41)
Proft for theyear 29,406	22,231
Balance at the end of the fnancialyear 221,075	191,886

34 Non-controlling interest

34 Non-controlling interest
	2013	2012
	$’000	$’000
Non-controllinginterest	1,233	1,229

The non-controlling interest is in connection with the 9.75 percent (2012: 9.75 percent) shareholding in a subsidiary by a related party which is not part of the consolidated entity.

112

35 Reconciliation of profit after income tax to net cash inflow/(outflow) from operating activities

35 Reconciliation of proft after income tax to net cash infow/(outfow) from operating activities
2013	2012
$’000	$’000
Proft after income tax for the year 29,410 Depreciation and amortisation 15,391 Impairment provision (205) Investment gains (11,737) Fair value gains on investment property (10,281) Net loss on sale of non-current assets 282 Share of net profts of associates and joint ventures (4,349) Business combination related expenses 42 General reserve – Changes in operating assets and liabilities: Decrease/(increase) in trade and other receivables 15,504 Decrease/(increase) in inventories 22 Increase in loans and advances (1,486) Increase in current tax assets (2,556) Decrease in deferred tax assets 12,388 Decrease in other operating assets 123 Increase/(decrease) in trade and other payables 12,879 Increase/(decrease) in deposits liability (36,684) Increase/(decrease) in current tax liabilities (9,070) Increase in deferred tax liabilities 10,884 Increase in provisions 5,980 Increase/(decrease) in beneft fund policy liabilities (20,484) Increase/(decrease) in other operating liabilities (43,244) Changes in net operatingassets due to business combination –	22,332 14,853 2,615 (617) (8,999) 1,378 (1,327) 1,706 (19) (9,227) (37) (436,539) – 2,270 473 (2,022) 526,887 2,277 6,331 4,602 7,656 66,646 (77,778)
Net cash infow / (outfow) from operatingactivities (37,191)	123,461

36 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 37.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 38.

(d) Transactions and balances with related parties

Transactions and balances between the Group and related parties were as follows:

Dividends received from associates and joint ventures, $1,739,003 (2012: $1,643,750);
Dividends from a subsidiary to a non-controlling interest, $nil (2012: $389,000);
Investment management fees charged by associates and joint ventures, $6,863,124 (2012: $8,409,613);
Commission, director fees and other costs charged to associates and joint ventures, $1,325,384 (2012: $1,503,421);
Donations to a related charity organisation, $359,888 (2012: $222,000);
Health insurance claims made by a related entity, $2,432,546 (2012: $1,761,585);
Rental income from related entity, $464,496 (2012: $2,080,500);
Loans provided to related entities, $nil (2012: $571,787);
In May 2012, the Group purchased 2,400,000 issued shares in a subsidiary from a related party for $5,088,000. The fair value of net assets acquired was $2,585,848 and the share purchase resulted in goodwill on acquisition of $2,502,152;
Trade and other receivables from related entities as at 30 June 2013, $430,337 (2012: $192,795);
Trade and other payables to related entities as at 30 June 2013, $2,305,263 (2012: $444,014);
Loans receivable from associates and joint ventures as at 30 June 2013, $203,255 (2012 : $200,664);
Loans receivable from related entities as at 30 June 2013, $29,592,961 (2012: $29,595,263);
Loan payable to related entity as at 30 June 2013, $2,800,000 (2012: $2,800,000).

All transactions with related entities are entered into on normal commercial

terms and conditions and at market rates as applicable.

113

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

37 Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries:

	Country of incorporation	Holding	Equity holding
Name of entity			2013 %	2012 %
Wholly-owned by the Parent entity
Australian Unity Advice Pty Ltd	Australia	Shares	100	100
Australian Unity Capital Management Ltd	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 Pty Ltd	Australia	Shares	100	100
Australian Unity Property Limited	Australia	Shares	100	100
Australian Unity Property Management Proprietary 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 Strategic Holdings Pty Limited	Australia	Shares	100	100
Big Sky Building Society Limited	Australia	Shares	100	100
Grand United Corporate Health Limited	Australia	Shares	100	100
Remedy Healthcare Group Pty Ltd	Australia	Shares	100	100
Not wholly-owned by the Parent entity
Australian Unity Aged Care Investments Pty Ltd	Australia	Shares	90.25	90.25
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 Services Pty Ltd	Australia	Shares	90.25	90.25
Australian Unity Carlton Aged Care Trust	Australia	Units	90.25	90.25
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 Trust	Australia	Units	100	100
Australian Unity Lilydale Development Trust	Australia	Units	100	100
Australian Unity Property Funds Management Ltd	Australia	Shares	100	100
Australian Unity Property Investment Management Limited	Australia	Shares	100	100
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
Better Home Care Pty Ltd (formerly Australian Unity Care Provider Holdings Pty Ltd)	Australia	Shares	100	100
Big Sky Financial Solutions Pty Ltd	Australia	Shares	100	100
Big Sky Financial Planning Pty Ltd	Australia	Shares	100	100
Campana Pty Ltd	Australia	Shares	100	100
Cash Enhanced Plus Internal Investment Trust	Australia	Units	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
Greglea Village Management Pty Limited	Australia	Shares	100	100
High Yield Plus Internal Investment Trust	Australia	Units	100	100
Lifeplan Australia Friendly Society Limited	Australia	Shares	100	100
Long Duration Internal Investment Trust	Australia	Units	100	100

114

	Country of incorporation	Holding	Equity holding
Name of entity			2013 %	2012 %
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
Retirement Village Property Fund	Australia	Units	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	Shares	100	100

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. The Parent entity investment in the subsidiaries is stated at cost, in accordance with the accounting policy described in note 1(s).

In addition to the investments in associates and joint ventures (note 17) 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 percent 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 percent of the total equity that the scheme is consolidated irrespective of whether a combined holding exceeds 50 percent 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 36.

38 Key management personnel disclosures

(a) Key management personnel compensation

(a) Key management personnel compensation
	2013	2012
	$	$
Short-term employee benefts	4,564,338	5,431,207
Post-employment benefts	206,296	351,380
Long-term benefts	750,479	748,669
	5,521,113	6,531,256

Detailed remuneration disclosures are provided in the Remuneration report in the Directors’ report.

(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 2013 financial year amounted to $1,062,019 (2012: $1,183,564). Directors’ remuneration includes superannuation contributions in accordance with the Superannuation Guarantee Legislation. Information relating to the Group’s superannuation funds is set out in note1(j).

The Group has also set aside a provision for directors’ retirement allowances. At 30 June 2013, this provision amounted to $521,940 (2012: $485,722). During the 2013 financial year, no director received a retirement payment from the provision for directors’ retirement allowances (2012: $550,000). 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 2012 financial year, Mr Warren French received an honorarium of $10,000 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, Big Sky Building Society Limited (formerly 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 2013, the balance outstanding was $464,050 (2012: $464,050). There are no other loans to key management personnel at 30 June 2013 (2012: 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.

115

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

39 Commitments

(a) Capital commitments

Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:

Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
	2013	2012
	$’000	$’000
Payable within one year:
Investment property	23,774	15,680
Intangible assets	–	747
Total capital commitments	23,774	16,427

(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 not recognised as liabilities are payable as follows:

	2013	2012
	$’000	$’000
Within one year	4,835	2,432
Later than one year but not later than fve years	8,369	8,717
Later than fveyears	528	404
	13,732	11,553

The Group leases various commercial premises under non-cancellable operating leases with an average outstanding lease term of four 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 :

Future minimum lease payments receivable under non-cancellable operating leases are as follows :
	2013	2012
	$’000	$’000
Within one year	374	268
Later than oneyear but not later than fveyears	446	575
	820	843

(d) Credit related commitments

The Group has binding commitments to extend credit which are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

	2013	2012
	$’000	$’000
Irrevocable approved but undrawn loans	11,841	14,113
Revocable loans with balances available for redraw	36,831	34,986
Revocable undrawn lines of credit, credit cards and overdrafts	32,436	32,507
	81,108	81,606

40 Contingencies

(a) Contingent liabilities

Contingent liabilities exist in relation to future anticipated calls on shares held by the Group in the joint ventures, Wingate Asset Management Pty Limited, Seres Asset Management Limited and Altius Asset Management Pty Ltd. As at 30 June 2013, the contingent liabilities are as follows:

Wingate Asset Management Pty Limited amounted to $931,500 for 6,210,000 shares at 15.0 cents each (2012: $279,450 for 6,210,000 shares at 4.5 cents each);
Seres Asset Management Limited amounted to $1,410,100 for 12,500,000 shares at 11.3 cents each (2012: $1,463,704 for 11,625,000 shares at 12.6 cents each); and
Altius Asset Management Pty Ltd amounted to $339,575 for 425,000 shares at 79.9 cents each (2012: $276,675 for 2,324,998 shares at 11.9 cents each).

There have been legal claims lodged for damages against the Group for which no provision has been raised, due to the belief it is not probable that these claims will succeed and that it is not practical to estimate the potential effect of these claims. The directors are of the view that none of these claims are likely to result in material exposure.

116

(b) Guarantees

Guarantee for computer equipment

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. As at 30 June 2013, there was $2,345,710 (2012: $3,395,051) of liabilities covered by this guarantee. The guarantee will expire in October 2017.

Bank guarantee

The Group has entered into bank guarantee arrangements totalling $7,604,222 (2012: $8,191,607) as part of its normal operations in order to secure the Group’s performance under contracts. The bank guarantees only become payable upon the non-performance of the Group.

Liquidity support scheme

Big Sky Building Society Limited (BSBS), a wholly owned subsidiary of the Group, is a party to the Credit Union Financial Support Scheme (CUFSS). CUFSS is a voluntary scheme in which all credit unions who are affiliated with Cuscal Limited have agreed to participate. CUFSS is a company limited by guarantee, each guarantee being $100.

As a CUFSS member, BSBS:

May be required to advance funds of up to 3 percent (excluding permanent loans) of total assets to another credit union requiring financial support;
May be required to advance permanent loans of up to 0.2 percent of total assets per financial year to another credit union requiring financial support; and
Agrees, in conjunction with other members, to fund the operating costs of CUFSS.

At 30 June 2013, no funding was required by and paid to CUFSS (2012: $nil).

41 Events occurring after the reporting period

42 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:

2013	2012
$	$
(a) Audit and other assurance services
Ernst & Young Australian frm
Audit and review of fnancial statements 1,364,422	1,307,481
Audit of regulatory returns 285,089	267,451
Other assurance services –	111,229
Total remuneration for audit and other assurance services 1,649,511	1,686,161
(b) Taxation and other services
Ernst & Young Australian frm
Tax compliance services 443,436	288,520
Tax consulting services 505,868	468,976
Other services 69,043	57,415
Total remuneration for taxation and other services 1,018,347	814,911
Total auditors’ remuneration 2,667,858	2,501,072

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.

117

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

43 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

(a) Details of income and expenses
2013	2012
$’000	$’000
Premium revenue 706,315	646,457
Claims expense (598,769) Net risk equalisation trust fund recoveries 22,370 State levies (4,284)	(534,777) 19,120 (3,647)
Net claims incurred (580,683)	(519,304)
Acquisition costs (42,278) Other underwritingexpenses (2,914)	(41,238) (2,948)
(45,192)	(44,186)
Underwriting result 80,440	82,967
Net investment income 21,726 Employee benefts expense (22,914) Other expenses from ordinary activities (21,632) Finance costs (3,200)	12,206 (17,960) (20,433) (3,175)
(26,020)	(29,362)
Proft before income tax 54,420	53,605
Income tax expense (15,030)	(15,905)
Proft after income tax 39,390	37,700

(b) Net Risk Equalisation Trust Fund (RETF) receivable

(b) Net Risk Equalisation Trust Fund (RETF) receivable
2013	2012
$’000	$’000
Movement in net RETF receivable Balance at the beginning of the fnancial year 5,824	6,401
Net RETF raised during the year 22,370	19,120
Net RETF received duringtheyear (22,580)	(19,697)
Balance at the end of the fnancialyear 5,614	5,824

(c) Outstanding claims provision

(c) Outstanding claims provision
2013	2012
$’000	$’000
Outstanding claims – central estimate of the expected present value of future payments for claims incurred 45,961	43,216
Risk margin 3,877	3,418
Claims handlingcosts 1,174	974
Gross outstandingclaims liability 51,012	47,608
Movement in the gross outstanding claims provision Balance at the beginning of the fnancial year 47,608	44,808
Claims incurred during the year 598,769	534,777
Claimspaid duringtheyear (595,365)	(531,977)
Balance at the end of the fnancialyear 51,012	47,608
Current 51,012	47,608

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 8.2 percent (2012: 7.7 percent) combined with the central estimate, is estimated to equate to a probability of adequacy of at least 95 percent (2012: 95 percent). 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.

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.

118

The weighted average expected term to settlement of claims from the end of the reporting period is estimated to be 2 months (2012: 2 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.

in selected key variables.
	Movement	Proft/(loss) after tax	Net assets
	in variable	$’000	$’000
Central estimate	+5%	-1,609	-1,609
Central estimate	-5%	1,609	1,609
Claims handling	+10%	-82	-82
Claims handling	-10%	82	82

(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 2013 (2012: $nil) at a 75 percent (2012: 75 percent) 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.

44 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

(a) Analysis of policy liabilities
2013	2012
$’000	$’000
Life investment contract liabilities 633,905	595,968
Life insurance contract liabilities – guaranteed element 1,152,530	1,229,669
Life insurance contract liabilities – other 649	1,223
Unvestedpolicyholder liabilities 46,147	26,855
Totalpolicy liabilities 1,833,231	1,853,715
Expected to be realised within 12 months 221,513	225,453
Expected to be realised in more than 12 months 1,611,718	1,628,262
1,833,231	1,853,715

There are no investment linked contracts where policy liabilities are subject to investment performance guarantees. There are no other contracts except as already disclosed in this note with a fixed or guaranteed termination value.

(b) Reconciliation of changes in policy liabilities

(b) Reconciliation of changes in policy liabilities
2013	2012
$’000	$’000
Life investment contract liabilities Balance at the beginning of the fnancial year 595,968	601,901
Increase/(decrease) recognised in the proft or loss 47,806	2,673
Premiums recognised as a change in contract liabilities 69,886	85,506
Claims recognised as a change in contract liabilities (79,755)	(94,112)
Life investment contract liabilities at the end of fnancial theyear 633,905	595,968
Life insurance contract liabilities Balance at the beginning of the fnancial year 1,230,892	1,215,245
Increase/(decrease) recognised in theproft or loss (77,713)	15,647
Life insurance contract liabilities at the end of the fnancialyear 1,153,179	1,230,892
Unvested policyholder liabilities Balance at the beginning of the fnancial year 26,855	28,912
Increase/(decrease) recognised in theproft or loss 19,292	(2,057)
Unvestedpolicyholder benefts liabilityat the end of the fnancialyear 46,147	26,855
Netpolicyliabilities at the end of the fnancialyear 1,833,231	1,853,715

119

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

44 Benefit fund policy liabilities continued

(c) Analysis of policy liability revenue and expenses

(c) Analysis of policy liability revenue and expenses
2013	2012
$’000	$’000
Revenue and other income Total life insurance and participating contract premium revenue 62,655 Reinsurancepremium (416)	95,324 (390)
Life insurance contract premium revenue 62,239 Interest income 1,194 Distribution income 68,750 Realised losses (14,264) Unrealised gains 62,608 Other income 156	94,934 3,897 73,886 (11,080) 26,760 209
Total revenue and other income 180,683	188,606
Expenses Total life insurance andparticipatingcontract claims expense 141,746	132,588
Life insurance contract claims expense 141,746 Policy maintenance expenses – life insurance contracts Commissions 13 Management fees 21,448 Other expenses 533 Movement in life insurance contract liabilities (77,713) Movement in unvested policyholder liabilities 19,292 Movement in life investment contract liabilities 47,806	132,588 10 20,725 1,703 14,647 (1,057) 2,673
Total expenses 153,125	171,289

(d) Actuarial methods and assumptions

The effective date of the actuarial financial condition report on policy liabilities and solvency reserves is 30 June 2013. The actuarial report was prepared by the appointed actuary Mr Richard Land BCom FIAA, Consulting Actuary of Mercer Consulting (Australia) Pty Ltd AFS Licence #411770. 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.

Policy Liability Valuations for Defined Benefit Funds

The defined benefit funds comprise the following:

Personal Risk Insurance Fund, Assurance Benefit Fund, Endowment and Funeral Fund (denoted as the Funeral Fund), Life Assurance Benefit Fund, Central Sick and Funeral Fund, Funeral and Ancillary Benefits Fund, Travel Protection Fund, Whole of Life Funeral Fund and Accidental Death Benefits Fund, Adult Accident Fund and Student Accident Fund, collectively referred to as the “Accident Funds”.

The policy liabilities for the defined benefit funds are determined in accordance with Prudential Standard LPS 340 (2012: LPS 1.04) issued by the Australian Prudential Regulation Authority (“APRA”) under the Life Insurance Act 1995 .

Policy liabilities are valued using the projection method (with the exception of the Personal Risk Insurance Fund and the Accident Funds). Under the 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 balance of the benefit fund represents unvested policyholder liabilities, which will ultimately be distributed to members or transferred to the management fund (depending on the benefit fund rules).

The key assumptions for the policy liability calculations for the various defined benefit funds at 30 June 2013 were as follows:

		Mean	Gross	Fees		Discount Rate
		Liability	Discount	(% of		Net of Tax and
Fund Name	Discount Basis1	Term (Yrs)	Rate	Assets)	Tax Rate	Fees	Mortality Basis2
Assurance Beneft Fund Endowment and Funeral Fund – Funeral Fund Life Assurance Fund Central Sick and Funeral Fund Funeral and Ancillary Travel Protection Whole of Life Funeral	Zero Coupon CGS Rate Zero Coupon CGS Rate Zero Coupon CGS Rate Zero Coupon CGS Rate Zero Coupon CGS Rate Zero Coupon CGS Rate Zero Coupon CGS Rate	15 17 13.5 11 14 13 11.5	4.33% 4.32% 4.22% 4.02% 4.26% 4.18% 4.06%	1.80% 0.00% 2.25% 2.00% 1.80% 0.00% 1.50%	30.00% 0.00% 30.00% 0.00% 0.00% 0.00% 0.00%	1.77% 4.32% 1.38% 2.02% 2.46% 4.18% 2.56%	50% of ALT2009-11 50% of ALT2009-11 50% of ALT2009-11 50% of ALT2009-11 100% of ALT2009-11 85% of ALT2009-11 110% of ALT2009-11

Notes:

1 The zero coupon Commonwealth Government Security rate corresponding to the mean guaranteed liability term.

2 ALT2009-11 refers to Australian Life Tables (Male and Female) 2009-2011.

120

The key assumptions for the policy liability calculations for these defined benefit funds at 30 June 2012 were as follows:

		Mean	Gross	Fees		Discount Rate
		Liability	Discount	(% of		Net of Tax and
Fund Name	Discount Basis3	Term (Yrs)	Rate	Assets)	Tax Rate	Fees	Mortality Basis4
Assurance Beneft Fund	Swap Rate	15	4.32%	1.80%	30.00%	1.76%	50% of ALT0507
Endowment and Funeral Fund – Funeral Fund	Swap Rate	20	4.20%	0.00%	0.00%	4.20%	50% of ALT0507
Life Assurance Fund	Swap Rate	12	4.18%	2.25%	30.00%	1.35%	50% of ALT0507
Central Sick and Funeral Fund	Swap Rate	11	4.14%	2.00%	0.00%	2.14%	50% of ALT0507
Funeral and Ancillary	Swap Rate	16	4.32%	2.00%	0.00%	2.32%	80% of ALT0507
Travel Protection	Swap Rate	13	4.23%	0.00%	0.00%	4.23%	85% of ALT0507
Whole of Life Funeral	SwapRate	14	4.28%	1.50%	0.00%	2.78%	70% of ALT0507

Notes:

3 The mid swap rate corresponding to the mean liability term.

4 ALT0507: Australian Life Tables (Male and Female) 2005-2007.

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.

The following additional assumptions apply:

For the Funeral and Ancillary Fund, the proportion married varies by age as set out in the relevant valuation report;
For the Funeral and Ancillary Fund, where benefits are indexed to inflation (as required by the benefit fund rules) the future inflation assumption is 2.6 percent (2012: 2.5 percent) per annum; and
For the Travel Protection Fund, the proportion of claims (arising from each death) is 5.0 percent (2012: 5.0 percent) and the average claim amount is $1,200 (2012: $1,152) inflating at 2.6 percent (2012: 2.5 percent) per annum.

For the remaining defined benefit funds, policy liabilities are valued using the accumulation method. For the Personal Risk Insurance Fund the policy liability is equal to 100 percent of the annual premium. For the Accidental Death Benefits Fund the policy liability is equal to 50 percent of the annual premium. For the Adult Accident Fund and Student Accident Fund the policy liability is equal to the unearned premium plus the outstanding claim liability, determined by reference to the past delay pattern of claim payments.

Policy Liability Valuation for Defined Contribution Funds

The defined contribution funds comprise the following:

Capital Guaranteed Bond, Capital Guaranteed Mortgage Bond, Grand Bonds Assurance Fund, Capital Guaranteed Funeral Fund (Non Taxable), Capital

Guaranteed Funeral Fund (Taxable), Capital Secure Funeral Fund, Bonus Accumulation Fund, Bonus Bond, Capital Guaranteed Deferred Annuity Fund, Community Bond Fund, Education Savings Plan, Flexishield Bond Fund, NextGen Capital Guaranteed Fund, Telecom Rollover Fund, Funeral Bond Fund, Prepaid Funeral Fund, Funeral Fund No. 2 and Tax Minimiser Funeral Fund. The policy liabilities for defined contribution funds are determined in accordance with Prudential Standard LPS 340 (2012: LPS 1.04) issued by APRA under the Life Insurance Act 1995 .

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 represents unvested policyholder liabilities, which will ultimately be distributed to members by way of future bonus declarations.

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. 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 2013 were as follows:

		Mean				Discount
		Liability	Gross	Fees		Rate Net
	Discount	Term	Discount	(% of	Tax	of Tax
Fund Name	Basis1	(Yrs)	Rate	Assets)	Rate	and Fees Mortality Basis2
Capital Guaranteed Funeral Bond (Non Taxable)	Zero Coupon CGS Rate plus illiquidity premium	8	4.06%	2.05%	0.00%	2.01% 110% of ALT2009-11
Capital Guaranteed Funeral Bond (Taxable)	Zero Coupon CGS Rate plus illiquidity premium	10	4.28%	2.05%	30.00%	1.56% 130% of ALT2009-11
Capital Secure Funeral Bond	Zero Coupon CGS Rate plus illiquidity premium	6	3.70%	1.53%	0.00%	2.17% 100% of ALT2009-11
Funeral Bond	Zero Coupon CGS Rate plus illiquidity premium	8	4.06%	1.50%	0.00%	2.56% 100% of ALT2009-11
Prepaid Funeral Fund	Zero Coupon CGS Rate plus illiquidity premium	7.5	3.98%	1.50%	0.00%	2.48% 110% of ALT2009-11
Funeral Fund No 2 – Non taxable	Zero Coupon CGS Rate plus illiquidity premium	8.5	4.12%	2.00%	0.00%	2.12% 115% of ALT2009-11
Funeral Fund No 2 – Taxable	Zero Coupon CGS Rate plus illiquidity premium	8.5	4.12%	2.00%	30.00%	1.49% 115% of ALT2009-11
Tax Minimiser Funeral Fund	Zero Coupon CGS Rateplus illiquidity premium	7.5	3.98%	1.50%	30.00%	1.74% 200% of ALT2009-11

Notes:

1 The zero coupon Commonwealth Government Security rate corresponding to the mean guaranteed liability term plus an illiquidity premium. 2 ALT2009-11 refers to Australian Life Tables (Male and Female) 2009-2011.

121

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

44 Benefit fund policy liabilities continued

The key assumptions for the policy liability calculations for the funeral funds at 30 June 2012 were as follows:

		Mean	Gross	Fees		Discount
	Discount	Liability Term	Discount	(% of		Rate Net of
Fund Name	Basis3	(Yrs)	Rate	Assets)	Tax Rate	Tax and Fees	Mortality Basis4
Capital Guaranteed Funeral Bond (Non Taxable)	Swap Rate	8	3.97%	2.05%	0.00%	1.92%	105% of ALT0507
Capital Guaranteed Funeral Bond (Taxable)	Swap Rate	10	4.09%	2.05%	30.00%	1.43%	115% of ALT0507
Capital Secure Funeral Bond	Swap Rate	6	3.79%	1.53%	0.00%	2.26%	100% of ALT0507
Funeral Bond	Swap Rate	8	3.97%	1.50%	0.00%	2.47%	90% of ALT0507
Prepaid Funeral Fund	Swap Rate	8	3.93%	1.50%	0.00%	2.43%	110% of ALT0507
Funeral Fund No 2 – Non Taxable	Swap Rate	8	3.97%	2.00%	0.00%	1.97%	115% of ALT0507
Funeral Fund No 2 – Taxable	Swap Rate	8	3.97%	2.00%	30.00%	1.38%	115% of ALT0507
Tax Minimiser Funeral Fund	SwapRate	7	3.90%	1.50%	30.00%	1.68%	200% of ALT0507

Notes

3 The mid swap rate corresponding to the mean guaranteed liability term.

4 ALT0507 refers to Australian Life Tables (Male and Female) 2005-2007.

For the Capital Guaranteed Funeral Bond (Taxable), Tax Minimiser Funeral Fund and Funeral Benefits Fund No. 2, a deferred tax benefit in respect of future termination bonuses is added to the policy liability.

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 2013. 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

122

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.

(f) Solvency and capital adequacy information

Under the Life Insurance Act 1995 , the Group is required to hold a prudential capital requirement 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 LPS110, LPS112, LPS114, LPS115, LPS117 and LPS118 (2012: LPS 2.04 and LPS 3.04). These standards have been met for all benefit funds as at 30 June 2013 and 2012.

For each benefit fund subject to a solvency requirement, the figures in note 45 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 45 details the income statement and balance sheet for the individual benefit funds aggregated within these financial statements.

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.

45 Disaggregated information – Benefit Funds

(a) Non-investment linked benefit funds

30 June 2013	Net premium $’000	Revenue Investment $’000	Other $’000	Expenses Claims $’000 Other $’000	Expenses Claims $’000 Other $’000	Proft/(loss) Before tax $’000	for the year After tax $’000
Accidental death benefts Adult accident Assurance beneft fund Central sick and funeral fund Funeral and ancillary benefts Funeral fund Life assurance fund Personal risk fund Student accident Travel protection funeral Whole of life funeral	113 17 – – 12 – – 26 24 100 –	65 14 9 55 (411) (196) 109 13 36 13 19	– – – – – – – – – – –	– 2 277 154 665 396 124 17 3 12 38	96 18 27 (99) (1,064) (591) (10) (84) 33 65 (19)	82 11 (295) – – (1) (5) 106 24 36 –	– – – – – – – – – – –
Total non-investment linked beneft fund - Life insurance contracts	292	(274)	–	1,688	(1,628)	(42)	–
30 June 2012
Accidental death benefts	112	16	–	–	136	(8)	–
Adult accident	21	4	–	2	19	4	–
Assurance beneft fund	–	1,500	–	340	766	394	–
Central sick and funeral fund	–	970	–	293	677	–	–
Funeral and ancillary benefts	10	1,933	–	611	1,332	–	–
Funeral fund	–	1,566	–	431	1,135	–	–
Life assurance fund	–	1,937	–	261	1,237	439	–
Personal risk fund	18	14	–	–	187	(155)	–
Student accident	31	9	–	4	27	9	–
Travel protection funeral	47	81	–	15	75	38	–
Whole of life funeral	–	68	–	27	41	–	–
Total non-investment linked beneft fund - Life insurance contracts	239	8,098	–	1,984	5,632	721	–

123

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

45 Disaggregated information – Benefit Funds continued

30 June 2013	Assets Investments $’000 Other $’000	Assets Investments $’000 Other $’000	Liabilities Life insurance $’000 Other $’000	Liabilities Life insurance $’000 Other $’000	Equity Equity $’000 Coverage of Solvency Reserve %	Equity Equity $’000 Coverage of Solvency Reserve %
Accidental death benefts Adult accident Assurance beneft fund Central sick and funeral fund Funeral and ancillary benefts Funeral fund Life assurance fund Personal risk fund Student accident Travel protection funeral Whole of life funeral	– – 11,370 6,405 11,944 11,474 12,612 92 – 644 556	349 73 – – 1,070 (491) – 31 116 304 56	333 68 11,382 6,393 12,917 10,976 12,430 133 114 939 592	16 5 (12) 12 97 7 182 (10) 2 9 20	– – – – – – – – – – –	50 38 72 92 100 89 98 97 30 89 100
Total non-investment linked beneft fund - Life insurance contracts	55,097	1,508	56,277	328	–
30 June 2012
Accidental death benefts	436	62	536	(38)	–	36
Adult accident	86	14	100	–	–	38
Assurance beneft fund	12,347	–	11,930	417	–	96
Central sick and funeral fund	6,603	–	6,587	16	–	89
Funeral and ancillary benefts	14,237	–	14,170	67	–	99
Funeral fund	11,498	–	11,498	–	–	97
Life assurance fund	13,353	–	12,654	699	–	95
Personal risk fund	159	39	331	(133)	–	77
Student accident	215	37	256	(4)	–	32
Travel protection funeral	848	–	874	(26)	–	59
Whole of life funeral	755	–	620	135	–	92
Total non-investment linked beneft fund - Life insurance contracts	60,537	152	59,556	1,133	–

124

(b) Investment linked benefit fund – Life investment contracts with discretionary participating features

30 June 2013	Deposits $’000	Revenue Investment $’000	Other $’000	Expenses Claims $’000 Other $’000	Expenses Claims $’000 Other $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Bonus accumulation	704	5,352	–	27,692	(23,389)	1,753	–
Bonus bond no 1	1,427	1,991	–	5,578	(2,167)	7	–
Capital guaranteed bond	286	5,641	–	13,466	(8,734)	1,195	–
Capital guaranteed deferred annuity	–	49	–	397	(353)	5	–
Capital guaranteed funeral bond (non-taxable)	118	1,779	–	3,651	(1,753)	(1)	–
Capital guaranteed funeral bond (taxable)	3,804	1,621	–	4,498	721	206	–
Capital guaranteed mortgage bond	172	1,249	–	3,191	(2,037)	267	–
Capital secure funeral bond	28	1,564	–	3,221	(1,622)	(7)	–
Community bond	948	2,882	144	5,891	(2,854)	937	–
Education savings plan	1,661	547	–	1,854	265	89	–
Flexishield bond	337	1,585	(7)	3,852	(2,437)	500	–
Funeral fund no 2	1,249	11,583	–	19,723	(8,435)	1,544	–
Funeral bond	52	333	–	646	(261)	–	–
Grand bonds assurance fund	28	242	–	166	52	52	–
NextGen investments capital guaranteed	13,883	2,726	–	29,464	(13,449)	594	–
Prepaid funeral	1	325	–	654	(328)	–	–
Tax minimiser funeral	37,249	5,766	–	15,557	26,386	1,072	–
Telecom rollover	–	55	–	557	(507)	5	–
Total investment linked beneft
fund - Life investment contracts with discretionary participating	61,947	45,290	137	140,058	(40,902)	8,218	–
features
30 June 2012
Bonus accumulation	764	8,714	–	27,022	(20,302)	2,758	–
Bonus bond no 1	1,802	2,463	86	8,301	(4,092)	142	–
Capital guaranteed bond	356	7,684	–	12,605	(6,375)	1,810	–
Capital guaranteed deferred annuity	–	62	–	80	(20)	2	–
Capital guaranteed funeral bond (non-taxable)	132	2,499	–	3,476	(842)	(3)	–
Capital guaranteed funeral bond (taxable)	6,617	3,571	3	4,385	4,982	824	–
Capital guaranteed mortgage bond	125	1,678	–	4,618	(3,229)	414	–
Capital secure funeral bond	64	1,776	–	2,851	(1,010)	(1)	–
Community bond	871	4,104	45	8,707	(4,987)	1,300	–
Education savings plan	1,839	729	–	1,748	507	313	–
Flexishield bond	290	1,807	38	5,166	(3,632)	601	–
Funeral fund no 2	1,197	26,706	6	20,210	4,353	3,346	–
Funeral bond	48	891	–	630	308	1	–
Grand bonds assurance fund	23	301	–	398	(147)	73	–
NextGen investments capital guaranteed	43,641	3,713	–	14,344	32,210	800	–
Prepaid funeral	5	753	–	699	59	–	–
Tax minimiser funeral	36,921	8,335	–	15,035	27,238	2,983	–
Telecom rollover	–	98	–	329	(239)	8	–
Total investment linked beneft
fund - Life investment contracts with discretionary participating	94,695	75,884	178	130,604	24,782	15,371	–
features

125

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

45 Disaggregated information – Benefit Funds continued

30 June 2013	Assets Investments $’000 Other $’000	Assets Investments $’000 Other $’000	Liabilities Life insurance $’000 Other $’000	Liabilities Life insurance $’000 Other $’000	Equity Equity $’000 Coverage of Solvency Reserve %	Equity Equity $’000 Coverage of Solvency Reserve %
Bonus accumulation Bonus bond no 1 Capital guaranteed bond Capital guaranteed deferred annuity Capital guaranteed funeral bond (non-taxable) Capital guaranteed funeral bond (taxable) Capital guaranteed mortgage bond Capital secure funeral bond Community bond Education savings plan Flexishield bond Funeral fund no 2 Funeral bond Grand bonds assurance fund NextGen investments capital guaranteed Prepaid funeral Tax minimiser funeral Telecom rollover	168,789 719 127,344 – 43,620 64,163 30,140 30,856 2,881 702 9,920 214,123 7,082 5,638 83,166 5,703 143,179 1,491	87 41,426 – 925 (668) 1,505 – (302) 64,315 12,536 24,585 23,101 219 – 288 394 40,930 100	166,858 42,179 126,551 916 42,863 66,019 29,992 30,426 66,214 13,074 34,106 237,917 7,287 5,611 82,768 6,091 182,606 1,571	2,018 (34) 793 9 89 (351) 148 128 982 164 399 (693) 14 27 686 6 1,503 20	– – – – – – – – – – – – – – – – – –	100 97 100 98 96 99 95 97 99 100 99 97 87 100 100 86 92 99
Total investment linked beneft fund - Life investment contracts with discretionary participating features	939,516	209,441	1,143,049	5,908	–
30 June 2012
Bonus accumulation	191,536	–	191,761	(225)	–	100
Bonus bond no 1	44,930	258	44,926	262	–	96
Capital guaranteed bond	138,929	1	136,973	1,957	–	99
Capital guaranteed deferred annuity	1,281	6	1,284	3	–	98
Capital guaranteed funeral bond (non-taxable)	44,843	460	45,234	69	–	100
Capital guaranteed funeral bond (taxable)	65,965	622	66,174	413	–	100
Capital guaranteed mortgage bond	32,676	–	32,392	284	–	98
Capital secure funeral bond	32,013	343	32,315	41	–	100
Community bond	70,638	303	69,946	995	–	98
Education savings plan	12,587	529	12,998	118	–	99
Flexishield bond	37,851	72	37,479	444	–	98
Funeral fund no 2	234,206	13,740	249,589	(1,643)	–	100
Funeral bond	7,392	234	7,613	13	–	100
Grand bonds assurance fund	5,678	–	5,619	59	–	99
NextGen investments capital guaranteed	100,161	–	96,961	3,200	–	100
Prepaid funeral	6,256	225	6,476	5	–	100
Tax minimiser funeral	161,567	2,429	158,353	5,643	–	100
Telecom rollover	2,145	–	2,098	47	–	99
Total investment linked beneft fund - Life investment contracts with discretionary participating features	1,190,654	19,222	1,198,191	11,685	–

126

(c) Investment linked benefit fund – Investment contracts

30 June 2013	Net Premium $’000	Revenue Investment $’000	Other $’000	Expenses Claims $’000 Other $’000	Expenses Claims $’000 Other $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Balanced growth bond	–	4,498	–	–	3,293	1,205	–
Capital base	–	1,169	–	–	787	382	–
Conservative growth bond	–	1,276	–	–	937	339	–
Education bond long-term portfolio	–	919	–	–	674	245	–
Education bond medium-term portfolio	–	214	–	–	158	56	–
Education bond short-term portfolio	–	21	–	–	16	5	–
Education savings plan	–	10,159	19	–	7,510	2,668	–
Flexigrowth	–	593	–	–	593	–	–
Growth investment	–	4,276	–	–	3,082	1,194	–
High growth bond	–	660	–	–	484	176	–
Income	–	675	–	–	675	–	–
Managed investment	–	9,692	–	–	7,063	2,629	–
NextGen investments	–	17,205	–	–	12,766	4,439	–
Select strategies	–	20,063	–	–	14,491	5,572	–
TaxSmart	–	668	–	–	473	195	–
Wealth builder	–	1,184	–	–	907	277	–
Total Investment linked beneft
fund - Investment contracts without discretionary participating	–	73,272	19	–	53,909	19,382	–
features
30 June 2012
Balanced growth bond	–	(28)	–	–	127	(155)	–
Capital base	–	1,873	–	–	1,278	595	–
Conservative growth bond	–	581	–	–	449	132	–
Education bond long-term portfolio	–	(183)	–	–	(99)	(84)	–
Education bond medium-term portfolio	–	(3)	–	–	5	(8)	–
Education bond short-term portfolio	–	7	–	–	6	1	–
Education savings plan	–	(359)	22	–	(1,054)	717	–
Flexigrowth	–	804	–	–	804	–	–
Growth investment	–	(20)	–	–	85	(105)	–
High growth bond	–	(106)	–	–	(211)	105	–
Income	–	997	2	–	999	–	–
Managed investment	–	1,241	–	–	1,193	48	–
NextGen investments	–	3,926	4	–	3,430	500	–
Select strategies	–	577	–	–	1,001	(424)	–
TaxSmart	–	545	–	–	396	149	–
Wealth builder	–	(371)	3	–	(122)	(246)	–
Total Investment linked beneft
fund - Investment contracts without discretionary participating	–	9,481	31	–	8,287	1,225	–
features

127

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

45 Disaggregated information – Benefit Funds continued

45 Disaggregated information – Beneft Funds continued
30 June 2013	Assets Investments $’000 Other $’000		Liabilities Life insurance $’000 Other $’000		Equity Equity $’000
Balanced growth bond	26,366	79	26,137	308	–
Capital base	37,482	268	37,331	419	–
Conservative growth bond	14,553	–	13,925	628	–
Education bond long term portfolio	4,874	(13)	5,056	(195)	–
Education bond medium term portfolio	1,289	–	1,275	14	–
Education bond short term portfolio	188	2	190	–	–
Education savings plan	82,119	3,961	83,267	2,813	–
Flexigrowth	1,743	10,863	12,579	27	–
Growth investment	25,204	272	24,925	551	–
High growth bond	3,485	62	3,601	(54)	–
Income	13,976	3,371	17,345	2	–
Managed investment	77,722	472	75,142	3,052	–
NextGen investments	183,173	2,301	178,457	7,017	–
Select strategies	138,228	945	138,553	620	–
TaxSmart	2,147	8,406	10,178	375	–
Wealth builder	5,636	620	5,944	312	–
Total investment linked beneft fund - Investment contracts without discretionary participating features	618,185	31,609	633,905	15,889	–
30 June 2012
Balanced growth bond	26,256	719	27,048	(73)	–
Capital base	41,168	8	40,537	639	–
Conservative growth bond	14,046	1	13,640	407	–
Education bond long term portfolio	4,858	204	5,230	(168)	–
Education bond medium term portfolio	1,201	16	1,227	(10)	–
Education bond short term portfolio	195	2	200	(3)	–
Education savings plan	68,982	4,179	69,816	3,345	–
Flexigrowth	14,836	–	14,668	168	–
Growth investment	23,420	934	24,200	154	–
High growth bond	3,323	206	3,419	110	–
Income	19,463	2	19,460	5	–
Managed investment	79,041	751	78,751	1,041	–
NextGen investments	140,923	819	140,107	1,635	–
Select strategies	134,002	5,005	139,319	(312)	–
TaxSmart	12,164	29	11,902	291	–
Wealth builder	6,233	197	6,444	(14)	–
Total investment linked beneft fund - Investment contracts without discretionary participating features	590,111	13,072	595,968	7,215	–

128

(d) Summarised information by investment type

30 June 2013	Net Premium / Deposits $’000	Revenue Investment $’000	Other $’000	Expenses Claims $’000 Other $’000	Expenses Claims $’000 Other $’000	Proft/(loss) Before Tax $’000	for the year After Tax $’000
Non-investment linked beneft fund – Life insurance contracts	292	(274)	–	1,688	(1,628)	(42)	–
Investment linked beneft fund
– Life investment contracts with	61,947	45,290	137	140,058	(40,902)	8,218	–
discretionary participating features
Investment linked beneft fund – Investment contracts	–	73,272	19	–	53,909	19,382	–
Total	62,239	118,288	156	141,746	11,379	27,558	–
30 June 2012
Non-investment linked beneft fund – Life insurance contracts	239	8,098	–	1,984	5,632	721	–
Investment linked beneft fund
– Life investment contracts with	94,695	75,884	178	130,604	24,782	15,371	–
discretionary participating features
Investment linked beneft fund – Investment contracts	–	9,481	31	–	8,287	1,225	–
Total	94,934	93,463	209	132,588	38,701	17,317	–

30 June 2013	Assets Investments $’000 Other $’000	Assets Investments $’000 Other $’000	Liabilities Life Insurance $’000 Other $’000	Liabilities Life Insurance $’000 Other $’000	Equity Equity $’000
Non-investment linked beneft fund – Life insurance contracts	55,097	1,508	56,277	328	–
Investment linked beneft fund – Life investment contracts with discretionary participating features	939,516	209,441	1,143,049	5,908	–
Investment linked beneft fund – Investment contracts	618,185	31,609	633,905	15,889	–
Total	1,612,798	242,558	1,833,231	22,125	–
30 June 2012
Non-investment linked beneft fund – Life insurance contracts	60,537	152	59,556	1,133	–
Investment linked beneft fund – Life investment contracts with discretionary participating features	1,190,654	19,222	1,198,191	11,685	–
Investment linked beneft fund – Investment contracts	590,111	13,072	595,968	7,215	–
Total	1,841,302	32,446	1,853,715	20,033	–

Benefit Fund investments assets include all their income producing assets, principally cash and cash equivalents and financial assets at fair value through profit or loss.

129

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

46 Reconciliation of profit attributable to members of Australian Unity Limited

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|||||
|---|---|---|---|
|2013|
|Attributable to members|
|of Australian|Attributable to benefit|Consolidated|
|Unity Limited|fund policyholders|Profit or Loss|
|$’000|$’000|$’000|
|Revenue|961,104|–|961,104|
|Direct life insurance premium revenue|–|708|708|
|Outwards reinsurance expense|–|(416)|(416)|
|Deposits received – investment contracts with DPF|–|61,947|61,947|
|Investment income|–|118,288|118,288|
|Other|–|156|156|
|Total revenue and other income|961,104|180,683|1,141,787|
|Life insurance claims expense|–|1,688|1,688|
|Benefits and withdrawals paid – investment contracts with DPF|–|140,058|140,058|
|Distribution to policyholders|–|17,467|17,467|
|Expenses excluding finance costs|910,772|(6,088)|904,684|
|Total expenses, excluding finance costs|910,772|153,125|1,063,897|
|Finance costs|(19,316)|–|(19,316)|
|Share of net profits of associates and joint ventures|4,349|–|4,349|
|Profit before income tax|35,365|27,558|62,923|
|Income tax benefit/(expense)|(5,955)|(27,558)|(33,513)|
|Profit after income tax|29,410|–|29,410|
|Non-controlling interest|(4)|–|(4)|
|Profit after income tax and non-controlling interest|29,406|–|29,406|

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*DPF = Discretionary Participating Feature

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----- Start of picture text -----

|||||
|---|---|---|---|
|2012|
|Attributable to members|
|of Australian|Attributable to benefit|Consolidated|
|Unity Limited|fund policyholders|Profit or Loss|
|$’000|$’000|$’000|
|Revenue|845,669|–|845,669|
|Direct life insurance premium revenue|–|629|629|
|Outwards reinsurance expense|–|(390)|(390)|
|Deposits received – investment contracts with DPF|–|94,695|94,695|
|Investment income|–|93,463|93,463|
|Other|–|209|209|
|Total revenue and other income|845,669|188,606|1,034,275|
|Life insurance claims expense|–|1,984|1,984|
|Benefits and withdrawals paid – investment contracts with DPF|–|130,604|130,604|
|Distribution to policyholders|–|29,124|29,124|
|Expenses excluding finance costs|791,695|9,577|801,272|
|Total expenses, excluding finance costs|791,695|171,289|962,984|
|Finance costs|(33,129)|–|(33,129)|
|Share of net profits of associates and joint ventures|1,327|–|1,327|
|Profit before income tax|22,172|17,317|39,489|
|Income tax benefit/(expense)|160|(17,317)|(17,157)|
|Profit after income tax|22,332|–|22,332|
|Non-controlling interest|(101)|–|(101)|
|Profit after income tax and non-controlling interest|22,231|–|22,231|

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*DPF = Discretionary Participating Feature

130

47 Building society financial information

The disclosures below relate only to the building society activities of the wholly owned subsidiary, Big Sky Building Society Limited as an individual entity.

(a) Financial performance summary

(a) Financial performance summary
2013	2012
$’000	$’000
Interest income 34,512	17,124
Interest expense (18,990)	(11,566)
Net interest income 15,522	5,558
Non-interest income 2,921	1,131
Total income 18,443	6,689
Impairment reversal/(losses) on loans and advances (673)	4
Other operatingexpenses (16,770)	(4,934)
Total expenses (17,443)	(4,930)
Proft before income tax 1,000	1,759
Income tax expense (677)	(533)
Proft after income tax attributable to the owners of Big Sky Building Society Limited 323	1,226
(b) Financial position summary
Cash and cash equivalents 14,300	14,177
Financial assets at fair value through proft or loss 36,231	36,674
Held-to-maturity investments 58,769	94,487
Loans and advances 506,741	505,436
Other assets 2,724	4,665
Total assets 618,765	655,439
Interest bearing liabilities 562,238	599,245
Other liabilities 8,521	8,511
Total liabilities 570,759	607,756
Net assets 48,006	47,683
(c) Capital adequacy
Reserves and retained earnings 48,006	46,858
Less regulatory prescribed adjustments (786)	(1,907)
Regulatorycapital base 47,220	44,951
Risk weighted exposures 286,084	302,340
Capital adequacyratio 16.51%	14.87%

131

Australian Unity Annual Report 2013

Notes to the consolidated financial statements For the year ended 30 June 2013

48 Parent entity financial information

(a) Summary financial information

The individual financial statements for the Parent entity show the following aggregate amounts:

The individual fnancial statements for the Parent entity show the following aggregate amounts:
2013	2012
$’000	$’000
Balance sheet Current assets 35,391	23,060
Non-current assets 598,042	601,655
Total assets 633,433	624,715
Current liabilities 83,577	85,552
Non-current liabilities 141,236	147,845
Total liabilities 224,813	233,397
Members’ balances 255,625	255,625
Reserves (2,123)	(2,123)
Retained earnings 155,118	137,816
Total equity 408,620	391,318
Proft for theyear 17,301	7,372
Total comprehensive income for theyear 17,301	7,372

(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 October 2017.

(c) Contingent liabilities of the Parent entity

The Parent entity did not have any contingent liabilities as at 30 June 2013 or 30 June 2012.

(d) Commitments entered into by the Parent entity

The Parent entity did not have any commitments as at 30 June 2013 and 2012.

132

Directors’ declaration 30 June 2013

In the directors’ opinion:

(a) the financial statements and notes set out on pages 66 to 132 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 2013 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 directors.

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Glenn Barnes Chairman South Melbourne, 27 August 2013

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Rohan Mead Group Managing Director & CEO

133

Australian Unity Annual Report 2013

Independent auditor’s report to the members 30 June 2013

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134

30 June 2013

Independent auditor’s report to the members

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135

Australian Unity Annual Report 2013

==> picture [48 x 43] intentionally omitted <==

13 29 39 Australian Unity Limited ABN 23 087 648 888

114 Albert Road South Melbourne VIC 3205 australianunity.com.au

==> picture [101 x 47] intentionally omitted <==

AI assistant

AUSTRALIAN UNITY LIMITED — Annual Report 2013

64486_rns_2013-09-24_78c1ebad-7a89-4c30-b759-e8f272634f9d.pdf

Enabling millions to enjoy wellbeing

Contents

Annual highlights 2013

$479m

Health claims paid ($m) $599m

$35.4m

$7.13b

Funds under advice ($m) $3.1b

$29.4m

Chairman’s report

Environmental challenges

Strategic responses

Social context

Risk

Governance

Leadership

Outlook

Group Managing Director’s report

Strengths

Building for the long term

Business achievements

Advocacy

People

Outlook

Our businesses

Healthcare

» page 10

Retirement Living

» page 16

Strategy

Strategy

Areas of operation

Areas of operation

Business model

Outlook

Business model

Outlook

Investments

Personal Financial Services » page 30

Strategy

Areas of operation

Business model

Outlook

Strategy

Areas of operation

Business model

Outlook

Healthcare

We achieved:

Healthcare continued

Retail health insurance

Corporate health insurance – GU Health

Preventative healthcare – Remedy Healthcare

Where we were challenged:

Healthcare continued

Dental

Healthcare’s strategies and outlook

Early intervention gets Fay on track

In the next year we plan to:

Retirement Living

Retirement communities

Home care

We achieved:

Retirement Living continued

Aged care – Better Together

Where we were challenged:

Development

Retirement Living continued

Sales

Operational improvements

Retirement Living’s strategies and outlook

In the next year we plan to:

Investments

We achieved:

Investments continued

Equities

Platypus Asset Management

AUSTRALIAN UNITY LIMITED Annual Report 2013