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ASX Announcement

9 September 2020

Australian Unity Limited – Full Year Financial Report

Please find attached Australian Unity Limited’s Full Year Financial Report for the full year ended 30 June 2020.

-end-

This announcement has been authorised for distribution to the ASX by: Melinda Honig

General Counsel and Company Secretary

T: + 61 3 8682 6819

If bondholders or other interested parties require further information please contact:

Michael Moore

General Manager – Public Affairs & Communications

ASX code: AYU

Securities on Issue: AYUHB – 713,257 AYUHC – 1,150,192 AYUHD – 2,070,000

T: 1300 408 776

E: [email protected]

Issuer: Australian Unity Limited ACN 087 648 888

Enquiries: Australian Unity Registry 1300 554 474

Contact details: Australian Unity Limited 271 Spring Street Melbourne VIC 3000 Tel: 13 29 39

The listing of Australian Unity Securities on the ASX does not affect Australian Unity Limited’s status as a mutual organisation

Australian Unity Limited ABN 23 087 648 888

Annual financial report and directors' report for the year ended 30 June 2020

Australian Unity Limited ABN 23 087 648 888 Annual financial report and directors' report - 30 June 2020

	Page
Directors' report	1
Financial report
Financial statements	29
Directors' declaration	117
Independent auditor's report to the members	118

Australian Unity Limited Directors' report 30 June 2020

Directors' report

Your directors present their report on the consolidated entity (referred to hereafter as Australian Unity or 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 2020.

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):

Peter Promnitz, Chair Rohan Mead, Group Managing Director & CEO Lisa Chung, Non-executive Director Melinda Cilento, Non-executive Director Paul Kirk, Non-executive Director Su McCluskey, Non-executive Director Julien Playoust, Non-executive Director (appointed 1 February 2020) Gregory Willcock, Non-executive Director

Company secretaries

Melinda Honig and Catherine Visentin were company secretaries of Australian Unity Limited at 30 June 2020.

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, retirement living needs, home care and disability services. These products and services included health and life insurance, investments and loan facilities, financial and estate planning, allied health and dental services, care services, and aged care and retirement living facilities.

Dividends

Australian Unity Limited is a mutual company governed 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.

Operating and financial review for the year ended 30 June 2020

The year to 30 June 2020 was one of distinct and vastly differing halves for Australian Unity: a first half in which the Group continued to make strong progress on its strategic priorities and achieved overall underlying earnings growth — and a second half in which the emergence of the COVID-19 pandemic took it into uncharted waters.

The impact of COVID-19 has been felt in many ways across the Group’s businesses — from the implementation of extraordinary measures to seek to protect its aged care residents, home care customers and the employees who support them, to the provision of hardship relief for its health insurance and banking customers, and the effect of tightened economic circumstances and the equity market downturn on the financial position of many who invest with Australian Unity.

Australian Unity has responded to COVID-19 by maintaining, and where possible improving, levels of service and responsiveness to the needs of members and customers, while at the same time pursuing efficiency measures to mitigate risks and curtail expenditures. During this time, Australian Unity has also focused on the welfare and impact on its employees.

Despite COVID-19 — and the impact of the summer bushfires on aged care operations in the eastern states — Australian Unity continued its strategy of building a commercially sustainable portfolio of businesses that provide member, customer and community value and is supportive of personal and community wellbeing.

Significant improvements made in the Group’s Home Care Services business continued to show results during the year, as did the Group’s work in developing improved and sustainable patient and outcome-focused healthcare services, even though its ability to deliver these was impacted by COVID-19 in the latter part of the year.

Another priority for the Group in the year under review was the maintenance of a solid balance sheet position in support of operational resilience and agility. To this end, in October 2019 the Group took advantage of capital market and investor support, along with attractive market settings, and acted to spread the maturity of its borrowings through the issue of $322.0 million of Series C and D Australian Unity Bonds. Of this amount, $178.7 million was used to refinance previously issued Series B Australian Unity Bonds. This allowed the Group to continue to operate decisively and effectively despite the emergence of COVID-19. Importantly, following this refinancing, the earliest Bond maturity is in 2024. The remaining Series B bonds on issue mature on 15 December 2020.

The Group continued to advance its social infrastructure agenda, with the Herston Quarter project in Brisbane progressing positively.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued)

Nevertheless, COVID-19 affected the Group’s results. Overall, it was estimated that the direct and indirect COVID-19 impacts reduced the year’s net profit before income tax by approximately $26 million. These impacts included deferment of private health insurance premium increases; cancellations of home care, disability, dental and health care servicing; some additional government funding receipts; lowered funds under management, reduced lending and property services activity fees; increased cost of additional personal protective equipment (PPE) and related consumables; increased expected credit loss (ECL) provisioning; lower earnings from investment markets and cost containment undertaken in response to these pandemic effects. It should be noted that the above impact is an estimate and should not be regarded as definitive. Many of the factors assessed are based on earnings reductions compared to pre-COVID-19 levels of activity or value; however, if COVID-19 had not occurred, these levels of activity or value may still have declined.

In the year under review, the Group’s total revenue and other income decreased to $1,412.7 million (2019: $1,608.7 million). Despite the pressures of COVID-19, the Group’s operating businesses generated overall revenue growth, up $10.4 million on the prior year. This was offset by lower investment returns, down $18.9 million, and a $187.5 million decrease in benefit fund revenue, principally due to reduced benefit fund investment earnings.

Total expenses, excluding financing costs, were $1,382.1 million (2019: $1,493.7 million). A 2.2 percent or $28.7 million increase in overall operating expenses included higher health insurance net claims (up $4.6 million), increased debt provisioning (up $6.5 million) and higher client care costs (up $7.1 million), while benefit fund expenses were $140.2 million lower than in 2019.

The Group delivered a profit after tax of $15.0 million for the year under review, compared to $53.0 million in the prior year. On a normalised basis, each of the business platforms made a positive contribution to the result. In addition to the estimated COVID-19 impact discussed above, the result was impacted by costs associated with the Group’s head office moving to leased premises ($7.0 million) as well as some $5.4 million in additional, timing-related costs due to the inception of the new accounting standard on leases. Further, there was no equivalent to the legal settlements received in the Life & Super business in the prior year.

The overall outcome represented a decline in the aggregate trading position, with operating earnings for the year of $38.4 million representing a decrease of $23.4 million over 2019.

Notwithstanding, at 30 June 2020, the Group remained in a sound position to realise the opportunities and respond to challenges expected to arise from an external environment that presents considerable uncertainty and market disruption.

Acknowledging the pressure arising in the context of individual businesses, the Group plans to develop continuing, sustainable financial returns from its diversified but thematically linked portfolio. In addition, the Group will also continue to focus on member, customer and employee value. It is progressing work on the implementation of meaningful and reportable measurement to this end.

Significantly, at the 2019 Annual General Meeting, Australian Unity’s members voted to extend the Group’s strategic options for raising funds-through the issue of Mutual Capital Instruments. The opportunity to issue these financial instruments was provided by legislative amendments that passed through the Australian Parliament in 2019, which allow mutual organisations, subject to constitutional adjustment, to raise permanent capital without compromising their mutual status.

In the context of continuing industry and broader market volatility in key sectors of the Group’s operations, the Group will seek to maintain balance sheet resilience and operational flexibility as it continues to pursue the development of the business portfolio and the realisation of strategic ambitions.

The Group’s operations are conducted through three business platforms: Independent & Assisted Living; Retail; and Wealth & Capital Markets. Key aspects of the operating, financial and strategic performance of each platform during the year to 30 June 2020 are set out below. In assessing the performance of its operating business segments, the Group uses a measure of adjusted Earnings Before Interest, Tax, Depreciation and Amortisation (adjusted EBITDA). As the name indicates, this measure excludes the effects of tax, depreciation and amortisation, interest on external borrowings and investment income. It also excludes Group overheads and other material non-recurring expenditure. A reconciliation between adjusted EBITDA and profit before income tax from continuing operations is set out in note 1 to the consolidated financial statements.

Independent & Assisted Living

The Independent & Assisted Living (IAL) platform operates retirement communities and provides aged care, allied health and disability services. The platform offers preventative health and chronic disease management services through a wholly owned subsidiary Remedy Healthcare, and direct healthcare services through dental clinics. These businesses are interconnected, seeking to deliver a continuum of care and service that addresses the daily needs of its customers.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Independent & Assisted Living (continued)

Financial performance — Independent & Assisted Living

	Full year to 30 June 2020 $million	Full year to 30 June 2019 $million	Variance
Total segment revenue	$496.4	$469.4	5.8%
Operating expenses	$430.2	$421.2	(2.2%)
Adjusted EBITDA	$66.1	$48.2	37.2%

The IAL platform recorded total segment revenue of $496.4 million for the full-year, representing an increase of 5.8 percent compared to the prior corresponding period (30 June 2019: $469.4 million). This was a positive result given significant disruption across the IAL business due to bushfires in the eastern states during the summer period, and the COVID-19 pandemic during the second half of the year.

Home Care Services experienced a 4.9 percent increase in revenue to $320.5 million; Health Services improved by 1.8 percent over the prior corresponding period at $37.8 million, with growth in Remedy Healthcare negatively affected by Dental due to COVID-19 restrictions; and Residential Communities increased 21.3 percent to $121.8 million, while Developments decreased 37.8 percent to $16.3 million. Within Home Care Services, the Aboriginal Home Care business unit increased revenue by 8.1 percent to $29.9 million.

IAL’s adjusted EBITDA of $66.1 million represented an increase of $17.9 million, or 37.2 percent, on the prior corresponding period — or $23.6 million, or 64.8 percent, excluding Developments. This increase reflected a continued focus on improving the sustainability of the Home & Disability Services business.

Home Care Services (HCS)

HCS delivered an adjusted EBITDA gain of $13.0 million over the prior corresponding period to $27.5 million. This was achieved through a material change in both customer and service delivery mix, as well as mitigation initiatives associated with cost and revenue leakage. Approximately 2.9 million hours of care were delivered to more than 46,000 customers by 3,451 care workers.

The business was successful in securing additional funding for Meals Delivery and Allied Health services through the Commonwealth Home Support Package program, while also benefiting from pricing and working capital initiatives taken up in Home Care Packages and the National Disability Insurance Scheme (NDIS).

The business continued to transition some of its disability (predominantly NDIS) customers to alternate service providers during the year to 30 June 2020 under a program initiated in the previous year to ensure the sustainability of the business.

In the Home Care Package category, HCS saw a 27 percent increase in its customer base and a 90 percent increase in additional service hours provided. Total Home Care Packages under management reached 6,675 at June 2020, which was an increase of 2,514 package customers in the year to 30 June 2020.

The business continued to focus on improving its safety performance throughout the year under review, with a material reduction in the severity of claims and a positive trend in safety performance lead indicators. This led to an improvement in employee experience (+26 points employee NPS) and customer sentiment (customer compliments outweighing customer complaints for the first time since the acquisition of Home Care NSW in February 2016).

Within HCS, the Aboriginal Home Care business unit delivered a sound result for the period, with adjusted EBITDA of $2.7 million. Approximately 223,000 hours of care were delivered to 2,634 clients by 253 care workers. There were 602 Home Care Packages under management, which was an increase of 243 packages on the prior year.

The flagship event for the business was the annual Customer Gathering held in mid-February in Wollongong, NSW, which was attended by 289 Elders and their care workers and delivered both commercial and customer outcomes.

The business continued to focus on the delivery of the entirety of the Group’s products and services to Aboriginal and Torres Strait Islander Australians through connecting the communities and cultures serviced by the Group.

Remedy Healthcare

Remedy increased revenue by 9.7 percent to $28.4 million, driven predominantly by Allied Health Services (2019: $25.9 million). More than 345,000 episodes of care were delivered across 14 treatment programs, and more than 19,000 hours of allied services were delivered to NSW Home Care Package clients of Australian Unity.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Independent & Assisted Living (continued)

Significant challenges were presented by the COVID-19 pandemic, which disrupted service offerings notably due to the cancellation of most elective surgery in private hospitals during April. Despite this, Remedy still delivered more than 4,500 ‘hospital substitution’ programs in the period, an increase of 15.5 percent on the prior corresponding period (2019: 3,911).

In March 2020, Remedy entered into a joint venture with Ramsay Healthcare called ‘Ramsay Connect’, which is designed to deliver a seamless integrated healthcare pathway for patients, during and post hospitalisation.

Dental

Australian Unity continued to operate six dental clinics during the year under review. The clinics are located at two Melbourne CBD locations, Hughesdale, Moonee Ponds, Rowville and Box Hill.

The dental industry was significantly affected by government restrictions associated with COVID-19 in the second half of the year under review, which saw patient visits decline by 18.2 percent from 54,887 in the prior year, to 44,915. During this period, all surplus workforce in the Dental business were redeployed into the residential aged care business. This helped deliver continued support for the aged care business, as well as retention of front-line dental employees during restrictions.

Residential Communities

Residential Communities owns and operates 21 retirement communities across Victoria and NSW, comprising 2,496 independent living units (June 2019: 2,469). The business acquired The Heritage retirement village in Hunters Hill, NSW in February 2020.

The resurgent property market in both NSW and Victoria, most notably in the first half of the year (before COVID-19), resulted in sales growth of more than 33 percent on the prior year.

Occupancy levels across the portfolio’s mature retirement villages remained high at about 96 percent in the year under review.

Residential Communities owns and operates seven aged care facilities in Victoria and NSW, incorporating 786 aged care beds (June 2019: 786). The mature-aged care portfolio continued to achieve top-quartile occupancy at above 96 percent for the year to 30 June 2020.

Despite the material threats arising from high community transmission levels of COVID-19, particularly in Victorian aged care facilities, we restricted major outbreaks during the year.

Development

IAL continued to focus on its development pipeline of aged care and retirement communities during the year under review. Three facilities opened during 2019 — Sienna Grange Aged Care in Port Macquarie, NSW; Racecourse Grange Aged Care in Mornington, Victoria; and The Grace Albert Park in South Melbourne — and continued to progress through the fill stages.

In addition to developments underway, IAL is reviewing acquisition opportunities that would provide an immediate growth avenue for both retirement community and aged care portfolios.

Outlook

IAL continues to orientate the platform around the needs of its customers and the key stakeholders in its customers’ health and wellbeing — families, primary carers, communities and government agencies.

While COVID-19 is expected to present significant ongoing challenges and disruption throughout the coming financial year, the platform is well positioned to continue to deliver essential services to its customers. IAL plans to continue to grow strongly in Home Care Packages and community-based health care services, as well as successfully trade-up its recently opened residential communities and progress its existing development sites. Focus will also remain on continuing to improve safety performance and operating efficiency.

Aged care will continue to operate in a manner designed to restrict major outbreaks of COVID-19, while acknowledging external dependencies in this regard, including the absolute levels of community transmission occurring around our facilities and communities from where they draw their workforce.

Remedy Healthcare will continue to expand its operations through Home Care Services and Ramsay Connect.

IAL will continue to actively and constructively participate in the royal commissions into ‘Aged Care Quality and Safety’ and ‘Violence, Abuse, Neglect and Exploitation of People with Disability’. In addition, IAL remain committed to the ongoing development of addressing the sector workforce issues through its involvement with the Aged Care Industry Workforce Council.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued)

Retail

The Retail platform brings together Australian Unity’s private health insurance, banking and general insurance businesses. With a combined focus on the needs of members and broader community value, the Retail platform provides packages and solutions that contribute to solving affordability challenges and to meet the contemporary needs of Australians.

Financial performance — Retail

Financial performance — Retail
	Full year to 30 June 2020 $million	Full year to 30 June 2019 $million	Variance
Total segment revenue	$709.5	$722.1	(1.7%)
Operating expenses	$648.3	$647.7	(0.1%)
Adjusted EBITDA	$61.2	$74.4	(17.7%)

The Retail business had a challenging year in mixed operating conditions, with adjusted EBITDA down by $13.2 million, or 17.7 percent, to $61.2 million compared to the previous year. This result was driven principally by the growth in private health insurance claims expenses exceeding revenue growth for the year. Revenue was impacted by a decrease in the number of policyholders and the postponement of the April 2020 premium increase. Higher claims expenses were partly due to an underestimation of claims in the prior year and reflected similar experience across the sector. Strong lending growth enabled the banking business to offset the impact of lower interest rates on banking revenue.

Total operating expenses were $648.3 million, which was largely in line with the previous year. This reflects a $3.5 million increase in health insurance claims net of risk equalisation, and a $2.9 million decrease in operating expenses across the Retail platform.

During the year the Retail platform sold its general insurance broking and mortgage broking businesses to focus on its retail direct-to-consumer products and services. These broking businesses were separate to the operations of both Australian Unity Bank and Australian Unity Health. Net profit after tax from the gain on sale was $2.1 million, which is not included in the adjusted EBITDA results above.

The Retail platform implemented a range of financial assistance measures to support vulnerable customers impacted by bushfires and the COVID-19 pandemic during the year. The private health insurance business postponed the 1 April 2020 premium increase for six months and made available a range of hardship concessions and the banking business offered repayment deferral to customers who were unemployed or under-employed.

Australian Unity Health Limited (retail health insurance)

During the year under review Australian Unity Health Limited completed a series of projects sharpening the customer value proposition in line with its chosen niche customer segments. These projects included initiatives to further engage with customers through more direct and deeper digital channels, rationalisation of legacy products, selection of new direct distribution partners, and increased automation of hospital claiming processes.

The private health insurance business paid for more than 1.8 million ancillary services. In addition, more than 155,000 hospital treatments were paid for, totalling $626 million, with more than 100 members having individual episode claims valued over $60,000 — a demonstration of the complex and ongoing inflationary nature of healthcare. Furthermore, more than 25,000 out-of-hospital care episodes were paid for and provided to members through the Group’s wholly owned subsidiary Remedy Healthcare.

Australian Unity Health Limited also responded rapidly and effectively to the challenges of COVID-19 on behalf of members. In addition to deferral of the April 2020 premium increase, a range of measures were enacted, including a dedicated and personalised health support line for members to access health management support, coverage for COVID-19 hospital admissions regardless of product type held, extending policy suspensions, and premium waivers for financial hardship. This package of initiatives totalled more than $12.5 million and remained in place into the 2021 financial year.

Retail health fund policyholders (including overseas visitor cover policyholders) decreased by 5.0 percent to 176,578 at 30 June 2020 (2019: 185,936). Ongoing affordability challenges, COVID-19 effects on health insurance value proposition, emerging economic uncertainty and the closure of international borders all affected resident and overseas policyholder growth.

Australian Unity Bank

As at 30 June 2020, Australian Unity Bank had approximately 24,500 customers and its total assets had grown by $247.9 million to $1,133.9 million (2019: $886.0 million).

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Retail (continued)

Despite challenging conditions within the retail banking sector and a competitive market, Australian Unity Bank achieved market leading lending growth throughout the year, with $299.1 million in new loans written. In combination with maintaining strong retention rates, this growth lifted the gross loan book by a net $177.1 million. This represented a 23.6 percent increase in the loan book year-on-year, which was around eight times the industry credit growth for the financial year.

Australian Unity Bank’s strong growth can be attributed to delivering on the ‘banking that’s good for you’ customer value proposition — a program of work that identified the benefits to the customer beyond the product itself. Over the next three years, this program will be progressively extended through all areas of the banking business, including product, marketing, sales and servicing.

During the year under review, Australian Unity Bank progressed its strategic partnership with Allianz and successfully consolidated its general insurance offerings. Australian Unity Bank customers can now access a broader range of insurance products and services through this one provider.

Standard & Poor’s (S&P) Ratings reconfirmed Australian Unity Bank’s issuer credit rating as ‘BBB+’.

Outlook

The outlook for the Retail platform remains cautiously positive, but in the short term will be influenced by the duration and severity of the COVID-19 pandemic and its flow-on effects to Australia’s health system and the economy.

For private health insurance, supporting policyholders during the pandemic and maintaining private health insurance participation is a key priority for the sector. With longer term affordability pressures and changing demography still key challenges, the focus for the private health insurance business remains on increasing direct distribution channels, targeted partnering with healthcare providers and increasing access for out of hospital programs for members.

Similarly for banking, continuation of government support and the speed of the economic recovery will be key factors to stemming the impact of potential credit losses and lower system credit growth. Australian Unity Bank will continue to build selective relationships in the third party (mortgage broking) channel and concurrently target chosen segments via direct channels, while also growing its general insurance market presence.

The Retail platform remains well-positioned to deliver its strategy in the medium term by building on the strength in its businesses and continuing to adapt to changing market conditions.

Wealth & Capital Markets

The Wealth & Capital Markets (W&CM) platform comprises business units encompassing advice, investments, life & super, property and trustee services.

The strategic purpose of the W&CM platform is to link Australian Unity's valuable efforts in helping Australians secure their financial wellbeing with the social, capital and infrastructure needs of their communities.

W&CM's expertise in property, particularly social infrastructure assets such as healthcare, retirement villages and aged care facilities, combined with its long experience in sourcing funds in equity and debt capital markets, means it is well placed to play a meaningful role in addressing Australia's social infrastructure challenge.

The platform has investment expertise in cash, fixed interest securities, listed property securities and Australian shares, coupled with market-leading products in investment bonds, funeral bonds, and education savings plans. In addition, the business works with advisers and industry partners to provide professional advice and trustee services that support clients' financial wellbeing.

Financial performance — Wealth & Capital Markets

Financial performance — Wealth &	Capital Markets
	Full year to 30 June 2020 $million	Full year to 30 June 2019 $million	Variance
Total segment revenue	$170.5	$180.9	(5.8%)
Operating expenses	$137.7	$130.4	(5.6%)
Adjusted EBITDA	$32.8	$50.5	(35.0%)

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

The W&CM platform manages investments, property assets and developments (and associated debt facilities), and provides advice and trustee services, with an aggregate value of $24.16 billion (2019: $21.83 billion). The platform recorded a 5.8 percent decrease in total segment revenues compared to the previous period. However, after adjusting for one-off legal settlements received in the Life & Super business in the prior period, the platform delivered revenue growth across most of its business segments, which was positive given the unfolding global health crisis. The decrease in adjusted EBITDA was also affected by the legal settlements in the 2019 financial year. On an adjusted basis, the platform recorded an overall decrease of approximately 8.0 percent. The business has closely monitored the external environment and undertaken scenario planning to understand the impacts of the unfolding health crisis. The economic impacts of the crisis have been front of mind and have resulted in the resequencing of growth initiatives over the past six months.

Investments

Investments, including its joint venture partners, manages funds under management and advice (FUMA) of $8.22 billion as at 30 June 2020 (2019: $7.12 billion). During the year under review, the business experienced positive net flows from retail, middle and institutional markets. Joint venture partner Platypus was awarded further institutional mandates, while another joint venture partner, Acorn, secured an institutional mandate in its listed/unlisted venture capital strategy.

The Investments business successfully launched a new Green Bond Fund in June 2020 with cornerstone investments from Clean Energy Finance Corporation and Crestone. The fund targets investments that will contribute to lower carbon emissions and will include social bonds and green bonds.

Continuing the focus on social investing, the Investments business made significant steps towards the launch of the Future of Healthcare Fund.

The Investments team also manages the investment portfolio of the Group, amounting to $811.7 million (2019: $679.9 million), including its capital stable and highly liquid insurance reserves. In the year to 30 June 2020, the weighted average investment returns were 0.98 percent, which reflected the adverse impact of the COVID-19 pandemic on the Group’s investment portfolio.

Property

Notwithstanding the impacts of the unfolding health crisis, the Property business delivered solid results, with assets under management increasing to $3.52 billion as at 30 June 2020 (2019: $2.99 billion). Its multi-year development pipeline stands at $1.29 billion (2019: $1.26 billion), and lending and debt facilities on behalf of investors (through property funds and its commercial property lending activities) of $1.37 billion (2019: $1.59 billion).

Key examples of the Group's involvement in social infrastructure are the Herston Quarter development, the Healthcare Property Trust and the Specialist Disability Accommodation Fund. Progress continues at the landmark $1.1 billion Herston Quarter health precinct in Brisbane, with construction of the $390 million Surgical, Treatment and Rehabilitation Service (STARS) by the Healthcare Property Trust on track for practical completion in the second quarter of the 2021 financial year. Significant progress was also made on the wider precinct works, including the public realm assets adjacent to STARS and the restoration of heritage sites.

The Healthcare Property Trust (HPT) continued to draw significant support from investors and is positioned for ongoing future growth, having completed a successful capital raising of approximately $275 million during the financial year to support its future growth. This activity saw the value of HPT grow to approximately $2.20 billion at 30 June 2020 (2019: $1.63 billion).

During the year, the property team achieved the successful seeding of the first capital raising for the Specialist Disability Accommodation fund with approximately $40 million in initial equity. The first round provides a solid platform for future activity in this sector and has triggered strong deal and equity interest. Leveraging the initial equity raised, it is anticipated that the fund will deliver approximately 100 places of appropriate accommodation over the next two years that will provide residents with a level of independence and self-reliance not readily available previously. In line with the Group’s Community and Social Value framework, it is anticipated this will lead to a greater level of lifelong wellness for residents, with support that is centred around needs, self-reliance and improved health outcomes. The fund will also contribute to another of the framework's aims by building strong communities that provide a greater sense of purpose and social connection.

Strong engagement from investors in the underlying value of the Australian Unity Office Fund (AOF) resulted in the successful defence against both the Charter Hall Abacus scheme proposal and the Starwood takeover offer. The business entered into a joint venture arrangement with Keppel Capital that introduced a material strategic growth opportunity with a like-minded investor.

Support for the Australian Unity Select Mortgage Income Fund continued to grow, with strong annual inflows of $86.0 million (2019: $74.3 million), with the value of the lending portfolio $254.7 million at 30 June 2020 (2019: $212.7 million). Management continues to work on expanded sources of capital and the identification of investment opportunities.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

The property business worked closely during the year with the Group’s Independent and Assisted Living (IAL) platform on the review of the Retirement Living and Aged Care portfolio. Refer to the Developments section under IAL for information on properties in the portfolio.

Life & Super

Australian Unity's Life & Super business continued as Australia's largest investment, education and funeral bonds provider, with $2.27 billion in funds under management and administration as at 30 June 2020 (2019: $2.34 billion). During the year to 30 June 2020, sales across Life & Super’s products reached $217.5 million (2019: $221.5 million) — a significant outcome in an extremely low interest rate environment and the COVID-19 pandemic.

Support for Life & Super’s products continued to increase in the independent financial adviser network, and the business continued to work with large industry superannuation funds to broaden access to its products through this large and growing network.

The business successfully established the direct-to-consumer distribution channel with the launch of 10Invest — a simple, online, low cost investment bond that offers tax effectiveness not available through traditional savings or investment products. Over the nine months since launch, 10Invest attained over 1,800 customers with more than 80 percent of customers opting into a regular savings plan.

Australian Unity also continued to occupy a leading position in the pre-paid funeral market via its specialised business Funeral Plan Management, with funeral funds under management of $672.8 million (2019: $699.5 million) across more than 90,000 clients.

Trustees

Trustees experienced a year of sustainable growth, achieving a 25.8 percent increase in revenue when compared to the prior year, while continuing to add to the business’ latent value through the expansion of its Estate Planning presence and national will bank.

During the year under review, significant work was completed to strengthen relationships with existing clients and referral partners and to provide a strong foundation from which to continue to scale services. Key initiatives included the embedding of a core operating system for the business, enhancement of management information for all key business areas, and linkages with business units such as Advice and Independent and Assisted Living.

Although the current health crisis slowed the operations of Courts, Tribunals and referral partners nationally during the final quarter of the year, an established pipeline of estates, trusts and protected persons opportunities enabled continued inflows of new clients and associated revenue. In addition, some services such as Estate Planning experienced an uplift as clients saw additional value in structuring their affairs during this period.

Advice

The Advice business is focused on helping clients to improve their financial wellbeing and ultimately achieve their long-term lifestyle goals.

The continued change in the regulatory regime for advice services, and resulting increased complexity, continues to reinforce the growing need in the community for valued providers of quality advice and services. The Advice business seeks growth in this context as a differentiated provider, within a mutual organisation that seeks to look after the real wellbeing of Australians.

During the year under review, the business focussed on building the foundations for sustainable growth and operational scale, supported by enhanced supervision, investment and technical functions. The Advice Continuous Improvement Program (CIP) has delivered significant streams of work that enhance supervision and monitoring capability in areas such as audit framework and capacity; adviser due diligence and onboarding; an enhanced compliance manual; enhanced advice documentation and ongoing service agreements; data analytics to monitor FDS, Opt-In and ongoing service delivery; and management information and reporting.

During the year to 30 June 2020, the number of advisers (including limited authorised representatives) decreased to 176 (2019: 184), with FUA growth over the year to $7.14 billion (2019: $6.20 billion), and personal life insurance premiums in-force up to $69 million (up from $61 million). Pleasingly, revenue increased 3.6 percent to $60.4 million for the year ended 30 June 2020 (2019: $58.3 million). In addition, separately managed (SMA) investment accounts constructed by the Advice business grew in FUM to $392 million (2019: $201 million).

Australian Unity Limited Directors' report 30 June 2020 (continued)

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

Outlook

The W&CM platform continues to seek to deliver differentiated products and services designed to preserve and improve the financial wellbeing and economic empowerment of customers.

The widespread disruption to economic and financial markets caused by COVID-19, and continuing volatility and uncertainty arising from attempts to manage the health crisis, present strategic risks to W&CM's businesses, in particular growth in the short term. To best manage these risks as they arise and indeed to convert the opportunities as they also present, the platform has an established and broad range of businesses, and a material and growing presence in the funding, development and management of Australia's social infrastructure. The period ahead should continue to provide opportunities for the platform to offer customers valuable investment and financial opportunities, and to deliver increased community and social value. The Herston Quarter project continues to be a key focus of the platform as it transforms Australian Unity's response to Australia's social infrastructure challenge. The expansion of funding to the Specialist Disability Accommodation sector is another example of the value that Australian Unity can bring to community groups to improve real wellbeing outcomes.

The W&CM platform is well positioned to benefit from the collective impact of rising and better-planned wealth accumulation, the challenges and opportunities presented by Australia's ageing population, the changing regulatory landscape and community expectations. The platform is focused on identifying and increasing collaboration with other parts of the Group where synergies exist to improve the wellbeing and economic empowerment of the community.

Matters subsequent to the end of the financial year

On 1 August 2020, the Group issued Series 6 Retirement Village Investment Notes (RVIN) amounting to $33,227,000 which have a three-year term and interest at a fixed rate of 5% per annum. This RVIN issue included early redemptions of Series 1 and Series 2 RVIN totalling $11,235,000 which were rolled over into Series 6 RVIN. The net proceeds of $21,992,000 from this RVIN issue will be used for general corporate purposes.

The board is not aware of any other matter or circumstance arising since 30 June 2020 which has significantly affected or may significantly affect the financial status or results of the Group and which has not been separately disclosed in this report.

Likely developments and expected results of operations

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

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 21 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 Independent & Assisted 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.

Key business risks

Australian Unity recognises that sound management of the Group’s risks within an effective risk management framework and an established risk culture underpins the success of the business. The Group’s risk management framework, and associated risk culture, is continually reviewed and improved.

The directors of the Company are responsible for setting and monitoring the Group’s risk management framework which represents the totality of systems, structures, policies, processes and people that identify, assess, mitigate and monitor internal and external sources of risk that could have a material impact on the Group’s operations. The directors are also responsible for setting the risk appetite within which management and the Group are expected to operate and for determining the Group’s risk management strategy, which defines the Group’s key risk areas and how they are managed.

In order to discharge the above obligations, the directors receive support from the Risk and Compliance Committee (‘R&CC’), a committee of the Company’s board of directors. The R&CC supports the board to fulfil their responsibilities relating to risk management and compliance by advising on the Group’s overall risk appetite and risk management strategy in line with its determined risk profile.

Australian Unity Limited Directors' report 30 June 2020

(continued)

Key business risks (continued)

In addition, Australian Unity also cultivates a culture of risk management by regularly reviewing its risk registers, creating clear accountabilities for control improvements, encouraging open reporting on incidents from all staff and implementing a three-lines of defence model throughout the Group.

The Group’s key material risks and how they are managed are summarised below. The Group continually reviews, and seeks to improve, the way in which key risks are managed.

The below risks are not addressed in any particular order.

(i) Strategic risks

The risk that strategic planning, strategic decision making or execution impacts meeting strategic objectives.

Risk	Risk Description	Managingthe Risk
Over reliance on certain businesses or funding sources	A significant portion of our revenue and cashflow is from private health insurance or businesses supported by government funding, such as aged care or in home care services. Adverse changes to the business conditions in the private health insurance industry or aged care or in home care services including changes to government policy, laws, regulations, regulatory expectations, economic activity and the demand our products and services could impact the Group's financial performance.	We manage this risk by seeking opportunities to grow businesses within our portfolio that diversify our revenue and cashflow. We participate in private health sector advocacy for policies that sustain the sector. We actively manage costs against revenue expectations. We manage these risks by conducting a detailed site analysis for prospective development sites; conducting due diligence for property developments which includes a competitor and amenity analysis; conducting a competitive process when appointing contractors; working with specialist teams to engage contractors and managing projects and engaging regularly with contractors to ensure that projects are being delivered in accordance with the required specifications and timetables in a manner that minimise health and safety issues.
Investment in property and social infrastructure	A part of the Group's strategy is to invest in the development of social infrastructure. Property developments have a number of inherent risks including planning and development approvals, increases in development costs, non-performance of contractors or sub-contractors, project and construction delays, occupational health & safety issues and any change in the market conditions.
Strategic and operational disruption due to the COVID-19 pandemic	We face a variety of risks as a result of the COVID-19 pandemic. These range from significantly changed economic conditions which could impact the value of our property portfolio and investment income, to a potential reduction in demand for, and profitability of, our products and services. There are also heightened health and safety risks to our employees and customers, particularly in our Independent and Assisted Living businesses.	We manage the impacts of the pandemic with regular and in-depth analysis of the risks and opportunities posed by the crisis. This includes ongoing Board and Management monitoring and realignment of our strategic objectives; close and continual management of revenues and costs; and scenario modelling to proactively plan for potential changes to the strategic and operating landscape. We seek to ensure the health and safety of our employees and customers by taking all recommended precautions and strictly adhering to the latest medical advice.
Failure of strategic and/or business decisions or external events	We consider and implement a range of initiatives to meet our strategic ambitions. Failure of strategic and/or business decisions or the impact of external events may have an adverse impact on the operating and financial performance of the Group.	We manage this risk by actively considering the risks and rewards associated with implementing an initiative before it is implemented. We also regularly monitor external events, such as legislative and regulatory amendments, that may have an impact on our strategic and/or business decisions.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Key business risks (continued)

(ii) Operational risks

Risk of loss from inadequate or failed internal controls, sub-standard processes, the poor performance of people, service providers who do not perform in line with contracts/service standards or business continuity threats.

Risk	Risk Description	Managingthe Risk
Inability to respond to change	We operate in industries where customer product demands are rapidly changing and preferences have been shifting to digital channels. If we are not successful in adapting our products and services to meet changing customer preferences, we may lose customers to our competition which would adversely impact our financial performance.	We manage this risk by regularly assessing the external environment and allocating business investment to understand our customers' preferences and develop our digital capability.
Increased competition and poor and inconsistent member or customer experience	We operate in a competitive environment and it is becoming easier for customers to move to our competitors. If we are unable to compete effectively in our various businesses and markets by ensuring a strong and consistent offer to our members and customers, we may lose market share to our competitors.	We manage this risk by maintaining and enhancing our customer and member value proposition and experience, including activating new channels and incorporating effective feedback loops. We have increased our focus, capability and investment across all levels of the Group. We manage this risk by having effective frameworks, policies and procedures in place to prevent, monitor and manage the risk of harm. We manage this risk by a strong customer-orientated focus through our Better Together® model and ongoing investment in our care services and physical infrastructure. We also offer a continuum of care whereby our aged care facilities are co-located with retirement communities whose residents provide a level of demand for our aged care facilities. We manage these risks by constructively lobbying for policies and reforms regarding the rise of medical costs; investing in our Remedy Healthcare business that seeks to provide various health services outside of a hospital environment; and closely monitoring product design and distribution to ensure that prices remain sustainable. We manage this risk by regularly training our employees and by fostering a strong risk culture underpinned by a robust and comprehensive risk and compliance framework. The risk management framework requires the regular review of our control environment.
Member or customer harm	We provide high trust services such as aged care and operate in highly regulated industries. An event such as customer harm could result in sanctions from relevant regulators, reduced government funding, reputational damage and remediation costs.
Occupancy Levels in residential aged care	There is no assurance that occupancy levels at aged care facilities will follow historical occupancy trends at the Group's aged care facilities. In addition, a downturn in the residential property market may affect the ability of potential incoming residents to sell their home at the cost required to pay the 'Refundable Accommodation Deposit' required to enter a facility.
Private Health Insurance risks such as rising medical costs, rejection of application for change in premium rates and mispricing premiums	There are inherent risks associated with operating a private health insurance business such as rising medical costs, having an application for a change in premium rates rejected and mispricing premiums.
Errors arising from the failure of internal controls.	We operate in a complex financial and regulatory environment and maintain a diverse range of products and services. There is a risk that our internal controls may be inadequate or not operate as intended, exposing us to errors and financial loss.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Key business risks (continued)

(iii) Conduct risks

Risk of loss from poor, unethical or illegal behaviour/conduct or the failure to report or take action, as appropriate, when such behaviour is detected.

Risk	Risk Description	Managingthe Risk
Inappropriate or illegal behaviour	Conduct risk could arise from the sale of our products or provision of services that do not meet the needs of our customers through poor sales practices or failing to provide the product or service as agreed.	We manage this risk by having a Code of Conduct that applies to and guides all employees, having a Whistleblower Policy to support and protect employees to raise concerns; we monitor and analyse customer complaints and operational incidents; and we have established compliance monitoring and consequence management frameworks and ongoing employee training programs.

(iv) Information & system risks

Risk that technology does not enable appropriately or confidential/sensitive information (including member / customer information) is lost/stolen.

Risk	Risk Description	Managingthe Risk
Inappropriate detection and prevention of cyber security threats	All of our business units are reliant on traditional and emerging technologies to deliver our products and services. Cyber security risk is on the rise due to increasing dependence on technology and the growing frequency, sophistication and severity of attacks. If the systems we have to detect and prevent cyber-attacks fail, we could experience unauthorised access or loss of confidential information or business disruption as a result of system unavailability.	We manage this risk by monitoring the external environment for cyber threats and having frameworks, policies, procedures and technology solutions in place to reduce, monitor, detect and respond to cyber threats. We manage this risk by considering our current and future technology needs and maintaining and testing our systems for service continuity and recoverability.
Systems are not fit for purpose	The useability and reliability of our systems is an important element of how our workforce perform their day to day activities and the level of service provided to our members and customers. If our systems fail to operate reliably and as needed there is a risk that this may adversely affect our members or customers resulting in potential reputational damage.

(v) Financial risks

Risk that capital and liquidity is inappropriately managed, debt covenants are breached, regulatory capital and liquidity requirements are breached, financial performance and cashflow is inadequate or poorly managed or that financial results are not appropriately accounted for or disclosed.

Risk	Risk Description	Managingthe Risk
Lack of capital or liquidity	We rely on external debt markets for a portion of our funding. A change in the economic environment could result in reduced access to capital or increased costs of funding. This could negatively affect our capital and liquidity position and our ability to fund business initiatives.	We manage this risk by monitoring the external debt markets and having policies and plans in place to monitor and review our capital and liquidity position.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Key business risks (continued)

(vi) Credit risks

Risk of loss from inappropriate lending or failure of counterparties.

Risk	Risk Description	Managingthe Risk
Credit defaults	We provide lending to counterparties in our retail bank, primarily in relation to residential home loans. If Australian economic conditions were to worsen, a proportion of our customers could experience financial stress resulting in higher levels of default across the lending portfolio.	We manage this risk by having lending policies and procedures, approval delegations, reporting and monitoring in place. We also maintain provisions and capital reserves.

(vii) People risks

Risk of changes to key personnel, inability to attract and retain quality employees, inadequate succession planning, poor employee engagement and workplace injuries.

Risk	Risk Description	Managingthe Risk
Workplace injuries or conditions	We have a large workforce within our Independent and Assisted Living platform who perform their work at aged care facilities, retirement communities or at a variety of other locations for home care and disability services, including residential homes. Given the variability of locations, conditions and types of care delivered, our workforce may be subject to muscular or skeletal injuries, slips, trips, falls, driving accidents, mental stress or occupational violence.	We manage this risk by having frameworks, policies, procedures and tools to support health and safety including training and awareness and incident management, including proactive support for successful return to work outcomes.
Inability to attract and retain a skilled and experienced workforce	We are reliant on our employees and the skills and experience they possess to effectively service our members and customers. If we don't recruit and retain appropriately skilled people, monitor employee satisfaction, manage their workload, reward performance and provide a suitable corporate culture we may experience a high turnover of staff or loss of key persons that adversely impacts our business and financial performance.	We manage this risk by seeking employee feedback and having policies and procedures in place covering recruitment, incentive programs, performance management, job design, learning and development, discrimination and harassment, grievances and remuneration.

(viii)Regulatory & legal risks

Risk of loss from legal, regulatory or contractual breaches/issues.

Risk	Risk Description	Managingthe Risk
Increased regulatory complexity and scrutiny	We operate a wide range of business activities which are subject to different laws and regulatory requirements. As regulatory standards and expectations are constantly changing, increased regulation and supervision from regulators could adversely affect our business activities, requiring changes to our business model, products or services and incurrence of significant costs if the regulatory changes are not managed appropriately.	We manage this risk by proactively monitoring changes to laws, regulations and regulatory guidance, participating in industry forums and bodies and considering the impact of potential regulatory change on our business operations.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Information on directors

PETER PROMNITZ, BSc (Hons), AIAA, FAICD

Mr Promnitz was appointed Chair of the board of Australian Unity Limited on 30 March 2016. He has been a director since 1 January 2013 and was appointed Deputy Chair on 28 July 2015. He is Chair of NULIS Nominees (Australia) Limited, Warakirri Asset Management Pty Ltd, Warakirri Holdings Pty Ltd and Flinders Investment Partners Limited. Mr Promnitz was previously Chair of ASX-listed company SFG Australia Limited and a director of Warakirri Dairies Pty Ltd. Mr Promnitz is a qualified actuary. He was formerly Region Head for Mercer in Asia Pacific, a member of the global Mercer Executive Committee and Chair of Marsh & McLennan Companies Inc. in Australia, roles he retired from in December 2012. Prior to these senior executive roles his business experience included 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.

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 the Business Council of Australia’s Healthy Australia task force and a member of its Indigenous Engagement task force. He is also a director of the Business Council of Co-Operatives and Mutuals Limited (BCCM) and the Centre for Independent Studies. Prior to joining Australian Unity, Mr Mead was employed by Perpetual Trustees Australia Limited (1996-2003) in a range of senior roles.

LISA CHUNG, AM, LLB, FIML, FAICD

Ms Chung was appointed to the board of Australian Unity Limited on 30 June 2017. She is a director of a number of Australian Unity Limited subsidiaries, Chair of the People, Culture and Remuneration Committee and a member of the Audit Committee, Investment Committee and Risk and Compliance Committee. Ms Chung is currently Chair of The Front Project and a non-executive director of Artspace/Visual Arts Centre Limited. Prior to this, Ms Chung was a partner specialising in commercial property and infrastructure at Maddocks Lawyers and at Blake Dawson (now Ashurst) where she also held various senior management roles, including Sydney Managing Partner and was an elected member of the firm's board. Ms Chung completed the Advanced Management Program at INSEAD in France in 2004. She was previously the chairman of Urbis Pty Limited and The Benevolent Society, a non-executive director of APN Outdoor Group Limited and Deputy President of Trustees of the Museum of Applied Arts and Sciences. Ms Chung has not held any directorships of listed entities in addition to those set out above during the last three years. Ms Chung is a member of Chief Executive Women and was appointed a Member of the Order of Australia in 2020 for significant service to the community through charitable and cultural organisations.

MELINDA CILENTO, BA, BEc (Hons), MEc, GAICD

Ms Cilento was appointed to the board of Australian Unity Limited on 1 May 2014. She is a director of a number of Australian Unity Limited subsidiaries, Chair of the Investment Committee and a member of the People, Culture and Remuneration Committee and the Risk and Compliance Committee. She is also Co-Chair of Reconciliation Australia, and until 1 May 2019 was a director of Woodside Petroleum. In addition to her directorships, Ms Cilento is the Chief Executive Officer of the Committee for Economic Development of Australia and a member of Chief Executive Women. Ms Cilento has previously been a Commissioner with the Productivity Commission, and worked for eight years with Australia’s leading CEOs at the Business Council of Australia, including four years as Deputy Chief Executive. Prior to joining the Business Council she was Head of Economics at Invesco Australia. Ms Cilento has also worked with the Federal Treasury and International Monetary Fund in Washington D.C. Ms Cilento was a director of Wesfarmers General Insurance until June 2014. Ms Cilento has not held any directorships of listed entities in addition to those set out above during the last three years.

PAUL KIRK, BEc, ACA, RITA, MAICD

Mr Kirk was appointed to the board of Australian Unity Limited on 1 February 2016. He is director of a number of Australian Unity Limited subsidiaries, Chair of the Audit Committee and a member of the People, Culture and Remuneration Committee. Mr Kirk is currently Managing Director and Founder of Collins Pitt Associates and is a director of the St Kilda Football Club. He is a member of the Audit & Risk & Investment Advisory Committee of Monash University. He was previously a director of the Melbourne Festival, Worksafe Victoria, Transport Accident Commission and the Victorian Registration & Qualifications Authority. Prior to this, Mr Kirk held a number of senior positions both overseas and in Australia with the major accountancy firm, PricewaterhouseCoopers, specialising in the area of corporate advice, turnaround & restructuring, profit improvement, M&A, strategic advice, risk and governance, forensic accounting and insolvency management. Following this, Mr Kirk worked for two years as a Special Advisor for Lazard Australia. Mr Kirk has not held any directorships of listed entities in addition to those set out above during the last three years.

Australian Unity Limited Directors' report 30 June 2020

(continued)

Information on directors (continued)

SU McCLUSKEY, BCom, FCPA, MAICD

Ms McCluskey was appointed to the board of Australian Unity Limited on 1 September 2015. She is a director of a number of Australian Unity Limited subsidiaries, Chair of the Risk and Compliance Committee and a member of the Audit Committee, the Investment Committee and the People, Culture and Remuneration Committee. Ms McCluskey is also a director of The Foundation for Young Australians, the Australasian Pork Research Institute and the Energy Renaissance, and is a Commissioner on the National COVID-19 Coordination Commission and the Commission for International Agricultural Research. She was a member of the Charities Review, the Harper Review of Competition Policy and the Regional Telecommunications Review. Ms McCluskey was previously the CEO of the Regional Australia Institute and the Executive Director of the Office of Best Practice Regulation. Ms McCluskey has held senior positions with the Business Council of Australia, the National Farmers’ Federation and the Australian Taxation Office. She is also a beef cattle farmer. Ms McCluskey has not held any directorships of listed entities in addition to those set out above during the last three years.

JULIEN PLAYOUST, BSc (Arch), BArch (Hons), MBA, FAICD

Mr Playoust was appointed to the board of Australian Unity Limited on 1 February 2020. Mr Playoust has more than 25 years' experience as a director in public and private companies, including ASX-100, SME and not-for-profit organisations. He is passionate about sustainable business models for economic and social good, and Art. He is a proponent of design thinking, diversity and cross-disciplinary skills. He has worked across multiple sectors including property, professional and financial services, media, agriculture, consumer discretionary, energy, technology and The Arts, focusing on business transformation, M&A, capital raising and portfolio management. He has been CEO and Managing Director of AEH Group since 2003. Past appointments include non-executive director at ASX-listed Tatts Group Limited, MCM Entertainment Group Limited, and Australian Renewable Fuels Limited; Director of Time Out Australia, Ventura Health, and; member of UNSW Art & Design Advisory Board and the National Gallery of Australia Foundation Board. He has worked with AMP, NAB and Accenture. He is currently Deputy Chairman at Art Gallery NSW Foundation and Chairman Finance Committee, Chairman of the Investment Committee of The Nature Conservancy, and member of the Alumni Leaders Group UNSW Business School. He is Fellow Australian Institute of Company Directors and Member Australian Institute of Managers and Leaders. He holds a Master of Business Administration UNSW (AGSM), Bachelor of Architecture (First Class Honours) and Bachelor of Science Sydney University, and Company Director Course Diploma AICD. Mr Playoust and his family live in Manly, by the sea and the bush. Mr Playoust travels frequently to central western NSW where he oversees a merino sheep property.

GREGORY WILLCOCK, BCom, FCPA, FAICD, MAIM, FFin

Mr Willcock was appointed to the board of Australian Unity Limited on 1 March 2012. He is a director of a number of Australian Unity Limited subsidiaries and a member of the Risk and Compliance Committee and the Audit Committee. Mr Willcock is also a director of Australian Unity Investments Real Estate Limited which is the responsible entity for the listed Australian Unity Office Fund. Mr Willcock has over 36 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 Bank of Australia in the areas of risk management, strategy and change management. Mr Willcock was previously a director of the Customer Owned Banking Association (COBA). Mr Willcock has not held any directorships of listed entities in addition to those set out above during the last three years.

Company secretaries

MELINDA HONIG, BEc, LLB, GAICD, Group Executive, Governance

Ms Honig joined Australian Unity in February 2016. In her role as Group Executive - Governance, Ms Honig is responsible for managing the Group’s Legal, Compliance, Risk, and Secretariat functions. She is also secretary for all Group subsidiary boards. Prior to joining Australian Unity, Ms Honig worked for GE for 15 years, five of those years with GE Capital in the role of General Counsel, overseeing the provision of legal services to GE Capital’s commercial finance, consumer finance and insurance businesses in Australia and New Zealand. Ms Honig brings to Australian Unity her executive experience in legal, compliance and company secretary functions and has worked abroad as Counsel for GE Indonesia, in operations which included transportation, energy and GE Capital. Prior to joining GE, Ms Honig was at KPMG for five years and undertook her legal training in Tax at KPMG.

CATHERINE VISENTIN, G/A(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 20 years of involvement with the Australian Unity Limited Company Secretarial function.

Australian Unity Limited Directors' report 30 June 2020 (continued)

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 2020, and the number of meetings attended by each director were:

	Board	Board	Audit Committee	Audit Committee	Risk and Compliance Committee	Risk and Compliance Committee	Investment Committee	Investment Committee	People, Culture and Remuneration Committee	People, Culture and Remuneration Committee
	A	B	A	B	A	B	A	B	A	B
Peter Promnitz Rohan Mead Lisa Chung Melinda Cilento Paul Kirk Su McCluskey Julien Playoust Gregory Willcock	18 18 18 18 18 18 12 18	18 18 18 18 18 18 12 18	5 5 5 4 5 4 3 5	5 5 5 5 5 5 3 5	4 4 4 4 - 4 2 4	4 4 4 4 - 4 2 4	5 5 5 5 - 5 - -	5 5 5 5 - 5 - -	6 6 6 6 6 6 - -	6 6 6 6 6 6 - -

A = Number of meetings attended

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

Remuneration report

Dear Member

On behalf of the Board, I am pleased to present Australian Unity’s Remuneration Report for the year ended 30 June 2020.

Australian Unity is a large and diverse company operating in many different sectors, including health, aged and disability care; wealth, banking and investments; and independent and assisted living. Each of our business areas is tightly regulated and facing significant change, challenges and competition. Having high quality people working in and managing each of our businesses is critical to the ongoing success of Australian Unity and its ability to deliver high quality products and services.

Australian Unity’s compensation arrangements play an important role in our ability to attract, reward and retain the very best people and, in so doing, maximise our performance for the benefit of our members and customers.

Last year we informed members of important changes to our compensation framework that simplify and better align reward with longer-term performance. These changes included:

1. Assessment of performance equally against financial and non-financial indicators aligned to Board approved strategic and operating plans.

2. Assessment of individual performance against a balanced set of goals aligned to strategy, behaviours consistent with our values and leadership in terms of managing risk and conduct.

3. Awarding of variable compensation at the judgement of the Board, with consideration to the long-term financial soundness and appropriate management of risk at Australian Unity.

4. Changes to deferral arrangements to support long term sustainable performance and value creation and in accordance with new regulatory requirements.

FY20 could be described as a year of two halves noting the significant complexities and challenges (anticipated and not) that we faced. We commenced the year progressing our strategic priorities capitalising on a strong market, and then were tested operationally and financially as we faced strong headwinds, particularly with COVID-19, which caused substantial community and economic upheaval.

It has certainly been a year of disruption during which we focused on the safety and wellbeing of our employees and customers, financial resilience and the long-term sustainability of our operations.

The Board recognises the dedication of our people who have admirably faced into the challenges of a deadly bushfire season and COVID-19. However, after careful consideration and, in particular, with regard to safeguarding Australian Unity’s long-term financial soundness, the Board elected not to award variable compensation for any employee in FY20.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

In addition, the fees for Non-Executive Directors will be reduced by 10% for the period 1 July 2020 to 31 December 2020, and except due to a change in role, Senior Executive compensation arrangements will not change.

The Board will continue to assess the effectiveness of its compensation arrangements to ensure they are consistent with the long-term interests of Australian Unity and its members, while providing market competitive reward to ensure we continue to attract, motivate and retain talent across our diverse businesses.

I offer my sincere thanks to every one of our people for their commitment and many contributions, so often above and beyond, during what has been a trying and difficult year in so many respects. It has been a privilege to observe the way our people have come together at different times and in different ways to continue to serve our members and customers, despite the many challenges.

Yours faithfully

Lisa Chung

Chair - People, Culture and Remuneration Committee

Key Management Personnel (KMP)

This Remuneration Report outlines the compensation arrangements in place and outcomes achieved for Australian Unity’s KMP during 2020.

Australian Unity’s KMP are those people who have responsibility for planning, directing and controlling the activities of Australian Unity Limited and the Group, either collectively (in the case of the Board) or as individuals acting under delegated authorities (in the case of the Group Managing Director and certain Group Executives).

The names and positions of the individuals who were KMP during 2020 are set out in Table 1.

References to ‘senior executive’ in this report means the Group Managing Director and all executives who report to the Group Managing Director. All KMP, other than non-executive directors, are also senior executives.

Table 1 - KMP

Non-executive director	Position
Peter Promnitz	Chair
Lisa Chung	Non-executive Director
Melinda Cilento	Non-executive Director
Paul Kirk	Non-executive Director
Su McCluskey	Non-executive Director
Julien Playoust 1	Non-executive Director
GregWillcock	Non-executive Director

Key Management Personnel	Position
Rohan Mead	Group Managing Director & CEO
David Bryant 2	CEO Wealth & Capital Markets
Kevin McCoy	CEO Independent & Assisted Living
Matthew Walsh 3	CEO Retail
Esther Kerr-Smith 4	Group Executive, Finance & Strategy
Amanda Hagan	GroupExecutive,Customer,Digital & Technology

1.Julien Playoust appointed 1 February 2020.

2.David Bryant resigned from employment at Australian Unity Limited 3 July 2020.

3.Matthew Walsh resigned from employment at Australian Unity Limited 31 July 2020.

4.Esther Kerr-Smith commenced in the position of CEO Wealth & Capital Markets 13 July 2020.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Table 2 - Five year Performance

The table below outlines Australian Unity’s performance over the last five years against key metrics.

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Remuneration Policy

The purpose of Australian Unity’s remuneration policy is to:

Provide market competitive compensation as a key component of our broader employee value proposition to attract, motivate and retain talent across diverse employment segments.
Focus performance on the achievement of a balance of financial and non-financial outcomes including long term financial performance and appropriate risk management in the interests of members and customers.
Foster the desired culture and employee behaviours to support the prevention and mitigation of misconduct risk, and where appropriate, provide mechanisms to adjust variable compensation outcomes.
Establish goals and apply measures of performance that align with the Group’s ambition and strategic direction.

The remuneration policy applies to all directors, officers and employees within Australian Unity and is approved by the Board.

The Remuneration Framework & Link to Performance

Australian Unity’s strategic objectives and performance indicators for the Group and senior executives are set annually by reference to both financial and non-financial objectives aligned to Board approved strategic and operating plans.

After each performance year the Board determines available variable compensation funding. Funding is determined based on Group performance assessed equally on financial and non-financial performance indicators over both the short and long-term horizons.

Performance indicators are not formulaic in the determination of Group performance. Group performance and variable compensation funding is informed by these indicators while ultimately being an exercise of judgement by the Board.

In addition, financial affordability checks apply to ensure the Group meets minimum financial performance requirements prior to any variable compensation funding being made available taking relevant matters to safeguard Australian Unity’s long-term financial soundness into account.

In conjunction with the Risk and Compliance Committee, consideration is also given to risk and compliance matters including, but not limited to, conduct in accordance with our desired risk culture, consequence management and effective management of financial and non-financial risks that could materially impact Australian Unity’s risk profile, performance and long-term soundness. The Board may make appropriate adjustment to variable compensation outcomes commensurate with the management of those risks.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Senior Executive Remuneration

Compensation for all senior executives at Australian Unity comprises a mix of fixed and variable compensation, which is determined by the scope of their role, their level of performance, knowledge, skills and experience.

Both the fixed and variable components of senior executive compensation are regularly benchmarked to ensure the Group can continue to attract and retain the talent required for sustainable business performance and growth.

The fixed component of a senior executive's compensation comprises base salary and benefits, including the superannuation guarantee.

The variable component (referred to as the Senior Leader Variable Compensation Program) is structured to align and reward performance against the achievement of a balance of financial and non-financial outcomes including long term financial performance and appropriate risk management in the interests of members and customers.

In reviewing the performance of each senior executive, progress against the following is considered:

senior executive’s behaviours and values in action;
appropriate management of risk;
strategic and commercial priority delivery at a Group level;
strategic and commercial priority delivery at a platform/function or role level; and
personal contribution to community, diversity and inclusion.

The performance of each senior executive is reviewed by the Group Managing Director in consultation with the Board at the end of each year.

The variable compensation scheme for senior executives, aligns with longer-term sustainability by deferring a portion of variable compensation aligned with the requirements of the Banking Executive Accountability Regime in Part IIAA Div 4 of the Banking Act 1958 (Cth) (BEAR). Deferred amounts are equal to the lesser of 10% of total compensation (fixed plus variable compensation) or 40% of variable compensation. Payment of such amounts is deferred for 4 years.

In addition, Senior Executive variable compensation is capped in any one year at one times fixed compensation. If a senior executive is awarded higher variable compensation in a year, the amount eligible for payment is capped at the level of their fixed compensation, with any surplus deferred to future years (these arrangements may vary in the case of retirement or cessation of employment by a senior executive).

The Board, at its discretion (whether on recommendation of the People, Culture & Remuneration Committee, any other person or Committee, or on its own motion), may determine that variable compensation for a Senior Executive be:

a) Reduced (including to zero) for the current year or prior year’s deferred amounts (malus); or
b) Recovered for the benefit of Australian Unity subject to applicable legal limitations if the amount has already been paid (clawback).

All compensation, both fixed and variable, is cash based. As a mutual, Australian Unity has no shares on issue.

Australian Unity also makes available certain other non-monetary benefits through salary packaging 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 under review are set out in Table 4.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Table 3 - Overview of Senior Leader Variable Compensation Program

Individual non-financial performance multiplied by	Each senior executive is assessed against individual target performance and given a rating of either not delivering; delivering; exceeding or inspiring. Individual assessment considers: - behaviours and values in action; - appropriate management of risk; - strategic and commercial priority delivery at a Group level; - strategic and commercial priority delivery at a platform / function or role level; and - personal contribution to community, diversity and inclusion.
Group Performance multiplied by	Group performance assessed equally on financial and non-financial performance indicators over both the short and long-term horizons. Quality overlay applied taking into consideration risks, member and community expectations and financial affordability.
Senior Leader Variable Compensation Opportunity equals	In the year under review, Senior Leader Variable Compensation opportunity is a percentage ranging from 50.0 - 75.0% of the senior executive’s fixed compensation consistent with individual contracts of employment.
Variable compensation declared	Individual performance and variable compensation outcomes are approved by the Board for each senior executive.
Variable compensation payment	In the year under review, all senior executives are subject to deferral aligned with the requirements of the Banking Executive Accountability Regime. Deferred amounts are equal to the lesser of 10% of total compensation (fixed plus variable compensation) or 40% of variable compensation. Payment of such amounts is deferred for 4 years. Deferred amounts are subject to ongoing performance conditions. Variable compensation payable in any one year cannot exceed 1x a senior executive’s fixed compensation. Any amount more than this limit is deferred and can be paid in future years.

Non-executive director remuneration

Australian Unity’s constitution and Board charter require that directors meet a variety of standards to be eligible to remain directors of the Board. These include meeting stringent ‘fit and proper’ standards under legislation and prudential standards. The constitution also provides that non-executive directors are to be paid fees (remuneration) for their services as directors, subject to the aggregate fees not exceeding the annual sum last approved at a general meeting.

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

Members last approved an increase in the aggregate fees payable to non-executive directors at the annual general meeting on 1 November 2017. At that meeting members approved the sum of up to $1.485 million in aggregate fees per financial year. This increase in the sum approved took effect from 1 January 2018 and the total spend on director’s fees for the year ended 30 June 2020 was $1.259 million.

Details of individual non-executive director allowances, payments and entitlements are set out in Tables 4 and 5.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Remuneration tables

Remuneration for the year ended 30 June 2020

Table 4 - The following table provides the remuneration details required by section 300A (1) (c) and (e) of the Corporations Act 2001.

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Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Table 5 - In addition to the amounts in Table 4, Mr Greg Willcock received director fees from Australian Unity Investments Real Estate Limited (AUIREL), a related entity, during the relevant periods. Mr Willcock was specifically appointed a director of AUIREL by reference to his capacity to facilitate AUIREL’s fulfilment of its duties as a responsible entity of a listed investment scheme. As such, the fees paid to Mr Willcock are for his skills and experience in his capacity as a director of AUIREL and are not referable to his role as a director of the Company.

Name	Year	Fixed	Fixed	Total remuneration $
		Cash salary and fees 1 $	Superannuation contributions 2 $
Non-executive directors Greg Willcock	2020 2019	88,225 83,784	6,665 6,216	94,890 90,000
Total Non-executive directors	2020 2019	88,225 83,784	6,665 6,216	94,890 90,000

1Short-term benefits.

2Post-employment benefits

From time to time Key Management Personnel or their close family members 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 applying to other Group employees or customers and are trivial or domestic in nature.

Details of remuneration – Annual and deferred variable compensation for relevant executives

Table 6 - The following table shows details of current variable compensation awarded, payable and deferred.

Name	Variable compensation opportunity amount $	Variable compensation amount awarded based onperformance	Variable compensation amount awarded based onperformance	Variable compensation amount payable $	Maximum 2020 deferred variable compensation amount (payable subject to ongoing performance) $
		%	$
Rohan Mead	924,597	0%	-	-	-
David Bryant	599,529	0%	-	-	-
Amanda Hagan	524,842	0%	-	-	-
Esther Kerr-Smith	441,000	0%	-	-	-
Kevin McCoy	525,000	0%	-	-	-
Matthew Walsh	441,000	0%	-	-	-

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Details of remuneration – deferred variable compensation for relevant executives

Table 7 - The table below shows details of deferred variable compensation that has been awarded but which have yet to vest, including their maximum possible value on vesting.

including their maximum	possible value on vesting.	possible value on vesting.	possible value on vesting.	possible value on vesting.	possible value on vesting.
Name	DeferredVariableRemuneration
	Date when deferred variable compensation was awarded	Financial year for which the deferred variable compensation will be fully payable	Maximum total value of deferred variable compensation $	Proportion of deferred variable compensation payable %	Proportion of deferred variable compensation not earned %
Rohan Mead	26 August 2020 28 August 2019 29 August 2018	2021 2022 2020 2021 2020	- - 137,368 137,369 73,554	- - 100% - 100%	- - - - -
David Bryant	28 August 2019 29 August 2018	2020 2021 2020	186,321 102,652 55,595	- - -	100% 100% 100%
Amanda Hagan	26 August 2020 28 August 2019 29 August 2018	2021 2022 2020 2021 2020	- - 77,781 77,782 61,717	- - 100% - 100%	- - - - -
Esther Kerr-Smith	26 August 2020 28 August 2019 29 August 2018	2021 2022 2020 2021 2020	- - 61,887 61,887 12,600	- - 100% - 100%	- - - - -
Kevin McCoy	26 August 2020 28 August 2019 29 August 2018	2021 2022 2020 2021 2020	- - 81,306 81,307 37,395	- - 100% - 100%	- - - - -
Matthew Walsh	28 August 2019 29 August 2018	2020 2021 2020	64,831 64,831 33,357	- - -	100% 100% 100%

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

Contract terms for relevant executives

Table 8 - The following table provides the prescribed details in relation to the relevant executives’ contract terms.

Name	Employee initiated notice period 1	Employer initiated notice period 2	Termination benefit 3
Rohan Mead,GroupManagingDirector	6 months	12 months	none
David Bryant	6 months	6 months	none
AmandaHagan	6months	6months	none
Esther Kerr-Smith	6 months	6 months	none
Kevin McCoy	6 months	6 months	none
Matthew Walsh	6 months	6 months	none

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

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

3Entitlement to variable remuneration is set out in the Senior Executive Remuneration section above.

Use of Remuneration Consultants

With the exception of a review supporting the letter attached to this report from KPMG, confirming that compensation paid to KMP is appropriate, the Board did not use remuneration consultants during 2020.

Australian Unity Limited Directors' report 30 June 2020 (continued)

Remuneration report (continued)

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Australian Unity Limited Directors' report 30 June 2020 (continued)

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 31.

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.

Details of the amounts paid or payable to the auditor, PricewaterhouseCoopers, for audit and non-audit services provided during the year are set out below.

The board of directors has considered the position and, in accordance with advice received from the Audit & Compliance Committee, is satisfied that the provision of the non-audit services is compatible with, and did not compromise, the general standard of auditor independence imposed by the Corporations Act 2001 for the following reasons:

all non-audit services have been reviewed by the Audit & Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants.

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

PricewaterhouseCoopers Australia Audit of regulatory returns Tax compliance services Tax consulting services Other services Total remuneration for non-audit services	2020 $ 2019 $ 393,379 294,652 168,597 167,712 50,000 52,500 224,690 30,400
	836,666 545,264

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 28.

Rounding of amounts

The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 , issued by the Australian Securities and Investments Commission. Unless otherwise stated, amounts in the Directors' report and Financial statements have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Australian Unity Limited Directors' report 30 June 2020 (continued)

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

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Peter Promnitz Chair

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Rohan Mead Group Managing Director & CEO

Melbourne 8 September 2020

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Auditor’s Independence Declaration

As lead auditor for the audit of Australian Unity Limited for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Australian Unity Limited and the entities it controlled during the period.

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Andrew Cronin Partner PricewaterhouseCoopers

Melbourne 8 September 2020

PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Australian Unity Limited ABN 23 087 648 888 Financial report - 30 June 2020

	Page
Financial statements
Consolidated statement of comprehensive income	30
Consolidated balance sheet	31
Consolidated statement of changes in equity	32
Consolidated statement of cash flows	33
Notes to the consolidated financial statements	34
Directors' declaration	117
Independent auditor's report to the members	118

The financial statements are 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:

271 Spring Street Melbourne VIC 3000

A description of the nature of the consolidated entity's operations and its principal activities is included in the directors’ report on page 1 which is not part of these financial statements.

The financial statements were authorised for issue by the directors on 8 September 2020.

Australian Unity Limited Consolidated statement of comprehensive income For the year ended 30 June 2020

Notes Revenue and other income 2 Expenses, excluding finance costs 3 Operating profit Finance costs 3 Share of net profit/(loss) of joint ventures Profit/(loss) before income tax Income tax benefit/(expense) 4 Profit after income tax Other comprehensive income Items that may be reclassified to profit or loss Cash flow hedges 18(a) Income tax relating to this item 18(a) SPACE Items that will not be reclassified to profit or loss Remeasurements of post-employment benefit obligations 18(a) Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Members of Australian Unity Limited aa Total comprehensive income for the year is attributable to: Members of Australian Unity Limited	2020 $'000 2019 $'000 1,412,662 1,608,670 (1,382,063) (1,493,658)
	30,599 115,012 (41,105) (17,739) 906 (44)
	(9,600) 97,229 24,564 (44,228)
	14,964 53,001
	- - (7,644) (4,202) 2,293 1,522 - - - - 677 202
	(4,674) (2,478)
	10,290 50,523
	14,964 53,001
	10,290 50,523

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 26.

Australian Unity Limited Consolidated balance sheet As at 30 June 2020

Notes ASSETS Current assets Cash and cash equivalents 5 Trade and other receivables Current tax assets Loans and advances 6 Financial assets at fair value through profit or loss 7 Other financial assets at amortised cost 8 Other current assets Total current assets Non-current assets Loans and advances 6 Financial assets at fair value through profit or loss 7 Investments in associates and joint ventures Investment properties 12 Property, plant and equipment 13 Right-of-use assets 14 Intangible assets 15 Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings 9 Lease liabilities 14 Current tax liabilities Provisions 16 Other current liabilities 10 Benefit fund policy liabilities 33 Total current liabilities Non-current liabilities Borrowings 9 Lease liabilities 14 Deferred tax liabilities 17 Provisions Other non-current liabilities Benefit fund policy liabilities 33 Total non-current liabilities Total liabilities Net assets EQUITY Members' balances Reserves 18(a) Retained earnings 18(b) Equity attributable to members of Australian Unity Limited Total equity	2020 $'000 2019 $'000 1,036,703 944,767 102,685 111,821 3,761 - 21,950 14,977 2,070,692 1,982,707 47,012 56,904 33,437 31,316
	3,316,240 3,142,492
	893,843 725,820 13,128 21,446 17,425 15,409 1,489,160 1,327,551 305,608 250,568 115,879 - 313,466 323,764 11,732 9,566
	3,160,241 2,674,124
	6,476,481 5,816,616
	175,388 190,409 1,141,578 815,568 16,813 - - 19,457 148,896 119,929 1,403,212 1,275,843 268,229 364,276
	3,154,116 2,785,482
	373,870 303,285 111,795 - 72,130 86,048 5,698 4,825 12,878 6,042 2,022,715 1,912,541
	2,599,086 2,312,741
	5,753,202 5,098,223
	723,279 718,393
	255,919 255,919 (1,743) 2,931 469,103 459,543
	723,279 718,393
	723,279 718,393

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

Australian Unity Limited Consolidated statement of changes in equity For the year ended 30 June 2020

Notes Balance at 1 July 2018 Adjustment on adoption of AASB 15, net of tax Profit for the year Other comprehensive income - Cash flow hedges 18(a) - Post-employment benefits 18(a) Total comprehensive income Balance at 30 June 2019 Balance at 1 July 2019 Adjustment on adoption of AASB 16, net of tax 36 Profit for the year Other comprehensive income - Cash flow hedges 18(a) - Post-employment benefits 18(a) Total comprehensive income Balance at 30 June 2020	Members' balances $'000 Reserves $'000 Retained earnings $'000 Total equity $'000 255,919 5,409 412,229 673,557
	- - (5,687) (5,687) - - 53,001 53,001 - (2,680) - (2,680) - 202 - 202
	- (2,478) 47,314 44,836
	255,919 2,931 459,543 718,393
	255,919 2,931 459,543 718,393
	- - (5,404) (5,404) - - 14,964 14,964 - (5,351) - (5,351) - 677 - 677
	- (4,674) 9,560 4,886
	255,919 (1,743) 469,103 723,279

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

Australian Unity Limited Consolidated statement of cash flows For the year ended 30 June 2020

Notes Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Health insurance claims and benefits paid Life investment contracts - Contributions received Life investment contracts - Withdrawals Life insurance - Premiums received Life insurance - Policy claims paid Net payments of loans asset Net receipts of deposits liability Interest received Dividends and distributions received Interest and finance charges paid Income tax payments Net cash inflow from operating activities 19 Cash flows from investing activities Payments for business combination, net of cash receipt Payments for investments Payments for investment properties Payments for property, plant and equipment Payments for intangible assets Payments for investments in associates and joint ventures Receipts from investments Dividends received from joint ventures Proceed from sale of a joint venture investment Receipts from joint venture's capital returns Proceeds from disposal of intangible assets Net cash outflow from investing activities Cash flows from financing activities Receipts from borrowings Payments of borrowings Net receipts from refundable lease deposits and resident liabilities Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 5	2020 $'000 2019 $'000 1,353,609 1,324,918 (780,384) (710,458) (519,166) (543,268) 284,642 343,957 (267,278) (363,348) 155 258 (949) (1,061) (177,655) (85,989) 240,838 99,611 37,471 39,599 12,862 12,616 (37,147) (29,135) (5,058) (26,453)
	141,940 61,247
	- (9,310) (925,190) (934,433) (131,501) (118,480) (78,691) (29,157) (19,240) (17,179) (1,848) (2,850) 834,984 928,156 1,139 767 50 - - 7,436 10,096 -
	(310,201) (175,050)
	181,433 11,058 (21,743) (32,022) 100,507 68,510
	260,197 47,546
	91,936 (66,257) 944,767 1,011,024
	1,036,703 944,767

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

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

Notes to the consolidated financial statements

		Page
How	numbers are calculated	36
1	Segment information	36
2	Revenue and other income	41
3	Expenses	44
4	Income tax expense/(benefit)	44
Financial assets and liabilities		45
5	Financial assets - Cash and cash equivalents	45
6	Financial assets - Loans and advances	46
7	Financial assets at fair value through profit or loss	47
8	Financial assets - Other financial assets at amortised cost	48
9	Financial liabilities - Borrowings	48
10	Other current liabilities	52
11	Fair value measurements	53
Non-financial assets and liabilities		57
12	Non-financial assets - Investment properties	57
13	Non-financial assets - Property, plant and equipment	58
14	Non-financial assets and liabilities - Leases	58
15	Non-financial assets - Intangible assets	60
16	Non-financial liabilities - Provisions	63
17	Non-financial liabilities - Deferred tax balances	64
18	Equity	64
19	Cash flow information	65
Risk	management	67
20	Critical accounting estimates and judgements	67
21	Financial risk management	68
Group structure		76
22	Subsidiaries	76
23	Parent entity financial information	77
24	Health insurance financial information	78
25	Bank financial information	81
26	Reconciliation of profit attributable to members of Australian Unity Limited	82
Unrecognised items		83
27	Commitments	83
28	Contingencies	84
29	Events occurring after the reporting period	84
Other information		84
30	Related party transactions	84
31	Key management personnel disclosures	85

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

(continued)

32	Remuneration of auditors	86
33	Benefit fund policy liabilities	86
34	Disaggregated information - Benefit funds	93
35	Summary of significant accounting policies	97
36	Changes in accounting policies	115

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

How numbers are calculated

This section provides additional information about those individual line items in the financial statements that the directors consider most relevant in the context of the operations of Australian Unity Limited and the entities it controlled (the Group).

1 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 three customer-facing business platforms which are Independent & Assisted Living, Retail and Wealth & Capital Markets; and the Corporate functions.

The table below summarises the reportable operating segments.

Independent & Assisted Living Space	Provision of retirement communities, aged care facilities, home care and disability services and health services.
Retail Space	Provision of health insurance and operation of Approved Deposit-taking Institution.
Wealth & Capital Markets Space	Management of investment funds in property, mortgages, Australian equities, international equities, fixed interest and bonds. Provision of financial planning, estate planning and trustee services.
Corporate functions a	Provision of shared services, fraternal activities, management of properties and other strategic investments and group liquidity.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

1 Segment information (continued)

(b) Segment information

The segment information provided to the Group Executive Committee for the reportable segments for the year ended 30 June 2020 is as follows:

2020 Total segment revenue Inter-segment revenue Revenue from external customers Adjusted EBITDA Depreciation and amortisation Interest expense Investment income Income tax benefit Profit from operations Share of gain after tax from joint ventures (included in adjusted EBITDA) Total segment assets include: Income producing assets Working capital assets Non-interest bearing assets Total segment assets Total segment liabilities include: Borrowings and net inter-segment lending Working capital liabilities Non-interest bearing liabilities Total segment liabilities	Independent & Assisted Living Retail Wealth & Capital Markets Corporate functions Total $'000 $'000 $'000 $'000 $'000 496,369 709,516 170,465 (15,829) 1,360,521 (8,837) - - 8,837 -	Independent & Assisted Living Retail Wealth & Capital Markets Corporate functions Total $'000 $'000 $'000 $'000 $'000 496,369 709,516 170,465 (15,829) 1,360,521 (8,837) - - 8,837 -
	487,532 709,516 170,465 (6,992) 1,360,521
	66,125 61,245 32,819 (75,703) 84,486 (46,073) (41,486) 3,580 14,457 - - - - 14,964 906 95,551 1,467,719 61,927 209,170 1,834,367 (1,073) 63,022 53,738 18,289 133,976 669,640 8,870 212,385 207,452 1,098,347
	- - - - 95,551 1,467,719 61,927 209,170 (1,073) 63,022 53,738 18,289 669,640 8,870 212,385 207,452
		14,964
		906
		1,834,367 133,976 1,098,347
	764,118 1,539,611 328,050 434,911	3,066,690
	140,033 1,055,989 74,377 378,944 153,294 222,965 37,106 86,413 133,346 13,688 25,797 21,459	1,649,343 499,778 194,290
	426,673 1,292,642 137,280 486,816	2,343,411

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

1 Segment information (continued)

(b) Segment information (continued)

The segment information provided to the Group Executive Committee for the reportable segments for the year ended 30 June 2019 is as follows:

2019 Total segment revenue Inter-segment revenue Revenue from external customers Adjusted EBITDA Depreciation and amortisation Interest expense Investment income Income tax expense Profit from operations Share of loss after tax from joint ventures (included in adjusted EBITDA) Total segment assets include: Income producing assets Working capital assets Non-interest bearing assets Total segment assets Total segment liabilities include: Borrowings and net inter-segment lending Working capital liabilities Non-interest bearing liabilities Total segment liabilities	Independent & Assisted Living Retail Wealth & Capital Markets Corporate functions Total $'000 $'000 $'000 $'000 $'000 469,363 722,074 180,868 (15,834) 1,356,471 (9,341) - - 9,341 -	Independent & Assisted Living Retail Wealth & Capital Markets Corporate functions Total $'000 $'000 $'000 $'000 $'000 469,363 722,074 180,868 (15,834) 1,356,471 (9,341) - - 9,341 -
	460,022 722,074 180,868 (6,493) 1,356,471
	48,186 74,383 50,467 (80,006) 93,030 (31,267) (17,753) 16,107 (7,116) - - - - 53,001 (44) 56,398 1,221,357 60,327 148,729 1,486,811 2,046 50,455 54,222 20,490 127,213 614,076 11,180 149,955 101,019 876,230
	- - - 56,398 1,221,357 60,327 148,729 2,046 50,455 54,222 20,490 614,076 11,180 149,955 101,019
		- 53,001
		(44)
		1,486,811 127,213 876,230
	672,520 1,282,992 264,504 270,238	2,490,254
	148,291 811,161 13,851 131,267 110,215 209,938 52,861 113,213 118,916 14,846 26,432 20,870	1,104,570 486,227 181,064
	377,422 1,035,945 93,144 265,350	1,771,861

(c) Other segment information

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 10 Consolidated Financial Statements 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, these items are disclosed on a gross basis within the consolidated financial statements.

(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 the Retail segment revenue from external customers is the Australian Unity Bank's interest income on external borrowings.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

1 Segment information (continued)

(c) Other segment information (continued)

Segment revenue reconciles to total revenue as follows:

Total segment revenue Dividends and distributions (note 2) Distributions from property development included in adjusted EBITDA Fund manager and administration fees reclassification Gain/(loss) on investments in financial instruments (note 2) Other interest income (note 2) Other Revenue and other income attributable to members of Australian Unity Limited (note 26) Revenue from benefit funds (note 26) Total revenue and other income	2020 $'000 2019 $'000 1,360,521 1,356,471 7,348 13,202 - (6,354) - 4,310 (9,731) 2,043 5,123 7,199 2,326 (2,742)
	1,365,587 1,374,129 47,075 234,541
	1,412,662 1,608,670

Total segment revenue
Dividends and distributions (note 2)
Distributions from property development included in adjusted EBITDA
Fund manager and administration fees reclassification
Gain/(loss) on investments in financial instruments (note 2)
Other interest income (note 2)
Other
Revenue and other income attributable to members of Australian Unity Limited (note 26)
Revenue from benefit funds (note 26)
Total revenue and other income

2020
$'000
2019
$'000
1,360,521
1,356,471
7,348
13,202
-
(6,354)
-
4,310
(9,731)
2,043
5,123
7,199
2,326
(2,742)

1,365,587
1,374,129
47,075
234,541

1,412,662
1,608,670

(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 tax, depreciation and amortisation, interest expense and investment income. It also excludes other non-recurring expenditure and shared services costs.

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

Adjusted EBITDA Depreciation and amortisation expense: Depreciation and amortisation expense (note 3) Gain/(loss) on disposal of assets Merger and acquisition expenses Other Interest expense Finance costs (note 3) Other Investment income: Dividends and distributions (note 2) Distributions from property development included in adjusted EBITDA Gain/(loss) on investments in financial instruments (note 2) Other interest income (note 2) Other Profit before income tax attributable to members of Australian Unity Limited (note 26) . Profit/(loss) before income tax of benefit funds (note 26) Profit/(loss) before income tax	2020 $'000 2019 $'000 84,486 93,030
	(49,025) (29,786) 4,334 (405) (1,101) (923) (281) (153)
	(46,073) (31,267)
	(41,105) (17,739) (381) (14)
	(41,486) (17,753)
	7,348 13,202 - (6,354) (9,731) 2,043 5,123 7,199 840 17
	3,580 16,107
	507 60,117 (10,107) 37,112
	(9,600) 97,229

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

1 Segment information (continued)

(c) Other segment information (continued)

(iii) Segment assets

Segment assets are split into three categories: income producing, working capital 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 total assets reported to management are measured in a manner consistent with the amounts in these 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:
Segment assets Resident liabilities and refundable lease deposits Retirement Village Property Fund consolidation Netting of eligible deferred tax balances Other reclassifications between assets and liabilities Total assets attributable to members of Australian Unity Limited Benefit fund assets (note 34) Netting of eligible deferred tax balances Total assets	2020 $'000 2019 $'000 3,066,690 2,490,254 1,153,729 1,060,253 71,169 64,136 (122,809) (114,643) 3,521 29,438
	4,172,300 3,529,438 2,311,199 2,313,108 (7,018) (25,930)
	6,476,481 5,816,616

(iv) Segment liabilities

Segment liabilities are split into three categories: borrowings, working capital 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 total liabilities reported to management are measured in a manner consistent with the amounts in these financial statements, except for resident liabilities and refundable lease deposits which are managed on a net basis with investment property and 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:

Segment liabilities Resident liabilities and refundable lease deposits Retirement Village Property Fund consolidation Netting of eligible deferred tax balances Other reclassifications between assets and liabilities Total liabilities attributable to members of Australian Unity Limited Benefit fund policy liabilities (note 33) Benefit fund other liabilities (note 34) Netting of eligible deferred tax balances Total liabilities	2020 $'000 2019 $'000 2,343,411 1,771,861 1,153,729 1,060,253 71,169 64,136 (122,809) (114,643) 3,521 29,438
	3,449,021 2,811,045 2,290,944 2,276,817 20,255 36,291 (7,018) (25,930)
	5,753,202 5,098,223

Segment liabilities
Resident liabilities and refundable lease deposits
Retirement Village Property Fund consolidation
Netting of eligible deferred tax balances
Other reclassifications between assets and liabilities
Total liabilities attributable to members of Australian Unity Limited
Benefit fund policy liabilities (note 33)
Benefit fund other liabilities (note 34)
Netting of eligible deferred tax balances
Total liabilities

2020
$'000
2019
$'000
2,343,411
1,771,861
1,153,729
1,060,253
71,169
64,136
(122,809)
(114,643)
3,521
29,438

3,449,021
2,811,045
2,290,944
2,276,817
20,255
36,291
(7,018)
(25,930)

5,753,202
5,098,223

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

2 Revenue and other income

The Group operates in Australia and generates revenue through its business platforms that operate private health insurance, banking services, retirement communities, aged care facilities, home care and disability services, health services, investment funds management, financial planning, estate planning and trustee services. As the Group operates diverse businesses, it adopts a few accounting standards for revenue recognition as applicable to each category of revenue.

The following is revenue and other income from operations:

Health insurance net premium revenue Revenue from services Government grants and subsidies funding aged care, home and disability services Independent and assisted living services and other fees Management and performance fees revenue Brokerage and commission Healthcare services revenue Interest income of bank Investment earnings Other interest income Dividends and distributions Gain/(loss) on investments in financial instruments Fair value gains on investment property Benefit funds income Other income	2020 $'000 2019 $'000 673,427 683,456 193,592 182,818 231,740 215,789 84,485 84,411 64,820 63,268 28,558 27,725
	603,195 574,011
	32,384 32,296 5,123 7,199 7,348 13,202 (9,731) 2,043 30,108 29,340
	32,848 51,784
	47,075 234,541 23,733 32,582
	1,412,662 1,608,670

Disaggregation of revenue from contracts with customers is prepared based on the customer type and contract type for each of the operating segments, as this is considered to depict how the nature, timing and uncertainty of the Group’s revenue and cash flows are affected by economic factors. The majority of the Group’s revenue is fee for service and is recognised over the time when the services are rendered. Certain types of revenue, such as performance fees, commission and success fees, are recognised at a point in time, but the amount is immaterial.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

2 Revenue and other income (continued)

Disaggregation of revenue from services for each business segment for the year ended 30 June 2020 and reconciliation of Revenue and other income to Revenue from external customers in segment reporting are presented in the below table:

	Independent		Wealth &
	& Assisted		Capital	Corporate
	Living	Retail	Markets	Functions	Total
2020	$'000	$'000	$'000	$'000	$'000
Health insurance net premium revenue	-	673,427	-	-	673,427
Revenue from services
Government grants and subsidies funding aged
care, home and disability services	193,592	-	-	-	193,592
Independent & assisted living services and other
fees	234,060	-	(2)	(2,318)	231,740
Management and performance fees revenue	(21)	-	89,843	(5,337)	84,485
Brokerage and commission	3,086	3,084	58,650	-	64,820
Healthcare services revenue	28,762	-	-	(204)	28,558
	459,479	3,084	148,491	(7,859)	603,195
Interest income of bank	-	32,384	-	-	32,384
Investment earnings
Other interest income	1,260	577	210	3,076	5,123
Dividends and distributions	-	5,794	1,543	11	7,348
Gain/(loss) on investments in financial
instruments	(3,002)	(4,579)	(1,403)	(747)	(9,731)
Fair value gains on investment property	25,408	-	4,700	-	30,108
	23,666	1,792	5,050	2,340	32,848
Benefit funds income	-	-	47,075	-	47,075
Other income	3,224	4,039	15,359	1,111	23,733

Revenue and other income	486,369	714,726	215,975	(4,408)	1,412,662
Reconciliation to revenue from external
customers in segment reporting
Items added to/(excluded from) the segment
revenue
Dividends and distributions	-	(5,794)	(1,543)	(11)	(7,348)
Other investment income	1,742	4,002	1,193	(2,329)	4,608
Other	(579)	(3,418)	1,915	(244)	(2,326)
Revenue from benefit funds	-	-	(47,075)	-	(47,075)
	1,163	(5,210)	(45,510)	(2,584)	(52,141)
Revenue from external customers in segment
reporting	487,532	709,516	170,465	(6,992)	1,360,521

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

2 Revenue and other income (continued)

	Independent		Wealth &
	& Assisted		Capital	Corporate
	Living	Retail	Markets	Functions	Total
2019	$'000	$'000	$'000	$'000	$'000
Health insurance net premium revenue	-	683,456	-	-	683,456
Revenue from services
Government grants and subsidies funding aged
care, home and disability services	182,818	-	-	-	182,818
Independent & assisted living services and other
fees	216,612	-	150	(973)	215,789
Management and performance fees revenue	-	-	90,284	(5,873)	84,411
Brokerage and commission	2,002	4,695	56,571	-	63,268
Healthcare services revenue	27,725	-	-	-	27,725
	429,157	4,695	147,005	(6,846)	574,011
Interest income of bank	-	32,296	-	-	32,296
Investment earnings
Other interest income	1,923	1,245	345	3,686	7,199
Dividends and distributions	597	8,838	3,755	12	13,202
Gain/(loss) on investments in financial
instruments	(1,759)	3,036	735	31	2,043
Fair value gains on investment property	21,340	-	8,000	-	29,340
	22,101	13,119	12,835	3,729	51,784
Benefit funds income	-	-	234,541	-	234,541
Other income	3,444	1,484	27,200	454	32,582

Revenue and other income	454,702	735,050	421,581	(2,663)	1,608,670
Reconciliation to revenue from external
customers in segment reporting
Items added to/(excluded from) the segment
revenue
Dividends and distributions	(597)	(8,838)	(3,755)	(12)	(13,202)
Fund manager and administration fees
reclassification	-	-	(4,310)	-	(4,310)
Other investment income	(164)	(4,281)	(1,080)	(3,717)	(9,242)
Property development distributions included in
adjusted EBITDA	6,354	-	-	-	6,354
Other	(273)	143	2,973	(101)	2,742
Revenue from benefit funds	-	-	(234,541)	-	(234,541)
	5,320	(12,976)	(240,713)	(3,830)	(252,199)
Revenue from external customers in segment
reporting	460,022	722,074	180,868	(6,493)	1,356,471

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

3 Expenses

Expenses, excluding finance costs, classified by nature are as follows:

Bank charges Commission expense Communication costs Computer and equipment costs Depreciation and amortisation expense Employee benefits expense Expenses in relation to benefit funds (note 33) Financial and insurance costs Fund manager and administration fees Health insurance claims expense Health insurance claims recoveries - Net Risk Equalisation Special Account Interest expense of bank Legal and professional fees Marketing expenses Occupancy costs Other direct expenses Other expenses Depreciation and amortisation Depreciation of property, plant and equipment Depreciation of right-of-use assets Amortisation of intangible assets Finance costs Interest and finance charges on borrowings Notional interest on leases and related accounts Total interest and finance charges Capitalisation of borrowing interest Finance costs expensed	2020 $'000 2019 $'000 2,922 4,235 57,109 56,536 6,765 8,488 34,371 29,892 49,025 29,786 483,353 488,824 57,182 197,429 7,769 514 20,383 20,743 620,528 605,621 (74,259) (63,937) 11,904 12,711 19,319 20,098 13,130 13,472 20,613 23,917 4,949 5,329 47,000 40,000
	1,382,063 1,493,658
	12,843 6,960 14,561 - 21,621 22,826
	49,025 29,786
	23,041 18,413 19,770 -
	42,811 18,413 (1,706) (674)
	41,105 17,739

4 Income tax expense/(benefit)

(a) Income tax expense/(benefit)

Current tax Current tax - benefit funds Deferred tax Deferred tax - benefit funds Adjustments for current tax of prior periods Adjustments for current tax of prior periods - benefit funds Other Income tax expense/(benefit) Deferred income tax (revenue)/(benefit) expense included in income tax expense comprises: Decrease/(increase) in deferred tax assets Increase/(decrease) in deferred tax liabilities	2020 $'000 2019 $'000 (25,604) 1,554 21,325 20,578 23,341 12,119 (28,637) 17,758 (11,404) (6,557) (2,795) (1,224) (790) -
	(24,564) 44,228
	211 (2,630) (5,507) 32,507
	(5,296) 29,877

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

4 Income tax expense/(benefit) (continued)

(b) Reconciliation of income tax expense/(benefit) to prima facie tax payable

Profit/(loss) before income tax Less: Loss/(profit) in benefit funds Profit before income tax for the year Tax at the Australian tax rate of 30% (2019: 30%) Non-assessable income Other assessable amounts Non-deductible expenditures Other deductible expenditures Other deferred tax adjustments Under/(over) provision in prior years Tax offsets/(credits) Tax in benefit funds Income tax expense/(benefit)	2020 $'000 2019 $'000 (9,600) 97,229 10,107 (37,112)
	507 60,117
	152 18,035 (9,034) (5,695) 385 - 1,236 1,660 (2,001) (1,497) 52 (433) (6,315) (4,006) 1,068 (948) (10,107) 37,112
	(24,564) 44,228

The income tax results for the financial year to 30 June 2020 and comparative period included favourable non-temporary differences arising from the Group’s retirement community loans received from village residents which is non-assessable for tax purposes.

Tax Transparency Code

In 2016 the Australian Taxation Office issued the Tax Transparency Code (TTC) which is a set of principles and minimum standards to guide medium and large businesses on public disclosure of tax information. Adoption of the TTC is voluntary and intended to complement Australia’s existing tax transparency measures. The Group has implemented TTC and supports greater tax disclosure in Australia, reflecting the Group’s commitment to compliance from a regulatory and financial perspective, and transparency with respect to the Group’s strategy and corporate governance.

Financial assets and liabilities

5 Financial assets - Cash and cash equivalents

Cash at bank and on hand Bank balances Deposits at call	2020 $'000 2019 $'000 26 66 41,503 67,694 995,174 877,007
	1,036,703 944,767

The balance of cash and cash equivalents as at 30 June 2020 included the Parent Entity's accounts totalling $217,187,000 (30 June 2019: $151,757,000) and amounts held by benefit funds totalling $375,087,000 (30 June 2019: $411,724,000).

Fair value and risk exposures

The carrying amount of cash and cash equivalents equals their fair value. Information about the Group's exposure to interest rate risk is provided in note 21.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

6 Financial assets - Loans and advances

Current Mortgage loans Personal loans Provision for impairment Advances Total - current Non-current Mortgage loans Personal loans Provision for impairment Advances Total - non-current Total loans and advances	2020 $'000 2019 $'000 24,940 19,442 4,066 6,053 (11,056) (10,518) 4,000 -
	21,950 14,977
	894,222 724,004 5,016 1,996 (5,395) (4,180) - 4,000
	893,843 725,820
	915,793 740,797

Further information relating to loans to related parties is set out in note 30.

(a) Mortgage loans

The mortgage loans are secured on real property. These loans mature at various dates up to 30 June 2050 and earn interest at annual interest rates between 2.54% and 6.98% (2019: between 3.59% and 7.00%).

(b) Personal loans

The personal loans mature at various dates up to 30 November 2025 and earn interest at annual rates between 4.57% and 15.18% (2019: between 4.57% and 15.19%).

(c) Provision for impairment

The provision for impairment is related to the mortgage and personal loans above which are provided by the Group's authorised deposit-taking institution. It is calculated based on an expected credit loss (ECL) model. The amount as at 30 June 2020 consisted of $6.1 million loans in the Stage 1 twelve-month ECL category (2019: $5.3 million), $7.7 million loans in the Stage 2 lifetime ECL not credit impaired category (2019: $6.0 million), and $2.7 million loans in the Stage 3 lifetime ECL credit impaired category (2019: $3.4 million).

In March 2020, the World Health Organisation declared COVID-19 a world-wide pandemic. COVID-19 and the measures to mitigate the spread of the virus have significantly impacted the economy and financial markets. In response to this, the Group undertook a review of its loan portfolios and the impairment provision, taking into consideration the macroeconomic outlook, customer credit quality, the type of collateral held, exposure at default, and the effect of payment deferral options as at the reporting date. In measuring the impairment provision, methodology and threshold in determining significant increase in credit risk and the definition of default remained consistent with prior periods. However, the model inputs, including forward-looking information, scenarios and associated weightings, as well as the determination of the staging of exposures were adjusted. These resulted in several customers being downgraded due to the increasing risk of default following the weakening macroeconomic environment due to the impact of COVID-19, and consequently the impairment provision increased.

The Group introduced a number of measures to support the customers impacted by the adverse economic conditions arising from COVID-19. These measures included loan deferrals totalling to $76.9 million.

(d) Past due but not impaired

At 30 June 2020, the current portion of loans and advances that were past due but not impaired amounted to $40,241,000 (2019: $26,935,000). These relate to a number of borrowers with no recent history of default.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

6 Financial assets - Loans and advances (continued)

(e) Fair value and risk exposures

The fair value of current and non-current loans and advances are provided in note 11. Information about the Group’s exposure to credit risk and interest rate risk is provided in note 21.

7 Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss consist of the following:

Securities held by benefit funds Securities held by subsidiaries	2020 $'000 2019 $'000 1,864,486 1,837,874 219,334 166,279
	2,083,820 2,004,153

Changes in fair values of financial assets at fair value through profit or loss are recorded in investment income in the profit or loss.

(a) Securities held by benefit funds comprise the following:

(a) Securities held by benefit funds comprise the following:
Equity trusts Fixed interest and other debt security trusts Mortgage trusts Property syndicates and trusts (b) Securities held by subsidiaries comprise the following: Equity trusts Fixed interest and other debt security trusts Mortgage trusts Property syndicates and trusts	2020 $'000 2019 $'000 1,291,630 1,242,599 493,872 506,747 23,249 25,743 55,735 62,785
	1,864,486 1,837,874
	2020 $'000 2019 $'000 18,011 22,425 190,931 123,931 3,165 3,283 7,227 16,640
	219,334 166,279

(b) Securities held by subsidiaries comprise the following:

(c) Current and non-current split

The redemption terms for investments in certain managed trusts can be varied by their responsible entities in response to market conditions. For those investments which cannot be redeemed entirely within one year from reporting date, the amounts have been 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 the reporting period.

The carrying amounts of the above financial assets have been designated at fair value on initial recognition and are classified as follows:

Current Non-current	2020 $'000 2019 $'000 2,070,692 1,982,707 13,128 21,446
	2,083,820 2,004,153

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

(continued)

7 Financial assets at fair value through profit or loss (continued)

(d) Fair value and risk exposures

Information on the fair value measurement basis is provided in note 11 while information about the Group's exposure to market risk is provided in note 21.

8 Financial assets - Other financial assets at amortised cost

Other financial assets at amortised cost - Bank bills and term deposits

	2020	2019
	$'000	$'000
	47,012	56,904

Fair value and risk exposures

Due to the short term nature of these investments, their carrying amount is assumed to approximate their fair value. Information about the Group's exposure to credit risk and the credit quality in relation to these investments is provided in note 21.

9 Financial liabilities - Borrowings

Current Secured interest bearing liabilities Mortgage offset savings accounts Retirement Village Investment Notes Secured non-interest bearing liabilities Retirement Village Investment Notes Unsecured interest bearing liabilities Series B Australian Unity Bonds Face value Valuation at amortised cost At amortised cost Call deposits Term deposits Development finance loans Loan payable to related entity Total unsecured interest bearing liabilities Total current borrowings	2020 $'000 2019 $'000 128,798 95,494 19,961 5,423
	148,759 100,917
	- 16,320
	71,326 - (194) -
	71,132 - 494,553 419,173 384,388 274,058 37,646 - 5,100 5,100
	992,819 698,331
	1,141,578 815,568

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

(continued)

9 Financial liabilities - Borrowings (continued)

Non-current Secured interest bearing liabilities Retirement Village Investment Notes Unsecured interest bearing liabilities Series B Australian Unity Bonds Face value Valuation at amortised cost At amortised cost Series C Australian Unity Bonds Face value Valuation at amortised cost At amortised cost Series D Australian Unity Bonds Face value Valuation at amortised cost At amortised cost Term deposits Development finance loans Total non-current borrowings Total borrowings	2020 $'000 2019 $'000 18,401 19,961
	- 250,000 - (2,036)
	- 247,964
	115,019 - (2,295) -
	112,724 -
	207,000 - (3,480) -
	203,520 -
	39,225 17,401 - 17,959
	355,469 283,324
	373,870 303,285
	1,515,448 1,118,853

Total borrowings

(a) Series B Australian Unity Bonds

On 15 December 2015, the Company issued 2,500,000 Series B Australian Unity Bonds - Tranche 1 of $100 each pursuant to the prospectus dated 9 November 2015, raising $250,000,000. Series B Australian Unity Bonds are unsubordinated and unsecured simple corporate bonds that are listed on the Australian Securities Exchange (code: AYUHB). The bonds have a five-year term maturing on 15 December 2020 and bear interest at the three month bank bill rate (BBSW) plus a margin of 2.80% per annum. The interest is payable quarterly in arrears on 14 January, 14 April, 14 July and 14 October each year.

As specified in the prospectus, the proceeds from the issue were used to refinance the $120,000,000 Australian Unity Notes previously issued, partly finance the acquisition of Home Care NSW and for general corporate purposes.

The bonds are redeemable by the Company prior to their maturity date for certain reasons related to taxation, a change of control or when less than 10% of the bonds remain on issue. An early redemption payment is applied pursuant to the prospectus. Bond holders have the right to require early redemption through a resolution only on the occurrence of a change of control.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

9 Financial liabilities - Borrowings (continued)

(a) Series B Australian Unity Bonds (continued)

Under the terms of the Series B Australian Unity Bonds, the Company is required to maintain a Covenant Gearing Ratio of less than 50% as at 30 June and 31 December each year. The Covenant 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 ratio is calculated based on the financial position of the Group, excluding the Group’s authorised deposit-taking institution and benefit funds. Interest bearing liabilities and guarantees are further reduced by the Company’s unencumbered cash and cash equivalents. Junior Ranking Obligations, if any, also reduce interest bearing liabilities and guarantees but increase total equity in the calculation. Junior Ranking Obligations represent equity or subordinated debt of the Company which would, in a winding up situation, rank behind the Company’s obligations under the Series B Australian Unity Bonds. The Covenant Gearing Ratio is determined by reference to the accounts prepared on the basis of the Australian Accounting Standards in place as at the date of the Base Prospectus. Therefore, the impact of the newly-adopted AASB 16 Leases in the 2019 financial year is excluded from the calculation of Covenant Gearing Ratio. As at 30 June 2020, the Covenant Gearing Ratio was 32% (30 June 2019: 22%).

In September 2019, a reinvestment offer was made to all eligible holders of Series B Australian Unity Bonds to subscribe for the Series C and Series D Australian Unity Bonds issued by the Company on 15 October 2019 (refer to the below note) and fund their subscriptions by selling their Series B Australian Unity Bonds to the Company. As a result of the reinvestment offer, 1,786,743 Series B Australian Unity Bonds were sold to the Company.

The remaining 713,257 Series B Australian Unity Bonds will be redeemed for cash on their maturity date of 15 December 2020.

(b) Series C and Series D Australian Unity Bonds

On 15 October 2019, the Company issued 1,150,192 Series C and 2,070,000 Series D Australian Unity Bonds - Tranche 1 of $100 each pursuant to the prospectus dated 9 September 2019, raising $322,019,200 in total. Series C and Series D Australian Unity Bonds are unsubordinated and unsecured simple corporate bonds that are listed on the Australian Securities Exchange (code: AYUHC and AYUHD respectively). Series C Australian Unity Bonds have a five-year term maturing on 15 October 2024 and bear interest at the three month BBSW rate plus a margin of 2% per annum. Series D Australian Unity Bonds have a seven-year term maturing on 15 October 2026 and bear interest at the three month BBSW rate plus a margin of 2.15% per annum. The interest of both series of bonds is payable quarterly in arrears on 14 January, 14 April, 14 July and 14 October each year.

As specified in the prospectus, the net proceeds from the issue of the bonds (after deducting the bonds issuance costs) were used to refinance the Series B Australian Unity Bonds that participate in the reinvestment offer and for general corporate purposes.

Under the terms of the Series C and Series D Australian Unity Bonds, the Company is required to maintain a Covenant Gearing Ratio of less than 50% as at 30 June and 31 December each year. The Covenant 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 ratio is calculated based on the financial position of the Group, excluding the Group’s authorised deposit-taking institution and benefit funds. Interest bearing liabilities and guarantees are further reduced by lease liabilities and the Company’s unencumbered cash and cash equivalents. Junior Ranking Obligations, if any, also reduce interest bearing liabilities and guarantees but increase total equity in the calculation. Junior Ranking Obligations represent equity or subordinated debt of the Company which would, in a winding up situation, rank behind the Company’s obligations under the Series C and Series D Australian Unity Bonds. The Covenant Gearing Ratio is determined by reference to the accounts prepared on the basis of the Australian Accounting Standards in place as at the date of the Base Prospectus. As at 30 June 2020, the Covenant Gearing Ratio was 32%.

(c) Development finance loans

The development finance loans represented loan facilities from a related entity for the development of the Herston Quarter health precinct in Brisbane, Queensland.

(d) Retirement Village Investment Notes (RVIN)

RVIN are debt instruments issued by the Group. The proceeds from RVIN issues were utilised by the Group for the purpose of expanding the Independent & Assisted 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 1, 2, 4 and 5 Notes) and Australian Unity Retirement Village Trust #2 (in respect of Series 3 and 4 Notes).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

9 Financial liabilities - Borrowings (continued)

(d) Retirement Village Investment Notes (RVIN) (continued)

Australian Unity Retirement Village Trust #1 (AURVT#1) comprises three retirement villages - Willandra Village and Willandra Bungalows in New South Wales and Walmsley Friendship Village in Victoria. Australian Unity Retirement Village Trust #2 (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 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 other subsidiary entities of the Group.

During the financial year, the Group repaid $21,728,000 of maturing RVIN. On 30 November 2019 the Group issued Series 5 RVIN totalling $18,401,000 with a five-year term maturing on 20 November 2024 and bearing interest at a fixed rate of 4.95% per annum.

As at 30 June 2020, the total amount of RVIN on issue reported as interest bearing liabilities was $38,362,000 (30 June 2019: $41,704,000 comprising $25,384,000 interest bearing liabilities and $16,320,000 non-interest bearing liabilities). Subsequent to the reporting period, Series 1 and 2 RVIN were refinanced using the proceed from the issuance of Series 6 RVIN which have a three-year term with a fixed interest rate at 5% per annum as disclosed in note 29.

The following table summarises the details of RVIN:

				30 June	30 June
Name	Prospectus	Maturity date	Interest rate	2020	2019
				$'000	$'000
RVIN - Series 1	5	30 November 2019	7.50%	-	5,408
	8	30 November 2020	5.60%	15,988	-
RVIN - Series 2	5	31 December 2020	5.60%	3,973	-
RVIN - Series 3	8	31 December 2019	7.50%	-	15
Interest bearing RVIN - current				19,961	5,423
RVIN - Series 1	8	30 November 2020	5.60%	-	15,988
RVIN - Series 2	5	31 December 2020	5.60%	-	3,973
RVIN - Series 5	1	30 November 2024	4.95%	18,401	-
Interest bearing RVIN - non-current				18,401	19,961
Total interest bearing RVIN				38,362	25,384
RVIN - Series 3	11	30 June 2019		-	6,320
RVIN - Series 4	2	30 June 2019		-	10,000
Non-interest bearing RVIN - current				-	16,320
Total RVIN				38,362	41,704

(e) Call deposits

The call deposits are repayable on demand and accrue interest on a daily basis. At 30 June 2020, this rate amounted to between 0.01% and 1.65% (2019: between 0.01% and 2.45%).

(f) Term deposits

Term deposits are repayable on maturity and accrue interest on a monthly basis with annual fixed interest rates at 30 June 2020 ranging between 0.25% and 3.25% (2019: between 1.25% and 4.10%).

During the financial year, the Reserve Bank of Australia (RBA) offered three-year funding facilities to authorised deposit-taking institutions (ADI) to reinforce the benefits to the economy of a lower cash rate and to encourage ADI to support businesses during a difficult period. The amount of this facility the Group had received as at 30 June 2020 was $25,193,000 with interest at 0.25% per annum.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

9 Financial liabilities - Borrowings (continued)

(g) Mortgage offset savings accounts

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

(h) Loan payable to related entity

The loan from related entity is repayable on demand and accrues interest on a monthly basis at the 90 day bank bill rate plus a margin of 2%. At 30 June 2020 this rate amounted to 2.1% (2019: 3.20%).

(i) Fair value and risk exposures

The fair values of borrowings are set out in note 11. Information about the Group's exposure to risk arising from borrowings is set out in note 21.

10 Other current liabilities

Financial liabilities Refundable accommodation deposits Resident loan liabilities Non-financial liabilities Unearned income Other Total other current liabilities	2020 $'000 2019 $'000 274,602 242,694 950,332 881,733
	1,224,934 1,124,427
	170,812 140,564 7,466 10,852
	178,278 151,416
	1,403,212 1,275,843

(a) Unearned income

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

(b) Refundable accommodation deposits

Refundable accommodation deposits represent payments received from the residents of aged care facilities as upfront deposits for their aged care accommodation. Residents have the ability to pay the deposits up to six months after moving into an aged care facility. These deposits are non-interest bearing and are repayable within 14 days of a resident’s departure from the facility or within 14 days of the granting of probate. Regulations restrict the permitted use of the accommodation deposits to repayment of accommodation deposit balances, capital expenditures of residential aged care facilities and investments in qualified financial products.

(c) Resident loan liabilities

Resident loan liabilities relate to residents who occupy the retirement villages (refer to investment properties in note 12). 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) Fair value and risk exposures

Due to the short term nature of these other current liabilities, their carrying value is assumed to approximate their fair value. Details of the Group's exposure to risk arising from other current liabilities are set out in note 21.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

11 Fair value measurements

(a) Recognised fair value measurements

The Group measures and recognises the following assets and liabilities at fair value on a recurring basis:

Financial assets at fair value through profit or loss
Derivative financial instruments
Investment properties
Life investment contract policy liabilities

The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 June 2020.

(i) Fair value hierarchy

AASB 13 Fair Value Measurement requires disclosure of fair value measurements according to the following hierarchy:

level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities,
level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly, and
level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The following table presents the Group's financial assets and liabilities measured and recognised at fair value at 30 June 2020 and 2019 on a recurring basis.

30 June 2020 *Recurring fair value measurement* Financial assets Financial assets at fair value through profit or loss Equity trusts Fixed interest and other debt security trusts Mortgage trusts Property syndicates and trusts Other financial assets Total financial assets Non-financial assets Investment properties Total non-financial assets Financial liabilities Interest rate swaps Life investment contract policy liabilities Total financial liabilities	Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 2,466 1,307,175 - 1,309,641 - 684,803 - 684,803 - 26,414 - 26,414 17,850 45,112 - 62,962 - - 6,997 6,997
	20,316 2,063,504 6,997 2,090,817
	- - 1,489,160 1,489,160
	- - 1,489,160 1,489,160
	- 12,209 - 12,209 - 1,303,943 - 1,303,943
	- 1,316,152 - 1,316,152

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

11 Fair value measurements (continued)

30 June 2019 *Recurring fair value measurement* Financial assets Financial assets at fair value through profit or loss Equity trusts Fixed interest and other debt security trusts Mortgage trusts Property syndicates and trusts Other financial assets Total financial assets Non-financial assets Investment properties Total non-financial assets Financial liabilities Interest rate swaps Life investment contract policy liabilities Total financial liabilities	Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 2,227 1,262,797 - 1,265,024 - 630,678 - 630,678 - 29,026 - 29,026 17,459 61,966 - 79,425 - - 7,056 7,056
	19,686 1,984,467 7,056 2,011,209
	- - 1,327,551 1,327,551
	- - 1,327,551 1,327,551
	- 4,565 - 4,565 - 1,259,311 - 1,259,311
	- 1,263,876 - 1,263,876

The majority of the financial assets at fair value through profit or loss are held through unlisted managed investment schemes operated by related entities. These unlisted managed investment schemes also hold investments from external investors.

The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between levels 1 and 2 for the recurring fair value measurements during the year. The transfers in and out of level 3 measurements are summarised in note (iii) below.

(ii) Valuation techniques used to derive level 2 and level 3 fair values

Financial instruments

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. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

The use of quoted market prices or dealer quotes for similar instruments.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.
Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

All of the resulting fair value estimates are included in level 2 except for unlisted equity securities which are included in level 3 as disclosed in section (iii) below.

Investment properties

Investment properties comprise the Group's interests in retirement village independent living units, development sites and other non-owner occupied investment properties.

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. Retirement village development sites are recognised at fair value, while other development sites are recognised at cost.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

11 Fair value measurements (continued)

(ii) Valuation techniques used to derive level 2 and level 3 fair values (continued)

Fair value for retirement villages is determined using a financial model which calculates the net present value of future cash flows. The major inputs used in the financial models include:

current prices in an active market for properties of a similar nature;
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;
property growth rates based on analysis of property markets, historical experience and retirement village outlook; and
discount rates appropriately set based on the view of risk and by reference to market transactions and conditions.

Fair value of other non-owner occupied property is based on periodic, but at least triennial, valuations by external accredited independent valuers.

All of the resulting fair value estimates of the investment properties are included in level 3 as explained in section (iii) below.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 instruments for the financial year ended 30 June 2020:

Opening balance 1 July 2018 Additions Transfers Gains/(losses) recognised in other income Closing balance 30 June 2019 Opening balance 1 July 2019 Additions Transfers Gains/(losses) recognised in other income Closing balance 30 June 2020 Included in the gain recognised in other income: Unrealised gain recognised in the profit or loss attributable to assets held at the end of the financial year 2020* 2019	Other financial assets $'000 Investment properties $'000 Total $'000 7,065 1,169,437 1,176,502 - 128,787 128,787 - (13) (13) (9) 29,340 29,331
	7,056 1,327,551 1,334,607
	7,056 1,327,551 1,334,607 - 131,501 131,501 - - - (59) 30,108 30,049
	6,997 1,489,160 1,496,157
	(59) 30,108 30,049
	(9) 29,340 29,331

Investment properties valuation inputs and relationships to fair value

In the second half of 2020, the COVID-19 pandemic created a level of uncertainty in the inputs used in investment property valuation. While demand for retirement village properties may fluctuate in the short-term given the COVID-affected macroeconomic environment, the Group continues to expect long term demand to be strong commensurate with the growth in the aging population. The valuation has been determined based on the available information at 30 June 2020 and other relevant information arising since then. The Group has a recent independent assessment on the key assumptions used in the valuation which incorporated COVID-19 impacts.

Given the current volatility in the market and uncertainty around economic recovery, it is possible that after the reporting date there will be movements in the key inputs and assumptions. A protracted economic recovery may cause a reduction in demand and market value. To assess the exposure of the carrying value to fair value movements as a result of changes in the economic environment, sensitivity analyses have been performed based on reasonably probable scenarios on the changes of key valuation inputs. While it is unlikely that these inputs would move in isolation, the sensitivities have been prepared to measure the impact of changes in each key valuation input independently.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

11 Fair value measurements (continued)

(iii) Fair value measurements using significant unobservable inputs (level 3) (continued)

The following table summarises the key inputs used in fair value measurements and the impact of changes in each input:

Description	Fair value at 30 June 2020 $'000	Unobservable inputs	Range of inputs	Relationship of unobservable inputs to fair value
a Investment properties, excluding non-retirement village development sites a a a a	$ 1,374,901	Discount rate	13% - 14%	Increase/decrease in discount rate by +/- 50 basis points changes the fair value by -$16.3 million/+$18.0 million (2019: -$13.3 million/+$14.6 million).
		Property growth rate	1% - 4%	Increase/decrease in property growth rate by +/- 50 basis points changes the fair value by +$28.1 million/ -$25.5 million (2019: +$22.7 million/ -$20.6 million).
		Average length of residents' stay	5-8 years for serviced apartments, 9-14 years for other independent living units	The higher the average length of stay, the lower the fair value.

Valuation processes

The Group’s Independent & Assisted Living platform includes a team that performs the valuations of the retirement village independent living units required for financial reporting purposes, including level 3 fair values. This team reports valuation recommendations to the CEO Independent & Assisted Living, the Chief Financial Officer and the Audit Committee. Discussions of valuation processes and results are held between the valuation team, the Audit Committee, the Chief Financial Officer and the CEO Independent & Assisted Living every six months in line with the Group’s half-yearly reporting timelines. The results of the valuations are subject to audit or review every six months. The valuation method used in determining the fair value of these investment properties is drawn upon an actuarial model for property valuation. The main level 3 inputs used in measuring the fair value of investment properties, which include resident turnover rates, property growth rates and discount rates, are estimated by management based on comparable transactions and industry data. The key assumptions used in the valuation are reviewed by an independent qualified valuer on a yearly basis.

(b) Disclosed fair values

The Group also has a number of financial instruments which are not measured at fair value on the balance sheet. As at the end of the reporting period, those which fair values differ from their amortised cost are as follows:

Current and non-current assets Mortgage loans Advances Current and non-current liabilities Australian Unity Bonds Call deposits Development finance loans Mortgage offset savings accounts Retirement Village Investment Notes Term deposits	2020 2019 Amortised cost $'000 Fair value $'000 Amortised cost $'000 Fair value $'000 902,710 902,974 728,748 729,093 4,000 4,000 4,000 3,859
	906,710 906,974 732,748 732,952
	387,376 390,275 247,964 258,000 494,553 494,553 - - 37,646 37,646 17,959 18,209 128,798 128,798 - - 38,362 40,390 41,704 42,006 423,613 423,518 291,459 291,289
	1,510,348 1,515,180 599,086 609,504

The fair values of loans, advances and borrowings disclosed above are estimated by discounting the future contractual cash flows at the current applicable market interest rate.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

Non-financial assets and liabilities

12 Non-financial assets - Investment properties

Investment properties consist of the Group's interests in retirement village independent living units and development sites as specified below. The development sites are held within the development entities. Upon completion of the development and the required occupancy targets being met, a number of the development sites will be sold to retirement village operators.

Retirement village independent living units Development sites - retirement village independent living units Development sites - other	2020 $'000 2019 $'000 981,025 929,571 393,876 348,381 114,259 49,599
	1,489,160 1,327,551

(a) Movements of investment properties

At fair value Balance at the beginning of the financial year Additions Transfers to property, plant and equipment Net fair value movements Balance at the end of the financial year	2020 $'000 2019 $'000 1,327,551 1,169,437 131,501 128,787 - (13) 30,108 29,340
	1,489,160 1,327,551

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

Revenue Expenses Changes in fair value recognised in profit or loss	2020 $'000 2019 $'000 39,230 57,267 (33,555) (32,681) 30,108 29,340
	35,783 53,926

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

13 Non-financial assets - Property, plant and equipment

At 1 July 2018 Cost Accumulated depreciation Net book amount Year ended 30 June 2019 Opening net book amount Additions Transfers from investment properties Transfers from/(to) intangibles Disposals Depreciation charge Closing net book amount At 30 June 2019 Cost Accumulated depreciation Net book amount Year ended 30 June 2020 Opening net book amount Additions Transfers Depreciation charge Closing net book amount At 30 June 2020 Cost Accumulated depreciation Net book amount	Land $'000 Buildings $'000 Plant and equipment $'000 Leasehold improvements $'000 Total $'000 33,026 190,433 27,473 28,145 279,077 - (21,433) (18,168) (22,196) (61,797)
	33,026 169,000 9,305 5,949 217,280
	33,026 169,000 9,305 5,949 217,280 - 22,883 3,102 12,618 38,603 - 13 - - 13 - - (2,253) 3,954 1,701 - - (37) (32) (69) - (3,439) (1,749) (1,772) (6,960)
	33,026 188,457 8,368 20,717 250,568
	33,026 213,329 28,155 44,674 319,184 - (24,872) (19,787) (23,957) (68,616)
	33,026 188,457 8,368 20,717 250,568
	Land $'000 Buildings $'000 Plant and equipment $'000 Leasehold improvements $'000 Total $'000 33,026 188,457 8,368 20,717 250,568 - 58,913 5,498 3,472 67,883 6,800 (6,800) - - - - (4,706) (2,551) (5,586) (12,843)
	39,826 235,864 11,315 18,603 305,608
	39,826 265,442 33,651 48,146 387,065 - (29,578) (22,336) (29,543) (81,457)
	39,826 235,864 11,315 18,603 305,608

14 Non-financial assets and liabilities - Leases

The Group has applied AASB 16 Leases for the first time from 1 July 2019. AASB 16 requires the recognition of lease assets and liabilities on balance sheet with the amortisation of the assets and finance costs of the liabilities to be charged to profit or loss. Short-term leases and low value leases are recognised on a straight-line basis as an expense in profit or loss.

The Group has non-cancellable lease contracts, as lessee, for commercial buildings, computer equipment and motor vehicles which are used as part of the Group’s operations. Computer equipment leases are categorised as leases of low-value assets and therefore no assets and liabilities are recognised. The Group’s lease contracts do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

14 Non-financial assets and liabilities - Leases (continued)

The Group also has a few sub-lease contracts in relation to certain commercial buildings. Sublease transactions where the Group is an intermediate lessor are accounted for by reducing the right-of-use assets arising from the respective head leases and recognising sublease receivables. Other sublease contracts are accounted for as operating leases with income being recognised over the lease term. The value of sublease contracts as at 30 June 2020 was immaterial.

(a) Amounts recognised in the consolidated balance sheet

In previous year, the Group had operating leases recognised under AASB 117 Leases . The Group did not have any finance leases, and therefore did not recognise lease assets and liabilities.

The following are assets and liabilities recognised on the adoption of AASB 16 as at 1 July 2019 and the balances as at 30 June 2020:

Right-of-use assets Buildings Vehicles a Other non-current assets - Sublease receivables Total assets a Lease liabilities Current Non-current Total liabilities	30 June 1 July 2020 2019 $'000 $'000 112,862 124,515 3,017 2,693
	115,879 127,208 1,410 -
	117,289 127,208
	16,813 17,620 111,795 119,159
	128,608 136,779

Additions to the right-of-use assets during the financial year ended 30 June 2020 were $3,622,000.

(b) Amounts recognised in the consolidated statement of comprehensive income

Depreciation charge of right-of-use assets Interest expense (included in Finance costs) Interest income on sublease receivable Expenses relating to short-term leases or leases of low value assets (included in Other expenses) Lease expenses charged to profit or loss on a straight line basis (included in Occupancy costs and Other expenses)	2020 2019 $'000 $'000 14,561 - 6,496 - (61) - 6,262 - - 17,208
	27,258 17,208

Total cash outflow for leases in the financial year ended 30 June 2020 was $23,660,000 (2019: $17,208,000).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

(continued)

15 Non-financial assets - Intangible assets

At 1 July 2018 Cost Accumulated amortisation and impairment Adjustments on the adoption of AASB 15 Net book amount Year ended 30 June 2019 Opening net book amount Acquisition of subsidiaries/businesses Additions Transfers to property plant and equipment Disposals Amortisation charge Closing net book amount At 30 June 2019 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2020 Opening net book amount Additions Disposals Amortisation charge Closing net book amount At 30 June 2020 Cost Accumulated amortisation and impairment Net book amount	Goodwill $'000 Computer software $'000 Bed and other licences $'000 Management rights and other intangible assets $'000 Total $'000 185,626 92,434 12,655 125,288 416,003 (6,000) (51,883) (1,915) (27,201) (86,999) - - - (5,977) (5,977)
	179,626 40,551 10,740 92,110 323,027
	179,626 40,551 10,740 92,110 323,027 767 - - 3,837 4,604 1,853 22,425 - (3,219) 21,059 - (1,701) - - (1,701) - (399) - - (399) - (10,638) - (12,188) (22,826)
	182,246 50,238 10,740 80,540 323,764
	188,246 111,474 12,655 118,435 430,810 (6,000) (61,236) (1,915) (37,895) (107,046)
	182,246 50,238 10,740 80,540 323,764
	Goodwill $'000 Computer software $'000 Bed and other licences $'000 Management rights and other intangible assets $'000 Total $'000 182,246 50,238 10,740 80,540 323,764 - 17,117 - - 17,117 - (81) - (5,713) (5,794) - (14,513) - (7,108) (21,621)
	182,246 52,761 10,740 67,719 313,466
	188,246 128,381 12,655 112,722 442,004 (6,000) (75,620) (1,915) (45,003) (128,538)
	182,246 52,761 10,740 67,719 313,466

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

15 Non-financial assets - Intangible assets (continued)

The management rights and other intangible assets include those with an indefinite life of $24,757,000 as at 30 June 2020 and 2019. The management rights are related to the acquisitions of responsible entities of investment funds and trusts. The responsible entities are profitable and expected to continue their operations on a going concern basis.

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. Bed licences purchased from other approved providers are valued at cost. At 30 June 2020, the Group held 1,039 granted licences and 231 purchased licences (no change from 30 June 2019).

(a) Impairment tests for goodwill and management rights

Goodwill and intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is an indication of impairment. The impairment test is conducted by comparing the asset’s carrying amount with its recoverable amount. If the carrying amount exceeds the recoverable amount, the carrying amount should be reduced to the recoverable amount. This reduction is recognised as an impairment loss in the income statement.

For the purpose of impairment tests, the carrying amount of goodwill and intangible assets with an indefinite useful life is allocated to the Group’s cash generating units (CGUs) identified within the relevant business platforms. A summary of the goodwill and intangible assets with an indefinite useful life of each CGU is as follows:

CGU Home & Disability Services Wealth Assets Management Trustee Services Wealth Advice Services Residential Communities Health Services	2020 $'000 2019 $'000 141,116 141,116 34,108 34,108 8,399 8,399 9,362 9,362 20,017 20,017 4,741 4,741
	217,743 217,743

The recoverable amount of a CGU is determined based on a value in use calculation using five-year cash flow projections. An indefinite terminal cash flow calculation is then applied for cash flows beyond year five, except for the Home & Disability Services CGU which terminal cash flow is applied to the period beyond year 10 (refer to section (d) below).

The Group normally prepares an annual strategic plan which includes financial forecasts with a four-year outlook with expectations of future events that are believed to be reasonable under the current circumstances. For the impairment test calculation, the Group sourced the four-year cash flow projections from these financial forecasts and extrapolated the cash flow for the fifth year using growth rates based on estimates of expected long-term operating conditions appropriate for each CGU. In March 2020, however, the COVID-19 pandemic impacted the economy and there was uncertainty in the outlook and the extent of the impacts to the businesses. In response to this, the Group developed an annual operating plan, including the 2021 financial forecast, and built its best estimates of the forecast for the subsequent four years; taking into consideration the macroeconomic outlook, the impacts of the COVID-19 pandemic to each business platform and the initiatives taken in response to the COVID-19 disruptions.

The approach assumes that the impacts of COVID-19 to each CGU are temporary. Under the going concern assumption and the value in use method implemented in the impairment test, it is assumed that there are reasonable grounds to believe that, despite the COVID-19 impacts in the current forecasts, the long-term values of the CGU hold. The extent of COVID-19 impacts across the CGU’s varied and the Group does not foresee any shutdown impact to any CGU. The CGU financial projections have taken COVID-19 impacts into account and plotted the paths to recovery prior to the stabilised position. As reflected in the financial projections, generally any CGU with an immediately diminished outlook is projected to recover within the next 12-18 months and are restored to normal business value levels during the 2022 to 2024 financial periods.

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

Discount rates used in the value in use calculation represent the weighted average cost of capital determined by prevailing or benchmarked market inputs, risk adjusted where necessary. It takes into account the time value of money and inherent risks of the underlying assets.

Pre-tax discount rates of 10.0% to 12.9% were applied to cash flow projections of the relevant CGU (2019: 10.1% - 12.6%). The terminal value is determined based on an assumption of terminal growth rate of 2.5% - 3.0% which is within the target long term inflation rate of the Reserve Bank of Australia (2019: 2.5% to 3.0%).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

15 Non-financial assets - Intangible assets (continued)

(c) Impact of possible changes in key assumptions

The value in use calculations are sensitive to changes in discount rates, terminal growth rates, and key earning drivers varying from the assumptions and forecast data used in impairment testing. As such, sensitivity analyses were undertaken to examine the effect of an unfavourable change in a variable on each CGU based on the reasonably probable scenarios.

Based on this analysis it is concluded that, assuming the growth rate is at the level of the long-term inflation rate, any possible change in the pre-tax discount rate of up to 11.6% (2019: 13.5%) would not cause the recoverable amount of goodwill and intangible assets with an indefinite life to fall below its carrying amount. The following section describes the Home & Disability Services, Trustee Services and Wealth Advice Services CGUs that are prone to the changes in key assumptions.

(d) Home & Disability Services CGU

The value in use calculation for Home & Disability Services is more sensitive to the following assumptions:

(i) The growth in the number of customer contracts - the CGU is predominantly operating in NSW, with aspirations to grow, particularly within Victoria and Queensland. Projected growth of customer numbers and business efficiencies are based on experience to date, business plans and changing demographic opportunities.

In determining the growth in customer contracts, consideration has been given to the environmental context in which the business operates, including the current political climate and government policy relating to the Home Care Packages (HCP) and the Commonwealth Home Support Programme (CHSP). There is a degree of uncertainty whether the government will extend the CHSP funding beyond 30 June 2022. Ongoing Royal Commission submissions and recommendations are expected to consider potential alternative future models of government funding.

Revenue growth assumptions for the CGU have been determined around 4%-5% per annum over the ten-year projection period. The key assumptions that underpin the recoverable amount are revenue growth across HCP, continuity of CHSP and achievement of forecast operating margins. The business has implemented a number of initiatives to improve operating margins and leverage high performing parts of the branch network.

The forecasts reflect commercial opportunities faced by the Home & Disability Services CGU, however, the Group acknowledges that there remains reasonably uncertainty around the pace and nature of growth and the time this can be realised in view of the potential regulatory changes following the Royal Commission’s recommendations and the future impacts of the COVID-19 pandemic on the operations of the business.

(ii) Discount rates for the purpose of impairment testing - the pre-tax discount rate applied to cash flow projections is 9.9%. A one percentage point change in the discount rate would not alter the impact of the impairment assessment.
(iii) Terminal growth rate - the terminal value has been calculated for this CGU on the extrapolated ten-year cash flows, with a terminal growth rate of 3.0%. A percentage point change in the terminal value rate would not alter the impact of the impairment assessment.

In the impairment test, the value-in-use calculation shows the estimated recoverable amount of the CGU to be $108.6 million higher than its carrying amount.

(e) Trustee Services CGU

The calculation of value in use for Trustee Services is most sensitive to the following assumptions:

(i) Since receiving its trustees’ licence in February 2017, the Company has expanded its operations, investing in building capability, reviewed its growth strategy and portfolio, and implemented a new operating system. Each of these changes has supported strong revenue growth in the 2020 financial year and will support future business growth. The forecasts reflect commercial opportunities faced by the Trustee Services CGU, however, the Group acknowledges that there remains reasonable uncertainty around the pace and nature of growth and the time this can be realised.
(ii) Discount rates for the purpose of impairment testing - the pre-tax discount rate applied to the CGU’s cash flow projections is 11.7%. A one percentage point change in the discount rate would not alter the impact of the impairment assessment.
(iii) Terminal growth rate - the terminal value has been calculated for this CGU on the extrapolated five-year cash flows, with a terminal growth rate of 2.5%. A one percentage point change in the discount rate would not alter the impact of the impairment assessment.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

15 Non-financial assets - Intangible assets (continued)

(e) Trustee Services CGU (continued)

In the impairment test, the value-in-use calculation shows the estimated recoverable amount of the CGU to be $16.0 million higher than its carrying amount.

(f) Wealth Advice Services CGU

The calculation of value in use for Wealth Advice Services is most sensitive to the following assumptions:

(i) The growth in the number of new clients for employed advisers, recruitment of self-employed practices and growth in Separately Managed Accounts - the Group has built its wealth advice business over a number of years, both organically and through acquisition. The business derives its income primarily from license fees and fees for services performed with grandfathered commissions ceasing in the 2021 financial year. The CGU’s net revenue growth assumptions (excluding self-employed practices’ share of revenue) average 9% over the five-year projection period and are underpinned by achievement of forecast operating margins. Projected growth of client and adviser numbers and margin efficiencies are based on experience, business plans and the changing demographic opportunity. It has taken into consideration the potential COVID-19 impacts which could delay the growth of new clients. Any development that has unfavourable impacts to these assumptions over a sustained period has the potential to result in an impairment of the CGU.
(ii) Discount rates for the purpose of impairment testing - the pre-tax discount rate applied to the CGU’s cash flow projections is 10.4%. A one percentage point change in the discount rate would not alter the impact of the impairment assessment.
(iii) Terminal growth rate - the terminal value has been calculated for this CGU on the extrapolated five-year cash flows, with a terminal growth rate of 2.5%. A one percentage point change in the discount rate would not alter the impact of the impairment assessment.

In the impairment test, the value-in-use calculation shows the estimated recoverable amount of the CGU to be $10.0 million higher than its carrying amount.

16 Non-financial liabilities - Provisions

Current provisions Employee benefits provision Health insurance claims provision Other provisions	2020 $'000 2019 $'000 55,396 52,005 89,052 63,584 4,448 4,340
	148,896 119,929

Health insurance claims provision

Health insurance claims provision represented provision made for outstanding claims and deferred claims. 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. As at 30 June 2020, a specific claims liability has also been recorded for deferred claims that were a result of surgeries and other health services being restricted for policyholders as the impact of the COVID-19 pandemic. The Group has an obligation to settle these claims over future periods. Claims reported but not yet paid are included as payables. Claims provisions are determined on an actuarial basis and amounts paid or payable are recognised as part of expenses in the profit or loss. Refer to note 24 for further details.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

17 Non-financial liabilities - Deferred tax balances

The balance comprises temporary differences attributable to: Deferred tax assets Accrued expenses Fixed assets Capitalised expenditure Leases Policy bonus credits Provisions Risk Equalisation Special Account Tax losses Trust distribution Unrealised losses Other assessable items Total deferred tax assets Deferred tax liabilities Fixed assets and investment properties Intangible assets Risk Equalisation Special Account Tax deferred Unrealised gains Other deductible items Total deferred tax liabilities Net Deferred tax liabilities 18 Equity (a) Reserves Asset revaluation reserve Post-employment benefit reserve Cash flow hedges reserve Movements: Asset revaluation reserve Balance at the beginning of the year Balance at the end of the year Post-employment benefit reserve (i) Balance at the beginning of the year Remeasurement of net defined benefit obligations Balance at the end of the year Cash flow hedges reserve (ii) Balance at the beginning of the year Movements in hedging value during the year Deferred tax Balance at the end of the year	2020 $'000 2019 $'000 7,080 18,733 13,181 13,676 2,467 2,562 4,224 - 39,019 37,651 32,974 32,162 420 480 1,868 1,482 14,185 2,607 4,078 1,429 3,313 3,861
	122,809 114,643
	114,652 102,568 19,783 22,715 6,943 7,300 5,532 4,255 35,230 51,406 12,799 12,447
	194,939 200,691
	72,130 86,048
	2020 $'000 2019 $'000 2,462 2,462 4,341 3,664 (8,546) (3,195)
	(1,743) 2,931
	2,462 2,462
	2,462 2,462
	3,664 3,462 677 202
	4,341 3,664
	(3,195) (515) (7,644) (4,202) 2,293 1,522
	(8,546) (3,195)

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

18 Equity (continued)

(a) Reserves (continued)

(i) Post-employment benefit reserve

Post-employment benefit reserve represents the defined benefit reserve that is used to record actuarial gains or losses on defined benefit liabilities and actual returns on fund assets (excluding interest income) which are recognised in other comprehensive income.

(ii) Cash flow hedges reserve

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. The amounts are recognised in the profit or loss when the associated hedged transaction affects profit or loss.

(b) Retained earnings

Movements in retained earnings were as follows:

Balance at the beginning of the financial year Adjustment on adoption of AASB 16, net of tax Adjustment on adoption of AASB 15, net of tax Profit for the year Balance at the end of the financial year	2020 $'000 2019 $'000 459,543 412,229 (5,404) - - (5,687) 14,964 53,001
	469,103 459,543

19 Cash flow information

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

Profit after income tax for the year
Depreciation and amortisation expense
Impairment of assets
Loss/(gain) on investments
Fair value gains on investment property
Gain on disposal of assets
Business combination expenses
Share of net profit or loss of joint ventures
space
Changes in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase in loans and advances
Increase in current tax assets
Decrease/(increase) in other operating assets
Increase in trade and other payables
Increase in deposits liability
Decrease in current tax liabilities
Increase/(decrease) in deferred tax liabilities
Increase in provisions
Increase/(decrease) in benefit fund policy liabilities
Increase in other operating liabilities
Net cash inflow from operating activities

2020
$'000
2019
$'000
14,964
53,001
34,464
29,786
(450)
-
9,731
(2,043)
(30,108)
(29,340)
(4,226)
(92)
-
767
(906)
44
4,769
(4,879)
(174,996)
(85,333)
(3,761)
-
8,833
(7,081)
365
42,335
240,838
99,611
(17,141)
(12,188)
(11,756)
22,170
29,879
2,100
26,721
(57,186)
14,720
9,575

141,940
61,247

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

19 Cash flow information (continued)

(b) Reconciliation of liabilities arising from financing activities

Opening balance as at 1 July 2018 space space Cash flows - Repayments of RVIN - Repayments of subordinated capital notes - Receipts from development finance loans - Receipts from resident loan liabilities - Receipts of refundable lease deposits Reclassification of RVIN due on 30 June 2019 to non-interest bearing liabilities Closing balance as at 30 June 2019 Opening balance as at 1 July 2019 space space Cash flows - Proceeds from AU Bonds issuance - Proceeds from RVIN 5 issue - Repayments of RVIN - Receipts from development finance loans - Receipts from resident loan liabilities - Receipts of refundable lease deposits Closing balance as at 30 June 2020	Interest bearing liabilities $'000 Other liabilities $'000 Total $'000 335,727 1,055,917 1,391,644
	(2,022) - (2,022) (30,000) - (30,000) 11,058 - 11,058 - 52,965 52,965 - 15,545 15,545
	(20,964) 68,510 47,546
	(16,320) 16,320 -
	298,443 1,140,747 1,439,190
	298,443 1,140,747 1,439,190
	143,345 - 143,345 18,401 - 18,401 (5,423) (16,320) (21,743) 19,687 - 19,687 - 68,599 68,599 - 31,908 31,908
	176,010 84,187 260,197
	474,453 1,224,934 1,699,387

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

Risk management

This section of the notes discusses the Group’s exposure to various risks and shows how these could affect the Group’s financial position and performance.

20 Critical accounting estimates and judgements

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 below.

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

(a) Critical accounting estimates and assumptions

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

(i) 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 requires the Group to assess impairment of loan assets upon initial recognition of the assets and whether there has been a significant increase in credit risk as at the reporting date compared with the risk as at the date of initial recognition. A provision for expected credit loss is estimated based on the cash shortfalls over the expected life of the assets. 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. The recoverable amounts of cash generating units have been determined based on value-in-use calculations using certain 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.

(v) Right-of-use assets and lease liabilities

The initial values of right-of-use assets and lease liabilities are estimated based on the present value of lease payments. The lease payments are discounted using the Group’s incremental borrowing rate which is determined using a three-month bank bill swap curve plus a margin that reflects the credit risk.

(vi) Insurance liabilities

The estimates, assumptions and judgements arising as a result of the Group's health and life insurance operations are detailed in notes 24 and 33.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

20 Critical accounting estimates and judgements (continued)

(a) Critical accounting estimates and assumptions (continued)

(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) 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 .

(ii) Interest in subsidiaries, associates and joint ventures

The Group has investments in other entities and managed investment schemes where Group entities act as the responsible entity for the schemes. In applying the accounting policy, the Group exercises significant judgements to determine which entities and investment schemes are controlled and, therefore, are required to be consolidated. The Group has consolidated those entities determined as being controlled, with principal subsidiaries listed in note 22. For the interests in managed investment schemes, the Group considers its relationship with the majority of the schemes is that of an agent rather than a principal. Where the relationship is that of an agent, the Group does not have the power to control.

For interests in other entities where the Group does not have control, the Group exercises significant judgements to determine whether it has significant influence over the entity or joint control of an arrangement. Where there is a joint arrangement, the Group further determines whether it is structured as a joint operation or a joint venture. The Group has determined as investments in associates those relationships where significant influence over another entity exists. The Group has concluded that the joint arrangement investments in Acorn Capital Limited and Platypus Asset Management Pty Ltd are joint ventures. The Group does not have power to control these entities.

21 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 Risk and Compliance Committee, which is responsible for developing and monitoring risk management policies.

The Group’s Risk Management Framework (RMF) is based upon a top-down policy approach and a bottom-up process for identifying risks. It sets out the risk management principles, mandatory requirements and minimum standards that are to be applied to risk management practices across the Group. The RMF is consistent with AS/NZS ISO 31000 2009: Risk Management in identifying, assessing, controlling and treating its material risks. This analysis is recorded in business unit Risk Registers, which are fully reviewed annually by the Risk and Compliance Committee. Senior Management are required to keep their business unit Risk Register current and to report regularly, including against any treatment or action plans recorded in the Risk Register. Senior Management are also required to provide regular attestations of compliance with the RMF and other applicable Group policies.

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 Audit Committee, in consultation with the Risk & Compliance Committee, oversees the internal controls, policies and procedures that the Group uses to identify and manage business risks. The Committees are assisted in their roles by Group Audit, Group Risk & Compliance and Finance & Strategy. Group Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, Group Risk & Compliance oversees risk management and compliance and Finance & Strategy measures the quantitative aspects of the controls. The results of these reviews are reported to the Risk and Compliance Committee, the Audit Committee and the Company's board.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

In the second half of the 2020 financial year, the unprecedented economic challenges associated with the COVID-19 pandemic had wide-ranging impacts upon the financial markets. In response to this, the Group continues to strengthen its prudency in managing the risks and improving financial risk management to build resilience to future economic problems. In light of the current volatility in the financial markets, the sensitivity analyses discussed below are based on higher amounts of possible movements in currencies, securities prices and interest rates.

(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: foreign currency risk, price 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 do not expose the Group to market risk as 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 Group operates in Australia and the exposure to foreign exchange risk through its holding in investment funds is not significant.

(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 equity investments, the Group diversifies its portfolio 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.

The table below summarises the impact of changes in securities prices assuming the prices had increased or decreased by 25% (2019: 10%) at the end of the reporting period with all other variables held constant and all the Group's equity instruments moved according to the historical correlation with the security prices.

	Impact on post-tax profit	Impact on post-tax profit	Impact on	equity
	2020	2019	2020	2019
Judgements of reasonably possible movements	$'000	$'000	$'000	$'000
Securities prices +25% (2019: +10%)	8,616	3,685	8,616	3,685
Securities prices -25% (2019: -10%)	(8,616)	(3,685)	(8,616)	(3,685)

The price risk for unlisted securities is immaterial and therefore it was not 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 2020 and 2019, the Group's borrowings at variable rate were denominated in Australian Dollars.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(a) Market risk (continued)

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

risk:
Financial assets Cash and cash equivalents Financial assets at fair value through profit or loss Loans and advances Financial liabilities Australian Unity Bonds (i) Call deposits Loan payable to related entity Interest rate swap, at notional principal amounts Net position	2020 $'000 2019 $'000 661,616 533,043 204,812 150,877 700,719 555,714
	1,567,147 1,239,634
	393,345 250,000 487,067 414,848 5,100 5,100 (322,019) (250,000)
	563,493 419,948
	1,003,654 819,686

(i) Australian Unity Bonds interest rate hedging

Australian Unity Bonds bear interest at the three-month BBSW rate plus a fixed margin. As at 30 June 2020, Series C and Series D Australian Unity Bonds carried a fixed margin of 2.00% and 2.15% respectively which resulting in total interest rates of 2.18% for Series C and 2.33% for Series D. The variable interest component of these bonds was hedged via interest rate swaps for the periods up to the maturity dates of the bonds. The Group has interest rate swap contracts for a total notional amount of $250 million to hedge variable interest rate at 2.2% per annum up to 15 December 2020 and subsequently at a range from 0.95% to 1.13% per annum up to the maturity dates of the bonds. The Group also has an interest rate swap contract for a notional amount of $72 million to hedge variable interest rate at 0.9% per annum for a period up to the maturity date of the bonds. As at 30 June 2019, Series B Australian Unity Bonds of $250 million carried a 2.80% fixed margin resulting in a total interest rate of 4.49% per annum. The variable interest component of the bonds was hedged via an interest rate swap at 2.20% per annum.

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.

As at the end of the reporting period, if interest rates had increased or decreased by 1.00% (2019: 0.50%), with all other variables held constant, the impact would have been as follows:

	Impact on post-tax profit	Impact on post-tax profit	Impact on	equity
	2020	2019	2020	2019
Judgements of reasonably possible movements	$'000	$'000	$'000	$'000
Interest rates +1.00% (2019: +0.50%)	4,175	2,387	4,175	2,387
Interest rates -1.00% (2019: -0.50%)	(4,175)	(2,387)	(4,175)	(2,387)

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(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 'BBB-' 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 to mitigate credit risk.

Under the current credit risk modelling, the Group considers the probability of default upon initial recognition of the asset and whether there has been a significant increase in credit risk on an ongoing basis throughout each reporting period. To assess whether there is a significant increase in credit risk, the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forward-looking information. Regardless of the analysis, a significant increase in credit risk is presumed if a debtor or borrower is more than 30 days past due in making a contractual payment. A default on a financial asset is when the counterparty fails to make contractual payments within the prescribed days of when they fall due as determined by each business segment.

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.

The Group applies the simplified expected credit loss (ECL) approach to estimate the amount of impairment loss as permitted by the standard. Under the simplified ECL approach, the Group estimates the expected lifetime losses to be recognised from initial recognition of the receivables. In estimating the lifetime ECL, the Group conducts an internal credit review that takes into account the historical loss experience, current observable data and reasonable forward-looking information as available, which include the significant changes in the performance and payment status of the debtors and anticipated significant adverse changes in business, financial or economic conditions that may impact the debtors’ ability to meet its obligations. The additional provision during the current financial year was immaterial.

Loans provided by the bank to customers

The Group’s subsidiary, Australian Unity Bank Limited (formerly Big Sky Building Society Limited), provides mortgage and personal loans to customers. The mortgage loans consist of residential housing loans and commercial property loans. The Group is exposed to the risk of loss in relation to these loans due to the failure by customers to meet their obligations in accordance with the agreed terms. To mitigate the risk of potential losses that may arise from any default, the bank holds collateral, when required, as security for the loans. The maximum exposure to credit risk at the end of each reporting period is the carrying amount of loans, net of any provisions for impairment. Loan mortgage insurance is generally taken out for any residential mortgages with an LVR in excess of 80%. 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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(b) Credit risk (continued)

The Group makes an assessment whether there is a significant increase in credit risk at each reporting date. In this assessment, the Group considers historical loss experience and adjusts this with the current observable data and reasonable forecast of future economic condition which includes macroeconomic factors to detect any indication of a significant increase in credit risk. An analysis to estimate the expected credit loss is performed on each portfolio of accounts with shared risk characteristics. As disclosed in the accounting policy note, the Group applies a three-stage approach to distinguish the categories of loans which reflect their credit risk and how the loan loss provision is determined for each of those categories. The addition to credit loss provision during the current financial year was immaterial.

Other loans and advances

The Group has loans to related entities and advances to other parties. To assess whether there is a significant increase in credit risk, the Group considers the financial or economic conditions that may cause a significant change to the borrower’s ability to meet its obligations, the actual or anticipated significant adverse changes in the performance of the borrowers and significant changes in the value of the collateral supporting the obligation.

The loans to related entities are secured by a second mortgage on the properties of the related entities and by a personal guarantee from the directors of the related entities. There is no significant increase in credit risk and these loans are expected to be repaid within a year.

The following table represents the credit quality of financial assets:

At 30 June 2020 Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Other financial assets at amortised cost Loans and advances Other financial assets At 30 June 2019 Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Other financial assets at amortised cost Loans and advances Other financial assets	Neither past due nor impaired Past due but not impaired Past due and impaired Total High grade $'000 Other grade $'000 $'000 $'000 $'000 1,036,703 - - - 1,036,703 480 58,735 40,241 3,229 102,685 684,803 1,399,017 - - 2,083,820 47,012 - - - 47,012 812,354 103,281 10,174 6,435 932,244 - 39,863 - - 39,863
	2,581,352 1,600,896 50,415 9,664 4,242,327
	Neither past due nor impaired Past due but not impaired Past due and impaired Total High grade $'000 Other grade $'000 $'000 $'000 $'000 944,767 - - - 944,767 419 63,600 42,739 5,063 111,821 630,678 1,373,475 - - 2,004,153 56,904 - - - 56,904 609,963 111,230 26,935 7,367 755,495 - 37,769 - - 37,769
	2,242,731 1,586,074 69,674 12,430 3,910,909

The credit risk on the above 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. The maximum credit risk exposure of the financial assets at the end of each reporting period is their carrying amount.

Credit risk further arises in relation to irrevocable loan commitments provided to the customers of the bank. The irrevocable loan commitments are binding contracts to extend credit to customers as long as no violation of any condition in the contracts occurs. The maximum credit risk exposure of the loan commitments is the full amount of irrevocable approved undrawn loans of $18,560,000 (2019: $12,426,000).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(b) Credit risk (continued)

The Group provides financial guarantees to certain parties amounting to $52,823,000 (2019: $36,750,000). These financial guarantees are only provided in exceptional circumstances and are subject to specific board approval. The maximum credit risk exposure of the financial guarantees is the maximum amount that could be paid if the guarantee is called on.

Financial assets held by the benefit funds managed by the Group do not expose the Group to credit risk as any movement in the carrying value of these assets 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 table below analyses the Group's financial liabilities 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 principal and interest cash flows and hence may differ 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.

For the financial guarantee and bank credit commitments as at 30 June 2020 (refer to notes 27 and 28), as the probability and value of the obligation that may be called on is unpredictable; it is not practical to state the timing of any potential payment. However, there is a contractual obligation for the Group to provide the funds when they are called upon by the counterparties.

At 30 June 2020
Trade and other payables
Current tax liabilities
.Interest bearing liabilities
Australian Unity Bonds
Development finance loan
Call deposits
Term deposits
Mortgage offset savings accounts
Retirement Village Investment Notes
Loan payable to related entity
.
Lease liabilities
Benefit fund policy liabilities
Other liabilities
.
Total liabilities

Less than
6 months
6 - 12
months
1 - 5
years
Over 5
years
No
specific
maturity
Total
$'000
$'000
$'000
$'000
$'000
$'000
175,388
-
-
-
-
175,388
-
-
-
-
-
-
78,004
5,066
153,867
217,164
-
454,101
38,622
-
-
-
-
38,622
503,940
-
-
-
-
503,940
310,345
75,791
40,044
-
-
426,180
128,798
-
-
-
-
128,798
20,901
455
21,589
-
-
42,945
54
5,154
-
-
-
5,208

1,080,664
86,466
215,500
217,164
-
1,599,794
9,268
7,875
51,653
107,252
-
176,048
134,031
134,198
-
- 2,022,715
2,290,944
413
-
-
-
1,231,987
1,232,400

1,399,764
228,539
267,153
324,416
3,254,702
5,474,574

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(c) Liquidity risk (continued)

At 30 June 2019 Trade and other payables Current tax liabilities .Interest bearing liabilities Australian Unity Bonds Development finance loan Call deposits Term deposits Mortgage offset savings accounts Retirement Village Investment Notes Loan payable to related entity Benefit fund policy liabilities Other liabilities . Total liabilities	Less than 6 months $'000 6 - 12 months $'000 1 - 5 years $'000 Over 5 years $'000 No specific maturity $'000 Total $'000 190,409 - - - - 190,409 - 19,475 - - - 19,475 6,247 6,247 255,726 - - 268,220 559 559 18,704 - - 19,822 419,733 - - - - 419,733 205,881 70,698 18,542 - - 295,121 95,494 - - - - 95,494 22,471 559 20,446 - - 43,476 82 5,182 - - - 5,264
	750,467 83,245 313,418 - - 1,147,130 115,346 248,930 - - 1,912,541 2,276,817 486 2,120 1,621 - 1,131,051 1,135,278
	1,056,708 353,770 315,039 - 3,043,592 4,769,109

(d) 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 2020 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, and the economic, operational and capital needs of the business.

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

(e) 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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

21 Financial risk management (continued)

(e) Insurance risk (continued)

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 & Compliance 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 Australian Prudential Regulation Authority (APRA).

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 Special Account 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.

(f) 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 & Compliance 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 & Compliance 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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

Group structure

This section provides information that will help users understand how the Group structure affects the financial position and performance of the Group as a whole. In particular, there is information about:

principal subsidiaries included in the consolidated financial statements,
parent entity, health insurance and bank financial information, and
reconciliation of profit attributable to members of Australian Unity Limited.

22 Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the controlled entities. The table below lists the principal controlled entities. All these entities are wholly-owned by the Group and are incorporated in Australia.

Wholly-owned by the Parent entity

Wholly-owned by the controlled entities

Australian Unity Advice Pty Ltd
Australian Unity Bank Limited (formerly Big Sky Building
Society Limited)
Australian Unity Finance Limited
Australian Unity Funds Management Limited
Australian Unity Group Services Pty Ltd
Australian Unity Health Care Pty Ltd
Australian Unity Health Limited
Australian Unity Personal Financial Services Limited
Australian Unity Property Limited
Australian Unity Retirement Living Holdings Pty Ltd
Australian Unity Retirement Living Investments Limited
Australian Unity Retirement Living Services Limited
Australian Unity Strategic Holdings Pty Limited
Australian Unity Strategic Investments Pty Ltd
Herston Company Pty Ltd
Lifeplan Australia Friendly Society Limited
Remedy Healthcare Group Pty Ltd

Albert Road Development Manager Pty Ltd
Australian Unity Aged Care Investments Pty Ltd
Australian Unity Aged Care Trust #1
Australian Unity Aged Care Trust #2
Australian Unity Aged Care Trust #4
Australian Unity Aged Care Trust #5
Australian Unity Albert Road Retirement Village Land Trust
Australian Unity Aurora Operations Trust
Australian Unity Campbell Place Aged Care Land Trust
Australian Unity Campbell Place Retirement Village Land Trust
Australian Unity Care Services Pty Ltd
Australian Unity Carlton Aged Care Trust
Australian Unity Carlton Retirement Trust #1
Australian Unity Carlton Retirement Trust #2
Australian Unity Herston Quarter Aged Care Land Holdings Pty Ltd
Australian Unity Herston Quarter Retirement Community Land Holdings Pty Ltd
Australian Unity Home Care Pty Ltd
Australian Unity Home Care #2 Pty Ltd
Australian Unity Home Care Service Pty Ltd
Australian Unity Investment Trust
Australian Unity Mornington Development Trust
Australian Unity Peninsula Grange RACF Land Trust
Australian Unity Retirement Development Management Pty Ltd
Australian Unity Retirement Living Management Pty Ltd
Australian Unity Retirement Village Trust #1
Australian Unity Retirement Village Trust #2
Australian Unity Retirement Village Trust #5
Australian Unity Sienna Grange Aged Care Land Trust
Australian Unity Sienna Grange Development Trust
Australian Unity Trustees Limited
Campbell Place Development Manager Pty Ltd
Herston Development Company Pty Ltd
Herston Quarter Aged Care Developer Pty Ltd
Herston Quarter Retirement Community Developer Pty Ltd
Lane Cove Holding Trust
Rathdowne Place Residences Project Manager Pty Ltd
Retirement Management Services Pty Ltd
The Australian Unity Victoria Grange Development Trust
The Governor's Retirement Resort Pty Ltd
Victoria Grange Sub Trust
Blank

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

23 Parent entity financial information

(a) Summary financial information

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

Balance sheet Cash and cash equivalents Other current assets Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Members' balances Reserves Retained earnings Total equity Profit for the year Total comprehensive income for the year	2020 $'000 2019 $'000 217,187 151,757 156,990 30,019
	374,177 181,776 851,332 901,662
	1,225,509 1,083,438
	125,204 69,831 353,865 280,510
	479,069 350,341
	255,625 255,625 (8,546) (3,195) 499,361 480,667
	746,440 733,097
	18,694 30,253
	18,694 30,253

(b) Contingent liabilities of the Parent entity

The Parent entity did not have any contingent liabilities as at 30 June 2020 and 2019.

(c) Commitments entered into by the Parent entity

The Parent entity did not have any commitments as at 30 June 2020 and 2019.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

24 Health insurance financial information

The disclosures below relate only to the continuing operations of the health insurance business of a controlled entity.

(a) Details of income and expenses

Revenue Premium revenue space Expenses Claims expense Risk equalisation State levies Net claims expense Gross underwriting result Management expenses Commission Employee benefit expense Marketing Technology Other management expenses Total management expenses Net underwriting result Investment income Finance costs Profit before income tax Income tax expense Profit after income tax (b) Net Risk Equalisation Special Account (RESA) receivable *Movement in net RESA receivable* Balance at the beginning of the financial year Net RESA raised during the year Net RESA received during the year Balance at the end of the financial year	2020 $'000 2019 $'000 673,427 683,456 (626,211) (612,299) 74,259 63,937 (3,439) (3,576)
	(555,391) (551,938)
	118,036 131,518
	(13,078) (14,915) (26,047) (27,126) (3,712) (4,825) (10,213) (8,713) (21,921) (18,118)
	(74,971) (73,697)
	43,065 57,821 2,183 12,990 (1,904) (1,451)
	43,344 69,360 (12,605) (21,452)
	30,739 47,908
	2020 $'000 2019 $'000 16,535 14,848 74,259 63,937 (74,559) (62,250)
	16,235 16,535

(b) Net Risk Equalisation Special Account (RESA) receivable

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

24 Health insurance financial information (continued)

(c) Claims provision (current liabilities)

(c) Claims provision (current liabilities)
Outstanding claims - central estimate including risk equalisation Risk margin Claims handling costs Outstanding claims provision Deferred claims - central estimate including risk equalisation Risk margin Claims handling costs Deferred claims provision Total claims provision	2020 $'000 2019 $'000 46,117 57,438 3,922 4,546 1,400 1,600
	51,439 63,584
	32,002 - 4,603 - 1,008 -
	37,613 -
	89,052 63,584

Movements in the claims provision are as follows:

Balance at the beginning of the financial year Claims incurred during the year Claims paid during the year Deferred claims Movement in other components Balance at the end of the financial year	2020 $'000 2019 $'000 63,584 56,021 581,324 615,964 (600,743) (604,736) 37,613 - 7,274 (3,665)
	89,052 63,584

(d) Outstanding claims

Provision is made for outstanding claims at the end of the financial year, being claims for services incurred but not yet reported or reported but not yet processed, the economic cost of which will arise in a later period. Claims processed but not yet paid are included as trade payables (and not in the outstanding claims provision). Claims provisions are determined using actuarial estimation methods and amounts paid or payable are recognised as part of expenses in the profit or loss.

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 outstanding claims estimates are based on the hospital and ancillary valuation classes. Estimated outstanding claims for both hospital and ancillary classes are calculated using a chain ladder method. For hospital claims incurred in or prior to the service month of May 2020, adjustments are then applied to reflect changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims, including changes in the Group’s processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods. The critical assumption in determining the outstanding claims liability is the extent to which claim incidence and development patterns are consistent with past experience.

The risk margin of 8.7% (2019: 7.7%) combined with the central estimate, is estimated to equate to a probability of adequacy of at least 95% (2019: 95%). The risk margin has been based on an analysis of the Group's past experience. This analysis modelled the volatility of past payments that is not explained by the model adopted to determine the central estimate and the results are assumed to be indicative of future volatility.

The weighted average expected term to settlement of claims from the balance date is estimated to be 1.8 months (2019: 1.7 months). The estimated costs of claims include allowances for Risk Equalisation Special Account (RESA) adjustments of $6.91 million (2019: $7.80 million).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

24 Health insurance financial information (continued)

(d) Outstanding claims (continued)

Impact of changes in key variables

The central estimate is based on statistical analysis of historical experience which assumes an underlying pattern of claims development and payment. A 10% increase/decrease in the central estimate would result in a $3.23 million decrease/increase to profit after tax and equity (2019: $4.02 million). A 10% movement in other key outstanding claims variables, including risk margin and claims handling costs, would result in an insignificant decrease/increase to profit after tax and equity.

(e) Deferred claims

In the current year private health insurers experienced unusually low claims volumes in the period from March 2020 to June 2020 inclusive (the COVID-19 period) due to restrictions imposed on elective surgery and access to ancillary benefits in response to the COVID-19 pandemic. There is a general expectation that as these restrictions are lifted there will be a catch up of procedures and benefits claimed in the future. As a result, a specific deferred claims liability has been recorded representing management’s estimate of claims that did not occur during the COVID-19 period.

The deferred claims liability as at 30 June 2020 has been estimated on the basis of actual claims versus expected claims during the COVID-19 period when health services were restricted and an estimate of the procedures and services deferred into the next financial period. The expected claims experience is based on the most recent claims forecast prior to the COVID-19 period. The Group will continue to reassess the extent of any deferred claims as a result of any ongoing or future restrictions.

The key judgements and inputs into this liability estimate include the following factors which were not applicable in the prior year:

The most recent claims forecast prior to the COVID-19 period.
The expected rate at which deferred insured surgeries and other procedures will be caught up, which is based on expert actuarial and clinical advice. The best estimate claims deferral rate is 82% for hospital claims and 73% for ancillary claims.
This liability only includes insured surgeries and other health services that are ultimately expected to be performed for the policyholders.
The risk margin of 13.9% is estimated to equate to a probability of adequacy of at least 95% and was derived based on the historical outstanding claims uncertainty and information from APRA.

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 estimated costs of claims include allowances for Risk Equalisation Special Account (RESA) adjustments of $3.99 million.

Impact of changes in key variables

The impacts of changes in key variables on the estimate of the deferred claims liability are as follows, noting that these were not applicable in the prior year:

A 2% increase/decrease in the most recent claims forecast prior to the COVID-19 period would result in a $1.89 million decrease/increase to profit after tax and equity.
A 10 percentage point increase/decrease in the estimated deferral rate for hospital deferred claims would result in a $2.42 million decrease/increase to profit after tax and equity.
A 10 percentage point increase/decrease in the estimated deferral rate for ancillary deferred claims would result in a $0.90 million decrease/increase to profit after tax and equity.
A 5 percentage point increase/decrease in the deferred claims liability risk margin would result in a $1.16 million decrease/increase to profit after tax and equity.

(f) 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 2020 (2019: $nil) at a 75% (2019: 75%) and below probability of adequacy. The lower level of probability of adequacy used in the liability adequacy test compared to that used in the outstanding claims liability calculation is due to the Group accepting a lower level of certainty given that actions can be taken to reduce the impact of an adverse event should it occur in future periods.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

25 Bank financial information

The disclosures below relate only to the bank activities of the wholly owned subsidiary, Australian Unity Bank Limited (formerly Big Sky Building Society Limited) as an individual entity.

(a) Financial performance summary

(a) Financial performance summary
Interest income: Effective interest Other Interest expense Net interest income Other banking income Total income Operating expenses Profit before income tax Income tax expense Profit after income tax	2020 $'000 2019 $'000 28,179 28,196 2,950 3,254
	31,129 31,450 (11,680) (12,774)
	19,449 18,676 2,547 2,779
	21,996 21,455 (19,329) (17,853)
	2,667 3,602 (810) (1,090)
	1,857 2,512

(b) Financial position summary

Cash and cash equivalents Financial assets at fair value through profit or loss Other financial assets at amortised cost Loans and advances Other assets Total assets Interest bearing liabilities Other liabilities Total liabilities Net assets (Equity) (c) Capital adequacy Reserves and retained earnings Less regulatory prescribed adjustments Regulatory capital base Risk weighted exposures Capital adequacy ratio	2020 $'000 2019 $'000 31,080 11,439 143,669 78,489 39,246 52,075 911,793 736,465 8,075 7,554
	1,133,863 886,022
	1,055,989 811,160 2,869 9,714
	1,058,858 820,874
	75,005 65,148
	2020 $'000 2019 $'000 80,888 76,447 (5,496) (5,559)
	75,392 70,888
	522,574 441,230
	14.43% 16.07%

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

26 Reconciliation of profit attributable to members of Australian Unity Limited

	Attributable to
	members of	Attributable to
	Australian Unity	benefit fund	Consolidated
	Limited	policyholders	Profit or Loss
	$'000	$'000	$'000
For the year ended 30 June 2020
Revenue and other income	1,365,587	-	1,365,587
Direct life insurance premium revenue	-	364	364
Outwards reinsurance expense	-	(209)	(209)
Deposits received - investment contracts with DPF*	-	34,099	34,099
Investment income	-	10,666	10,666
Other	-	2,155	2,155
Total revenue and other income	1,365,587	47,075	1,412,662
Life insurance claims expense	-	(949)	(949)
Benefits and withdrawals paid - investment contracts with DPF*	-	(77,096)	(77,096)
Movement in policyholder liabilities	-	46,234	46,234
Expenses, excluding finance costs	(1,324,881)	(25,371)	(1,350,252)
Total expenses, excluding finance costs	(1,324,881)	(57,182)	(1,382,063)
Finance costs	(41,105)	-	(41,105)
Share of net profits of joint ventures	906	-	906
Profit/(loss) before income tax	507	(10,107)	(9,600)
.
Income tax benefit	14,457	10,107	24,564
Profit after income tax	14,964	-	14,964
For the year ended 30 June 2019
Revenue and other income	1,374,129	-	1,374,129
Direct life insurance premium revenue	-	471	471
Outwards reinsurance expense	-	(213)	(213)
Deposits received - investment contracts with DPF*	-	58,094	58,094
Investment income	-	176,252	176,252
Other	-	(63)	(63)
Total revenue and other income	1,374,129	234,541	1,608,670
Life insurance claims expense	-	(1,061)	(1,061)
Benefits and withdrawals paid - investment contracts with DPF*	-	(108,145)	(108,145)
Movement in policyholder liabilities	-	(63,660)	(63,660)
Expenses, excluding finance costs	(1,296,229)	(24,563)	(1,320,792)
Total expenses, excluding finance costs	(1,296,229)	(197,429)	(1,493,658)
Finance costs	(17,739)	-	(17,739)
Share of net losses of joint ventures	(44)	-	(44)
Profit/(loss) before income tax	60,117	37,112	97,229
.
Income tax expense	(7,116)	(37,112)	(44,228)
Profit after income tax	53,001	-	53,001

*DPF = Discretionary Participating Feature

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

Unrecognised items

This section of the notes provides information about items that are not recognised in the financial statements as they do not satisfy the recognition criteria.

27 Commitments

(a) Capital commitments

Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:

Investment property Within one year Later than one year but not later than five years Total capital commitments	2020 $'000 2019 $'000 74,717 30,717 64,953 38,590
	139,670 69,307

In addition, the Group is engaged in a social infrastructure development project in Brisbane, Queensland, being the Herston Quarter Redevelopment Project. Under the overarching Development Agreement between Herston Development Company Pty Ltd (HDC - a wholly-owned subsidiary of the Group) and the Metro North Hospital and Health Service, HDC has committed to deliver various contractual milestones for each Stage of the Project, including but not limited to site services isolation/relocation and rehabilitation of Stage 5 of the Project (Heritage Buildings). These milestones are anticipated to be completed within the next two years with capital expenditure in the range of $50 million - $60 million.

(b) Lease commitments: where the Group 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:

reporting period but not recognised as liabilities are payable as follows:
Within one year Later than one year but not later than five years Later than five years	2020 $'000 2019 $'000 - 21,877 - 60,379 - 119,478
	- 201,734

From 1 July 2019, the Group has adopted AASB 16 Leases and recognised right-of-use assets and the respective lease liabilities from operating leases. Operating leases with a period of less than 12 months or a value of less than $10,000 per item are expensed. Disclosures relating to the adoption of AASB 16 are set out in notes 14 and 36.

As at 30 June 2019, lease commitments comprise commitments in relation to operating leases of assets including property, motor vehicles, computer equipment and office equipment, with average outstanding lease term of 10.98 years.

(c) 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.

Irrevocable approved but undrawn loans Revocable loans with balances available for redraw Revocable undrawn lines of credit, credit cards and overdrafts	2020 $'000 2019 $'000 18,560 12,426 45,612 38,548 19,661 19,992
	83,833 70,966

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

28 Contingencies

Contingent liabilities

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. The Group also has contingent liabilities arising in the ordinary course of business, including costs which might arise from a customer remediation program, in relation to which any unprovided liabilities cannot yet be reliably estimated.

Guarantees

The Group has entered into bank guarantee arrangements totalling $52,823,000 (2019: $36,750,000) as part of its normal operations and under business transfer arrangements in order to secure the Group’s performance under contracts. The bank guarantees only become payable upon the non-performance of the Group. Partially offsetting this, the Group is the beneficiary of insurance bonds/guarantees totalling $1,718,000 (2019: $7,618,000).

The Group had no other contingent assets or liabilities at 30 June 2020.

29 Events occurring after the reporting period

Other information

This section of the notes includes other information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the financial statements.

30 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 22.

(c) Key management personnel

Disclosures relating to key management personnel are set out in note 31.

(d) Related party transactions

Transactions between the Group and related parties for the financial years ended 30 June 2020 and 2019 were as follows:

Property development management fees charged to related entities, $2,496,921 (2019: $1,982,803).
Fees charged by related entities for the construction of aged care and retirement village properties, $69,106,498 (2019: $12,736,893).
Dividends received from joint ventures, $1,138,809 (2019: $766,720).

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

30 Related party transactions (continued)

(d) Related party transactions (continued)

Investment management fees charged by joint ventures, $825,250 (2019: $1,157,751).
Commission, director fees and other costs charged by/(charged to) joint ventures, $349,376 (2019: $1,071,151).
Performance fees charged by joint ventures, $2,716,627 (2019: $231,654).
Donations to a related charity organisation, $nil (2019 $618,573).
Investment income from related entities, $4,607,669 (2019: $9,241,901).
Capital returns from joint venture entities, $nil (2019 $7,436,000).

All transactions with related entities are entered into on normal commercial terms and conditions and at market rates as applicable.

(e) Balances with related parties

The following balances with related entities which are not part of the consolidated entity were outstanding at the end of each reporting period:

Assets Cash and cash equivalents Trade and other receivables Financial assets at fair value through profit or loss Liabilities Trade and other payables Loans payable to related entities	2020 $ 2019 $ 722,637,737 650,808,452 4,119,699 4,233,766 553,931,228 542,571,554
	1,280,688,664 1,197,613,772
	2,784,543 743,688 42,745,747 23,059,231
	45,530,290 23,802,919

31 Key management personnel disclosures

(a) Key management personnel compensation

Short term employee benefits Post employment benefits Long term benefits	2020 $ 2019 $ 5,800,141 7,822,833 225,167 222,874 621,195 766,835
	6,646,503 8,812,542

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

(b) Other transactions with key management personnel

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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

32 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:

(a) Audit and other assurance services

(a) Audit and other assurance services
PricewaterhouseCoopers Australia Audit and review of financial statements Audit of regulatory returns Total remuneration for audit and other assurance services (b) Taxation and other services PricewaterhouseCoopers Australia Tax compliance services Tax consulting services Other services Total remuneration for taxation and other services Total auditors' remuneration	2020 $ 2019 $ 1,532,530 1,477,720 393,379 294,652
	1,925,909 1,772,372
	2020 $ 2019 $ 168,597 167,712 50,000 52,500 224,690 30,400
	443,287 250,612
	2,369,196 2,022,984

(b) Taxation and other services

It is Australian Unity Limited's policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties only where PricewaterhouseCoopers' 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.

33 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
Life investment contract liabilities Life insurance contract liabilities - guaranteed element Life insurance contract liabilities - other Unvested policyholder liabilities Total policy liabilities Expected to be realised within 12 months Expected to be realised in more than 12 months	2020 $'000 2019 $'000 1,303,943 1,259,311 889,032 912,191 578 660 97,391 104,655
	2,290,944 2,276,817
	268,229 364,276 2,022,715 1,912,541
	2,290,944 2,276,817

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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020

(continued)

33 Benefit fund policy liabilities (continued)

(b) Reconciliation of changes in policy liabilities

*Life investment contract liabilities* Balance at the beginning of the financial year Increase/(decrease) recognised in the profit or loss Premiums recognised as a change in contract liabilities Claims recognised as a change in contract liabilities Balance at the end of the financial year *Life insurance contract liabilities* Balance at the beginning of the financial year Increase/(decrease) recognised in the profit or loss Balance at the end of the financial year *Unvested policyholder liabilities* Balance at the beginning of the financial year Decrease recognised in the profit or loss Balance at the end of the financial year Net policy liabilities at the end of the financial year (c) Analysis of policy liability revenue and expenses Revenue and other income Total life insurance contract premium revenue Reinsurance expense Life insurance contract claims revenue Interest income Distribution income Realised gains Unrealised gains/(losses) Other income Total revenue from life insurance business Expenses Total life insurance and participating contract claims expense Life insurance contract claims expense Management fees Other expenses Movement in life insurance contract liabilities Movement in unvested policyholder liabilities Movement in life investment contract liabilities Total expenses from life insurance business	2020 $'000 2019 $'000 1,259,311 1,179,421 (15,729) 49,097 250,543 285,863 (190,182) (255,070)
	1,303,943 1,259,311
	912,851 902,663 (23,241) 10,188
	889,610 912,851
	104,655 100,280 (7,264) 4,375
	97,391 104,655
	2,290,944 2,276,817
	2020 $'000 2019 $'000 34,463 58,565 (209) (213)
	34,254 58,352 7,161 6,661 74,497 69,643 6,660 3,357 (77,652) 96,591 2,155 (63)
	47,075 234,541
	78,045 109,206
	78,045 109,206 24,847 23,970 524 593 (23,241) 10,188 (7,264) 4,375 (15,729) 49,097
	57,182 197,429

(c) Analysis of policy liability revenue and expenses

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

33 Benefit fund policy liabilities (continued)

(d) Actuarial methods and assumptions

The effective date of the actuarial financial condition report on policy liabilities and solvency reserves is 30 June 2020. The actuarial report was prepared by the appointed actuary Mr Sean McGing FIA, FIAA, FAICD, Representative 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 (Life insurance contracts)

The defined benefit funds comprise the following:

Personal Risk Insurance 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 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. premiums, 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 2020 were as follows:

	Mean				Discount
	Guaranteed				Rate Net of	Mortality
Fund Name	Liability Term (Yrs)	Discount Rate 1	Fees (% of assets)	Investment Tax Rate	Tax and Fees	Basis (% of ALT2015-17) 2
Funeral Fund	16.0	1.70%	0.86%	0%	0.84%	70%
Life Assurance Benefit Fund	9.5	0.91%	2.25%	30%	-0.94%	75%
Central Sick and Funeral Fund	11.0	1.02%	2.00%	0%	-0.98%	60%
Funeral and Ancillary Benefit Fund	14.5	1.27%	2.00%	0%	-0.73%	100%
Travel Protection Fund	14.5	1.27%	2.00%	30%	-0.51%	100%
Whole of Life Funeral Fund	12.0	1.09%	1.50%	0%	-0.41%	100%

The key assumptions for the policy liability calculations for these defined benefit funds at 30 June 2019 were as follows:

	Mean				Discount
	Guaranteed				Rate Net of	Mortality Basis
Fund Name	Liability Term (Yrs)	Discount Rate 1	Fees (% of assets)	Investment Tax Rate	Tax and Fees	(% of ALT2015-17) 2
Funeral Fund	16.0	1.90%	0.86%	0%	1.04%	70%
Life Assurance Benefit Fund	9.5	1.36%	2.25%	30%	-0.62%	75%
Central Sick and Funeral Fund	11.0	1.42%	2.00%	0%	-0.58%	60%
Funeral and Ancillary Benefit Fund	15.0	1.59%	2.00%	0%	-0.41%	100%
Travel Protection Fund	14.5	1.57%	2.00%	30%	-0.43%	100%
Whole of Life Funeral Fund	12.0	1.46%	1.50%	0%	-0.04%	100%

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

33 Benefit fund policy liabilities (continued)

(d) Actuarial methods and assumptions (continued)

Notes:

1 A single zero coupon Commonwealth Government Security rate corresponding to the mean guaranteed liability term has been used to discount cash flows, with the exception of the Funeral Fund.

2 ALT 2015-17 refers to Australian Life Tables (Male and Female) 2015-2017.

The mortality 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 Benefit Fund, the proportion married varies by age as set out in the relevant valuation report;
For the Funeral and Ancillary Benefit Fund, where benefits are indexed to inflation (as required by the benefit fund rules) the future inflation assumption is 2.5 percent (2019: 2.5 percent) per annum; and
Also for the Funeral and Ancillary Benefit Fund, an assumption for reinstatement of previously lapsed members has been adopted, based on past experience.
For the Travel Protection Fund, the assumption is that 5.0 percent (2019: 4.0 percent) of deaths will result in claims and the average claim amount is $900 (2019: $900) inflating at 2.5 percent (2019: 2.5 percent) per annum.
In addition, policy liabilities are held in the management fund in relation to non-contactable members of the Assurance Benefit Fund and the Funeral Fund for which insufficient data exists to accurately calculate a member level liability.

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% of the annual premium. For the Accidental Death Benefits Fund the policy liability is equal to 50% 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 (Life investment contracts with DPF)

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 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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

33 Benefit fund policy liabilities (continued)

(d) Actuarial methods and assumptions (continued)

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 death benefits was determined using the projection method in which estimates of future death benefit payouts are projected into the future. The liability is then calculated as the net present value of these projected death payouts. Allowance has been made for tax and fees where appropriate.

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 but using a yield curve rather than a risk-free rate for the average liability duration.

The key assumptions for the policy liability calculations for the funeral funds at 30 June 2020 were as follows:

	Mean				Discount
	Guaranteed				Rate Net of	Mortality
Fund Name	Liability Term (Yrs)	Discount Rate 1	Fees (% of assets)	Investment Tax Rate	Tax and Fees	Basis (% of ALT2015-17) 2
Capital Guaranteed Funeral Fund (Non
Taxable)	8.5	0%	3.00%	0%	0%	105%
Capital Guaranteed Funeral Fund (Taxable)	10.0	0%	3.00%	30%	0%	110%
Capital Secured Funeral Fund	7.0	0%	3.00%	0%	0%	120%
Funeral Bond Fund	6.0	0%	1.50%	0%	0%	100%
Prepaid Funeral Fund	7.0	0%	1.50%	0%	0%	110%
Funeral Fund No 2 - Non Taxable	7.5	0%	2.50%	0%	0%	115%
Funeral Fund No 2 - Taxable	9.0	0%	2.50%	30%	0%	115%
Tax Minimiser Funeral Fund	9.5	0%	1.50%	30%	0%	130%

The key assumptions for the policy liability calculations for the funeral funds at 30 June 2019 were as follows:

	Mean				Discount
	Guaranteed				Rate Net of	Mortality Basis
Fund Name	Liability Term (Yrs)	Discount Rate 1	Fees (% of assets)	Investment Tax Rate	Tax and Fees	(% of ALT2015-17) 2
Capital Guaranteed Funeral Fund (Non
Taxable)	8.5	0%	3.00%	0%	0%	105%
Capital Guaranteed Funeral Fund (Taxable)	10.0	0%	3.00%	30%	0%	110%
Capital Secured Funeral Fund	7.0	0%	3.00%	0%	0%	120%
Funeral Bond Fund	6.5	0%	1.50%	0%	0%	100%
Prepaid Funeral Fund	7.0	0%	1.50%	0%	0%	110%
Funeral Fund No 2 - Non Taxable	7.5	0%	2.50%	0%	0%	115%
Funeral Fund No 2 - Taxable	9.0	0%	2.50%	30%	0%	115%
Tax Minimiser Funeral Fund	10.0	0%	1.50%	30%	0%	130%

Notes

1 The zero coupon Commonwealth Government Security yield curve plus illiquidity premium have been used to discount cash flows. 2 ALT2015-17 refers to Australian Life Tables (Male and Female) 2015-2017.

The assumptions were derived by analysis of the recent past experience of the funds, the experience of similar funds and actuarial judgment. The fee assumptions were based on the allowable fee transfers to the management fund in the fund rules.

For the Capital Guaranteed Funeral Fund (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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

33 Benefit fund policy liabilities (continued)

(d) Actuarial methods and assumptions (continued)

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 each 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 for the Personal Risk Insurance Fund (PRIF). 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 2020. 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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

33 Benefit fund policy liabilities (continued)

(e) Nature of risks arising from insurance contracts (continued)

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 PRIF, if experience varies from expectation, then the member liability and the unallocated benefit funds will change by equal and opposite amounts. As the management fund has sufficient unallocated benefit funds to cover fluctuations in experience, the equity will not change. Due to the simplifications employed in the valuation of the PRIF, 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 relevant regulatory requirements, which are governed by the Life Insurance Act 1995 . This includes satisfying solvency requirements, which requires statutory reserves to be held specifically to address interest rate risk to the extent that assets are not matched against liabilities.

Credit risk

Credit risk arises in relation to investments in financial assets. Credit risk is monitored by exposure limits to counter parties. These limits are determined by reference to third party credit ratings. The Group does not have any significant concentrations of credit risk. The maximum exposure to credit risk at balance date in relation to financial assets is the carrying amount of those assets as indicated in the balance sheet.

(f) Solvency and capital adequacy information

The Group is required by APRA to hold a prudential capital requirement over and above their policy liabilities, as laid down by the Life Insurance Act 1995 and the accompanying Prudential Standards. These standards are Prudential Standards LPS110, LPS112, LPS114, LPS115, LPS117 and LPS118. These standards have been met for all benefit funds as at 30 June 2020 and 2019.

For each benefit fund subject to a solvency requirement, the figures in note 34 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 34 details the income statement and balance sheet for the individual benefit funds aggregated within these financial statements.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

34 Disaggregated information - Benefit funds

(a) Summarised information by investment type

30 June 2020 Non-investment linked benefit funds - Life insurance contracts Investment linked benefit funds - Life investment contracts with DPF Investment contracts without DPF Total 30 June 2019 Non-investment linked benefit funds - Life insurance contracts Investment linked benefit funds - Life investment contracts with DPF Investment contracts without DPF Total	Revenue Expenses Profit/(loss) for the year Net Premium/ Deposits $'000 Investment $'000 Other $'000 Claims $'000 Other $'000 Before Tax $'000 After Tax $'000 155 2,671 24 949 1,810 91 - 34,099 28,297 2,190 77,096 (16,675) 4,165 - - (20,302) (59) - (5,998) (14,363) -
	34,254 10,666 2,155 78,045 (20,863) (10,107) -
	258 7,886 - 1,061 6,628 455 - 58,094 91,714 - 108,145 23,435 18,228 - - 76,652 (63) - 58,160 18,429 -
	58,352 176,252 (63) 109,206 88,223 37,112 -

*DPF = Discretionary Participating Features

30 June 2020 Non-investment linked benefit funds - Life insurance contracts Investment linked benefit funds - Life investment contracts with DPF Investment contracts without DPF Total 30 June 2019 Non-investment linked benefit funds - Life insurance contracts Investment linked benefit funds - Life investment contracts with DPF Investment contracts without DPF Total	Assets Liabilities Equity Investments $'000 Other $'000 Life Insurance $'000 Other $'000 $'000 55,690 545 55,269 966 - 922,439 30,895 931,732 21,602 - 1,252,818 48,812 1,303,943 (2,313) -
	2,230,947 80,252 2,290,944 20,255 -
	54,439 681 54,338 782 - 947,742 32,570 963,168 17,144 - 1,239,858 37,818 1,259,311 18,365 -
	2,242,039 71,069 2,276,817 36,291 -

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.

*DPF = Discretionary Participating Features

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

34 Disaggregated information - Benefit funds (continued)

(b) Non-investment linked benefit funds - Life insurance contracts

30 June 2020 Central sick and funeral fund Funeral and ancillary benefits fund Funeral fund Life assurance benefit fund Travel protection funeral Other Total 30 June 2019 Central sick and funeral fund Funeral and ancillary benefits fund Funeral fund Life assurance benefit fund Travel protection funeral Other Total 30 June 2020 Central sick and funeral fund Funeral and ancillary benefits fund Funeral fund Life assurance benefit fund Travel protection fund Other Total 30 June 2019 Central sick and funeral fund Funeral and ancillary benefits fund Funeral fund Life assurance benefit fund Travel protection fund Other Total	Revenue Expenses Profit/(loss) for the year Net premium $'000 Investment $'000 Other $'000 Claims $'000 Other $'000 Before tax $'000 After tax $'000 - 339 - 93 246 - - 4 862 - 499 367 - - - 776 - 107 669 - - - 615 - 221 289 105 - 84 36 - 20 77 23 - 67 43 24 9 162 (37) -
	155 2,671 24 949 1,810 91 -
	- 892 - 109 783 - - 4 2,655 - 500 2,160 (1) - - 2,481 - 167 2,314 - - - 1,646 - 214 1,013 419 - 92 94 - 1 140 45 - 162 118 - 70 218 (8) -
	258 7,886 - 1,061 6,628 455 -
	Assets Liabilities Equity Capital in excess of prescribed capital amount Capital adequacy multiple Investments $'000 Other $'000 Life insurance $'000 Other $'000 $'000 $'000 7,480 - 7,466 14 - 382 3 15,274 220 15,470 24 - 638 2 16,527 74 16,599 2 - 469 2 13,726 125 13,190 661 - 279 2 1,415 10 1,200 225 - 24 1 1,268 116 1,344 40 - 365 - 55,690 545 55,269 966 - 2,157 10 7,359 3 7,351 11 - 507 3 14,957 405 15,339 23 - 360 2 15,839 92 15,930 1 - 230 1 13,659 5 13,166 498 - 455 6 1,340 6 1,146 200 - 200 1 1,285 170 1,406 49 - 450 - 54,439 681 54,338 782 - 2,202 13

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

34 Disaggregated information - Benefit funds (continued)

(c) Investment linked benefit funds - Life investment contracts with discretionary participating features (DPF)

30 June 2020 Capital guaranteed bond Capital guaranteed funeral bond (taxable) Funeral fund no 2 NextGen investments capital guaranteed fund Tax minimiser funeral fund Other Total 30 June 2019 Capital guaranteed bond Capital guaranteed funeral bond (taxable) Funeral fund no 2 NextGen investments capital guaranteed fund Tax minimiser funeral fund Other Total	Revenue Expenses Profit/(loss) for the year Deposits $'000 Investment $'000 Other $'000 Claims $'000 Other $'000 Before Tax $'000 After Tax $'000 125 802 - 4,894 (3,901) (66) - 411 2,442 - 3,342 (739) 250 - 946 6,447 1,406 13,438 (5,226) 587 - 3,694 317 - 4,910 (891) (8) - 26,917 13,978 - 22,421 15,544 2,930 - 2,006 4,311 784 28,091 (21,462) 472 -
	34,099 28,297 2,190 77,096 (16,675) 4,165 -
	108 1,749 - 6,794 (5,134) 197 - 535 7,965 - 2,938 3,707 1,855 - 1,046 28,194 - 14,311 10,750 4,179 - 23,881 928 - 29,653 (5,014) 170 - 29,689 40,090 - 21,846 37,018 10,915 - 2,835 12,788 - 32,603 (17,892) 912 -
	58,094 91,714 - 108,145 23,435 18,228 -

30 June 2020 Capital guaranteed bond Capital guaranteed funeral bond (taxable) Funeral fund no 2 NextGen investments capital guaranteed fund Tax minimiser funeral fund Other Total 30 June 2019 Capital guaranteed bond Capital guaranteed funeral bond (taxable) Funeral fund no 2 NextGen investments capital guaranteed fund Tax minimiser funeral fund Other Total	Assets Liabilities Equity Investments $'000 Other $'000 Life insurance $'000 Other $'000 $'000 61,794 65 61,806 53 - 58,958 4,328 61,047 2,239 - 193,065 9,884 198,958 3,991 - 49,356 157 49,472 41 - 348,097 14,373 348,582 13,888 - 211,169 2,088 211,867 1,390 -
	922,439 30,895 931,732 21,602 -
	66,957 - 66,731 226 - 61,418 4,095 63,329 2,184 - 201,478 11,670 208,609 4,539 - 50,769 47 50,705 111 - 331,908 14,525 337,218 9,215 - 235,212 2,233 236,576 869 -
	947,742 32,570 963,168 17,144 -

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

34 Disaggregated information - Benefit funds (continued)

(d) Investment linked benefit funds - Investment contracts without discretionary participating features (DPF)

30 June 2020 Balanced growth Education savings plan Managed investment NextGen investments Select strategies Other Total 30 June 2019 Balanced growth Education savings plan Managed investment NextGen investments Select strategies Other Total	Revenue Expenses Profit/(loss) for the year Investment $'000 Other $'000 Other $'000 Before Tax $'000 After Tax $'000 (337) (35) (122) (250) - (4,884) - (1,587) (3,297) - (640) - (217) (423) - (11,779) - (2,996) (8,783) - (1,461) - (606) (855) - (1,201) (24) (470) (755) -
	(20,302) (59) (5,998) (14,363) -
	1,340 (35) 1,028 277 - 12,806 - 9,656 3,150 - 2,533 - 1,697 836 - 49,485 - 37,804 11,681 - 5,505 - 4,052 1,453 - 4,983 (28) 3,923 1,032 -
	76,652 (63) 58,160 18,429 -

30 June 2020
Balanced growth
Education savings plan
Managed investment
NextGen investments
Select strategies
Other
Total
30 June 2019
Balanced growth
Education savings plan
Managed investment
NextGen investments
Select strategies
Other
Total

Assets
Liabilities
Equity
Investments
$'000
Other
$'000
Life
insurance
$'000
Other
$'000
$'000
21,392
401
21,156
637
-
209,337
23,413
233,128
(378)
-
39,743
(1,709)
40,051
(2,017)
-
816,332
23,270
842,212
(2,610)
-
74,269
1,134
75,749
(346)
-
91,745
2,303
91,647
2,401
-

1,252,818
48,812
1,303,943
(2,313)
-

23,936
401
23,463
874
-
211,806
20,515
228,190
4,131
-
45,767
150
46,044
(127)
-
773,951
14,130
779,284
8,797
-
90,597
363
89,302
1,658
-
93,801
2,259
93,028
3,032
-
1,239,858
37,818
1,259,311
18,365
-

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 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 Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001 .

(i) 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).

(ii) Historical cost convention

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities at fair value (including derivative instruments and insurance liabilities at present value of expected future cash flows), certain classes of property, plant and equipment and investment property.

(iii) New and amended accounting standards adopted by the Group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 July 2019:

1 July 2019:
AASB	Title
AASB 16	Leases
AASB 2017-4	Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments
AASB 2017-6	Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation
AASB 2017-7	Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures
AASB 2018-1	Amendments to Australian Accounting Standards – Annual Improvements 2015–2017 Cycle
AASB 2018-2	Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement
AASB 2018-3	Amendments to Australian Accounting Standards – Reduced Disclosure Requirements

The adoption of accounting standards noted above did not have material impact to the Group’s financial statements.

(b) Implementation of AASB 16 Leases

AASB 16 primarily impacts accounting by lessees, while accounting by lessors is not significantly changed. AASB 16 requires the recognition of right-of-use assets and lease liabilities on balance sheet with the amortisation of the assets and finance costs of the liabilities to be charged to profit or loss. The Group has implemented AASB 16 from 1 July 2019 and the relevant accounting policies have been amended to comply with the new requirements as described in note 35(u) and the impacts of the changes are disclosed in note 36.

(c) Principles of consolidation

(i) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group (refer to note 35()).

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.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(c) Principles of consolidation (continued)

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. Investments in associates are accounted for using the equity method of accounting (refer to (iv) below), after initially being recognised at cost.

(iii) Joint arrangements

Investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. The Group has joint ventures, but not joint operations.

Interests in joint ventures are accounted for using the equity method (see (iv) below), after initially being recognised at cost in the consolidated balance sheet.

(iv) Equity method

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

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

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees are changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 35(o).

(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.

(vi) 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 consolidated in the Group's financial statements.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(d) 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 included 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. Non-participating life investment contract liabilities are classified and accounted for under the requirements of AASB 9 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. The participating investment contract liabilities, which are classified as life insurance contracts, are valued under an accumulation method. Further details of the actuarial assumptions used in the calculation of these policy liabilities are set out in note 33.

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 exception is for funeral funds which are valued based on the net present value of the projected cash flows.

The non-participating investment contract liabilities, which are classified as live investment contracts, are 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.

(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 expenses. Surrenders and withdrawals are not included in the profit or loss but are instead deducted from investment contract liabilities.

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(e) 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.

(f) Borrowings

Borrowings are initially recognised at fair value, including transaction costs that are directly attributable to the acquisition or issue of the borrowings. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

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.

(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 represent commission and other expenses incurred in relation to the acquisition of health insurance contracts. These costs 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 on a straight line basis over a period in line with the average expected duration of the customer relationships to which they relate. This pattern of amortisation corresponds to the earning pattern of the corresponding premium revenue. The average expected duration of the customer relationships is reassessed annually.

(i) Derivatives and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured 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 and the type of hedging relationship designated.

The Group designates its derivatives as hedges of interest rate risk associated with the cash flows of recognised liabilities (cash flow hedges).

The Group documents at the inception of the hedging transaction the economic relationship between hedging instruments and hedged items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking various hedge transactions at the inception of each hedge relationship.

The fair values of derivative financial instruments used for hedging purposes are included in other assets or other liabilities as applicable. Movements in the hedging reserve are shown in the consolidated statement of Changes in Equity. 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.

100

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(i) Derivatives and hedging activities (continued)

Cash flow hedges that qualify for hedge accounting

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 the cash flow hedge reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.

If the hedge ratio for risk management purposes is no longer optimal but the risk management objective remains unchanged and the hedge continues to qualify for hedge accounting, the hedge relationship will be rebalanced by adjusting either the volume of the hedging instrument or the volume of the hedged item so that the hedge ratio aligns with the ratio used for risk management purposes. Any hedge ineffectiveness is calculated and accounted for in profit or loss at the time of the hedge relationship rebalancing.

(j) Employee benefits

Employees engaged in the Group's operations are employed by subsidiary entities, Australian Unity Group Services Proprietary Limited, Australian Unity Home Care Service Pty Ltd, Australian Unity Bank Limited (formerly 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 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 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 high quality corporate bond rates with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or 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 employer contributes to the Australian Unity Staff Superannuation Plan (a sub plan of the MLC 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 employer 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 three external defined benefit superannuation schemes that provide defined benefit amounts for employees on retirement. These schemes are closed to new members from the Group. The net obligation in respect of these defined benefit schemes 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 these defined benefit schemes to be material as at the end of each reporting period.

101

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(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) 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.

(m) Government grants and subsidies

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

Government grants and subsidies 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 and subsidies 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.

(n) 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.

102

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(o) 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.

(p) Income tax

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

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.

103

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(p) Income tax (continued)

Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to offset 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

Australian Unity Limited (Parent entity) and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements.

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. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. The Parent entity also recognises the current tax assets or liabilities, and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidation group.

The entities under the tax consolidated group entered into a tax funding agreement under which the wholly-owned entities fully compensate the Parent entity for any current tax payable assumed and are compensated by the Parent entity for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Parent entity 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 Parent entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

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. 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.

(q) Intangible assets

(i) Goodwill

Goodwill is measured as described in note 35(). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it 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.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes.

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.

104

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(q) Intangible assets (continued)

(iii) Computer software

Costs incurred in acquiring software and licences 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.

(iv) Management rights and other intangible assets

Management rights and other intangible assets acquired separately are initially recognised at cost. The cost of management rights and other intangible assets acquired in a business combination is their fair value as at the date of acquisition. Management rights and other intangible assets 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 intangible assets over their estimated useful lives, which vary from 4 to 20 years. These intangible assets are assessed for impairment whenever there is an indication that they may be impaired. Management rights and other intangible assets 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.

(r) Inventories

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

(s) Investment properties

Initially, investment properties are measured at cost including transaction costs. Subsequent to initial recognition, investment properties other than the development sites 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. Retirement village development sites are recognised at fair value, while other development sites are recognised at cost.

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.

Retirement village development sites are built in stages and usually take several years to complete. After each stage is built the developer operates it during the village’s remaining construction phases and earns rentals and may earn capital appreciation from the completed stages during this period. Upon completion and initial occupancy of the entire village, the property will be reclassified as a held for sale asset (refer to note 35(v)) and sold to a retirement village operator.

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.

(t) Investments and other financial assets

Classification

The Group classifies its financial assets into the following measurement categories:

those to be measured at fair value (either through other comprehensive income, or through profit or loss), and
those to be measured at amortised cost.

The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the relevant cash flows.

A financial asset is measured at amortised cost only if both of the following conditions are met:

it is held within a business model the objective of which is to hold assets in order to collect contractual cash flows, and
• the contractual terms of the financial asset represent contractual cash flows that are solely payments of principal and interest.

105

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

35 Summary of significant accounting policies (continued)

(t) Investments and other financial assets (continued)

Recognition and derecognition

A financial asset is recognised in the balance sheet when the Group becomes a party to the contractual provisions of the instrument, which is generally at trade date. Loans and receivables are recognised when cash is advanced to the borrowers.

A financial asset is derecognised when the contractual cash flows from the asset expire or the rights to receive contractual cash flows are transferred in a transaction in which substantially all the risks and rewards of the ownership are transferred. Any interest in a transferred financial asset that is created or retained by the Group is recognised as a separate asset or liability.

Measurement

Financial assets at fair value through profit or loss are recognised initially at fair value. All other financial assets are recognised initially at fair value plus directly attributable transaction costs.

Subsequent to the initial recognition, for financial assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held as described below. The Group reclassifies debt investments when and only when its business model for managing those assets changes. For investments in equity instruments, the fair value will be recorded in profit or loss, unless the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

Amortised cost Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in profit or loss using the effective interest rate method.
Fair value through other comprehensive income (FVOCI) Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment losses or reversal of impairment losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss. Interest income from these financial assets is included in profit or loss using the effective interest rate method.
Fair value through profit or loss (FVPL)
Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at FVPL and is not part of a hedging relationship is recognised in profit or loss and presented net within investment gains/(losses) in the period in which it arises. Interest income from these financial assets is included in the profit or loss using the effective interest rate method.

Equity instruments

The Group subsequently measures all investments in equity instruments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss. Dividends and distributions from such investments continue to be recognised in profit or loss when the Group's right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognised in investment gains/(losses) in the statement of profit or loss. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

Impairment

The Group assesses on a forward looking basis the expected credit losses (ECL) associated with its financial assets carried at amortised cost and FVOCI. The recognition of impairment depends on whether there has been a significant increase in credit risk.

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(t) Investments and other financial assets (continued)

Debt investments at amortised cost are considered to be low credit risk, and thus the impairment provision is determined as 12 months ECL.

For loans to customers, the Group applies a three-stage approach to measuring ECL. Assets migrate through the following three stages based on the change in credit quality since initial recognition.

Stage 1: 12-months ECL
For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised.
Stage 2: Lifetime ECL- not credit impaired For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit impaired, a lifetime ECL is recognised.
Stage 3: Lifetime ECL - credit impaired Financial assets are assessed as credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. For financial assets that have become credit impaired, a lifetime ECL is recognised and interest revenue is calculated by applying the effective interest rate to the amortised cost (net of provision) rather than the gross carrying amount.

At each reporting date, the Group assesses whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition.

The Group assesses whether the credit risk on a financial asset has increased significantly on an individual or collective basis. For the purposes of a collective evaluation of significant increase in credit risk, loans are grouped on the basis of shared credit risk characteristics, taking into account the type of loans, days in arrears, loan collaterals, remaining term to maturity, geographical location of the borrower and other relevant factors.

The amount of ECL is measured as the probability-weighted amount of the present value of all reasonable cash shortfalls over the expected life of the loans discounted at the effective interest rate. The cash shortfall is the difference between all contractual cash flows that are due to the Group and all the cash flows that the Group expects to receive.

The Group considers its historical loss experience and adjusts this for current observable data. In addition, the Group uses reasonable and supportable forecasts of future economic conditions including macroeconomic factors and how changes in these factors will affect ECL. The methodology and assumptions including any forecasts of future economic conditions are reviewed regularly.

The amount of ECL is recognised using a provision for doubtful debts account. If, in a subsequent period, credit quality improves and reverses any previously assessed significant increase in credit risk since origination, then the provision for doubtful debts reverts from lifetime ECL to 12-months ECL.

(u) Leases

Group as a lessee

The Group leases commercial buildings, computer equipment and motor vehicles under non-cancellable lease contracts. While lease contracts are typically made for fixed periods, they have varying terms and renewal rights. On renewal, the terms of the leases can be renegotiated.

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

Initial measurement

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the Group is reasonably certain to exercise that option;
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option; and

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(u) Leases (continued)

lease payments to be made under reasonably certain extension options.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group’s incremental borrowing rate is used. The incremental borrowing rate is the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The Group considers any recent external borrowing received by the Group’s entities, including any changes in financing conditions since the borrowing is received. The Group applies a three-month bank bill swap curve plus a margin that reflects the credit risk to determine the incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of the lease liability,
any lease payments made at or before the commencement date less any lease incentives received;
any initial direct costs; and
restoration costs.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets mainly consist of computer equipment.

Subsequent measurement

Subsequent to the initial recognition, lease liabilities are adjusted by the interest charges, lease payments made and any re-measurement to reflect reassessment or lease modifications.

When the Group is exposed to potential future increases in variable lease payments based on an index or rate, these are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Lease payments are allocated between principal and finance cost. The finance cost is charged to 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.

Subsequent to the initial recognition, right-of-use assets are measured at cost less accumulated depreciation and any accumulated impairment losses, and adjusted for any re-measurement of the lease liability.

Right-of-use assets are depreciated on a straight-line basis over the shorter of the asset's useful life and the lease term. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.

Extension and termination options

Extension and termination options are included in a number of leases. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

In determining the lease term for accounting, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Factors to be considered include, but are not limited to, historical lease duration, costs and business disruption required to replace the leased assets, the amount of termination penalties and remaining value of any leasehold improvements. Extension options are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The extension options in buildings and motor vehicles leases, if any, have not been included in the lease liability as the Group could replace the leases without significant cost or business disruption.

The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and is within the control of the lessee.

Group as a lessor

As lessor, leases are classified as either an operating lease or a finance lease. Income from operating leases is recognised on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature. Assets held under a finance lease are initially recognised on the balance sheet at an amount equal to the net investment in the lease. Finance income is recognised over the lease term, based on a pattern reflecting a constant periodic rate of return on the Group’s net investment in the lease.

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(u) Leases (continued)

Where the Group is an intermediate lessor in a sublease transaction, the sublease is accounted for by reference to the respective head lease. If the head lease is a short-term lease, the sublease income is recognised as operating lease income over the lease term. For an asset that is subleased, the head lease does not qualify to be a lease of a low-value asset.

Accounting prior to 1 July 2019

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 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

Income from operating leases is recognised on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.

(v) Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of derecognition.

Non-current assets are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale are presented separately from the other assets in the consolidated balance sheet.

(w) 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.

(x) Property, plant and equipment

(i) Cost

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.

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(x) Property, plant and equipment (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 and included in the profit or loss. When revalued assets are sold, any amounts included in other reserves in respect of those assets are transferred 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.

(y) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

(z) 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.

(aa) 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.

(ab) Reserve for credit losses

The reserve for credit losses is used by a bank subsidiary company 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 Consolidated Statement of Comprehensive Income.

(ac) 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.

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(ad)Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the amount of revenue/income can be reliably measured. As the Group operates diverse businesses, it applies a number of relevant accounting standards for the recognition of revenue: AASB 1023 General Insurance Contracts , AASB 9 Financial Instruments , AASB 15 Revenue from Contracts with Customers , AASB 117 Leases , AASB 120 Accounting for Government Grants and Disclosure of Government Assistance , and AASB 1038 Life Insurance Contracts . The following summarises specific recognition criteria in line with these standards:

(i) Health insurance premium revenue (AASB 1023)

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.

(ii) Government grants and subsidies (AASB 120)

Government grants and subsidies funding aged care and home care services are recognised as the services are provided.

(iii) Revenue from contracts with customers (AASB 15)

The Group’s revenue governed by the requirements of AASB 15 is related to services provided under contracts with customers in the operation of retirement communities, aged care facilities, home care & disability services, health services, wealth assets management and administration, financial planning, estate planning, trustee services, and finance and general insurance broking services. The revenue recognition from these services is based on the delivery of performance obligations by the Group and an assessment of when the control is transferred to the customer. Revenue is recognised either at a point in time when the performance obligation in the contract has been completed by the Group or over time when the customer simultaneously receives the benefits from the services provided by the Group as the Group performs under the contract.

The transaction price is measured at contract inception, being the amount to which the Group expects to be entitled and to which it has rights under the contract. This includes an assessment of any variable consideration where the Group’s performance may result in additional revenues based on certain achievements. Such amounts are only included based on the expected value or the most likely outcome, and only to the extent that it is highly probable that no revenue reversal will occur. The Group identifies the various performance obligations of the contract and allocates the transaction price to these performance obligations. The transaction price is adjusted for the time value of money where the period between the transfer of the promised services to the customers and payment made by the customers exceeds one year.

Independent and assisted living services fees

Independent and assisted living services fees are revenue generated from the provision of home and disability services and the management of retirement communities and aged care facilities. Revenue is recognised over time when the customer simultaneously receives the benefits from the services provided by the Group as the Group performs under the contract.

Management and performance fees

Management fees are earned from wealth management and trustee services provided over the life of the contracts and revenue is recognised periodically over time. Any associated performance fees are deemed to be a variable component of the management services that are constrained and recognised only if it is highly probable that the performance hurdles are met and reversal will not occur.

Brokerage and commission income

Brokerage and commission are earned from contracts with customers where the Group entities act as an agent to sell general and life insurance products. Commission is also earned from property sale services provided within trustee services and the operations of retirement villages. Revenue is recognised at a point in time when the transfer of the underlying asset has occurred.

Healthcare services revenue

Healthcare services revenue represents fees charged for dental, physiotherapy and other healthcare services provided to customers. Revenue is recognised after the delivery of services to the customers.

Assets and liabilities recognised from contracts with customers

As a result of the contracts with customers, the Group recognises Trade receivables and a number of contract assets and liabilities. Trade receivables are recognised when the Group has the right to consideration that is unconditional (no change in accounting policy). Contract assets are recognised when the Group has a conditional right to consideration for the services that have been provided to customers. Contract liabilities are recognised when the Group receives payments in advance for the services that will be provided to customers. The Group also capitalises incremental costs in obtaining contracts with customers.

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(ad)Revenue recognition (continued)

Accrued and deferred income

Customer contracts generally include arrangements for payments dependent upon the nature and type of services being provided. Customer payments may be required at the inception of the contract (advance payment) or regular payments for ongoing service delivery or at the end of the contract (in arrears) or a combination of these with varied amounts. Accrued income is recognised as a contract asset for unbilled service revenue. Deferred income is recognised as a contract liability where a customer pays in advance or pays a deposit prior to the delivery of the contracted services. On the balance sheet, accrued income is presented as part of Trade and other receivables, while deferred income is presented as part of Trade and other payables.

Capitalised costs to obtain a contract

The incremental costs of obtaining a contract with a customer are capitalised as an asset to the extent to which the costs are expected to be recovered over a period of more than one year. The asset is amortised on a systematic basis that is consistent with the timing of recognition of the relevant revenue. The asset is subject to an impairment assessment through a review of the recoverability against the remaining future revenue, net of respective future expenses. The capitalised costs to obtain a contract are presented as part of Intangible assets on the balance sheet.

In determining the amount of capitalised costs to obtain a contract, management forms a number of key judgements and assumptions which include an assessment of the incremental costs, whether such costs should be expensed as incurred or capitalised, and the period of amortisation of the capitalised costs. These judgements may inherently be subjective, and cover future events such as the recoverability of the capitalised costs through future net income streams over a certain period.

Deferred management fee

Deferred management fee (DMF) is a contracted fee charged to a resident of a managed retirement village. The amount of DMF is linked either to the ingoing contribution the resident paid on entry to the retirement village or to the turnover value of a unit on exiting the village and is expressed as a percentage charge per annum over the period of occupancy. The number of years the DMF can be charged is usually capped to a specific period of time. DMF revenue is recognised at the time of unit turnover from one resident to another.

(iv) Interest income (AASB 9)

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.

(v) Dividends and distributions (AASB 9)

Dividends and distributions are recognised when the Group's right to receive the income 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.

(vi) Benefit funds - Life insurance premiums and fees (AASB 1038)

For life insurance contract liabilities and participating investment contract liabilities, premium revenue is 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 on the balance sheet (rather than being included in the profit or loss).

(ae) Risk Equalisation Special Account

Under the provisions of the Private Health Insurance Act 2007 , stipulated in the Private Health Insurance (Risk Equalisation Administration) Rules 2007 , all health insurers must participate in the Risk Equalisation Special Account (RESA). 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 RESA 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.

(af) 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.

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(ag)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.

(ah) 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.

The Group applies the simplified expected credit loss approach in place of the incurred credit loss. Under the expected credit loss approach, the Group estimates the expected lifetime losses to be recognised from initial recognition of the receivables.

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

(ai) Unexpired risk liability

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

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

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

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35 Summary of significant accounting policies (continued)

(aj) New standards and interpretations not yet adopted

The following table sets out the new and amended accounting standards issued by the Australian Accounting Standards Board that are not mandatory for 30 June 2020 reporting period and have not been adopted by the Group.

AASB	Title	*Operative Date )**
AASB 2018-6	Amendments to Australian Accounting Standards – Definition of a Business	1 January 2020
AASB 2018-7	Amendments to Australian Accounting Standards – Definition of Material	1 January 2020
AASB 2019-1	Amendments to Australian Accounting Standards – References to the Conceptual Framework	1 January 2020
AASB 2019-3	Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform	1 January 2020
AASB 2019-5	Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia	1 January 2020
AASB 2020-1	Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current	1 January 2022
AASB 2020-2	Amendments to Australian Accounting Standards – Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities	1 July 2021
AASB 17	Insurance contracts	1 January 2023
AASB 2020-3	Amendments to Australian Accounting Standards – Annual Improvements 2018–2020 and Other Amendments	1 January 2022
AASB 2020-4	Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions	1 June 2020
AASB 2020-5	Amendments to Australian Accounting Standards – Insurance Contracts	1 January 2021
AASB 2020-6	Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current – Deferral of Effective Date	1 January 2022
AASB 2020-7	Amendments to Australian Accounting Standards – Covid-19- Related Rent Concessions: Tier 2 Disclosures	1 July 2021

*) Operative date is for the annual reporting periods beginning on or after the date shown in the above table, unless otherwise stated.

The Group’s assessment on the potential impact of IFRS 17 is set out in the following paragraphs. The other accounting standards noted above are not expected to have a material impact to the amounts reported in the consolidated financial statements. Where applicable the Group will apply these standards to the annual reporting periods beginning on or after the operative dates set out above.

(i) AASB 17 Insurance contracts

AASB 17 will replace AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts . In March 2020, the IASB decided to defer the IFRS 17 application date to 1 January 2023. With this deferral, the Group’s application date will be from 1 July 2023. The standard will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features. It requires a current measurement model, where estimates are remeasured in each reporting period. The measurement is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment and a contractual service margin (CSM) representing the unearned profit of the contract. A simplified premium allocation approach is permitted for the liability with a period of one year or less. Claims incurred will need to be measured based on the building blocks of discounted, risk-adjusted, probability weighted cash flows. Changes in cash flows related to future services should be recognised against the CSM. The CSM cannot be negative, so changes in future cash flows that are greater than the remaining CSM are recognised in profit or loss. Interest is accreted on the CSM at rates locked in at initial recognition of a contract. To reflect the service provided, the CSM is released to profit or loss in each period on the basis of passage of time. The Group has started to consider the impact this standard will have on the Group’s operations and its financial statements. The application of this standard will impact the health insurance and life insurance businesses of the Group.

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(ak) Parent entity financial information

The financial information for the Parent entity, Australian Unity Limited, disclosed in note 23 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 less any adjustments for impairment losses. 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.

(al) Comparative information

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

36 Changes in accounting policies

As disclosed in note 35(b), the Group has adopted AASB 16 Leases from 1 July 2019, but has not restated comparatives for the previous reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the requirements of AASB 16 are therefore recognised in the opening balance sheet on 1 July 2019.

The following section summarises the impacts of the adoption of AASB 16 to the Group’s accounting policies and its recognition and measurement of assets and liabilities related to the leases.

(i) Practical expedients applied

In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:

applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review - there were no onerous contracts as at 1 July 2019;
accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases;
excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made in applying AASB 117 Leases and Interpretation 4 Determining whether an Arrangement contains a Lease .

(ii) Recognition and measurement of lease liabilities

On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been classified as operating leases under the principles of AASB 117. These liabilities were measured at the present value of the outstanding lease payments, discounted using the Group’s incremental borrowing rates. For the initial application, the weighted average of the Group’s incremental borrowing rates applied to the lease liabilities on 1 July 2019 over a variety of terms was 4.99% per annum.

115

Australian Unity Limited Notes to the consolidated financial statements 30 June 2020 (continued)

36 Changes in accounting policies (continued)

The following table is a reconciliation of the Group's lease commitments and liabilities following the application of AASB 16 as at 1 July 2019:

Operating lease commitments disclosed as at 30 June 2019 Less: short-term and low-value leases not recognised as a liability Leases for which the liabilities are recognised a Discounted using the lessee’s incremental borrowing rates at the date of initial application Lease liabilities recognised as at 1 July 2019 a Maturity profile of the lease liabilities: Current Non-current	1 July 2019 $'000 201,734 (11,014)
	190,720 (53,941)
	136,779
	17,620 119,159
	136,779

(iii) Recognition and measurement of right-of-use assets

The associated right-of-use assets were recognised and measured at the amount equal to the lease liabilities as if AASB 16 had been applied since the commencement of the leases but discounted using the Group’s incremental borrowing rate as of 1 July 2019. The right-of-use assets, by asset class, is disclosed in note 14.

(iv) Reconciliation of accounts impacted by AASB 16

The following table is a reconciliation of the carrying amount of the accounts in the Group's balance sheet which were impacted by the application of AASB 16 as at 1 July 2019:

		Net assets		Retained earnings
Accounts	Carrying amount	Addition/(deduction)	Carrying amount	Addition/(deduction)
	30 June 2019		1 July 2019	1 July 2019
	$'000	$'000	$'000	$'000
Increase in assets
Right-of-use assets	-	127,208	127,208	127,208
Sublease receivable	-	1,850	1,850	1,850
Deferred tax assets	114,643	41,034	155,677	41,034
Total		170,092		170,092
a
Increase in liabilities
Lease liabilities	-	(136,779)	(136,779)	(136,779)
Deferred tax liabilities	(200,691)	(38,717)	(239,408)	(38,717)
Total		(175,496)		(175,496)
Reduction to Net Assets and Retained
earnings		(5,404)		(5,404)

116

Australian Unity Limited Directors' declaration 30 June 2020

In the directors' opinion:

(a) the financial statements and notes set out on pages 29 to 116 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 2020 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 35; 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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Peter Promnitz Chair

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Rohan Mead Group Managing Director & CEO

Melbourne 8 September 2020

117

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Independent auditor’s report

To the members of Australian Unity Limited

Report on the audit of the financial report

Our opinion

In our opinion:

The accompanying financial report of Australian Unity Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001 , including:

(a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001 .

What we have audited

The Group financial report comprises:

the consolidated balance sheet as at 30 June 2020
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant accounting policies
the directors’ declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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Our audit approach

An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates.

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Materiality

Audit scope

For the purpose of our audit we used overall Group materiality of $7.2 million, which represents approximately 1% of the Members’ Funds of the Group.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole.
We chose Members’ Funds because, in our view, it is the key financial statement metric used by the primary users of the financial report.
We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds.
Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events.
The Group is structured into four operating segments, being Retail, Wealth & Capital Markets, Independent & Assisted Living (IAL) and Corporate Functions and Eliminations.
We, as the group audit team, audited the most financially significant entities in the Retail, Wealth & Capital Markets and IAL segments.
We performed an audit of Australian Unity Group Services Limited, a subsidiary within the Corporate Functions and Eliminations segment, which provides payroll, accounts payable and corporate treasury services to the Group.
We performed specific risk focused audit procedures over certain account balances, and at a Group level this included the consolidation process and the preparation of the financial report.

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Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. We communicated the key audit matters to the Audit and Risk Committee.

Key audit matter How our audit addressed the key audit matter Valuation of retirement village independent living units Our audit procedures over the valuation of retirement (Refer to notes 11 & 12) [$1,374.9 million]

Our audit procedures over the valuation of retirement villages included the following:

The Group’s investment properties include, amongst other assets, retirement village independent living units and development sites – retirement village independent living units (collectively, “retirement villages”).

We obtained an understanding of the methodology applied by the Group to determine the valuation of the retirement villages and assessed the appropriateness of this methodology against the requirements of Australian Accounting Standards

Retirement villages are carried at fair value.

For a sample of contracts with residents across the portfolio, we compared the key inputs used in the models to underlying contracts.

The value of retirement villages is dependent on the terms of the residents’ contracts and the inputs to the Group’s valuation models (“the models”). Amongst others, the following assumptions are key in establishing fair value:

For the review of key valuation assumptions performed by the external valuer, we performed the following procedures amongst others:
resident turnover rates, including the expected average length of stay based on mortality assumptions and voluntary turnover
Assessed the expert’s independence, experience, competency and the results of their procedures.
property growth rates
Read the expert’s terms of engagement to identify any terms that might affect their objectivity or impose limitations on their work relevant to their findings.
discount rates

At 30 June 2020, the Group engaged an external valuer to review the key assumptions used in the model.

Compared the key assumptions used in the expert’s report to those used in the models.

This was a key audit matter because of the:

For a sample of retirement villages we assessed the reasonableness of key assumptions applied in the valuation models.
relative size of the retirement villages balance, and
the level of judgement and estimation uncertainty associated with key assumptions underpinning the valuations and the general market uncertainty arising from the COVID-19 pandemic.
We assessed the mathematical accuracy of a sample of the models.
We considered the adequacy of disclosures made in relation to the key assumptions and estimation uncertainty in note 11 in light of the requirements of Australian Accounting Standards.

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Key audit matter

Revenue recognition – government grants and subsidies funding aged care, home and disability services (Refer to note 2) [$193.6m]

Revenue from services includes government grants and subsidies funding aged care, home and disability services which are recognised as the relevant services are provided by the Group.

The revenue relating to home and disability services is the largest component of these services and was a key audit matter due to Australian Accounting Standards (note 35(m)) requiring there to be reasonable assurance that the grant and subsidies will be received and the Group will comply with all attached conditions before revenue can be recognised. There is some judgement required when determining when contractual service obligations under the funding agreements have been achieved and revenue is recognised.

Valuation of intangible assets (Refer to note 15) [$313.5 million]

The Group recognised $313.5 million of intangible assets at 30 June 2020. $182.2 million of this related to goodwill and a further $24.8 million related to management rights and customer contracts which were assessed by the Group to have an indefinite useful life.

The Group prepared value in use models, based on future cash flow forecasts discounted at a rate of return, to estimate the recoverable amount of the CGUs and assess whether impairment of these intangible assets was required.

The assessment of impairment in the Home & Disability Services, Wealth Advice Services and Trustee Services CGUs were considered key audit matters due to the judgement required in determining the recoverable amount of these CGUs as outlined in Note 15.

How our audit addressed the key audit matter

For government grants and subsidies funding home and disability services, we performed the following procedures amongst others:

Read a sample of underlying government funding agreements, government publications, and other communications received from the government.
Agreed the funding received by the Group to the supporting bank statements.
Considered the Group’s assessment of compliance with the grant conditions, and compared this to the Group’s revenue recognised for the year ended 30 June 2020.

We performed the following procedures, amongst others, to assess the valuation of intangible assets:

Assessed whether the level at which the impairment assessment was performed was consistent with our knowledge of the Group’s operations and internal Group reporting.
Assessed whether the CGUs appropriately included all assets, liabilities and cash flows directly attributable to each CGU for the purposes of impairment.
Compared the forecast cash flows used in the impairment assessment to the latest business forecasts including consideration of the potential impacts of the COVID-19 pandemic.
Compared the performance of the CGUs against historical forecasts to assess the accuracy of the assumptions used in the latest business forecasts.
With the assistance of PwC valuation experts, assessed whether the discount rate used in the value in use model appropriately reflected the risks of the CGUs and the specific risk relating to the segments in which they operate.
Assessed the overall reasonableness of the assumptions when considered in the aggregate.
We considered the adequacy of the disclosures of the sensitivity of the value-in-use calculations within the disclosures in note 15, in light of the requirements of Australian Accounting Standards.

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Key audit matter

How our audit addressed the key audit matter

Valuation of actuarially determined health and life insurance liabilities (Refer to notes 16, 24 and 34) [$144.3m]

Actuarially determined insurance liabilities include claims provisions relating to the Group’s health insurance business ($89.0 million) and noninvestment linked benefit fund policyholder liabilities ($55.3 million).

The claims provisions relating to the Group’s health insurance business consists of an outstanding claim liability of $51.4m and a deferred claim liability of $37.6m (collectively the ‘Group’s health insurance claim liability’).

The outstanding claim liability relates to claims for services incurred but not yet reported or reported but not yet processed, the economic cost of which will arise in a later period. The deferred claim liability relates to claims that did not occur during March to June 2020 (the COVID-19 period), as a result of restrictions imposed on elective surgery and access to ancillary benefits in response to the COVID-19 pandemic, and are expected to be settled in future periods.

The Group’s health insurance claim liability is estimated by the Group as a central estimate and assesses the extent to which claim incidence and development patterns are consistent with past experience. The deferred claim liability also considers the expected rate at which deferred insured surgeries and other procedures will be caught up.

A risk margin is applied by the Group to reflect uncertainty in the estimate. The central estimate and risk margin combined, which are estimated based on judgements and actuarial expertise, are intended to achieve an actuarially defined probability of adequacy (POA) of at least 95% (2019: 95%).

In determining the valuation of the Group’s noninvestment linked benefit fund policyholder liabilities, the key actuarial assumptions made by the Group

To assess the assumptions used by the Group to determine the value of insurance liabilities, we together with PwC actuarial experts performed the following procedures, amongst others:

Evaluated the design of the Group’s relevant key controls over the claims reserving process, taking into consideration the impact of the COVID-19 pandemic on a sample of the relevant key controls (including data reconciliation, data inputs, data quality and the Group’s review of the estimate) and tested the operating effectiveness of a sample of these controls throughout the year.
Developed an understanding of the processes that the Group undertook to calculate the value of insurance liabilities, including the models used by the Group in calculating the actuarial liabilities.
Compared the methodologies used by the Group to those commonly applied in the industry and where relevant, used in the prior year.
On a sample basis, performed recalculations over the mathematical accuracy of the Group’s actuarial models.
Assessed the key actuarial assumptions used by the Group in forecasting expected claims and anticipated rate at which deferred insured surgeries and other procedures will be caught up. This included comparing the key actuarial assumptions to the Group’s historical experience, observable market trends, environmental factors, estimated payment patterns, member claiming patterns, and our industry knowledge.
Assessed the Group’s approach to setting the risk margin in accordance with the requirements of Australian Accounting Standards, including an assessment of the reasonableness of the Group’s actuarial calculation of the probability of adequacy.
Compared the level of claims received after the year end, which related to the current financial

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Key audit matter

include mortality assumptions and the discount rate applied.

This was a key audit matter because of the significant judgement required by the Group in estimating the Group’s health insurance claim liability and noninvestment linked benefit fund policyholder liabilities, including uncertainty as to the economic impact of the COVID-19 pandemic, and because a small change in assumptions can result in a material change in the estimated liability and corresponding charge to profit for the year.

	*How our audit addressed the key audit matter*	*How our audit addressed the key audit matter*
		year, to the estimate of the Group’s health
		insurance claims provision.
	•	Assessed the key assumptions and methodologies
		applied by the Group in estimating the value of
		non-investment linked benefit fund policyholder
		liabilities against the requirements of the
		applicable Australian Accounting Standards.
	•	We assessed the adequacy of the disclosure of the
		Group’s health insurance claim liability and non-
		investment linked benefit fund policyholder
		liabilities against the requirements of the
		applicable Australian Accounting Standards.

Operation of financial reporting Information Technology (IT) systems and controls

This was a key audit matter because the Group’s operations and financial reporting processes are heavily dependent on IT systems, including automated accounting procedures and IT dependent manual controls.

The Group’s controls over IT systems include:

The framework of governance over IT systems
Program development and changes
Access to process, data and IT operations
Governance over generic and privileged user accounts.

Our procedures included evaluating and testing the design and operating effectiveness of certain controls over the continued integrity of the IT systems that are relevant to financial reporting.

We also carried out direct tests, on a sample basis, of system functionality that was key to our audit testing in order to assess the accuracy of certain system calculations, the generation of certain reports and the operation of certain system enforced access controls. Where we noted design or operating effectiveness matters relating to IT systems and application controls relevant to our audit, we performed alternative or additional audit procedures.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the Directors' Report. We expect the remaining other information to be made available to us after the date of this auditor's report.

Our opinion on the financial report does not cover the other information and we do not and will not express an opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

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If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the other information not yet received, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action to take.

Responsibilities of the directors for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at:

https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report.

Report on the remuneration report

Our opinion on the remuneration report

We have audited the remuneration report included in pages 16 to 25 of the directors’ report for the year ended 30 June 2020.

In our opinion, the remuneration report of Australian Unity Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001.

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Responsibilities

The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.

PricewaterhouseCoopers

Andrew Cronin Partner

Melbourne 8 September 2020

AI assistant

AUSTRALIAN UNITY LIMITED — Annual Report 2020

64486_rns_2020-09-08_62345ada-93c1-4692-b834-ecc4da463253.pdf

ASX Announcement

Australian Unity Limited – Full Year Financial Report

Annual financial report and directors' report for the year ended 30 June 2020

Australian Unity Limited ABN 23 087 648 888 Annual financial report and directors' report - 30 June 2020

Directors' report

Directors

Company secretaries

Principal activities

Dividends

Operating and financial review for the year ended 30 June 2020

Operating and financial review for the year ended 30 June 2020 (continued)

Independent & Assisted Living

Operating and financial review for the year ended 30 June 2020 (continued) Independent & Assisted Living (continued)

Home Care Services (HCS)

Remedy Healthcare

Operating and financial review for the year ended 30 June 2020 (continued) Independent & Assisted Living (continued)

Dental

Residential Communities

Development

Outlook

Operating and financial review for the year ended 30 June 2020 (continued)

Retail

Financial performance — Retail

Australian Unity Health Limited (retail health insurance)

Australian Unity Bank

Operating and financial review for the year ended 30 June 2020 (continued) Retail (continued)

Outlook

Wealth & Capital Markets

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

Investments

Property

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

Life & Super

Trustees

Advice

Operating and financial review for the year ended 30 June 2020 (continued) Wealth & Capital Markets (continued)

Outlook

Matters subsequent to the end of the financial year

Likely developments and expected results of operations

Environmental regulation

Key business risks

Key business risks (continued)

(i) Strategic risks

Key business risks (continued)

(ii) Operational risks

Key business risks (continued)

(iii) Conduct risks

(iv) Information & system risks

(v) Financial risks

Key business risks (continued)

(vi) Credit risks

(vii) People risks

(viii)Regulatory & legal risks

Information on directors

PETER PROMNITZ, BSc (Hons), AIAA, FAICD

ROHAN MEAD, Group Managing Director & CEO

LISA CHUNG, AM, LLB, FIML, FAICD

MELINDA CILENTO, BA, BEc (Hons), MEc, GAICD

PAUL KIRK, BEc, ACA, RITA, MAICD

Information on directors (continued)

SU McCLUSKEY, BCom, FCPA, MAICD

JULIEN PLAYOUST, BSc (Arch), BArch (Hons), MBA, FAICD

GREGORY WILLCOCK, BCom, FCPA, FAICD, MAIM, FFin

Company secretaries

MELINDA HONIG, BEc, LLB, GAICD, Group Executive, Governance

CATHERINE VISENTIN, G/A(Cert), Assistant Company Secretary

Meetings of directors

Remuneration report

Dear Member

Remuneration report (continued)

Key Management Personnel (KMP)

Remuneration report (continued)

Table 2 - Five year Performance

Remuneration Policy

The Remuneration Framework & Link to Performance

Remuneration report (continued)

Senior Executive Remuneration

AUSTRALIAN UNITY LIMITED Annual Report 2020