guild accountants is a member of rsm bird cameron group. productivity commission impacts on funding...

Guild Accountants is a member of RSM Bird Cameron Group.

Productivity Commission Impacts on Funding & Finance

Thursday 15th March 2012

Forum – Productivity Commission

Impacts on funding and finance 15 March 2012

Westpac Bank, 275 Kent St, Sydney

ROD YOUNG CHIEF EXECUTIVE OFFICER AGED CARE ASSOCIATION AUSTRALIA

Productivity Commission

Legislation changes

* Removal of the current restrictions on the number and type of residential

and community aged care services

* National system of care entitlements

* Seniors Gateway Centres

* Consistent user co contributions across residential and community care

* Realistic revenue streams

* Australian Aged Care Commission

* Financial instruments

* Aged Care Home Credit Scheme

* Age Pensioners Savings Account

* Rural and remote areas and other special needs groups

* Affordability for taxpayers

* Quality assurance regulations

eHealth Record

Blueprint for reform priorities are:

• a simple entitlement-based system;

• a one stop shop for aged care information and assessment;

• greater choice and consistency for people to fund the care they need;

Continued:

• the Aged Care Commission to guarantee service quality;

• an independent cost of care study;

• dementia risk reduction and research; and

• a high-level Aged Care Reform Council to drive the reform process.

CONSUMERS RESPONSE

Alzheimers AssociationCOTA

National SeniorsAssociation of Independent Retirees


The Trojan War

Aged Care’s battle for a sustainable

operating model

Battlefield Noise

The Levers• Model - Expectation

• Revenue

• Occupancy

• Efficiency

• Capital Model

• Facility Life

The average person

Bonds or Daily ChargeBond $100,000 Operator

Cash flowOperator

ProfitResident

Profit Resident

Cash

With Bond $4,600 $4,600 $(3,800) $(3,800)

Without Bond

Interest $(6,700) $(6,700) $5,200 $5,200

Accommodation charge $19,100 $11,300 $(11,300) $(19,100)

Loan $(7,800) $(7,800)

Net cash position $4,600 $(3,000) $(6,100) $(15,300)

Marginal PositionNil $(7,600) $(2,300) $(11,500)

Daily Impact

Daily Accommodation fee Maintain Cash Maintain Profit

At $100,000 Bond $32.50 $54.50

At $250,000 Bond $65.60 $120.40

Sensitivities• Bond level

• Liquidity Level

• Debt term

• Capital cost

• Tax

• Interest rate

• Vacancy

The battle for success• Trojan War

– 10 years to victory– Novel strategy

• Aged Care Battle– 2004 Hogan– What will it look like in 2014?– What Strategy will be successful?

Funding and Finance in a Post PC Worldwith the Institutional Bank.

March 2012 | Kevin Griffith and David Dixon Hughes

Agenda

March 2012 Corporate Business Group

1. Introduction – Who are we ?

2. Current Industry Characteristics

3. Funding - General Issues to consider

4. Funding – Construction

5. Funding – Core Debt

6. Potential Character of the Industry

7. Post PC Funding – Construction

8. Post PC Funding – Core Debt

Who Are We ?

Westpac Senior Care Living Teams

• Westpac (200 Years old in 2017) involvement with Aged Care goes back to the commencement of the industry.

• 15 – 20 years ago Westpac introduced Aged Care specialisation.

• 5 year ago this specialisation was taken a step further with all Aged Care specialists and clients brought within the Corporate Business Team in each state.

• Specialist teams with Aged Care Clients in each state.

• Kevin Griffith and David Dixon Hughes manage the relationships of a diverse range of NSW based Aged Care Group’s.

• Generally our customers have performed well despite the GFC and ongoing offshore issues.

Corporate Business Group March 2012

Character of the Industry


• A diverse range of Not for Profit and Private providers, with a small number of Public Companies involved.

• Diversity brings a wide variation between the financial strength, capacity, management, reporting systems (etc).

• High Barriers of entry;- Regulatory- Equity- Historic Financial Return on assets employed

• Government regulates both supply of Approvals and high percentage of income.

• Historically High Occupancy rates in facilities.

Funding

Key Issues to Consider in Assessing Funding.• Stand alone construction, core debt or a mix. – Very Different characteristics.

• However clearly there are key components needed for both;- Management and structure- Strategic Plan including clear direction and target Market(s)- sufficient equity and cash flow to execute the Strategic Plan- Facility and Property mix and economic life- Experience- Board and Management succession- Profitability in comparison to peers- Occupancy- Staff Retention

March 2012Corporate Business Group

Funding


Stand Alone Construction.• Location

• Competition

• Facility Mix - Hi / Low / Extra Service

• Project Feasibilities

• Demographics

• Accommodation Bond Strategy including Marketing Plan

• Project Team

• Number of projects in train – capacity of management to ramp them all up without impacting existing operations or the other projects.

• How much debt required and can it be fully or majority cleared by inward Bonds – Expectation will be it can.

Funding


Core Debt.

• Core Capabilities at the higher end.

• Current and ongoing strength of underlying operating cash flows.

• Quality and mix of facilities, Economic Life.Stand Alone Construction.

Location

Potential Character of the Industry


• Deregulation of bed and Extra Service approvals, even staggered over 5 years, will have a major impact on the Industry and open up regions previously considered “over bedded”.

• Greater competition will likely result in lower occupancy but to what degree?

• Expect to see an acceleration of the pressure on older facilities and facilities that are performing poorly in comparison to their immediate geographic peer group.

• Challenge Management and Boards.

• Accommodation Bond changes resulting in a higher proportion of Periodic Payment residents.

• More informed residents and Families with a clearer financial plan (better financial planning).

• High Barriers of entry;- Regulatory- Equity

Post PC Funding

March 2012 Corporate Business Group.

Stand Alone Construction.• Location

• Competition

• Facility Mix - Hi / Low / Extra Service

• Project Feasibilities

• Demographics

• Accommodation Bond Strategy including Marketing Plan. Also including impact of Periodic Payments.

• Project Team

• Number of projects in train – capacity of management to ramp them all up without impacting existing operations or the other projects.

• How much debt required and can it be fully or majority cleared by inward Bonds – Expectation will be it can?, or is a larger debt being repaid with cash flow including periodic payments.

Post PC Funding


Core Debt.

• Core Capabilities at the higher end

• Current and ongoing strength of underlying operating cash flows, how robust to decreased occupancy?

• Quality and mix of facilities, Economic Life.

Forum

• Bruce Bailey

• Kevin Griffith

• Rod Young


Thank You

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