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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
Guild Accountants is a member of RSM Bird Cameron Group.
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 Page 30Corporate 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 ?
Page 31
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
March 2012 Page 32Corporate Business Group
• 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
Page 33
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
March 2012 Page 34Corporate Business Group
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
March 2012 Page 35Corporate Business Group
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
March 2012 Page 36Corporate Business Group
• 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 Page 37Corporate 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
March 2012 Page 38Corporate Business Group
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
Guild Accountants is a member of RSM Bird Cameron Group.
Thank You
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