2008 ACAR OVERVIEW OF FINANCIAL ASSESSMENT PROCESS

1. 2008 ACAROVERVIEW OF FINANCIAL ASSESSMENT PROCESS Contact: Heath Shonhan, Director Bentleys Chartered Accountants (Qld) hshonhan@bris.bentleys.com.au

2. Financial viability assessment processWhat is it? • The assessment process is only as good as the underlying application data (therefore provide as much insight as possible!) • Use the Essential Guide – has been a change in application form • Application form to be completed in two sections: • At the Provider level and • At the Service level • Enables separate assessment of the operating projections for the proposed project from that of the Provider

3. Financial viability assessment processWhat is it? It is an independent financial opinion of the: • Completeness and reasonableness of the financial projections, capital construction costs, sources of funding and operating surplus / deficit projections contained in the Application • Profitability and debt servicing capability of the applicant • Applicant’s underlying capital structure (ie financial stability) and ability to finance the project • Indicative ability of the applicant to finance the project without all or part of the Capital Grant (only if applied for) using alternative funding (resident bonds, cash reserves)

4. Why does it matter? The Financial Viability Assessments identify financial risks associated with applications for residential aged care places and capital grants. The risks include that the applicant: • May not in the future be able to provide continuity of care to its residents due to a lack of demonstrated financial capacity – ie there is a significant risk that the provider will ‘go broke’ • May not have sufficient financial depth to finance the construction of accommodation for the places sought, ie there is significant risk that the places will not be able to be brought on-line within the required timeframe for financial reasons • May be able to finance the construction of the required accommodation but, in doing so, may be so stretched financially as to put at risk its capacity to pay for appropriate quality care.

5. What does the detailed financial analysis and verification involve?Reasonableness and Verification of Applicant’s Data • Provides an overall indication of underlying validity of the data and preparation put into the application • A poorly completed application may indicate insufficient planning and feasibility analysis on the project or that the applicant does not understand the financial implications of Aged Care Industry • Before finalising applications, check and consider: • Additions and completion of all questions • Reasonableness of construction costs and sources of funding • Financial projections picking up appropriate movements? • Attach all supporting information, including audited accounts, status of any funding negotiations, etc

6. What does the detailed financial analysis and verification involve?Profitability and debt servicing capability • The profitability of a service and the provider gives an indication of whether it will be able to provide ongoing financially viable care • Separate assessment of operating projections for proposed project from that of the provider who may have other operations • Before finalising applications, check and consider: • Reasonableness of operating surplus (deficit) projections for proposed new service • Susceptibility to interest rates and other lending covenants • Consistency of interest expense and reasonableness of debt repayment period • Reasonableness of depreciation provisions • Funding of any projected operating deficits • Impact of any non-residential activities • Reasonableness of projected bonds sought and ability to repay

7. What does the detailed financial analysis and verification involve?Robustness of applicant’s capital structure to undertake project • The capital structure gives an indication of the financial stability of the entity (ie ability to provide long term financially viable care) • Before finalising applications, check and consider: • Tests of liquidity, including ratio analysis such as current assets to current liabilities • Sufficient insight into short term cash reserves • Correctly reflect proposed project in projected net asset position • Disclosure of the impact of the proposed project • Any restrictions, covenants or other issues which may place unsustainable limitations on the facility’s operations Capital Grant applications • Consider if you can fund more of the project yourselves from additional debt funding, draw more from reserves or increase funding from residents.

8. Financial Viability AssessmentsWhat else? • Your application should provide detailed insight and disclosure into any complexities associated with your application or organisation, and consideration of our current economic conditions such as: • Disclose structure of organisation • Detail funding model proposed • Concurrent construction should be reflected in financial projections • Any project dependencies? • Land purchases • Affects on bond levels from softening property market • Consideration to rising construction costs • Changing asset values • Constrained debt funding • High Care / Low Care mix • Interest Rates • Prudential requirements

9. Thank You Any Questions?