Productivity Commission Impacts on Funding & Finance

1. Productivity Commission Impacts on Funding & Finance Thursday 15th March 2012

2. 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

5. Productivity CommissionLegislation changes

6. * Removal of the current restrictions on the number and type of residential and community aged care services * National system of care entitlements

7. * Seniors Gateway Centres * Consistent user co contributions across residential and community care

8. * Realistic revenue streams * Australian Aged Care Commission

9. * Financial instruments * Aged Care Home Credit Scheme

10. * Age Pensioners Savings Account * Rural and remote areas and other special needs groups

11. * Affordability for taxpayers * Quality assurance regulations

13. eHealth Record

17. 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;

18. 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.

19. CONSUMERS RESPONSE Alzheimers Association COTA National Seniors Association of Independent Retirees

21. The Trojan War Aged Care’s battle for a sustainable operating model

22. Battlefield Noise

23. The Levers • Model - Expectation • Revenue • Occupancy • Efficiency • Capital Model • Facility Life

24. The average person

25. Bonds or Daily Charge

26. Daily Impact

27. Sensitivities • Bond level • Liquidity Level • Debt term • Capital cost • Tax • Interest rate • Vacancy

28. 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?

29. Funding and Finance in a Post PC World with the Institutional Bank. March 2012 | Kevin Griffith and David Dixon Hughes

30. Agenda • Introduction – Who are we ? • Current Industry Characteristics • Funding - General Issues to consider • Funding – Construction • Funding – Core Debt • Potential Character of the Industry • Post PC Funding – Construction • Post PC Funding – Core Debt Corporate Business Group

31. 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

32. 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. Corporate Business Group

33. 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 2012 Corporate Business Group

34. 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. Corporate Business Group

35. 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 Corporate Business Group

36. 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 Corporate Business Group

37. Post PC Funding • 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. Corporate Business Group.

38. 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. Corporate Business Group

39. Forum • Bruce Bailey • Kevin Griffith • Rod Young

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