jointceospaper_bettertogther march 23 2016_anglicare and arv

8/19/2019 JointCEOsPaper_BetterTogther March 23 2016_Anglicare and ARV

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Prepared by

Rob Freeman – CEO Anglican Retirement Villages

Grant Millard – CEO Anglicare

March 23, 2016

MERGER CONSIDERATIONSBetter Together


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Contents

Foreword by the CEOs .............................................................................................3

Our Two Organisations ............................................................................................4

• Anglicare

• ARV

Why is a Merger being Proposed? ...................................................................10

• Supporting the Diocesan Mission

• Improving our Competitive Position

• Greater Capability by Streamlining Costs

Our Purpose ..............................................................................................................16

• Name and Branding o the Merged Organisation

What are the Implications if a Merger does not Proceed?...................18

Merged Operations ................................................................................................21

• The Strategic Opportunities

• Financial Outlook

• What is the Future or Anglicare’s services in anAged Care Dominated Organisation?

• Risk Assessment and Mitigation

How the Merger would Proceed .......................................................................27

Who is Responsible for Moving this Forward? ..........................................27

Conclusion ..................................................................................................................29

Appendix .....................................................................................................................30

• Pro-orma Financials


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Foreword by the CEOs

Rob Freeman CEO Anglican Retirement Villages

March 23, 2016

Grant MillardCEO Anglicare

The purpose o this paper is to detail theimportant matters that have led both theAnglicare Council and the ARV Board torecommend that it is in the best interests

o both organisations and in the interestso serving the cause o the gospel inthe Diocese o Sydney that the twoorganisations be merged.

The rationale or merger is compellingand uture-acing and is built on threekey benefits.

1. The merger provides a new andextended platform or supportingthe Diocesan Mission through anexpanded reach into the communityand the ability to minister to, andshare the gospel with, peoplewho would never otherwise entera church.

2. The merger means greater scale –our competitive position improves,with a solid oundation provided orthe continuation and expansion oour services and ministries.

3. The merger removes duplication,reduces operating costs, and enables greater capability.

These benefits are described in greaterdetail within this report.


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Our Two Organisations

Anglicare Sydney was originally established as the Church Society in 1856.The original church planting unction o the Church Society grew to includechildren’s welare and benevolent work by the start o the 20th Century.The Church Society became the Home Mission Society in 1911, and then

Anglicare in 1997. Anglicare’s aged care work commenced in 1943 and the first Chesalon home wasestablished in Summer Hill in 1952.

Anglicare Sydney’s operations extend rom Mona Vale and Hornsby in the north, to Lithgow in the west androm Bondi in the east, to Ulladulla in the south o the Diocese o Sydney. There is one retirement villagelocated at Oran Park (operating but with urther stages to be completed), and six residential aged careacilities, home to 450 residents. A seventh residential aged care acility or 100 residents to be built atOran Park has received Development Approval. In addition to its residential aged care, Anglicare provides

HomeCare services and other community aged care services to over 3,500 older people living in the widercommunity and operates 16 community day centres.

Anglicare Sydney also undertakes a wide range o community services and welare activities. The moresubstantial services are government-unded, including the ollowing:

Other services are ununded, or partially unded by government and depend on donations and legacies,including the ollowing:

• Out o Home Care (OOHC) services or childrenand young people including oster care, adoptionsand residential care

• Migrant and reugee services

• Counselling services

• Family and parenting support

• Youth Programs

• Disability support and carer support services

• Mental health programs

• Sustainable Living, including emergency relie,financial counselling, capacity building, no interestloans and low interest “Step Up” loans

• Disaster Recovery services ollowingnatural disasters

• Chaplaincy in hospitals, prisons, mental healthacilities and aged care acilities

• Social Policy Research and Advocacy groupwhich “punches above its weight” in advocatingor its constituency



Anglicare also operates 19 “Op Shops” that meetthe needs o many Sydney people with about500,000 customer visits each year.

“Anglicare” (and “Anglicare Sydney” where relevant)is the trading name utilised by the Sydney AnglicanHome Mission Society and it is the registered ownero the name in NSW. Anglicare is one o the largestmembers o the Anglicare Australia (AA) network oagencies operating throughout Australia. The name“Anglicare” is used by a number (but by no meansall) o AA member agencies operating in areas

outside the Diocese o Sydney, including throughoutother parts o the State o NSW. This broader useo the “Anglicare” name gives national visibilityand recognition but can also give rise to adverseinstances o mistaken identity and reputational harm.

Employing around 1,400 staff, most o whomwork part time, Anglicare also has around 1,400volunteers. Through its programs Anglicare assistedapproximately 41,000 people across the SydneyDiocese in 2015 (this figure excludes the 500,000

people who use Anglicare’s “Op Shops” every year).

For the past two years Anglicare has been on a journey o transitioning its programs and services

to a level o financial sustainability. This hasinvolved ocus on more accurate cost allocation toprograms, the efficient use o property, improvingfinancial perormance o residential aged careoperations and increasing accountability or how allAnglicare’s activities address the whole mission othe organisation. There is a recognition that moreneeds to be done to reduce Anglicare’s central andregional costs while providing the type o centralservices which equip the organisation to make soundcommercial judgments and to compete effectivelyon service quality and cost. Every year Anglicare

Sydney raises money through donations, legacies andbequests, which average $5.4 million per annum, inorder to und initiatives and to establish the capitalbase to undertake sustainable ministry or the uture.

Anglicare remains committed to pastoral careand assistance or ormer residents o Children’sHomes run by Anglicare in the past, or run byother organisations or which Anglicare has takenresponsibility. Anglicare has been able to undclaims out o its own resources without material

detriment to other activities.



Services south of the Diocese of Sydney:Anglicare Moruya Office,

Anglicare Bega Office.

ANGLICARE

SERVICE SITES

Anglicare Shop

Mona Vale

Bondi

Wollongong

Ulladulla

Lithgow

Katoomba

Hornsby

Penrith

Parramatta

Liverpool

Campbelltown

Moss Vale

Chaplaincy

Aged CareCommunity Program

Head Office

Anglican Diocese of Sydney

Rest of NSW

Nowra

Sutherland

Richmond

Anglicare Services Within the Anglican Diocese of Sydney



The Mowll Memorial Village or Aged People opened at Castle Hill in 1960.Since then, Anglican Retirement Villages (ARV) has been serving older peoplethrough housing, accommodation and care services.

ARV’s retirement living and residential care presence extends south toDapto, north to Warriewood and west to Penrith. There are 21 retirementvillages accommodating 2,400 people and 16 residential aged care homesaccommodating 1,730 people.

Since 1993, ARV has grown in the provision o government-undedcommunity services, currently serving 1,100 HomeCare clients and about2,000 Community Home Support Program (CHSP) clients. ARV has 4 dayrespite centres. ARV operates a Central Laundry and Central Production

Kitchen rom premises in Glendenning and Norwest which support all 16 ARVresidential aged care homes.

ARV employs 2,400 staff, most o whom work part time. While ARV is wellknown or its retirement village operations, most staff work in residential carehomes. This work is a crucial ministry to people at the end o their lives and totheir amilies who are very ofen in emotionally challenging situations. About1,500 volunteers are engaged by ARV, each year providing about 175,000hours o service. ARV Foundation or Aged Care raises approximately$0.8 million per annum through donations and legacies.



ARV’s strategy has most recently includedthe ollowing.

• Broaden its service offer to people with limitedfinancial means, including a program to establishaccommodation or people at risk o homelessness

• Increase ministry ambitions - with non-Christianresidents, staff, community clients and residentamilies now seen as within reach o pastoral careand the gospel

• Introduce a new model o care called “Rhythmo Lie”, which has undamentally changed lie

in residential care homes as daily lie routinesare based on the needs and desires o residents

rather than the traditional routines and workprograms o the aged care homes

• Establish new services in areas with greatercultural diversity and lower average rateso household income, with recent propertyacquisitions in Rooty Hill and Minto

Annual reports and certain financial inormation orAnglicare and ARV may be located on the websiteso each organisation at www.anglicare.org.au and www.arv.org.au.

https://www.anglicare.org.au/what-we-do/annual-reviewshttps://www.arv.org.au/about-us/https://www.arv.org.au/about-us/https://www.anglicare.org.au/what-we-do/annual-reviews



SOUTH

HILLS & WEST

CITY & EAST

NORTH

Warriewood

Forestville

Turramurra

Glenhaven

HawkesburyThe Ponds

Castle Hill

Winston Hills

Caddens

Hurstville

Penrith

Blue Mountains

Rushcutters BayGlebe

Woollahra

Port Kembla

Alexandria

St George

Bowral

Shoalhaven

Pymble

Gordon

KEY

Retirement Living

Residential Care

HomeCare

Taren Point

Kirrawee

Eurobodalla

Dapto

FURTHER SOUTH

ARV Services Within the Anglican Diocese of Sydney



There are 3 key reasons or the proposedAnglicare/ARV merger.

• Supporting the Diocesan Mission

• Improving competitive position

• Initiating greater capability bystreamlining costs

Supporting theDiocesan Mission

It is essential that Diocesan organisations workin partnership with parishes and the broaderchurch to reach all the lost – a calling explicitlyacknowledged by Anglicare, as parish partnershipsis one o three elements o its mission statement.Anglicare has a broad base or parish engagementand more parish partnerships than ARV, withits name and work widely recognised withinthe church. Over the last ten years Anglicarehas ocussed heavily on articulating its gospelmotivation and developing a model o Christian

care in which its programs and staff are encouragedand equipped to ‘Care like Christ’, ‘Care towardsChrist’ and ‘Care alongside Christ’s people’,mirroring Anglicare’s three-old mission to care, toproclaim the gospel and to partner with parishes.

Over recent years, ARV has engaged with manyparishes and developed strong relationships withthose parishes where there are arrangements inplace or employment o chaplains. ARV seeks tobe more visible and relevant to the broader church.Increasingly, ARV is building substantive partnershipsto develop services in areas where there has been noprevious capability, including Rooty Hill and QuakersHill. These partnerships will have engagement with

local parishes beyond the unding o local clergy tominister within retirement villages.

Both Anglicare and ARV preerence the employmento Christians, especially in management roles, andthis practice will continue to be a undamentalaspect o employment decisions.

There are key actors pointing to strong alignment othe ministry objectives o the merged organisationwith the Diocesan Mission: the ability to work withparishes in engaging a community much wider thanthe parish community, the opportunity or ministry

through the many settings in which the mergedorganisation would operate, the ability to presentthe gospel through the large number o personalrelationships that are developed, and the act thatthe merged organisation would be working at the“ront line” in a city that is diversiying and changingdemographically, importantly with many peoplerom culturally and linguistically diverse (CALD)communities. With prayer, ocus, investmentand strong intent there is opportunity to do

this work more effectively than ever - as amerged organisation.

Why will the merged organisation be moreeffective? There are three key reasons.

The breadth o service offer means a significantpresence or the merged organisation in localcommunities. A range o services rom “Op Shops”to aged care homes provides the opportunity orpersonal relationships with people in need and

with their amilies. Service breadth and scale givespresence and the opportunity to serve and buildtrust. This in turn provides the ability to reach manypeople with compassion and with the gospel. Thisopportunity to build trust is particularly importantas we seek to reach out to CALD communities.The merged organisation will be better resourcedto work alongside churches as we respond to thechanging ace o society in Sydney and the Illawarra.

The geographical spread o operations o the

merged organisation means that many partnershipswith parishes can be developed and implementedor new and innovative ways to reach into thecommunity - right across the Diocese. ARV and

The four priorities of Mission 2020 are to:

• Reach all the lost in our Diocese with thelie-giving gospel o Christ

• Deepen spiritual maturity among our members

• Equip our members to exercise their gifs

• Respond to the changing ace o our society

Why is a Merger being Proposed?



Anglicare combined currently reach about 50,000people - a similar number to the Diocesan total inchurch on Sundays. Services to the very young,the very old and everyone in between means thereis an opportunity or many, many introductions tolocal churches. In addition, it is a realistic objectivethat the merged organisation will be a specialistresource in ministry to the aged and to the sociallydisadvantaged, a resource available to and well usedby churches. There is huge potential or the mergedorganisation to work alongside churches in reachingall the lost in our Diocese.

The strong financial base o the mergedorganisation underwrites ministry capability andservices, giving confidence that chaplaincy andpastoral care remains an essential service andnot constrained financially. Moreover, there isan opportunity to increase unding available orchaplaincy and pastoral work.

Improving ourCompetitive Position

Historically, aged care services have beencontrolled by government with Approved Provider

status granted by government and required or anorganisation to receive government unding. Theallocation o residential care licences and HomeCareplaces (services provided to people in their homes)have also been controlled by government, withpeople requiring government approval beorereceiving subsidised aged care services. This ischanging and the pace o change has quickeneddramatically in the last 18 months.

Consumer Directed Care commenced in HomeCarelast year and clients increasingly have control ohow their subsidy unding is spent. From February2017, the government will allocate HomeCare

subsidy unding directly to consumers, notApproved Providers, and will cease control o theallocation o places - creating a truly competitivemarketplace . Similarly, Commonwealth HomeSupport Programs (CHSP), which service manymore clients, will also be subject to change,commencing July 2018. Service providers willprosper or ail in an open marketplace, beingsubject to the same competitive pressures as anyother consumer-led business.

The government has flagged that residential aged

care will ollow this path, with controls on thesupply o licences being removed, opening thesector up to genuine competition. It is generallyaccepted that Consumer Directed Care will beintroduced in some orm in residential aged carewithin the next five years.

In community and welare services, theimplementation o reorm measures proposedby the McClure Report has largely stalled as thegovernment has ailed to implement many o

its cost saving measures through the FederalParliament. However it is clear that the governmentis committed to reorm which simplifies the welarepayment system and which prioritises positiveemployment outcomes. Wherever we look ingovernment-unded services, money is tight andwill increasingly be so. In recent years competitivetendering or government unding contracts hasplaced increasing pressure on organisations to loweroverheads to a level that or smaller organisations

is becoming unsustainable. Service efficiency andvalue or money services are essential.

Greater scale will be an essential platorm movingahead to ensure that Anglicare and ARV ministriesnot only survive, but can continue to grow in theirreach and effectiveness.

Our serious uture competitors will be ’or-profit’service providers who have access to capital orgrowth. ARV and Anglicare have no access to capitalmarkets so must work with capital accumulatedthrough history. The good news is that througheffective stewardship there is a considerable

With prayer, focus, investment and strong

intent, there is an opportunity to ministermore effectively than ever.



capital base to work with. Merger means that thecombined equity can be used most effectively.

It is important to understand the strength ocompetitive orces as these market changes unold.There are five large national residential aged careservice providers: Bupa, Estia, Regis, Opal andJapara. About 180,000 people live in aged carehomes and in 2009 these five operators heldlicences or 9,000 aged care places. In 2015 theycollectively held 25,000. Each o them is workingtowards 10,000 residents. In residential aged

care, ARV has significant scale, 1,700 places, butAnglicare, with 450 places, will be challenged by theuture investment required in building standards,technology and specialist resources. Together, ARVand Anglicare are second in size in Greater Sydneyand the merger would position the organisation tocontinue to hold this significant presence.

National players have emerged in HomeCareservices – Silverchain, Feros, St Ives are namesbarely known in NSW five years ago but they

have been very successul nationally and aregrowing rapidly. Neither ARV (1,100 clients withgovernment-unded packages) nor Anglicare (400clients) currently has sufficient scale in HomeCareoperations to drive the cost structures necessaryto be a leading player in the new environment.Moreover, it is most unlikely that Anglicare’sHomeCare operations would survive the industrychanges planned or February 2017 because itsscale will not enable it to invest in the systems

needed in the new age o Consumer Directed Care.In the non-aged care welare space, there has alsobeen significant change in the landscape o serviceprovision, particularly in the disability sector as aconsequence o the roll-out o the National DisabilityInsurance Scheme (NDIS). The roll-out o theNDIS has seen the merger o small disability serviceorganisations and it is expected that this trend willcontinue as organisations seek to survive by buildingscale and efficiency in a system where unit pricing is

strictly regulated. Many disability organisations romNDIS launch sites have commented that they havenot been able to operate in a sustainable manner todate. A number o organisations that have to date

provided some disability services (as a small part oa suite o services) have made decisions to withdrawrom disability service provision. Anglicare itsel hasreduced the scope o its disability services asa consequence o the introduction o the NDIS,to concentrate in areas where it has greatercapability, notably certain services connectedwith children and youth.

Increased scale means that there is a muchbetter prospect o thriving in the increasinglycompetitive environment.

• Scale means greater capability at board andexecutive levels

• Scale increases capability to invest in the systemsneeded to compete effectively

• Scale means more opportunities to be innovativein service delivery

• Scale means higher capability in supportunctions, such as quality, learning &development and recruitment

• Scale increases the capital base or growth

and renewal

Increased scale brings a higher profile and greaterinfluence. The broad range o aged and communityservices means that the name and brand o themerged organisation will be widely promotedand widely known. This increase in profile, brandrecognition and presence will be crucial as we operatein this more competitive marketplace. Increased scalewill also enable a merged organisation to build upon

the strong track record o effective advocacy togovernment on behal o the most vulnerable.

Success in this competitive marketplace will enablethe Diocese to continue to provide services tothose vulnerable, “at the margin” people who are

experiencing hardship and exclusion. There is a vitalrole or gospel-driven care organisations to playin achieving sustained and effective solutions ormarginalised people in our community.

ARV and Anglicare have no betteropportunity to increase scale than to merge.



A Case in Point – HomeCare

Anglicare’s HomeCare operations comprise 400HomeCare clients, CHSP unding and otherservices, such as respite, therapy and social supportprograms, or around 3,500 clients with 16 daycentres. Total annual revenue is $19 million. ARV’sHomeCare operations comprise 1,100 HomeCareclients, CHSP home support unding and 4 daycentres. Total annual revenue is $31 million.

Both organisations are threatened by theincreasingly competitive market under ConsumerDirected Care and the February 2017 changeswhen unding or HomeCare packages will godirectly to consumers. In July 2018 the sameunding changes will occur or CHSP services.Succeeding in this new competitive market requireslower administration costs, valued high qualityservices, a high profile and effective marketing.

ARV has plans to reduce HomeCare administrationcosts rom 27% o revenue towards the 15%

required to be competitive. This primarily resultsrom creating a centralised operational supportarea, reducing regional inrastructure and becomingmore mobile and efficient through technology.Other plans work on service revenue - introducingnew services, growing services into retirementvillages and leveraging off complex care abilities.

Anglicare in its own right has similar plans but willbe unlikely to achieve comparable efficiencies dueto its smaller size o like operations. Operating

alone, Anglicare’s continuing presence in HomeCarewill be threatened in this changing environmentbecause its cost base is high and it doesn’t havethe scale to invest in systems and technologynecessary to compete.

Merging Anglicare’s and ARV’s HomeCare operations yields significant benefits. All operations can besupported by a new centralised structure andsystems and duplication o systems and operatingcosts would be avoided. Costs would be spreadover a bigger service load. The merged organisationwould compete effectively, giving confidence about acontinuing significant presence in HomeCare services.

There are other key merger benefits. Anglicare hasa really strong position in this market despite itssmaller scale – it is a profile on which the mergedoperations can be very effectively built. Thebroader geographic coverage gives greater scopeto service the merged organisation’s retirementvillage residents. Importantly, the combination oARV’s scale and capability in HomeCare serviceswith Anglicare’s strength in day centre operationsmeans a more rounded service offer and one thatcan be promoted and marketed to good effect.

HomeCare is indeed a case in point. We can expectthat we will be challenged in uture years in asimilar way in residential aged care services and incommunity services generally.

Greater Capability byStreamlining Costs

Removing duplication

A merger provides the opportunity to reduce costsin support services and management. There will beone executive team or the merged organisationand consolidation o support centre teams in areassuch as Finance and Accounting, Human ResourceManagement and Inormation Technology.Cost reduction is also possible in areas such asProcurement. It is anticipated that the mergedorganisation will require about 50 ewer positionsin support unctions.

Protecting HomeCare margins

In the emerging competitive environment oconsumer choice and user pays, the cost oadministration is becoming increasingly visibleto consumers and one o the key considerationsin choosing a provider. This is already the caseor HomeCare services. The synergies andsavings rom combining management structuresand support services would reduce the cost o

administration relative to revenue, increasingcompetitiveness, and releasing unds to provideservices or those we exist to serve. In the absence



o these savings there would be a significantdeterioration in financial results and very likelya loss in market position.

Adopting best practice

A merger o the two organisations providesthe opportunity to adopt the best practices oboth organisations. An example o this will beincorporating ARV’s established processes oroptimisation o government income in aged care,and well developed practices or monitoringmovements in real estate values and makingadjustment to accommodation pricing in retirementliving and residential aged care. Another examplewould be incorporating Anglicare’s Retro Paid Lossscheme or managing workplace saety and workerscompensation claims under the WHS Act which hassaved the organisation millions o dollars in insurancepremiums over the last our years. The applicationo best practice rom both organisations’ operationswill result in an increase in effectiveness.

The overall financial benefit

The impact o the above measures is estimatedas an annual benefit o $11 million, inclusive othe retention o HomeCare margins that wouldotherwise be lost. There is a one-off cost o $9million associated with merger restructure. Thelargest elements o this are rebranding costs andredundancy costs that are expected to be about$3 million each.

Offsetting these savings, there is a need to adopta single Enterprise Agreement or the mergedorganisation and this will involve considerable costo up to $5 million per annum. The majority othis cost results rom Anglicare rates o pay beinggenerally lower than ARV’s rates. Regardless owhich approach to Workplace Agreement renewalis taken, there will over time be a significant costassociated with the obligation to bring Anglicare’spay rates into line with ARV’s.

In summary, the merger acilitates significantfinancial benefits:

• Enhanced efficiency through revenue optimisation

• Fewer staff and other cost savings as duplicationis addressed

• Building the capability to invest in innovationand service enhancement which means that theorganisation does not just do more but it will alsodo it better and more effectively


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Our Purpose

Our Purpose

We are a Christian organisation with a heritage o service spanning more than 160 years.

We hold true to our Christian motivation while we adapt to meet

the changing needs o our society.

We exist to serve our community, enrich lie and demonstrate the love o Jesus.

We seek to share the gospel o Jesus Christ as we love and serve those

who are vulnerable, marginalised or ageing, respecting and valuing each

and every person as made in the image o the living God.

We offer lie-enriching care or each person, meeting material,

physical, emotional, social and spiritual needs.

And we do this in partnership with others, providing a range o services

that promotes dignity, saety, participation and wellbeing or people in

their relationships, homes and communities.

The three strategic benefits already described are o great significance and are built on the oundation oARV and Anglicare having a common purpose. This common purpose provides an opportunity to reset thesocial service purpose and strategy so that we are more effective as we reach out with mission-mindedand gospel-ocussed ministries.

Recent work on the proposed purpose o the mergedorganisation shows the extent to which the activitiesthat come together have a common oundation –that all we do is governed by our purpose to becompassionate and to share the love o Jesus.

We recognise that the people we serve haveneeds in common – needs or security, dignityand a sense o belonging. We see the themesthat run through all we do – they are the themeso ‘home’ and ‘community’. These are our strong

suits because both Anglicare and ARV have beenin the business o supporting people at home andin the community or many years and we havea wonderul base on which to build. Our servicerevolves around our ability to offer a home as asae place to live – and to support people to stayin their home. We make ourselves known to thepeople who need our services by playing a key rolein communities – through “Op Shops”, contactthrough parishes, emergency relie and throughadvocacy. We are certainly better together.

The merger is a major catalyst to share the love of Jesus in a very meaningful way.We are better together.



Name and Branding of the Merged Organisation

The identity, brand and naming o the merged organisation will be a vital part o the merger process.Research and consultation is already underway to ascertain the most suitable options and alternatives.Despite negative publicity or Christian denominations in the past two decades, the “Anglican” and“Anglicare” names are respected and widely known or gospel work and activities in education, aged care,community services and advocacy. Our aim is to build a strong legacy and identity or both organisationsas a combined orce.



Could ARV and Anglicare

continue as they are at present?There are three key implications to consider ithe merger does not proceed which impact bothorganisations and the people whom we serve.

Firstly, we would ail to grasp the opportunity toreset the ministry and social service agenda tosupport the Diocesan Mission. We would not bethe one strong organisation working alongsidechurches and with Standing Committee on common

objectives. We would miss an opportunity to expandthe breadth o services and ministry that wouldreach into new geographical areas and to differentethnic and cultural groups as we seek to share thelove o Jesus and we would limit the developmento expertise in ministry to vulnerable people and theability to share that capability with Sydney Anglicanchurches. These opportunities could not be graspedin the same way in the absence o a merger.

Secondly, and put simply, two organisations doing

similar work means wasted money. Money thatcan be put to better use by investing in systems orthe uture or in direct ront line services to peoplein need.

We would not be taking the steps necessaryto underpin our services in a more competitivemarketplace, and this is particularly important orservices provided by Anglicare. Anglicare’s disabilityservices are already being scaled back significantlyas a result o changes in government policy andunding. Both ARV’s and Anglicare’s HomeCareservices will be under competitive pressuresrom early 2017. Other Anglican non-aged carecommunity services that are unded by government,like Family Support Services and Out o Home Care,are likely to ace the same challenges in the mediumterm. All o these government-unded services arethereore more vulnerable.

These government-unded services currently

generate a margin over their direct costs and thatmargin contributes to the cost o the support

structure required to run Anglicare (supportservices). In effect, this subsidises the services thatare not unded by government revenue, servicessuch as Emergency Relie, Disaster Recovery,Prison and Hospital Chaplaincy and Researchand Advocacy (ununded services). The totalcontribution currently required to meet the cost osupport services is $15.4 million per annum and thecontribution to the cost o ununded services is $8million per annum.

We estimate that the competitive pressures bearing

on Disability, HomeCare and other non-aged carecommunity services will result in an annual reductiono $3.8 million in margin contribution over the nextew years. Staff modelling undertaken by Anglicareshows that an equivalent reduction in support costsis not achievable because it would render Anglicareless capable, less competitive and less relevant ina rapidly changing world. Achieving a break evenresult or the organisation in uture years wouldbe dependent on continuing receipts rom legaciesand continuing returns rom investment income. In

these circumstances it is likely that there would bepressure to reduce the scope o ununded services.

These competitive pressures will also be elt bythe merged organisation. However, the substantialincrease in scale means that support services canbe run more efficiently giving greater confidenceabout its ability to continue and indeed growununded services.

Thirdly and finally, we would not get the non-

financial benefits rom increased scale. This isparticularly important in the context o our profile.The new environment requires us to be visibleand ‘top o mind’ – being the first organisation toturn to when people are in need o security andcommunity. It is especially important that ARV isable to lif its profile to promote its capabilities. Lacko scale will also inhibit investment in systems andthe willingness and ability to innovate, because ourspending will overlap and be sub-optimal, meaning it

will be more difficult to keep up with industry leadersand consumer expectations.

What are the Implications if a Merger

does not Proceed?



Could Anglicare Sell its

Aged Care Operations toProtect its Future?

The Anglicare Council has considered the optiono selling aged care assets and operations in 2004and again in 2014. In 2014, Deloitte carried outa valuation o the Anglicare operations and valuedthe combined residential aged care, retirementvillage and HomeCare operations at a net value oapproximately $35 million. These operations could

be sold to ARV or another organisation, leavingAnglicare to concentrate on its other non-aged carecommunity services.

There would, o course, be significant financialimplications. In simple terms, the sale o its agedcare operations would affect Anglicare’s finances in2 main ways:

• Anglicare would benefit rom the investmentearnings on the sale proceeds – about $1.5

million each year• It would be necessary to significantly downsizethe Anglicare support services ollowing thesale o operations that currently generate morethan hal o Anglicare’s gross revenue (and whichcontribute almost $10 million to support servicecosts and to ununded services). A high levelreview has been undertaken that shows thatdrastic restructuring could reduce support servicecosts by $5.5 million. However, this wouldmean some areas o capability would be lost, theinvestment in systems to meet uture operatingneeds would not be viable and the quality andcapability o executive and management staffwould be diminished.

The net impact would put Anglicare into a sustainedloss making situation in uture years. In the absenceo new income sources or increased donations andlegacies, this would inevitably mean that unundedservices, the services that are at the heart oAnglicare, would be adversely impacted.

Further, Anglicare would have a lower profile, alower capability to work throughout the Diocese anddiminished growth prospects.

For these reasons this option is not viable.

It is vitally important to appreciate theextent to which the future looks differentfrom the past. In proposing that ARV andAnglicare are merged we are taking steps torespond to this more uncertain future.



In retirement living and residential aged careservices, the merged organisation would operate22 residential care homes serving 2,180 people,22 retirement villages serving 2,530 people andwould provide service to 1,500 people in theHomeCare program and in excess o 6,000 peoplein CHSP unded programs provided in home andthrough 20 day and respite centres.

A key eature o the merged organisation willbe its ability to carry orward the legacy oover a century o aged care and non-aged carecommunity service delivery in a way that addressesthe specific challenges and needs o GreaterSydney in the coming decades. The current scopeo community services will continue although itshould be recognised that Anglicare periodicallyconducts strategic assessments o each o itsservice lines based on parameters o capability,community need and ministry effectiveness. Thisprocess is envisaged to be a necessary attributeo conducting services that are tailored to meetneeds, achieve transormational outcomes and

be affordable to deliver. However, a mergedorganisation with a more streamlined supportstructure will provide a competitive edge orcommunity services, particularly in the area ocompetitive tendering or government contracts.

A merged organisation would augment ARV’salready significant chaplaincy ministry withAnglicare’s chaplaincy programs across hospitals,prisons, juvenile justice acilities and mentalhealth acilities, as well as Anglicare’s SocialPolicy Research and Advocacy unctions. ARV’slong standing practice o providing subsidisedaccommodation to retired Sydney clergy andmissionaries would continue unaffected.

The ollowing charts show the composition oactivity o the merged organisation. It is clearthat aged care services dominate. However, thistakes nothing away rom the significance o othercommunity services because they are at the ‘sharpend’ in terms o community need and opportunityor ministry to the vulnerable.

Merged Operations

Residential Care

Community Services

Support Services

Shops

Retirement Living

Homecare

37

40

49

55

180

Residential Care

Support Services

Homecare

Retirement Living

17

44703

318

Shops

Residential Care

Support Services

Homecare

Retirement Living

Community Services

1919

3532

3

6

108

Residential Care

Community Services

Support Services

Retirement Living

Homecare

22304

2530

2180

760514500

Revenue $m

Assets $m Clients

Staff Costs $m



The Strategic Opportunities

The current strategic plans o ARV and Anglicare identiy major work programs. These plans continuebut the merger itsel offers new strategic opportunities and these are collectively summarised below.This strategy blueprint is clearly a ull agenda and one that will firmly set the merged organisation on itsmissional path.

Ground our services inour purpose

• Prayer platorm established and effective

• Anglicare’s “Christian Care” training continuum is deployed andembedded across the practice o all services

• All services continually evaluated and transitioned or maximum

potential or compassion and ministry• Invest proportionately in ministry staff – 1.5% o revenue

• Widespread parish partnerships – mobilise volunteers andequip them or pastoral ministry

• Ministry capability developed or culturally and linguisticallydiverse (CALD) areas

• Ministry expertise with age related situations – or exampledementia, “shut-ins”

Equip our people

for service

• Recruit the best with effective tools

• Set and meet diversity targets – gender and ethnic

• Programs or high staff engagement

• Capability – invest in leadership development, effectiveperormance management

• Move staff to a consumer directed/commercially aware culturethrough training and coaching

• Sae working environment continually improves outcomes

Grow and improve

our services

• ARV’s care model “Rhythm o Lie” implemented ully

throughout residential services• “Rhythm o Lie” equivalent or all client services

• Identiy and invest in opportunities to serve the needs o morevulnerable clients

• Built environment – renewal o old aged care homes andretirement villages to standard

• Complete planned $730 million pipeline property developments

• Build property pipeline or development in 2020s

• Technology leader in our space to improve service to residentsand clients

• Build advocacy capability or key client groups, especiallyvulnerable and socially excluded



Expand our services • New services into low socio-economic areas• Well developed ”ront-end” introduction to services or

example through parish partnerships, “Op Shops”

• Significant HomeCare service growth through effective

marketing, excellent service and efficient operations• Accommodation and service or vulnerable people – at risk o

homelessness’ crisis accommodation, day and overnight centres

Resource our services • Efficiency through adoption o technology• Financial disciplines – financial return and perormance

expectations or all programs and activities

• New income streams – or example ee or service, communityhousing provider

Financial Outlook

Pro-orma financial inormation (financials) has been prepared or the our years through to 2020 andis included as Appendix within this report. The financials include the synergies discussed previously andthe one-off costs o achieving the merger. This inormation is based on budgets and orecasts preparedby Anglicare and ARV in 2015 and it is planned to update these budgets and orecasts over the next ewmonths in readiness or the commencement o operations.

FY17($m)

FY18($m)

FY19($m)

FY20($m)

Total Revenue 322 333 367 398

EBITDA (Earnings Beore Interest, Tax, Depreciation and Amortisation) 32 50 63 72

Operating surplus (2) 10 16 20

Operating cash flow 13 29 40 46

Net cash flow 21 (59) 43 57

Capital expenditure 199 223 184 222

Cash and investments 408 350 393 449

Accumulated funds (equity) 297 308 324 344



Important observations about the orecast include:

• FY17 EBITDA o $32 million includes mergerrestructuring costs o $9 million

• Afer FY17, EBITDA shows healthy growth

• Net cash flow is subject to the major influences oproperty development outlays and receipts rom‘sale’ o newly developed property. The timingo these cash flows means there is a net cashoutflow in FY18

• Capital expenditure over the our yearstotals $828 million, o which $730 million is

development capital. There is an increase in thebalance o cash and investments over the period.

Overall, this financial position will enable themerged organisation to pursue its strategies inkeeping with its purpose and its mission.

What is the Future forAnglicare’s services in

an Aged Care DominatedOrganisation?

About 40% o Anglicare’s revenue is derivedrom operations that are broadly categorised ascommunity operations and about 60% is derivedrom aged care operations. Within communityoperations are government-unded programslike Disability and Mental Health Services, FamilyServices and Out o Home Care. Anglicare’s

involvement in these services has changed overtime and will continue to change as communityneeds and unding structures change.

The non-unded and partially unded communityservices are at the very heart o Anglicare - likeEmergency Relie, Prison & Hospital Chaplaincy,Disaster Recovery Services and Research &Advocacy or society’s marginalised.

These are the services that the mergedorganisation plans not only to sustain but to grow,reaching more people with compassion and withministry. How can we be sure about this?

• Service to the vulnerable and the marginalisedis at the heart o the purpose o the mergedorganisation, written into its constitution

• It is the key to relationships with parishes and themain area o opportunity to work with parishes

• These ununded services greatly assist withthe development o the organisation’s profile

- Advocacy and Emergency Relie in particularreach a very large number o people and thisprofile is so important to the ull range o servicesprovided by the merged organisation

• Fund raising and legacies are directed to theseununded services

• Business principles have been proposed that seean income stream rom investments set aside orununded services

Financial orecasts show that there is scope to

develop new programs to address emergingneeds among the vulnerable and marginalised andthis would be the case with the adoption o theprinciples outlined above.

It is important that the merged organisation isaccountable to and reports regularly to StandingCommittee and Synod on the continuingeffectiveness o this crucial area o operations.And it is important that Standing Committee holds

the merged organisation accountable, or exampleby reviewing annual objectives and calling orregular reporting against those objectives. Thisis an opportunity to align the objectives o themajor Diocesan agency and the Diocese throughvery meaningul engagement between StandingCommittee and the new organisation. This level oengagement has not previously been the case oreither Anglicare or ARV.



What are the implications for

Anglicare’s involvement with victims of child abuse?

For many years Anglicare has responded toclaims arising rom past incidences o child abuseperpetrated in institutions operated by the Churcho England Homes and the Sydney Anglican HomeMission Society. Standing Committee has recentlyresolved that the Synod should not allow thestructure o the Diocese and Diocesan organisations

to be an impediment to meeting legitimateobligations associated with Anglicare, particularlythose arising rom historic child abuse claims.Anglicare will continue to respond to such claimsand the arrangements that will enable Anglicare todo so are described in a later section o this report.

Risk Assessmentand Mitigation

Importantly, a merger risk register and assessmenthas been prepared. The ollowing key risks havebeen considered:

• The two cultures may not combine as effectivelyas anticipated

• There is loss o key personnel due to uncertainty

• Distraction is caused by the merger with adisruption to business continuity

• There is a lack o effective change managementmeaning merger benefits are not achieved

• Alienation o stakeholders – donors,volunteers, residents

• Delay in the approval process, includingregulatory approvals

• Systems integration is problematic

Controls or risk mitigation have been identifiedas ollows:

• Board oversight o the merger integration program

• Establishment o a Merger Program Office

• Clarity at the time o merger on key areassuch as branding, vision/mission/values andorganisational structure

• A comprehensive communications plan, includingeedback loops with staff and stakeholders usingconsistent messaging

• Training in change management and effective

communications• Disciplined timetables and outcome measures



The Anglicare Council and ARV Board recommendedprocesses or both board selection and CEOrecruitment. These recommendations have beenconsidered by the Archbishop and Chairmandesignate and a separate report hasbeen prepared that covers these matters.

Next Steps

It should be noted that the assets o ARV andAnglicare can be used only in urthering purposeso public benevolence as required under charity

and tax law and as articulated in the objects o thetwo organisations, not or any other purpose. Theramers o the merger proposal have been acutelyaware o this need.

As noted already, the preerred transactionstructure envisages a transer o assets romAnglicare to ARV. This transaction anticipatesan in principle approval o the merger proposal

being sought rom Synod, ollowed by actions oStanding Committee, in passing ordinances andresolutions to effect this merger proposal.

The proposed legal structure or the merger,which has been reviewed by legal firm Ashurst,in substance involves the transer o Anglicare’sassets to ARV through a variation o trusts, with aconcurrent provision o an indemnity rom ARV toAnglicare or liabilities which are not readily capableo transer to ARV. The merged organisation willthereore be operated by the existing ARV entity.

ARV will assume Anglicare’s statutory liabilitiesunder government aged care legislation (residentdeposits) and under the Retirement Villages

Act (resident loans). The intention is that otherliabilities will remain with Anglicare and be coveredby the indemnity, including accounts payableand historic employee provisions. Contingent orpotential liabilities, including potential uture childabuse claims, will also be covered by the indemnity.

ARV will indemniy Anglicare against its liabilities(actual and contingent) or an amount to bedetermined by reerence to the enterprise value oAnglicare at the date o transer o the assets. This

amount will be indexed. This value will be establishedby independent valuation. This method o setting theindemnity has been reviewed by legal advisers.

Based on actuarial advice rom Price WaterhouseCoopers (PwC) about the extent o the utureliability or child abuse claims and the enterprisemarket valuation conducted by Deloitte in 2014o Anglicare, the indemnity:

1. will be established at a value that is expectedto be a multiple o the estimated value o theactual and contingent liabilities and

2. will be adequate to meet any uture claims suchas those arising rom incidences o past childabuse, which occurred either in the Sydney

Anglican Home Mission Society or in the Churcho England Homes, rom both a legal and moralresponsibility perspective.

This indemnity approach is designed to ensure thatthe position o victims o abuse is, as ar as can beachieved in practice, the same as i Anglicare hadcontinued to operate in its own right.

Further inormation about the legal mechanism toachieve this merger o operations will be provided

with draf ordinances as part o the main mailing toSynod members.

How the Merger would Proceed

Who is Responsible for Moving

this Forward?



The ordinance o ARV will need to be amended,expanding the objects o public benevolence toreflect the broader scope o activities that theorganisation will conduct as a consequence othe merger.

Assuming Synod approval, rulings and consentsrom the ACNC, NSW Office o State Revenueand ATO will be sought. Various consents

rom government unding bodies and licensingauthorities will also be sought.

As the rulings and consents rom the variousauthorities are critical, it is envisaged that theentry into orce o the ordinances will beconditional upon all the necessary rulings andconsents having been obtained.



Conclusion

We strongly recommend the merger to Synod. It is our belief that merger will achievethe following benefits.

• Create a powerul agency working alongside parishes in hard to reach communities, sharing thegospel with vulnerable people in great need

• Position our crucial work to succeed in a rapidly changing service environment and having thescale to innovate and invest

• Establish increased profile, effective in promoting services and prominent in promoting our belies

• Provide a pre-emptive response to the competitive and unding pressures that we anticipate,which would otherwise negatively impact, particularly on Anglicare’s activities

• Enable growth in service and ministry to the marginalised and socially disadvantaged

• Deliver savings rom removal o duplicated support structures and adoption o best practices

Grant Millard | Rob FreemanMarch 23, 2016



Appendix



Appendix – Pro-forma Financials 2017-2020 Consolidated

Financial year FY17 FY18 FY19 FY20

Financial units $m $m $m $m

INCOME STATEMENT

INCOME

Resident + Client Fees 66.4 69.5 76.2 81.7Accommodation 17.2 22.4 26.1 29.1

Subsidies 195.5 197.3 217.5 233.9

Lease DMF* income 33.2 33.7 36.3 41.0

Other 9.1 9.9 11.3 11.9

Total income 321.5 332.9 367.4 397.6

EXPENDITURE

Salaries & wages (202.6) (206.4) (222.9) (239.1)

Operations (84.8) (83.1) (87.8) (92.5)

Depreciation (48.6) (52.9) (59.9) (66.8)Total expenditure (335.9) (342.4) (370.6) (398.4)

Gross profit (14.4) (9.5) (3.2) (0.8)

OTHER INCOME & CHARGES

Restructuring Cost (8.6) - - -

Legacies/Fundraising 6.2 6.2 6.2 6.2

Interest income 14.7 13.4 13.1 15.1

Total other income & charges 12.4 19.6 19.3 21.3

Operating surplus/(deficit) (2.1) 10.0 16.0 20.4

EBITDA 31.8 49.5 62.9 72.2

CASH FLOW MOVEMENT

Operating surplus/deficit (2.1) 10.0 16.0 20.4

Add: depreciation 48.6 52.9 59.9 66.8

Lease DMF income (33.2) (33.7) (36.3) (41.0)

Operating cash flow 13.3 29.2 39.7 46.2

Capital Expenditure (199.2) (223.3) (184.3) (221.6)

Property sales 11.6 - - -

Capital receipts - residents 195.4 135.6 187.3 232.0

Net cash flow 21.1 (58.5) 42.6 56.7

BALANCE SHEET

Cash and Investments 408.2 349.8 392.5 449.2

Fixed assets 1,232.9 1,403.3 1,527.6 1,682.3

Resident loans (1,326.8) (1,428.7) (1,579.6) (1,770.6)

Other assets/(liabilities) (16.9) (16.9) (16.9) (16.9)Net assets 297.4 307.5 323.5 344.0

* deferred management fee



Appendix – Pro-forma Financials 2016 ARV and Anglicare

Financial year 2016 ARV Anglicare Consolidated

Financial units $m $m $m

INCOME STATEMENT

INCOME

Resident + Client Fees 46.3 19.1 65.4

Accommodation 11.3 3.2 14.5

Subsidies 121.9 79.2 201.1

Lease DMF* income 26.1 1.1 27.2

Other 6.4 1.7 8.0

Total income 212.0 104.2 316.2

EXPENDITURE

Salaries & wages (132.2) (70.0) (202.3)

Operations (46.1) (36.1) (82.2)

Depreciation (37.4) (6.1) (43.5)Total expenditure (215.7) (112.2) (327.9)

Gross profit (3.7) (8.0) (11.7)

OTHER INCOME & CHARGES

Legacies/Fundraising 0.8 5.4 6.2

Interest income 9.5 5.3 14.8

Total other income & charges 10.3 10.7 21.0

Operating surplus/(deficit) 6.6 2.7 9.3

EBITDA 34.5 3.5 38.0

CASH FLOW MOVEMENT

Operating surplus/deficit 6.6 2.7 9.3

Add: depreciation 37.4 6.1 43.5

Lease DMF income (26.1) (1.1) (27.2)

Transers to/(rom) reserves - (1.0) (1.0)

Operating cash flow 17.9 6.7 24.6

Capital Expenditure (223.4) (8.2) (231.5)

Prepaid government income - (4.7) (4.7)

Property sales 15.0 13.0 28.0

Capital receipts - residents 149.1 1.5 150.6

Net cash flow (41.3) 8.2 (33.1)

BALANCE SHEET

Cash and Investments 276.1 110.9 387.0

Fixed assets 972.0 110.3 1,082.3

Resident loans (1,084.9) (79.7) (1,164.6)Other assets/(liabilities) (3.4) (13.5) (16.9)

Net assets 159.8 128.0 287.8

* deferred management fee


34/34

Phone(02) 9421 5333

Postal AddressPO Box 284, Castle Hill NSW 1765

Street Address

Level 2, 62 Norwest Boulevardlkh ll

Phone(02) 9895 8000

Postal AddressPO Box 427, Parramatta NSW 2124

Street Address

16 Parkes Street

arv.org.auanglicare.org.au
https://www.arv.org.au/https://www.anglicare.org.au/https://www.anglicare.org.au/https://www.arv.org.au/

jointceospaper_bettertogther march 23 2016_anglicare and arv

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