MERGER CONSIDERATIONS

Better Together

Prepared by
Rob Freeman CEO Anglican Retirement Villages
Grant Millard CEO Anglicare
March 23, 2016

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 of 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 for Anglicares services in an
Aged 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-forma Financials

Foreword by the CEOs

Grant Millard

Rob Freeman

CEO Anglicare

CEO Anglican Retirement Villages

March 23, 2016

The purpose of this paper is to detail the

important matters that have led both the
Anglicare Council and the ARV Board to
recommend that it is in the best interests
of both organisations and in the interests
of serving the cause of the gospel in
the Diocese of Sydney that the two
organisations be merged.

The rationale for merger is compelling

and future-facing and is built on three
key benefits.
1. T
 he merger provides a new and
extended platform for supporting
the Diocesan Mission through an
expanded reach into the community
and the ability to minister to, and
share the gospel with, people
who would never otherwise enter
a church.
2. T
 he merger means greater scale
our competitive position improves,
with a solid foundation provided for
the continuation and expansion of
our services and ministries.
3. T
 he merger removes duplication,
reduces operating costs, and
enables greater capability.
These benefits are described in greater
detail within this report.

Merger Considerations Better Together | March 23, 2016

Our Two Organisations

Anglicare Sydney was originally established as the Church Society in 1856.
The original church planting function of the Church Society grew to include
childrens welfare and benevolent work by the start of the 20th Century.
The Church Society became the Home Mission Society in 1911, and then
Anglicare in 1997. Anglicares aged care work commenced in 1943 and the first Chesalon home was
established in Summer Hill in 1952.
Anglicare Sydneys operations extend from Mona Vale and Hornsby in the north, to Lithgow in the west and
from Bondi in the east, to Ulladulla in the south of the Diocese of Sydney. There is one retirement village
located at Oran Park (operating but with further stages to be completed), and six residential aged care
facilities, home to 450 residents. A seventh residential aged care facility for 100 residents to be built at
Oran 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 wider
community and operates 16 community day centres.
Anglicare Sydney also undertakes a wide range of community services and welfare activities. The more
substantial services are government-funded, including the following:
Out of Home Care (OOHC) services for children
and young people including foster care, adoptions
and residential care
Migrant and refugee services
Counselling services

Family and parenting support

Youth Programs
Disability support and carer support services
Mental health programs

Other services are unfunded, or partially funded by government and depend on donations and legacies,
including the following:
Sustainable Living, including emergency relief,
financial counselling, capacity building, no interest
loans and low interest Step Up loans
Disaster Recovery services following
natural disasters

Chaplaincy in hospitals, prisons, mental health

facilities and aged care facilities
Social Policy Research and Advocacy group
which punches above its weight in advocating
for its constituency

Merger Considerations Better Together | March 23, 2016

Anglicare also operates 19 Op Shops that meet

the needs of many Sydney people with about
500,000 customer visits each year.
Anglicare (and Anglicare Sydney where relevant)
is the trading name utilised by the Sydney Anglican
Home Mission Society and it is the registered owner
of the name in NSW. Anglicare is one of the largest
members of the Anglicare Australia (AA) network of
agencies operating throughout Australia. The name
Anglicare is used by a number (but by no means
all) of AA member agencies operating in areas
outside the Diocese of Sydney, including throughout
other parts of the State of NSW. This broader use
of the Anglicare name gives national visibility
and recognition but can also give rise to adverse
instances of mistaken identity and reputational harm.
Employing around 1,400 staff, most of whom
work part time, Anglicare also has around 1,400
volunteers. Through its programs Anglicare assisted
approximately 41,000 people across the Sydney
Diocese in 2015 (this figure excludes the 500,000
people who use Anglicares Op Shops every year).

to a level of financial sustainability. This has

involved focus on more accurate cost allocation to
programs, the efficient use of property, improving
financial performance of residential aged care
operations and increasing accountability for how all
Anglicares activities address the whole mission of
the organisation. There is a recognition that more
needs to be done to reduce Anglicares central and
regional costs while providing the type of central
services which equip the organisation to make sound
commercial judgments and to compete effectively
on service quality and cost. Every year Anglicare
Sydney raises money through donations, legacies and
bequests, which average $5.4 million per annum, in
order to fund initiatives and to establish the capital
base to undertake sustainable ministry for the future.
Anglicare remains committed to pastoral care
and assistance for former residents of Childrens
Homes run by Anglicare in the past, or run by
other organisations for which Anglicare has taken
responsibility. Anglicare has been able to fund
claims out of its own resources without material
detriment to other activities.

For the past two years Anglicare has been on a

journey of transitioning its programs and services

Merger Considerations Better Together | March 23, 2016

Lithgow

Richmond
Hornsby
Katoomba

Mona Vale

Penrith
Parramatta
Bondi

Liverpool
Sutherland
Campbelltown

Wollongong
Moss Vale

ANGLICARE
SERVICE SITES
Anglicare Shop

Nowra

Chaplaincy
Aged Care
Community Program
Head Office
Anglican Diocese of Sydney
Rest of NSW

Ulladulla

Services south of the Diocese of Sydney:

Anglicare Moruya Office,
Anglicare Bega Office.

Anglicare Services Within the Anglican Diocese of Sydney

Merger Considerations Better Together | March 23, 2016

The Mowll Memorial Village for Aged People opened at Castle Hill in 1960.
Since then, Anglican Retirement Villages (ARV) has been serving older people
through housing, accommodation and care services.
ARVs retirement living and residential care presence extends south to
Dapto, north to Warriewood and west to Penrith. There are 21 retirement
villages accommodating 2,400 people and 16 residential aged care homes
accommodating 1,730 people.
Since 1993, ARV has grown in the provision of government-funded
community services, currently serving 1,100 HomeCare clients and about
2,000 Community Home Support Program (CHSP) clients. ARV has 4 day
respite centres. ARV operates a Central Laundry and Central Production
Kitchen from premises in Glendenning and Norwest which support all 16 ARV
residential aged care homes.
ARV employs 2,400 staff, most of whom work part time. While ARV is well
known for its retirement village operations, most staff work in residential care
homes. This work is a crucial ministry to people at the end of their lives and to
their families who are very often in emotionally challenging situations. About
1,500 volunteers are engaged by ARV, each year providing about 175,000
hours of service. ARV Foundation for Aged Care raises approximately
$0.8 million per annum through donations and legacies.

Merger Considerations Better Together | March 23, 2016

ARVs strategy has most recently included

the following.
Broaden its service offer to people with limited
financial means, including a program to establish
accommodation for people at risk of homelessness
Increase ministry ambitions - with non-Christian
residents, staff, community clients and resident
families now seen as within reach of pastoral care
and the gospel
Introduce a new model of care called Rhythm
of Life, which has fundamentally changed life
in residential care homes as daily life routines
are based on the needs and desires of residents

rather than the traditional routines and work

programs of the aged care homes
Establish new services in areas with greater
cultural diversity and lower average rates
of household income, with recent property
acquisitions in Rooty Hill and Minto
Annual reports and certain financial information for
Anglicare and ARV may be located on the websites
of each organisation at www.anglicare.org.au
and www.arv.org.au.

Merger Considerations Better Together | March 23, 2016

MONA VALE
Hawkesbury

The Ponds

NORTH

Glenhaven

HILLS & WEST

Turramurra
Pymble
Gordon

Castle Hill

Blue Mountains
Penrith

Warriewood

Forestville

Winston Hills

Caddens

PARRAMATTA
SYDNEY

Glebe

Rushcutters Bay

CITY & EAST

Alexandria

LIVERPOOL

Woollahra

St George
Hurstville

CAMPBELLTOWN

Taren Point

CRONULLA
Kirrawee

SOUTH

WOLLONGONG

Port Kembla

Bowral
Dapto

KEY
FURTHER SOUTH

Retirement Living

Shoalhaven

Residential Care

Eurobodalla

HomeCare

ARV Services Within the Anglican Diocese of Sydney

Merger Considerations Better Together | March 23, 2016

Why is a Merger being Proposed?

There are 3 key reasons for the proposed
Anglicare/ARV merger.

local parishes beyond the funding of local clergy to

minister within retirement villages.

Supporting the Diocesan Mission

Improving competitive position
Initiating greater capability by
streamlining costs

Both Anglicare and ARV preference the employment

of Christians, especially in management roles, and
this practice will continue to be a fundamental
aspect of employment decisions.

Supporting the
Diocesan Mission
The four priorities of Mission 2020 are to:
Reach all the lost in our Diocese with the
life-giving gospel of Christ
Deepen spiritual maturity among our members
Equip our members to exercise their gifts
Respond to the changing face of our society
It is essential that Diocesan organisations work
in partnership with parishes and the broader
church to reach all the lost a calling explicitly
acknowledged by Anglicare, as parish partnerships
is one of three elements of its mission statement.
Anglicare has a broad base for parish engagement
and more parish partnerships than ARV, with
its name and work widely recognised within
the church. Over the last ten years Anglicare
has focussed heavily on articulating its gospel
motivation and developing a model of Christian
care in which its programs and staff are encouraged
and equipped to Care like Christ, Care towards
Christ and Care alongside Christs people,
mirroring Anglicares three-fold mission to care, to
proclaim the gospel and to partner with parishes.
Over recent years, ARV has engaged with many
parishes and developed strong relationships with
those parishes where there are arrangements in
place for employment of chaplains. ARV seeks to
be more visible and relevant to the broader church.
Increasingly, ARV is building substantive partnerships
to develop services in areas where there has been no
previous capability, including Rooty Hill and Quakers
Hill. These partnerships will have engagement with

There are key factors pointing to strong alignment of

the ministry objectives of the merged organisation
with the Diocesan Mission: the ability to work with
parishes in engaging a community much wider than
the parish community, the opportunity for ministry
through the many settings in which the merged
organisation would operate, the ability to present
the gospel through the large number of personal
relationships that are developed, and the fact that
the merged organisation would be working at the
front line in a city that is diversifying and changing
demographically, importantly with many people
from culturally and linguistically diverse (CALD)
communities. With prayer, focus, investment
and strong intent there is opportunity to do
this work more effectively than ever - as a
merged organisation.
Why will the merged organisation be more
effective? There are three key reasons.
The breadth of service offer means a significant
presence for the merged organisation in local
communities. A range of services from Op Shops
to aged care homes provides the opportunity for
personal relationships with people in need and
with their families. Service breadth and scale gives
presence and the opportunity to serve and build
trust. This in turn provides the ability to reach many
people with compassion and with the gospel. This
opportunity to build trust is particularly important
as we seek to reach out to CALD communities.
The merged organisation will be better resourced
to work alongside churches as we respond to the
changing face of society in Sydney and the Illawarra.
The geographical spread of operations of the
merged organisation means that many partnerships
with parishes can be developed and implemented
for new and innovative ways to reach into the
community - right across the Diocese. ARV and

Merger Considerations Better Together | March 23, 2016

10

Anglicare combined currently reach about 50,000

people - a similar number to the Diocesan total in
church on Sundays. Services to the very young,
the very old and everyone in between means there
is an opportunity for many, many introductions to
local churches. In addition, it is a realistic objective
that the merged organisation will be a specialist
resource in ministry to the aged and to the socially
disadvantaged, a resource available to and well used
by churches. There is huge potential for the merged
organisation to work alongside churches in reaching
all the lost in our Diocese.
The strong financial base of the merged
organisation underwrites ministry capability and
services, giving confidence that chaplaincy and
pastoral care remains an essential service and
not constrained financially. Moreover, there is
an opportunity to increase funding available for
chaplaincy and pastoral work.
With prayer, focus, investment and strong
intent, there is an opportunity to minister
more effectively than ever.

Improving our
Competitive Position
Historically, aged care services have been
controlled by government with Approved Provider
status granted by government and required for an
organisation to receive government funding. The
allocation of residential care licences and HomeCare
places (services provided to people in their homes)
have also been controlled by government, with
people requiring government approval before
receiving subsidised aged care services. This is
changing and the pace of change has quickened
dramatically in the last 18 months.
Consumer Directed Care commenced in HomeCare
last year and clients increasingly have control of
how their subsidy funding is spent. From February
2017, the government will allocate HomeCare

subsidy funding directly to consumers, not

Approved Providers, and will cease control of the
allocation of places - creating a truly competitive
marketplace. Similarly, Commonwealth Home
Support Programs (CHSP), which service many
more clients, will also be subject to change,
commencing July 2018. Service providers will
prosper or fail in an open marketplace, being
subject to the same competitive pressures as any
other consumer-led business.
The government has flagged that residential aged
care will follow this path, with controls on the
supply of licences being removed, opening the
sector up to genuine competition. It is generally
accepted that Consumer Directed Care will be
introduced in some form in residential aged care
within the next five years.
In community and welfare services, the
implementation of reform measures proposed
by the McClure Report has largely stalled as the
government has failed to implement many of
its cost saving measures through the Federal
Parliament. However it is clear that the government
is committed to reform which simplifies the welfare
payment system and which prioritises positive
employment outcomes. Wherever we look in
government-funded services, money is tight and
will increasingly be so. In recent years competitive
tendering for government funding contracts has
placed increasing pressure on organisations to lower
overheads to a level that for smaller organisations
is becoming unsustainable. Service efficiency and
value for money services are essential.
Greater scale will be an essential platform moving
ahead to ensure that Anglicare and ARV ministries
not only survive, but can continue to grow in their
reach and effectiveness.
Our serious future competitors will be for-profit
service providers who have access to capital for
growth. ARV and Anglicare have no access to capital
markets so must work with capital accumulated
through history. The good news is that through
effective stewardship there is a considerable

Merger Considerations Better Together | March 23, 2016

11

capital base to work with. Merger means that the

combined equity can be used most effectively.
It is important to understand the strength of
competitive forces as these market changes unfold.
There are five large national residential aged care
service providers: Bupa, Estia, Regis, Opal and
Japara. About 180,000 people live in aged care
homes and in 2009 these five operators held
licences for 9,000 aged care places. In 2015 they
collectively held 25,000. Each of them is working
towards 10,000 residents. In residential aged
care, ARV has significant scale, 1,700 places, but
Anglicare, with 450 places, will be challenged by the
future investment required in building standards,
technology and specialist resources. Together, ARV
and Anglicare are second in size in Greater Sydney
and the merger would position the organisation to
continue to hold this significant presence.
National players have emerged in HomeCare
services Silverchain, Feros, St Ives are names
barely known in NSW five years ago but they
have been very successful nationally and are
growing rapidly. Neither ARV (1,100 clients with
government-funded packages) nor Anglicare (400
clients) currently has sufficient scale in HomeCare
operations to drive the cost structures necessary
to be a leading player in the new environment.
Moreover, it is most unlikely that Anglicares
HomeCare operations would survive the industry
changes planned for February 2017 because its
scale will not enable it to invest in the systems
needed in the new age of Consumer Directed Care.
In the non-aged care welfare space, there has also
been significant change in the landscape of service
provision, particularly in the disability sector as a
consequence of the roll-out of the National Disability
Insurance Scheme (NDIS). The roll-out of the
NDIS has seen the merger of small disability service
organisations and it is expected that this trend will
continue as organisations seek to survive by building
scale and efficiency in a system where unit pricing is
strictly regulated. Many disability organisations from
NDIS launch sites have commented that they have
not been able to operate in a sustainable manner to
date. A number of organisations that have to date

provided some disability services (as a small part of

a suite of services) have made decisions to withdraw
from disability service provision. Anglicare itself has
reduced the scope of its disability services as
a consequence of the introduction of the NDIS,
to concentrate in areas where it has greater
capability, notably certain services connected
with children and youth.
Increased scale means that there is a much
better prospect of thriving in the increasingly
competitive environment.
Scale means greater capability at board and
executive levels
Scale increases capability to invest in the systems
needed to compete effectively
Scale means more opportunities to be innovative
in service delivery
Scale means higher capability in support
functions, such as quality, learning &
development and recruitment
Scale increases the capital base for growth
and renewal
Increased scale brings a higher profile and greater
influence. The broad range of aged and community
services means that the name and brand of the
merged organisation will be widely promoted
and widely known. This increase in profile, brand
recognition and presence will be crucial as we operate
in this more competitive marketplace. Increased scale
will also enable a merged organisation to build upon
the strong track record of effective advocacy to
government on behalf of the most vulnerable.
ARV and Anglicare have no better
opportunity to increase scale than to merge.
Success in this competitive marketplace will enable
the Diocese to continue to provide services to
those vulnerable, at the margin people who are
experiencing hardship and exclusion. There is a vital
role for gospel-driven care organisations to play
in achieving sustained and effective solutions for
marginalised people in our community.

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12

A Case in Point HomeCare

Anglicares HomeCare operations comprise 400
HomeCare clients, CHSP funding and other
services, such as respite, therapy and social support
programs, for around 3,500 clients with 16 day
centres. Total annual revenue is $19 million. ARVs
HomeCare operations comprise 1,100 HomeCare
clients, CHSP home support funding and 4 day
centres. Total annual revenue is $31 million.
Both organisations are threatened by the
increasingly competitive market under Consumer
Directed Care and the February 2017 changes
when funding for HomeCare packages will go
directly to consumers. In July 2018 the same
funding changes will occur for CHSP services.
Succeeding in this new competitive market requires
lower administration costs, valued high quality
services, a high profile and effective marketing.
ARV has plans to reduce HomeCare administration
costs from 27% of revenue towards the 15%
required to be competitive. This primarily results
from creating a centralised operational support
area, reducing regional infrastructure and becoming
more mobile and efficient through technology.
Other plans work on service revenue - introducing
new services, growing services into retirement
villages and leveraging off complex care abilities.
Anglicare in its own right has similar plans but will
be unlikely to achieve comparable efficiencies due
to its smaller size of like operations. Operating
alone, Anglicares continuing presence in HomeCare
will be threatened in this changing environment
because its cost base is high and it doesnt have
the scale to invest in systems and technology
necessary to compete.
Merging Anglicares and ARVs HomeCare operations
yields significant benefits. All operations can be
supported by a new centralised structure and
systems and duplication of systems and operating
costs would be avoided. Costs would be spread
over a bigger service load. The merged organisation
would compete effectively, giving confidence about a
continuing significant presence in HomeCare services.

There are other key merger benefits. Anglicare has

a really strong position in this market despite its
smaller scale it is a profile on which the merged
operations can be very effectively built. The
broader geographic coverage gives greater scope
to service the merged organisations retirement
village residents. Importantly, the combination of
ARVs scale and capability in HomeCare services
with Anglicares strength in day centre operations
means a more rounded service offer and one that
can be promoted and marketed to good effect.
HomeCare is indeed a case in point. We can expect
that we will be challenged in future years in a
similar way in residential aged care services and in
community services generally.

Greater Capability by
Streamlining Costs
Removing duplication
A merger provides the opportunity to reduce costs
in support services and management. There will be
one executive team for the merged organisation
and consolidation of support centre teams in areas
such as Finance and Accounting, Human Resource
Management and Information Technology.
Cost reduction is also possible in areas such as
Procurement. It is anticipated that the merged
organisation will require about 50 fewer positions
in support functions.
Protecting HomeCare margins
In the emerging competitive environment of
consumer choice and user pays, the cost of
administration is becoming increasingly visible
to consumers and one of the key considerations
in choosing a provider. This is already the case
for HomeCare services. The synergies and
savings from combining management structures
and support services would reduce the cost of
administration relative to revenue, increasing
competitiveness, and releasing funds to provide
services for those we exist to serve. In the absence

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13

of these savings there would be a significant

deterioration in financial results and very likely
a loss in market position.
Adopting best practice
A merger of the two organisations provides
the opportunity to adopt the best practices of
both organisations. An example of this will be
incorporating ARVs established processes for
optimisation of government income in aged care,
and well developed practices for monitoring
movements in real estate values and making
adjustment to accommodation pricing in retirement
living and residential aged care. Another example
would be incorporating Anglicares Retro Paid Loss
scheme for managing workplace safety and workers
compensation claims under the WHS Act which has
saved the organisation millions of dollars in insurance
premiums over the last four years. The application
of best practice from both organisations operations
will result in an increase in effectiveness.

In summary, the merger facilitates significant

financial benefits:
Enhanced efficiency through revenue optimisation
Fewer staff and other cost savings as duplication
is addressed
Building the capability to invest in innovation
and service enhancement which means that the
organisation does not just do more but it will also
do it better and more effectively

The overall financial benefit

The impact of the above measures is estimated
as an annual benefit of $11 million, inclusive of
the retention of HomeCare margins that would
otherwise be lost. There is a one-off cost of $9
million associated with merger restructure. The
largest elements of this are rebranding costs and
redundancy costs that are expected to be about
$3 million each.
Offsetting these savings, there is a need to adopt
a single Enterprise Agreement for the merged
organisation and this will involve considerable cost
of up to $5 million per annum. The majority of
this cost results from Anglicare rates of pay being
generally lower than ARVs rates. Regardless of
which approach to Workplace Agreement renewal
is taken, there will over time be a significant cost
associated with the obligation to bring Anglicares
pay rates into line with ARVs.

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14

Merger Considerations Better Together | March 23, 2016

15

Our Purpose
The three strategic benefits already described are of great significance and are built on the foundation of
ARV and Anglicare having a common purpose. This common purpose provides an opportunity to reset the
social service purpose and strategy so that we are more effective as we reach out with mission-minded
and gospel-focussed ministries.
The merger is a major catalyst to share the love of Jesus in a very meaningful way.
We are better together.
Recent work on the proposed purpose of the merged
organisation shows the extent to which the activities
that come together have a common foundation
that all we do is governed by our purpose to be
compassionate and to share the love of Jesus.
We recognise that the people we serve have
needs in common needs for security, dignity
and a sense of belonging. We see the themes
that run through all we do they are the themes
of home and community. These are our strong

suits because both Anglicare and ARV have been

in the business of supporting people at home and
in the community for many years and we have
a wonderful base on which to build. Our service
revolves around our ability to offer a home as a
safe place to live and to support people to stay
in their home. We make ourselves known to the
people who need our services by playing a key role
in communities through Op Shops, contact
through parishes, emergency relief and through
advocacy. We are certainly better together.

Our Purpose
We are a Christian organisation with a heritage of service spanning more than 160 years.
We hold true to our Christian motivation while we adapt to meet
the changing needs of our society.
We exist to serve our community, enrich life and demonstrate the love of Jesus.
We seek to share the gospel of 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 of the living God.
We offer life-enriching care for each person, meeting material,
physical, emotional, social and spiritual needs.
And we do this in partnership with others, providing a range of services
that promotes dignity, safety, participation and wellbeing for people in
their relationships, homes and communities.

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16

Name and Branding of the Merged Organisation

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

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17

What are the Implications if a Merger

does not Proceed?
Could ARV and Anglicare
continue as they are at present?
There are three key implications to consider if
the merger does not proceed which impact both
organisations and the people whom we serve.
Firstly, we would fail to grasp the opportunity to
reset the ministry and social service agenda to
support the Diocesan Mission. We would not be
the one strong organisation working alongside
churches and with Standing Committee on common
objectives. We would miss an opportunity to expand
the breadth of services and ministry that would
reach into new geographical areas and to different
ethnic and cultural groups as we seek to share the
love of Jesus and we would limit the development
of expertise in ministry to vulnerable people and the
ability to share that capability with Sydney Anglican
churches. These opportunities could not be grasped
in the same way in the absence of a merger.
Secondly, and put simply, two organisations doing
similar work means wasted money. Money that
can be put to better use by investing in systems for
the future or in direct front line services to people
in need.
We would not be taking the steps necessary
to underpin our services in a more competitive
marketplace, and this is particularly important for
services provided by Anglicare. Anglicares disability
services are already being scaled back significantly
as a result of changes in government policy and
funding. Both ARVs and Anglicares HomeCare
services will be under competitive pressures
from early 2017. Other Anglican non-aged care
community services that are funded by government,
like Family Support Services and Out of Home Care,
are likely to face the same challenges in the medium
term. All of these government-funded services are
therefore more vulnerable.
These government-funded services currently
generate a margin over their direct costs and that
margin contributes to the cost of the support

structure required to run Anglicare (support

services). In effect, this subsidises the services that
are not funded by government revenue, services
such as Emergency Relief, Disaster Recovery,
Prison and Hospital Chaplaincy and Research
and Advocacy (unfunded services). The total
contribution currently required to meet the cost of
support services is $15.4 million per annum and the
contribution to the cost of unfunded services is $8
million per annum.
We estimate that the competitive pressures bearing
on Disability, HomeCare and other non-aged care
community services will result in an annual reduction
of $3.8 million in margin contribution over the next
few years. Staff modelling undertaken by Anglicare
shows that an equivalent reduction in support costs
is not achievable because it would render Anglicare
less capable, less competitive and less relevant in
a rapidly changing world. Achieving a break even
result for the organisation in future years would
be dependent on continuing receipts from legacies
and continuing returns from investment income. In
these circumstances it is likely that there would be
pressure to reduce the scope of unfunded services.
These competitive pressures will also be felt by
the merged organisation. However, the substantial
increase in scale means that support services can
be run more efficiently giving greater confidence
about its ability to continue and indeed grow
unfunded services.
Thirdly and finally, we would not get the nonfinancial benefits from increased scale. This is
particularly important in the context of our profile.
The new environment requires us to be visible
and top of mind being the first organisation to
turn to when people are in need of security and
community. It is especially important that ARV is
able to lift its profile to promote its capabilities. Lack
of scale will also inhibit investment in systems and
the willingness and ability to innovate, because our
spending will overlap and be sub-optimal, meaning it
will be more difficult to keep up with industry leaders
and consumer expectations.

Merger Considerations Better Together | March 23, 2016

18

Merger Considerations Better Together | March 23, 2016

19

Could Anglicare Sell its

Aged Care Operations to
Protect its Future?
The Anglicare Council has considered the option
of selling aged care assets and operations in 2004
and again in 2014. In 2014, Deloitte carried out
a valuation of the Anglicare operations and valued
the combined residential aged care, retirement
village and HomeCare operations at a net value of
approximately $35 million. These operations could
be sold to ARV or another organisation, leaving
Anglicare to concentrate on its other non-aged care
community services.

The net impact would put Anglicare into a sustained

loss making situation in future years. In the absence
of new income sources or increased donations and
legacies, this would inevitably mean that unfunded
services, the services that are at the heart of
Anglicare, would be adversely impacted.
Further, Anglicare would have a lower profile, a
lower capability to work throughout the Diocese and
diminished growth prospects.
For these reasons this option is not viable.

There would, of course, be significant financial

implications. In simple terms, the sale of its aged
care operations would affect Anglicares finances in
2 main ways:

It is vitally important to appreciate the

extent to which the future looks different
from the past. In proposing that ARV and
Anglicare are merged we are taking steps to
respond to this more uncertain future.

Anglicare would benefit from the investment

earnings on the sale proceeds about $1.5
million each year
It would be necessary to significantly downsize
the Anglicare support services following the
sale of operations that currently generate more
than half of Anglicares gross revenue (and which
contribute almost $10 million to support service
costs and to unfunded services). A high level
review has been undertaken that shows that
drastic restructuring could reduce support service
costs by $5.5 million. However, this would
mean some areas of capability would be lost, the
investment in systems to meet future operating
needs would not be viable and the quality and
capability of executive and management staff
would be diminished.

Merger Considerations Better Together | March 23, 2016

20

Merged Operations
In retirement living and residential aged care
services, the merged organisation would operate
22 residential care homes serving 2,180 people,
22 retirement villages serving 2,530 people and
would provide service to 1,500 people in the
HomeCare program and in excess of 6,000 people
in CHSP funded programs provided in home and
through 20 day and respite centres.
A key feature of the merged organisation will
be its ability to carry forward the legacy of
over a century of aged care and non-aged care
community service delivery in a way that addresses
the specific challenges and needs of Greater
Sydney in the coming decades. The current scope
of community services will continue although it
should be recognised that Anglicare periodically
conducts strategic assessments of each of its
service lines based on parameters of capability,
community need and ministry effectiveness. This
process is envisaged to be a necessary attribute
of conducting services that are tailored to meet
needs, achieve transformational outcomes and

The following charts show the composition of

activity of the merged organisation. It is clear
that aged care services dominate. However, this
takes nothing away from the significance of other
community services because they are at the sharp
end in terms of community need and opportunity
for ministry to the vulnerable.

40

49

180

A merged organisation would augment ARVs

already significant chaplaincy ministry with
Anglicares chaplaincy programs across hospitals,
prisons, juvenile justice facilities and mental
health facilities, as well as Anglicares Social
Policy Research and Advocacy functions. ARVs
long standing practice of providing subsidised
accommodation to retired Sydney clergy and
missionaries would continue unaffected.

Sta Costs
Staff
Costs$m
$m

Revenue
Revenue
$m $m
5

be affordable to deliver. However, a merged

organisation with a more streamlined support
structure will provide a competitive edge for
community services, particularly in the area of
competitive tendering for government contracts.

37

32

Retirement Living
Homecare
Community Services
Residential Care
Support Services
Shops

35

19
19

108

Clients
Clients

Assets $m
Costs $m
Assets

2530

17

Retirement Living
Homecare

318

14500

7605

Residential Care
Support Services

44

Retirement Living
Homecare
Community Services
Residential Care
Shops
Support Services

703

Retirement Living
Homecare
Community Services
Residential Care
Support Services

2180

Merger Considerations Better Together | March 23, 2016

22304

21

Merger Considerations Better Together | March 23, 2016

22

The Strategic Opportunities

The current strategic plans of ARV and Anglicare identify major work programs. These plans continue
but the merger itself offers new strategic opportunities and these are collectively summarised below.
This strategy blueprint is clearly a full agenda and one that will firmly set the merged organisation on its
missional path.

Ground our services in

our purpose

Prayer platform established and effective

Anglicares Christian Care training continuum is deployed and
embedded across the practice of all services
All services continually evaluated and transitioned for maximum
potential for compassion and ministry
Invest proportionately in ministry staff 1.5% of revenue
Widespread parish partnerships mobilise volunteers and
equip them for pastoral ministry
Ministry capability developed for culturally and linguistically
diverse (CALD) areas
Ministry expertise with age related situations for example
dementia, shut-ins

Equip our people

for service

Recruit the best with effective tools

Set and meet diversity targets gender and ethnic
Programs for high staff engagement
Capability invest in leadership development, effective
performance management
Move staff to a consumer directed/commercially aware culture
through training and coaching
Safe working environment continually improves outcomes

Grow and improve

our services

ARVs care model Rhythm of Life implemented fully

throughout residential services
Rhythm of Life equivalent for all client services
Identify and invest in opportunities to serve the needs of more
vulnerable clients
Built environment renewal of old aged care homes and
retirement villages to standard
Complete planned $730 million pipeline property developments
Build property pipeline for development in 2020s
Technology leader in our space to improve service to residents
and clients
Build advocacy capability for key client groups, especially
vulnerable and socially excluded

Merger Considerations Better Together | March 23, 2016

23

Expand our services

New services into low socio-economic areas

Well developed front-end introduction to services for
example through parish partnerships, Op Shops
Significant HomeCare service growth through effective
marketing, excellent service and efficient operations
Accommodation and service for vulnerable people at risk of
homelessness crisis accommodation, day and overnight centres

Resource our services

Efficiency through adoption of technology

Financial disciplines financial return and performance
expectations for all programs and activities
New income streams for example fee for service, community
housing provider

Financial Outlook
Pro-forma financial information (financials) has been prepared for the four years through to 2020 and
is included as Appendix within this report. The financials include the synergies discussed previously and
the one-off costs of achieving the merger. This information is based on budgets and forecasts prepared
by Anglicare and ARV in 2015 and it is planned to update these budgets and forecasts over the next few
months in readiness for the commencement of operations.
FY17
($m)

FY18
($m)

FY19
($m)

FY20
($m)

Total Revenue

322

333

367

398

EBITDA (Earnings Before 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

Merger Considerations Better Together | March 23, 2016

24

Important observations about the forecast include:

FY17 EBITDA of $32 million includes merger
restructuring costs of $9 million
After FY17, EBITDA shows healthy growth
Net cash flow is subject to the major influences of
property development outlays and receipts from
sale of newly developed property. The timing
of these cash flows means there is a net cash
outflow in FY18
Capital expenditure over the four years
totals $828 million, of which $730 million is
development capital. There is an increase in the
balance of cash and investments over the period.
Overall, this financial position will enable the
merged organisation to pursue its strategies in
keeping with its purpose and its mission.

What is the Future for

Anglicares services in
an Aged Care Dominated
Organisation?
About 40% of Anglicares revenue is derived
from operations that are broadly categorised as
community operations and about 60% is derived
from aged care operations. Within community
operations are government-funded programs
like Disability and Mental Health Services, Family
Services and Out of Home Care. Anglicares
involvement in these services has changed over
time and will continue to change as community
needs and funding structures change.
The non-funded and partially funded community
services are at the very heart of Anglicare - like
Emergency Relief, Prison & Hospital Chaplaincy,
Disaster Recovery Services and Research &
Advocacy for societys marginalised.

These are the services that the merged

organisation plans not only to sustain but to grow,
reaching more people with compassion and with
ministry. How can we be sure about this?
Service to the vulnerable and the marginalised
is at the heart of the purpose of the merged
organisation, written into its constitution
It is the key to relationships with parishes and the
main area of opportunity to work with parishes
These unfunded services greatly assist with
the development of the organisations profile
- Advocacy and Emergency Relief in particular
reach a very large number of people and this
profile is so important to the full range of services
provided by the merged organisation
Fund raising and legacies are directed to these
unfunded services
Business principles have been proposed that see
an income stream from investments set aside for
unfunded services
Financial forecasts show that there is scope to
develop new programs to address emerging
needs among the vulnerable and marginalised and
this would be the case with the adoption of the
principles outlined above.
It is important that the merged organisation is
accountable to and reports regularly to Standing
Committee and Synod on the continuing
effectiveness of this crucial area of operations.
And it is important that Standing Committee holds
the merged organisation accountable, for example
by reviewing annual objectives and calling for
regular reporting against those objectives. This
is an opportunity to align the objectives of the
major Diocesan agency and the Diocese through
very meaningful engagement between Standing
Committee and the new organisation. This level of
engagement has not previously been the case for
either Anglicare or ARV.

Merger Considerations Better Together | March 23, 2016

25

What are the implications for

Anglicares involvement with
victims of child abuse?
For many years Anglicare has responded to
claims arising from past incidences of child abuse
perpetrated in institutions operated by the Church
of England Homes and the Sydney Anglican Home
Mission Society. Standing Committee has recently
resolved that the Synod should not allow the
structure of the Diocese and Diocesan organisations
to be an impediment to meeting legitimate
obligations associated with Anglicare, particularly
those arising from historic child abuse claims.
Anglicare will continue to respond to such claims
and the arrangements that will enable Anglicare to
do so are described in a later section of this report.

Controls for risk mitigation have been identified

as follows:
Board oversight of the merger integration program
Establishment of a Merger Program Office
Clarity at the time of merger on key areas
such as branding, vision/mission/values and
organisational structure
A comprehensive communications plan, including
feedback loops with staff and stakeholders using
consistent messaging
Training in change management and effective
communications
Disciplined timetables and outcome measures

Risk Assessment
and Mitigation
Importantly, a merger risk register and assessment
has been prepared. The following key risks have
been considered:
The two cultures may not combine as effectively
as anticipated
There is loss of key personnel due to uncertainty
Distraction is caused by the merger with a
disruption to business continuity
There is a lack of effective change management
meaning merger benefits are not achieved
Alienation of stakeholders donors,
volunteers, residents
Delay in the approval process, including
regulatory approvals
Systems integration is problematic

Merger Considerations Better Together | March 23, 2016

26

How the Merger would Proceed

The proposed legal structure for the merger,
which has been reviewed by legal firm Ashurst,
in substance involves the transfer of Anglicares
assets to ARV through a variation of trusts, with a
concurrent provision of an indemnity from ARV to
Anglicare for liabilities which are not readily capable
of transfer to ARV. The merged organisation will
therefore be operated by the existing ARV entity.
ARV will assume Anglicares statutory liabilities
under government aged care legislation (resident
deposits) and under the Retirement Villages
Act (resident loans). The intention is that other
liabilities will remain with Anglicare and be covered
by the indemnity, including accounts payable
and historic employee provisions. Contingent or
potential liabilities, including potential future child
abuse claims, will also be covered by the indemnity.
ARV will indemnify Anglicare against its liabilities
(actual and contingent) for an amount to be
determined by reference to the enterprise value of
Anglicare at the date of transfer of the assets. This
amount will be indexed. This value will be established
by independent valuation. This method of setting the
indemnity has been reviewed by legal advisers.

Based on actuarial advice from Price Waterhouse

Coopers (PwC) about the extent of the future
liability for child abuse claims and the enterprise
market valuation conducted by Deloitte in 2014
of Anglicare, the indemnity:
1. will be established at a value that is expected
to be a multiple of the estimated value of the
actual and contingent liabilities and
2. will be adequate to meet any future claims such
as those arising from incidences of past child
abuse, which occurred either in the Sydney
Anglican Home Mission Society or in the Church
of England Homes, from both a legal and moral
responsibility perspective.
This indemnity approach is designed to ensure that
the position of victims of abuse is, as far as can be
achieved in practice, the same as if Anglicare had
continued to operate in its own right.
Further information about the legal mechanism to
achieve this merger of operations will be provided
with draft ordinances as part of the main mailing to
Synod members.

Who is Responsible for Moving

this Forward?
The Anglicare Council and ARV Board recommended
processes for both board selection and CEO
recruitment. These recommendations have been
considered by the Archbishop and Chairman
designate and a separate report has
been prepared that covers these matters.

Next Steps
It should be noted that the assets of ARV and
Anglicare can be used only in furthering purposes
of public benevolence as required under charity

and tax law and as articulated in the objects of the

two organisations, not for any other purpose. The
framers of the merger proposal have been acutely
aware of this need.
As noted already, the preferred transaction
structure envisages a transfer of assets from
Anglicare to ARV. This transaction anticipates
an in principle approval of the merger proposal
being sought from Synod, followed by actions of
Standing Committee, in passing ordinances and
resolutions to effect this merger proposal.

Merger Considerations Better Together | March 23, 2016

27

The ordinance of ARV will need to be amended,

expanding the objects of public benevolence to
reflect the broader scope of activities that the
organisation will conduct as a consequence of
the merger.
Assuming Synod approval, rulings and consents
from the ACNC, NSW Office of State Revenue
and ATO will be sought. Various consents

from government funding bodies and licensing

authorities will also be sought.
As the rulings and consents from the various
authorities are critical, it is envisaged that the
entry into force of the ordinances will be
conditional upon all the necessary rulings and
consents having been obtained.

Merger Considerations Better Together | March 23, 2016

28

Conclusion
We strongly recommend the merger to Synod. It is our belief that merger will achieve
the following benefits.
Create a powerful agency working alongside parishes in hard to reach communities, sharing the
gospel with vulnerable people in great need
Position our crucial work to succeed in a rapidly changing service environment and having the
scale to innovate and invest
Establish increased profile, effective in promoting services and prominent in promoting our beliefs
Provide a pre-emptive response to the competitive and funding pressures that we anticipate,
which would otherwise negatively impact, particularly on Anglicares activities
Enable growth in service and ministry to the marginalised and socially disadvantaged
Deliver savings from removal of duplicated support structures and adoption of best practices
Grant Millard | Rob Freeman
March 23, 2016

Merger Considerations Better Together | March 23, 2016

29

Appendix

Merger Considerations Better Together | March 23, 2016

30

Appendix Pro-forma Financials 2017-2020 Consolidated

Financial year

FY17

FY18

FY19

FY20

Financial units

$m

$m

$m

$m

Resident + Client Fees

66.4

69.5

76.2

81.7

Accommodation

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

321.5

332.9

367.4

397.6

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)

(335.9)

(342.4)

(370.6)

(398.4)

(14.4)

(9.5)

(3.2)

(0.8)

(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

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

408.2

349.8

392.5

449.2

INCOME STATEMENT
INCOME

Total income
EXPENDITURE

Total expenditure
Gross profit
OTHER INCOME & CHARGES
Restructuring Cost

CASH FLOW MOVEMENT

BALANCE SHEET
Cash and Investments
Fixed assets

1,232.9

1,403.3

1,527.6

1,682.3

(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

Resident loans

* deferred management fee

Merger Considerations Better Together | March 23, 2016

31

Appendix Pro-forma Financials 2016 ARV and Anglicare

Financial year 2016

ARV

Anglicare

Consolidated

Financial units

$m

$m

$m

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

212.0

104.2

316.2

Salaries & wages

(132.2)

(70.0)

(202.3)

Operations

(46.1)

(36.1)

(82.2)

Depreciation

(37.4)

(6.1)

(43.5)

(215.7)

(112.2)

(327.9)

(3.7)

(8.0)

(11.7)

Legacies/Fundraising

0.8

5.4

6.2

Interest income

9.5

5.3

14.8

10.3

10.7

21.0

6.6

2.7

9.3

34.5

3.5

38.0

Operating surplus/deficit

6.6

2.7

9.3

Add: depreciation

37.4

6.1

43.5

(26.1)

(1.1)

(27.2)

(1.0)

(1.0)

Operating cash flow

17.9

6.7

24.6

Capital Expenditure

(223.4)

(8.2)

(231.5)

(4.7)

(4.7)

15.0

13.0

28.0

INCOME STATEMENT
INCOME

Total income
EXPENDITURE

Total expenditure
Gross profit
OTHER INCOME & CHARGES

Total other income & charges

Operating surplus/(deficit)
EBITDA
CASH FLOW MOVEMENT

Lease DMF income

Transfers to/(from) reserves

Prepaid government income

Property sales
Capital receipts - residents
Net cash flow

149.1

1.5

150.6

(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

(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

Resident loans

* deferred management fee

Merger Considerations Better Together | March 23, 2016

32

anglicare.org.au

arv.org.au

Phone
(02) 9895 8000

Phone
(02) 9421 5333

Postal Address
PO Box 427, Parramatta NSW 2124

Postal Address
PO Box 284, Castle Hill NSW 1765

Street Address
16 Parkes Street
Parramatta NSW 2150

Street Address
Level 2, 62 Norwest Boulevard
Baulkham Hills NSW 2153

Anglicare Diocese of Sydney ABN 88 851 368 006.

Anglican Retirement Villages Diocese of Sydney ABN 39 922 848 563.