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Annual Report 2007

Head Office Sydney 46 Burwood Road Burwood NSW 2134

Branches SYDNEY 46 Burwood Road Burwood NSW 2134 14-18 Lee Street Chippendale NSW 2008 (railway square, co-located with Encompass Credit Union) WOLLONGONG 139 Keira Street Wollongong NSW 2500 NEWCASTLE Shop 2, 28 Donald Street Hamilton NSW 2303 BRISBANE 59A Melbourne Street South Brisbane Qld 4101

Contact Us Tel 1300 886 123 Fax 1300 887 123 help@rthealthfund.com.au www.rthealthfund.com.au


50 Year Member Honour Role

Mr Ron Lane – rt member since 1975

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

DESIGNED AND PRODUCED BY SCOPE DESIGN GROUP PTY LIMITED

We gratefully acknowledge and celebrate the contribution our long-standing members have made to rt health fund, and the role that each and every one has played in helping this organisation to grow and continue far beyond what its forefathers surely could have ever imagined. We value all of our members, and in particular, we honour those members who in 2007 celebrate an extraordinary 50 years of membership. Alfred Golden Alice Sharp Audrey Clarke Barrie Thompson Brian Flaherty Brian Cook Bruce Ayres Cecil Holland Charles Kilduff Charles Sherring Christakis Pantazis Colin Baber Colin Rossington Desmond Manwaring Doris Brimble Dorothy Wright Druce Dunne Edward Priddis Eleanor Rankin Emil Vicic Ernest Fisher Faith Newell Francis Steptoe Frank Seymour Frederick Hancox Geoffrey Pullen Geoffrey Popple George Cupitt Gloria Rodney Gordon Smith Graham Targett Grahem Hardy Guenther Mans Harold Durrant Hazel O’Keeffe Heather Paynter Hilary Bach

Ilma Fleming Ivan Novak James Niven James Russell Jerzy Beldzinski John Walsh John Wallbridge John Carey John Flood John Nesbitt John Cooper John Bayliss John Taylor John Hasling Judith Dunne Julie Jenkins Keith Ferguson Keith Peckman Kenneth Walkden-Brown Kenneth Cummings Kenneth Scaysbrook Kevin Mackenzie Leslie Schubert Malcolm Darnell Marcia Peters Margaret Harris Mary Pride Matessa Murphy Maurice Rosewarn Maxwell Dunn Maxwell Haviland Michael Booth Molly Simpson Nancy Mayers Neil Henderson Neville Urquhart Neville Pearce Neville Henry Norman Craig

Owen Hailey Pauline Grenfell Peter Lamont Phidias Michael Phillip Hurley Reinhold Pensch Robert Ridgewell Robert McFarlane Robin Griffin Ronald Hogbin Ronald Thomas Shirley Hammond Shirley Sherack Shirley Stokes Shoshana Day Stephen Torok Victor Wulf William McCourt Winston Selmes Wlodzimierz Hrynko Yet Chen

Should your name be on this list? While we do our best to ensure that all of our 50-year members are celebrated as part of our honour roll, records of membership held for over half a century can sometimes be wrong. We’d love to hear from you if you believe that you should have been included in this list so that we can set the record straight. Call us on 1300 886 123 or email help@rthealthfund.com.au

45


It has been a year of great progress for rt health fund as we work to ensure that your health fund continues to provide you with the caring service and level of cover that you and your family deserve. We’re pleased to report here on the many new services and initiatives introduced this year. We wholeheartedly thank you for your membership, support and encouragement and look forward to continuing to be of service to you for many years to come. CONTENTS Chairperson’s Report 2 CEO’s Report 4 Highlights 8 The Board of Directors 10 Corporate Governance 13 Directors’ Report 16 Auditor’s Independence Declaration 20 Directors’ Declaration 21 Income Statement 22 Balance Sheet 23 Statement of Changes in Equity 24 Cash Flow Statement 25 Notes to the Financial Statements 26 Independent Audit Report 43 50 Year Member Honour Roll 45

1


Chairperson’s Report In my address on behalf of the board of directors to members at the 2006 Annual General Meeting, I outlined the board’s strategy to grow the business and improve services to members. We also addressed the challenges facing the private health insurance industry in delivering our strategy and operating in a competitive market. I am pleased to have the opportunity to report on our progress and achievements for the financial year 2006/7. The introduction of new legislation on 1 April 2007 and the requirement for rt, along with all health funds, to re-register has meant a major focus of resources to ensure that the strict compliance requirements are met. It is a credit to the commitment of our management and staff that these important tasks were completed while continuing to build on our reputation for excellent customer service and increasing our membership. During the year, we changed our name and branding from Railway and Transport Health Fund to ‘rt health fund’ with a vibrant and exciting new look, and we are delighted with how seamlessly this transition has occurred. We are now identified by a unique name and look that befits our strong reputation, and our new corporate brand is well recognised, building on our reputation and growing awareness of the fund. The results of a member satisfaction survey, conducted by an independent consultant, provided your board, management and staff with confidence that we are focused on what is important to you. The survey results provided us with a platform for future improvements to services – we have listened to you and thank you for your input. The board is committed to maintaining member confidence and enhancing member value. Overseeing the implementation of rt’s growth strategy and performance, the board is guided by the Australian Stock Exchange (ASX) Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations. The Corporate Governance section of this Annual Report details our commitment to best practice corporate governance. In the year ahead our business environment will continue to present real challenges, and, with good results again being delivered, we are confident that we are pursuing the right strategy. We will continue to focus on efficiency and excellent service while creating value for our members. Growth and change do not happen by chance – they are a function of the hard work, enthusiasm and diligence of our employees. Your directors and I are confident that the fund’s long-term proactive growth strategy, combined with a number of quality opportunities, have us well placed to deliver continued growth and enhanced services to members. I would like to thank our alliance partners, Encompass Credit Union, NSW Rail Institute, the Rail, Tram and Bus Union, State Transit Authority Bus Institute, and the Railway Employees Welfare Fund for their support during 2006/7. I would also like to thank my fellow directors for their significant contributions over the past year. We have faced many challenges and the board has worked extremely well, both individually and together, in facing them. On behalf of your board, I thank and congratulate the management and staff who have contributed to your fund’s sustained growth over the past year and implemented significant business improvements to the way it now operates.

2


Lillian Brock member no. 42242248

90360084 00000000 00 0 card issued 11/06

All rt health fund members have received their new HICAPS membership cards. We are thrilled to have been able to introduce this convenient service. Members are making great use of HICAPS and are enjoying the time and cost saving benefits.

Gary, Francine, Jessica and Andrew Laker – rt members since 1992 and the very first rt members to make a claim using their new hicaps card

3


CEO’s Report It is my great privilege to report to you on the highlights and achievements of the 2006/7 financial year. It has been an exciting period that has seen the achievement of many goals and the introduction of valuable initiatives within your health fund.

5

RATE OF MEMBERSHIP GROWTH (%)

4

3

2

1

0 03

04

05

06

07

RT HEALTH ALL FUNDS

10

MEMBERSHIP AGE PROFILE (%)

Another key objective for this financial year was to strengthen the governance of your fund, we have: • Introduced a new board charter. • Undertaken an independent review of our board performance and used the results to continuously improve the skills of the board along with other improvement initiatives. • Developed a new Constitution for your approval. • Implemented internal audit to continually focus on our efficiency, internal controls and fraud against the fund. We said we would develop and implement a new brand that would modernise the look of the fund and help us to attract new members. We hope you have enjoyed seeing each of the new brand elements appear, from our new and informative member newsletter, to easy-to-read brochures, easy-to-use forms and many other new communication materials. Over the coming year you will also see our new brand appear in our branches.

8

6

4

2

0 4 9 4 9 4 9 4 0- 5-1 0-3 5-4 0-6 5-7 0-9 1 3 4 6 7 9

RT HEALTH ‘06 RT HEALTH ‘05 ALL FUNDS ‘06

4

As promised in our 2006/7 strategic plan, we have: • Delivered strong growth to reverse the long-term decline in the rate of membership growth. During 2006/7 we introduced 1,822 new members to the fund (representing a net growth of 5%). • Delivered new systems for customer service (Paragon 21) and financial accounting to reduce our risks and to provide an improved ability to manage the fund. • Restructured the business to ensure that we have a team trained, focused and incentivised to meet the needs of members. • Established a charity, to help those in the community in need, managed by volunteers from our staff. The Families Foundation is a formally structured, registered charity, separate from the health fund, with tax deductibility for donations. A number of fundraising events were held during the year.

We promised to deliver better customer services and have made on-the-spot electronic claiming available through HICAPS; automated claiming available from doctors; and introduced a dedicated call centre team to provide the best possible personal service to members. A fundamental component of our future service delivery has been the development of our new website, which will deliver the information you need when you need it. The first phase of our new website is now available, with an impressive range of interactivity soon to be delivered in phase two. We look forward to having you as a regular visitor for news, information, health tips and member services at www.rthealthfund.com.au.


While delivering this significant program of change we have not taken our eye off the ball and have continued to prudently manage the fund: • increasing revenue from $39 million to $42 million • delivering an operating cash surplus of $4.76 million • reporting a net profit of $275,000 even after writing off $274,000 of unidentified assets previously held in the accounts; adding $1.2 million to our provisions in accordance with new accounting standard AASB 1023, and a further $2.2 million for possible outstanding claims. Your health fund has never been more financially sound than it currently is. During the year we conducted our second annual member satisfaction survey, giving us an invaluable opportunity to listen to your views and understand your needs. As a result of your feedback, we have implemented improved processes to ensure that we respond promptly and consistently whenever you have an issue with the fund that needs to be resolved, as well as comprehensive workflow tracking to ensure consistently prompt processing and payment of your claims. In response to member feedback we have introduced a new excess option on our private hospital cover that reduces your contributions, as well as a new category of cover for single parent families that significantly reduces the amount these members pay for their hospital cover. We have worked hard this year to re-establish our strong links with the transport community and worked on initiatives with a number of key transport industry organisations, including RailCorp and QRail, STA, RTA and the RTBU. We have also developed an offering to appeal to groups of corporate members.

5


CEO’s Report (continued) At the end of the 2006 calendar year, our independent appointed actuary calculated that a rate rise would be necessary as part of the health industry’s annual rate review. We were successful in keeping this increase to an absolute minimum with members receiving, on average, an increase of 3.9% which was below the rate of inflation, even though hospital costs (net of risk equalisation) paid on behalf of members increased by 14.5% to $27,435,000 and medical inflation increased 5.2%. While we are proud of the improvements we are making we also recognise that as we have taken this journey some members have been adversely affected by changes and delays. We are aware of every member’s need for prompt and efficient service and payment of claims, and we regret any delays or inconvenience caused. Please be assured that any such experience is a temporary one and is unavoidable as we go about making the improvements necessary to your health fund, while ensuring that we do so in an efficient and financially responsible manner. We operate within a highly competitive and heavily regulated industry. This year has seen very significant changes in the industry to which we have had to respond quickly and decisively. Some of these changes will continue to impact us over the next 12 months. The entire legislative basis for private health insurance has changed as a new Private Health Insurance Act (2007) has replaced the National Health Act (1953). During this process the Department of Health and Ageing sought to significantly reduce the operations of rt and other ‘restricted membership’ funds and would have done so had we not responded with strong political action at the highest levels of government. We, along with all health funds, have been required to change our rules and Constitution in order to register under the new Act. All of our products must now comply with a new set of requirements; we have had to provide comprehensive new information to the Government Ombudsman for a new industry website; we are required to provide comprehensive product statements (SIS) to members and prospective members; and the way the industry shares the costs of older and sicker members (risk equalisation) has changed significantly.

12

CONTRIBUTION RATE INCREASE (%)

10

8

6

4

2

0 03

04

RT HEALTH INDUSTRY

6

05

06

07

The other significant issue is the current wave of demutualisations of health funds. NIB’s recent approval to demutualise and MBF and Medibank Private’s announced intention to privatise will lead to major structural changes and likely attempts to take over smaller funds like rt. This is a very dangerous time as these larger funds chase profits and growth to the detriment of not-for-profit funds such as rt that exist only to look after our members. To ensure our survival we need to remain financially sound, grow our membership, stay focused on compliance and governance, and look for opportunities to grow in other ways.


I look forward to the challenges of the next 12 months. During 2007/8 we will further gain the efficiency advantages of the investments we have made this year, We will be able to provide access to a greater range of insurance and medical-related products and services to our members, we will continue to improve our service levels through our branches, telephones and web presence, and we will start to provide new member support through a range of preventative measures and assistance in navigating the health system. As we do so, rt will evolve to become more than a health insurer and more of a health partner to our members. On behalf of your board, I would like to say a huge thank you to all of our members for your loyalty, even when we occasionally get things wrong. You are our only reason for existing. Thanks also for your referrals to family members and co-workers, our greatest single source of new members is current members proudly telling others about their fund. Thank you also to my wonderful team for their hard work, preparedness to change and for their intense focus on the needs of our members, and to our dedicated board who continually improve governance and stewardship on behalf of members. We look forward to continuing to be of service to you for many years to come.

7


55

ANCILLARY % OF CHARGES COVERED

highlights 50

45

RT HEALTH ALL FUNDS RESTRICTED FUNDS

40

94

40,000

35,000

30,000

93

25,000

92

HOSPITAL % OF CHARGES COVERED

HOSPITAL BENEFITS PAID ($’000)

20,000

15,000

10,000

5,000

0

91

90

3 4 5 6 7 -0 -0 -0 -0 -0 02 03 04 05 06

HOSPITAL BENEFITS rt paid $30 million (excluding risk equalisation) in hospital benefits on behalf of members

GREAT HOSPITAL BENEFITS rt’s hospital benefits are, on average, the best in the industry

CARDIOLOGY (20%) $6,196,429 GASTROENTEROLOGY / GASTRO SURGERY (12%) $3,506,780 OPTHAMOLOGY (11%) $3,337,365 MEDICAL (11%) $3,301,283 GENERAL SURGICAL (9%) $2,770,653 OBSTETRICS / GYNAECOLOGY (8%) $2,361,469 ORTHOPAEDIC (8%) $2,286,400 UROLOGICAL (6%) $1,686,671 PLASTIC AND RECONSTRUCTION (5%) $1,454,928 EAR, NOSE AND THROAT (4%) $1,080,620 OTHER (6%) $1,808,459

8

HOSPITAL CLAIMS PAID BY TYPE Cardiac and cancer-related procedures continue to be the highest costs paid on behalf of rt members


25,500 50 17,000

8,500

CUSTOMER SATISFACTION (%)

30

20

10

RT HEALTH ALL FUNDS RESTRICTED FUNDS

0

CASHFLOW FROM OPERATING ACTIVITIES ($’000)

40

0

-8,500

-17,000

-25,500 VERY SATISFIED

MEMBERS’ CONTRIBUTIONS INVESTMENT INCOME HOSPITAL BENEFITS ANCILLARY BENEFITS MANAGEMENT EXPENSES

-34,000 SOMEWHAT SATISFIED SOMEWHAT DISSATISFIED VERY DISSATISFIED

-42,500

03 04 05 06 07

65

42,500

70

30,000

34,000 60

25,000 25,500

60 50

17,000 20,000

10 RT HEALTH ALL FUNDS RESTRICTED FUNDS 0

0

15,000

-8,500 10,000 -17,000

-25,500

-34,000 VERY SATISFIED SOMEWHAT SATISFIED SOMEWHAT DISSATISFIED VERY DISSATISFIED -42,500 03 04 05 06 07

ANCILLARY BENEFITS PAID BY SERVICE TYPE

GREAT ANCILLARY BENEFITS Overall, rt pays better ancillary benefits than the industry

RT MEMBERS LOVE THEIR FUND In a survey of members 98% told us they are either very or somewhat satisfied with their fund

NEVER MORE FINANCIALLY SOUND rt delivers a strong operating cash surplus of $4.76 million

MEMBERS’ FUNDS ($’000)

40

20

CASHFLOW FROM OPERATING ACTIVITIES ($’000)

30

50

45

8,500

40

CUSTOMER SATISFACTION (%)

ANCILLARY % OF CHARGES COVERED

55

5,000 MEMBERS’ CONTRIBUTIONS INVESTMENT INCOME HOSPITAL BENEFITS ANCILLARY BENEFITS 0MANAGEMENT EXPENSES 04 05 06 07

STRONG ASSETS rt members’ funds continue to grow and now stand at $27.9 million

DENTAL (52%) $3,622,346 OPTICAL (16%) $1,158,760 CHIROPRACTIC (8%) $597,123 PHYSIOTHERAPY (6%) $424,533 PHARMACEUTICAL (4%) $281,114 NATUROPATHY (3%) $188,885 PODIATRY (3%) $180,084 ARTIFICIAL AIDS (2%) $167,687 ALTERNATIVE THERAPIES (2%) $133,195 HEALTH APPLIANCES (2%) $118,246 OTHER (2%) $159,194

ANCILLARY CLAIMS PAID BY TYPE rt members get great value, especially for dental and optical services

9


The Board of Directors

Victoria Reynolds Chairperson

JUDITH BLAKE Deputy Chairperson

BARRY DREDGE

Victoria Reynolds has been in the rail industry for 23 years, and recently retired from the position of General Manager Human Resources, Rail Infrastructure Corporation (RIC). Prior to her retirement, Victoria led a Career Transition Services Group that was awarded a Silver Premier’s Award, and is the NSW finalist in the Australian Human Resources Institute Awards. Victoria has now established a human resources consultancy and is also a director on the board of Novacare Newcastle.

Judith Blake has been involved in the transport industry since 1991 and is currently a Passenger Information Officer with the NSW State Transit Authority, where she has been employed since 1994. Judith has been involved in community work for many years and is currently a volunteer with the Justice of the Peace Association. She has been an rt health fund member since 1996 and a board member since 2005. Judith is a member of the board’s Audit and Risk Committee and a member of the Australian Institute of Company Directors through which she has participated company director training.

Barry Dredge began his career as a fitter and turner with Queensland Rail in 1964. He retired from his position as Maintenance Planner in Redbank in 2005. Barry has had a keen involvement with transport industry organisations throughout his career, including the Australian Metal Workers Union at Redbank where he was the Convenor for four years. Barry joined rt health fund in 1992 and has been a member of the board since 2005. He is a member of the board’s Remuneration and Nominations Committee, and a member of the Australian Institute of Company Directors.

Judith’s vision for rt is to see the fund further consolidate the many improvements that have been introduced to its governance and operations, and to see it grow to become the number one fund serving the needs of all transport employees.

Barry’s goal is to ensure that rt continues to deliver good value to members through great products and generous rebates – while remaining price competitive.

Victoria has been an rt health fund member since 1997 and a member of the board since 2005. Her objectives are to ensure that rt continues to deliver the best outcomes for members, while reducing management costs and improving services. Her goal is to lead the board in strengthening its corporate governance and building on the fund’s proud history to ensure that it is recognised as a leader among private health funds.

10


DENNIS ELLIS

BOB GLOVER

ROBERT LEDGER

Dennis Ellis has worked with Queensland Rail for 28 years, currently in the position of Pollution Operator. Throughout his career Dennis has been active in the transport industry and is Senior Vice President of the RTBU. Dennis has been with rt health fund since 1997 and a member of the board since 2005. Dennis is a member of the board’s Remuneration and Nominations Committee, and a member of the Australian Institute of Company Directors.

Bob Glover joined the NSW Government Railways in 1971 as a fitter and turner at Wagon Centre, Clyde. Over the next 29 years he worked in the Chullora and Everleigh workshops before retiring in 2000 having achieved the position of Production Manager. Over the years Bob has been active in local junior sports, including coaching junior cricket and soccer. Bob has been a member of rt health fund since 1976 (including ten years as a workshop representative for the fund) and has been a member of the board since 2004. Bob is a member of the board’s Audit and Risk Committee and has completed training held by HIRMAA and the Australian Institute of Company Directors.

Following 40 years’ experience in engineering, Robert Ledger retired in 2006 as Fleet Engineer in the Passenger Fleet Maintenance Section of State Rail. Robert has been a member of rt health fund since 1965 and a member of the board since 2005.

Dennis is committed to ensuring that the board continues to operate under its new best practice standards of governance and provides support to the CEO, management and staff in helping the fund to achieve its strategic plan goals.

Bob’s objective is to see rt develop innovative and valuable benefits that not only help members to stay well but reward them for their years of support for the fund.

MICHAEL PRIOR

Michael Prior is currently Chief Financial Officer at CMC Markets Asia Pacific Pty Ltd. He was appointed to the board as an independent director in 2006 and is the current chairman of the board’s Audit and Risk Committee. Michael has a wealth of risk and financial management Robert is a member of experience in the financial the board’s Audit and services sector, having Risk Committee and was been an operational instrumental in redrafting the risk consultant, General organisation’s Constitution. Manager Operational Risk He is a member of the and Compliance with the Australian Institute of Commonwealth Bank, Company Directors and an international consultant has completed its company contracted to Accenture director’s course. Singapore, and a senior Robert’s vision for rt is to finance executive with see it expand to become Westpac. the premier transport Michael’s objectives are industry health fund serving to ensure that the fund’s the needs of all transport standards of corporate industry employees governance are maintained, throughout Australia. that its business risks are managed effectively and that it realises the maximum return on its investments.

11


Phase one of our new website was launched in April this year. Visit us at www.rthealthfund.com.au to read all about your health fund, download handy forms and search for rt contracted hospitals and doctors participating in our Access Gap Cover. In phase two you’ll be able to make changes to your membership, view correspondence, see your claims history and more.

Linda and her gorgeous daughter Jacinta – rt members since 2006

12


Corporate Governance The board has continued in 2007 to undertake substantial activities to ensure that all of its policies, practices and procedures reflect good governance and current corporate practice. The directors recognise that adherence to the fund’s governance framework is fundamental in demonstrating that they are accountable to members and stakeholders, and that they are appropriately overseeing the future direction of the fund and managing its business risks. With the introduction of new legislation on 1 April 2007 and the need for rt to undertake re-registration, a full review of the Constitution has been undertaken and a revised Constitution will be presented to members for approval at the 2007 AGM. The changes to the Constitution will ensure that rt complies with the revised legislative requirements.

Role of the Board The board is responsible for the overall corporate governance of the fund including determining its strategic direction and financial wellbeing, and guiding and monitoring the business and affairs of rt on behalf of the members by whom it is elected, and to whom it is accountable. In summary, the board’s accountabilities and responsibilities include: • contributing to the development of and approving strategy, and monitoring the implementation of that strategy; • monitoring the financial state and performance of the fund; • approving the fund’s financial reporting, including annual reports; • delegating clear responsibility and authority to the committees of the board and the CEO, and monitoring and regularly reviewing the performance of those who hold delegated powers; • ensuring that rt has effective processes and systems in place to enable the board to monitor its performance and capabilities; • promoting and maintaining organisational values and a culture where transparent and timely information is shared between management and the board; • overseeing rt’s corporate governance framework and ensuring effective communication with members and stakeholders; • setting the overall direction, financial objectives and operational goals for the fund; • reviewing and approving the annual budget and business plan; • ensuring effective systems of internal control and internal audit; • identifying and mitigating any risks that may harm the fund; • reviewing the performance of the CEO. The board delegates responsibility for the day-today management of the fund to the CEO and senior managers, but remains responsible for overseeing the performance of the management team. To ensure that responsibility is clearly defined, the board has delegated a range of authorities to management through formal delegations. These include limited expenditure authority, and the authority to enter into certain contracts and to engage staff.

13


Corporate Governance (continued) Board Performance A performance evaluation process has been established for the board, individual directors and key executives. A comprehensive board performance appraisal was conducted by independent external consultant, Jane Walton of Henderson Walton, after the end of the last reporting period. This focused on board and individual director effectiveness and is the first such review of the board in rt’s history. As a result of the review a number of recommendations were made to ensure that board performance continued to build on capability and improvement. One of the major recommendations was that directors undertake formal training through the Australian Institute of Company Directors (AICD) and Chartered Secretaries Australia (CSA). All directors have attended training during the year and participated in PHIAC (Private Health Insurance Administration Council) and HIRMAA (Health Insurance Restricted Membership Association of Australia) director education forums. A further review of the board will take place in late September 2007.

Conflicts of Interest Directors are required to disclose, on an ongoing basis, any interest that could potentially conflict with those of rt or its members. In accordance with the Corporations Act 2001, your board ensures that any director with a material personal interest in a matter being considered by the board must not be present when the matter is under discussion and may not vote on the matter.

Board Committees In line with best practice corporate governance, the board has established standing committees as an efficient mechanism for considering detailed issues and making recommendations for consideration by the entire board. These committees adopt charters setting out the matters relevant to the composition, responsibilities and administration of each committee. Current committees of the board are: AUDIT AND RISK • Provides a forum for regular communication between the board and rt’s internal and external auditors. • Focuses on key issues such as financial controls and systems, risk identification and management, and rt’s annual financial statements. • Identifies, measures and mitigates risks of all proposals considered by the board. REMUNERATION AND Nominations • Assists the board to achieve its objectives of ensuring that rt has a board of effective composition, size and commitment to adequately discharge its responsibilities and duties. • Establishes policies and procedures for the annual performance evaluation of the board, each director and management, and recommends performance and salary reviews for the CEO. • Reviews and discusses with the board and senior management plans for professional development and succession, and annual education programs for board members.

14


We launched our new look this year and it has made a great impression with members and the industry alike. The brand, which is the result of extensive research with members and other stakeholders, positions rt as an organisation at the top of its industry, exactly where we began so many years ago. We’ve been thrilled to receive great support from our existing members and it’s also helping us to attract a whole new generation of members, who are so vital to our future.

Valma and Neville Freeburn with their son Clive – rt members since 1953

15


Directors’ Report The directors present their report together with the Financial Statements of the Railway & Transport Health Fund Ltd for the year ended 30 June 2007 and the Auditor’s Report thereon.

Membership

Directors The following persons were directors during the whole of the financial year and up to the date of this report, unless otherwise stated: Name

Position Held

V Reynolds J Blake R Glover* R Ledger B Dredge D Ellis M Prior J Walton

Chair Vice Chair Director Director Director Director Director Director

Date Appointed

21/09/2005 21/09/2005 22/09/2004 21/09/2005 21/09/2005 21/09/2005 25/05/2006 7/12/2005

Term Concluded

22/11/2006

The principal activity of the Fund during the course of the financial year was the provision of Private Health Insurance. There were no significant changes in the activities of the Fund during the year.

Results The operating profit amounted to

Year 2007

Year 2006

$275,000

$2,718,000

Review of Operations The financial year ending 30 June 2007 resulted in a profit for the Fund. The 2007 profit was $275,000. The Fund has continued to pay 100% for accommodation, theatre fee, prosthesis and pharmaceutical items used. Hospital benefits paid went from $23,976,000 to $27,435,000. This is an increase in payments of benefits by $3,459,000 or 14.5%.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

2007

2006

Gain / (Loss)

10,675 6,379

10,522 5,974

153 405

QLD: Hospital 4,715 Ancillary 3,992

4,409 3,701

306 291

NSW: Hospital Ancillary

Principal Activities

The Fund’s hospital membership now totals 15,390, which is an increase on last year’s count of 14,931. Ancillary membership now totals 10,371 which is an increase on last year’s count of 9,675. Total number of persons covered in 2007 amounted to 34,923.

Membership Statistics

* R Glover was re-elected at the Annual General Meeting held on 22 November 2006.

16

Ancillary claims have decreased from $7,689,000 to $7,651,000. This is a decrease in payment of benefits of $38,000 or (0.5%).

Finances Total income for the year was $42,164,000 including $2,055,000 from invested funds. Expenditure for the year totalled $41,889,000 resulting in a net profit of $275,000. Management expenses for the year were $4,891,000 (net of Ambulance Levy) or 12.19% of the total operating revenue. As the Fund is a Not-for-profit organisation, we continually monitor members funds. This year, total equity increased from $28,852,000 to $29,383,000. The present level of equity more than meets the statutory requirements.

Ambulance Levy A total of $690,000 was paid to the State Government during the year. This levy, represents an amount of $1.12 per week single unit or $2.24 per family.

Ancillary Total benefits of $7,651,000 were paid for 133,678 services, representing an average benefit return of 57% per service down from 67% in 2006.


Qualifications of the Current Board of Directors as at 30 June 2007 V Reynolds Dip. Hr Mgt, Gaicd, Mahri, Mwob Chair Experience and expertise – Senior Executive, Rail Infrastructure Corporation for seven years – General Manager, Human Resources, Rail Infrastructure Corporation for three years – Regional Manager Projects and Support, RIC for three years – Manager, Resources Group NORTH for four years Special responsibilities – Chair of the Board – Chair of the Remuneration and Nominations Committee J Blake Vice Chair Experience and expertise – Passenger Information Officer, State Transit Sydney Buses, total of eleven years of service. Special responsibilities – Member of the Audit and Risk Management Committee R Ledger B Elec. Director Experience and expertise – Engineering Manager with Passenger Fleet Maintenance in NSW State Rail Authority. Retired after forty one years of service

D Ellis Director Experience and expertise – Pollution Operator in QLD Railway, total of twenty nine years of service Special responsibilities – Member of the Remuneration and Nominations Committee B Dredge Director Experience and expertise – Maintenance Planner with Queensland Rail. Retired after forty three years of service Special responsibilities – Member of the Remuneration and Nominations Committee M Prior M Com, Grad Dip (Applied Finance), CPA, FTIA Director Experience and expertise – Chief financial officer, CMC Markets Asia Pacific Pty Ltd, one year – Self Employed Risk Management Consultant, three years – General Manager Operational Risk and Compliance, CBA, two years – Project Director, Accenture Singapore, two years – Senior Finance Executive, Westpac, twenty three years Special responsibilities – Chair of the Audit and Risk Management Committee

Special responsibilities – Member of the Audit and Risk Management Committee

S Saffo B Comm CA ACIS Company Secretary

R Glover Director

Experience and expertise – Currently the Finance Manager and Secretary of the Fund – Senior Auditor at BDO for three years

Experience and expertise – Production Unit Manager with Air Brakes in NSW State Rail Authority. Retired after thirty years of service Special responsibilities – Member of the Audit and Risk Management Committee

Special responsibilities – Company Secretary of the Board – Company Secretary of the Audit and Risk Management Committee – Company Secretary of the Remuneration and Nominations Committee

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

17


Directors’ Report (continued) Executive Meetings During the year a total of 10 Executive Board meetings were convened. The number of meetings attended by each Director and Company Secretary is listed below. Non-attendance was due to illness, annual leave or departmental duties.

No. Eligible to Attend

No. Attended

V Reynolds

Chair

10

9

J Blake

Vice Chair

10

10

R Glover

Director

10

10

R Ledger

Director

10

10

B Dredge

Director

10

10

D Ellis

Director

10

10

M Prior

Director

10

10

J Walton

Executive Director (term concluded 22/11/06)

4

4

G Campbell

CEO

10

10

S Saffo

Company Secretary

10

10

During the year a total of 1 Remuneration and Nominations Committee meeting was convened. The number of meetings attended by each Director and Company Secretary is listed below.

No. Eligible to Attend

No. Attended

V Reynolds

Chair

1

1

D Ellis

Director

1

1

B Dredge

Director

1

1

S Saffo

Company Secretary

0

0

During the year a total of 5 Audit and Risk Management Committee meetings were convened. The number of meetings attended by each Director and Company Secretary is listed below. Non-attendance was due to illness, annual leave or departmental duties.

18

No. Eligible to Attend

No. Attended

M Prior

Chair (appointed 18/10/06)

5

5

J Blake

Director (resigned 25/5/06) (reappointed 18/12/06)

2

1

J Walton

Director (term concluded 22/11/06)

2

2

R Ledger

Director

5

5

R Glover

Director

5

5

S Saffo

Company Secretary

5

4

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


State of Affairs In the opinion of the Directors, there were no significant changes in the affairs of the Fund that occurred during the financial year under review not otherwise disclosed in this report or the financial statement.

Events Subsequent to Balance Date There has not arisen in the interval between the end of the financial year and date of this report any item, transaction or event of a material unusual nature likely in the opinion of the Directors, to affect significantly the operations of the Fund, the results of those operations, or the state of affairs of the Fund in subsequent financial years.

ii) paid or agreed to pay a premium in respect of a contract insuring against a liability incurred as an officer for the costs or expenses to defend legal proceedings. with the exception of the following matter: during or since the end of the financial year, the Fund has paid or agreed to pay a premium insuring it’s directors and officers against liability, for which cover includes the current financial year. In accordance with normal commercial practice, disclosure of the amount of premium payable under, and the nature of liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract.

Auditor’s Independence Declaration Likely Developments There are no likely developments that will significantly affect the operations of the Fund.

Environmental Regulations

A copy of the auditor’s independence declaration as required under section 307c of the Corporations Act 2001 is set on page 20. This statement is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors.

There are no environmental regulations that impact on the Fund.

Directors’ Benefits Since the end of the previous financial year, no Director of the Fund has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by Directors shown in Note 22 of the financial statements) by reason of a contract made by the Fund with a Director or with a firm of which a Director is a member, or with an entity in which a Director has a substantial interest.

Indemnifying Officers and Auditor The Company has not during or since the end of the financial year in respect of any person who is or has been an officer or auditor of the Fund:

V REYNOLDS Chair

M Prior Director Dated at Sydney 29th day of August, 2007

i) indemnified or made any relevant agreement for indemnifying against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings; or

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

19


Auditor’s Independence Declaration

20

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Directors’ Declaration The directors of the Fund declare that: 1. The financial statements, comprising the Income Statement, Balance Sheet, Cashflow Statement and the Statement of Changes in Equity, and accompanying notes are in accordance with the Corporations Act 2001 and: a) comply with Accounting Standards and the Corporations Regulations 2001; and b) give a true and fair view of the financial position of the Fund as at 30 June 2007 and performance for the year ended on that date of the Fund. 2. In the directors’ opinion, there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by:

V REYNOLDS Chair

M Prior Director Dated at Sydney 29th day of August, 2007

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

21


Income Statement For the Year Ended 30 June 2007

Note

2006 $’000

Revenue from continuing operations

5

42,164

39,011

Other Income

6

84

Employee benefits expense

7

(2,301)

(1,916)

Depreciation and amortisation expense

7

(70)

(156)

Fixed assets writedown

(274)

Commission expenses

(213)

(212)

Membership expenses

(198)

(177)

Computer expenses

(416)

(77)

Postage and telephone expenses

(159)

(243)

Printing and stationery expenses

(160)

(129)

Property expenses

(172)

(252)

Audit and accounting expenses

(233)

(424)

Marketing

(499)

Financial charges and taxes

(116)

(105)

Hospital benefit expenses

(27,435)

(23,976)

Ancillary benefit expenses

(7,651)

(7,689)

State levies

(690)

(724)

Movement in unexpired risk liability

16

(1,222)

Other expenses

(80)

(297)

Profit before income tax

275

2,718

Income tax expense

275

2,718

Profit attributable to members of the Fund The above income statement should be read in conjunction with the accompanying notes.

22

2007 $’000

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

19


Balance Sheet As at 30 June 2007

Note

2007 $’000

2006 $’000

ASSETS Current assets Cash and cash equivalents

9

Trade and other receivables Held-to-maturity investments

21,264

11,531

10

3,181

2,596

11

4,995

5,032

Total current assets

29,440

19,159

Non-current assets Held-to-maturity investments

11

4,068

9,098

Property, plant and equipment

12

5,198

5,192

Investment property

13

1,386

1,400

Total non-current assets

10,652

15,690

Total assets

40,092

34,849

LIABILITIES Current liabilities Trade and other payables

14

290

190

Outstanding claims liability

15

5,352

3,002

Unexpired risk liabilities

16

1,222

Other liabilities

17

3,769

2,727

Total current liabilities

10,633

5,919

Non-current liabilities Provisions

18

76

78

Total non-current liabilities

76

78

Total liabilities

10,709

5,997

Net assets

29,383

28,852

EQUITY Reserves 19 1,469 Retained earnings

1,213

19

27,914

27,639

Total equity

29,383

28,852

The above balance sheet should be read in conjunction with the accompanying notes.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

23


Statement of Changes in Equity For the Year Ended 30 June 2007

Note

At 30 June 2005

Retained earnings Reserves $ $

19

25,137

609

25,746

Adjustment on adoption of AASB 1023

(216)

(216)

Restated total equity at beginning of the financial year

24,921

609

25,530

Increase in fair value of land and buildings

604

604

Total income and expense for the year recognised directly in equity

604

604

Profit for the year

2,718

2,718

Total income and expense for the year

2,718

604

3,322

19

27,639

1,213

28,852

Increase in fair value of land and buildings

256

256

Total income and expenses for the year recognised directly in equity

256

256

Profit for the year

275

275

At 30 June 2006

Total income and expense for the year At 30 June 2007

19

275

256

531

27,914

1,469

29,383

The above statement in changes in equity should be read in conjunction with the accompanying notes.

24

Total equity $

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Cash Flow Statement For the Year Ended 30 June 2007

Note

2007 $’000

2006 $’000

Cash flows from operating activities Cash receipts from members

40,707

37,583

Cash paid to suppliers and employees

(37,928)

(36,125)

Interest received

1,772

1,636

Rent received

212

108

4,763

3,202

Net cash inflow from operating activities

21

Cash flows from investing activities Purchase of property, plant and equipment

(97)

(148)

Purchase of held-to-maturity investments

(2,000)

(10,138)

Proceeds from held-to-maturity investments

7,067

9,708

Net cash inflow/(outflow) from investing activities

4,970

(578)

Cash flows from financing activities

Net cash inflow from financing activities

Net increase in cash and cash equivalents

9,733

2,624

Cash and cash equivalents at beginning of year

11,531

8,907

Cash and cash equivalents at end of year

21,264

11,531

9

The above cash flow statement should be read in conjunction with the accompanying notes.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

25


Notes to the Financial Statements For the Year Ended 30 June 2007

Note 1 Corporate Information The financial report of Railway & Transport Health Fund Ltd for the year ended 30 June 2007 was authorised for issue in accordance with a resolution of the directors on 22 August 2007 and covers Railway & Transport Health Fund Ltd as an individual entity. The financial report is presented in the Australian currency. Railway & Transport Health Fund Ltd is a company limited by guarantee incorporated and domiciled in Australia. The address of the registered office and principal place of business is 46 Burwood Road, Burwood NSW 2134. The Fund is a health benefit organisation registered under the National Health Act 1953 and is a Not-for-profit entity.

Note 2 Summary of Significant Accounting Policies (a) Basis of Preparation The financial report is a general purpose financial report which has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. The financial report has also been prepared on a historical cost basis, except for investment properties, land and buildings, that have been measured at fair value. Compliance with Australian equivalents to International Financial Reporting Standards (AIFRS) ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS), except for: • A ASB 114 ‘Segment Reporting’ does not apply to Not-for-profit organisations. • A ASB 116 ‘Property, Plant and Equipment’ accounting for net revalutation increments and decrements on a class of assets basis rather than on individual assets basis as required for For-profit entities. • A ASB 136 ‘Impairment of Assets’ value in use being determined as being the depreciated replacement cost of an asset instead of the present value of the future cash flows expected to be derived from the asset as required for For-profit entities.

26

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

(b) Income Recognition Premium Income Premiums have been calculated on an accruals basis, bringing to account premiums in arrears and in advance at year end. For those amounts in arrears, collectibility has been assessed. Rental Income Rental income is accounted for on a straight-line basis over the lease term. Contingent rentals are recognised as income in the periods when they are earned. (c) Impairment of Assets At each reporting date the Fund assesses the amount of impairment of assets by determining the recoverable amount as the depreciated replacement cost. (d) Cash and Cash Equivalents For the purposes of the Cash Flow Statement, cash and cash equivalents includes cash on hand and at bank, deposits held at call with financial institutions, other short term, highly liquid investments with maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. (e) Investments and Other Financial Assets All investments and other financial assets are initially stated at cost, being the fair value of consideration given plus acquisition costs. Purchases and sales of investments are recognised on trade date which is the date on which the Fund commits to purchase or sell the asset. Accounting policies for each category of investments and other financial assets subsequent to initial recognition are set out below. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Fund has the positive intention and ability to hold-to-maturity and are measured at amortised cost subsequent to initial recognition using the effective interest method.


(f) Fair Values Fair values may be used for financial asset and liability measurement as well as for sundry disclosures.

Land is not depreciated. Depreciation on other assets is calculated on straight line basis over the estimated useful life of the asset as follows:

Fair values for financial instruments traded in active markets are based on quoted market prices at balance sheet date. The quoted market price for financial assets is the current bid price and the quoted market price for financial liabilities is the current ask price.

Class of Fixed Asset

Vehicles

12.5

The fair value of financial instruments that are not traded in an active market are determined using valuation techniques. Assumptions used are based on observable market prices and rates at balance date. The fair value of long-term debt instruments is determined using quoted market prices for similar instruments. Estimated discounted cash flows are used to determine fair value of the remaining financial instruments.

Plant and Equipment

5-20

The fair value of trade receivables and payables is their nominal value less estimated credit adjustments. (g) Property, Plant and Equipment Land and buildings are measured at fair value less accumulated depreciation. Any accumulated depreciation at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated as the revalued amount of the asset. A revaluation surplus is credited to the asset revaluation reserve included within member’s equity unless it reverses a revaluation decrease previously recognised in the income statement. A revaluation deficit is recognised in the income statement unless it directly in respect of that class of asset offsets a previous revaluation surplus in the asset revaluation reserve. On disposal, any revaluation reserve relating to sold assets is transferred to retained earnings. Independent valuations are performed regularly to ensure that the carrying amount of land and buildings does not differ materially from the fair value at the balance sheet date. All other plant and equipment is stated at historical cost, including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, less depreciation and any impairment.

Depreciation Rate %

Buildings

2

Computer Equipment

25

Leasehold Improvements

20

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. Gains and losses on disposals are calculated as the difference between the net disposal proceeds and the asset’s carrying amount and are included in the income statement in the year that the item is derecognised. (h) Change in Accounting Estimate The depreciation method has changed from diminishing value to straight line as a result of a re-assessment of the useful economic lives of the assets. The financial impact of this change on the basis of the depreciation method has not resulted in a material change to the depreciation charge / expense for the year. (i) Investment Properties Investment properties are initially measured at cost including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value, representing market conditions at balance sheet date. Gains or losses arising from changes in fair values of investment properties are included in the income statement as part of other income in the year in which they arise. (j) Trade and Other Payables Trade and other payables represent liabilities for goods and services provided to the Fund prior to the year end and which are unpaid. These amounts are unsecured and have 30-60 day payment terms.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

27


Notes to the Financial Statements (continued) Note 2 Summary of Significant Accounting Policies (continued) (k) Other Liabilities Other liabilities comprise of the unearned premium and employee benefits provisions in respect of annual leave.

If the present value of the expected cash flows relating to future claims plus an additional margin to reflect the inherent uncertainty in the central estimate exceeds the premiums expected to be paid then the entire deficiency is recognised in the income statement. The test at the reporting date indicated that there was a deficiency of $1,043,000.

The unearned premium represents the receipt in advance of premiums for the ensuing year. This therefore represents The entire deficiency of $1,222,000 is recognised the balance of premium income received which has been immediately in the income statement. The deficiency is recorded in the balance sheet as an unexpired risk liability. calculated on an accrual basis. The not earned component of premiums received in the income statement at the reporting date is recognised in the balance sheet as an unearned premium liability. (l) Outstanding Claims Provisions The Fund currently assesses the amount of the outstanding claim provision on a statistical model utilising previous claims history. The statistical model used by the Fund is a chain ladder model as prescribed by PHIAC. Under Australian equivalents to IFRSs, AASB 1023 General Insurance Contracts, from 1 July 2005 the Fund is required to show that amount of the outstanding claims provision including a risk margin. The margin is to be based on some statistical level of confidence. The margin of $307,000 as calculated by the Fund’s actuary, assumes a confidence level of 75%. 75% is the minimum standard adopted by the general insurance industry in Australia. (m) Unexpired Risk Liabilities At each reporting date the Fund assesses whether the unearned premium liability is sufficient to cover all expected future cash flows relating to future claims arising from rights and obligations under: • Current contracts (unearned premiums) • Contracts expected to be renewed for the period to the next expected pricing/premium review date or change in contractual benefits (contractual obligations) This assessment is referred to as the liability adequacy test and is performed separately for each group of contracts subject to broadly similar risks but managed as a single entity. If the present value of the expected cash flows relating to future claims plus an additional margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premiums then the unearned premiums are deemed to be deficient. The deficiency at the reporting date was $179,000.

28

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

(n) Employee Benefit Provisions Wages and Salaries, Annual Leave and Sick Leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of balance sheet date are recognised in respect of employees’ services rendered up to balance sheet date and measured at amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. Liabilities for wages and salaries and annual leave are included as part of Other Payables. Long Service Leave Liabilities for long service leave are recognised as part of the provision for employee benefits and measured at the present value of expected future payments to be made in respect of services provided by employees to the balance sheet date using the projected unit credit method. Consideration is given to expected future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using national government bond rates at balance sheet date with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (o) Rounding of Amounts The company is of a kind referred to in Class Order 98/0100 issued by the Australian Securities and Investments Commission relating to rounding of amounts in the financial report. Amounts have been rounded to the nearest thousand dollars ($’000) unless otherwise stated.


(p) Income tax The Fund is a health benefit organisation registered under the National Health Act 1953 and is exempt from incometax under section 50-30 of The Australian Income Tax Assessment Act 1997. (Q) Comparatives Where required by Accounting Standards, comparative figures have been adjusted to conform with changes in presentation for the current financial year.

Note 3 Critical Accounting Estimates and Judgements Actuarial assumptions and methods The actuarial valuation model used to calculate the outstanding claims is a modified chain ladder model. This model, and variants of it, is used by health insurers and general insurers to calculate outstanding claims liabilities by using the relationships between the claims paid at each time interval in the past, for each past period incurred, to predict the extent of incurred claims for each recent period for which claim payments have not yet been completed. The model produces claims incurred for each month of the previous 2 years, and outstanding claims provisions (by class of claim) for the latest month and for each of the twelve previous months. As the run-off of health insurance claims is relatively rapid, the claims to be paid in the future were not discounted. That is, a discount rate of zero was assumed. The risk equalisation component is calculated as 15% of the total hospital and medical claims outstanding. The percentage was estimated from past experience. The risk margin was determined from the assumption that there is a normal distribution of the differences between the calculated provisions required for past periods of time greater than 1 year ago, and the finally determined actual requirements for those periods.

Note 4 Risk Management Policies and Objectives Activities undertaken by Railway & Transport Health Fund Ltd may expose the Fund to market risk, credit risk, liquidity risk and fair value and cash flow interest rate risk. The Fund’s risk management policies and objectives are therefore designed to minimise the potential impacts of these risks on the results of the Fund where such impacts may be material. The Fund has a central treasury function which implements the risk management policies approved by the Board of Directors. Credit Risk Exposure Credit risk is the risk that counter parties to a financial asset will fail to discharge their obligations, causing the Fund to incur a financial loss. The Fund does not expect any counter parties to fail to meet their obligations given their high credit ratings and therefore does not require collateral or other security to support credit risk exposures. Fair Value and Interest Rate Risk The Fund’s interest rate risk arises from financial assets held with fixed interest rates. To manage their fair value interest rate risk, the Fund keeps a certain portion of financial assets at fixed rates to counteract a fall in interest rates, and a certain portion of financial assets at floating rates to allow for increases in interest rates. Market Risk This comprises foreign exchange risk and price risk. The Fund only invests in Australian cash funds and is therefore not significantly exposed to market risk. Liquidity Risk Liquidity risk is the risk that the Fund may encounter difficulties raising funds to meet commitments. It is the policy of the Board of Directors to maintain adequate available funds at call.

The standard deviation of these differences lead to a risk margin of 6.09% providing for a 75% likelihood that the outstanding claims provision set at any particular date, and based on the reported claim payments made to that date, will be adequate.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

29


Notes to the Financial Statements (continued) Note 5 Revenue from Continuing Operations

2007 $’000

2006 $’000

Rendering of services

40,109

37,518

Rental income

212

108

Interest

1,843

1,385

42,164

39,011

84

14

Buildings

24

67

Plant and equipment

44

71

Note 6 Other Income Fair value gains on investment properties

Note 7 Expenses Profit before income tax includes the following specific expenses: Amortisation expense Leasehold improvements Depreciation expense

Motor vehicles

2

4

70

142

Wollongong office rental expense

19

18

Newcastle office rental expense

22

23

41

41

Rental expenses in operating leases

Employee benefits expense

2,301

1,916

Defined contribution superannuation

203

241

93

76

Note 8 Auditors’ Remuneration Assurance Services Audit services Amounts paid/payable to BDO Kendalls for audit or review of the financial report for the Fund. Amounts paid/payable to non-BDO Kendalls audit firms for audit or review of the financial report for the Fund. Total

30

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

56

93

132


Note 9 Cash and Cash Equivalents

2007 $’000

2006 $’000

Cash at bank and on hand

2

1

Deposits with banks and credit unions

21,262

11,530

21,264

11,531

(a) Cash at bank Cash at bank and in hand is non-interest bearing. Deposits at call bear floating interest rates between 3.00% and 6.40% (2006:3.00% and 6.00%). These deposits have an average maturity of 30 days. (b) Reconciliation of Cash The above figures are reconciled to the cash at the end of the financial year as shown in the Cash Flow Statement as follows: Balances as above

21,264

11,531

Balances per Cash Flow Statement

21,264

11,531

Trade receivables

2,092

1,070

Other receivables

1,089

1,526

3,181

2,596

Note 10 Trade and Other Receivables (Current)

(a) Effective interest rate and credit risk Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in note 20.

Note 11 Held-to-maturity Investments CURRENT Term Deposits

2,000

2,006

Fixed Interest Securities/Bonds

1,995

2,022

Floating Rate Notes

1,000

1,004

4,995

5,032

NON-CURRENT Term Deposits

2,000

Fixed Interest Securities/Bonds

2,056

4,080

Floating Rate Notes

2,012

3,018

4,068

9,098

The bonds and floating rate notes are carried at amortised cost. They are to be held until their maturity between one and three years and carry fixed interest rates of 5% and 7%. The carrying value of the bonds and floating rate notes approximate to their fair value.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

31


Notes to the Financial Statements (continued) Note 12 Property, Plant and Equipment

2007 $’000

2006 $’000

At cost

876

Total land

876

Land

Land At fair value

2,340

1,250

Total land

2,340

1,250

2,700

2,658

Buildings At fair value Accumulated depreciation

(24)

2,676

2,658

At cost

102

Accumulated amortisation

(46)

56

Total buildings

2,676

2,714

Total land and buildings

5,016

4,840

223

949

Accumulated depreciation

(55)

(613)

168

336

20

20

Leasehold improvements

Plant and equipment At cost

Motor vehicles At cost Accumulated depreciation

(6)

(4)

14

16

Total non-current property, plant and equipment

5,198

5,192

Revaluations The valuation basis of land and buildings at fair value is the amount for which the assets could be exchanged between willing parties in an arms length transaction, based on current prices in an active market for similar properties in the same location and condition. The 2007 revaluations were based on independent assessments made by a member of the Australian Property Institute as at 30 June 2007.

32

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current and previous financial year are set out below:

2007 $’000

2006 $’000

2,126

2,676

Total Land Carrying amount at beginning of financial year Net revaluation

214

(550)

Carrying amount at end of financial year

2,340

2,126

2,658

1,545

Total Buildings Carrying amount at beginning of financial year Additions

25

Net revaluation

42

1,155

Depreciation

(24)

(67)

Carrying amount at end of financial year

2,676

2,658

55

68

Additions

1

Disposals

(55)

Amortisation

(14)

Carrying amount at end of financial year

55

336

305

Additions

97

102

Disposals

(219)

Depreciation

(46)

(71)

Carrying amount at end of financial year

168

336

Total Leasehold Improvements Carrying amount at beginning of financial year

Total Plant and Equipment Carrying amount at beginning of financial year

Total Motor Vehicles Carrying amount at beginning of financial year

16

Additions

20

Depreciation

(2)

(4)

Carrying amount at end of financial year

14

16

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

33


Notes to the Financial Statements (continued) Note 13 Investment Property

2007 $’000

2006 $’000

1,400

1,316

At fair value Balance at beginning of year Fair value adjustments

(14)

84

Balance at end of year

1,386

1,400

Land and Buildings are disclosed at fair values determined by independent valuations as at 30 June 2007. The valuation basis of land and buildings at fair value is the amount for which the assets could be exchanged between willing parties in an arms length transaction, based on current prices in an active market for similar properties in the same location and condition, and subject to similar leases. No impairment losses have incurred during the year. The following amounts have been recognised in the Income Statement: Rental income

67

9

Direct operating expenses arising from investment property that generated rental income during the period

16

57

There are no restrictions on the realisability of investment property or the remittance of income and proceeds of disposal.

Note 14 Trade and Other Payables Other payables

290

190

290

190

5,045

2,845

(a) Interest rate risk Details of Fund’s exposure to interest rate changes are set out in note 20.

Note 15 Claim Liabilities OUTSTANDING CLAIMS LIABILITY Outstanding claims-central estimate of the expected present value of future payments for claim liabilities Risk Margin

307

157

Gross outstanding claims liability

5,352

3,002

(a) Risk margin Process for determining the risk margin The overall risk margin was determined allowing for the relative uncertainty of the outstanding claims central estimates for the three main classes of benefits; hospital, medical and general (ancillary) benefits. The benefit component of the outstanding claims central estimate for any month is the sum of the differences between the central estimate of incurred claims for each class and each month for the prior 12 months to the date of calculation and the paid claims for each of those classes and months.

34

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Uncertainty was analysed by comparing the initial central estimate of 38 most recent provisions made within the first few weeks of each provision date with that provision again determined after 1 year’s further claims processing. The relative differences between the initial central estimate of the provision and the later central estimate of the provision are assumed to be normally distributed. Although there are some claims paid for health insurance services that have been incurred for more than 12 months, these claims are fairly rare. Most activity in hospital and medical benefits after more than 12 months of the date of service are reversals due to workers compensation settlements. This activity is usually around 0.2% to 0.25% of total incurred claims in a month. (Health insurers usually pay claims that are likely to be subject to workers compensation when the claimant gives an undertaking that the benefits will be repaid to the insurer upon the workers compensation settlement). Also around 0.5% of ancillary benefit services for which benefit is payable are claimed (and paid) more than 12 months after the date of service. These very small changes in the total incurred claims in any month are reasonably predictable and included in the estimated provision that is determined 12 months after the initial provision date. The overall provision is intended to have a 75% probability of adequacy and the risk margin is determined from the examination of the distribution of the 38 relative differences between the initial and 12 months later provision calculations. Risk margins applied The risk margin for outstanding claims is 6.09% (2006: 5.52%) and is imposed on the whole provision. (b) Movement in Provisions

2007 $’000

2006 $’000

Balance at beginning of year

3,002

2,645

Additional provision

2,200

200

Outstanding Claims

Amount utilised during the year

Increase in risk margin

150

157

Balance at end of year

5,352

3,002

Unearned Premiums

179

Contractual Obligations

1,043

1,222

Note 16 Unexpired Risk Liabilities Unexpired Risk Liability

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

35


Notes to the Financial Statements (continued) Note 16 Unexpired Risk Liabilities (continued) (a) Movement in Unexpired Risk Liability

2007 $’000

2006 $’000

Balance at beginning of year:

Recognition of additional unexpired risk liability in the period in relation to unearned premiums

179

Balance at end of year

179

Unearned Premiums

Contractual Obligations Balance at beginning of year

Recognition of additional unexpired risk liability in the period in relation to contractual obligations

1,043

Balance at end of year

1,043

Gross movement in unexpired risk liability

1,222

Total deficiency recognised in the income statement

1,222

(b) Deficiency recognised in the income statement

(c) Calculation of Deficiency Unearned Premium Liability

3,657

Future premiums receivable for contractual obligations

17,664

A

21,321

Central estimate of present value of expected future cash flows arising from future claims

21,711

Risk margin (IFRS 75% sufficiency margin at 3.83% (2006:3.80%))

832

Present value of expected future cash flows arising from future claims Deficiency

B 22,543 (A-B)

1,222

Process for determining the risk margin The overall risk margin was determined allowing for the relative uncertainty of the actuarial projection model’s central estimates of utilisation per single equivalent unit of exposure to risk for the three main classes of benefits; hospital, medical and general (ancillary) benefits. The actuarial projection model is used to determine the likely future claims experience of the unearned premiums and contractual obligations. Uncertainty was analysed by comparing the initial central estimate of 18 recent actuarial projection model estimates of the separate unit utilisation of hospital benefits, medical benefits and ancillary benefits with those actually incurred. The relative differences between the central estimate of the model and the actual unit utilisations are assumed to be normally distributed. The margin is then chosen to ensure that the estimates of future claim experience is not understated on 75% of the occasions that it is estimated. The risk margin for unexpired risks is 3.83% (2006: 3.80%) and is imposed on the unexpired risks component of the provision. The risk margin for contractual obligations is imposed on the total expected claims costs and the expenses in paying those claims for the contract assessment period and is 3.83%.

36

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Note 17 Other Liabilities

2007 $’000

2006 $’000

Unearned premium liability

3,657

2,594

Employee benefits

112

133

3,769

2,727

CURRENT

(a) Unearned premium liability Balance at the beginning of the year

2,594

2,809

Deferral of premiums on contracts written on the year

3,657

2,594

Earning of premiums deferred in the prior year

(2,594)

(2,809)

Balance as at the end of the year

3,657

2,594

76

78

Note 18 Provisions NON-CURRENT Employee benefits

Note 19 Reserves And Retained Earnings Reserves Asset revaluation reserve

1,469

1,213

1,469

1,213

Balance at the beginning of the year

1,213

609

Revaluation

256

604

Balance at the end of the year

1,469

1,213

Movements in reserves Asset Revaluation Reserve

The asset revaluation reserve records increments and decrements on the revaluation of individual parcels of land and buildings. Movements in retained earnings Retained earnings Balance at the beginning of the year

27,639

25,137

Adjustment on adoption of AASB 1023

(216)

Net profit for the year

275

2,718

Balance at the end of the year

27,914

27,639

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

37


Notes to the Financial Statements (continued) Note 20 Financial Instruments Risk Management Policies Interest Rate Risk The Fund’s exposure to interest rate risk, which is the risk that the financial instruments value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rate for each class of financial assets and financial liabilities is set out below: Fixed interest rate maturing

Floating Interest Rate $’000

1 year Over 1 to Over 2 to or less 2 years 5 years $’000 $’000 $’000

Non -interest Bearing $’000

Total $’000

2

21,264

Year ended 2007 Financial Assets Cash and cash equivalents

21,262

Receivables

2,092

2,092

3,012

3,995

1,017

1,039

9,063

24,274

3,995

1,017

1,039

2,094

32,419

5.6%

6.1%

6.4%

Held-to-maturity investments

Effective weighted average interest rate Financial Liabilities Overdraft Trade and other creditors

290

290

290

290

24,274

3,995

1,017

1,039

1,804

32,129

1 year Over 1 to Over 2 to or less 2 years 5 years $’000 $’000 $’000

Non interest Bearing $’000

Total $’000

1

11,531

Fixed interest rate maturing

Floating Interest Rate $’000

Year ended 2006 Financial Assets Cash and cash equivalents

11,530

Receivables

1,070

1,070

4,022

4,028

3,996

2,084

14,130

15,552

4,028

3,996

2,084

1,071

26,731

5.1%

6.5%

Held-to-maturity investments

Effective weighted average interest rate

7.0%

Financial Liabilities

38

Overdraft

Trade and other creditors

190

190

190

190

15,552

4,028

3,996

2,084

881

26,541

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Fair Values The carrying amounts of financial assets and liabilities approximate to their net fair value.

Note 21 Cash Flow Information

2007 $’000

2006 $’000

Profit for the year

275

2,718

Depreciation

70

156

Fixed asset writedown

276

Amortisation

34

130

Reconciliation of profit after income tax to net cash flow from operating activities

Net gain on sale of property, plant and equipment

Fair value adjustment to investment property

14

(84)

– (increase)/decrease in other receivables

(546)

199

– (increase)/decrease in interest receivables

(72)

121

– decrease in other assets

65

– increase in other payables

100

15

– decrease in employee provisions

(23)

(103)

Change in operating assets:

– increase in provisions for outstanding claims, unexpired risk liability and risk margin

3,572

200

– increase/(decrease) in deferred income

1,063

(215)

Net cash flow from operating activities

4,763

3,202

Note 22 Key Management Personnel Disclosures (a) Key management personnel The following persons were key management personnel of the Fund during the financial year: Name

Position Held

V Reynolds

Chair

Date Appointed

Date Resigned

21/09/2005

J Blake

Vice Chair

21/09/2005

R Glover

Director

22/09/2004

R Ledger

Director

21/09/2005

B Dredge

Director

21/09/2005

D Ellis

Director

21/09/2005 25/05/2006

M Prior

Director

J Walton

Operations Manager/ Executive Director*

07/12/2005

G Campbell

CEO

24/04/2006

04/05/2007

* Jeff Walton’s term concluded as an Executive Director on 22 November 2006 and resigned as the Operations Manager on 4 May 2007.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

39


Notes to the Financial Statements (continued) Note 22 Key Management Personnel Disclosures (continued) (b) Compensation Details of the compensation per key management personnel of Fund are set out below: V Reynolds $

J Blake $

R Glover $

R Ledger $

B Dredge $

2007 Short-term benefits Cash salary and fees

52,838

19,590

21,100

22,849

18,837

Other short-term employee benefits

4,755

1,763

1,899

2,056

1,695

Post-Employee Benefits Pension and Superannuation Other long-term employee benefits Long service leave

Termination Benefits

Total

57,593

21,353

22,999

24,905

20,532

(continued)

D Ellis $

M Prior G Campbell $ $

J Walton $

Total $

Cash salary and fees

19,202

24,279 169,426

Other short-term employee benefits

7,423

10,794

18,217

1,728

2,185

15,248

9,959

41,287

Short-term benefits 91,214 439,335

Post-Employee Benefits Pension and Superannuation Other long-term employee benefits Long service leave

19,436

19,436

Termination Benefits

Total

20,930

26,464 192,097 131,403

518,276

Included in cash salaries and fees for V Reynolds, M Prior and D Ellis, is additional compensation in the form of reimbursements for lost time from employee activities to fulfil additional directors duties other than board room duties for the Fund.

40

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


V Reynolds $

J Blake $

R Glover $

R Ledger $

B Dredge $

D Ellis $

M Prior $

22,916 –

15,666 –

9,549 –

14,999 –

11,833 –

11,333 –

1,750 –

2,100

1,485

2,543

1,387

1,103

2,603

158

2006 Short-term benefits Cash salary and fees Other short-term employee benefits Post-Employee Benefits Pension and Superannuation Other long-term employee benefits Long service leave Termination Benefits

Total

25,016

17,151

12,092

16,386

12,936

13,936

1,908

(continued)

G Campbell $

J Whyte $

C Haigh $

V Wulf $

A Wilson1 S Tizzone2 $ $

J Walton $

Total $

28,306

5,000

1,041

8,336

38,640 100,801

270,170

2,072

6,691

8,763

2,333

450

321

7,222

5,555

10,391

37,651

1,739

3,345

5,084

Short-term benefits Cash salary and fees Other short-term employee benefits Post-Employee Benefits Pension and Superannuation Other long-term employee benefits Long service leave Termination Benefits Total

– 145,951

32,711

5,450

1,041

8,657

7,222 191,885

– 145,951 121,228

467,619

1. A Wilson was paid final salary sacrifice of $7,222 further to his resignation during the period to 21 September 2005. 2. S Tizzone was paid an eligible remuneration payment of $145,951 and unused annual leave and long service leave entitlements of $21,115 and $67,500 respectively.

Note 23 Contingencies Contingent Liabilities At 30 June 2007, Railway & Transport Health Fund Ltd had no contingent liabilities.

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

41


Notes to the Financial Statements (continued) Note 24 Commitments

2007 $’000

2006 $’000

Within one year

129

Later than one year but not later than five years

Later than five years

129

Within one year

35

37

Later than one year but not later than five years

10

Later than five years

45

37

Capital commitments Property, plant and equipment Payable:

Lease commitments Non-cancellable operating leases – future minimum lease payments

The Fund leases various premises under non-cancellable operating leases expiring within one year. All leases have annual CPI escalation clauses. The above commitments do not include any turnover rentals which are contingent upon the Fund achieving defined sales levels. Nor do they include commitments for any renewal options on leases. Lease terms usually run for five years with a five year renewal option.

Note 25 Phiac Solvency Requirements In accordance with Clause 5 of Schedule 2 of the Private Health Insurance (Health Benefit Fund Administration) Rules 2007, the Railway & Transport Health Fund Ltd solvency requirement for the year ended 30 June 2007 is $4,669,000 (2006: $2,809,000).

Note 26 Subsequent Events No material events subsequent to the reporting date.

42

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


Independent Audit Report

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

43


Independent Audit Report (continued)

44

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744


50 Year Member Honour Role

Mr Ron Lane – rt member since 1975

RAILWAY & TRANSPORT HEALTH FUND LTD ABN 93 087 648 744

DESIGNED AND PRODUCED BY SCOPE DESIGN GROUP PTY LIMITED

We gratefully acknowledge and celebrate the contribution our long-standing members have made to rt health fund, and the role that each and every one has played in helping this organisation to grow and continue far beyond what its forefathers surely could have ever imagined. We value all of our members, and in particular, we honour those members who in 2007 celebrate an extraordinary 50 years of membership. Alfred Golden Alice Sharp Audrey Clarke Barrie Thompson Brian Flaherty Brian Cook Bruce Ayres Cecil Holland Charles Kilduff Charles Sherring Christakis Pantazis Colin Baber Colin Rossington Desmond Manwaring Doris Brimble Dorothy Wright Druce Dunne Edward Priddis Eleanor Rankin Emil Vicic Ernest Fisher Faith Newell Francis Steptoe Frank Seymour Frederick Hancox Geoffrey Pullen Geoffrey Popple George Cupitt Gloria Rodney Gordon Smith Graham Targett Grahem Hardy Guenther Mans Harold Durrant Hazel O’Keeffe Heather Paynter Hilary Bach

Ilma Fleming Ivan Novak James Niven James Russell Jerzy Beldzinski John Walsh John Wallbridge John Carey John Flood John Nesbitt John Cooper John Bayliss John Taylor John Hasling Judith Dunne Julie Jenkins Keith Ferguson Keith Peckman Kenneth Walkden-Brown Kenneth Cummings Kenneth Scaysbrook Kevin Mackenzie Leslie Schubert Malcolm Darnell Marcia Peters Margaret Harris Mary Pride Matessa Murphy Maurice Rosewarn Maxwell Dunn Maxwell Haviland Michael Booth Molly Simpson Nancy Mayers Neil Henderson Neville Urquhart Neville Pearce Neville Henry Norman Craig

Owen Hailey Pauline Grenfell Peter Lamont Phidias Michael Phillip Hurley Reinhold Pensch Robert Ridgewell Robert McFarlane Robin Griffin Ronald Hogbin Ronald Thomas Shirley Hammond Shirley Sherack Shirley Stokes Shoshana Day Stephen Torok Victor Wulf William McCourt Winston Selmes Wlodzimierz Hrynko Yet Chen

Should your name be on this list? While we do our best to ensure that all of our 50-year members are celebrated as part of our honour roll, records of membership held for over half a century can sometimes be wrong. We’d love to hear from you if you believe that you should have been included in this list so that we can set the record straight. Call us on 1300 886 123 or email help@rthealthfund.com.au

45


Annual Report 2007

Head Office Sydney 46 Burwood Road Burwood NSW 2134

Branches SYDNEY 46 Burwood Road Burwood NSW 2134 14-18 Lee Street Chippendale NSW 2008 (railway square, co-located with Encompass Credit Union) WOLLONGONG 139 Keira Street Wollongong NSW 2500 NEWCASTLE Shop 2, 28 Donald Street Hamilton NSW 2303 BRISBANE 59A Melbourne Street South Brisbane Qld 4101

Contact Us Tel 1300 886 123 Fax 1300 887 123 help@rthealthfund.com.au www.rthealthfund.com.au


rt annual report 2007