Apiam Animal Health Limited
Annual Report 2017

Plain-text annual report

Annual Report 2017CORPORATE DIRECTORY DIRECTORS Professor Andrew Vizard Dr Christopher Richards Mr Michael van Blommestein Mr Richard Dennis Mr Charles Sitch COMPANY SECRETARY Sophie Karzis REGISTERED OFFICE 27-33 Piper Lane East Bendigo VIC 3550 T 03 5445 5999 F 03 5445 5914 E investorrelations@apiam.com.au AUDITORS Grant Thornton Australia The Rialto, Level 30 525 Collins Street Melbourne VIC 3000 BANKERS National Australian Bank Level 1, 55 Mitchell Street Bendigo VIC 3550 Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director SHARE REGISTRY Boardroom Registry Pty Ltd Level 12, 225 George Street Sydney NSW 2000 T 1300 737 760 F 02 9279 0664 E enquiries@boardroomlimited.com.au STOCK EXCHANGE LISTING Australian Securities Exchange Level 4, North Tower, Rialto 525 Collins Street Melbourne VIC 3000 ASX CODE AHX WEBSITE apiam.com.au Contents Chairman’s Message Managing Director’s Message Director’s Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Directors’ Declaration Independent Audit Report Additional Information 03 05 08 20 29 30 31 32 33 34 73 74 77 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 3 Chairman’s Message Dear shareholder, I am pleased to present the second annual report for Apiam Animal Health Limited since its listing on the ASX in December 2015. The 2017 financial year has been busy and productive for Apiam as we have worked to execute on the first phase of our three-year strategic plan, integrate acquired businesses and deliver growth for our shareholders. During the year, and in-line with our planned acquisition strategy communicated at the time of our IPO, Apiam announced two strategically significant acquisitions - Quirindi Veterinary Group in September 2016 and AllStock in January 2017. Both businesses have performed extremely well under Apiam’s ownership to date and importantly provide a specialty product offering which we can leverage across our customer base. In May 2017 we provided shareholders full year revenue and earnings guidance for the 2017 financial year, with revenue expected to be in the range of $96.0-$98.0 million and underlying EBITDA to be in the range of $7.2-$8.5 million. I am pleased to report that our results for the 2017 financial year were within this guidance, with revenue of $98.0 million and underlying EBITDA of $8.3 million. Apiam’s revenue performance in 2017 was a reflection of a strong rebound in revenue in the second half of the financial year, particularly following the industry challenges we experienced in the first quarter. In particular, Apiam’s pig, companion animal, genetic services and equine businesses made very strong contributions to the Company’s revenue over the period, as did the acquisitions. Importantly, Apiam also delivered gross margin expansion in the 2017 financial year as a result of a strong performance in higher margin services, particularly in the companion animal business. The delivery of procurement synergies also contributed to gross margin expansion, highlighting the impact that synergy benefits from our business integration program can deliver. An important focus for Apiam this past year has been executing the first phase of the Company’s three-year strategic plan, to build the foundations for future business growth. Expanding the business platform, particularly in the areas of IT systems and resources has however driven an increase in the Company’s operating cost base. We consider this increased investment supportive of our long term growth strategies, and believe Apiam’s infrastructure platform is now at a level required to deliver the next stage of business growth. Apiam’s Board of Directors have declared a final dividend of 0.8 cents per share, fully franked. Total dividends per share in respect of the 2017 financial year are 1.6 cents per share, representing a 42.6% dividend payout ratio based on Apiam’s FY2017 operating Net Profit After Tax (excluding non-operating income associated with the reversal of a contingent liability on the balance sheet during the period). A Dividend Reinvestment Plan (DRP) will be implemented to allow shareholders to reinvest their dividends in Apiam’s future growth. The DRP will be in operation for the FY2017 final dividend, and shareholders will need to make an election if they wish to participate by 28 September 2017. Further details around the proposed Dividend Reinvestment Plan will be mailed to shareholders separately over the coming week. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 4 As we look to the year ahead, I believe Apiam is well placed to deliver value for our shareholders. We expect the second phase of our strategic plan will deliver further synergies and cost efficiencies. We are confident that the industry outlook for the production and companion animal segments remains strong, as does Apiam’s competitive position in the rural and regional veterinary services sector. Finally, I would like to take this opportunity to thank all of Apiam’s employees for their hard work over the past 12 months as well as our shareholders for your continued support. Yours sincerely, Professor Andrew Vizard Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 5 Managing Director’s Message Dear shareholder, Apiam has made significant progress over the 2017 financial year in a number of areas. The first phase of our strategic roadmap, to build the foundations of the enlarged Apiam business, is now largely complete. Additionally, our acquisition strategy and business development initiatives were executed successfully over the period and growth in revenues and earnings were achieved, despite challenging industry conditions in the first quarter. I would now like to discuss each of these areas in further detail. Financial performance Apiam’s revenue for the 12 months to 30 June 2017 (FY2017) was $98.0 million, with revenue of $51.9 million achieved in the second half (H2 2017). This reflects H2 2017 revenue growth of 17.1% compared to the prior comparable period (H2 2016) and this half year growth comparison is provided in the absence of a full 12 month result in FY2016 (given Apiam’s listing date of 15th December 2015). Revenue growth excluding acquisitions (Quirindi and AllStock) in H2 2017 increased 1.0% compared to H2 2016 despite the challenging dairy and beef feedlot industry conditions we experienced in the first quarter of the financial year. This was driven by strong growth across Apiam’s companion, equine and genetics services businesses. Apiam’s pig revenues also grew as a result of new customers and product lines, particularly in Q4 2017. The Company’s revenues from the beef feedlot sector were affected by cattle supply issues experienced by smaller feedlot operators in South Eastern Australia. Apiam’s larger corporate feedlot business has continued to perform well and in line with our expectations. Apiam reported gross profit of $47.3 million for FY2017, representing an expansion in the Company’s gross profit margin to 48.2%, driven by a change in business mix as well as the realization of procurement synergies. Net Profit After Tax for FY2017 was $5.0 million in FY2017, which included $1.3 million of non- operating income associated with the reversal of a contingent liability on the balance sheet. This translates to EPS of 5.00 cents per share. Building the foundations Apiam, on listing, brought together some of the largest rural veterinary practices from around the country. The first phase of Apiam’s three year strategic roadmap was to ensure the necessary focus and investment in “building the foundations” of the enlarged business. I am pleased to report this phase is now nearing completion. One of the most significant investments has been our Enterprise Resource Planning (ERP) system and Practice Management System, at a total project cost of approximately $1.4 million. The ERP system, which went live in May 2017, is essential to support Apiam’s scale and to deliver operating efficiencies as the business continues to grow. The Practice Management Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 6 System will be rolled out during FY2018, following employment trials at several of our veterinary clinics. Over FY2017 we have also made a significant investment in the resources required to build the foundations in important areas such as work place policies, training, culture and branding. Additional veterinarians, key account managers and administration support were appointed to support the Company’s next stage of growth. The second phase of our strategic roadmap, to “gain efficiencies” will be the focus in FY2018, and I expect synergies and efficiencies to be realized as the final stage of system integration is rolled out over FY2018. Acquisition strategy Growth via acquisitions remains an important part of Apiam’s strategy. Our focus is on complimentary businesses that leverage our cost base and infrastructure, provide a new geographic exposure or introduce a new or specialised product offering to our client base. During FY2017, we acquired two businesses that met with our strategic objectives and that represented financially attractive opportunities for Apiam shareholders. We acquired Quirindi Veterinary Group (QVG) in September 2016 for $11.6 million. QVG is NSW based with three business divisions, the largest being provision of veterinary services to commercial beef production systems throughout Australia. The acquisition of QVG has significant strengthened Apiam’s position in the beef feedlot industry and increased our footprint in rural NSW from which to leverage our broader product offering. Since acquisition, QVG has performed strongly and has made an important contribution to our revenue and earnings performance. Apiam also acquired AllStock (NSW) Pty Ltd for $1.75 million in January 2017. AllStock provides embryo transfer and artificial insemination services to the sheep and goat industries and also has commercial operations in livestock identification services. This business has performed extremely well under Apiam’s ownership. As we look ahead to 2018, acquisitions remain a fundamental part of the Company’s strategy to leverage identified additional complimentary bolt-on acquisitions which may be executed on subject to satisfactory financial return criteria. infrastructure. Management have the enlarged company Business development initiatives There have been several business development initiatives that have delivered growth over FY2017 and that remain important priorities as we move into the new financial year. Firstly, our rural and regional expansion strategy has seen us expand our services into locations where strong market demand exists. In the second half of FY2017, this strategy saw us open up a satellite clinic in Nathalia (Northern Victoria) as well as enter into the South West Equine Veterinary Group Joint Venture. Both these initiatives have been efficient investments, leveraging nearby infrastructure and cost centres. Based on the success of this strategy, we expect to announce a number of new greenfield and satellite clinics in FY2018. Another successful business development initiative relates to a greater focus on Apiam providing higher level services into the companion and mixed animal veterinary services segment. During FY2017, Apiam has invested in new technologies and specialized veterinary training to capitalize on the opportunities this market segment presents. We expect it to deliver growth in FY2018. Supply chain also represents an area where Apiam believes future business growth can be captured. A variety of initiatives are currently being explored including further supply chain integration and an increase in the development of Apiam’s private label range, particularly higher margin products. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 7 Outlook I am excited by the outlook for Apiam in FY2018 and believe we have many commercially attractive opportunities in front of us. Management have identified several business development initiatives to drive additional revenue streams, and our cost base is now at level required to support future business growth without requiring significant additional investment in back end support. Fundamentally, Australia’s regional production and companion animal industries offer strong growth opportunities. Apiam is uniquely positioned to capitalize on this opportunity given its integrated business model, geographic footprint and complete product offering. I would like to take this opportunity to thank our employees, fellow Board members and shareholders for their support over the past twelve months. I look forward to updating you of our continued progress in the months ahead. Yours Sincerely, Dr Chris Richards Managing Director Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 8 Directors’ Report The Directors present their report on the consolidated entity consisting of Apiam Animal Health Limited (Apiam) and the entities it controlled at the end of, or during, the year ended 30 June 2017. DIRECTORS The names and details of the Company’s directors in office during the financial year and until the date of this report are as follows. Professor Andrew Vizard Non-Executive Chairman Dr. Christopher Richards Managing Director Mr. Michael van Blommestein Non-Executive Director Mr Richard John Dennis Non-Executive Director Mr Charles Sitch Non-Executive Director All of the Directors have been in office for the entire period. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 INFORMATION ON DIRECTORS 9 Professor Andrew Vizard Dr. Christopher Richards Independent Non-Executive Chairman Managing Director BVSc(Hons), MVPM, FAICD BSc, BVSc of Veterinary consultancy. An Professor Vizard is a Principal Fellow at the Faculty and Agricultural Sciences, University of Melbourne and previously Associate Professor of Veterinary Epidemiology and Director of The Mackinnon Project, a recognised leader in sheep and beef veterinary experienced company director, he has previously held directorships in Animal Health Australia, the body responsible for coordinating Australia’s animal health system, Primesafe, the statutory authority the production of safe meat in Victoria and the Australian Wool Corporation. In the previous 3 years, Professor Vizard was a non-executive director of the Ridley Corporation Limited. responsible regulating for Chris founded Chris Richards & Associates in 1998 as a pig specific veterinary clinic based in Bendigo, servicing clients throughout Australia. Chris has been responsible for the strategic direction of the former Chris Richards Group, which has seen the development, acquisition and integration of other production animal veterinary clinics, veterinary wholesale, logistics and genetic services businesses over the last 18 years resulting in the formation of Apiam. Chris is currently a member of APL’s Biosecurity Strategic Review Panel and is a member of the Pork CRC Research and Development Committee. Interests in Shares and Options Interests in Shares and Options 95,294 shares 27,339,804 shares Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 10 Mr. Michael van Blommestein Mr Richard John Dennis Independent Non-Executive Director Independent Non-Executive Director GAICD BComm, LLB, CA, MAICD Michael was a Vice President and Country Manager of Australia and New Zealand for Zoetis and managed the spin-off of Zoetis from Pfizer Australia. An experienced director in the animal health sector, Michael presided over Animal Medicines Australia, the peak industry body for five years and was a member of the board for nearly a decade. Michael played an integral role in leading and overseeing the transition of Animal Health Alliance into Animal Medicines Australia and has also served on the board of Animal Health Association Japan. Rick has held a number of senior roles over 35 years with Ernst & Young and was the Managing Partner of EY’s Queensland practice on two occasions from 2001-2007 and from 2014-2015. Rick also held a number of executive management roles at EY, including the roles of Deputy COO and CFO for the Asia-Pacific he was practice where responsible for overseeing the financial and operational integration of EY’s Australian and Asian member firms. Rick is also a member of Australian Super’s Queensland Advisory Board and a member of the advisory board to EWM Group. He is also a non-executive director of Springfield Land Corporation Pty Ltd, Vesta Living Communities Ltd, Gold Coast Private Health Network and the following public companies: Omni Market Tide Limited and Motorcycle Holdings Limited. Interests in Shares and Options Interests in Shares and Options 97,240 shares 30,000 shares Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 11 Mr Charles Sitch Non-Executive Director BComm, LLB, MBA, GAICD Charles is currently a director of ASX listed Spark New Zealand Ltd and a member of their audit risk and finance committee. Previously Charles spent 24 years at McKinsey and Company New York, London and Melbourne. He was a senior director, primarily working with CEOs and Boards on strategy and operations turnarounds before retiring in 2010. In 2002, Charles was awarded the President’s Medal for services to the Royal Agricultural Society of Victoria. Charles has previously held listed public company directorships in (NZX Listed) and Pacific Edge Limited Bellamy’s Australia Limited (resigned 28 February 2017). Interests in Shares and Options 150,000 shares Company Secretary Ms Ella McDougall BHSc, BA, BLLP, GIA(Cert) Ella was General Counsel and Company Secretary of Apiam from incorporation on 25 March 2015 through to 17 February 2017 when she resigned. Sophie Karzis B. Juris, LLB Ms. Karzis was appointed Company Secretary on the 17 February 2017 and is a practicing lawyer with over 15 years’ experience as a corporate and commercial lawyer, and company secretary and general counsel for a number of private and public companies. Sophie is the principal of Corporate Counsel, a corporate law practice with a focus on equity capital markets, mergers and acquisitions, corporate governance for ASX-listed entities, as well as the more general aspects of corporate and commercial law. Sophie is the company secretary of a number of ASX-listed and unlisted entities, and is a member of the Law Institute of Victoria as well as the Governance Institute of Australia. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 MEETINGS OF DIRECTORS 12 The number of meetings of the Company’s Board of Directors and of each Board committee held during the year and the number of meetings attended by each Director or their alternate were as follows: Directors Board Meetings Audit and Risk Management Committee Remuneration Committee A Andrew Vizard 16 Chris Richards 16 Michael van Blommestein 16 Richard Dennis 16 Charles Sitch 16 B 16 16 14 15 14 A 6 - - 6 6 B 6 - - 6 6 A 5 - 5 - 5 B 5 - 5 - 4 Column A denotes the number of meetings the Director was entitled to attend and column B denotes the number of meetings the Director attended. COMMITTEE MEMBERSHIP As at the date of this report, the Company has an Audit & Risk Management Committee and a Remuneration & Nomination Committee of the Board of Directors Members of the Audit & Risk Management Committee during the period were: Richard Dennis (Chair) Andrew Vizard Charles Sitch Members of the Remuneration & Nomination Committee during the period were: Michael van Blommestein (Chair) Andrew Vizard Charles Sitch Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 PRINCIPAL ACTIVITIES 13 The Group operates in the segment of provision of veterinary products and services to production and companion animals. Apiam’s strategy is to service production animals throughout their life cycle, including the provision of:  systems to assist in herd health programs;  production advice;   consulting services and products to assist in the prevention of animal diseases; technologies to manage compliance with legislative requirements on pharmaceutical use;  advice and services in respect of animal welfare compliance;  retail animal health product sales;  on-farm delivery of products via its own logistics capability;   third party auditing services of industry quality assurance programs; technology development for animal health management;  ancillary services such as sales and/or delivery of genetics and associated products; and  on-farm and on-line training programs for clients. OPERATING AND FINANCIAL REVIEW Revenue for the 12 months to 30 June 2017 was $98.0m, with revenue for the second half (H2 FY2017) of $51.9m, improving 17.1% on H2 FY2016, the prior comparable period (pcp). In spite of challenging industry conditions in the dairy and feedlot industries, revenue in H2 FY2017 increased 1.0% compared to H2 FY 2016 (excluding the impact of the Quirindi Veterinary Group (QVG) and AllStock acquisitions. Key drivers of Apiam’s revenue results were a strong performance from Apiam’s companion animal, genetics services and equine businesses. Apiam’s pig revenues also grew as a result of new customers and product lines, particularly in Q4 FY2017. The Company’s beef feedlot revenues were affected by cattle supply issues experienced by smaller feedlot customers in South Eastern Australia. Apiam’s larger corporate feedlot business has continued to perform in line with company expectations. Revenue (excluding acquisitions) in H2 FY2017 increased 6.4% against H1 FY 2017, supported by a strong finish to the year across all business units. Apiam acquired QVG, a leading beef feedlot focused veterinary practice in September 2016 (10- month contribution to FY2017) which has performed in line with expectations. AllStock, was acquired in January 2017 (6-month contribution to FY2017). AllStock have performed strongly since acquisition, delivering both revenue and earnings growth. Additional details are discussed in the Acquisitions section below. Apiam reported gross profit of $47.3m for FY17, representing an expansion in the group’s gross profit margin from 46.8% in FY2016 to 48.2% in FY2017. This margin uplift was driven by changes in the Company’s business mix as well as the realisation of procurement synergies. Apiam’s reported net profit after tax (NPAT) for FY2017 was $5.0m (which included $1.3m of non-operating income associated with the reversal of a contingent liability on the balance sheet). The following tables are presented to assist in the interpretation of the underlying performance of the Company during the FY2017 period. In the absence of a full 12 month FY2016 result, we have also included a half year analysis over the periods H2 2016 (the first full 6 month trading Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 14 period since Apiam’s listing in December 2015), H1 2017 and H2 2017. This information is additional and provided using non-IFRS information and terminology. Apiam FY17 Consolidated Financial Results $M Total Revenue Gross Profit Expenses Employment Costs Other expenses Total Operating Expenses Underlying EBITDA2 Integration / ERP expenses Acquisition/Advisory expenses Reversal of contingent consideration EBITDA Depreciation & Amortization EBIT Interest Net Profit/(loss) before tax Tax Net Profit/(loss) after tax Gross Margin (%) FY17A 98.0 47.3 FY161 54.1 25.3 Variance 43.9 21.9 % 81.1% 86.6% (27.0) (11.9) (38.9) 8.3 (0.7) (0.2) 1.3 8.6 (1.4) 7.2 (0.9) 6.3 (1.3) 5.0 48.2% 8.5% (14.2) (5.3) (19.5) 5.8 (0.5) (3.3) 0.0 2.1 (0.6) 1.5 (0.4) 1.1 (1.0) 0.1 46.8% 10.8% 90.8% 123.4% 99.7% 42.8% (12.8) (6.6) (19.4) 2.5 (0.3) 3.0 1.3 6.5 (0.8) 5.7 (0.5) 5.2 (0.3) 5.0 Underlying EBITDA margin (%) Notes: 1 FY16A results reflect a partial year comprising contributions from Chris Richards Group (and 3 clinics in which the group had a majority equity interest) from 1 November 2015 and the contribution from 9 other clinics acquired from 10 December 2015 2 Underlying EBITDA excludes one-off integration, ERP & acquisition expenses as well as $1.3m of income associated with the reversal of Contingent Liability on the balance sheet (contingent acquisition consideration no longer payable) Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 Apiam FY17 Half Year Analysis 15 H1 17A 46.1 22.6 H2 16A 44.3 21.1 % 12.6% 9.1% H2 17A 51.9 24.7 $M Total Revenue Gross Profit Expenses - employment costs - general expenses Operating expenses Underlying EBITDA1 - Gross margin - Underlying EBITDA margin Notes: 1 Underlying EBITDA excludes one-off integration, ERP & acquisition expenses as well as $1.3m of income 11.8 4.3 16.1 5.0 47.7% 11.4% 13.2 5.4 18.6 4.0 49.0% 8.7% 13.8 6.5 20.3 4.3 47.5% 8.4% 4.6% 20.9% 9.3% 8.4% % 17.1% 16.9% 17.0% 51.9% 26.3% (13.3)% associated with the reversal of Contingent Liability on the balance sheet (contingent acquisition consideration no longer payable) Strategic plan & business development In FY2017, Apiam has been focussed on executing the first phase of its three-year strategic plan – “building the foundations”. This has centred around successfully integrating acquired businesses and building a platform that can deliver future growth for shareholders. The “building the foundations” phase is now largely complete. Significantly, Apiam’s Enterprise Resource Planning (ERP) system went live on 1 May 2017 and was delivered on-time and on- budget. This was an essential investment for Apiam enabling the company to have an integrated system to track its sales, financial information, stock and human resources data. Capturing of real-time monitoring and forecasting data will also enable the business to drive more efficient work practices and more effectively and quickly respond to customer trends and opportunities. The roll-out of Apiam’s Practice Management System is one of the last planned foundation investments and will occur across FY2018. As previously advised, additional veterinarians, key account managers and administration support staff required to support Apiam’s next stage of growth were mostly hired in the first half of FY2017. Significant work has also been undertaken in FY2017 in important foundational areas such as work place policies, culture and branding. Apiam’s focus in FY2018 is to move to the second phase of its strategic plan – “gaining efficiencies”. Operating efficiencies will commence to be delivered throughout FY2018 and into FY2019, particularly as Apiam’s Practice Management System investment is completed. Several initiatives to drive additional revenue streams in FY2018 have also been implemented. Specifically, these business development initiatives are:  Rural & regional expansion strategy: Strategic expansion of services in locations where strong market demand exists. The opening of our satellite clinic in Nathalia (northern VIC) in April 2017 and our subsequent South West Equine Veterinary Group JV are our first examples of this strategy. These are efficient investments requiring limited capital expenditure and which leverage nearby infrastructure and cost centres. Apiam expects to open a number of new greenfield and satellite clinics in FY2018;  A growth focus on the underserviced rural companion and mixed animal markets to capture revenue in an underserviced segment in rural and regional Australia; and  Supply chain initiatives: Further integration of supply chain as well expansion into development of a private label range and higher margin products. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 Acquisitions Apiam announced two acquisitions during FY2017. 16 Apiam acquired NSW based Quirindi Veterinary Group (QVG) on 1 September 2016 for consideration of $11.57m. QVG has three key business divisions – (i) provision of veterinary services to large beef production systems throughout Australia; (ii) provision of equine reproduction services at its custom built centre in Quipolly; and (iii) a livestock and companion veterinary practice in Quirindi. The acquisition of QVG strengthened Apiam’s position in the beef feedlot industry and established a presence in rural NSW from which to leverage the Company’s product offering. Since acquisition, QVG has performed strongly and is important for Apiam’s strategy in the beef feedlot sector going forward. Apiam also acquired AllStock (NSW) Pty Ltd for $1.75m on 5 January 2017. AllStock provides embryo transfer and artificial insemination services to the sheep and goat industries. AllStock also has commercial operations in livestock identification systems, to enhance traceability in the event of food safety and disease outbreaks. This acquisition has established Apiam as Australia’s leader in large scale sheep and goat herd expansion and genetic upgrade programs. AllStock has performed exceptionally well since acquisition, with revenue uplift occurring in the first six months of Apiam’s ownership. Growth via acquisition remains an important part of Apiam’s business strategy. The Company’s focus is to make strategic acquisitions to further leverage its cost base and infrastructure and to deliver services and product offering to an enlarged client base. Expenses Apiam has brought together some of the largest rural veterinary practices from around the country. In FY2017, Apiam has made a significant investment in “building the foundations” of the enlarged business with the capacity to deliver organic growth, additional strategic acquisitions, synergies and operating efficiencies for shareholders in the coming years. Investment in key foundational areas in FY2017 were across the following areas:    $1.95m in new employees: Veterinarians to drive growth, three additional key account managers as well as strengthening administration support (HR, Finance, IT, Marketing and People & Culture); $1.70m in other operating expenses: Business development strategy, marketing, brand development, people and culture; and $0.80m in IT systems: Implementation of an integrated Enterprise Resource Planning (ERP) system of which $0.40m was expensed and $0.40m was capitalised (to be amortised over its useful life, in accordance with accounting standards). An additional $1.8m of operating expenses (employment & other) were incurred in FY2017 as a result of the QVG and AllStock acquisitions. Apiam believes its operating infrastructure is nearing a level required to sustain the expected next stage of the Company’s growth and expect to deliver additional cost efficiencies as the final stage of system integration is rolled out over FY2018. Apiam’s Practice Management System (PMS) “VetLink” is being implemented in FY2018 following extensive development work by clinic personnel across several vet clinics over the past year. It is expected that approximately $0.25m of this investment will be capitalised and amortised over its useful life (in accordance with accounting standards) and that approximately $0.35m will be expensed. One-off expenses incurred in FY2017 were $0.5m related to a number of integration projects and acquisitions. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 Balance sheet 17 As at 30 June 2017, Apiam reported cash on hand of $1.0m and borrowings of $25.7m. Borrowings increased from $16.0m as at 30 June 2016, largely due to the acquisition of QVG during the period. In June 2017, Apiam negotiated new covenants related to its borrowing facility provided by banking partner, NAB. The amended covenants better align Apiam’s working capital requirements with its strategic plan, providing greater flexibility where required. Inventory growth has been in-line with the growth of Apiam’s business operations. Inventory levels as at 30 June 2017 were $11.5m, compared to $10.2m as at 30 June 2016. Apiam normally experiences a seasonal increase in inventory around December which has decreased, in addition to the company having a focus on inventory controls and management. The increase in June 30 FY2017 inventories of $1.3m compared to June 30 FY2016 is due to the centralisation of inventory procurement and the additional inventory required as a result of the QVG acquisition. Cash flow Apiam’s operating cash flow has improved in the second half of FY2017, particularly due to focussed efforts to reduce inventory. The QVG and AllStock acquisitions have been significant drivers of net investing and net financing cash flows over the period. $M FY2017 A FY2016 A1 Net cash used in operating activities Acquisition of subsidiary, net of cash Purchases of property, plant and equipment Restructure of group entities, net of cash Other Net cash used in investing activities Proceeds from issue Net changes in financing Net cash inflow from financing activities 1.7 (8.4) (1.6) 0.0 (0.1) (10.0) 0.0 7.2 7.2 (1.2) (24.1) (0.3) (0.6) (0.1) (25.1) 23.0 5.4 28.4 Net change in cash and cash equivalents Notes: 1 FY16A results reflect a partial year comprising contributions from Chris Richards Group (and 3 clinics in which the group had a majority equity interest) from 1 November 2015 and the contribution from 9 other clinics acquired from 10 December 2015 2 This information is additional and provided using non-IFRS information and terminology. (1.1) 2.1 Capital management Apiam’s Board of Directors have declared a final dividend of 0.8 cents per share, fully franked and payable on 27 October 2017. This represents a total dividend of 1.6 cents per share for FY2017, equivalent to a 42.6% pay-out ratio based on Apiam’s FY17 operating NPAT (which excludes $1.3m of income associated with the reversal of Contingent Liability on the balance sheet). Apiam will implement a Dividend Reinvestment Plan (DRP), allowing eligible shareholders to reinvest their dividend into Apiam shares, and participate in the Company’s future growth. The DRP will be in operation for the FY2017 final dividend. The key terms of the proposed Dividend Reinvestment Plan will be sent to shareholders in the coming week. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 18 Outlook Apiam is well placed to deliver revenue and earnings growth in FY2018. We expect the second phase of our strategic plan to deliver further synergies and efficiency benefits for our shareholders. The key underlying industry drivers for the production animal sector are positive for FY2018 and the rural companion animal sector continues to grow, with increased demand for better service offerings. Apiam’s revenues in FY2018 year to date are in line with Company expectations and have not been affected by the industry challenges that were experienced during Q1 FY2017. DIVIDENDS The maiden interim dividend of $809,424 is 0.8 cps and was paid in April 2017. The Apiam Board of Directors have declared the Company’s final dividend of 0.8c per share fully franked on the 25 August 2017. The final dividend of $809,424 will be paid on the 27 October 2017. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors there were no significant changes in the state of affairs of the consolidated entity during the financial period, except as otherwise noted in this Report. SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR There are no other matters or circumstances that have arisen since the end of the year that have significantly affected or may significantly affect either:    the entity’s operations in future financial years the results of those operations in future financial years; or the entity’s state of affairs in future financial years. LIKELY DEVELOPMENTS, BUSINESS STRATEGIES AND PROSPECTS The Company’s strategy is to build on the solid foundation it has established as an integrated animal health business servicing the rural production and companion animal sectors, and ensure we can meet the needs of a market which is experiencing strong growth. The Company expects to continue to invest through acquisition, new greenfield sites, partnerships and further recruitment of leading expertise to ensure we have the capability required to prosper in the expanding global animal health industry. KEY RISKS AND BUSINESS CHALLENGES Apiam Animal Health operates in the Production Animal industry and in particular the pig, feedlot cattle and dairy cattle sectors. Any downturn or disruption in these sectors, particularly if it results in substantial reductions in livestock numbers or production volume, will adversely impact the Company. Any recurring or prolonged disruption to the supply of the key products that Apiam Animal Health sells, particularly vaccines for pigs, may have an adverse effect on the financial performance of the Company. No single client or buying group is expected to account for more than 10% of Apiam Animal Health’s FY16 pro-forma forecast revenue. However, if there is consolidation within Apiam Animal Health’s client base, this may lead to a concentration of the Company’s client exposure Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 19 risk and may adversely affect the margins that the Company is able to generate on the sale of its products and services to these client groups. Apiam Animal Health’s business model depends substantially on its senior management team and key personnel to oversee the day-to-day operations and strategic management of the Company. There is a risk that operating and financial performance of the Company would be adversely affected by the loss of one or more key persons. ENVIRONMENTAL REGULATION The Managing Director reports to the Board on any environmental and regulatory issues at each Directors meeting, if required. There are no matters that the Board considers need to be reported in this report. GREENHOUSE GAS AND ENERGY DATA REPORTING REQUIREMENTS The Group is not subject to the reporting requirements of either the Energy Efficiency Opportunities Act 2006 or the National Greenhouse and Energy Reporting Act 2007. UNISSUED SHARES UNDER OPTION There were no unissued ordinary shares of Apiam under option at the date of this report. Shares issued during or since the end of the year as a result of exercise of options During or since the end of the financial year, the Company has not issued any ordinary shares as a result of the exercise of options. DEEDS OF ACCESS, INDEMNITY AND INSURANCE FOR DIRECTORS AND OFFICERS Access The Company has entered into deeds of access, indemnity and insurance with each Director which contain rights of access to certain books and records of the Company. Indemnification Under the constitution of the Company, the Company is required to indemnify all Directors and officers, past and present, against all liabilities allowed under law. Under the deed of access, indemnity and insurance, the Company indemnifies parties against all liabilities to another person that may arise from their position as an officer of the Company or its subsidiaries to the extent permitted by law. The deed stipulates that the Company will meet the full amount of any such liabilities, including reasonable legal costs and expenses. Insurance Under the constitution of the Company, the Company may arrange and maintain directors’ and officers’ insurance for its Directors to the extent permitted by law and under the deed of access, indemnity and insurance, the Company must maintain insurance cover for each Director for the duration of the access period. Rounding of amounts Apiam Animal Health is a type of Company referred to in ASIC Class Order 98/100 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable), or in certain cases, to the nearest dollar under the option permitted in the class order. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 20 Remuneration Report REMUNERATION REPORT (AUDITED) This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing, and controlling major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent. For the purposes of this report, the term “executive” encompasses the senior executives and general managers of the Group. Details of Key Management Personnel (I) DIRECTORS Andrew Vizard Chairman (Independent Non-executive) Chris Richards Managing Director (Executive) Michael van Blommestein Director (Independent Non-executive) Richard Dennis Director (Independent Non-executive) Charles Sitch Director (Independent Non-executive) (II) EXECUTIVES Corne Loots General Manager Veterinary Services Matthew White Chief Financial Officer The Remuneration Report is set out under the following main headings: a Principles used to determine the nature and amount of remuneration; b Details of remuneration; c Service agreements; d Share-based remuneration; e Bonuses included in remuneration; f Non-executive director remuneration; and g Other information. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 21 a Principles used to determine the nature and amount of remuneration The principles of the Group’s executive strategy and supporting incentive programs and frameworks are:    to align rewards to business outcomes that deliver value to shareholders; to drive a high performance culture by setting challenging objectives and rewarding high performing individuals; and to ensure remuneration is competitive in the relevant employment market place to support the attraction, motivation and retention of executive talent. The Group has structured a remuneration complementary to the reward strategy of the Group. framework that is market competitive and The Remuneration Committee operates in accordance with its charter as approved by the Board and is responsible for reviewing and recommending compensation arrangements for the Directors and the Executive Team. The remuneration has met 5 times in the FY17 reporting period. The Committee has approved the engagement of Korn Ferry Hay Group to undertake bench- marking for the executive team. The Committee has also approved the engagement of Grant Thornton Australia Limited and HRAscent to formulate an equity management plan for principal and senior vets which was approved in FY17 and will be implemented in FY18. The remuneration structure that has been adopted by the Group consists of the following components:   fixed remuneration being annual salary; and short term incentives, being bonuses. However, the Remuneration Committee is considering long term incentives (LTI) to be implemented in the future. The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration on a periodic basis by reference to recent employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive Team. Item EPS (cents) Dividends (cents per share) Net profit before tax ($’000) Share price ($) 2017 5.00c 0.8c $6,315 $0.70 2016 0.08c - $1,068 $1.49 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 22 Details of remuneration b Details of the nature and amount of each element of the remuneration of each Key Management Personnel (KMP) of Apiam are shown in the table below: Directors Andrew Vizard Chairman Independent (ii) Richard Dennis Independent (ii) Ella McDougall Director (iv) Chris Richards Managing Director (i) Charles Sitch Independent (ii) Michael van Blommestein Independent (ii) Matthew White Director (iv) Employees Corne Loots General Manager Vet, Services (vii) Matthew White Chief Financial Officer (iv) Julie Tippett (ix) Chief Operating Officer (iii) Ella McDougall (ix) General Counsel/Cpy Sec (iv) 2017 Total 2016 Total Year 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Short term employee benefits Salary and fees (v) $ Cash bonus $ Non-monetary benefits $ Post-employment benefits Superannuation $ Long-term benefits Long service leave (vi) $ Share-based payments Shares (viii) $ Total $ 120,000 80,000 70,000 46,667 - - 350,072 221,051 54,795 36,530 54,795 36,530 - - 212,519 139,772 190,000 136,449 - 145,161 - 101,389 1,052,181 - - - - - - - - - - - - - - 50,000 - 95,000 - - - - - 943,549 145,000 - - - - - - 12,027 19,941 - - - - - - - - - - - - - - - - 19,791 10,868 5,205 3,470 5,205 3,470 - - 23,961 12,848 27,075 12,929 - - - - - - - 6,718 4,241 - - - - - - 285 74 274 75 - - - - - - - - - - - - - - - - 50,000 - 30,000 - 120,000 80,000 70,000 46,667 - - 388,608 256,101 60,000 40,000 60,000 40,000 - - 236,765 252,694 217,349 274,453 - 3,117 13,790 (17,793) 200,000 344,275 - - 12,027 23,058 - 9,204 81,237 66,579 - 1,458 7,277 - - 100,000 212,051 - 1,152,722 (11,945) 380,000 1,546,241 Performance based percentage of remuneration % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 20% 0% 35% 0% 0% 0% 0% 0% 9% (i) Appointed director 25 March 2015 and received no remuneration for acting as a director or employee of the company for the period 25 March 2015 to 31 October 2015. On 1 November 2015 Chris became Managing Director of the company and his remuneration received for FY16 relates to the period 1 November 2015 to 30 June 2016. (ii) Appointed director 5 November 2015. Remuneration received for FY16 relates to the period 5 November 2015 to 30 June 2016. (iii) Remuneration received for FY16 relates to the period 1 November 2015 to 30 June 2016. (iv) Appointed director 28 August 2015, resigned 5 November 2015. No remuneration was received for acting as a director. Remuneration received relates to KMP role for the period 1 November 2015 to 30 June 2016 and KMP role from 1 July 2016 to 17 Feb 2017. Resigned on 17 February 2017. (v) Salary and fees includes fixed cash and annual leave accruals. (vi) Long term benefits include long service leave accruals (vii) Cash bonus is a sign on bonus. (viii) As part of the listing on the Australian Securities Exchange, shares were issued to certain eligible employees in Australia for nil consideration as part of their reward for service to the Company. (ix) Julie Tippett not considered a KMP in 2017 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 23 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Executive Directors Chris Richards Other Key Management Personnel Corne Loots Matthew White Fixed remuneration At risk – STI 100% 83% 83% - 17% 17% Service agreements c Remuneration and other terms of employment for the Executive Directors and other key management personnel are formalised in a Service Agreement. The major provisions of the agreements relating to remuneration are set out below: Name Chris Richards Corne Loots Matthew White Base salary * $388,608 $212,519 $190,000 Term of agreement 5 years from listing No fixed term No fixed term Notice period Twelve (12) months Six (6) months Six (6) months * Base salary for Chris Richards is inclusive of superannuation guarantee payments. For all other key management personnel, base salary does not include superannuation guarantee payments. Bonus provisions Chris Richards: Nil Corne Loots: Eligible for an annual bonus of up to 20% of base salary from 1 December 2016. Sign on bonus of $50,000 payable after twelve months service completed on 1 December 2016. Matthew White Eligible for an annual bonus of up to 20% of base salary from 1 July 2016. Eligible for a bonus of up to 50% of base salary for the period ended 30 June 2016. Share-based remuneration d As part of the listing on the Australian Securities Exchange, shares were issued to certain eligible employees in Australia for nil consideration as part of listing success milestones and as reward for service to the Company. The $1.00 fair value per share to the company is included as an expense in the profit and loss statement. The total remuneration in shares for each key management person is included as part of their remuneration in Part b of this Remuneration Report under Share-based payments. Bonuses included in remuneration e Details of the short-term incentive cash bonuses awarded as remuneration to each key management personnel, the percentage of the available bonus that was paid and payable in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. The sign on bonus to Corne Loots was paid upon completion of twelve months service on 1 December 2016 and the listing bonus to Matt White was paid in August 2016. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2017 24 Included in remuneration ($) Percentage vested during the year Percentage forfeited during the year Executive Directors Chris Richards Other Key Management Personnel Corne Loots Matthew White - - - - - - 100% 100% 100% Non-Executive Director remuneration f Clause 13.1(a) of the Company’s Constitution (Constitution) provides the limit for the aggregated remuneration of non-executive directors which is currently set at $750,000. The Directors of the Company are entitled to apportion and distribute this aggregate Non-Executive Directors’ remuneration as they determine. The Non-Executive Directors of the Company received the following fees (which total $300,000):  Chairman (One): $120,000 per annum;  Directors (Three): $60,000 per annum, each; and  Chair of the Audit and Risk Management Committee $10,000 (in addition to the directors fees), such amounts being inclusive of any superannuation payments. The ASX Listing Rules and Constitution allows the Company to increase the aggregate amount of remuneration payable to Non-Executive Directors of the Company pursuant to Shareholder approval at a general meeting. Other information g Options held by key management personnel There were no options to acquire shares in the Company held during the 2017 reporting period by key management personnel of the Group; including their related parties. Shares held by key management personnel The number of ordinary shares held in the Company at 30 June 2017 held by each of the Group’s key management personnel, including their related parties, is set out below: Personnel Chris Richards Andrew Vizard Charles Sitch Richard Dennis Michael van Blommestein Corne Loots Matthew White Balance at 1/07/2016 26,852,304 30,000 150,000 50,000 100,000 86,689 80,000 27,648,993 Granted as remuneration - - - - - - - - Received on exercise Other changes 487,500 65,294 - (20,000) - - - - - - - - (2,760) - 31,218 361,252 Held as at 30/06/2017 27,339,804 95,294 150,000 30,000 97,240 86,689 111,218 28,010,245 None of the shares included in the table above are held nominally by key management personnel. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2017 Loans to key management personnel 25 The Group did not enter into any loans with key management personnel during the 2017 year. The number of key management personnel included in the Group aggregate at year end is Nil. The Group does not have an allowance account for receivables relating to outstanding loans and has not recognised any expense for impaired receivables during reporting period. Other transactions with key management personnel The Group rents premises at Piper Lane, Bendigo East, Victoria. The premises are owned by an entity associated with Chris Richards. Rent payments made amounted to $242,400 (2016: $160,000). The Group rents premises at Rubicon Street, Smithton, Tasmania. The premises are owned by an entity associated with Chris Richards. Rent payments made amounted to $124,116 (2016: $73,515). The Group leases it artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $69,939 (2016: $43,147). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. The Group has entered into an intellectual property licence with iVet Pty Ltd, a company controlled by Chris Richards, to use the iVet intellectual property. The Group will pay iVet Pty Ltd a royalty of 10% of net sales revenue received by the Group for the use of the intellectual property licence. The agreement is for an initial term of 10 years. The group has the option to purchase the iVet technology by giving notice to iVet Pty Ltd at any time during the initial 5 years of the term. No payments were made during the financial year (2016: Nil). The Group obtains air travel services for business purposes from an entity associated with Chris Richards. The fares paid are based on commercial fares. Payments made amounted to $64,179 (2016: $121,257). End of audited Remuneration Report. Environmental legislation Apiam operations are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory in Australia. Indemnities given to, and insurance premiums paid for, auditors and officers Insurance of officers During the year, Apiam paid a premium to insure officers of the Group. The officers of the Group covered by the insurance policy include all Directors. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else to cause detriment to the Group. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2017 26 Details of the amount of the premium paid in respect of insurance policies are not disclosed as such disclosure is prohibited under the terms of the contract. The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify any current or former officer of the Group against a liability incurred as such by an officer. Indemnity of auditors The Group has not, during or since the end of the financial year, indemnified or agreed to indemnify its auditors, Grant Thornton Audit Pty Ltd, or any related entity against a liability incurred by the auditor. During the financial year, the Group has not paid a premium in respect of a contract to insure the auditor of the Group or any related entity. Non-audit services During the year, the Company’s auditors performed certain other services in addition to their statutory audit duties. The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice provided by resolution of the Audit and Risk Management Committee, is satisfied that the provision of those non-audit services during the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:   all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit and Risk Management Committee to ensure they do not impact upon the impartiality and objectivity of the auditor; and the non-audit services do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. Details of the amounts paid to the auditors of the Company and its related practices for audit and non-audit services provided during the year are set out in Note 27 to the financial statements. A copy of the Auditor’s Independence Declaration as required under s307C of the Corporations Act 2001 is included on page 29 of this financial report and forms part of this Directors’ Report. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Rounding of amounts Apiam is a type of Company referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable), or in certain cases, to the nearest dollar under the option permitted in the Instrument. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2017 27 Signed in accordance with a resolution of the Directors: Dr Christopher Irwin Richards Managing Director Melbourne 25 August 2017 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2017 28 Apiam Animal Health Limited Financial Statements For the year ended 30 June 2017 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF APIAM ANIMAL HEALTH LIMITED In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Apiam Animal Health Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants A C Pitts Partner - Audit & Assurance Melbourne, 25 August 2017 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 30 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017 Revenue Other income Expenses Changes in inventory Cost of materials Costs of consumables and services Employee benefit expenses Listing and acquisition expenses Property expenses Freight, vehicle and transport expenses Depreciation of property, plant and equipment Other operating expenses Other finance costs Finance costs Profit/(loss) before income tax Income tax (expense)/benefit Profit from continuing operations Profit for the year Profit attributable to: Owners of Apiam Animal Health Limited Non-controlling interests Total comprehensive income/ (loss) for the period Profit attributable to: Owners of Apiam Animal Health Limited Non-controlling interests Note 6 2017 $’000 2016 $’000 97,991 1,250 54,097 - 1,282 (52,007) (1,095) (27,105) (739) (2,623) (1,292) (1,395) (7,034) 1,703 (30,470) (472) (15,377) (2,026) (1,410) (1,456) (614) (2,466) (14) (904) (7) (434) 6,315 1,068 (1,265) (975) 5,050 93 5,050 93 5,027 23 50 43 5,050 93 5,027 23 50 43 5,050 93 26 13 7 7 8 23 23 Earnings per share for profit attributable to the ordinary equity holders of the company: Basic earnings per share Diluted earnings per share Note 24 Cents Cents 5.00 5.00 0.08 0.08 The above statement of profit or loss should be read in conjunction with the accompanying notes Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 31 STATEMENT OF FINANCIAL POSITION As at 30 June 2017 Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Other current liabilities Current tax liabilities Borrowings Employee benefit obligations Total current liabilities Non-current liabilities Borrowings Employee benefit obligations Total non-current liabilities Total liabilities Net assets Equity Note 2017 $’000 2016 $’000 9 10 11 12 14 13 15 16 20 17 18 19 18 19 968 2,117 14,075 13,254 11,477 10,181 746 376 27,266 25,928 57,249 44,702 6,400 4,496 50 - 3,438 2,960 67,137 52,158 94,403 78,086 9,015 9,491 - 1,250 776 1,366 4,102 4,148 3,748 3,453 17,641 19,708 21,608 11,864 672 243 22,280 12,107 39,921 31,815 54,482 46,271 Equity attributable to owners of the parent - share capital - equity raising costs - corporate reorganisation reserve - non-controlling interest acquisition reserve - retained earnings/ accumulated losses non-controlling interest Total equity Note: This statement should be read in conjunction with the notes to the financial statements. 21.1 22 22 83,066 79,070 (26,692) (26,666) (6,615) (6,615) 4,081 (137) 53,840 45,652 23 642 619 54,482 46,271 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 32 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2017 Balance at 1 July 2015 Issue of convertible notes Conversion of convertible notes Employee share-based payments Restructure and transfer of Chris Richards entities into Apiam Issue of shares to vendors of business acquired Issue of new share capital Transaction costs relating to issue of share capital Income tax benefit relating to transaction costs Transactions with owners Profit / (Loss) for the period Other comprehensive income Total comprehensive income for the period Note 21 21 21 21 21/31 21 21 21 23 Balance at 30 June 2016 Restructure and transfer of Chris Richards entities into Apiam Issue of shares to vendors of business acquired Dividends paid 22 21 Transactions with owners Profit / (Loss) for the period Other comprehensive income Total comprehensive income for the period Share capital Convertible notes Corporate re- organisation reserve $’000 - - 285 1,360 $’000 140 145 (285) - $’000 - - - - Non- controlling interest acquisition reserve $’000 Retained earnings Total attributable to owners of parent Non- controlling interest Total equity $’000 - (187) - - - - - - $’000 (47) 145 - 1,360 $’000 $’000 - (47) - 145 - - - 1,360 30,633 25,904 23,000 (3,017) 905 - - - - - (26,666) - - - - (6,615) - - - - - - - - 3,967 19,289 23,000 (3,017) 905 - 3,967 576 19,865 - 23,000 - (3,017) 905 - 79,070 (140) (26,666) (6,615) - 45,649 576 46,225 - - - - 50 50 50 - 50 43 93 - 43 93 79,070 - (26,666) (6,615) (137) 45,652 619 46,271 - - (26) - - 3,996 - 3,996 - - - - - - - - - - - (26) - - - - - - - - - - (809) (809) 5,027 - 5,027 4,081 (26) 3,996 (809) 3,161 5,027 - 5,027 - - - - 23 - 23 (26) 3,996 (809) 3,161 5,050 - 5,050 53,840 642 54,482 Balance at 30 June 2017 Note: This statement should be read in conjunction with the notes to the financial statements. 83,066 - (26,692) (6,615) Note 32 32 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 STATEMENT OF CASH FLOWS For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Transaction costs relating to restructure of group entities Transaction costs relating to acquisition of subsidiary Income taxes paid Net cash (outflow)/inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Purchase of intangible assets Restructure of group entities, net of cash Payment for Acquisition of subsidiary, net of cash acquired Payment for acquisition of associate Net cash (outflow)/inflow from investing activities Cash flows from financing activities Proceeds from issues of shares and other equity securities Proceeds from issues of convertible notes Proceeds from borrowings Loans made to director related entity Share issue transaction costs Repayment of borrowings Borrowing transaction costs Repayment lease liabilities Repayment from director related entity Dividends paid to company shareholders Net cash (outflow)/inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year 9 Note: This statement should be read in conjunction with the notes to the financial statements. 33 2016 $'000 59,010 (56,992) 2,018 (434) (640) (934) (1,247) (1,237) (295) (80) (615) (24,068) (25,058) 23,000 145 21,797 (1,229) (3,017) (13,281) (68) (317) 1,362 - 28,392 2,097 20 2,117 2017 $'000 106,969 (102,290) 4,679 (918) - (236) (1,855) 1,670 (1,563) - - (8,379) (50) (9,992) - - 22,921 - - (14,535) - (404) - (809) 7,173 (1,149) 2,117 968 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 34 Notes to the Consolidated Financial Statements 1 Nature of operations Apiam Animal Health Limited and subsidiaries’ (‘the Group’) principal activities include the provision of veterinary products and services to production and companion animals. Apiam’s strategy is to service production animals throughout their life cycle, including the provision of: - - - - - - - - - - - systems to assist in herd health programs; production advice; consulting services and products to assist in the prevention of animal diseases; technologies to manage compliance with legislative requirements on pharmaceutical use; advice and services in respect of animal welfare compliance; retail animal health product sales; on-farm delivery of products via its own logistics capability; third party auditing services of industry quality assurance programs; technology development for animal health management; ancillary services such as sales and/or delivery of genetics and associated products; and on-farm and on-line training programs for clients. There have been no significant changes in the nature of these activities during the year. 2 General information and statement of compliance The consolidated general purpose financial statements of the Group have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). Compliance with Australian Accounting Standards results in full compliance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Apiam Animal Health Ltd is a for-profit entity for the purpose of preparing the financial statements. Apiam Animal Health Limited is the Group’s Ultimate Parent Company. Apiam Animal Health Limited is a Public Company incorporated and domiciled in Australia. The address of its registered office and principal place of business is 27-33 Pipers Lane, East Bendigo, Victoria 3550. The consolidated financial statements for the year ended 30 June 2017 were approved and authorised for issue by the Board of Directors on 25 August 2017. Comparative information The Company was incorporated on 25 March 2015. The comparative information relates to the period 1 July 2015 to 30 June 2016. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 35 3 Changes in accounting policies 3.1 New and revised standards that are effective for these financial statements A number of new and revised standards became effective for the first time to annual periods beginning on or after 1 January 2017. Information on the more significant standard(s) is presented below. The adoption of these new and revised standards has not had a material impact on the Group as they are largely of the nature of clarification of existing requirements. 3.2 Accounting Standards issued but not yet effective and not been adopted early by the Group 3.2.1 Revised pronouncement: AASB 9 Financial Instruments (December 2014) Superseded pronouncement - AASB 139 Financial Instruments: Recognition and Measurement, Effective date - 1 January 2018. Nature of change AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities and includes a forward-looking ‘expected loss’ impairment model and a substantially-changed approach to hedge accounting. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are: a Financial assets that are debt instruments will be classified based on: (i) the objective of the entity’s business model for managing the financial assets; and (ii) the characteristics of the contractual cash flows. b Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income (instead of in profit or loss). Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. Introduces a ‘fair value through other comprehensive income’ measurement category for particular simple debt instruments. c d Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. e Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:  the change attributable to changes in credit risk are presented in Other Comprehensive Income (OCI)  the remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. Otherwise, the following requirements have generally been carried forward unchanged from AASB 139 into AASB 9:  classification and measurement of financial liabilities; and  derecognition requirements for financial assets and liabilities AASB 9 requirements regarding hedge accounting represent a substantial overhaul of hedge accounting that enable entities to better reflect their risk management activities in the financial statements. Furthermore, AASB 9 introduces a new impairment model based on expected credit losses. This model makes use of more forward-looking information and applies to all financial instruments that are subject to impairment accounting. Likely impact on initial application The entity is yet to undertake a detailed assessment of the impact of AASB 9. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. 3.2.3 Revised pronouncement : AASB 15 Revenue from Contracts with Customers Superseded pronouncement - AASB 118 Revenue replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations: Nature of change   establishes a new revenue recognition model   provides new and more detailed guidance on specific topics (e.g. multiple element arrangements, variable pricing, changes the basis for deciding whether revenue is to be recognised over time or at a point in time rights of return, warranties and licensing)  expands and improves disclosures about revenue Likely impact on initial application The entity is yet to undertake a detailed assessment of the impact of AASB 15. However, based on the entity’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 36 3.2.3 Revised pronouncement : AASB 16 Leases Superseded pronouncement - AASB 117 Leases, Effective date - 1 January 2019 Nature of change   replaces AASB 117 Leases and some lease-related Interpretations requires all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases  provides new guidance on the application of the definition of lease and on sale and lease back accounting   largely retains the existing lessor accounting requirements in AASB 117 requires new and different disclosures about leases Likely impact on initial application The entity is yet to undertake a detailed assessment of the impact of AASB 16. However, based upon the entity’s preliminary assessment, the likely impact on the first time adoption of the Standard for the year ending 30 June 2020 includes:   there will be a significant increase in lease assets and financial liabilities recognised on the balance sheet, the reported equity will reduce as the carrying amount of lease assets will reduce more quickly than the carrying amount of lease liabilities,  EBIT in the statement of profit or loss and other comprehensive income will be higher as the implicit interest in lease payments for former off balance sheet leases will be presented as part of finance costs rather than being included in operating expenses,  Operating cash outflows will be lower and financing cash flows will be higher in the statement of cash flows as principal repayments on all lease liabilities will now be included in financing activities rather than operating activities. Interest can also be included within financing activities. 4 4.0 Summary of accounting policies Overall considerations The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below. 4.1 Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2017. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. 4.2 Business combination The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 37 The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred, (b) the recognised amount of any non-controlling interest in the acquire, and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at acquisition date. The measurement period ends on either the earlier of (i) 12 months from the date of acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Business combinations under common control are accounted for in the accounts prospectively from the date the group obtains the ownership interest. Assets and liabilities are recognised upon consolidation at their existing carrying amount in the financial statements of the Acquiree. Any difference between the fair value of the consideration paid and the book value / carrying amount at which the assets and liabilities are recorded is recognised directly in the Corporate re-organisation reserve in equity. 4.3 Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in Australian Dollars ($AUD), which is also the functional currency of the Parent Company. Foreign currency transactions and balances Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the date of the transaction), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. 4.4 Segment reporting Apiam identifies its operating segments based on the species to which the Group provide veterinary services and supply animal health products. The Group’s three (3) operating segments are: • Dairy and Mixed; • Feedlots; • Pigs; The operating segments are aggregated for reporting purposes on the basis that each business segment has sales consisting predominantly of S4 products, over the counter products and service revenue and that these products and services exhibit similar economic characteristics across each business. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 38 4.5 Revenue Revenue is recognised when it is probable that the economic benefit will flow to the consolidated entity and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Revenue from veterinary services is recognised in accounting period in which the services are provided. Revenue from the sale of goods is recognised when the risk and rewards have transferred to the customer which is generally upon receipt of the goods. Interest and dividend income Interest income and expenses are reported on an accrual basis using the effective interest method. Dividends, other than those from investments in associates, are recognised at the time the right to receive payment is established. 4.6 Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised. 4.7 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed in the period in which they are incurred and reported in finance costs Note 7. 4.8 Intangible assets Goodwill Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. See Note 4.2 for information on how goodwill is initially determined. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 4.11 for a description of impairment testing procedures. Capitalised development costs Capitalised development costs are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over its useful life of 10 years from the date of use. 4.9 Property, plant and equipment Leasehold improvements, plant and equipment and motor vehicles Leasehold improvements, plant and equipment and motor vehicles are initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group’s management. Plant and equipment and motor vehicles also include property held under finance lease (see Note 4.10). Leasehold improvements, plant and equipment and motor vehicles are subsequently measured using the cost model, cost less subsequent depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of buildings, IT equipment and other equipment. The following useful lives are applied:   Leasehold improvements: 10 - 33% Plant & equipment: 10 – 33%  Motor vehicles: 25% In the case of leasehold property, expected useful lives are determined by reference to comparable owned assets or over the term of the lease, if shorter. Material residual value estimates and estimates of useful life are updated as required, but at least annually. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 39 Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses. 4.10 Leased assets Finance leases The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards of ownership of the leased asset. Where the Group is a lessee in this type of arrangement, the related asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance lease liability. Leases of land and buildings are classified separately and are split into a land and a building element, in accordance with the relative fair values of the leasehold interests at the date the asset is recognised initially. See Note 4.9 for the depreciation methods and useful lives for assets held under finance lease. The corresponding finance lease liability is reduced by lease payments net of finance charges. The interest element of lease payments represents a constant proportion of the outstanding capital balance and is charged to profit or loss, as finance costs over the period of the lease. Operating leases All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 4.11 Impairment testing of goodwill, other intangible assets and property, plant and equipment For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in- use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash- generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 40 4.12 Financial instruments Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Classification and subsequent measurement of financial assets For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:    Loans and receivables Financial assets at Fair Value Through Profit or Loss (FVTPL) Available-For-Sale (AFS) financial assets All financial assets except for those at FVTPL are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group’s trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group. Financial assets at FVTPL Financial assets at FVTPL include financial assets that are either classified as held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply (see below). Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 41 AFS financial assets AFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. All other AFS financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the AFS reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognised in profit or loss. When the asset is disposed of or is determined to be impaired the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income. Interest calculated using the effective interest method and dividends are recognised in profit or loss within ‘finance income’ (see Note 4.5). Reversals of impairment losses for AFS debt securities are recognised in profit or loss if the reversal can be objectively related to an event occurring after the impairment loss was recognised. For AFS equity investments impairment reversals are not recognised in profit loss and any subsequent increase in fair value is recognised in other comprehensive income. Classification and subsequent measurement of financial liabilities The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are measured subsequently at amortised cost using the effective interest method, except for financial liabilities held for trading or designated at FVTPL, that are carried subsequently at fair value with gains or losses recognised in profit or loss. All derivative financial instruments that are not designated and effective as hedging instruments are accounted for at FVTPL. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. 4.13 Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned on the basis of weighted average cost. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. 4.14 Income taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, the Australian Taxation Office (ATO) and other fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 42 Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognised to the extent that it is probable that they will be able to be utilised against future taxable income, based on the Group’s forecast of future operating results which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. Deferred tax liabilities are always provided for in full. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of tax income or expense in profit or loss, except where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. 4.15 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 4.16 Equity, reserves and dividend payments Share capital Share capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital, net of any related income tax benefits. Corporate re-organisation reserve The Corporate re-organisation reserve represents the difference between the fair value of the consideration paid and the fair value of assets and liabilities acquired in a business combination whereby the business acquired was under common control at the date of acquisition. Non-controlling interest acquisition reserve The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners. Non-controlling interest Represents the portion of the net assets of subsidiary’s that are not 100% owned by the Company. Retained earnings Retained earnings include all current and prior period retained profits. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date. All transactions with owners of the parent are recorded separately within equity. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 43 4.17 Employee benefits Short-term employee benefits Short-term employee benefits are benefits, other than termination benefits, that are expected to be settled wholly within twelve (12) months after the end of the period in which the employees render the related service. Examples of such benefits include wages and salaries, non-monetary benefits and accumulating sick leave. Short-term employee benefits are measured at the undiscounted amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The Group’s liabilities for annual leave and long service leave are included in other long term benefits as they are not expected to be settled wholly within twelve (12) months after the end of the period in which the employees render the related service. They are measured at the present value of the expected future payments to be made to employees. The expected future payments incorporate anticipated future wage and salary levels, experience of employee departures and periods of service, and are discounted at rates determined by reference to market yields at the end of the reporting period on high quality corporate bonds that have maturity dates that approximate the timing of the estimated future cash outflows. Any re-measurements arising from experience adjustments and changes in assumptions are recognised in profit or loss in the periods in which the changes occur. The Group presents employee benefit obligations as current liabilities in the statement of financial position if the Group does not have an unconditional right to defer settlement for at least twelve (12) months after the reporting period, irrespective of when the actual settlement is expected to take place. Post-employment benefit plans The Group provides post-employment benefits through various defined contribution and defined benefit plans. 4.18 Share-based employee remuneration The Group operates equity-settled share-based remuneration plans for its employees. None of the Group’s plans feature any options for a cash settlement. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions). 4.19 Provisions, contingent liabilities and contingent assets Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations. Provisions are discounted to their present values, where the time value of money is material. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 44 Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. No liability is recognised if an outflow of economic resources as a result of present obligation is not probable. Such situations are disclosed as contingent liabilities, unless the outflow of resources is remote in which case no liability is recognised. 4.20 Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. 4.21 Rounding of amounts The Parent Entity has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instruments 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000, or in certain cases, the nearest dollar. 4.22 Significant management judgement in applying accounting policies When preparing the financial statements, management undertakes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. Significant management judgement The following are significant management judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements. Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilised. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions (see Note 4.14). Estimation uncertainty Information about estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different. Impairment In assessing impairment, management estimates the recoverable amount of each asset or cash-generating unit based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see Note 4.11). Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technical obsolescence that may change the utility of certain software and IT equipment. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 45 Trade receivables Management estimates the recoverable amount of any outstanding trade receivable balances at reporting date and recognises an allowance for impairment if required. Inventories Management estimates the net realisable values of inventories, taking into account the most reliable evidence available at each reporting date. The future realisation of these inventories may be affected by future technology or other market- driven changes that may reduce future selling prices. Business combinations Management uses valuation techniques in determining the fair values of the various elements of a business combination (see Note 4.2). Particularly, the fair value of contingent consideration is dependent on the outcome of many variables that affect future profitability (see Note 20). 5 Segment reporting Identification of reportable operating segments In the previous reporting period, Apiam monitored its business on a consolidated basis and no separate segments were reported on as the Group was in the process of developing its financial reporting systems. Management now identifies its operating segments based on the species to which the Group provide veterinary services and supply animal health products. The Group’s three (3) operating segments are: • Dairy and Mixed; • Feedlots; • Pigs; Each of these operating segments is managed separately as each species group requires specific veterinary expertise resources and marketing approach. These operating segments are monitored and strategic decisions are made on the basis of adjusted segment operating results. The operating segments are aggregated for reporting purposes on the basis that each business segment has sales consisting predominantly of S4 products (prescription based pharmaceuticals), over the counter products and veterinary service revenue and that these products and services exhibit similar economic characteristics across each segment. Corporate overheads that cannot be allocated to a specific segment are disclosed separately. The revenues and profit generated by the Group’s operating segments are summarised as follows: Segment information Revenue from external customers Segment operating costs Segment adjusted operating profit before tax Total reporting segment operating profit Other income Corporate overheads Acquisition costs Integration costs Finance costs Net profit before tax Income tax Net profit after tax 2017 $'000 97,991 90,587 7,404 7,404 1,250 (712) (236) (503) (888) 6,315 (1,265) 5,050 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 46 6 Revenue Sales revenue Sale of goods Rendering of services Total revenue 7 Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Motor vehicles Total depreciation Finance costs Interest expenses for borrowings at amortised cost: Other borrowings at amortised cost Interest expenses for finance lease arrangements Other financial items – amortisation of borrowing costs Share-based payments expense Rental expense relating to operating leases 2017 $'000 2016 $'000 63,960 34,031 41,822 12,275 97,991 54,097 2017 $’000 15 833 547 1,395 820 84 904 14 918 - 1,616 2016 $’000 6 321 287 614 413 21 434 7 441 1,360 876 8 Income tax expense The major components of tax expense and the reconciliation of the expected tax expense based on the domestic effective tax rate of Apiam at 30% (2016: 30%) and the reported tax expense in profit or loss are as follows: Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2016 - 30%) Adjustments for non-deductible expenses: Reversal of contingent consideration Share based payment Stamp duty on acquisitions Sundry items Income tax expense Adjustment for current tax in prior periods Total current tax expense Tax expense comprises Current tax expense/(benefit) Deferred tax expense/(benefit) Tax expense/(benefit) Note 15 provides information on deferred tax assets and liabilities. 2017 $’000 6,315 1,895 (375) - - 8 (367) 1,527 (262) 1,265 1,743 (478) 1,265 2016 $’000 1,068 320 - 408 243 4 655 975 975 823 (1,798) 975 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 9 Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents 10 Trade and other receivables Trade receivables, gross Less: provision for impairment of receivables Other receivables Rebates receivable 47 2016 $'000 2,117 2,117 2016 $'000 12,462 (137) 168 761 13,254 2017 $'000 968 968 2017 $'000 13,276 (460) 95 1,164 14,075 All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of fair value. All of the Group’s trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and an allowance for credit losses of $323 (2016: $137) has been recorded accordingly within other expenses. Balance at 1 July Impairment loss Balance 30 June 11 Inventories Stock on hand, at cost Less provision for obsolescence Stock in transit, at cost 12 Other current assets Prepayments Security deposits 2017 $'000 137 323 460 2016 $'000 137 137 2017 $'000 11,874 (397) - 2016 $'000 9,828 (100) 453 11,477 10,181 2017 $'000 686 60 746 2016 $'000 311 65 376 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 48 13 Property, plant and equipment Details of the Group’s property, plant and equipment and their carrying amount are as follows: Non-current Year ended 30 June 2016 Additions Acquired through business combinations Depreciation charge Closing net book value At 30 June 2016 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2017 Opening net book value Acquired through business combinations Additions Depreciation charge for year Closing net book value At 30 June 2017 Cost or fair value Accumulated depreciation Net book amount Leasehold improvements Plant & equipment Motor vehicles $’000 $’000 $’000 Assets under construction $’000 Total $’000 54 98 (6) 146 248 2,651 (321) 2,578 150 1,909 (287) 1,772 - - - 452 4,658 (614) 4,496 152 (6) 146 2,899 (321) 2,578 2,059 (287) 1,772 - - - 5,110 (614) 4,496 146 - 4 (15) 135 2,578 201 1,414 (833) 3,360 1,772 227 1,122 (547) 2,574 - 331 331 4,496 428 2,871 (1,395) 6,400 156 (21) 135 4,920 (1,560) 3,360 3,508 (934) 2,574 331 - 331 8,915 (2,515) 6,400 Leased assets Furniture, fittings and equipment includes the following amounts where the group is a lessee under a finance lease Leased equipment Cost accumulated depreciation Net book amount Refer to Note 30 for capital commitments relating to vehicle leases. 14 Intangible assets At 30 June 2016 Cost Accumulated amortization and impairment Carrying amount at 30 June 2016 At 1 July 2016 Opening net book value Acquisition of subsidiary Closing net book value At 30 June 2017 Cost Accumulated amortization and impairment Carrying amount at 30 June 2017 2017 $'000 1,941 (226) 1,715 2016 $'000 904 (10) 894 Capitalized development costs $'000 Goodwill $'000 44,622 - 44,622 44,622 12,547 57,169 57,169 - 57,169 80 - 80 80 - 80 80 - 80 Total $'000 44,702 - 44,702 44,702 12,547 57,249 57,249 - 57,249 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 49 14.1 Impairment testing Goodwill is allocated to cash generating units (CGU) for the purpose of impairment testing. The allocation is made to those cash generating units that are expected to benefit from the business combination in which the goodwill arose. The units are identified at the lowest level at which goodwill is monitored for internal management purposes, which is also the segment level. The recoverable amounts of the cash-generating units were determined based on value-in-use calculations, covering a detailed five (5) year forecast, followed by an extrapolation of expected cash flows for the units’ remaining useful lives using the growth rates determined by management. The present value of the expected cash flows of each CGU is determined by applying the following key assumptions: Annual sales growth % Annual operating expenses growth rate % Long-term growth rate % Post-tax discount rate % Goodwill allocation at 30 June across twelve (12) individual veterinary clinic entities 2017 5.00% 2.00% 2.50% 11.91% 2016 5.00% 2.00% 2.50% 11.88% 2017 $’000 2016 $’000 57,169 44,622 The Directors and management have considered and assessed reasonably possible changes for key assumptions and have not identified any instances that could cause the carrying amount for any of the segments to exceed its recoverable amount. 14.2 Growth rates The growth rates reflect the long-term average growth rates for the industry. Discount rates 14.3 The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each unit. 14.4 Cash flow assumptions Management’s key assumptions include stable profit margins, based on experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Cash flow projections reflect stable profit margins achieved immediately before the budget period. Efficiency improvements have been taken into account and prices and wages reflect publicly available forecasts of inflation for the industry. Apart from the considerations described in determining the value-in-use of the cash-generating units described above, management is not currently aware of any other probable changes that would necessitate changes in its key estimates. Goodwill is managed at the CGU level which is also reflective of the level of operating segment being Pig, Feedlot, Dairy and mixed. The Group did not have separate CGUs at 30 June 2016. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 50 A CGU summary of the goodwill allocation is presented below. Balance 1 July Acquisitions 30 June 2017 Feedlot Dairy and mixed Pig (a) Total $’000 $’000 $’000 $’000 40,339 10,807 51,146 4,283 1,740 6,023 - - - 44,622 12,547 57,169 (a) Pig CGU does not have any goodwill subscribed to it as on acquisition of the businesses associated with this CGU the difference between the fair value and consideration paid and fair value of assets and liabilities were booked to the Corporate Reorganisation Reserve as the businesses were under common control. 15 Deferred tax assets and liabilities Deferred taxes arising from temporary differences and unused tax losses can be summarised as follows: The balance comprises temporary differences attributable to: Current assets Trade and other receivables Inventories Current liabilities Provisions Borrowing costs Other Unused tax losses Equity raising costs Listing and acquisition costs 2017 $'000 2016 $'000 233 119 41 30 1,389 (14) 1,291 (18) 1,031 543 137 3,438 721 724 171 2,960 All deferred tax assets (including tax losses and other tax credits) have been recognised in the statement of financial position. Tax losses Provisions $'000 $'000 - 31 Borrowing costs $'000 - Trade receivables $'000 - Listing & acquisition costs $'000 - Equity raising costs $'000 - Inventory $'000 - Total $'000 31 690 160 (18) 41 171 724 30 1,798 1,131 1,291 - (18) - 41 - 171 - 724 - 30 8 90 4 - 169 (34) (181) 89 23 - - - 113 1,131 2,960 - 366 At 1 July 2015 (Charged)/credited:   to P&L Recognized in business combination at 30 June 2016 (Charged)/credited:   to P&L acquisition of a subsidiary - 721 310 - At 30 June 2017 1,031 1,389 (14) 233 137 543 119 3,438 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 16 Trade and other payables Trade payables Sundry payables and accrued expenses Other payables 51 2016 $'000 6,185 3,218 88 9,491 2017 $'000 5,674 2,870 471 9,015 All amounts are short-term. The carrying values of trade payables and other payables are considered to be a reasonable approximation of fair value. 17 Current tax liabilities Current tax payable 18 Borrowings Current: Bank loans (a) less capitalized costs lease liability (b) less deferred interest charges Total current borrowings Non-current bank loans (a) less capitalised costs lease liability (b) less deferred interest charges Total non-current borrowings Refer to Note 40 for information on financial instruments. Secured liabilities and assets pledged as security The total secured liabilities (current and non-current) are as follows: Bank loans Less capitalised borrowing costs Lease liability Less deferred interest charges Assets pledged as security 2016 $’000 776 2016 $’000 1,366 2017 $'000 2016 $'000 3,630 (14) 523 (37) 4,102 20,700 (34) 994 (52) 21,608 3,919 (13) 257 (15) 4,148 11,650 (48) 271 (9) 11,864 2017 $’000 24,330 (48) 1,517 (89) 25,710 2016 $’000 15,569 (61) 528 (24) 16,012 (a) Bank loans are secured by first ranking general security agreements in relation to the current and future assets of Apiam and each wholly-owned subsidiary. (b) The lease liabilities are effectively secured over the assets to which the lease relates. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 52 Banking covenants The key financial covenants applicable to bank facilities are: - Maximum gearing ratio remained unchanged with a ratio of 35% (ratio of debt to equity): - Maximum operating leverage ratio changed from of 2.5 times to 3.5 times (ratio of gross debt to EBITDA): and - Minimum interest cover remained unchanged with a ratio of 5.0 times (ratio of EBIT to gross interest expense). The Group complied with all bank covenants during the period. Financing arrangements Unrestricted assess was available at the reporting date to the following lines of credit: Total facilities Bank - term loan facilities Bank - master asset finance agreement for equipment finance Bank - overdraft facility Bank - credit card facility Used at reporting date Bank - term loan facilities Bank - master asset finance agreement for equipment finance Bank - overdraft facility Bank - credit card facility Unused at reporting date Bank - term loan facilities Bank - master asset finance agreement for equipment finance Bank - overdraft facility Bank - credit card facility 19 Employee benefit obligations Leave obligations current Leave obligations non-current Employee benefits 2017 $'000 30,700 2,000 1,000 300 34,000 24,282 1,428 2016 $'000 33,000 1,000 1,000 300 35,300 15,569 146 25,710 15,715 6,355 572 1,000 300 8,227 2017 $'000 3,748 672 4,420 17,431 854 1,000 300 19,585 2016 $'000 3,453 243 3,696 The provision for employee benefits relates to the group’s liability for long service leave and annual leave. Amounts not expected to be settled within the next 12 months The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements to long service leave where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount of the provision of $3,748 (2016: $3,453) is presented as current, since the group does not have an unconditional right to defer settlement for any of these obligations. However, based upon experience, the group does not expect all employees to take the full amount of accrued leave or require payment within the next twelve months. The group does not expect $3,620 (2016: $2,072) of this liability to be taken or paid within the next 12 months. 20 Other current liabilities Opening Balance Reversal of contingent consideration 2017 $'000 1,250 (1,250) - 2016 $'000 - 1,250 1,250 This relates to contingent consideration on businesses acquired during the year. Refer to Note 32.1 for further details. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 53 21 Equity 21.1 Share capital The share capital of Apiam consists only of fully paid ordinary shares; the shares do not have a par value. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at the shareholders’ meeting of Apiam. shares issued on restructure of Chris Shares issued and fully paid · beginning of the period  Richards Group of Companies   shares purchased from Chris Richards shares issued in accordance with prospectus dated 17 Nov 2015    shares issued upon conversion of convertible notes employee shares issued shares issued as consideration for business acquisitions 2017 Shares 2016 Shares 2017 $'000 2016 $’000 98,475,574 - - - - - 1 43,827,303 (17,000,000) 40,000,000 2,690,000 1,360,000 79,070 - - - - - - 28,939 (17,000) 40,000 285 1,360 2,702,373 27,598,270 3,996 27,598 equity raising costs net of income tax benefit  Shares issued and fully paid - - 101,177,947 98,475,574 Total shares authorised at the end of the period 101,177,947 98,475,574 - 83,066 83,066 (2,112) 79,070 79,070 (a) Shares were issued during 2016 relating to share-based payments (see Note 26.2 for details on the Group’s share- based employee remuneration). Each share has the same right to receive dividend and the repayment of capital and represents one vote at the shareholders’ meeting of Apiam. 21.2 Convertible notes In the previous period, the Group entered into convertible note agreements, principally with the vendors of business combinations acquired to raise $285,000 towards the costs of the IPO. These notes converted into 2,690,000 ordinary shares on completion of the IPO. Convertible notes issued and fully paid: ·beginning of the year issue of convertible notes issue of convertible notes    Total convertible notes at 30 June conversion to ordinary shares 2017 No. 2016 No. 2017 $’000 2016 $’000 - - - - - 1,400,000 1,250,000 40,000 (2,690,000) - - - - - - 140,000 125,000 20,000 (285,000) - Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 54 22 Reserves Details of reserves are as follows: Balance at 1 July 2015 Restructure and transfer of Chris Richards entities into the Group Premium on issue of shares to non-controlling interests of Chris Richards entities transferred into the Group Balance at 1 July 2016 Corporate reorganisation reserve $’000 - (26,666) Non- controlling Interest acquisition reserve $’000 Total $’000 - - - (26,666) - (6,615) (6,615) (26,666) (6,615) (33,281) Restructure and transfer of Chris Richards entities into the Group Premium on issue of shares to non-controlling interests of Chris Richards entities transferred into the Group Balance at 30 June 2017 (26) - (26) - - - (26,692) (6,615) (33,307) 23 Non-controlling interests Issued capital Current year earnings Retained profits carried forward Total non-controlling interests 24 Earnings per share and dividends 24.1 Earnings per share 2017 $’000 576 23 43 642 2016 $’000 576 43 - 619 Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the Parent Company as the numerator (i.e. no adjustments to profit were necessary in 2017 or 2016). The reconciliation of the weighted average number of shares for the purposes of diluted earnings per share to the weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows:  weighted average number of shares used in basic earnings per share  weighted average number of shares used in diluted earnings per share Shares deemed to be issued for no consideration in respect of share based payments 2017 Number 2016 Number 100,589,539 59,447,120 100,589,539 59,447,120 - 1,360,000 24.2 Dividends During the year, maiden interim dividends were declared of 0.8c per ordinary share, and paid in April 2017. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 55 24.3 Franking credits The amount of the franking credits available for subsequent: Balance at the end of the reporting period franking debits that will arise from the payment of dividends recognised as a liability at the end of the reporting period franking credits that will arise from the payment of the amount of provision for income tax 25 Reconciliation of cash flows from operating activities (a) Reconciliation of cash flows from operating activities Cash flows from operating activities Profit / (Loss) for the period Adjustments for: · depreciation expense · doubtful debt expense · obsolete stock provision · amortisation of borrowing expenses · gains on derecognition of contingent consideration payable · share benefits expense Net changes in working capital: · (increase) change in trade and other receivables · (increase) change in inventories · Decrease/(increase) change in other assets · Decrease/(Increase) change in deferred tax asset · change in trade and other payables · change in income tax payable · change in provisions Net cash used in operating activities 2017 $'000 2016 $'000 6046 (347) 4,304 451 1,366 6,150 5,670 2017 $’000 5,050 1,395 61 296 14 (1,250) - (168) (1,442) (53) (365) (1,230) (1,062) 424 1,670 2016 $’000 93 614 137 100 7 - 1,360 (1,381) (2,016) 69 (878) 586 - 72 (1,237) (b) Non cash financing transactions During the financial year, the Group acquired vehicles to the value $1,309 (2016: $157 via finance leases. These transactions are not reflected in the Statement of Cash Flows. 26 Employee remuneration 26.1 Employee benefits expense Expenses recognised for employee benefits are analysed below: Employee benefits – expense Wages and salaries Bonuses Share-based payments Superannuation Employee benefits expense 2017 $’000 24,680 396 30 1,999 27,105 2016 $’000 12,639 330 1,360 1,048 15,377 26.2 Share-based employee remuneration In 2017 no shares were issued to any employees are part of their remuneration. In FY2016, as part of Apiam’s initial public float 1,360,000 shares were issued to eligible employees in Australia nominated by the Company. These employee shares were issued for nil consideration. The fair value of the shares issued was $1.00. In 2017 nil (2016: $1,360) of employee remuneration expense (all of which related to equity-settled share-based payment transactions) have been included in profit or loss and credited to share capital. In 2017, $30 shares were accrued and to be issued. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 56 27 Auditor remuneration Audit services – Grant Thornton Remuneration for audit or review of financial statements investigating accountant Other services – Grant Thornton    other Total other services remuneration taxation services Total auditor’s remuneration 28 Related party transactions 2017 $'000 2016 $'000 196,838 186,125 - 78,656 86,521 165,177 362,015 300,000 18,255 25,010 343,265 529,390 The Group’s related parties include key management, post-employment benefit plans for the Group’s employees and others as described below. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. 28.1 Transactions with key management personnel Key management of the Group are the executive members of Apiam’s Board of Directors and members of the Executive Team. Key management personnel remuneration includes the following expenses: Short-term employee benefits:  salaries including bonuses and non-monetary benefits  bonuses  non-monetary benefits Total short-term employee benefits Long- term employee benefits:  long service leave Total long-term employee benefits Post-employment benefits:  superannuation Total post-employment benefits Share-based payments Total remuneration Loans to key management personnel 2017 $'000 2016 $'000 1,156,737 943,549 - 145,000 12,027 23,058 1,168,764 1,111,607 7,307 (11,945) 7,307 (11,945) 90,469 90,469 66,579 66,579 - 380,000 1,266,410 1,546,241 In the comparative period, the Group entered into a loan facility agreement with Chris Richards, under which the Group agreed to lend up to $1.5million. The loan is at an interest rate equal to the Term Debt Facility interest payable by the Group plus 2% per annum. The table below provides aggregate information relating to Group’s loans to key management personnel during the year: Balance at the start of the year Loans advanced Interest paid and payable for the year Repayments made Balance at the end of the year 2017 $'000 - - - - - 2016 $'000 133,000 1,229,000 15,000 (1,377,000) - Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 57 The number of key management personnel included in the Group aggregate at year end is Nil. The Group does not have an allowance account for receivables relating to outstanding loans and has not recognised any expense for impaired receivables during reporting period. Other transactions with key management personnel The Group rents premises at Piper Lane, Bendigo East, Victoria. The premises are owned by an entity associated with Chris Richards. Rent payments made amounted to $242 (2016: $160). The Group rents premises at Rubicon Street, Smithton, Tasmania. The premises are owned by an entity associated with Chris Richards. Rent payments made amounted to $124 (2016: $73). The Group leases it artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $70 (2016: $43). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. The Group has entered into an intellectual property licence with iVet Pty Ltd, a company controlled by Chris Richards, to use the iVet intellectual property. The Group will pay iVet Pty Ltd a royalty of 10% of net sales revenue received by the Group for the use of the intellectual property licence. The agreement is for an initial term of 10 years. The group has the option to purchase the iVet technology by giving notice to iVet Pty Ltd at any time during the initial 5 years of the term. No payments were made during the financial year (2016: Nil). The Group obtains business air travel services from an entity associated with Chris Richards. The fares paid are based on commercial fares. Payments made amounted to $64 (2016: $121). 29 Contingent liabilities In the Directors’ view, there are no contingent assets or liabilities that will have a material effect on the Group. 30 Capital commitments 2017 $'000 115 115 The group has entered into the purchase of new vehicles after the reporting date, which haven't been delivered yet. Property, plant and equipment 2016 $'000 218 218 31 Business restructure The business did not carry out any restructure in the year ended 30 June 2017. In the prior year as part of listing between 1 November 2015 and 9 December 2015, as part of the Group’s reorganisation and restructure of entities under common control, ownership of the following companies was transferred to Apiam Animal Health Ltd in exchange for cash and shares: Chris Richards & Associates Pty Ltd Country Vet Wholesaling Pty ltd Farm Gate Logistics (Qld) Pty Ltd Apiam Management Pty Ltd Southern Cross Feedlot Services Pty Ltd - - - - - - Westvet Wholesale Pty Ltd - - Portec Veterinary Services Pty ltd Pork Storks Australia Pty Ltd % gained 100 100 100 100 100 100 49 100 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 Details of the business restructure are as follows: Fair value of consideration transferred Settled as follows: Amount settled in cash Amount settled by issue of shares at fair value Amount owing at balance date Contingent consideration subject to performance criteria Recognised amounts of identifiable net assets Property, plant and equipment Deferred tax assets Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Other current assets Total current assets Borrowings Provisions Total non-current liabilities Borrowings Provisions Current tax liabilities Trade and other payables Total current liabilities Identifiable net assets Reserves arising upon reconstruction Represented by: Corporate re-organisation reserve Non-controlling interest acquisition reserve Non-controlling interest Consideration transferred settled in cash Cash and cash equivalents acquired Net cash outflow on acquisition Acquisition costs charged to expenses Net cash inflow relating to the acquisition 31. 1 Consideration transferred 58 $’000 34,386 2,915 30,633 88 750 1,916 451 2,367 5,381 11,417 2,299 323 19,420 (563) (61) (624) (5,944) (1,082) (378) (12,078) (19,482) 1,681 32,705 26,666 6,615 (576) (2,914) 2,299 615 (640) (25) Acquisition-related costs amounting to $640,000 are not included as part of consideration transferred and have been recognised as an expense in the consolidated statement of profit or loss and other comprehensive income, as part of listing and acquisition costs expenses. 31.2 Identifiable net assets The fair values of the identifiable intangible assets were finalised in the year ended 30 June 2017. 31.3 Contingent consideration subject to performance criteria The contingent consideration amounting to $1,250,000 (Note 20) relating to the acquisition of a subsidiary has been recorded at fair value. The consideration is contingent on achieving certain pre-determined earnings was not met and the reversal was taken up as Other income. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 59 32 Business combination On 5 September 2016, the Group acquired 100% of the issued share capital and voting rights of the following companies:  Quirindi Feedlot Services Pty Ltd,  Quirindi Veterinary Clinic Pty Ltd and  Quipolly Equine Centre Pty Ltd In addition, on 6 January 2017, the business assets were acquired from: AllStock (NSW) Pty Ltd The following detailed table highlights the fair value of the identifiable assets acquired and liabilities assumed as at the date of acquisition for each of the business combinations undertaken in the period. The acquisitions will enable to Group to continue to enhance the services provided to clients by acquiring proprietary technology to improve clinic efficiencies, data analysis systems for feedlot cattle and specialised assets for reproduction services. The fair value of the 2,263,299 fully paid shares issued as part of the consideration paid was based on the 15 day volume weighted average price prior to the announcement which equated to $1.5335 per shares were issued for the purchase of the Quirindi Group of companies. The fair value of 439,074 shares issued at $1.1957 which was based on the 20 day volume weighted average share price were issued in relation to the acquisition of the AllStock assets. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 Fair value of consideration transferred Amounts settled in cash Amount settled by issue of shares at fair value Total fair value of consideration transferred Recognised amounts of identifiable net assets Property plant and equipment Deferred tax assets Total non-current assets Inventories Trade and other receivables Other current assets Total current assets Borrowings Provisions Total non-current liabilities Provisions Borrowings Current tax liabilities Trade and other payables Total current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition 60 Total $’000 8,379 3,996 12,375 439 113 552 149 714 335 1,198 173 173 126 393 473 757 1,749 Quirindi AllStock $’000 $’000 7,154 3,471 10,625 1,225 525 1,750 100 15 115 77 172 20 269 31 31 19 - - 22 41 339 98 437 72 542 315 929 142 142 107 393 473 735 1,708 (484) 11,109 7,154 312 1,438 1,225 (172) 12,547 8,379 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 61 32.1 Consideration transferred Acquisition-related costs amounting to $236,000 are not included as part of consideration transferred and have been recognised as an expense in the consolidated statement of profit or loss and other comprehensive income, as part of listing and acquisition costs expenses. 32.2 Identifiable net assets The fair values of the identifiable intangible assets have been determined provisionally at 30 June 2017. The Group is currently obtaining the information necessary to appropriately consider the identification and fair value of identifiable intangible assets. 32.3 Goodwill The goodwill that arose on the combination can be attributed to the value of the businesses to the Group in addition to the net tangible assets acquired, synergies expected to be derived from the combination and the value of each of the veterinary businesses which cannot be recognised as an intangible asset. The goodwill that arose from this business combination is not expected to be deductible for tax purposes. 33 Interests in subsidiaries 33.1 Composition of the Group Set out below details of the subsidiaries held directly by the Group: Name of the Subsidiary Chris Richards & Associates Pty Ltd Country Vet Wholesaling Pty Ltd Farm Gate Logistics (Qld) Pty Ltd Apiam Management Pty Ltd Southern Cross Feedlot Services Pty Ltd Westvet Wholesale Pty Ltd Portec Veterinary Services Pty Ltd Pork Storks Australia Pty Ltd McAuliffe Moore & Perry Pty Ltd Warrnambool Veterinary Clinic Pty Ltd Scottsdale Veterinary Services Pty Ltd Smithton Veterinary Service Pty Ltd AAH - Dubbo Vet Hospital Pty Ltd AAH - Bell Vet Services Pty Ltd CVH Gippsland Pty Ltd CVH Southern Riverina Pty Ltd CVH Border Pty Ltd CVH iVet Pty Ltd Tasvet Wholesale Pty Ltd Quirindi Feedlot Services Pty Ltd Quirindi Veterinary Clinic Pty Ltd Quipolly Equine Centre Pty Ltd Country of incorporation and principal place of business Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Principal activity Veterinary services Wholesale supply Transport Payroll Veterinary services Wholesale supply Veterinary services Genetics Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Dormant Dormant Veterinary services Veterinary services Veterinary services Group proportion of ownership interests 2017 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2016 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 62 Significant judgements and assumptions The Group holds 49% of the ordinary shares and voting rights in Portec Veterinary Services Pty Ltd (‘Portec’). One (1) other investor holds 51% in order to ensure compliance with statutory laws applicable in Western Australia where Portec Veterinary Services Pty Ltd (Portec) conducts its operations. Management has assessed its involvement in Portec in accordance with AASB 10’s revised control definition and guidance. It has concluded that it has outright control. In making its judgement, management considered the Group’s voting rights, the relative size and dispersion of the voting rights held by the other shareholder and the extent of participation by the shareholder in general meetings. Experience demonstrates that the other shareholder participates such that they do not prevent the Group from having the practical ability to direct the relevant activities of Portec unilaterally. 33.2 Losing control over a subsidiary during the reporting period There was no loss of control over a subsidiary during the reporting period. 33.3 Interests in unconsolidated structured entities The Group has no interests in unconsolidated structured entities. 34 Leases 34.1 Finance leases as lessee The Group’s main motor vehicles and certain items of plant and equipment are held under finance lease arrangements. As of 30 June 2017, the net carrying amount of the motor vehicles held under finance lease arrangements (included as part of motor vehicles) is $1,715 (2016:$564); and the net carrying amount of the plant and equipment held under finance lease arrangements (included as part of plant and equipment) is $64 (2016: $73) (see Note 13). The Group’s finance lease liabilities, which are secured by the related assets held under finance leases, are classified as follows: Current:  finance lease liabilities 2017 $’000 486 Non-current:  Future minimum finance lease payments at the end of each reporting period under review were as follows: finance lease liabilities 942 2016 $’000 242 262 30 June 2017 Lease payments Finance charges Net present values 30 June 2016 Lease payments Finance charges Net present values Minimum lease payments due Within 1 year $’000 1-5 years After 5 years $’000 $’000 Total $’000 523 (37) 486 257 (15) 242 994 (52) 942 271 (9) 262 - - - - - - 1,517 (89) 1,428 528 (24) 504 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 63 34.2 Operating leases as lessee Non-cancellable operating leases Within one year later than one year but less than five years later than five years 2017 $’000 1,633 4,476 2,170 8,279 2016 $’000 1,438 4,409 2,062 7,909 The group leases various offices, warehouses and retail stores under non-cancellable operating leases expiring within one to ten years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. The group also has a 5 year agreement for the provision of the IT ERP system for the financials as previously communicated. 35 Financial instrument risk 35.1 Risk management objectives and policies The Group is exposed to various risks in relation to financial instruments. The Group’s financial assets and liabilities by category are summarised in Note 40.1. The main types of risks are market risk, credit risk and liquidity risk. The Group’s risk management is coordinated at its headquarters, in close cooperation with the Board of Directors, and focuses on actively securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets. Long-term financial investments are managed to generate lasting returns. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed are described below. 35.2 Market risk analysis The Group is exposed to market risk through its use of financial instruments and specifically to interest rate risk, which result from both its operating and investing activities. Interest rate sensitivity The Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing. At 30 June 2017, the Group is exposed to changes in market interest rates through bank borrowings at variable interest rates. The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1% (2016: +/- 1%). These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant. 30-Jun-17 30-Jun-16 Profit for the year Equity $’000 +1% 242 $’000 -1% (242) $’000 +1% 242 $’000 -1% (242) 80 (80) 80 (80) Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 64 35.3 Credit risk analysis Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to this risk for various financial instruments, for example by trade receivables. The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below: Classes of financial assets Carrying amounts: Cash and cash equivalents trade and other receivables 2017 $’000 2016 $’000 968 14,075 2,117 13,254 15,043 15,371 The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group’s policy is to deal only with creditworthy counterparties. The Group’s management considers that all of the above financial assets that are not impaired or past due for each of the 30 June reporting dates under review are of good credit quality. At 30 June, the Group has certain trade receivables that have not been settled by the contractual due date but are not considered to be impaired. The amounts at 30 June analysed by the length of time past due, are: Past due under 30 days Past due 30 days to under 60 days Past due 60 days and over Total 2017 $’000 1,893 489 1,680 4,062 2016 $’000 1,594 633 831 3,058 In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. Trade receivables consist of a large number of customers in various industries and geographical areas. Based on historical information about customer default rates management consider the credit quality of trade receivables that are not past due or impaired to be good. The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings 35.4 Liquidity risk analysis Liquidity risk is the risk that the Group might be unable to meet its obligations. The Group manages its liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash inflows and outflows due in day-to-day business. The data used for analysing these cash flows is consistent with that used in the contractual maturity analysis below. Liquidity needs are monitored in various time bands, on a day-to-day and week-to- week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements are compared to available borrowing facilities in order to determine headroom or any shortfalls. This analysis shows that available borrowing facilities are expected to be sufficient over the lookout period. The Group’s objective is to maintain cash and marketable securities to meet its liquidity requirements for 30-day periods at a minimum. This objective was met for the reporting periods. Funding for long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell long-term financial assets. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 65 The Group considers expected cash flows from financial assets in assessing and managing liquidity risk, in particular its cash resources and trade receivables. The Group’s existing cash resources and trade receivables significantly exceed the current cash outflow requirements. Cash flows from trade and other receivables are all contractually due within one (1) month. As at 30 June 2017, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 June 2017 Other bank borrowings Finance lease obligations Trade and other payables Total Current Within 6 months $’000 6 - 12 months 1 - 4 years $’000 $’000 3,616 - 20,666 248 238 942 9,015 - - 12,879 238 21,608 This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting periods as follows: 30 June 2016 Other bank borrowings Finance lease obligations Trade and other payables Total Current Within 6 months $’000 6 - 12 months $’000 1 - 4 years $’000 3,919 121 9,491 13,531 - 121 - 121 11,650 262 - 11,912 The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. 36 Fair value measurement 36.1 Fair value measurement of financial instruments Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three (3) levels of a fair value hierarchy. The three (3) levels are defined based on the observability of significant inputs to the measurement, as follows:    Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: unobservable inputs for the asset or liability The following table shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 30 June 2017 and 30 June 2016: Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 66 30 June 2017 Financial liabilities Contingent consideration Total liabilities Net fair value 30 June 2016 Financial liabilities Contingent consideration Total liabilities Net fair value Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - - - - - - Level 1 $'000 Level 2 $'000 Level 3 $'000 - - - - - - 1,250 1,250 1,250 - - - Total $'000 1,250 1,250 1,250 Measurement of fair value of financial instruments The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Chief Financial Officer (CFO) and to the Audit Committee. Valuation processes and fair value changes are discussed among the Audit Committee and the valuation team at least every year, in line with the Group’s reporting dates. The valuation techniques used for instruments categorised in Level 3 are described below: Contingent consideration (Level 3) The fair value of contingent consideration related to the acquisition of business combinations (see Note 31.3) is considered to be face value as the payments become due within the next six (6) months. The following table provides information about the sensitivity of the fair value measurement to changes in the most significant inputs: Significant unobservable input Estimate of the input Sensitivity of the fair value measurement to input Probability of meeting target 100% - Level 3 Fair value measurements The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows: Contingent consideration Balance at 1 July 2016 Reversal of contingent consideration Payable business combination Balance at 30 June 2017 2017 $’000 1,250 (1,250) - - 2016 $’000 - - 1,250 1,250 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 67 37 Capital management policies and procedures The Group’s capital management objectives are:   to ensure the Group’s ability to continue as a going concern, and to provide an adequate return to shareholders; by pricing products and services commensurately with the level of risk. The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of the statement of financial position. The Group’s goal in capital management is to maintain a maximum gearing ratio of 35% (ratio of debt to equity). This is in line with the Group’s covenants resulting from the banking facilities it has taken out from in December 2015. Management assesses the Group’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive leverage. This takes into account the subordination levels of the Group’s various classes of debt. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. The amounts managed as capital by the Group for the reporting periods under review are summarised as follows: Total equity Cash and cash equivalents Capital Total equity Borrowings Overall financing Capital-to-overall financing ratio 2017 $'000 54,482 968 2016 $'000 46,271 2,117 55,450 48,388 54,482 25,710 46,271 16,012 80,192 62,283 69% 78% The Group has honoured its covenant obligations, including maintaining capital ratios, since the banking loans were taken out in December 2015. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 68 38 Parent entity information Information relating to Apiam Animal Health Limited (‘the Parent Entity’): Statement of financial position Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Retained earnings / (Accumulated losses) Total equity Statement of profit or loss and other comprehensive income Profit for the year Other comprehensive income Total comprehensive income 2017 $’000 2016 $’000 1,113 106,758 4,103 26,711 80,047 786 94,116 7,375 18,951 75,165 83,065 (3,018) 79,070 (3,905) 80,048 1,018 75,165 (3,718) 1,018 (3,718) The Parent Entity has capital commitments of $115 to purchase motor vehicles (2016: $218). Refer Note 30 for further details of the commitment. The Parent Entity has entered into a deed of cross guarantee. Refer Note 41 for details. The Parent Entity had no contingent liabilities at 30 June 2017 (2016: $Nil). 39 Post-reporting date events The Apiam Board of Directors have declared the Company’s final dividend of 0.8c per share fully franked on the 25 August 2017. The final dividend of $809,424 will be paid on the 27 October 2017. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 69 40 Financial assets and liabilities 40.1 Categories of financial assets and liabilities Note 4.12 provides a description of each category of financial assets and financial liabilities and the related accounting policies. A description of the Group’s financial instrument risks, including risk management objectives and policies is given in Note 35. The methods used to measure financial assets and liabilities reported at fair value are described in Note 36.1. The carrying amounts of financial assets and financial liabilities in each category are as follows: 30-Jun-17 Financial assets cash and cash equivalents Trade and other receivables Financial liabilities Non-current borrowings Current borrowings Trade and other payables Current tax liabilities 30-Jun-16 Financial assets cash and cash equivalents Trade and other receivables Financial liabilities Non-current borrowings Current borrowings Trade and other payables Current tax liabilities Contingent consideration notes 9 10 18 18 16 17 Note 9 10 18 18 16 17 20 Financial assets at amortised cost $'000 968 14,075 15,043 Other liabilities at amortised cost 21,608 4,102 9,015 776 35,501 Financial assets at amortised cost $'000 2,117 13,254 15,371 Other liabilities at amortised cost 11,864 4,148 9,491 1,366 1,250 28,119 Total $'000 968 14,075 15,043 21,608 4,102 9,015 776 35,501 Total $'000 2,117 13,254 15,371 11,864 4,148 9,491 1,366 1,250 28,119 Borrowings 40.2 Borrowings include the following financial liabilities: Financial liabilities Carrying amount at amortised cost:  other bank borrowings (Note 18)  finance lease liabilities (Note 34) All borrowings are denominated in $AUD. Borrowings at amortised cost 2017 $’000 3,616 486 4,102 Current 2016 $’000 3,906 242 4,148 2017 $’000 20,666 942 21,608 Non-current 2016 $’000 11,602 262 11,864 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 70 Other bank borrowings are secured by first ranking general security agreements in relation to the current and future assets of Apiam Animal Health Limited and each wholly owned subsidiary. Current interest rates are variable and average 3.6% (2016 5.4%). The carrying amount of the other bank borrowings is considered to be a reasonable approximation of the fair value. 40.3 Other financial instruments The carrying amount of the following financial assets and liabilities is considered a reasonable approximation of fair value:    trade and other receivables cash and cash equivalents; and trade and other payables 41 Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Chris Richards & Associates Pty Ltd Country Vet Wholesaling Pty Ltd Farm Gate Logistics (Qld) Pty Ltd Apiam Management Pty Ltd Southern Cross Feedlot Services Pty Ltd Westvet Wholesale Pty Ltd Pork Storks Australia Pty Ltd McAuliffe Moore & Perry Pty Ltd Warrnambool Veterinary Clinic Pty Ltd Scottsdale Veterinary Services Pty Ltd Smithton Veterinary Service Pty Ltd AAH - Dubbo Vet Hospital Pty Ltd AAH - Bell Vet Services Pty Ltd CVH Gippsland Pty Ltd CVH Southern Riverina Pty Ltd CVH Border Pty Ltd Tasvet Wholesale Pty Ltd By entering into the deed, the wholly-owned entities have been relieved of the requirement to prepare financial statements and a directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. Set out below is a consolidated statement of profit or loss and other comprehensive income of the parties to the Deed. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 71 Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2017 Continuing operations Revenue Other income Expenses Changes in inventory Cost of materials Costs of consumables and services Employee benefit expenses Listing and acquisition expenses Property expenses Freight, vehicle and transport expenses Depreciation of property, plant and equipment Other operating expenses Finance costs Other financial items 2017 $'000 2016 $'000 85,128 51,724 1,232 - 1,282 1,725 (42,732) (28,713) (502) (456) (25,802) (15,110) (739) (2,026) (2,434) (1,410) (1,662) (1,407) (1,417) (593) (6,033) (2,345) (895) (434) (14) (7) Profit/(loss) before income tax 5,412 948 Income tax (expense)/benefit Profit from continuing operations (Loss)/profit from discontinued operation Profit for the year (972) (968) 4,440 (20) - 4,440 (20) Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 72 Set out below is a consolidated statement of financial position of the parties to the Deed. Statement of Financial Position As at 30 June 2017 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Amounts payable to vendors for business acquisitions Current tax liabilities Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets Equity Equity attributable to owners of the parent - share capital - corporate reorganization reserve - non-controlling interest acquisition reserve - retained earnings 2017 $’000 2016 $’000 835 14,128 11,356 737 27,056 46,958 6,000 11,620 3,339 67,917 2,009 12,770 10,167 371 25,317 45,501 4,479 - 2,967 52,947 94,973 78,264 9,255 - 725 4,203 3,500 17,683 21,608 631 22,239 39,922 9,410 1,250 1,357 4,147 3,453 19,617 11,864 266 12,130 31,747 55,051 46,517 83,004 (25,642) (6,615) 4,304 55,051 79,070 (25,642) (6,615) (296) 46,517 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 73 Directors’ Declaration 1 In the opinion of the Directors of Apiam Animal Health Limited: a The consolidated financial statements and notes of Apiam Animal Health Limited are in accordance with the Corporations Act 2001, including i Giving a true and fair view of its financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and ii Complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b There are reasonable grounds to believe that Apiam Animal Health Limited will be able to pay its debts as and when they become due and payable. 2 The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2017. 3 Note 2 confirms that the consolidated financial statements also comply with International Financial Reporting Standards. Signed in accordance with a resolution of the Directors: Dr Christopher Irwin Richards Managing Director Melbourne 25 August 2017 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF APIAM ANIMAL HEALTH LIMITED Report on the audit of the financial report Opinion We have audited the financial report of Apiam Animal Health Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: a Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and b Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Goodwill Note 14 At 30 June 2017 the carrying value of Goodwill was $57m relating to three separate cash- generating units (“CGUs”). In accordance with AASB 136 Impairment of Assets, the Group is required to assess at least annually if the carrying value of each CGU is in excess of the recoverable value. This area is a key audit matter due to the high level of management judgement and estimation required to determine the recoverable value of the CGUs. How our audit addressed the key audit matter Our procedures included, amongst others:  Reviewing the impairment model for compliance with AASB 136;  Assessing management’s determination of the Group’s CGUs based on the nature of the business and the economic environment in which the units operate;  Analysing the internal reporting of the Group to assess how earnings streams are monitored and reported by management;  Evaluating management’s future cash flow forecasts to obtain an understanding of the process by which they were developed;  Assessing management’s expertise in preparing the impairment model;  Testing the underlying calculations for mathematical accuracy and agreeing them to the latest Board approved budgets;  Assessing management’s key assumptions for reasonableness by comparing long term growth rates to historical results and economic and industry forecasts;  Agreeing discount rates to the cost of capital for the Group;  Utilising an auditors expert to assess the reasonableness of key assumptions used in the model;  Performing sensitivity analysis on significant assumptions, including the discount rate and terminal growth assumptions; and  Reviewing the appropriateness of the related disclosures within the financial statements. Information Other than the Financial Report and Auditor’s Report Thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors’ for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s report. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Apiam Animal Health Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. GRANT THORNTON AUDIT PTY LTD Chartered Accountants A C Pitts Partner - Audit & Assurance Melbourne, 25 August 2017 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 77 ASX Additional Information Additional Securities Exchange Information In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 11 August 2017. Corporate Governance Statement The Company’s Directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations) to the extent appropriate to the size and nature of the Group’s operations. The Company has prepared a statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations (Corporate Governance Statement). In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement will be available for review on Apiam’s website (www.apiam.com.au), and will be lodged together with an Appendix 4G with ASX at the same time that this Annual Report is lodged with ASX. The Appendix 4G will particularise each Recommendation that needs to be reported against by Apiam, and will provide shareholders with information as to where relevant governance disclosures can be found. The Company’s corporate governance policies and charters are all available on Apiam’s website (www.apiam.com.au). Substantial holders As at the 11 August 2017, the names of the substantial holders of the Company and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to the Company, are as follows: Holder of Equity Securities CJOEA Family Company Pty Ltd Class of Equity Securities Number of Equity Securities held % of total issued securities Ordinary Shares 27,339,804 27.02 Regal Funds Management Pty Limited Ordinary Shares 8,931,118 5.11 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 78 Number of holders As at the 11 August 2017, the number of holders in each class of equity securities: Class of Equity Securities Fully paid ordinary shares Fully paid ordinary shares restricted until 1 September 2017 and quoted on ASX Fully paid ordinary shares restricted until 8 December 2017 and quoted on ASX Fully paid ordinary shares restricted until 5 January 2018 and quoted on ASX Fully paid ordinary shares restricted until 1 September 2018 and quoted on ASX Fully paid ordinary shares restricted until 5 January 2019 and quoted on ASX Number of shares 71,310,708 1,131,652 27,164,866 219,537 1,131,647 219,537 TOTAL ORDINARY SHARES ON ISSUE 101,177,947 Voting rights of equity securities The only class of equity securities on issue in the Company which carries voting rights is ordinary shares. As at the 11 August 2017, there were 1,138 holders of a total of 71,310,708 ordinary shares of the Company. At a general meeting of The Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a vote equivalent to the proportion which the amount paid up (not credited) on that partly paid share bears to the total amounts paid and payable (excluding amounts credited) on that share. Amounts paid in advance of a call are ignored when calculating the proportion. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 79 Distribution of holders of equity securities The distribution of holders of equity securities on issue in the Company as at the 11 August 2017 is as follows: % 0.111 1.285 3.170 15.605 79.828 100 % - 0.864 0.864 2.593 Distribution of ordinary shareholders Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 132 299 266 360 81 78,978 916,639 2,260,761 11,128,155 56,926,175 Totals 1,138 71,310,708 Distribution of ordinary shares escrowed until 1 September 2017 Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - 3 1 2 2 8 - 9,783 9,782 29,345 1,082,742 95.678 1,131,652 100 Distribution of ordinary shares escrowed until 8 December 2017 Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - - - 2 38 40 - - - 136,425 27,028,441 27,164,866 % - - - 0.502 99.498 100 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 80 % - - - 40 60 100 % - 0.864 0.864 2.593 Distribution of ordinary shares escrowed until 5 January 2018 Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - - - 1 1 2 - - - 87,815 131,722 219,537 Distribution of ordinary shares escrowed until 1 September 2018 Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - 3 1 2 2 8 - 9,780 9,781 29,345 1,082,741 95.678 1,131,647 100 Distribution of ordinary shares escrowed until 5 January 2019 Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals - - - 1 1 2 - - - 87,815 131,722 219,537 % - - - 40 60 100 Less than marketable parcels of ordinary shares (UMP Shares) The number of holders of less than a marketable parcel of ordinary shares based on the closing market price at the 11 August 2017 is as follows: Total Shares 71,310,708 UMP Shares 21,593 UMP Holders 70 % of issued shares held by UMP holders 0.03028 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 81 Twenty largest shareholders The Company only has one class of quoted securities, being ordinary shares. The names of the 20 largest holders of ordinary shares, and the number of ordinary shares and percentage of capital held by each holder is as follows: Holder Name Balance as at 11 August 2017 % CJOEA Family Company Pty Ltd 26,852,304 26.540% Merrill Lynch (Australia) Nominees Pty Limited J P Morgan Nominees Australia Limited National Nominees Limited BNP Paribas Noms Pty Ltd UBS Nominees Pty Ltd Cobash Pty Limited HSBC Custody Nominees (Australia) Limited Mrs Kate Judith Malin Yarrabrook pty Ltd 6,760,560 6.682% 4,976,617 4.919% 3,834,158 3.790% 3,791,703 3.748% 2,547,150 2.517% 2,152,297 2.127% 1,821,868 1.801% 1,624,700 1.606% 1,386,700 1.371% BT Portfolio Services Limited 1,333,650 1.318% Four Post Investments Pty Ltd 1,200,000 1.186% Mr Roger Charles Carmody & Mrs Maris Moore Carmody Sonjaswright Pty Limited Mr Craig James Dwyer Kim Nairn Mr Kevin Francis Sullivan & Mrs Jane Maree Sullivan Tocamac Pty Ltd Cindy Jane Pty Ltd Mr Coleen Stewart Total number of shares of Top 20 Holders Total Remaining Holders Balance 1,104,321 1.091% 1,099,044 1.086% 1,066,439 1.054% 1,010,000 0.998% 986,700 0.975% 933,753 0.923% 872,568 0.862% 845,000 0.835% 66,199,532 65.429 34,978,415 34.571 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 82 Company Secretary The Company’s secretary is Ms Sophie Karzis. Registered Office The address and telephone number of the Company’s registered office is: 27- 33 Piper Lane East Bendigo VIC 3550 Telephone: +61 (0)3 5445 5999 Share Registry The address and telephone number of the Company’s share registry, Boardroom Pty Limited, are: Street Address: Boardroom Pty Limited Level 12, 225 George Street Sydney New South Wales 2000 Telephone: 1300 737 760 Stock Exchange Listing The Company’s ordinary shares are quoted on the Australian Securities Exchange (ASX issuer code: AHX). Escrow Class of restricted securities Type of restriction Number of securities End date of escrow period Ordinary shares Voluntary escrow 1,131,652 1 September 2017 Ordinary shares Voluntary escrow 27,164,866 8 December 2017 Ordinary shares Voluntary escrow 219,537 5 January 2018 Ordinary shares Voluntary escrow 1,131,647 1 September 2018 Ordinary shares Voluntary escrow 219,537 5 January 2019 Unquoted equity securities The Company has no unquoted equity securities on issue. Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 83 Other Information The Company is not currently conducting an on-market buy-back. There are no issues of securities approved for the purposes of item 7 of section 611 of the Corporations Act which have not yet been completed. No securities were purchased on-market during the reporting period under or for the purposes of an employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to acquire securities granted under an employee incentive scheme. Local knowhow. Global knowledge. 

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