Apiam Animal Health Limited
Annual Report 2018

Plain-text annual report

Apiam Animal Health Limited ASX: AHX APPENDIX 4E PRELIMINARY FINAL REPORT COMPANY DETAILS Name of entity: Apiam Animal Health Limited ACN: 604 961 024 Reporting period: For the year ended 30 June 2018 Previous period: For the year ended 30 June 2017 RESULTS FOR ANNOUNCEMENT TO THE MARKET Statutory Results Summary CHANGES FROM PERIOD ENDED 30 JUNE Revenue from ordinary activities up % 9 Net profit attributable to members Profit from ordinary activities after tax attributable to members down 33 down 33 2018 2017 $m $m 106.6 from 98.0 3.3 from 3.3 From 4.9 4.9 to to to Underlying EBITDA (Incl. non-controlling interests) Up 17 to 9.8 From 8.3 Underlying EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) is Management’s preferred measurement of business profitability and excludes one-off corporate restructuring costs as well as integration, IT system and acquisition expenses. Further commentary on the annual results can be found in the ‘Operating and Financial Review’ section within the Directors’ report of the attached Annual Financial Report. Dividends 2018 Interim Dividend Amount per security cents Franked amount per security Cents 0.8 cents 0.8 cents 2018 Final Dividend (declared after balance date but not yet paid) 0.8 cents 0.8 cents Record date for determining entitlements to the dividend: 20 September 2018 Date dividend payable: 26 October 2018 Dividend reinvestment plans The Company initiated a Dividend Reinvest Plan (DRP) on the 25 August 2017 which provides shareholders with the opportunity to utilise all or part of their dividends to purchase shares in the Company. Shareholders electing to participate must nominate by 27 September 2018. Shareholders who elect to participate in the DRP for the 2018 final dividend will be issued shares at a DRP issue price which will be the average of the daily market price of Apiam’s shares over the period of five trading days between 28 September 2018 and 4 October 2018 (‘Pricing Period’). The timetable in respect of the 2018 final dividend and DRP is as follows: Event / Action Record Date Date* 20 September 2018 Election Date: Last date for shareholders to make an election to participate in the DRP 5.00 pm (Melbourne time) on 27 September 2018 Pricing Period Commencement Date 28 September 2018 Last Day of Pricing Period Announcement of DRP issue price Dividend Payment Date / Issue of DRP shares *All dates are subject to change 4 October 2018 5 October 2018 26 October 2018 Details of the DRP can be downloaded from www.apiam.com.au. In order to participate in the DRP for the 2018 final dividend, shareholders should ensure that their DRP Election Form is received, or an online election is made, by no later than 5.00 pm (Melbourne time) on 27 September 2018. An online election can be made by visiting www.boardroom.com.au. Net Tangible Asset per Security Net Tangible assets per share Return to shareholders 2018 -$0.06 2017 -$0.04 Dividends of $1,627,151 were paid during the period; no share buy backs were conducted during the year. Basis of Preparation This report is based on the consolidated financial statements which have been audited by Grant Thornton Audit Pty Ltd. The audit report is included within the Company’s Annual Report which accompanies this Appendix 4E. Entities over which control has been gained or lost during the period: Refer to Notes 31 and 32 of the attached Financial Statements for details of entities over which control has been gained. There were no entities over which control was lost. Associates and Joint Venture Entities The Company has no associate companies and 2 joint venture entities. Other information required by Listing Rule 4.3A Other information requiring disclosure to comply with Listing Rule 4.3A is contained in the 30 June 2018 Annual Report (which includes the Directors’ Report) which accompanies this Appendix 4E. Accounting Standards This Report has been compiled using Australian Accounting Standards and International Financial Reporting Standards. ANNUAL Report 2 8 1 0 corporate directory DIRECTORS Professor Andrew Vizard Dr Christopher Richards Mr Michael van Blommestein Mr Richard Dennis Mr Charles Sitch Professor Jan Tennent Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director 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 STOCK EXCHANGE LISTING Australian Securities Exchange Level 4, North Tower, Rialto 525 Collins Street Melbourne VIC 3000 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 ASX CODE AHX WEBSITE apiam.com.au annual report 2018 apiam.com.auApiam Animal Health Limited Financial statements for the year ended 30 June 2018 Contents Chairman’s Message Managing Director’s Message Director’s Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Audit Report Additional Information 3 04 07 11 25 32 34 35 36 37 38 75 76 79 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 4 Chairman’s Message Dear Shareholder, In our third year since forming, Apiam achieved a number of significant milestones and completed important acquisitions and business development initiatives that are expected to deliver sustainable growth in earnings and shareholder returns. The solid revenue growth - both in absolute terms and on a like-for-like basis, the improved underlying earnings margin and the strong cash flow generation that Apiam experienced in 2018 are important indicators that our strategic plan is delivering results. We can expect further financial benefits from our strategic plan as Management roll-out the third phase in the year ahead. Apiam’s significant investment in establishing an extensive corporate operating infrastructure is now starting to generate returns. Early stage cost efficiencies are being realised across the Group, and this has resulted in Apiam reporting strong underlying earnings growth over the past year. The final, but critical, piece of our expanded operating infrastructure, our Practice Management System, is currently being rolled out. Full implementation of this system will be a very important milestone for Apiam, and is expected to result in additional revenues and cost improvements at an individual clinic, region and segment level, with meaningful financial benefits expected to flow through in the 2019 financial year. Our cash flow generation has also been strong during the past twelve months, with cash flows from operations funding most of our business re-investment, particularly our acquisitions and capital expenditure program. We expect that Apiam’s cash flow generation will continue to be strong in the year ahead, allowing continued investment in growth opportunities and shareholder returns. Business development & strategy Improving Apiam’s business balance and diversification of revenue sources has been a key business goal since we listed in late 2015. Since then, Apiam has successfully transitioned from an intensive agricultural-focused practice to a diversified regional and rural practice, with leading expertise across the production and companion animal sectors. Our strategic acquisition program, which this year saw us acquire three complementary veterinary businesses in Victoria and South-East Queensland, has been an important driver of business diversification, with each Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 5 business bringing new geographic exposures or increased veterinary expertise in a mix of animal species. We continue to identify and assess acquisition opportunities using a very disciplined process, and expect to make further acquisitions during the coming year. Our joint venture with PETstock, targeting fast growth and under-serviced companion animal locations, will also improve business balance and offers our shareholders a capital efficient method of entering new and attractive companion animal markets. As the animal numbers under Apiam’s management continue to grow, the opportunities for high- value product distribution across our animal network also grows. Our recently announced exclusive distribution agreement with Plumbline Life Sciences is an early example, and we believe it represents a significant opportunity for Apiam to be at the forefront of product innovation within the farming sector, particularly as the industry looks to more sustainable practices and to reduce the use of antimicrobials. We will be assessing new and innovative product opportunities in the year ahead and believe product distribution offers Apiam shareholders strong gross margin opportunities. Board renewal In November 2017, Charles Sitch announced his intention to resign from the Board of Apiam at the 2018 Annual General Meeting. On behalf of the Board, Management, employees and shareholders of Apiam, I thank Charles for his significant contribution to Apiam’s journey from a newly listed company to the larger, more established and diversified group that we are today. As part of this Board renewal process, an extensive search was conducted to appoint a new Non- Executive Director and on 1 August 2018, we were very pleased to announce the appointment of Professor Jan Tennent to the Apiam Board. Professor Tennent has extensive experience and is an internationally-recognised specialist in antibiotic resistance mechanisms and in the development and commercialisation of vaccines. Professor Tennent’s expertise will be extremely valuable to Apiam as we expand our product range in new and innovative areas and we look forward to working with her in the year ahead. Dividend Due to the strength of Apiam’s cash flow performance, the Board have declared a fully-franked final dividend of 0.8 cents per share, bringing the full year dividend to 1.6 cents per share. Our Dividend Reinvestment Plan will also continue to allow shareholders to reinvest their dividend in the Company’s future growth. Finally, I thank all my fellow Board members and the entire Apiam team for their dedication and hard work over the past year. I also thank Apiam’s shareholders for their continued support. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 6 The Board and Management look forward to building on the achievements and foundations put in place during the past two years and as a team we will be focused on delivering growth in shareholder value as we embark on a new financial year. Yours sincerely, Professor Andrew Vizard Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 7 Managing Director’s Message Dear Shareholder, Apiam continued to progress and grow its regional and rural services model during FY2018. Over the financial year, we added six new regional clinics to our network. Apiam now has 43 clinics located throughout Australia, employing more than 150 veterinarians. O ur corporate operating infrastructure will be complete following the roll out of our Practice Management System and is already generating early stage operating cost efficiencies across the Group. Our strategic roadmap has put Apiam in a strong position to further leverage our performance and deliver additional growth as we move into the 2019 financial year. FY2018 financial performance Apiam’s revenue for the 12 months to 30 June 2018 was $106.6 million, an 8.8% increase compared to the previous financial year. Revenue growth excluding the impact of acquisitions was 4.0%, with each animal division recording underlying revenue growth despite some industry challenges being experienced, particularly within the pig and beef feedlot segments. Apiam’s ongoing organic growth, in the face of these industry challenges, further demonstrates the robustness and diversity of our business model, which has operations across a number of geographic locations and provides a variety of services to a range of animal species in both the production and companion animal sectors. Apiam has delivered growth in its gross margins as well as in its underlying EBITDA and its EBIT margins over the period. The 17.3% growth in underlying EBITDA (excluding one-off costs and income) was a result of the combination of Apiam’s investment in its corporate operating infrastructure delivering efficiencies during the period and improved revenue. Apiam reported increased depreciation & amortisation expense in FY2018 to $2.4 million (FY2017: $1.6 million), in-line with the capital investments in our fixed asset base for our enlarged group. These capital investments in assets, such as vehicles and IT infrastructure, bring us near to completion of replacement of legacy assets acquired as part of the initial clinic acquisitions that occurred at the time of Apiam’s listing. Total one-off expenses also increased in FY2018 to $1.6 million (FY2017: $1.0 million), mostly as a result of non-recurring corporate restructuring costs to drive growth opportunities, such as appointing dedicated business managers in both Dairy and Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 Mixed Clinics and the Pig and Feedlot segments. These dedicated business managers are 8 focused on maximizing the benefits from our recent investments across the enlarged business and will deliver on a number of exciting growth initiatives, as well as ensuring further efficiency improvements. Underlying Net Profit After Tax (NPAT) in FY2018 was $4.4 million (before one-off costs), representing a small increase from the prior comparable year (FY2017: $4.3 million). This result was affected by the increased depreciation and amortisation charge outlined above. Reported NPAT was $3.3 million in FY2018, 11.2% lower than operating NPAT achieved in FY2017 (FY2017: $3.7 million, excluding $1.2 million of non-operating income). This disappointing result is mainly attributed to the impact of the increased depreciation and amortisation charge, as well as the increased one-off expenses incurred in FY2018. In FY2019, Management will be focused on delivering growth in reported NPAT that better reflects the growth at the revenue, gross profit and EBITDA levels. Strategic update We successfully executed most of our planned business development initiatives and acquisition strategies in FY2018, and believe this strategic progress will generate significant value for the Group moving forward. In February 2018, Apiam announced that it had entered into a Joint Venture alliance agreement with PETstock, a leading specialist petcare provider. Under the agreement, Apiam and PETstock will open a number of new veterinary clinics to be co-located at various PETstock retail outlets. The co-located clinics will be jointly owned, with Apiam as an 80% shareholder and PETstock as a 20% shareholder. The first co-located clinic, the General Practice, Emergency and Referral Centre at PETstock’s superstore in Bendigo (Epsom), opened in March 2018, and has outperformed early stage revenue expectations, achieving around double the amount of revenue forecast for its first quarter of operations. A second co-located clinic opened at PETstock Golden Square in mid-August 2018, with additional clinics to be rolled out in targeted regional and rural locations throughout FY2019. During the last 12 months we have made some important announcements relating to expansion of our product distribution, which presents a valuable growth opportunity for Apiam. In July 2018, we announced that the Company had entered into an exclusive distribution agreement with Plumbline Life Sciences to licence its patented immunotherapy technology products. The first product, Life Tide SW5, is already approved in Australia & New Zealand for use in sows to increase the number of pigs weaned and we will initially be conducting a limited market release across our client base next quarter. Trials have also shown many other benefits, including increased milk yield and fertility in cows, and improvements in pre-weaning mortality in pigs from treated sows. Apiam will also be applying to broaden the current product registration to apply to progeny pigs and will seek registration of a new technology, PLS-B3000 for use in dairy cows in Australia and New Zealand. Given the size of Apiam’s client base within these species, the Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 9 distribution of an innovative product such as Life Tide SW5 represents a significant market opportunity for Apiam. In addition, we have also recently set up a distribution company in the USA with a joint venture partner, Swine Veterinary Centre (SVC), who is also one of our key shareholders. SVC are one of the most well known swine veterinary groups in the world, servicing a significant percentage of the USA market as well as consulting in a number of other countries. The partnership between Apiam and SVC will initially see products currently distributed by Apiam in Australia, including some of our private label products, being distributed in the USA, with products expected to start flowing into the market in the second quarter of FY2019. Overall, we expect product distribution will contribute more significantly to our profitability in FY2019 and beyond. Acquisitions As in previous years, acquisitions have also continued to form a core part of our growth strategy in FY2018. Our focus with acquisitions is to bolt-on complementary businesses that leverage our cost base and infrastructure, and at the same time, provide a new geographic exposure or introduce a new specialized offering to our client base. Over the financial year we acquired three veterinary businesses, comprised of five different clinic locations. We identified these three acquisitions as meeting our strategic objectives and representing financially attractive opportunities for Apiam shareholders. Details of these acquisitions are provided below. Apiam acquired the Terang and Mortlake Veterinary Clinic (TMVC) in November 2017 for a total consideration of $1.6m. TMVC operates as two rural vet practices in Western Victoria with a strong dairy practice offering, as well as an active presence across beef, equine and companion animals. This acquisition was attractive because it strengthened Apiam’s presence in an important and productive beef and dairy region. Since acquisition, this clinic has performed very well and delivered strong revenue growth as part of our south west Victorian region. In March 2018, Apiam acquired Passionate Vetcare a regional veterinary clinic based in the north west of Bendigo, Victoria for total consideration of $0.75m. Passionate Vetcare is predominantly a companion animal veterinary practice, with some exposure to pigs and mixed animals. This acquisition was strategically important to support the opening of Apiam’s Bendigo General Practice, Emergency & Referral Centre, servicing the Central Victorian region. Apiam also completed the acquisition of the south east Queensland based Gympie and District Veterinary Services (GDVS) for $4.9m in June 2018. GDVS is a diversified practice servicing agricultural & companion animals and was comprised of two clinics in a fast-growth and underserviced region of rural Queensland. Following the acquisition, GDVS now operates on a regional basis with Apiam’s two existing Queensland dairy and mixed animal clinics as part of an expanding footprint in the region. There are significant synergy opportunities that Apiam can Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 10 achieve by operating its Regional Operating model in this key production and mixed animal region of Queensland. Outlook Apiam’s business model is uniquely positioned to capture underlying industry growth, in the attractive regional and rural production and companion animal industries. In FY2019, we will be continuing to focus on delivering growth across all of Apiam’s business divisions. In particular, we will be focused on three key business drivers to maximize performance being: i) improving operations, process & capacity, ii) increasing animal numbers and iii) continued expansion of our services and product range. Improvements and efficiencies achieved in any of these key business drivers can be leveraged across our entire network. Our strong acquisition program is expected to continue, seeking acquisition opportunities that have clear synergistic value. The business development initiatives I have outlined will also be rolled-out over FY2019 and are expected to drive additional revenue streams. Successful execution of this strategy will result in improving shareholder value by maintaining high cash conversion to fund growth, improving our return on capital and delivering growth to the reported NPAT line. I thank our investors for their support, as well as our talented and dedicated team for their work on executing our strategy. Yours Sincerely, Dr Chris Richards Managing Director Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 11 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 Directors’ Report 2018. 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 Professor Jan Tennent Non-Executive Director (appointed 1 August 2018) Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 12 INFORMATION ON DIRECTORS Professor Andrew Vizard Dr Christopher Richards Independent Non-Executive Chairman Managing Director BVSc(Hons), MVPM, FAICD BSc, BVSc, MAICD Professor Vizard is a Principal Fellow at the Faculty of Veterinary 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 consultancy. An 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 formation. Chris has been Managing Director of Apiam Animal Health since Since establishing a pig veterinary services business in 1998, Chris has been responsible for the strategic direction of the company including the development, acquisition and integration of other veterinary clinics, veterinary wholesale, logistics and genetic services businesses that form the integrated company that Apiam is today. Chris is a Director of Apiam Animal Health and its subsidiary and joint venture companies. Interests in Shares and Options Interests in Shares and Options 107,196 shares 27,926,077 shares Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 13 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 held a number of senior roles over 35 years with Ernst & Young (EY) and was the Managing Partner of EYs Queensland practice on two occasions from 2001-2007 and from 2014-15. Rick also held a number of executive management roles at EY, including Deputy COO and CFO for the Asia- Pacific practice where he was responsible for financial and operational overseeing integration of EYs Australian and Asian member firms. Rick is a member of Australian Super’s Queensland Advisory Board, a member of the Advisory Board of EWM Group and a member of the Audit & Risk Committee of Racing Queensland. He is also a non- executive director of ASX-listed Motorcycle Holdings Limited. the Interests in Shares and Options Interests in Shares and Options 98,212 shares 20,300 shares Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 14 Mr Charles Sitch Non-Executive Director BComm, LLB, MBA, GAICD Professor Jan Tennent (appointed 1 August 2018) Non-Executive Director GCertMgt, GAICD, PHD, BSc (Hons) Charles is currently a director of 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 Pacific Edge Limited (NZX Listed) and Bellamy’s Australia Limited. the Jan and for Microbiology. Jan is an alumnus of Monash and Deakin universities, was appointed in 2017 as a Collaborative Professor at the University of Osaka, is a Principal Fellow at the University of Melbourne and a Fellow of the Australian Society is an internationally-recognised researcher with specialist knowledge of antibiotic resistance mechanisms and commercialisation of vaccines (biologicals) to prevent infectious diseases through stimulation is of protective currently the CEO of Bio21 Australia Limited (t/a Biomedical Research Victoria), a non- executive director of AusBiotech Limited and David J. Curnow Pty Ltd and a member of the Industry Advisory Board of the Medicines Manufacturing Innovation Centre, Monash University. Jan is also the founder and principal of ConnectBio consultancy. immune responses. She discovery Interests in Shares and Options Interests in Shares and Options 152,995 shares 0 shares Company Secretary Sophie Karzis B. Juris, LLB Ms. Karzis was appointed Company Secretary on the 17 February 2017 and is a practising 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 General Manager 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 2018 15 MEETINGS OF DIRECTORS 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 & Risk Management Committee Remuneration & Nomination Committee A Andrew Vizard 14 Chris Richards 14 Michael van Blommestein 14 Richard Dennis 14 Charles Sitch 14 B 14 14 12 13 12 A 4 - - 4 4 B 4 - - 4 4 A 3 - 3 - 3 B 3 - 3 - 2 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 2018 16 PRINCIPAL ACTIVITIES The Group operates in the segment of provision of veterinary products and services to production and companion animals. Apiam services 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; on-farm and on-line training programs for clients; and OPERATING AND FINANCIAL REVIEW Revenue for FY2018 was $106.6m, improving 8.8% on FY2017, the prior comparable period (pcp). Revenue growth in FY2018 (excluding the impact of acquisitions) was 4.0% compared to the pcp, with all animal divisions also recording revenue growth on an ex-acquisition basis. Similar to the trends seen in the first half of FY2018, Apiam’s pig revenues continued to benefit from new service and training initiatives as well as new customers and products, despite challenging pig industry conditions. Apiam’s dairy & mixed animal businesses performed well, supported by growth in animal numbers, strong industry fundamentals in many of Apiam’s rural and regional operating areas as well as new business development initiatives such as the opening of the General Practice, Emergency & Referral Centre at PETstock’s Epsom (Bendigo) store, under the Apiam PETstock JV agreement. Despite Apiam’s beef feedlot revenues being affected by a reduction in animal numbers in Q2 FY2018, animal numbers improved in H2 FY2018, with industry conditions varying by region. Strong increases in beef feedlot numbers occurred as a result of the drought in central and northern NSW and SE Queensland in conjunction with a softening in feeder steer prices. This resulted in FY2018 beef feedlot revenue delivering growth on FY2017 levels. Underlying EBITDA growth (excluding one-off costs and income1) increased 17.3% to $9.8m in FY2018 (FY2017: $8.3m), as Apiam’s investment in its operating cost base delivered early 1 Excluding one-off integration, corporate restructure, ERP & acquisition expenses as well as $1.3m of non-operating income associated with the reversal of a contingent liability on the balance sheet in FY2017 (contingent acquisition consideration no longer payable) Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 17 stage efficiencies over the period. While total operating expenses increased 7.3% in FY2018 versus pcp, the majority of this increase related to the impact of acquisitions made over the period. On an ex-acquisition basis, Apiam’s operating expenses were broadly in-line with the pcp despite the group revenue growth delivered. Apiam incurred increased depreciation & amortisation expense in FY2018 of $2.4m vs $1.6m in FY2017, a direct result of the growth in its fixed asset base that has occurred over the past two years as it has built the foundations of the enlarged company. Significant capital investment over FY2018 was made in the upgrade of the Company’s vehicle fleet, IT infrastructure at the clinic level as well as the set-up of the General Practice, Emergency & Referral Centre at Epsom. In addition, the final stage of the investment in IT systems continued with the roll out of the Practice Management System. During FY2018, Apiam also incurred $600,000 in one-off costs as a result of a recent restructure in its business operations to drive growth opportunities in both Dairy and Mixed clinics (D&M) and Intensive Animals (Pigs and Feedlot) and Ancillary Services (IAAS). Dedicated business managers are now in place for both of these business units with a focus on leveraging Apiam’s products and services across the enlarged animal footprint. Other one-off expenses incurred during FY2018 related to one-off costs associated with acquisitions, integration and the expensed component of the IT systems investment. Underlying Net Profit After Tax (NPAT), before the impact of one-off costs was $4.4m in FY2018, representing a small increase to underlying NPAT in FY2017 of $4.3m, despite the increased depreciation & amortisation expense over the period. NPAT in FY2018 of $3.3m, was 11.2% lower than NPAT in FY2017 of $3.7m (on an operating basis), reflecting the impact of the increased one-off expenses incurred throughout FY2018. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 18 The following tables are presented to assist in the interpretation of the underlying performance of Apiam during FY2018. This information is additional and provided using non-IFRS information and terminology. Apiam FY2018 Financial Results - Reported Total Revenue Gross Profit Operating expenses Underlying EBITDA 1 One-off expenses EBITDA Depreciation & Amortisation 2 EBIT Interest Tax NPAT (operating) Other income3 NPAT (reported) Gross Margin (%) Underlying EBITDA margin (%) Notes: 1 Underlying EBITDA excludes reversal of contingent consideration (recorded as other income in FY17) & one-off acquisition, Variance 8.6 4.3 (2.9) 1.4 (0.7) 0.8 (0.8) (0.1) (0.0) (0.3) (0.4) (1.2) (1.6) FY18 106.6 51.6 (41.8) 9.8 (1.6) 8.2 (2.4) 5.7 (0.9) (1.5) 3.3 0.0 3.3 48.4% 9.2% FY17 98.0 47.3 (38.9) 8.3 (1.0) 7.4 (1.6) 5.8 (0.9) (1.2) 3.7 1.2 4.9 48.2% 8.5% % 8.8% 9.1% 7.3% 17.3% 68.0% 10.7% 54.1% (1.2)% 1.1% 27.6% (11.2)% nm (33.2)% integration & restructuring expenses 2 Restatement of FY17A amortisation due to $3.2M reclassification of intangibles associated with QVG acquisition 3 Non-operating other income of $1.25m in FY2017 is associated with the reversal of a Contingent Liability on the balance sheet (contingent acquisition consideration no longer payable) Apiam FY2018 Financial Results - Underlying Total Revenue Gross Profit Employment expenses Operating expenses Underlying EBITDA 1 Depreciation & amortisation 2 Underlying EBIT 1 Interest & tax Underlying NPAT 1 Integration / ERP expense Acquisition / Advisory expense Restructure costs Notes: 1 FY18 106.6 51.6 (29.4) (12.4) 9.8 (2.4) 7.3 (2.9) 4.4 (0.6) (0.4) (0.6) FY17 98.0 47.3 (27.0) (11.9) 8.3 (1.6) 6.7 (2.4) 4.3 (0.7) (0.2) 0.0 Variance 8.6 4.3 (2.4) (0.4) 1.4 (0.8) 0.6 (0.5) 0.1 % 8.8% 9.1% 8.9% 3.7% 17.3% 54.1% 8.7% 22.5% 1.0% 0.1 (0.1) (0.6) (12.0)% 55.5% nm Underlying earnings exclude one-off acquisition, integration & restructuring expenses (tax effected where applicable at NPAT level) & reversal of contingent acquisition consideration recorded in FY17 of $1.25M Restatement of FY17A amortisation due to $3.2M reclassification of intangibles associated with QVG acquisition 2 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 19 Business development Apiam has made significant progress in executing business development initiatives over FY2018. In February 2018, Apiam announced that it had executed a Joint Venture alliance agreement with PETstock, a leading specialist petcare provider. Under the agreement, Apiam and PETstock will open a number of new veterinary clinics to be co-located at various PETstock retail outlets, in regional and rural Australia. The co-located clinics will be jointly owned, with Apiam as an 80% shareholder and PETstock as a 20% shareholder. The first co-located clinic, the General Practice, Emergency & Referral Centre at PETstock’s superstore in Bendigo (Epsom), opened in March 2018, and has outperformed early stage revenue expectations, achieving around double the amount of revenue forecast for its first quarter of operations. A second co-located clinic opened at PETstock Golden Square in mid August 2018, with additional clinics to be rolled out in targeted regional and rural locations throughout FY2019. Apiam also announced in July 2018 that it has entered into an exclusive distribution agreement with Plumbline Life Sciences (Plumbline), a Korean novel DNA therapy company. Under the terms of the distribution agreement, Plumbline will licence a number of its patented immunotherapy technology products to Apiam, for exclusive distribution in the pig and diary industries in Australia and New Zealand. The agreement also provides Apiam with first right of refusal to market Plumbline’s companion animal cancer therapy products in Australia and New Zealand and current and future pig products in the USA and Canada. Plumbline’s Life Tide SW5 product, for which Apiam will have exclusive distribution rights, is already approved for market use in Australia & New Zealand in sows to increase number of pigs weaned. Apiam will be undertaking the required work to expand this product registration to encompass progeny pigs and also register a new technology, PLS-B3000 for dairy cattle, for which it will be reimbursed registration costs by Plumbline. Apiam is expecting to commence an initial limited market release of Life Tide SW5 across its pig client base in Q2 FY2019. The Plumbline distribution agreement has been structured attractively for Apiam with no milestone payments and only a modest upfront payment, particularly when compared to other similar pharmaceutical industry product commercialisation arrangements. It represents an important and valuable opportunity for Apiam given the significant number of pig and dairy animal numbers the Company has under management, as well as the improved production performance that the product has demonstrated in research and trials. Acquisitions Growth via acquisition remains an important part of Apiam’s business strategy, and the Company continued to progress its acquisition program over FY2018 with three company acquisitions, comprised of five clinics in total. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 20 Apiam acquired the Terang and Mortlake Veterinary Clinic (TMVC) in November 2017 for a total consideration of $1.6m. TMVC operates as two rural vet practices in Western Victorian with a strong dairy practice offering, as well as an active presence across beef, equine and companion animals. This acquisition has strengthened Apiam’s presence in a very important and successful beef and dairy location. In March 2018, the Company also acquired Passionate Vetcare a regional veterinary clinic based in the North West of Bendigo, Victoria for total consideration of $0.75m. Passionate Vetcare is predominantly a companion animal veterinary practice, with some exposure to pigs and mixed animals. This acquisition was strategically important to support the opening of Apiam’s Bendigo Emergency & Referral Centre. Apiam also completed the acquisition of South East Queensland based, Gympie & District Veterinary Services (GDVS) for $4.9m in June 2018. GDVS is a diversified practice servicing agricultural & companion animals and was comprised of two clinics in fast growth and underserviced regional and rural areas of Queensland. Following the acquisition, GDVS now operates on a regional basis with Apiam’s two existing QLD Dairy and Mixed Animal clinics as part of an expanding footprint in the region. There are significant synergy opportunities that Apiam can achieve by operating with a greater presence in this key production and mixed animal region and by delivering additional organic growth through cross-selling of Apiam’s existing veterinary and genetic services expertise across a larger customer base. It will also enable Apiam to develop smaller satellite clinics that leverage off the regional model in order to capture revenues in underserviced peripheral regions of Queensland. In-line with Apiam’s prior acquisitions, these acquisitions were funded with 30% scrip consideration and 70% cash consideration (via a combination of cashflow and Apiam’s Acquisition Facility). Balance sheet Apiam continued to invest in property, plant and equipment throughout FY2018 with the replacement of older fleet vehicles, upgrade of IT infrastructure in clinics and other capital investment associated with growth initiatives. As a result PP&E increased by $3.0m to $9.4m as at 30 June 2018 (30 June 2017: $6.4m). As at 30 June 2018, Apiam had net borrowings of $25.8m up from $24.7m at 30 June 2017. This modest increase in borrowings of $1.1m is reflective of Apiam’s strong operating cash flow performance over FY2018, particularly in light of the capital investment requirements outlined above as well as the cash component associated with the acquisitions completed during the period (totalling $4.7m). During the year, Apiam also negotiated a $15m increase to its acquisition facility (to a total of $25m) and new covenants related to its borrowing facility provided by banking partner, NAB. The amended facility and covenants better align with Apiam’s growth strategy and provide the Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 21 Company greater flexibility. As at 30 June 2018 Apiam’s operating leverage ratio was 2.8x, well within the current facility covenant of 4.0x. This is an improvement on Apiam’s operating leverage ratio as at 31 December 2017 of 2.9x. Cash flow Apiam’s operating cash flow was $9.2m in FY2018, significantly higher than FY2017 operating cash flow of $1.7m. This increase in the Company’s cash flow performance was a result of the strong growth in FY2018 EBITDA as well as improved working capital management process over the period. Cash conversion to underlying EBITDA for FY2018 was 136% compared to 65% in the pcp. Management expect cash conversion to align closely with underlying EBITDA moving forward. Apiam FY2018 Cash Flow summary $M Net cash received in operating activities Acquisition of subsidiary, net of cash Purchases of property, plant and equipment Restructure of group entities, net of cash Purchases of intangible assets Net cash used in investing activities Net changes in financing Dividends paid to shareholders Net cash inflow from financing activities Net change in cash and cash equivalents FY2018 9.2 (4.7) (4.5) 0.0 (0.4) (9.5) 1.8 (1.0) 0.8 0.5 FY2017 1.7 (8.4) (1.6) 0.0 0.0 (10.0) 8.0 (0.8) 7.2 (1.1) Notes: This information is additional and provided using non-IFRS information and terminology Dividend The Apiam Board of Directors have declared a final dividend of 0.8 cents per share (CPS), 100% fully franked, bringing total dividends paid in respect of FY2018 to 1.6 cps. The final dividend will be paid on 26 October 2018. This represents a 50.4% payout ratio of NPAT. Apiam’s Dividend Reinvestment Plan will be maintained to allow shareholders to reinvest their dividends in Apiam’s future growth. Outlook Apiam is well placed to deliver revenue and earnings growth in FY2019. Management expect the operating cost base leverage that has occurred in FY2018 to continue, delivering further efficiencies as the Company continues to grow its scale of operations. Leveraging key business drivers across Apiam’s growing animal footprint will also be a strategic focus for management in FY2019. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 22 New revenue streams will also deliver growth for the Company with business development initiatives, such as in the area of product distribution, and the expansion of the Apiam / PETstock JV in attractive regional and rural areas, to be undertaken in FY2019. Strategic acquisitions will continue to be assessed and executed where synergistic value for Apiam shareholders is identified. DIVIDENDS An interim dividend of $817,728 is 0.8 cps and was paid in April 2018. The Apiam Board of Directors have declared the Company’s final dividend of 0.8c per share fully franked on the 27 August 2018. The final dividend of $837,551 will be paid on the 26 October 2018. 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 Apart from the final dividend declared, 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 23 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 FY19 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 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 the financial year, the Company issued 18,667 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 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 24 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. The company has agreed to indemnify its auditors, Grant Thornton Audit Pty Ltd, to the extent permitted by law, against any claim by a third party arising from the Company’s breach of its agreement. The indemnity requires the Company to meet the full amount of any such liabilities including a reasonable amount of legal costs. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 25 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 Corné 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 2018 26 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 framework that is market competitive and complementary to the reward strategy of the Group. 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 committee has met 3 times in the FY18 reporting period. The Committee engaged the services of Korn Ferry Hay Group to undertake bench-marking for the executive team remuneration in FY17. The Committee has also engaged Grant Thornton Australia Limited and HRAscent to formulate an equity management plan for principal and senior vets which was approved in FY17 and 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) 2018 3.21c 1.6c 2017 5.00c 0.8c $4,831 $6,315 Share price ($) $0.75 $0.70 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 27 b Details of remuneration 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 Richard Dennis Independent Chris Richards Managing Director Charles Sitch Independent Michael van Blommestein Independent Employees Corné Loots General Manager Vet Services Matthew White Chief Financial Officer 2018 Total 2017 Total Short term employee benefits Year 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Salary and fees (i) $ 120,000 120,000 70,000 70,000 350,072 350,072 54,795 54,795 54,795 54,795 212,519 212,519 223,484 190,000 1,085,665 1,052,181 Cash bonus $ Non-monetary benefits $ - - - - - - - - - - - - - - - - - - - 13,419 12,027 - - - - - - - 13,419 12,027 (i) Salary and fees includes salaries and allowances. (ii) Long term benefits include long service leave entitlement accruals. Post-employment benefits Superannuation $ Long-term benefits Long service leave (ii) $ Share-based payments Shares $ - - - - 27,125 19,791 5,205 5,205 5,205 5,205 20,013 23,961 21,231 27,075 78,779 81,237 - - - - 5,854 6,718 - - - - 905 285 923 274 7,682 7,277 Performance based percentage of remuneration % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Total $ 120,000 120,000 70,000 70,000 396,470 388,608 60,000 60,000 60,000 60,000 233,437 236,765 245,638 217,349 1,185,545 1,152,722 - - - - - - - - - - - - - - - - Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 28 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 Corné Loots Matthew White Fixed remuneration At risk – STI 100% 100% 100% - - - 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 Corné Loots Matthew White Base salary $350,072 $212,519 $225,000 Term of agreement 5 years from listing No fixed term No fixed term Notice period Twelve (12) months Six (6) months Six (6) months Bonus provisions Chris Richards: Corné Loots: Nil Nil Matthew White Nil Bonuses included in remuneration d Details of the short-term incentive cash bonuses awarded as remuneration to each key management personnel, the percentage of the available bonus that was paid and payable in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. Included in remuneration ($) Percentage vested during the year Percentage forfeited during the year Executive Directors Chris Richards Other Key Management Personnel Corné Loots Matthew White - - - - - - - - - Non-Executive Director remuneration e 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. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2018 29 The Non-Executive Directors of the Company received the following fees (which total $310,000): • 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 f Options held by key management personnel There were no options to acquire shares in the Company held during the 2018 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 2018 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 Corné Loots Matthew White Balance at 1/07/2017 27,339,804 95,294 150,000 30,000 97,240 86,689 111,218 27,910,245 Granted as remuneration - - - - - - - - Received on exercise Other changes 586,273 - - - - - - - - 11,902 2,995 (9,700) 972 19,108 4,097 615,647 Held as at 30/06/2018 27,926,077 107,196 152,995 20,300 98,212 105,797 115,315 28,525,892 None of the shares included in the table above are held nominally by key management personnel. Loans to key management personnel The Group did not enter into any loans with key management personnel during the 2018 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. During FY18 the warehouse facility was extended and rental payments made amounted to $310,800 (2017: $242,400). 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 $132,961 (2017: $124,116). The Group leases it artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $105,000 (2017: $69,939). Apiam Animal Health Limited Financial Statements for the year ended 30 June 2018 30 The Group leases premises at Hoskin Street, Quarry Hill, Victoria from entities associated with Chris Richards. Lease payments made amounted to $11,887 (2017: Nil). The Group leases premises at Midland Highway, Epsom, Victoria from entities associated with Chris Richards. Lease payments made amounted to $12,164 (2017: Nil). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. The group has taken up an option during FY2018 to purchase the iVet technology from iVet Pty Ltd, a company controlled by Chris Richards. The Group had previously entered into an intellectual property licence with iVet Pty Ltd to use the iVet intellectual property. The Group were to 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 was for an initial term of 10 years. Payment by the group to take up the option to purchase iVet Pty Ltd in FY2018 was the sum of $93,157 (2017: Nil). The Group obtained air travel services for business purposes from an entity associated with Chris Richards in the prior year. The fares paid were based on commercial fares. Payments made during 2018 amounted to $Nil (2017: $64,179). 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. 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. Non-audit services During the year, the Company’s auditors performed certain other services in addition to their statutory audit duties. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2018 31 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 32 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. Signed in accordance with a resolution of the Directors: Dr Christopher Irwin Richards Managing Director Melbourne 27 August 2018 32 Collins Square, Tower 1 727 Collins Street Docklands VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 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 2018, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 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, 27 August 2018 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 www.grantthornton.com.au ‘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 2018 33 Apiam Animal Health Limited Financial Statements For the year ended 30 June 2018 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 34 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2018 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 13,14 Other operating expenses Share of profit from equity accounted investments 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 7 7 8 23 23 Note 2018 $’000 2017 $’000 6 106,597 97,991 21 1,250 26 (208) (54,828) (1,012) (30,121) (499) (2,998) (1,532) (2,432) (7,251) 23 (15) (914) 1,282 (52,007) (1,095) (27,105) (739) (2,623) (1,292) (1,574) (7,034) - (14) (904) 4,831 6,136 (1,545) 3,286 (1,211) 4,925 3,286 4,925 3,278 8 3,286 3,278 8 3,286 4,902 23 4,925 4,902 23 4,925 Earnings per share for profit attributable to the ordinary equity holders of the company: Note Cents Cents Basic earnings per share Diluted earnings per share 24 3.21 3.21 5.00 5.00 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 2018 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 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 Deferred tax liabilities Other liabilities Total non-current liabilities Total liabilities Net assets Equity 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 35 2017 $’000 968 14,075 11,477 746 27,266 58,037 6,400 50 3,438 67,925 2018 $’000 1,436 14,744 11,256 851 28,287 64,515 9,418 75 3,109 77,117 105,404 95,191 12,269 400 594 3,930 4,253 21,446 9,015 - 776 4,102 3,748 17,641 23,336 21,608 810 867 220 672 913 - 25,233 23,193 46,679 40,834 58,725 54,357 85,775 83,066 (26,692) (26,692) (6,615) 5,607 58,075 650 (6,615) 3,956 53,715 642 58,725 54,357 Note 9 10 11 12 14 13 15 16 20 17 18 19 18 19 21 22 22 23 The above statement should be read in conjunction with the accompanying notes Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 36 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2018 Balance at 1 July 2016 Note $’000 $’000 $’000 79,070 (26,666) (6,615) $’000 (137) $’000 $’000 $’000 45,652 619 46,271 Share capital Corporate re- organisation reserve Non- controlling interest acquisition reserve Retained earnings Total attributable to owners of parent Non- controlling interest Total equity Restructure and transfer of Chris Richards entities into Apiam - Issue of shares to vendors of business acquired 21 3,996 Dividends paid Transactions with owners Profit / (Loss) for the period Total comprehensive income for the period Balance at 30 June 2017 Issue of shares to vendors of business acquired Issue of new share capital Dividends paid Transactions with owners Profit / (Loss) for the period Other comprehensive income Total comprehensive income for the period Balance at 30 June 2018 - 3,996 - - (26) - (26) - - - - - - - - - - (26) 3,996 (809) (809) (809) 4,902 3,161 4,902 4,902 4,902 21 21 83,066 (26,692) - 2,041 (6,615) - 668 - 2,709 - - - - - - - - - 85,775 (26,692) (6,615) 3,956 - - (1,627) (1,627) 3,278 - 3,278 5,607 53,715 2,041 668 (1,627) 1,082 3,278 - 3,278 58,075 - - - - 23 23 642 - - - - 8 - 8 650 (26) 3,996 (809) 3,161 4,925 4,925 54,357 2,041 668 (1,627) 1,082 3,286 - 3,286 58,725 Note: This statement should be read in conjunction with the notes to the financial statements. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid 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 Proceeds from disposals of property, plant & equipment Acquisition of subsidiaries, net of cash acquired Payment for acquisition of associate Net cash (outflow)/inflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Repayment lease liabilities 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 Note 31 9 2018 $'000 117,715 (105,161) 12,554 (914) (499) (1,924) 9,217 (4,545) (354) 21 (4,659) - (9,537) 25,796 (23,346) (674) (988) 788 468 968 1,436 Note: This statement should be read in conjunction with the notes to the financial statements 37 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 2018 38 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 services 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; on-farm and on-line training programs for clients; and veterinary services for companion animals 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 2018 were approved and authorised for issue by the Board of Directors on 27 August 2018. 3 Changes in accounting policies 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 July 2018. 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 39 Introduces a ‘fair value through other comprehensive income’ measurement category for particular simple debt 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. c instruments. 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: • • 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. classification and measurement of financial liabilities; and derecognition requirements for financial assets and liabilities Likely impact on initial application The entity has undertaken a detailed assessment of the impact of AASB 9. Based on the entity’s 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. 3.2.2 Revised pronouncement: AASB 15 Revenue from Contracts with Customers Superseded pronouncement - AASB 118 Revenue Nature of change • • • • • replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations: establishes a new revenue recognition model changes the basis for deciding whether revenue is to be recognised over time or at a point in time provides new and more detailed guidance on specific topics (e.g. multiple element arrangements, variable pricing, rights of return, warranties and licensing) expands and improves disclosures about revenue Likely impact on initial application The entity has undertaken a detailed assessment of the impact of AASB 15. Based on the entity’s assessment, the Standard will not 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 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, • 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 40 Adjustment made to prior period intangibles provisionally accounted Apiam acquired Quirindi Feedlot Service’s (QFS) in the financial year ended 30 June 2017. The acquisition was provisionally accounted for in that period. Subsequent to the acquisition, it was noted that there were customer relationships within QFS and that a portion of goodwill recognised upon acquisition must be reclassified and recognised as an intangible asset which is amortised over the useful life of the asset. This resulted in a restatement of each of the affected financial statement line items for prior periods as follows: 30 June 2017 Statement of financial position (extract) Previous amount $'000 Adjustment $'000 Restated amount $'000 Goodwill Customer relationships Accumulated amortisation of customer relationships Deferred tax liabilities Total equity 57,169 - - - 54,482 (2,256) 3,223 (179) 913 (125) 54,913 3,223 (179) 913 54,357 Statement of profit or loss and other comprehensive income (extract) Depreciation and amortisation of non- financial assets Profit before income tax Income tax expense Total comprehensive income Previous amount $'000 (1,395) 6,315 (1,265) 5,050 30 June 2017 Adjustment $'000 Restated amount $'000 (179) (179) 54 (125) (1,574) 6,136 (1,211) 4,925 4 Summary of accounting policies Overall considerations The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below. Basis of consolidation The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 June 2018. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 41 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. 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. 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 acquiree, 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 42 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. 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. 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. 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. 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. Customer Relationships Customer Relationships represents the future economic benefits arising from existing customers within a business combination that have been individually identified and separately recognised. Customer relationships are amortised over the anticipated life of the relationship. Capitalised development costs Capitalised development costs represent costs that are directly attributable to the development of the Group’s IT infrastructure and intellectual property. Capitalised development costs are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over its expected useful life. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 43 Property, plant and equipment Leasehold improvements, plant and equipment, motor vehicles and assets under construction Leasehold improvements, plant and equipment, motor vehicles and assets under construction 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: 20 - 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. Assets under construction commence depreciation once the asset is put into service. Material residual value estimates and estimates of useful life are updated as required, but at least annually. 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. 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. 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 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 44 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, customer relationships 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. 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 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 45 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. 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 Income taxes 46 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. 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. 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. 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 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 47 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. 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. 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). Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 48 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. 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. 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. 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. 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). Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 49 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. 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. Customer relationships Management reviews its estimate of the carrying value of customer relationships at reporting date and recognises an allowance for impairment if required. 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 Management identifies 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 50 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 Restructure costs Finance costs Share of profit from equity accounted investments Net profit before tax Income tax Net profit after tax 6 Revenue Sales revenue Sale of goods Rendering of services Total revenue Expenses 7 Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Motor vehicles Amortisation of intangibles 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 2018 2017 $'000 106,597 (98,486) 8,111 $'000 97,991 (90,766) 7,225 8,111 21 (1,304) (368) (131) (607) (914) 23 4,831 (1,545) 3,286 2018 $'000 7,225 1,250 (712) (236) (503) - (888) - 6,136 (1,211) 4,925 2017 $'000 70,558 36,039 63,960 34,031 106,597 97,991 2018 $’000 47 1,249 921 215 2,432 847 67 914 15 929 40 1,842 2017 $’000 15 833 547 179 1,574 820 84 904 14 918 - 1,616 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 8 Income tax expense 51 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% (2017: 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% (2017 - 30%) Adjustments for non-deductible expenses: Reversal of contingent consideration 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. 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 Tax receivable Rebates receivable 2018 $’000 4,831 1,449 - 12 1,461 1,461 84 1,545 1,216 329 1,545 2018 $'000 1,436 1,436 2018 $'000 13,137 (400) 47 523 1,437 14,744 2017 $’000 6,136 1,841 (375) 8 1,474 1,474 (263) 1,211 1,690 (479) 1,211 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 $(60) (2017: $323) has been recorded accordingly within other expenses. Balance at 1 July Impairment loss Balance 30 June 2018 $'000 460 (60) 400 2017 $'000 137 323 460 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 11 Inventories Stock on hand, at cost Less provision for obsolescence Stock in transit, at cost 12 Other current assets Prepayments Security deposits 52 2017 $'000 11,874 (397) - 11,477 2017 $'000 686 60 746 2018 $'000 11,586 (655) 325 11,256 2018 $'000 784 67 851 13 Property, plant and equipment Details of the Group’s property, plant and equipment and their carrying amount are as follows: Leasehold improvements Plant & equipment Motor vehicles Assets under construction Total $’000 $’000 $’000 $’000 $’000 Year ended 30 June 2017 Opening net book value Acquired through business combinations 146 - 2,578 201 1,772 227 - - Additions Depreciation charge for year Closing net book value At 30 June 2017 Cost or fair value Accumulated depreciation 4 (15) 135 1,414 (833) 3,360 1,122 (547) 2,574 331 - 331 156 (21) 4,920 (1,560) 3,508 (934) 331 - 8,915 (2,515) Net book amount 135 3,360 2,574 331 6,400 Year ended 30 June 2018 Opening net book value Acquired through business combinations Additions Depreciation charge for year Closing net book value At 30 June 2018 Cost or fair value Accumulated depreciation Net book amount 135 - 342 (47) 430 498 (68) 430 3,360 688 2,867 (1,182) 5,733 8,475 (2,742) 5,733 2,574 16 1,062 (921) 2,731 4,586 (1,855) 2,731 331 - 260 (67) 524 591 (67) 524 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. 2018 $'000 2,606 (722) 1,884 6,400 704 4,531 (2,217) 9,418 14,150 (4,732) 9,418 2017 $'000 1,941 (226) 1,715 4,496 428 2,871 (1,395) 6,400 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 14 Intangible assets 53 Customer Relation- ships $’000 Capitalised develop- ment costs $'000 Goodwill $'000 54,913 - 54,913 54,913 - 6,339 - 61,252 61,252 - 61,252 3,223 (179) 3,044 3,044 - - (215) 2,829 3,223 (394) 2,829 80 - 80 80 354 - - 434 434 - 434 Total $'000 58,216 (179) 58,037 58,037 354 6,339 (215) 64,515 64,909 (394) 64,515 At 30 June 2017 Cost Accumulated amortization and impairment Carrying amount at 30 June 2017 At July 1 2017 Opening net book value Additions Acquisition of subsidiary Amortisation Closing net book value At 30 June 2018 Cost Accumulated amortization and impairment Net book value 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 % 2018 5.00% 2.00% 2.50% 10.60% 2018 $’000 2017 5.00% 2.00% 2.50% 11.91% 2017 $’000 Goodwill allocation at 30 June across fifteen (15) individual veterinary clinic entities 61,251 54,913 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. Growth rates The growth rates reflect the long-term average growth rates for the industry. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 Discount rates 54 The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of each unit. 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. A CGU summary of the goodwill allocation is presented below. Balance 1 July Acquisitions 30 June 2018 Feedlot Dairy and mixed $’000 12,788 - 12,788 $’000 42,125 6,339 48,464 Pig (a) $’000 - - - Total $’000 54,913 6,339 61,252 (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 2018 $'000 198 196 1,520 (9) 751 362 91 3,109 2017 $'000 233 119 1,389 (14) 1,031 543 137 3,438 All deferred tax assets (including tax losses and other tax credits) have been recognised in the statement of financial position. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 55 Tax losses $'000 721 310 - 1,031 (280) - 751 At 1 July 2016 (Charged)/credited: to P&L Recognized in business combination at 30 June 2017 (Charged)/credited: to P&L acquisition of a subsidiary At 30 June 2018 Provisions $'000 1,291 Borrowing costs $'000 (18) Trade receivables $'000 41 Listing & acquisition costs $'000 171 Equity raising costs $'000 724 Inventory $'000 30 Total $'000 2,960 8 4 169 (34) (181) 89 366 90 1,389 - (14) 68 63 1,520 5 - (9) 23 233 (35) - 198 - - - 137 543 119 113 3,438 (46) (181) 77 (392) - 91 - 362 - 63 196 3,109 16 Trade and other payables Trade payables Sundry payables and accrued expenses Other payables 2018 $'000 9,249 2,566 454 12,269 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 capitalized costs lease liability (b) less deferred interest charges Total non-current borrowings Refer to Note 39 for information on financial instruments. 2018 $'000 594 2017 $'000 776 2018 $'000 2017 $'000 3,198 (20) 815 (63) 3,930 22,260 (43) 1,171 (52) 23,336 3,630 (14) 523 (37) 4,102 20,700 (34) 994 (52) 21,608 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 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 56 2017 $’000 24,330 (48) 1,517 (89) 25,710 2018 $’000 25,458 (63) 1,986 (115) 27,266 Assets pledged as security (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. 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 3.5 times to 4.0 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 2018 $'000 45,700 3,500 1,000 300 50,500 25,396 1,870 - - 27,266 20,304 1,630 1,000 300 23,234 2017 $'000 30,700 2,000 1,000 300 34,000 24,282 1,428 - - 25,710 6,355 572 1,000 300 8,227 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 19 Employee benefit obligations Leave obligations current Leave obligations non-current Employee benefits 57 2017 $'000 3,748 672 4,420 2018 $'000 4,253 810 5,063 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 $4,253 (2017: $3,748) 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 $2,502 (2017: $3,620) of this liability to be taken or paid within the next 12 months. 20 Other current liabilities Opening Balance Contingent consideration for acquisition Reversal of contingent consideration 2018 $'000 -- 400 - 400 2017 $'000 1,250 - (1,250) - This relates to contingent consideration on businesses acquired during the year. Refer to Note 31 for further details. 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 and fully paid · beginning of the period · shares issued as consideration for business acquisitions · issued under dividend reinvestment plan · employee shares issued Shares issued and fully paid 2018 Shares 2017 Shares 2018 $'000 2017 $’000 101,177,947 98,475,574 83,066 79,070 2,683,462 2,702,373 2,041 3,996 792,434 40,000 - - 104,693,843 101,177,947 638 30 85,775 85,775 - - 83,066 83,066 Total shares authorised at the end of the period 104,693,843 101,177,947 Each share has the same right to receive dividend and the repayment of capital and represents one vote at the shareholders’ meeting of Apiam. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 22 Reserves Details of reserves are as follows: Balance at 1 July 2016 Restructure and transfer of Chris Richards entities into the Group Balance at 1 July 2017 58 Total $’000 (33,281) (26) (33,307) Corporate reorganisation reserve $’000 (26,666) (26) (26,692) Non- controlling Interest acquisition reserve $’000 (6,615) - (6,615) Balance at 30 June 2018 (26,692) (6,615) (33,307) 23 Non-controlling interests Issued capital Current year earnings Retained profits carried forward Total non-controlling interests 2018 $’000 576 8 66 650 2017 $’000 576 23 43 642 24 Earnings per share and dividends Earnings per share Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of the Parent Company as the numerator. 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 Dividends During the year, the following dividends were declared and paid. fully franked final dividend (0.8 cents a share) fully franked interim dividend (0.8 cents a share) 2018 Number 2017 Number 102,122,567 100,589,539 102,122,567 100,589,539 2018 $'000 809 818 1,627 2017 $'000 - 809 809 In addition and since the end of the financial year, Directors have declared a fully franked final dividend of 0.8c per ordinary share to be paid on 26 October 2018 (2017: 0.8c) Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 59 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 and amortisation expense · doubtful debt expense · obsolete stock provision · amortisation of borrowing expenses · share benefits expense · profit on sale of fixed assets · share of profit in equity accounted investments · gains on derecognition of contingent consideration payable Net changes in working capital: · decrease/(increase) in trade and other receivables · decrease/(increase) in inventories · decrease/(increase) in other assets · decrease/(increase) in deferred tax asset · increase/(decrease) in trade and other payables · increase/(decrease) in income tax payable · increase/(decrease) in deferred tax liability · increase/(decrease) in provisions Net cash received in operating activities 2018 $'000 2017 $'000 7,069 6,046 (359) 594 (347) 451 7,304 6,150 2018 $’000 3,286 2,432 3 258 15 70 (21) (23) - (108) 302 (101) 392 2,777 (202) (46) 183 9,217 2017 $’000 4,925 1,574 61 296 14 - - - (1,250) (168) (1,442) (53) (365) (1,230) (1,062) (54) 424 1,670 (b) Non cash financing transactions During the financial year, the Group acquired vehicles to the value $998 (2017: $1,309) via finance leases. These transactions are not reflected in the Statement of Cash Flows. 26 Employee remuneration Employee benefits expense Expenses recognised for employee benefits are analysed below: Employee benefits – expense Wages and salaries expense Bonus expense/(reversal) Share-based payment expense Superannuation expense Employee benefits expense 2018 $’000 27,907 (85) 40 2,259 30,121 2017 $’000 24,680 396 30 1,999 27,105 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 Share-based employee remuneration 60 In 2018, 40,000 shares at a fair value of $0.75 cents per share were issued to the Trustee of the Company’s Employee Share Trust, in anticipation of future allocations of Shares to participants under the Company’s Equity Incentive Plan. 27 Auditor remuneration Audit services – Grant Thornton Audit Pty Ltd Remuneration for audit or review of financial statements 193,289 196,838 2018 $ 2017 $ Other services – Grant Thornton • • other taxation services Total other services remuneration Total auditor’s remuneration 38,755 64,575 103,330 296,619 78,656 86,521 165,177 362,015 28 Related party transactions 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. 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 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 Total remuneration 2018 $ 2017 $ 1,085,665 1,052,181 13,419 12,027 1,099,084 1,064,208 5,854 5,854 78,779 78,779 7,277 7,277 81,237 81,237 1,183,717 1,152,722 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. During FY18 the warehouse facility was extended and rental payments made amounted to $310,800 (2017: $242,400). 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 $132,961 (2017: $124,116). The Group leases it artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $105,000 (2017: $69,939). Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 61 The Group leases premises at Hoskin Street, Quarry Hill, Victoria from entities associated with Chris Richards. Lease payments made amounted to $11,887 (2017: Nil). The Group leases premises at Midland Highway, Epsom, Victoria from entities associated with Chris Richards. Lease payments made amounted to $12,164 (2017: Nil). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. The group has taken up an option during FY2018 to purchase the iVet technology from iVet Pty Ltd, a company controlled by Chris Richards. The Group had previously entered into an intellectual property licence with iVet Pty Ltd to use the iVet intellectual property. The Group were to 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 was for an initial term of 10 years. Payment by the group to take up the option to purchase iVet Pty Ltd in FY2018 was the sum of $93,157 (2017: Nil). 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 Property, plant and equipment 2018 $'000 39 39 2017 $'000 115 115 The group has entered into the purchase of new vehicles after the reporting date, which haven't been delivered yet. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 62 31 Business combination On 1 November 2017 the Group acquired the business assets of Terang and Mortlake Veterinary Clinic (TMVC). On 16 March 2018, the Group acquired the business assets of Passionate Vetcare (PVC). In addition, on 1 June 2018, the Group acquired 100% of the issued share capital and voting rights of Gympie & District Veterinary Services (GDVS). 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 acquisition of these clinics enables the Company to grow its existing presence in Victoria’s Central and Western districts, as well as South East Queensland. On the acquisition of TMCV assets, 584,013 fully paid shares were issued at a fair value of $0.8219 per share. On the acquisition of PVC assets, 258,205 fully paid shares were issued at a fair value of $0.8180 per share. On the acquisition of GDVS, 1,841,244 shares were issued at a fair value of $0.7332 per share. Fair value of consideration transferred Amounts settled in cash Amount settled by issue of shares at fair value Payable to vendors Total fair value of consideration transferred Recognised amounts of identifiable net assets Property plant and equipment Deferred tax assets Financial assets Total non-current assets Cash and equivalents Inventories Trade and other receivables Other current assets Total current assets Provisions Total non-current liabilities Provisions Current tax liabilities Trade and other payables Total current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition TMVC $’000 1,145 480 - 1,625 173 47 - 220 - 134 322 - 456 92 92 65 - 178 243 341 1,284 1,145 PVC $’000 494 211 54 759 80 16 - 96 - 76 35 - 111 3 3 50 - - 50 154 605 494 GDVS $’000 3,178 1,350 400 4,928 452 - 3 455 158 129 206 3 496 209 209 - 20 244 264 478 4,450 3,020 Total $’000 4,817 2,041 454 7,312 705 63 3 771 158 339 563 3 1,063 304 304 115 20 422 557 973 6,339 4,659 Apiam Animal Health Limited Financial statements for the year ended 30 June 2017 63 Consideration transferred Acquisition-related costs amounting to $368,000 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. Identifiable net assets The fair values of the identifiable intangible assets have been determined provisionally at 30 June 2018. The Group is currently obtaining the information necessary to appropriately consider the identification and fair value of identifiable intangible assets. 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. 32 Interests in subsidiaries Composition of the Group Set out below details of the subsidiaries held directly by the Group: Name of the Subsidiary Country of incorporation and principal place of business Principal activity Chris Richards & Associates Pty Ltd Australia Veterinary services Country Vet Wholesaling Pty Ltd Farm Gate Logistics (Qld) Pty Ltd Apiam Management Pty Ltd Australia Australia Australia Wholesale supply Transport Payroll Southern Cross Feedlot Services Pty Ltd Australia Veterinary services Westvet Wholesale Pty Ltd Australia Wholesale supply Portec Veterinary Services Pty Ltd Australia Veterinary services Pork Storks Australia Pty Ltd McAuliffe Moore & Perry Pty Ltd Warrnambool Veterinary Clinic Pty Ltd Australia Australia Australia Genetics Veterinary services Veterinary services Scottsdale Veterinary Services Pty Ltd Australia Veterinary services Smithton Veterinary Service Pty Ltd Australia Veterinary services AAH - Dubbo Vet Hospital Pty Ltd Australia Veterinary services 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 Australia Veterinary services Australia Veterinary services Australia Veterinary services Australia Veterinary services Australia Australia Dormant Dormant Quirindi Feedlot Services Pty Ltd Australia Veterinary services Quirindi Veterinary Clinic Pty Ltd Australia Veterinary services Quipolly Equine Centre Pty Ltd AAH Veterinary Clinics Pty Ltd Gympie & District Veterinary Services Pty Ltd Australia Veterinary services Australia Veterinary Services Australia Veterinary Services Group proportion of ownership interests 2018 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 2017 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 64 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. Losing control over a subsidiary during the reporting period There was no loss of control over a subsidiary during the reporting period. Interests in unconsolidated structured entities The Group has no interests in unconsolidated structured entities. 33 Leases 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 2018, the net carrying amount of the motor vehicles held under finance lease arrangements (included as part of motor vehicles) is $1,884 (2017; $1,715); and the net carrying amount of the plant and equipment held under finance lease arrangements (included as part of plant and equipment) is $26 (2017: $64) (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 Non-current: finance lease liabilities 2018 $’000 752 1,119 2017 $’000 486 942 Future minimum finance lease payments at the end of each reporting period under review were as follows: 30 June 2018 Lease payments Finance charges Net present values 30 June 2017 Lease payments Finance charges Net present values Minimum lease payments due Within 1 year $’000 1-5 years After 5 years $’000 $’000 Total $’000 815 (63) 752 523 (37) 486 1,171 (52) 1,119 994 (52) 942 - - - - - 1,986 (115) 1,871 1,517 (89) 1,428 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 65 Operating leases as lessee Non-cancellable operating leases Within one year later than one year but less than five years later than five years 2018 $’000 2,255 5,582 3,385 11,222 2017 $’000 1,633 4,476 2,170 8,279 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. 34 Financial instrument risk 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 39.1. 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. 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 2018, 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% (2017: +/- 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-18 30-Jun-17 Profit for the year $’000 +1% 290 $’000 -1% (290) Equity $’000 +1% 290 $’000 -1% (290) 242 (242) 242 (242) Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 66 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 2018 $’000 2017 $’000 1,436 968 14,744 14,075 16,180 15,043 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 2018 $’000 2,440 530 1,476 4,446 2017 $’000 1,893 489 1,680 4,062 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 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 2018 67 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 2018, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 June 2018 Bank borrowings Finance lease obligations Trade and other payables Total Current Within 6 months $’000 6 - 12 months 1 - 4 years $’000 $’000 3,198 342 12,269 15,809 - 473 - 473 22,260 1,171 - 23,431 This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting periods as follows: 30 June 2017 Bank borrowings Finance lease obligations Trade and other payables Total Current Within 6 months $’000 6 - 12 months $’000 1 - 4 years $’000 3,616 248 9,015 - 20,666 238 - 942 - 12,879 238 21,608 The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. 35 Fair value measurement 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 2018 and 30 June 2017: 30 June 2018 Financial liabilities Contingent consideration Total liabilities Net fair value Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - - - 400 400 400 400 400 400 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 68 30 June 2017 Financial liabilities Contingent consideration Total liabilities Net fair value Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 - - - - - - - - - - - - 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 2017 Reversal of contingent consideration Payable business combination Balance at 30 June 2018 2018 $’000 - - 400 400 2017 $’000 1,250 (1,250) - - Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 69 36 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 gearing ratio below 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 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 2018 $'000 58,725 2017 $'000 54,357 1,436 968 60,161 58,725 27,266 55,325 54,357 25,710 85,991 80,067 70% 69% 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 2018 70 37 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 2018 $’000 2017 $’000 1,044 1,113 112,079 106,758 5,222 28,576 83,503 85,775 (2,272) 83,503 1,540 23 1,563 4,103 26,711 80,047 83,065 (3,017) 80,048 1,018 - 1,018 The Parent Entity has capital commitments of $38,589 to purchase motor vehicles (2017: $114,689). Refer Note 30 for further details of the commitment. The Parent Entity has entered into a deed of cross guarantee. Refer Note 40 for details. The Parent Entity had no contingent liabilities at 30 June 2018 (2017: $Nil). 38 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 27 August 2018. The final dividend of $837,551 will be paid on the 26 October 2018. Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 71 39 Financial assets and liabilities 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 34. The methods used to measure financial assets and liabilities reported at fair value are described in Note 35.1. The carrying amounts of financial assets and financial liabilities in each category are as follows: 30-Jun-18 Financial assets cash and cash equivalents Trade and other receivables Financial liabilities Non-current borrowings Current borrowings Trade and other payables Other current liabilities Other liabilities Current tax liabilities 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 notes 9 10 18 18 16 20 17 Note 9 10 18 18 16 17 Financial assets at amortised cost $'000 1,436 14,744 16,180 Other liabilities at amortised cost 23,336 3,930 12,269 400 220 594 40,749 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 Total $'000 1,436 14,744 16,180 23,336 3,930 12,269 400 220 594 40,749 Total $'000 968 14,075 15,043 21,608 4,102 9,015 776 35,501 Borrowings Borrowings include the following financial liabilities: Financial liabilities Carrying amount at amortised cost: • bank borrowings (Note 18) • finance lease liabilities (Note 33) All borrowings are denominated in $AUD. 2018 $’000 3,178 752 3,930 Current 2017 $’000 3,616 486 4,102 Non-current 2017 $’000 20,666 942 21,608 2018 $’000 22,217 1,119 23,336 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 72 Borrowings at amortised cost 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 3.7% (2017 3.6%). The carrying amount of the other bank borrowings is considered to be a reasonable approximation of the fair value. 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 40 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 2018 73 Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2018 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 Share of profit from equity accounted investments Profit/(loss) before income tax Income tax (expense)/benefit Profit from continuing operations Profit for the year 2018 $'000 2017 $'000 91,916 85,128 - 1,232 (208) 1,282 (44,775) (42,732) (711) (502) (28,009) (25,802) (181) (739) (2,848) (2,434) (1,592) (1,662) (1,985) (1,417) (6,552) (6,033) (929) (895) (15) (14) 23 4,134 5,412 (1,356) (972) 2,778 4,440 2,778 4,440 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 Set out below is a consolidated statement of financial position of the parties to the Deed. Statement of Financial Position As at 30 June 2018 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 Deferred tax liabilities 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 74 2017 $’000 835 14,128 11,356 737 27,056 46,958 6,000 11,620 3,339 67,917 2018 $’000 677 16,566 11,020 763 29,026 61,987 7,943 73 3,008 73,011 102,037 94,973 14,605 454 471 3,859 3,785 23,174 23,337 756 18 24,111 47,285 9,255 - 725 4,203 3,500 17,683 21,608 631 - 22,239 39,922 54,752 55,051 84,912 (26,692) (5,968) 2,500 54,752 83,004 (25,642) (6,615) 4,304 55,051 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 75 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 2018 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 2018. 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 27 August 2018 76 Collins Square, Tower 1 727 Collins Street Docklands VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 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 2018 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: giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and 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 auditor 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 www.grantthornton.com.au ‘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. 77 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 Intangible Assets – Note 14 At 30 June 2018 the carrying value of goodwill and intangible assets is $61M and $3.2M respectively, relating to three separate cash-generating units (“CGU’s”). In accordance with AASB 136 Impairment of Assets, the Group is required to assess if there are any indicators of impairment in addition to at least annually, determine 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 CGU’s. How our audit addressed the key audit matter Our procedures included, amongst others: • Reviewing the impairment model for compliance with AASB 136; • Assessing managements 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 managements future cash flow forecasts to obtain an understanding of the process by which they were developed; • Assessing management expertise in preparing the impairment model; • Testing the underlying calculations for mathematical accuracy and agreeing them to the latest Board approved budgets; • Assessing managements 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 (Grant Thornton Corporate Finance Specialist) 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; • Assessed for indicators of impairment relating to the customer relationships; 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 financial report for the year ended 30 June 2018, 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. 78 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’s ability 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 pages 25 to 30 of the Directors’ report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Apiam Animal Health Limited, for the year ended 30 June 2018, 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, 27 August 2018 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 79 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 13 August 2018 (Reporting Date). 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 (http://www.apiam.com.au/corporate-governance/) 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 (http://www.apiam.com.au/corporate-governance/). Substantial holders As at the Reporting Date, 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 Class of Equity Securities Number of Equity Securities held % of total issued securities Christopher Richards Regal Funds Management Pty Limited Australian Super Pty Ltd Ordinary Shares Ordinary Shares Ordinary Shares 27,926,077 26.67% 11,466,811 11.15% 8,876,086 8.44% Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 80 Number of holders As at the Reporting Date, 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 2018 and quoted on ASX Fully paid ordinary shares restricted until 1 November 2018 and quoted on ASX Fully paid ordinary shares restricted until 5 January 2019 and quoted on ASX Fully paid ordinary shares restricted until 19 March 2019 and quoted on ASX Fully paid ordinary shares restricted until 8 June 2019 and quoted on ASX Fully paid ordinary shares restricted until 1 November 2019 and quoted on ASX Fully paid ordinary shares restricted until 19 March 2020 and quoted on ASX Fully paid ordinary shares restricted until 8 June 2020 and quoted on ASX Number of holders 100,659,197 1,131,647 292,008 219,537 129,103 920,622 292,005 129,102 920,622 TOTAL ORDINARY SHARES ON ISSUE 104,693,843 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 Reporting Date, there were 1,202 holders of a total of 100,659,197 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 2018 81 Distribution of holders of equity securities The distribution of holders of equity securities on issue in the Company as at the Reporting Date is as follows: 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 – 999,999,999 147 326 246 383 90 81,854 941,574 2,037,438 11,303,353 86,294,978 Totals 1,192 100,659,197 Distribution of holders of escrowed shares % 0.08 0.94 2.02 11.23 85.73 100 Holders of shares restricted until 1 Sep 2018 Holders of shares restricted until 1 Nov 2018 Holders of shares restricted until 5 Jan 2019 Holders of shares restricted until 19 Mar 2019 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Totals 0 3 1 2 2 0 0 0 3 1 0 0 0 1 1 0 0 0 0 1 8 Holders of shares restricted until 8 Jun 2019 4 Holders of shares restricted until 1 Nov 2019 2 Holders of shares restricted until 19 Mar 2020 1 Holders of shares restricted until 8 Jun 2020 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Totals 0 0 0 0 3 3 0 0 0 3 1 4 0 0 0 0 1 1 0 0 0 0 3 3 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 Reporting Date is as follows: Total Shares UMP Shares UMP Holders % of issued shares held by UMP holders 100,659,197 47,021 112 0.04671 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 82 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 Reporting Date % CJOEA FAMILY COMPANY PTY LTD 27,388,621 27.21 J P MORGAN NOMINEES AUSTRALIA LIMITED 8,679,125 8.62 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED 8,067,081 8.01 COBASH PTY LIMITED 3,872,006 3.85 UBS NOMINEES PTY LTD 2,802,569 2.78 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2,174,818 2.16 FOUR POST INVESTMENTS PTY LTD MR NEIL LEIGHTON & MRS HELEN LEIGHTON MR ROGER CHARLES CARMODY & MRS MARIS MOORE CARMODY MRS KATE JUDITH MALIN SONJASWRIGHT PTY LIMITED MR KEVIN FRANCIS SULLIVAN & MRS JANE MAREE SULLIVAN TOCAMAC PTY LTD CINDY JANE PTY LTD 1,386,700 1.38 1,354,131 1.35 1,333,650 1.32 1,224,700 1.22 1,211,846 1.20 1,010,000 1.00 986,700 0.98 947,746 0.94 MR COLEEN STEWART 872,568 0.87 BNP PARIBAS NOMS PTY LTD K F J SULLIVAN PTY LIMITED MR CRAIG JAMES DWYER CHARLIEWILL PTY LTD YARRABROOK PTY LTD Total number of shares of Top 20 Holders Total Remaining Holders Balance 862,425 0.86 845,000 0.84 844,321 0.84 830,003 0.82 734,753 0.73 67,428,763 64.41 37,265,080 35.59 Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 83 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 1,131,647 1 September 2018 Ordinary shares Voluntary escrow 292,008 1 November 2018 Ordinary shares Voluntary escrow 219,537 5 January 2019 Ordinary shares Voluntary escrow 129,103 19 March 2019 Ordinary shares Voluntary escrow 920,622 8 June 2019 Ordinary shares Voluntary escrow 292,005 1 November 2019 Ordinary shares Voluntary escrow 129,102 19 March 2020 Ordinary shares Voluntary escrow 920,622 8 June 2020 Unquoted equity securities The Company has no unquoted equity securities on issue Apiam Animal Health Limited Financial statements for the year ended 30 June 2018 84 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. Local knowledge. Global knowhow. 

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