Apiam Animal Health Limited
Annual Report 2020

Plain-text annual report

Apiam Animal Health Limited Appendix 4E 1 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 2020 Previous period: For the year ended 30 June 2019 Apiam Animal Health Limited Appendix 4E 2 RESULTS FOR ANNOUNCEMENT TO THE MARKET Statutory Results Summary CHANGES FROM PERIOD ENDED 30 JUNE % 6 32 32 to to to up up up 2020 2019 $m $m 118.4 from 111.7 4.2 from 4.2 From 3.2 3.2 Revenue from ordinary activities Net profit attributable to members Profit from ordinary activities after tax attributable to members Underlying EBIT (Incl. non-controlling interests) Up 23 to 8.4 From 6.8 Underlying EBIT (Earnings Before Interest and Tax) is considered by Management to be a useful indicator of business profitability and excludes one-off corporate costs as well as integration 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 2020 Interim Dividend Amount per security cents Franked amount per security Cents 0.8 cents 0.8 cents 2020 Final Dividend (declared after balance date but not yet paid) 1.2 cents 1.2 cents Record date for determining entitlements to the dividend: 18 September 2020 Date dividend payable: 23 October 2020 Apiam Animal Health Limited Appendix 4E 3 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 28 September 2020. Shareholders who elect to participate in the DRP for the 2020 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 2020 and 2 October 2020 (‘Pricing Period’). The timetable in respect of the 2020 final dividend and DRP is as follows: Event / Action Record Date Date* 18 September 2020 Election Date: Last date for shareholders to make an election to participate in the DRP 5.00 pm (Melbourne time) on 28 September 2020 Pricing Period Commencement Date 28 September 2020 Last Day of Pricing Period Announcement of DRP issue price Dividend Payment Date / Issue of DRP shares *All dates are subject to change 2 October 2020 5 October 2020 23 October 2020 Details of the DRP can be downloaded from www.apiam.com.au. In order to participate in the DRP for the 2020 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 28 September 2020. 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 2020 -$0.14 2019 -$0.04 Dividends of $1,776,972 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. Apiam Animal Health Limited Appendix 4E 4 Entities over which control has been gained or lost during the period: Refer to Note 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 3 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 2020 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. 2020 Apiam Animal Health ANNUAL REPORT Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 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 1 2 4 8 20 29 31 32 33 34 35 73 74 77 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 2 Chairman’s Message Dear shareholder, The 2020 financial year has been a challenging period for much of Australia, having faced drought, bushfires and more recently the wide-spread impacts of the global COVID-19 pandemic. In the face of these strong headwinds, Apiam’s business model and strategy has proven to be resilient and consequently we have reported a strong trading performance for the 12-months to 30 June 2020 (FY20). Apiam’s revenue in FY20 increased 6.0% to $118.4 million (FY19: $111.7 million) underpinned by Apiam’s diversified customer segments, broad product and service offering as well as new business initiatives and acquisitions over the period. It was particularly pleasing to see our ProDairy consultancy program, the exclusive distribution agreement with Zoono Animal Health and the launch of the Best Mates companion animal program, all new business initiatives developed and implemented by management during FY20, driving new revenue streams and enhanced earnings opportunities. Apiam’s statutory Net Profit After Tax was $4.2 million in FY20 up 31.8% on FY19, a result that is testament to our long-term strategic plan of targeted acquisitions as well as investment in our business infrastructure and technology to generate cost efficiencies. This year we have seen the benefits of this strategy on many levels including efficiencies at the clinic-level as well as cost savings at the corporate level. In FY20 we also completed the strategic acquisitions of ACE Laboratory Services, Grampians Animal Health and Devoted Vets in Warragul. Each of these businesses featured a compelling rationale – either the addition of a specialist service offering that was attractive to our customer base, or a new high-growth regional exposure. All the acquisitions made during the past year have performed extremely well and are making a strong financial contribution to our business. Looking ahead, we expect that COVID-19 will be an on-going challenge for many individuals, communities and companies. I reassure shareholders that Apiam’s business model, as a provider of essential animal health services in regional and rural areas, is robust and very well placed, even during these difficult times. For veterinarians, hygiene and safety have always been at the forefront of what we do. Our safety protocols are well established and our teams are experienced Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 3 in managing risks presented by infectious agents. Importantly, the fundamentals of our business remain unchanged. Our scale and geographically dispersed business model across rural Australia provides Apiam with the capacity to remain resilient in the face of changing conditions. We enter FY21 with confidence, ready to address the needs of our customers, respond to challenges and pursue growth. We will continue to execute our business strategy and deliver first- class services and quality products to our clients. Our investment in our business infrastructure is expected to further leverage our performance and deliver greater efficiencies. Apiam has a solid balance sheet supported by stable cash flows. In consideration of this, and in line with our improved earnings performance during FY20, the Board have declared a 1.2 cents per share final dividend. This brings the full year dividend to 2 cents per share an increase from 1.6 cents per share in FY19. As a Company we feel strongly about working with our regional communities and supporting them through their recovery from the challenges they have faced over the past year. To assist with this Apiam donated $135,000 to our Fur Life Charitable Foundation. This, together with other donations raised by the Foundation has all been donated to Rural Aid who have a specialised counselling program to support rural communities as well as to three regional wildlife organisations working to improve native animal wellbeing in those areas most affected by bushfires. To close, I especially thank the entire Apiam staff who, without exception, faced these extraordinary times with a degree of professionalism, dedication, flexibility and teamwork that made me, and my fellow Board members, proud to be a part of the Apiam team. I also thank Apiam’s shareholders for their continued support and commitment to our business strategy. I look forward to updating shareholders of our continued progress in the coming year. Yours sincerely, Professor Andrew Vizard Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 4 Managing Director’s Message Dear Shareholder, Despite the many challenges faced by regional communities, businesses and the broader economy in the 12-months to 30 June 2020 (FY20), Apiam has delivered a strong period of growth, particularly in the second half of the year. Our business model has proved robust and stable in the face of COVID-19 and our strategy to make acquisitions and grow our portfolio of products and services has provided additional opportunities. Strengthening financial results In FY20, Apiam’s revenue grew 6.0% to $118.4 million (FY19: $111.7 million) underpinned by Apiam’s diversified customer segments. Apiam’s dairy and companion animal segment revenues performed strongly, particularly as underlying industry conditions in many regional dairy areas recovered in the second half due to higher rainfall. The revenues from our beef feedlot segment performed well but came off the back of a record FY19 performance, while revenues from pigs were impacted mainly by the reduction of low margin wholesale sales. New initiatives introduced at the beginning of FY20 also made a strong contribution to revenue growth including our Best Mates companion animal program, the ProDairy consultancy program and our exclusive agreement to distribute Zoono Group’s specialised disinfectant products. These initiatives are described further below. Our business strategy to execute strategic acquisitions, target higher-value products and services and to roll-out our Practice Management System across FY19 and H1 FY20 to generate efficiencies at the clinic-level, has delivered a strong improvement in gross margins to 54.1% in FY20 (up from 50.3% in FY19). Operating costs have also continued to be a key management focus and the investment we have made in our company infrastructure is delivering increasing cost efficiencies, in turn increasing our bottom-line. I am pleased to report we have delivered 23.3% growth in our underlying Earnings Before Interest & Tax (before non-recurring costs) and 31.8% growth in statutory Net Profit After Tax. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 5 Expansion of products & services delivering growth Apiam remains committed to its long-term strategic plan consisting of three core pillars – enhancing operations process & capacity, increasing our animals under management and expanding our product and service range. In FY20, Apiam has significantly progressed its product and service expansion strategy, offering new and specialised services to enhance animal health and wellbeing. We launched our Best Mates companion animal program in July 2019 and have worked on expanding this across our clinic footprint throughout FY20. This is a whole of life health and wellness program with an annual subscription charge, offering total care for pets. Since launching Best Mates, member growth has been very strong, with members growing from 501 as at the end of FY19 to 3,155 as at the end of FY20. Growth on a quarterly basis was particularly strong in Q3 & Q4, reflective of increased pet ownership during COVID-19 restrictions. Approximately 4.5% of Apiam’s active patients were Best Mates members as at the end of FY20, leaving a strong opportunity for continued growth in FY21. ProDairy is another new initiative we launched in early FY20. This is also an innovative service model offering dairy farmers an end-to-end service that extends across areas such as staff training, direct ordering capability and risk management & planning. A full marketing program to support growth of this program was launched in April 2020 and Apiam has had significant success in Victoria to date, with an estimated 10% of Victoria’s dairy cows subscribed to the program. Further growth in other operating regions is expected in the coming year. In November 2019, Apiam executed an agreement with Zoono Animal Health to distribute the Zoono Group (ASX:ZNO) proprietary sanitiser and protectant technology for use in livestock facilities in Australia, and to US-based swine customers. Since this time, Apiam has experienced strong growth in customer demand particularly following its listing on the Australian Register of Therapeutic Goods as an effective disinfectant for hard surfaces against COVID-19. It has also proved effective against other bacteria and viruses. Apiam expects to see strong sales momentum continue for Zoono’s products within livestock sectors as a growing awareness and requirement for hygiene is expected to be a long-term customer trend. Acquisitions with compelling rationale Apiam executed three acquisitions during FY20. ACE Laboratory Services (ACE) was acquired in October 2019 and was the largest of Apiam’s acquisitions in FY20 with initial consideration of $12.4 million. ACE is a highly specialised business with a custom vaccine and diagnostic laboratory service offering. Its main customers are large production animal producers. The acquisition is highly complementary to Apiam’s business and we have identified its core markets as attractive and high growth opportunities as farming trends evolve, especially with demand for alternatives to antimicrobials growing rapidly. Since acquisition, ACE has performed strongly and Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 6 we have identified many new customer opportunities across our client base for its specialised service offering. Grampians Animal Health and Devoted Vets in Warragul were smaller acquisitions that expanded Apiam’s regional footprint into areas identified as strategic. Grampians Animal Health is headquartered in Hamilton, one of Australia’s largest and most productive sheep farming regions and consists of a large regional mixed animal veterinary clinic and a production animal consultancy business. Both the Grampians Animal Health and Devoted Vets acquisitions have both performed in-line with expectations and have delivered immediate growth opportunities as a result of operating within Apiam’s corporate network. Supporting our customers & communities The extreme weather events of the past 12-months, and the COVID-19 pandemic has meant our regional customers and communities have endured challenging conditions. This year, Apiam has been particularly focussed on how to best support our customers and communities as well as optimising our Fur Life Foundation. This year Apiam’s Fur Life Foundation has contributed $150,000 directly back into local communities via sponsorship of regional wildlife charities and Rural Aid who has a specialised counselling program to support rural communities. During the year we also launched our own in-house Mental Health Strategy initiative as part of our ongoing commitment to the wellbeing of our employees. This strategy was also made available to a number of our regional customers and our Customer Assistance Program has been used to date by clients across the dairy, feedlot and pig industries. Outlook While the 2021 financial year brings with it uncertainty associated with COVID-19, Apiam is well positioned to pursue its strategic framework and deliver further growth. We will continue to grow our product and service offering as well as work with our customers and their communities to ensure optimal animal health, wellbeing and safety. Apiam’s diversified business and customer segments ensure business resilience and our ability to continue to leverage our back-end systems and infrastructure is expected to continue our earnings growth trajectory. Our strong balance sheet, manageable debt levels and stable operating cash flows also ensure we are well positioned to navigate the year ahead. I conclude by thanking our shareholders for your continuing support. I also thank my Board colleagues and dedicated employees for your ongoing commitment and hard work to move our company into its next stage of growth. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 7 Yours Sincerely, Dr Chris Richards Managing Director Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 8 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 2020. 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 Professor Jan Tennent Non-Executive Director Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 9 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 four 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 221,695 shares 30,000,000 shares 248,144 performance rights Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 10 Mr Michael van Blommestein Mr Richard John Dennis Independent Non-Executive Director Independent Non-Executive Director GAICD BComm, LLB, CA, MAICD Michael was a Vice President and Country Manager of Australia and New Zealand for Zoetis and managed the spin-off of Zoetis from Pfizer Australia. An experienced director in the animal health sector, Michael presided over Animal Medicines Australia, the peak industry body for five years and was a member of the board for nearly a decade. Michael played an integral role in leading and overseeing the transition of Animal Health Alliance into Animal Medicines Australia and has also served on the board of Animal Health Association Japan. Michael also acts as a consultant to IRP Health, a company focused on alternate solutions to antibiotic usage in production, companion animal and humans. Rick held a number of senior roles for 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 overseeing financial and operational 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 HLB Chessboard, and an external member of the Audit & Risk Committee of Racing Queensland. He is also a non- executive director of Open Minds and ASX- listed Motorcycle Holdings Limited. the Interests in Shares and Options Interests in Shares and Options 104,737 shares 21,647 shares Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 11 Professor Jan Tennent Independent Non-Executive Director PhD, BSc (Hons), GCertMgt, FTSE, FASM, GAICD Jan is a Fellow of the Australian Academy of Technology and Engineering and the Australian Society for Microbiology, a Principal Fellow at the University of Melbourne and a Collaborative Professor at the University of Osaka (2017- 2020). She is an internationally recognised researcher with specialist knowledge of antimicrobial resistance mechanisms and the discovery and commercialisation of vaccines. Jan has held senior roles at CSIRO, CSL, and Pfizer Animal Health where she was the Director of Business Development and Global Alliances in the APAC region. For the past eight years, Jan has been the CEO of Bio 21 Australia / Biomedical Research Victoria. She is also a non-executive director of AusBiotech Limited and the eviDent Foundation Limited, and the founder of ConnectBio consultancy. Interests in Shares and Options 36,231 shares Company Secretary Todd Richards Todd (BBus, Accounting) is a Certified Practicing Accountant (FCPA) and Company Secretary. His background includes experience in completing IPOs, M&A transactions and capital raising for ASX listed companies. He is Company Secretary for a number of listed and private companies and his corporate secretarial experience in the listed space includes roles in fin-tech, digital media, agri-business, e-commerce and building services. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 12 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 Andrew Vizard Chris Richards Michael van Blommestein Richard Dennis Jan Tennent A 11 11 11 11 11 B 11 11 11 11 11 A 4 B 4 A 3 B 3 N/A N/A N/A N/A N/A N/A 3 3 4 4 4 4 N/A N/A 3 3 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 Jan Tennent Members of the Remuneration & Nomination Committee during the period were: Michael van Blommestein (Chair) Andrew Vizard Jan Tennent Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 13 PRINCIPAL ACTIVITIES REVIEW OF OPERATIONS Apiam has produced a solid result for the 12-months to 30 June 2020 (FY20) reporting revenue growth and significant earnings improvement. Revenue for FY20 increased 6.0% to $118.4 million, up from $111.7 million in FY19 (the prior corresponding period - pcp), despite industry and wider economic COVID-19 challenges across the period. This was underpinned by Apiam’s diversified business model, exposure to a wide range of animal segments and the acquisitions made over the period. In particular, Apiam’s dairy and mixed animal segment revenues grew strongly compared to pcp, as greater rainfall significantly improved conditions for customers across the second half of FY20 and the majority of Apiam’s companion animal clinics delivered double-digit revenue growth. Beef feedlot revenues maintained a solid performance, albeit off a record performance in FY19. Revenues from the pig segment continued to be affected by industry specific challenges. Like-for-like revenue, excluding the impact of acquisitions made during the year, fell 5.1% in FY20 reflecting the impact of drought in the first half of FY20 and the reduction in low margin wholesale sales in the pig segment. As part of Apiam’s on-going strategy to diversify the business and address these industry challenges, the Company introduced a number of new business initiatives in FY20. Apiam launched the specialised ProDairy consultancy program and the Best Mates companion animal programs early in the period. In November 2019, Apiam also entered into an exclusive agreement with Zoono Animal Health to distribute the Zoono Group’s (ASX: ZNO) proprietary protection disinfectant technology for use in livestock in Australia and to US-based swine customers. In FY20, Apiam made three strategic business acquisitions – ACE Laboratory Services, Grampians Animal Health and Devoted Vets in Warragul, and these made an important financial contribution to the business over the period. Apiam also continued to generate operating efficiencies in many areas. Apiam reported gross profit of $64.0 million in FY20, an increase of 13.8% on the pcp and a gross margin of 54.1% (FY19: 50.3%). These strong improvements reflect the benefits at the clinic level of Apiam’s investment in the roll-out of its comprehensive Practice Management System to all locations, enabling consistent pricing and management of revenues and costs across clinics. Underlying EBIT in FY20 (excluding one-off corporate, acquisition and integration expenses) was $8.4 million, compared to $6.8 million in FY19, up 23.3%, a reflection of strict operating cost control and targeted expenditure. Reported NPAT for the year was $4.2 million (FY19: $3.2 million), up 31.8% on pcp. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 14 The following tables are presented to assist in the interpretation of the underlying performance of Apiam during FY20. This information is additional and provided using non-IFRS information and terminology. Apiam FY20 Financial Result Summary – Underlying Total Revenue Gross Profit Operating expenses Underlying EBITDA 1 Amortisation ROU assets 2 Depreciation & amortisation Underlying EBIT 1 Underlying NPAT 1 FY20 FY19 Variance % 118.4 64.0 (49.6) 14.4 (2.4) (3.6) 8.4 4.9 111.7 56.2 (46.2) 10.0 0.0 (3.2) 6.8 4.0 6.7 7.8 (3.4) 4.4 (2.4) (0.4) 1.6 0.9 6.0% 13.8% 7.3% 43.4% - 11.3% 23.3% 23.0% One-off expenses Notes: 1. Underlying earnings exclude one-off corporate, acquisition and integration expenses (tax effected where applicable at (1.1) (1.2) 2. NPAT level) The current period (FY20) has been impacted by the first time adoption of the new accounting standard AASB 16 Leases but the comparative (FY2019) has not been adjusted. Apiam FY20 Financial Result Summary – Reported Total revenue Gross profit Operating expenses One-off expenses EBITDA Amortisation ROU assets 1 Depreciation & amortisation EBIT Interest Tax Other (including minorities) 2 NPAT attributable to members Gross margin EBIT margin Notes: 1. FY20 118.4 64.0 (49.6) (1.1) 13.3 (2.4) (3.6) 7.4 (1.4) (1.8) (0.1) 4.2 54.1% 6.2% FY19 Variance % 6.7 7.8 (3.4) 0.1 4.5 (2.4) (0.4) 1.7 (0.2) (0.4) (0.1) 1.0 6.0% 13.8% 7.3% (9.0)% 50.2% - 11.3% 29.8% 20.1% 25.0% - 31.8% 111.7 56.2 (46.2) (1.2) 8.9 0.0 (3.2) 5.7 (1.1) (1.4) 0.0 3.2 50.3% 5.1% The current period (FY20) has been impacted by the first time adoption of the new accounting standard AASB 16 Leases but the comparative (FY2019) has not been adjusted Includes a range of partner business activities incl. Sth West Equine JV, Apiam Solutions, PETstock Joint Venture, Portec etc 2. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 15 Apiam’s financials in FY20 have been affected by the first-time adoption of AASB 16 Leases on 1 July 2019. Prior period comparatives in FY19 have not been adjusted. A summary analysis of Apiam’s key profit metrics pre & post AASB 16 Leases adoption in FY20 is set out below. Apiam FY20 Financial Result Underlying - Pre & Post AASB16 $m 1 Total revenue Post AASB 16 in FY20 EBITDA EBIT NPAT FY2020A 118.4 FY2019A (not AASB 16 adjusted) 111.7 Variance 6.7 % 6.0% 14.4 8.4 4.9 10.0 6.8 4.0 4.4 1.6 0.9 43.4% 23.3% 23.0% Pre AASB 16 in FY20 EBITDA EBIT NPAT Notes: 1 All figures presented on an underlying basis to exclude one-off corporate, acquisition and integration expenses (tax effected where applicable at the NPAT level) 11.9 8.3 5.0 10.0 6.8 4.0 1.8 1.5 1.1 18.4% 21.7% 26.9% Acquisitions As part of Apiam’s strategic acquisition program, the Company completed three important acquisitions in FY20 – ACE Laboratory Services (ACE), Grampians Animal Health and Devoted Vets in Warragul. ACE was acquired in October 2019 and is a market leading, highly specialised autogenous (custom) vaccine and diagnostic laboratory service provider to large production animal producers. The acquisition is highly complementary to Apiam’s business. The diagnostic laboratory services are a natural fit with traditional animal veterinary services and offers Apiam an attractive product and service extension that can be leveraged across the Company’s large production animal footprint. Additionally, the business’ performance and innovative track record is world class. The consideration for ACE was $16 million, of which initial consideration comprised $12.375 million and deferred consideration is payable in 12-months from the date of acquisition subject to performance ($3.625 million). Apiam also acquired Grampians Animal Health in December 2019. This business comprises a large, regional mixed animal veterinary practice and a production animal consultancy business. Grampians Animal Health is located in the Western District of Victoria which is one of Australia’s largest and most productive sheep farming regions. This is another highly complementary acquisition and the business not only enables Apiam to leverage its asset base and infrastructure in this region but offers a range of skills and expertise that enhance Apiam’s offering and add to its existing skill base. The acquisition is a fundamental pillar of the Company’s regional expansion Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 16 strategy and will take the South West Victorian operation to seven clinics. The consideration for Grampians Animal Health was $4.65 million, including deferred consideration of $0.3 million. Devoted Vets is a small regional veterinary clinic acquisition in Warragul, Victoria, operating in an attractive and strategic regional location. Business development initiatives During the year, as part of Apiam’s on-going strategy to deliver new revenue streams the Company implemented a number of business initiatives designed with attractive margin and growth opportunities. The Best Mates companion animal program was launched in July 2019 and has been rolled out across the whole clinic footprint in FY20. This is a whole of life health and wellness program for companion animals with a recurring revenue opportunity as it is based on a subscription service model. Since launching Best Mates, member growth has been very strong, with members growing from 501 as at the end of FY19 to 3,155 as at the end of FY20. ProDairy is also based on a subscription model offering dairy farmers an end-to-end dairy consulting and supply service. This already has strong penetration in the Victorian market with further growth in other operating regions expected, A further product extension executed during the year was Apiam’s exclusive agreement to distribute Zoono Group’s proprietary sanitiser and protectant technology for use in livestock facilities in the markets of Australia and to US-based swine customers. Apiam has experienced strong demand for this product, particularly following its listing on the Australian Register of Therapeutic Goods as an effective disinfectant for hard surfaces against COVID-19. It has also proved effective against other bacteria and viruses including influenza. Balance sheet Apiam’s balance sheet remains solid, with manageable debt levels serviced by stable cash flows. As at 30 June 2020, Apiam’s net borrowings increased to $34.5 million up from $24.9 million as at prior financial year end. This movement mostly reflects the $13.4 million cash component of the three acquisitions made during FY20. Apiam also made a strategic increase in inventory in FY20 as it executed the full market launch of its private label product range and began the exclusive distribution of Zoono products. Cash flow Apiam reported operating cashflow in FY20 of $7.5 million, however this excludes $2.3 million of lease payments now classified as financing cash outflow following the first time adoption of AASB16 Leases in FY20. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 17 Apiam’s investing and financing cash flows in FY20 reflect the impact of the three acquisitions made in FY20, and the 70% - 80% debt financing utilised. $M Net cash provided by operating activities Acquisition of subsidiary, net of cash Purchases of property, plant and equipment Purchases of Intangible assets Net cash used in investing activities Net changes in financing Dividends paid to shareholders Repayment of lease liabilities Other Net cash inflow from financing activities Net change in cash and cash equivalents Dividend FY20A 7.5 (13.1) (1.5) (0.4) (15.0) 12.4 (1.2) (3.2) 0.1 8.1 0.6 FY19A 4.9 (0.3) (2.1) (0.7) (3.1) 0.2 (1.0) - (0.6) (1.4) 0.4 Apiam’s Board of Directors have declared a fully franked dividend of 1.2 cents per share (cps), supported by the Company’s solid balance sheet and growth in earnings over FY20. This brings total dividends paid in respect of FY20 to 2.0 cps, implying a 56% payout ratio of NPAT. The final dividend will be paid on 23 October 2020 and Apiam’s Dividend Reinvestment Plan will be maintained. Outlook Apiam is well placed to deliver revenue and earnings growth in FY21, despite the current challenges posed by COVID-19. The product and service offering extension that has been the focus of the Company’s FY20 strategy will continue to accelerate new revenue streams, and further operating leverage is expected to enhance earnings margins. DIVIDENDS An interim dividend of $927,624.56 is 0.8 cps and was paid in April 2020. The Apiam Board of Directors have declared the Company’s final dividend of 1.2c per share fully franked on the 20 August 2020. The final dividend of $1,399,166 will be paid on the 23 October 2020. 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. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 18 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. 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 accounts for more than 10% of Apiam Animal Health’s FY20 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. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 19 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 did not issue ordinary shares as a result of the exercise of options. DEEDS OF ACCESS, INDEMNITY AND INSURANCE FOR DIRECTORS AND OFFICERS Access The Company has entered into deeds of access, indemnity and insurance with each Director which contain rights of access to certain books and records of the Company. Indemnification Under the constitution of the Company, the Company is required to indemnify all Directors and officers, past and present, against all liabilities allowed under law. Under the deed of access, indemnity and insurance, the Company indemnifies parties against all liabilities to another person that may arise from their position as an officer of the Company or its subsidiaries to the extent permitted by law. The deed stipulates that the Company will meet the full amount of any such liabilities, including reasonable legal costs and expenses. 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 2020 20 Remuneration Report REMUNERATION REPORT (AUDITED) This remuneration report outlines the director and executive remuneration arrangements of the Company and the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel (KMP) of the Group are defined as those persons having authority and responsibility for planning, directing, and controlling major activities of the Company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the parent. For the purposes of this report, the term “executive” encompasses the senior executives and general managers of the Group. Details of Key Management Personnel (I) DIRECTORS Andrew Vizard Chairman (Independent Non-executive) Chris Richards Managing Director (Executive) Michael van Blommestein Director (Independent Non-executive) Richard Dennis Director (Independent Non-executive) Jan Tennent Director (Independent Non-executive) (II) EXECUTIVES Matthew White Chief Financial Officer Brian Scutt Chief Operating Officer The Remuneration Report is set out under the following main headings: Principles used to determine the nature and amount of remuneration; Details of remuneration; Service agreements; Share-based remuneration; Bonuses included in remuneration; Non-executive director remuneration; and Other information. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 21 a Principles used to determine the nature and amount of remuneration The principles of the Group’s executive strategy and supporting incentive programs and frameworks are: • • • to align rewards to business outcomes that deliver value to shareholders; to drive a high performance culture by setting challenging objectives and rewarding high performing individuals; and to ensure remuneration is competitive in the relevant employment market place to support the attraction, motivation and retention of executive talent. The Group has structured a remuneration 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 FY20 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; • • Long term incentives; and • short term incentives, being bonuses. 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. The company’s key financial metrics are as follows: Item 2020 2019 2018 2017 2016 EPS (cents) 3.69c 3.01c 3.21c 5.00c 0.08c Dividends (cents per share) Net profit before tax ($’000) Share price ($) 1.6c 1.6c 1.6c 0.8c - $6,065 $4,569 $4,831 $6,315 $1,068 $0.46 $0.52 $0.75 $0.70 $1.49 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 22 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: Short term employee benefits Salary and fees (i) $ Cash bonus $ Non-monetary benefits $ Post-employment benefits Superannuation $ Long-term benefits Long service leave (ii) $ Share-based Payment Performance Rights (iii) $ Directors Andrew Vizard Chairman Independent Richard Dennis Independent Chris Richards Managing Director Michael van Blommestein Independent Charles Sitch Independent Jan Tennent Independent Employees Matthew White Chief Financial Officer Brian Scutt Chief Operating Officer 2020 Total 2019 Total Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 120,000 120,000 70,000 70,000 354,740 350,072 54,795 54,795 - 22,416 60,000 55,000 228,000 225,000 61,923 - 949,458 897,283 - - - - - - - - - - - - - - - - - - - - - - 8,307 13,674 - - - - - - - - - - 8,307 13,674 - - - - 21,003 20,531 5,205 5,205 - 2,129 - - 21,003 20,532 5,251 - 52,462 48,397 - - - - 7,888 5,208 - - - - - - 4,040 1,293 1,032 - 12,960 6,501 Total $ 120,000 120,000 70,000 70,000 401,389 389,485 60,000 60,000 - 24,545 60,000 55,000 255,841 246,825 68,206 - - - - - 9,451 - - - - - - - 2,798 - - - 12,249 1,035,436 - 965,855 Performance based percentage of remuneration % 0% 0% 0% 0% 2% 0% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% 0% (i) (ii) (iii) Salary and fees include salaries and allowances. Long term benefits include long service leave entitlement accruals. Share based payment performance rights are long term incentive performance plans which will lapse if they are not vested within three years of grant date. The performance rights will vest annually over three years upon the Company achieving a minimum of 12% share price growth per year. The amount recognised for the Managing Director and Chief Financial Officer was $9,451 and $2,798 respectively and is the proportion expensed to that year based on the Monte Carlo valuation model. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 23 The relative proportions of remuneration that are linked to performance and those that are fixed are as follows: Name Executive Directors Chris Richards Other Key Management Personnel Matthew White Brian Scutt 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: Base salary $354,740 $228,000 $230,000 Term of agreement 5 years from listing No fixed term No fixed term Notice period Twelve (12) months Six (6) months Three (3) months Name Chris Richards Matthew White Brian Scutt Bonus provisions Chris Richards: Matthew White: Brian Scutt: Nil Nil Nil Bonuses included in remuneration d There were no short-term incentive cash bonuses awarded or made available as remuneration to each key management personnel during the financial year. Long Term Incentive Plan e Remuneration of key management personnel includes performance rights which are offered as part of a long term incentive plan. The performance period for the plan runs for a three year period from 1 July 2019 to 30 June 2022. The performance measures are assessed annually and are based on the share price growth of the company and subject to continued employment. The annual share price growth requirement is set out below for each financial year during the performance period. Share Price Growth Less than 12% Above 12% but less than 31% % of Performance Rights that may vest Nil – Tranche lapses and Performance Rights cancelled Between 50% and 100%, as determined on a pro-rata, straight line basis At or above 31% 100% allocation of Tranche Share Price Growth shall be measured by comparing the Baseline Share Price against the Closing Share Price in each year of the Performance Period. The baseline share price will be calculated by assessing the volume weighted average price (VWAP) of shares for the 30 calendar days following the lodgement of the annual report in the prior financial year. The closing share price shall be calculated by assessing the VWAP of shares for the 30 calendar days following the lodgement of the annual report for the current financial year of the performance period. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 24 The performance rights are allocated equally over a three-year period. The performance rights for each financial year during the performance period will vest subject to meeting the share price growth rate and remaining in continuous employment through to the annual vesting date of 31 October. Tranche A – one third of the rights in the FY2020 year Tranche B – one third of the rights in the FY2021 year Tranche C – one third of the rights in the FY2022 year Details of the number of performance rights granted are as follows: Name Performance Grant Date Tranche A – Tranche B – Tranche C – Rights granted FY2020 FY2021 FY2022 Chris Richards Matthew White Brian Scutt 248,144 106,326 - 28/11/19 82,714 19/3/20 35,442 - - 82,715 35,442 - 82,715 35,442 - Each tranche of performance rights which have not vested will expire if the applicable performance measures are not met during the performance period. The company has chosen share price growth as the performance measure as it believes the fundamental driver for executive remuneration should be long term financial performance that generates value for Apiam shareholders. Non-Executive Director remuneration f Clause 13.1(a) of the Company’s Constitution (Constitution) provides the limit for the aggregated remuneration of non-executive directors which is currently set at $750,000. The Directors of the Company are entitled to apportion and distribute this aggregate Non-Executive Directors’ remuneration as they determine. The Non-Executive Directors of the Company receive 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. g Other information Options held by key management personnel There were no options to acquire shares in the Company held during the 2020 reporting period of key management personnel of the Group, including their related parties. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 25 Shares held by key management personnel: The number of ordinary shares held in the Company at 30 June 2020 held by each of the Groups key management personnel, including their related parties, is set out below. Personnel Balance at 1/07/2019 Granted as remuneration Received on exercise Chris Richards 28,951,805 Andrew Vizard Richard Dennis Michael van Blommestein Jan Tennent Matthew White Brian Scutt 214,153 20,912 101,174 35,000 117,776 - Total 29,440,820 - - - - - - - - - - - - - - - - Other changes 1,048,195 7,542 735 3,563 1,231 2,959 Held as at 30/06/2020 30,000,000 221,695 21,647 104,737 36,231 120,735 - - 1,064,225 30,505,045 None of the shares included in the table above are held nominally by key management personnel Performance rights held by key management personnel: The number of performance rights held at 30 June 2020 by each of the Group’s key management personnel, including their related parties, is set out below. Personnel Chris Richards Matthew White Brian Scutt Total Balance at 1/07/2019 Granted as remuneration Vested/ exercised Forfeited/ lapsed during year - - - - 248,144 106,326 - 354,470 - - - - - - - - Held as at 30/06/2020 248,144 106,326 - 354,470 Loans to key management personnel The Group did not enter into any loans with key management personnel during the 2020 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. Rental payments in FY20 amounted to $333,600 (2019: $333,600). 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 $125,232 (2019: $125,232). The Group leases an artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $105,000 (2019: $105,000). The Group leases premises at Midland Highway, Lethbridge, Victoria from entities associated with Chris Richards. Lease payments made amounted to $2,018 (2019: $16,818). Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 26 The Group leases premises at Hoskin Street, Quarry Hill, Victoria from entities associated with Chris Richards. Lease payments made amounted to $- (2019: $15,002). The Group leases premises at Midland Highway, Epsom, Victoria from entities associated with Chris Richards. Lease payments made amounted to $7,753 (2019: $18,652). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. End of audited Remuneration Report. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 27 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. 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 28 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 28 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 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 28 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 24 August 2020 29 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 Correspondence to: GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 F +61 3 9320 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 2020, 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 C S Gangemi Partner – Audit & Assurance Melbourne, 24 August 2020 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 2020 30 Apiam Animal Health Limited Financial Statements For the year ended 30 June 2020 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2020 31 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Revenue Other income Expenses Changes in inventory Cost of materials Costs of consumables and services Employee benefit expenses Acquisition expenses Property expenses Freight, vehicle and transport expenses Depreciation and amortisation expense Depreciation of biological assets Other operating expenses Share of profit from equity accounted investments Interest on lease liabilities 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 Note 6 27 13,14 7 7 8 24 2020 $’000 118,335 82 6,718 (61,130) (927) (37,681) (460) (1,496) (2,120) (5,853) (98) (7,982) 45 (388) (980) 2019 $’000 111,720 19 (308) (55,324) (970) (33,085) (392) (3,452) (1,899) (3,147) (46) (7,425) 18 - (1,140) 6,065 4,569 (1,774) 4,291 (1,419) 3,150 4,291 3,150 4,171 120 4,291 3,165 (15) 3,150 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 25 25 3.69 3.65 3.01 3.00 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 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2020 Current assets Note Cash and cash equivalents Trade and other receivables Tax receivable Inventories Other current assets Total current assets Non-current assets Intangible assets Property, plant and equipment Biological assets Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Lease liabilities Other current liabilities Current tax liabilities Borrowings Employee benefit obligations Total current liabilities Non-current liabilities Borrowings Lease liabilities 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 Corporate re-organisation reserve Non-controlling interest acquisition reserve Share based payment reserve Foreign currency translation reserve Retained earnings Non-controlling interest 9 10 11 12 14 13 16 17 15 21 18 19 20 19 15 20 16 22 23 23 23 23 24 Total equity The above statement should be read in conjunction with the accompanying notes 32 2019 $’000 1,873 13,399 507 10,947 1,003 27,729 65,225 8,381 220 95 2,796 76,717 2020 $’000 2,509 11,868 225 17,666 1,096 33,364 84,276 19,805 123 140 3,319 107,663 141,027 104,446 8,795 2,683 4,153 1,300 3,400 5,865 26,196 33,565 11,453 280 720 300 46,318 72,514 9,596 - 400 230 3,707 4,852 18,785 23,035 - 273 784 260 24,352 43,137 68,513 61,309 91,107 (26,692) (6,615) 223 (20) 9,486 67,489 1,024 68,513 86,432 (26,692) (6,615) 330 - 7,092 60,547 762 61,309 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 33 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2020 Balance at 1 July 2018 Issue of shares to vendors of business acquired Issue of new share capital Employee share plan Dividends paid Transactions with owners Profit / (Loss) for the period Total comprehensive income for the period Balance at 30 June 2019 Issue of new share capital Issue of shares to vendors of business acquired Employee share plan Foreign currency translation adjustment Dividends paid Transactions with owners Profit / (Loss) for the period Total comprehensive income for the period Balance at 30 June 2020 Note 22 22 Share capital Corporate re- organisation reserve $’000 85,775 - 657 - - 657 - - 86,432 770 3,905 - - - 4,675 - - $’000 (26,692) - - - - - - - (26,692) - - - - - - - - Non- controlling interest acquisition reserve $’000 (6,615) - - - - - - - (6,615) - - - - - - - - 91,107 (26,692) (6,615) The above statement should be read in conjunction with the accompanying notes Share based payment reserve Foreign Currency Translation Reserve Retained earnings Total attributable to owners of parent Non- controlling interest $’000 - - - 330 - 330 - - 330 - - (107) - - (107) - - 223 $’000 - - - - - - - - - - - - (20) - (20) - - (20) $’000 5,607 - - - (1,680) (1,680) 3,165 3,165 7,092 - - - (1,777) (1,777) 4,171 4,171 9,486 $’000 58,075 - 657 330 (1,680) (693) 3,165 3,165 60,547 770 3,905 (107) (20) (1,777) 2,771 4,171 4,171 67,489 Total equity $’000 58,725 - 784 330 (1,680) (566) 3,150 3,150 61,309 912 3,905 (107) (20) (1,777) 2,913 4,291 4,291 $’000 650 - 127 - - 127 (15) (15) 762 142 - - - - 142 120 120 1,024 68,513 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Note Interest paid Transaction costs relating to acquisition of subsidiary Income taxes paid Net cash (outflow)/inflow from operating activities 26 Cash flows from investing activities Payments for property, plant and equipment Payments for biological assets Purchase of intangible assets Proceeds from disposals of property, plant & equipment Acquisition of subsidiaries, net of cash acquired Net cash (outflow)/inflow from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Lease payments Capital contribution of non-controlling interest 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 The above statement should be read in conjunction with the accompanying notes 31 9 2020 $'000 133,977 (123,721) 10,256 (1,347) (460) (942) 7,507 (1,646) - (340) 82 (13,097) (15,001) 22,583 (10,171) (3,242) 142 (1,182) 8,130 636 1,873 2,509 34 2019 $'000 123,800 (115,838) 7,962 (1,140) (385) (1,553) 4,884 (1,860) (266) (706) 19 (254) (3,067) 15,516 (15,301) (699) 127 (1,023) (1,380) 437 1,436 1,873 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 35 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 Limited 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 Piper Lane, East Bendigo, Victoria 3550. The consolidated financial statements for the year ended 30 June 2020 were approved and authorised for issue by the Board of Directors on 24 August 2020. 3 Changes in accounting policies New standards adopted as at 1 July 2019 AASB 16 Leases AASB 16 ‘Leases’ replaces AASB 117 ‘Leases’ and several lease related interpretations. The new Standard has been applied using the modified retrospective approach. Prior periods have not been restated and there have been no adjustments to opening retained earnings on transition to AASB 16. The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of the initial application. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate appropriate to the underlying term and security of each lease as of 1 July 2019. The right of use assets for property lease is measured on a retrospective basis as if the new rules had always been applied and other right of use assets were measured at the amount equal to the lease liability. The adoption of the standard resulted in reduced operating expenses and increased depreciation and interest expense. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 36 For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from AASB 117 and interpretation 4 and has not applied AASB 16 to arrangements that were previously not identified as leases under AASB 117 and interpretation 4. Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of AASB 16. On transition to AASB 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under AASB 16 was 2.965%. The Group has benefited from the use of hindsight for determining lease term when considering options to extend and terminate leases. The following is a reconciliation of total operating lease commitments at 30 June 2019 to the lease liabilities recognised at 1 July 2019: Total operating lease commitments disclosed at 30 June 2019 CPI increases not recognised under AASB16 Operating lease liabilities before discounting Discounted using incremental borrowing rate Reasonably certain extension options Finance lease obligations Total lease liabilities recognised under AASB 16 at 1 July 2019 10,119 (492) 9,627 (553) 4,655 1,685 15,414 The adoption of AASB 16 has resulted in the following impacts to the financial statements for the year ending 30 June 2020: Income Statement: • A decrease in rental expense • An increase in depreciation expense Statement of financial position • An increase in property, plant & equipment • An increase in current liabilities • An increase in non-current liabilities Statement of cash flows • An increase in net cash flows from operating activities • A decrease in net cash flows from financing activities Interpretation 23 Uncertainty over Income Tax Treatments 2,040 2,419 12,770 2,187 10,650 2,012 2,012 Interpretation 23 requires that assessment of whether the effect of uncertainty over income tax treatment should be included in the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The interpretation outlines the requirements to determine whether an entity considers uncertain tax treatments separately, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how an entity determines taxable profit (tax loss), tax basis, unused tax losses, unused tax credits and tax rates and how an entity considers changes in facts and circumstances. The Group has adopted Interpretation 23 from 1 July 2019, based on an assessment of whether it is “probable” that a taxation authority will accept an uncertain tax treatment. This assessment takes into account that for certain jurisdictions in which the company operates, a local tax authority may seek to open a company’s books as far back as inception of the company. Where it is probable, the company has determined tax balances consistently with the tax treatment used or Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 37 planned to be used in its income tax filings. Where the Group has determined that it is not probable that the taxation authority will accept an uncertain tax treatment, the most likely amount or expected value has been used in determining taxable balances (depending on which method is expected to better predict the resolution of the uncertainty). There has been no material impact from the adoption of interpretation 23 in this reporting period. Accounting Standards issued but not yet effective and not been adopted early by the Group At the date of authorisation of these financial statements, several new, but not effective Standards and amendments to existing Standards, and Interpretations have been published by the AASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. 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 2020. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 38 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. 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 arises mainly from the sale of veterinary products and services. To determine whether to recognise revenue, the Group follows a 5-step process: 1. Identifying the contract with a customer Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 39 2. Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied When the Group enters into transactions involving its products and services, the total transaction price for a contract is allocated amongst the various performance obligations. Revenue is recognised either at a point in time or over time, when the Group satisfies performance obligations by transferring the promised goods or services to its customers. Sale of veterinary products and services Revenue from the sale of veterinary products is recognised when the Group transfers control of the goods to the customer and/or as contractual performance obligations are satisfied. Revenue from the sale of veterinary services is recognised as the services are provided. 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 40 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 As described in Note 3, the Group has applied AASB 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under AASB 117 and Interpretation 4. Accounting policy applicable from 1 July 2019 For any new contracts entered into on or after 1 July 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether: • • • the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the period of use. Measurement and recognition of leases as a lessee At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 41 Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero. The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been recognised as current and non-current. Accounting policy applicable before 1 July 2019 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 Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged to the statement of profit & loss and other comprehensive income 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 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, Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 42 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. 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 initial measurement of financial assets Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with AASB 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets other than those designated and effective as hedging instruments are classified into the following categories: • • • amortised cost fair value through profit and loss (FVTPL) fair value through other comprehensive income (FVOCI) The classification is determined by both: • • the entity’s business model for managing the financial asset the contractual cash flow characteristics of the financial asset 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. Subsequent measurement of financial assets Financial assets at amortised cost Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments as well as listed bonds that were previously classified as held-to-maturity under AASB 139. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 43 Financial assets at fair value through profit or loss (FVTPL) Financial assets that are held within a different business model other than ‘hold to collect’ or ‘hold to collect and sell’ are categorised at fair value through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. 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. Financial assets at fair value through other comprehensive income (FVOCI) The Group accounts for financial assets at FVOCI if the assets meet the following conditions: • • they are held under a business model whose objective it is “hold to collect” the associated cash flows and sell and the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. Any gains or losses recognised in other comprehensive income (OCI) will be recycled upon derecognition of the asset. Impairment of financial assets AASB 9’s impairment requirements use more forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. This replaced AASB 39’s ‘incurred loss model’. Instruments within the scope of the new requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under AASB 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction is made between: • financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk (‘Stage 1’) and • financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low (‘Stage 2’). ‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date. ‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are recognised for the second category. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. Trade and other receivables and contract assets The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses using a provision matrix. The Group assess impairment of trade receivables on a collective basis as they possess shared credit risk characteristics they have been grouped based on the days past due. Refer to Note 33.3 for a detailed analysis of how the impairment requirements of AASB 9 are applied. Classification and measurement of financial liabilities The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 44 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. Income taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Current income tax assets and/or liabilities comprise those obligations to, or claims from, the Australian Taxation Office (ATO) and other fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 45 Equity, reserves and dividend payments Share capital Share capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital, net of any related income tax benefits. Corporate re-organisation reserve The Corporate re-organisation reserve represents the difference between the fair value of the consideration paid and the fair value of assets and liabilities acquired in a business combination whereby the business acquired was under common control at the date of acquisition. Non-controlling interest acquisition reserve The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners. Non-controlling interest Represents the portion of the net assets of subsidiary’s that are not 100% owned by the Group. 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. Share based payments reserve Recognises share-based payments accrued in employee incentive share plan. Foreign currency translation reserve Exchange differences relating to the translation of the Group’s controlled entities from their functional currencies into Australian dollars are brought to account directly to the foreign currency translation reserve. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 46 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 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). 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 47 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). 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 makes determination with regard to the allocation of groups of cash generating units for the purpose of impairment testing. 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 expected credit losses based on past due amounts and prior trading history. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 48 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. 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 and 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 Goods transferred at a point in time Services transferred over time Total revenue 2020 2019 $'000 118,335 (108,676) 9,659 $'000 111,720 (104,138) 7,582 9,659 82 (1,640) (460) (253) (1,368) 45 6,065 (1,774) 4,291 2020 $'000 87,930 30,405 118,335 7,582 19 (1,388) (392) (130) (1,140) 18 4,569 (1,419) 3,150 2019 $'000 76,768 34,952 111,720 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 7 Expenses Profit before income tax includes the following specific expenses: Depreciation Leased buildings Leasehold improvements Plant and equipment Motor vehicles Biological assets Amortisation of intangibles Total depreciation and amortisation Finance costs Interest expense on borrowings Interest expense on lease liabilities Share-based payments expense Rental expense 49 2019 $’000 - 101 1,686 992 46 368 3,193 1,140 - 1,140 302 2,193 2020 $’000 2,419 128 1,860 935 98 511 5,951 980 388 1,368 (29) 153 8 Income tax expense The major components of tax expense and the reconciliation of the expected tax expense based on the domestic effective tax rate of the Group at 30% (2019: 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% (2019 - 30%) Adjustments for non-deductible expenses: 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 16 provides information on deferred tax assets and liabilities. 2020 $’000 2019 $’000 6,065 1,820 (13) 1,807 1,807 (33) 1,774 2,362 (588) 1,774 4,569 1,371 (1) 1,370 1,370 49 1,419 1,106 313 1,419 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 9 Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents 10 Trade and other receivables Trade receivables, gross Less: allowance for expected credit losses Other receivables Rebates receivable 50 2019 $'000 1,873 1,873 2019 $'000 12,637 (367) 184 945 13,399 2020 $'000 2,509 2,509 2020 $'000 12,145 (334) 26 31 11,868 All amounts are short-term. The net carrying value of trade receivables is considered a reasonable approximation of fair value. An allowance for expected credit losses has been recognised using a provision matrix based on historical credit loss rates. Refer to Note 33.3 Credit risk analysis. Balance at 1 July Impairment loss Balance 30 June 11 Inventories Stock on hand, at cost Less provision for obsolescence Stock in transit, at cost 12 Other current assets Prepayments Security deposits 2020 $'000 367 (33) 334 2020 $'000 17,560 (87) 193 17,666 2020 $'000 1,029 67 1,096 2019 $'000 400 (33) 367 2019 $'000 11,352 (417) 12 10,947 2019 $'000 947 56 1,003 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 51 13 Property, plant and equipment Details of the Group’s property, plant and equipment and their carrying amount are as follows: Leased Buildings (i) Leasehold improve- ments Plant and equipment Motor vehicles (ii) Assets under construction Total $’000 $’000 $’000 $’000 $’000 $’000 - - - - 13,729 - - 1,414 - 572 (169) 403 403 - 150 139 - - 9,301 4,991 1,146 16,010 (4,428) (2,847) (185) (7,629) 4,873 2,144 961 8,381 4,873 2,144 961 8,381 - 1,034 702 - - - 493 30 - - - - - - 13,729 1,677 871 1,414 (925) (925) (2,373) (128) (1,880) (961) - (5,342) 12,770 564 4,729 1,706 36 19,805 15,143 (2,373) 12,770 860 11,037 5,380 36 32,456 (296) (6,308) (3,674) - (12,651) 564 4,729 1,706 36 19,805 At 30 June 2019 At cost Accumulated depreciation Net book value Year ended 30 June 2020 Opening net book value Adjustment on transition to AASB16 Additions Additions through business combinations Leased buildings from business combinations Transfer to capitalised development costs Depreciation charge Closing net book value At 30 June 2020 Cost Accumulated depreciation Net book amount i) Right of use Assets ii) Includes leased and owned motor vehicles Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 14 Intangible assets At 30 June 2019 Cost Accumulated amortization and impairment Carrying amount at 30 June 2019 At July 1 2019 Opening net book value Additions Acquisition of subsidiary Transfer from assets under construction Amortisation Closing net book value At 30 June 2020 Cost Accumulated amortization and impairment Net book value 52 Total $'000 65,869 (644) 65,225 65,225 340 18,297 925 (511) 84,276 85,648 (1,372) 84,276 Customer Relation- ships $’000 Capitalised develop- ment costs $'000 Goodwill $'000 61,506 - 61,506 61,506 - 18,244 - - 79,750 79,750 - 79,750 3,223 (609) 2,614 2,614 - - - (215) 2,399 3,223 (824) 2,399 1,140 (35) 1,105 1,105 340 53 925 (296) 2,127 2,675 (548) 2,127 Impairment testing Goodwill is allocated to groups of 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. Goodwill impairment testing has been completed for each CGU Group. Refer to 14.4 for the goodwill allocated to each CGU Group. The recoverable amounts of the cash-generating units were determined based on value-in-use calculations, covering a detailed one year forecast with annual growth rates applied over a five year term, 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 group of CGUs is determined by applying the following key assumptions: Annual sales growth % Annual operating expenses growth rate % Long-term growth rate % Post-tax discount rate % 2020 5.00% 2.00% 2.50% 9.33% 2020 $’000 2019 5.00% 2.00% 2.50% 9.33% 2019 $’000 Goodwill allocation across groups of CGUs 79,750 61,506 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 annual sales growth rate of 5%, annual operating expense growth rate of 2% and the long-term growth rate of 2.50% reflect the average growth rates for the industry. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 53 Discount rates The post-tax discount rate of 9.33% reflect appropriate adjustments relating to market risk and other risk factors. The discount rate is applied to the three groups of CGU’s because the CGU groups share common risks. 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 groups of 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 groups of cash generating unit’s level which is also reflective of the level of operating segment being Pig, Feedlot, Dairy and mixed. The following is a summary of the groups of cash generating unit’s to which goodwill is allocated. Balance 1 July 2019 Acquisitions 30 June 2020 Feedlot Dairy and mixed $’000 12,788 620 13,408 $’000 48,718 7,694 56,412 Pig (a) $’000 Total $’000 - 61,506 9,930 9,930 18,244 79,750 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 54 15 Leasing Lease liabilities are presented in the statement of financial position as follows: Lease liabilities (current) Lease liabilities (non-current) 30 June 2020 $’000 30 June 2019 $’000 2,683 11,453 14,136 - - - The Group has leases for its warehouses, clinics, offices, motor vehicles and equipment. With the exception of short-term leases and leases of low-value assets, each lease is reflected in the balance sheet as a right-of-use asset and a lease liability. The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 30 June 2020 were as follows: Minimum lease payments due Within one year One to two years $’000 $’000 Two to three years $’000 Three to four years $’000 Four to five years $’000 After five years $’000 30 June 2020 Lease payments Finance charges 3,050 (367) 2,603 (310) 2,410 2,313 1,919 3,192 (243) (177) (117) (137) Total $’000 15,487 (1,351) Net present values 2,683 2,293 2,167 2,136 1,802 3,055 14,136 Lease payments not recognised as a liability The group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred. The expense relating to payments not included in the measurement of the lease liability is as follows: Short term leases Leases of low value assets 30 June 2020 $’000 51 102 153 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 16 Deferred tax assets and liabilities Deferred taxes arising from temporary differences and unused tax losses can be summarised as follows: The balance of deferred tax assets 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 The balance of deferred tax liabilities comprises temporary differences attributable to: Intangible assets Customer relationships 2020 $'000 164 237 1,896 - 1,022 - - 3,319 2020 $'000 720 720 55 2019 $'000 141 125 1,561 (5) 747 181 46 2,796 2019 $'000 784 784 All deferred tax assets (including tax losses and other tax credits) have been recognised in the statement of financial position. At 1 July 2018 (Charged)/credited: to P&L at 30 June 2019 (Charged)/credited: to P&L acquisition of a subsidiary At 30 June 2020 1,022 Tax losses Provisions $'000 $'000 1,520 751 Borrowing costs $'000 (9) Trade receivables $'000 198 Listing & acquisition costs $'000 91 Equity raising costs $'000 362 Inventory $'000 196 Total $'000 3,109 (4) 747 275 41 1,561 335 1,896 4 (5) 5 - (57) 141 23 164 (45) (181) 46 181 (71) 125 (313) 2,796 (46) (181) - - 112 237 523 3,319 All deferred tax liabilities have been recognised in the statement of financial position. At 1 July 2018 (Charged)/credited to P&L at 30 June 2019 (Charged)/credited to P&L At 30 June 2020 Customer relationships $'000 867 (63) 784 (64) 720 Total $'000 867 (63) 784 (64) 720 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 17 Trade and other payables Trade payables Sundry payables and accrued expenses 56 2019 $'000 7,482 2,114 9,596 2020 $'000 5,583 3,212 8,795 All amounts are short-term. The carrying values of trade payables and other payables are considered to be a reasonable approximation of fair value. 18 Current tax liabilities Current tax payable 19 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 34 for information on financial instruments. Secured liabilities and assets pledged as security The total secured liabilities (current and non-current) are as follows: Bank loans Less capitalised borrowing costs Lease liability Less deferred interest charges Assets pledged as security 2020 $'000 1,300 2019 $'000 230 2020 $'000 3,419 (19) - - 3,400 33,589 (24) 33,565 2019 $'000 2,983 (20) 793 (49) 3,707 22,123 (29) 986 (45) 23,035 2020 $’000 37,008 (43) - - 36,965 2019 $’000 25,106 (49) 1,779 (94) 26,742 (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 of a ratio of 45% (ratio of net debt to net debt & equity): and Maximum operating leverage ratio of a ratio of 4.0 times (ratio of net debt to EBITDA): The Group complied with all bank covenants during the period. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 Financing arrangements Unrestricted access 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 Unused at reporting date Bank - term loan facilities Bank - master asset finance agreement for equipment finance Bank - overdraft facility Bank - credit card facility 20 Employee benefit obligations Leave obligations current Leave obligations non-current Employee benefits 57 2019 $'000 59,700 3,500 1,000 300 64,500 25,057 1,684 26,741 34,643 1,816 1,000 300 37,759 2019 $'000 4,852 273 5,125 2020 $'000 59,700 3,500 1,000 300 64,500 36,965 1,299 38,264 22,735 2,201 1,000 300 26,236 2020 $'000 5,865 280 6,145 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 $5,865 (2019: $4,852) 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. 21 Other current liabilities Contingent consideration for acquisitions Contract revenue Make good provision . 2020 $'000 3,925 54 174 4,153 2019 $'000 400 - - 400 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 58 22 Equity 22.1 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 · shares issued on achievement of earnout for prior year acquisition · issued under dividend reinvestment plan · employee shares issued 2020 Shares 2019 Shares 2020 $'000 2019 $’000 105,897,728 104,693,843 86,432 85,775 8,768,510 251,994 1,298,025 380,878 - - 1,203,885 - 3,785 120 595 175 91,107 91,107 - - 657 - 86,432 86,432 Shares issued and fully paid 116,597,135 105,897,728 Total shares authorised at the end of the period 116,597,135 105,897,728 Each share has the same right to receive dividend and the repayment of capital and represents one vote at the shareholders’ meeting of Apiam. 23 Reserves Details of reserves are as follows: Balance at 1 July 2018 Employee share plan incentive Balance at 1 July 2019 Employee share plan incentive Foreign currency translation Balance at 30 June 2020 24 Non-controlling interests Issued capital Current year earnings Retained profits carried forward Total non-controlling interests Corporate reorganisation reserve $’000 (26,692) Non- controlling interest acquisition reserve $’000 (6,615) - - (26,692) - - (6,615) - - (26,692) (6,615) Share based payment reserve Foreign Currency Translation reserve $’000 - 330 330 (107) - 223 $’000 - - - - (20) (20) 2020 $’000 845 120 59 1,024 Total $’000 (33,307) 330 (32,977) (107) (20) (33,104) 2019 $’000 703 (15) 74 762 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 59 25 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 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 performance rights 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) 2020 Number 112,902,256 1,447,744 114,350,000 2019 Number 105,204,602 410,444 105,615,046 2020 $'000 849 928 1,777 2019 $'000 838 842 1,680 In addition and since the end of the financial year, Directors have declared a fully franked final dividend of 1.2c per ordinary share to be paid on 23 October 2020 (2019: 0.8c) 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 2020 $'000 9,601 (400) 1,301 2019 $'000 7,950 (363) 230 10,502 7,817 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 60 26 Reconciliation of cash flows from operating activities 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 (a) Reconciliation of cash flows from operating activities Cash flows from operating activities Profit / (Loss) for the period Adjustments for: · · · · · · · · 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 27 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 (a) Superannuation expense Employee benefits expense 2020 $’000 4,291 5,972 62 (330) 21 68 (82) (45) 3,400 (5,257) (93) (301) (1,936) 1,209 (64) 593 7,507 2020 $’000 34,847 116 (29) 2,747 37,681 2019 $’000 3,150 3,193 102 (238) 16 330 (19) (18) 726 546 (158) 313 (2,674) (364) (83) 62 4,884 2019 $’000 30,288 42 302 2,453 33,085 a) The share based payment expense of $(29) reflects the reversal of an over accrued expense in the prior year. Share-based employee remuneration As at 30 June 2020, the Group maintained a share-based incentive payment plan for employee remuneration. Performance rights under this scheme will vest if certain conditions are met. Participants have to achieve performance targets and have to be employed until the end of the agreed vesting period. Upon vesting, each participant will be issued with ordinary shares as defined in the incentive plan. The number of performance rights held by employees of the Group at 30 June 2020 is set out below: Type Performance rights Balance at 1/07/2019 2,396,863 Granted 818,896 Vested (330,878) Forfeited (1,529,777) Held as at 30/06/2020 1,355,104 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 61 28 Auditor remuneration Audit services – Grant Thornton Audit Pty Ltd Remuneration for audit or review of financial statements Other services – Grant Thornton • taxation services • due diligence services Total other services remuneration Total auditor’s remuneration 2020 $ 2019 $ 206,905 177,934 4,730 108,500 113,230 320,135 29,160 61,715 90,875 268,809 29 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. The Group provided short term finance to its joint venture entity, South West Equine. The amount owing is $79,285 (2019: $nil) during the year. 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 LTI performance rights Total long-term employee benefits Post-employment benefits: superannuation Total post-employment benefits Total remuneration 2020 $ 949,458 8,307 957,765 12,960 12,249 25,209 52,462 52,462 1,035,436 2019 $ 897,283 13,674 910,957 6,501 - 6,501 48,397 48,397 965,855 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. Rental payments made amounted to $333,600 (2019: $333,600). 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 $125,232 (2019: $125,232). The Group leases an artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $105,000 (2019: $105,000). Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 62 The Group leases premises at Midland Highway, Lethbridge, Victoria from entities associated with Chris Richards. Lease payments made amounted to $2,018 (2019: $16,818) The Group leases premises at Hoskin Street, Quarry Hill, Victoria from entities associated with Chris Richards. Lease payments made amounted to $- (2019: $15,002). The Group leases premises at Midland Highway, Epsom, Victoria from entities associated with Chris Richards. Lease payments made amounted to $7,753 (2019: $18,652). All related party rentals are based on commercial rates and the terms of the lease are standard commercial terms. 30 Contingent liabilities In the Directors’ view, there are no contingent assets or liabilities that will have a material effect on the Group. 31 Business combination On 1 October 2019 the Group acquired 100% of the issued share capital and voting rights of Animal Consulting Enterprises Pty Ltd (ACE). On 1 November 2019, the Group acquired the business assets of Devoted Vets (DVW). On 1 December 2019, the Group acquired 100% of the issued share capital and voting rights of Grampians Animal Health (GAH). 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. ACE Laboratory Services is an autogenous (custom) vaccine and diagnostics laboratory service provider to large production animal producers. The acquisitions of GAH and DVW expand Apiam’s presence in the Western District and Gippsland regions of Victoria. On the acquisition of ACE, 5,788,120 fully paid shares were issued at a fair value of $0.4276 per share. On the acquisition of GAH, 2,980,390 shares were issued at a fair value of $0.4394 per share. Each of these business combinations have initially been accounted for on a provisional basis as at 30 June 2020. The measurement period for provisional accounting ends on either the earlier of 12 months from the date of acquisition or when the acquirer receives all the information possible to determine the fair value. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 Fair value of consideration transferred Amounts settled in cash Amount settled by issue of shares at fair value Contingent consideration Total fair value of consideration transferred Recognised amounts of identifiable net assets Property plant and equipment Deferred tax assets Intangible assets Total non-current assets Cash and equivalents Inventories Trade and other receivables 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 ACE $’000 9,657 2,475 3,625 15,757 459 140 3 602 113 890 1,342 2,345 - - 357 162 496 1,015 1,932 13,825 9,544 DVW $’000 566 - - 566 65 24 - 89 - 102 98 200 - - 61 - 53 114 175 391 566 63 Total $’000 13,340 3,785 3,925 21,050 871 229 53 1,153 243 1,130 1,896 3,269 24 24 577 162 853 1,592 GAH $’000 3,117 1,310 300 4,727 347 65 50 462 130 138 456 724 24 24 159 - 304 463 699 4,028 2,987 2,806 18,244 13,097 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 64 32 Interests in subsidiaries Composition of the Group Set out below details of the subsidiaries held directly by the Group: Name of the Subsidiary Chris Richards & Associates Pty Ltd Country Vet Wholesaling Pty Ltd Apiam Logistics Services Pty Ltd Apiam Management Pty Ltd Southern Cross Feedlot Services Pty Ltd Westvet Wholesale Pty Ltd Portec Veterinary Services Pty Ltd Pork Storks Australia Pty Ltd McAuliffe Moore & Perry Pty Ltd Warrnambool Veterinary Clinic Pty Ltd Scottsdale Veterinary Services Pty Ltd Smithton Veterinary Service Pty Ltd AAH - Dubbo Vet Hospital Pty Ltd AAH - Bell Vet Services Pty Ltd CVH Gippsland Pty Ltd CVH Southern Riverina Pty Ltd AAH Veterinary Services Pty Ltd CVH iVet Pty Ltd Tasvet Wholesale Pty Ltd Quirindi Feedlot Services Pty Ltd Quirindi Veterinary Clinic Pty Ltd Quipolly Equine Centre Pty Ltd AAH Veterinary Clinics Pty Ltd Gympie & District Veterinary Services Pty Ltd Apiam Solutions LLC Fur Life Foundation Ltd South Yarra Pharma Pty Ltd Animal Consulting Enterprises Pty Ltd The Trustee for Grampians Animal Health Unit Trust Significant judgements and assumptions Country of incorporation and principal place of business Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia USA Australia Australia Australia Principal activity Veterinary services Wholesale supply Transport Payroll Veterinary services Wholesale supply Veterinary services Genetics Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Veterinary services Dormant Dormant Veterinary services Veterinary services Veterinary services Veterinary Services Veterinary Services Distribution Charity Veterinary Services Manufacturing Australia Veterinary Services Group proportion of ownership interests 2020 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 51% 100% 100% 100% 100% 2019 100% 100% 100% 100% 100% 100% 49% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 51% 0% 0% 0% 0% 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 control definition and guidance. It was concluded that the Apiam Group 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 65 33 Financial instrument risk Risk management objectives and policies The Group is exposed to various risks in relation to financial instruments. 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 2020, 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% (2019: +/- 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-20 30-Jun-19 Profit for the year Equity $’000 +1% 319 270 $’000 -1% (319) (270) $’000 +1% 319 270 $’000 -1% (319) (270) Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 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 credit risk from financial assets including cash and cash equivalents held at banks, trade and other 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: Cash and cash equivalents trade and other receivables 2020 $’000 2,509 12,093 14,602 2019 $’000 1,873 13,906 15,779 The credit risk is managed on a group basis based on the Group’s credit risk management policies and procedures. The credit risk in respect of cash balances held with banks and deposits with banks are managed via only banking with major reputable financial institutions. 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. 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. Trade receivables are written off (ie. derecognised) when there is no reasonable expectation of recovery. 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 made an allowance for expected credit losses (see Note 10) based on past due amounts and prior trading history. 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 2020 $’000 1,332 1,007 1,550 3,889 2019 $’000 2,279 594 1,470 4,343 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 67 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. 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 2020, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 June 2020 Bank borrowings Trade and other payables Total Current Within 6 months $’000 6 - 12 months 1 - 4 years $’000 $’000 3,400 8,795 12,195 - - - 33,565 - 33,565 This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting periods as follows: 30 June 2019 Bank borrowings Finance lease liabilities Trade and other payables Total Current Within 6 months $’000 6 - 12 months $’000 1 - 4 years $’000 3,003 409 9,596 13,008 - 335 - 335 23,672 941 - 24,613 The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 68 34 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 2020 and 30 June 2019: 30 June 2020 Financial liabilities Contingent consideration Total liabilities Net fair value 30 June 2019 Financial liabilities Contingent consideration Total liabilities Net fair value Level 1 $'000 Level 2 $'000 Level 3 $'000 - - - - - - 3,925 3,925 3,925 Level 1 $'000 Level 2 $'000 Level 3 $'000 - - - - - - 400 400 400 Total $'000 3,925 3,925 3,925 Total $'000 400 400 400 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 is considered to be face value as the payments become due within the next six (6) months. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 69 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 2019 Contingent consideration for acquisitions Balance at 30 June 2020 2020 $’000 400 3,525 3,925 2019 $’000 400 - 400 35 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 45% (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 2020 $'000 68,513 2,509 71,022 68,513 36,965 105,478 67% 2019 $'000 61,309 1,873 63,182 61,309 26,742 88,051 72% 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 2020 70 36 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 The Parent Entity has entered into a deed of cross guarantee. Refer Note 38 for details. The Parent Entity had no contingent liabilities at 30 June 2020 (2019: $nil). 2020 $’000 2019 $’000 1,486 133,311 8,367 42,652 90,659 91,107 (448) 90,659 1,363 112,886 5,517 27,553 85,333 86,488 (1,155) 85,333 2,723 45 2,768 2,597 18 2,615 37 Post-reporting date events The Apiam Board of Directors have declared the Company’s final dividend of 1.2c per share fully franked on the 20 August 2020. The final dividend of $1,399,166 will be paid on the 23 October 2020. 38 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 Apiam Logistics Services 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 71 Set out below is a consolidated statement of profit or loss and other comprehensive income of the parties to the Deed. Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2020 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 2020 $'000 84,589 82 3,089 (39,297) (824) (28,973) (460) (1,178) (1,805) (4,690) (6,754) (1,275) (19) 45 2019 $'000 91,416 9 (536) (42,536) (912) (27,920) (392) (3,003) (1,754) (2,551) (6,540) (1,138) (15) 18 2,530 4,146 (760) 1,770 (1,326) 2,820 1,770 2,820 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 Set out below is a consolidated statement of financial position of the parties to the Deed. Statement of Financial Position As at 30 June 2020 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 Biological assets 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 Total Equity 72 2019 $’000 1,389 11,836 10,483 960 24,668 62,912 7,094 220 91 2,344 72,661 2020 $’000 1,420 7,407 13,572 1,178 23,577 81,613 15,181 123 136 2,528 99,581 123,158 97,329 7,169 3,925 536 3,798 4,689 8,893 400 105 3,707 4,298 20,117 17,403 44,539 135 - 44,674 64,791 23,035 222 - 23,257 40,660 58,367 56,669 89,852 (26,692) (5,594) 801 58,367 85,630 (26,692) (5,856) 3,587 56,669 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 73 Directors’ Declaration 1 In the opinion of the Directors of Apiam Animal Health Limited: a The consolidated financial statements and notes of Apiam Animal Health Limited are in accordance with the Corporations Act 2001, including i Giving a true and fair view of its financial position as at 30 June 2020 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. c There are reasonable grounds to believe that the members of the extended closed group identified in Note 38 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 38. 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 2020. 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 24 August 2020 74 Collins Square, Tower 5 727 Collins Street Melbourne 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 2020, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, and the Directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the 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. 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. 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. 75 Key audit matter Intangible Assets – Note 14 How our audit addressed the key audit matter At 30 June 2020 the carrying value of goodwill and customer relationships is $79.8M and $2.4M respectively, and is allocated to three separate group 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 and in respect to goodwill, assess if the carrying value of each CGU is in excess of the recoverable value. Our procedures included, amongst others:  Assessing management’s determination of the group CGU's based on the nature of the business and the economic environment in which the units operate;  Reviewing the impairment model for compliance with AASB 136 Impairment of Assets;  Assessing whether management has the requisite expertise to prepare the impairment model;  Assessing the reasonableness and appropriateness of 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. inputs and assumptions to the model by;  Evaluating managements future cash flow forecasts and obtain an understanding of the process by which they were developed; Assessing managements key assumptions for reasonableness by comparing long term growth rates to historical results and economic and industry forecasts; Considering the reasonableness of the revenue and cost forecasts against current year actuals;    Obtaining from management available evidence to   support key assumptions; Performing a sensitivity analysis on the key assumptions; and Utilising an auditor's expert to assess the reasonableness of the certain key inputs and assumptions used in the model.  Testing the underlying calculations for mathematical accuracy of the model;  Assessing customer relationships for indicators of impairment; and  Evaluating the disclosures in the financial statements for appropriateness and consistency with accounting standards. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’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. 76 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 20 to 26 of the Directors’ report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Apiam Animal Health Limited, for the year ended 30 June 2020 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 C S Gangemi Partner – Audit & Assurance Melbourne, 24 August 2020 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 77 ASX Additional Information Additional Securities Exchange Information In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 7 August 2020 (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, 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 Ordinary Shares Ordinary Shares 30,000,000 25.730% 14,599,379 12.52% 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 October 2020 and quoted on ASX Number of holders 1,197 4 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 78 Fully paid ordinary shares restricted until 2 December 2020 and quoted on ASX Fully paid ordinary shares restricted until 1 October 2021 and quoted on ASX Fully paid ordinary shares restricted until 2 December 2021 and quoted on ASX Performance Rights 2 4 2 46 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 1,203 holders of a total of 116,597,135 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. 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 – 999,999,999 145 335 219 393 111 74,084 921,521 1,762,053 12,890,724 100,948,753 Totals 1,203 116,597,135 % 0.06 0.79 1.51 11.06 86.58 100 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 79 Distribution of performance rights holders Holdings Ranges Holders Total Units 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 999,999,999 Totals 0 4 17 23 2 46 0 16,234 123,369 875,415 354,470 1,369,488 % 0.00 1.190 9.010 63.920 25.880 100 Less than marketable parcels of ordinary shares (UMP Shares) The number of holders of less than a marketable parcel of ordinary shares based on the closing market price at the Reporting Date is as follows: Total Shares UMP Shares UMP Holders % of issued shares held by UMP holders 116,597,135 75,094 146 0.0644 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 CJOEA FAMILY COMPANY PTY LTD MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED UBS NOMINEES PTY LTD CITICORP NOMINEES PTY LIMITED BRISPOT NOMINEES PTY LTD CS THIRD NOMINEES PTY LIMITED Balance as at Reporting Date % 29,208,707 25.051 6,695,065 5.742 3,480,702 2.985 3,189,002 2.735 2,969,671 2.547 2,788,791 2.392 SCOLEXIA COMMODITY PTY 2,315,248 1.986 GFS SECURITIES 2,061,544 1.768 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 80 CS FOURTH NOMINEES PTY LIMITED 2,029,429 1.741 COBASH PTY LIMITED 1,872,006 1.606 MR ANDREW CARRINGTON WHALE 1,490,195 1.278 HAMILTON ANIMAL HEALTH PTY LTD 1,490,195 1.278 MRS KATE JUDITH MALIN 1,389,161 1.191 FOUR POST INVESTMENTS PTY LTD MR NEIL LEIGHTON & MRS HELEN LEIGHTON MR ROGER CHARLES CARMODY & MRS MARIS MOORE CARMODY SONJASWRIGHT PTY LIMITED AILEEN MARY VANDERFEEN LINCOLN O’MEARA RACHEL LOUISE O’MEARA 1,386,700 1.189 1,279,131 1.097 1,258,650 1.079 1,211,846 1.039 1,157,624 0.993 1,157,624 0.993 1,157,624 0.993 Total number of shares of Top 20 Holders 69,588,915 59.683% Total Remaining Holders Balance 47,008,220 40.317% Company Secretary The Company’s secretary is Mr Todd Richards. 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: (02) 9290 9600 Apiam Animal Health Limited Financial statements for the year ended 30 June 2020 81 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 2,894,060 1 October 2020 Ordinary shares Voluntary escrow 1,490,196 2 December 2020 Ordinary shares Voluntary escrow 2,894,060 1 October 2021 Ordinary shares Voluntary escrow 1,490,194 2 December 2021 Unquoted equity securities The number of each class of unquoted equity securities on issue, and the number of their holders, are as follows: Class of restricted securities Number of unquoted Equity Securities Number of holders Performance Rights 1,369,488 46 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. CORPORATE DIRECTORY DIRECTORS Professor Andrew Vizard Dr Christopher Richards Mr Michael van Blommestein Mr Richard Dennis Professor Jan Tennent Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director COMPANY SECRETARY Todd Richards 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 Collins Square, Tower 5 727 Collins Street Melbourne VIC 3008 BANKERS National Australia Bank 500 Bourke 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 STOCK EXCHANGE LISTING Australian Securities Exchange Level 4, North Tower, Rialto 525 Collins Street Melbourne VIC 3000 ASX CODE AHX WEBSITE apiam.com.au ANNUAL REPORT 2020 A P I A M . C O M . A U 

Continue reading text version or see original annual report in PDF format above