Apiam Animal Health Limited
Annual Report 2023

Plain-text annual report

Apiam Animal Health Limited Appendix 4E 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 2023 Previous period: For the year ended 30 June 2022 Apiam Animal Health Limited Appendix 4E 2 RESULTS FOR ANNOUNCEMENT TO THE MARKET Statutory Results Summary CHANGES FROM PERIOD ENDED 30 JUNE 2023 2022 % $m $m Revenue from ordinary activities up 22 To 192.1 from 157.2 Net profit attributable to members down 51 To 2.3 from Profit from ordinary activities after tax attributable to members down 51 To 2.3 From 4.6 4.6 Underlying EBITA (Incl. non-controlling interests) up 12 to 12.8 From 11.5 Underlying EBITA (Earnings Before Interest, Tax and Amortisation) 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 2023 Interim Dividend 2023 Final Dividend Amount per security cents Franked amount per security Cents 0.0 cents 0.0 cents 0.0 cents 0.0 cents Apiam Animal Health Limited Appendix 4E 3 Net Tangible Asset per Security Net Tangible assets per share Return to shareholders 2023 ($0.26) 2022 ($0.11) Dividends of $697,330 were paid during the period; no share buy backs were conducted during the year. Basis of Preparation This report is based on the consolidated financial statements which have been audited by Grant Thornton Audit Pty Ltd. The audit report is included within the Company’s Annual Report which accompanies this Appendix 4E. Entities over which control has been gained or lost during the period: Refer to Note 33 and 34 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 2023 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. 2023 Apiam Animal Health Enriching the lives of Animals, People and Communities ANNUAL REPORT Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 Contents Chairman’s Message Managing Director’s Message Directors’ 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 7 21 32 34 35 36 37 38 76 77 81 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 2 Chairman’s Message Dear Shareholder, On behalf of the Board of Directors I am pleased to present the Apiam Animal Health Ltd Annual Report for the year ended 30 June 2023 (FY23). In a year marked by both challenges and opportunities, Apiam has continued on its growth journey to build a business with a broader revenue base, enlarged scale and greater financial resilience. Apiam’s accelerated acquisition program embarked on over the past three years has seen the Company significantly increase the revenues and earnings it generates from the dairy & mixed animal veterinary segment. This segment provides a resilient revenue stream and significant opportunities for growth as populations, and animal numbers continue to increase in regional hubs and peri-urban locations. These are the areas Apiam, as a Company, has identified as key market opportunities. Over the year, we completed a further seven acquisitions in various geographic regions, increasing our exposure to dairy, companion animals and the equine veterinary industry, all segments that remain largely fragmented and with attractive growth profiles. While Apiam reported solid revenue growth for FY23, our earnings growth did not meet our targets, in part due to the Company impacts from broader economic challenges such as inflation, the wage environment for skilled workers and interest rate rises. In June 2023, we finalised a restructuring and redundancy program that will have immediate cost benefits in FY24. We expect this program to result in employee expense savings of $2.6 million in the year ahead and improved earnings margins across our business. Apiam’s Management team will also be continuing to work with several clinics to further improve their earnings margins in-line with our Group targets and will be particularly focussed in the areas of optimisation of staff rostering, cost management and adoption of service programs to generate further revenue opportunities. In the year ahead, we will continue to build a resilient business that captures the growing revenues available in the veterinary industry and that is leveraged to increased animal numbers in strategic regional locations. The acquisition pipeline remains strong, with phasing to reflect optimisation of capital resources and cash flow. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 3 We have identified that there is opportunity to achieve further cost savings and synergies from our network of clinics, and we have embarked on a strategy to improve returns and deliver a more profitable business. We thank shareholders for their patience and support during this process. As a Board and Management team we are committed to improving Apiam’s performance in FY24. Finally, I acknowledge the contribution of our employees over the past 12 months, and their efforts to deliver best-practice and high-quality animal care for our clients and their animals. Yours sincerely, Professor Andrew Vizard Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 4 Managing Director’s Message Dear Shareholder, It has been another busy year for Apiam as we have continued on our regional expansion strategy in the 12-months to 30 June 2023 (FY23). Over the past year we have completed the acquisition of seven veterinary businesses and continued to work on the integration of the accelerated number of acquisitions we have completed over the past three years. Despite the broader macro-economic challengers, our revenues remained solid increasing 22.6% over the year to $192.8 million1. This was driven by the resilience of our dairy & mixed animal veterinary segment, which now accounts for 77% of our Group revenues and has been the focus of our acquisition program. This segment delivered 4.9% organic like-for-like revenue in FY23 versus the prior corresponding period (pcp). While our intensive animal veterinary segments (pigs and beef feedlot) remain integral to Apiam’s regional and rural model, they continue to face cyclical industry pressures. Revenues from our beef feedlot segment fell in FY23 due to lower feeder steer inductions in H1, however pleasingly this was partly offset by revenue growth in the pig segment particularly in the second half of FY23 as the impacts of the Japanese Encephalitis outbreak in 2022 abated. Overall, our earnings performance in FY23 was below what the company is capable of, coming in below the rate of our revenue growth. Underlying EBITA (before one-off expenses)2 increased 11.6% to $12.8 million, impacted by growth in wage expense. Inflationary pressures, the recruitment of higher skill-set vets in the first half of FY23 and the increased staff associated with business support functions during our accelerated acquisition phase all contributed to this growth. We also restructured several clinics to improve future performance, which resulted in short-term revenue and EBITA impacts which pleasingly started to resolve late in the reporting period. Further steps we are taking to address cost efficiencies with respect to wages are set out in the section below. Reported net profit after tax (NPAT) fell to $2.3 million in FY23 (FY22: $4.6 million) due to the impact of a one-off non-cash provision ($1.7 million post-tax basis) relating to the write-down of 1 Excludes one-off revenue adjustment for deferred revenue relating to prior years +$920K and reversal of earn-out no longer payable $(190K) 2 Underlying EBITA is a non-IFRS measure and is earnings before interest, tax, amortisation and one-off expenses Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 5 sanitiser and surface protectant products. Rising interest rates as well as higher borrowings to fund strategic acquisitions has also increased Apiam’s finance cost in FY23 to $3.8 million (FY22: $1.6 million). Cost saving initiatives to improve earnings margins During the second half of FY23 Apiam Management strongly focused on leveraging synergies from its existing clinics, working to improve efficiencies and ensure appropriate skillsets within each clinic. In a small number of clinics, the restructure required has resulted in short term revenue and EBITA reduction, which is expected to recover in FY24. With an increased focus on leveraging the organic revenue growth to achieve higher earnings, the Company has reduced the rate of its acquisition program. In June 2023, Apiam completed a cost-saving redundancy & restructuring program to improve workflows and eliminate some redundant roles both within the Company’s centralised business support functions, as well as at various clinic locations. This program is expected to result in a reduction to Apiam’s wage expenses of approximately $2.6 million p.a. from July 2023 onwards. Redundancy costs incurred as part of this process were approximately $0.3 million and will be treated as non-recurring costs in Apiam’s FY23 accounts. Apiam’s business support network costs have already been scaled back, declining 1.9% in H2 FY23 (vs H1 FY23), particularly as the rate and the scale of the acquisition program slowed in this period and we expect this trend to continue into FY24. Additional earnings leverage is also expected in the year ahead as Management continue to identify additional areas where greater service program adoption can be executed and clinic-level employment costs can be more efficiently and effectively incurred. Regional veterinary workforce growth As with all healthcare providers, workforce retention and quality is at the core of our business performance. Over FY23 we have made great strides in attracting veterinarians to the regions and have led the industry with some innovative employment focussed programs to attract and retain talent. In FY23 we introduced the “Your Vet Career, Your Way” program, which focusses on employee driven flexibility around career pathways, flexible workplace practices and locations to meet lifestyle preferences. We continued our Vetriage program which has reduced after-hours calls to veterinarians by >70%, with non-critical care being handled by our virtual team of experienced veterinary nurses. We also introduced a student debt (HECS) reduction program which has seen very high interest since its launch in May. Despite the program closing in October 2023, we have already offered several places to high quality applicants. Overall, we believe our innovative employee-focussed offerings have resulted in Apiam having a much greater share of our veterinarian workforce in full-time employment (66%), versus the industry average of 50%, as reported at the recent Australian Veterinary Association conference. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 6 We believe that this is being achieved as a result of approximately 80% of our veterinarians opting into our flexible workplace programs including compressed 4-day weeks or 9-day fortnights. Looking ahead in FY24 We remain confident in the resilient nature of our non-discretionary business, supported by the essential nature of the animal healthcare services we provide. The strengths and benefits of our business model, particularly our expansion over the past three years into the resilient dairy & mixed animal segment will places us well to continue to deliver strong revenue outcomes in the year ahead. From an earnings perspective, we still have much work to do and we are working with clinics on an individual basis to drive revenue growth, better extract cost savings and enhance efficient and effective workflow practices to meet our individual clinic earnings margin targets. This will be the key focus of our strategy in FY24. We expect our operating earnings margins to improve in FY24 as these measures take effect. Additionally, we will continue to identify acquisition growth opportunities taking into account our free cash flows as well as the synergy realisation potential for the Group. Apiam has strong fundamentals and I thank you for your continued support as we continue to strive towards delivering our shareholders improved financial results. Yours sincerely, Dr Chris Richards Managing Director Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 7 Directors’ Report The Directors present their report on the consolidated entity consisting of Apiam Animal Health Limited (Apiam) and the entities it controlled at the end of, or during, the year ended 30 June 2023. 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 Richard John Dennis Non-Executive Director Dr Jan Tennent Non-Executive Director Evonne Maree Collier Non-Executive Director (appointed 1 October 2022) The following person resigned as a director during the financial year Mr Michael van Blommestein Non-Executive Director (retired 24 November 2022) Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 8 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. held directorships An experienced company director, he has previously in ASX companies, statutory bodies and research including Animal Health organisations Australia, for body coordinating Australia’s animal health system; Primesafe, the statutory authority responsible for regulating the production of safe meat in Victoria; and the Australian Wool Corporation. responsible the Dr Chris Richards is the Managing Director of Apiam Animal Health Limited, as well as the Australian subsidiary entities and joint venture companies, which provide veterinary services to Australian regional and rural communities. Chris is responsible for the strategic direction of the development, Apiam, which has seen growth, acquisition and integration of production and companion animal veterinary clinics, veterinary wholesale, logistics, laboratory and genetics services businesses since 1998 into the Apiam of today. Chris is also a Director of registered charity, Fur Life Foundation Ltd, which raises funds to support people in rural, regional, and remote communities. He is currently Chair of the Vizard Foundation and Executive Secretary for the Hermon Slade Foundation and the Australia & Pacific Science Foundation. Interests in Shares and Options Interests in Shares and Options 286,109 shares 38,651,577 shares 560,164 performance rights Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 9 Mr Richard John Dennis Non-Executive Director Independent Non-Executive Director BComm, LLB Dr Jan Tennent Non-Executive Director Independent Non-Executive Director PhD, BSc (Hons), GCertMgt, GAICD, FTSE FASM, 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 several executive management roles at EY, including Deputy COO and CFO for the Asia-Pacific practice where he was responsible for overseeing the 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 Boards of EWM Group and HLB Chessboard, and an external member of the Audit & Risk Committee of Racing Queensland. Rick is non-executive Chair of AF Legal Group Limited, Motorcycle Holdings Limited, Energy Resources of Australia Limited, and a non- executive director of Cettire Limited and Step One Clothing Limited. Jan is a Fellow of the Australian Academy of Technology and Engineering and the Australian Society for Microbiology and, a Principal Fellow at The University of Melbourne. 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, the CRC for Vaccine Technology, CSL, and Pfizer Animal Health (now Zoetis) where she was the Director of Business Development and Global Alliances in the APAC region. Her most recent executive role was as CEO of Biomedical Research Victoria (2012-2019). Jan is also a non-executive director of Agriculture Victoria Services Pty Ltd, Phytogene Pty Ltd, AusBiotech Limited (to 3 Nov 2022) and eviDent Foundation Limited. Interests in Shares and Options Interests in Shares and Options 12,064 shares 72,073 shares Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 10 Evonne Maree Collier Mr Michael van Blommestein Non-Executive Director (appointed 1 October 2022) BA, MBus, GradCertAppFin, GAICD Independent Non-Executive Director (retired 24 Nov 2022) GAICD 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. Michael is an experienced director in the animal health sector. He 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. Ms Collier has served as a Chair and Non- Executive Director on various boards since 2011 and currently serves as a Non-Executive Director and Chair of the Remuneration and Nominations Committee for 4DMedical Limited as well as a number of private and publicly unlisted companies. She currently serves as Non-Executive Director of global SaaS analytics company, Sage Automation (Chair of the Digital Products board), digital dental and aesthetic dental clinic aggregator, Curae Health (Chair), global eCommerce business, Australian Fitness (Chair) and Motorama Group Supplies Automotive Holdings (Chair of the Marketing and Digital Committee). Ms Collier was also previously Non-Executive Director of ASX-listed 1300Smiles Limited and Think Childcare Limited prior to its acquisition in 2021. Ms Collier holds a Master of Business (Marketing, Strategy and Innovation), Bachelor of Arts, Graduate Certificate of Applied Finance, and is a Graduate Member of the Australian Institute of Company Directors. Interests in Shares and Options Interests in Shares and Options Interests in Shares and Options 111,861 111,268 shares Nil 111,268 shares Company Secretary Eryl Baron Company Secretary AGIA Eryl has 20 years’ experience working in the corporate sector as a Company Secretary in a number of industries. She is the appointed Company Secretary to a portfolio of ASX- listed companies across a range of industries. Eryl is an Associate member of the Governance Institute of Australia. She is experienced in company secretarial and governance management of listed and unlisted companies. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 11 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 Evonne Collier A 12 12 3 12 12 10 B 11 12 2 12 12 8 A 4 - - 4 4 3 B 4 - - 4 4 3 A 3 - 1 - 3 3 B 2 - 1 - 3 2 Column A denotes the number of meetings the Director was entitled to attend and column B denotes the number of meetings the Director attended. COMMITTEE MEMBERSHIP As at the date of this report, the Company has an Audit & Risk Management Committee and a Remuneration & Nomination Committee of the Board of Directors Members of the Audit & Risk Management Committee during the period were: Richard Dennis (Chair) Andrew Vizard Jan Tennent Evonne Collier (appointed to the Board on 1 October 2022) Members of the Remuneration & Nomination Committee during the period were: Jan Tennent (Chair) Andrew Vizard Evonne Collier (appointed to the Board on 1 October 2022) Michael van Blommestein (Chair) (resigned from the Board on 24 November 2022) Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 12 PRINCIPAL ACTIVITIES The Group operates in the segment of provision of veterinary products and services to production, companion and equine animals. Apiam services 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 REVIEW OF OPERATIONS Apiam’s revenue for the 12 months to 30 June 2023 (FY23) remained resilient and continued to reflect the non-discretionary nature of the Company’s veterinary operations. Revenue grew 22.6% in FY23 to $192.8 million3 (FY22: $157.2 million) driven by the Company’s dairy & mixed animal segment which accounted for 77% of total revenue. This segment delivered like-for-like (LFL) revenue growth of 4.9% in FY23 vs the prior corresponding period (pcp). The Company’s beef feedlot and pig segment continued to operate in a challenging industry environment, with segment LFL revenue falling (4.1)% in FY23. While revenue generated in the feedlot segment was below the previous year due to lower feeder steer inductions and improved health outcomes, pleasingly the pig segment delivered 5.0% revenue growth in H2 FY23 (vs pcp) off the back of industry expansion and recovery in pig numbers from the Japanese encephalitis impacts of 2022. Apiam’s underlying EBITA (before one-off expenses)4 grew 11.6% in FY23 with the rate of growth impacted by higher wage costs which increased 8.7% on a LFL basis in the dairy & mixed animal segment. Increased growth in wages over the period occurred due to recruitment of higher skill-set veterinarians in H1 FY23, the broader inflationary environment as well as the 3 Excludes one-off revenue adjustment for deferred revenue relating to prior years +$920K and reversal of earn-out no longer payable $(190K) 4 Underlying EBITA is a non-IFRS measure and is earnings before interest, tax, amortisation and one-off expenses Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 13 full year impact of the acquisitions program and the associated business support required, particularly following the accelerated rate of acquisitions over FY21-FY22. Apiam’s business support network costs declined 1.9% in H2 FY23 (vs H1 FY23) as the rate and the scale of the acquisition program slowed in this period. Rising interest rates over the past 12 months, as well as increased borrowings to fund strategic acquisitions, has increased Apiam’s finance costs in FY23 to $3.8 million, up from $1.6 million in FY22. This has had a negative impact on the Company’s Underlying Net Profit After Tax and Amortisation (NPATA) performance in FY23. Additionally, Apiam’s reported NPAT has been impacted by a one-off provision for inventory, which is reflected as a $1.7 million non-cash expense (post-tax basis). This has reduced reported NPAT to $2.3 million (FY22: $4.6 million). In June 2023, Apiam completed a cost-saving redundancy & restructuring program to reduce the amount of non-veterinarian staff both within the Company’s centralised business support functions, as well as at various clinic locations. This program is expected to result in a reduction to Apiam’s wage expenses of approximately $2.6 million p.a. from July 2023 (FY24) onwards. Redundancy & restructuring costs incurred were $0.3 million and are treated as one-off expenses for the purposes of the tables presented in this Directors Report. Management continue to work with dairy and mixed animal clinics around optimisation of staff rostering and achievement of greater operating cost efficiencies to further reduce costs and improve their financial contribution to the Group. The following tables are presented to assist in the interpretation of the underlying performance of Apiam during FY23. This information is additional and presented using non-IFRS information and terminology. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 14 Apiam FY23 Financial Results Summary – Underlying Basis P&L underlying Total Revenue 1 Cost of goods sold 2 Gross Profit 3 Operating expenses Underlying EBITDA 4 Underlying EBITA 4 Underlying NPATA 4, 5 Amortisation post tax One-off expenses post tax One-off revenue adj post tax One-off write-down adj post tax NPAT attributable to members Gross Margin (%) Underlying EBITDA margin (%) Underlying EBITA margin (%) FY23 FY22 Variance % 192.8 (67.5) 125.3 157.2 (59.8) 97.4 35.6 22.6% (7.7) 12.9% 27.9 28.6% (104.3) (79.2) (25.2) 31.8% 21.0 12.8 6.4 (1.5) (0.5) (0.5) (1.7) 2.3 18.3 11.5 7.1 (1.1) (1.4) 2.7 14.8% 1.3 11.6% (0.7) (9.6)% (0.5) 31.4% 0.9 (61.6)% 4.6 (2.4) (50.9)% 65.0% 10.9% 6.7% 62.0% 11.6% 7.3% Notes 1 Excludes one-off revenue adjustment for deferred revenue relating to prior years +$920K and reversal of earn-out no longer payable $(190K) 2 Excludes inventory write-down expense of $2.4 million relating to sanitiser and surface protectant products. 3 Gross profit is a non-IFRS measure and only considers the cost of inventory associated with product revenue. It does not consider any cost of services associated with service revenue. 4 Underlying earnings are non-IFRS measures and exclude one-off acquisition, integration & restructuring costs (tax effected where applicable at NPAT level) Before amortisation (tax effected) 5 Apiam FY23 Financial Results Summary – Reported Basis P&L stat Total revenue Cost of goods sold Gross profit 1 Operating expenses EBITDA Depreciation ROU assets Depreciation & amortisation EBIT Interest Tax Other (including minorities) NPAT attributable to members FY23 FY22 192.1 (69.9) 122.2 (105.1) 157.2 (59.8) 97.4 (81.1) Variance 34.9 (10.1) 24.8 (24.0) 16.3 0.8 17.1 (4.1) (6.1) 6.9 (3.8) (1.0) 0.2 2.3 (3.3) (5.0) 7.9 (1.6) (1.9) 0.2 4.6 % 22.2% 16.9% 25.4% 29.5% 4.9% 24.0% 21.3% (13.4)% 140.4% (0.8) (1.1) (1.1) (2.2) 0.9 (48.5)% (0.0) (16.8)% (2.4) (50.9)% 1 Gross profit is a non-IFRS measure and only considers the cost of inventory associated with product revenue. It does not consider any cost of services associated with service revenue. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 15 Acquisitions & cost-saving restructuring program Apiam continued its acquisition program in FY23 completing the acquisitions listed below during the period: Business acquired State Veterinary speciality Acquisition date The Vet Practice VIC Mixed animals 1 Jul 2022 Victorian Equine Group VIC Equine specialist 1 Jul 2022 Harradine & Associates (2 clinics) WA Mixed animals & equine 1 Nov 2022 Hunter Equine NSW Equine specialist 8 Dec 2022 Singleton Veterinary Hospital NSW Mixed animals 1 Feb 2023 Merimbula, Pambula & Eden Vet Clinics Townsend Veterinary Clinic (Albury) NSW Mixed animals 1 Feb 2023 NSW Mixed animals 1 April 2023 Boyne Tannum Vet Surgery QLD Mixed animals 5 July 2023 (FY24) In addition, Apiam opened three new greenfield clinics during the financial year, with two of these clinics opened during Q4 FY23 in the regional hubs of Yarrawonga (VIC) and Caboolture (QLD). Both of these clinics have been performing strongly since commencement of trading and have been targeted to meet the needs of a growing pet care market in these regional growth corridors. Apiam introduced a revised greenfields model in FY22, to reduce the cost burden of new greenfields clinics while in scale-up, and this continues to generate strong outcomes. As previously communicated, Apiam’s focus in H2 FY23 was to deliver further integration benefits and growth synergies from its acquisition program in order to maximise free cash flow generation. In-line with this, Apiam has been focusing on improving efficiencies and resourcing appropriate skillsets within each clinic to be able to deliver improved performance. In a small number of clinics the restructure required has resulted in short term revenue reduction, which is expected to recover in FY24. With an increased focus on the existing clinic performance, the Company has reduced the rate of its acquisition program. A redundancy and restructuring program to reduce non-veterinary positions and achieve greater savings was completed in June 2023. Savings from this program are already being realised and are expected to be approximately $2.6 million in FY24 (annualised basis). Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 16 Apiam Management are continuing to work with a number of clinics where further integration benefits can be realised, in order to reduce costs and increase earnings and cash flow generation. Balance sheet & cash flow Apiam’s balance sheet as at 30 June 2023 remains solid, with key movements over the past 12 months reflecting the impact of the acquisition program. A $2.4 million write-down to inventory was incurred during FY23 and reflects provisioning for the value of sanitiser and surface protectant products. Net debt as at 30 June 2023 increased to $68.7 million, up from $41.0 million as at 30 June 2022. This increase related to the $32.5 million of cash consideration required for acquisitions over FY23. The Company’s operating leverage ratio as at the end of FY23 was 3.0x against a covenant of 3.5x. Apiam has recently extended the current terms of its banking facilities with its long standing financier, National Australia Bank until January 2026. Apiam’s operating cash flow in FY23 increased 15.7% as a result of earnings growth and strong working capital management. Operating cash conversion to underlying EBITDA (pre-AASB 16 adjustments) remained strong at 129.2%, up from 116.8% in FY22. Financing cash flows during FY23 reflect the draw-down of Apiam’s finance facility to fund the Company’s acquisition program. Statutory cashflows $m FY23 FY22 Net cash provided by operating activities Acquisition of subsidiary, net of cash Payments for property, plant and equipment Payments for Intangible assets Other Net cash used in investing activities Net changes in financing Dividends paid to shareholders Repayment of lease liabilities Proceeds from share issues Other Net cash inflow from financing activities Net change in cash and cash equivalents 17.4 (32.5) (7.9) (0.3) 0.2 (40.6) 28.9 (0.7) (4.8) 0.0 0.0 23.5 0.3 15.0 (28.2) (4.2) (0.1) 0.0 (32.5) 4.8 (2.4) (3.5) 19.2 0.0 18.1 0.7 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 17 Outlook & strategy for FY24 Apiam continues to focus on building a resilient business, that is leveraged to growing animal numbers in targeted regional locations. In FY24, the Company will also be particularly focussed on reducing costs, maximising free cash flows and delivering value to shareholders. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 18 DIVIDENDS No interim dividend was paid in the 2023 financial year. On 28 August 2023 the Apiam Board of Directors declared that there will be no final dividend. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the Directors there were no significant changes in the state of affairs of the consolidated entity during the financial period, except as otherwise noted in this Report. SIGNIFICANT EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The Group acquired seven veterinary businesses during FY23 and entered into agreements for the acquisition of one further veterinary business post reporting date. Further details of these acquisitions are disclosed in Note 39 of the Financial Statements. Apart from these events, 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 capacity and capability required to prosper in the expanding global animal health industry. KEY RISKS AND BUSINESS CHALLENGES Apiam Animal Health operates, in part, 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, 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 FY23 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 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 19 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 Group is not subject to any particular or significant environmental regulation under laws of the Commonwealth or of a State or Territory. The Managing Director reports to the Board on any environmental and regulatory issues at each Directors meeting, if required. There are no matters that the Board considers need to be reported in this report. GREENHOUSE GAS AND ENERGY DATA REPORTING REQUIREMENTS The Group is not subject to the reporting requirements of either the Energy Efficiency Opportunities Act 2006 or the National Greenhouse and Energy Reporting Act 2007. UNISSUED SHARES UNDER OPTION There were no unissued ordinary shares of Apiam under option at the date of this report. SHARES ISSUED DURING OR SINCE THE END OF THE YEAR AS A RESULT OF EXERCISE OF OPTIONS During the financial year, the Company 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 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 20 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 2023 21 Remuneration Report (Audited) 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 (resigned 24 November 2022) Director (Independent Non-executive) Richard Dennis Director (Independent Non-executive) Jan Tennent Director (Independent Non-executive) Evonne Collier (appointed 1 October 2022) Director (Independent Non-executive) (II) EXECUTIVES Matthew White Chief Financial Officer Brian Scutt Chief Operating Officer Renee Waters (New KMP) Chief People Officer Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 22 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 2023 23 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 marketplace 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 and Nomination Committee (the 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 Committee has met three times in the FY23 reporting period. 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 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 FY23 FY22 FY20 FY19 FY18 EPS (cents) 1.30c 3.42c 4.18c 3.63c 3.01c Dividends paid (cents per share) Net profit before tax ($’000) Share price ($) 0.4c 2.4c 2.4c 1.6c 1.6c $3,166 $6,470 $6,971 $5,956 $4,569 $0.51 $0.69 $0.96 $0.46 $0.52 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 24 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 $ Accrued annual leave $ Non-monetary benefits $ Post-employment benefits Superannuation $ Long-term benefits (Accrued long service leave) $ Share-based Payment Performance Rights (ii) $ - - - - - - - - 67,316 3,757 15,602 19,783 Directors Andrew Vizard Chairman Independent Richard Dennis Independent Chris Richards Managing Director Michael van Blommestein Independent Jan Tennent Independent Evonne Collier Independent Employees Matthew White Chief Financial Officer Brian Scutt Chief Operating Officer Renee Waters Chief People Officer 2023 Total 2022 Total Year 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 140,000 120,000 80,000 70,000 431,915 367,929 26,146 54,545 70,000 60,000 47,511 - 291,649 276,267 244,215 237,626 219,143 - 1,550,579 - - - - - 63,332 - - - - - - - 33,250 27,849 - - - - - - - - - 3,514 18,129 6,711 1,504 - 61,460 28,597 - (10,874) 1,186,367 124,431 - - - - - - - - - - - - 15,602 19,783 Total $ 140,000 120,000 80,000 70,000 595,673 504,931 28,891 60,000 70,000 60,000 52,500 - 347,512 389,967 268,911 310,423 258,437 - Performance based percentage of remuneration % 0% 0% 0% 0% 3% 16% 0% 0% 0% 0% 0% 0% 4% 15% 4% 14% 4% 0% 3% 12% 47,283 1,841,924 55,637 1,515,321 - - - - 25,292 23,568 2,745 5,455 - - 4,989 - 25,292 23,568 24,927 22,801 23,987 - 107,232 75,392 - - - - - - - - 40,073 10,469 15,475 16,093 - - - - - - 12,307 24,769 9,575 14,775 9,926 - - - - - - - 14,750 13,984 1,068 661 3,877 - 59,768 25,114 (i) (ii) Salary and fees include salaries and allowances. 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. For rights issued in FY21 the performance rights will vest annually over three years upon the Company achieving a minimum of 12% share price growth per year and continued employment. For rights issued in FY23 the rights will vest at the end of the three year performance period upon the Company achieving a minimum Total Shareholder Return of 45% and continued employment. The amount recognised for the Managing Director, Chief Financial Officer, Chief Operating Officer and Chief People Officer is the proportion expensed in that year based on the Monte Carlo valuation model. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 25 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 Renee Waters Fixed remuneration At risk – LTI 97% 96% 96% 96% 3% 4% 4% 4% Service agreements c Remuneration and other terms of employment for the Executive Director 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 $435,083 $293,550 $245,867 $220,626 Term of agreement No fixed term No fixed term No fixed term No fixed term Notice period Twelve (12) months Six (6) months Three (3) months Three (3) months Name Chris Richards Matthew White Brian Scutt Renee Waters Bonus provisions Chris Richards: Matthew White: Brian Scutt: Renee Waters: Nil Nil Nil Nil Long Term Incentive Plan d Remuneration of key management personnel includes performance rights which are offered as part of long term incentive plans. The long term incentive plans run for periods of three years. The rights granted in FY20 and FY21 vest in 3 tranches, subject to continued employment and upon meeting the share price growth requirements at each respective vesting date. The annual share price growth requirement is set out below for each financial year during the performance period. Share Price Growth % of Performance Rights that may vest Less than 12% Above 12% but less than 31% 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. TSR shall be measured by comparing the Baseline Share Price against the Closing Share Price during the Performance Period. The calculation used will be the Closing Share Price, minus the Baseline Share Price, plus Dividends received, divided by the Baseline Share Price. The Baseline Share Price is $0.9572 (calculated by assessing the volume weighted average price (VWAP) of Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 26 For the rights granted in FY22 and FY23 the performance measures are assessed at the end of the three year period and are based on the Total Shareholder Return (TSR) of the company and subject to continued employment. The TSR requirement is set out below for the three year performance period. TSR shall be measured by comparing the Baseline Share Price against the Closing Share Price during the Performance Period. The calculation used will be the Closing Share Price, minus the Baseline Share Price, plus Dividends received, divided by the Baseline Share Price. The Baseline Share Price was $0.9572 for FY22 and $0.7643 for FY23 (calculated by assessing the volume weighted average price (VWAP) of Apiam shares for the 20 trading days following the lodgement of the annual report for the previous financial year). The Closing Share Price shall be calculated by assessing the VWAP of Apiam shares for the 20 trading days following the lodgement of the annual report at the end of the relevant Performance Period. Performance will be assessed as follows: Absolute TSR Below 45% 45-95% 95% Percentage of Performance Rights to vest Nil Straight line between 50% and 100% 100% Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 27 Performance Rights Granted: The following 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 the employee remaining in continuous employment through to the annual vesting date of 31 October. Each tranche of performance rights which have not vested will expire if the applicable performance measures are not met during the performance period. Name Grant Perform- FY2020 Fair Value Fair Value FY2021 Fair Value Fair Value FY2022 Fair Value Fair Value FY2023 Fair Value Fair Value Expiry Date ance Tranche per Right Tranche per Right Tranche per Right Tranche per right date to Rights granted exercise vested shares Chris Richards 28/11/19 248,144 82,714 $16,411 $0.1984 82,715 $22,338 $0.2701 82,715 $23,873 $0.2886 Matthew White 19/03/20 106,326 35,442 $ 4,021 $0.1135 35,442 $ 8,831 $0.2492 35,442 $ 9,099 $0.2567 - - - - - - 31 Oct 23 31 Oct 23 Matthew White 06/04/21 67,303 Brian Scutt 23/10/20 97,510 - - - - - - 22,434 $14,700 $0.6553 22,434 $ 8,410 $0.3749 22,435 $ 8,305 $0.3702 31 Oct 24 32,503 $15,193 $0.4674 32,503 $10,359 $0.3187 32,504 $10,612 $0.3265 31 Oct 24 The following performance rights were issued in FY22 and FY23. The performance measures are assessed at the end of the three-year period and are based on the Total Shareholder Return (TSR) of the company and subject to continued employment. The Performance Rights which have not vested will expire if the applicable Performance Measures are not met during the Performance Period. Name Grant Perform- FY2024 Fair Value Fair Value FY2025 Fair Value Fair Value Expiry date Date ance Tranche per Right Tranche per Right to exercise Rights granted vested shares Chris Richards 25/11/21 192,821 192,821 $23,106 $0.1198 - - - 31 Oct 25 Chris Richards 24/11/22 284,628 - - - 284,628 $27,233 $0.0957 31 Oct 26 Matthew White 09/12/21 99,248 99,248 $11,110 $0.1119 - - - 31 Oct 25 Matthew White 08/12/22 128,026 - - - 128,026 $10,450 $0.0816 31 Oct 26 Brian Scutt 09/12/21 83,126 83,126 $ 9,304 $0.1119 - - - 31 Oct 25 Brian Scutt 06/12/22 107,230 Renee Waters 06/12/22 96,221 - - - - - - 107,230 $8,502 $0.0793 31 Oct 26 96,221 $7,628 $0.0793 31 Oct 26 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. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 28 Non-Executive Director remuneration e Clause 13.1(a) of the Company’s Constitution (Constitution) provides the limit for the aggregated remuneration of non-executive directors which is currently set at $750,000. The Directors of the Company are entitled to apportion and distribute this aggregate Non-Executive Directors’ remuneration as they determine. The Non-Executive Directors of the Company received the following fees (which total $360,000): • Chairman (One): $140,000 per annum; • Directors (Three): $70,000 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. f Other information Options held by key management personnel There were no options to acquire shares in the Company held during the 2023 reporting period by key management personnel of the Group, including their related parties. Shares held by key management personnel: The number of ordinary shares held in the Company at 30 June 2023 held by each of the Groups key management personnel, including their related parties, is set out below. Personnel Balance at 1/07/2022 Granted as remuneration Received on exercise Chris Richards 38,850,000 Andrew Vizard Richard Dennis Michael van Blommestein Jan Tennent Evonne Collier Matthew White Brian Scutt Renee Waters Total 284,591 12,000 111,268 71,691 - 145,421 1,503,593 - 40,978,564 - - - - - - - - - - - - - - - - - 43,882 43,882 Other changes Held as at 30/06/2023 (198,423) 38,651,577 1,518 64 - 382 - 596 286,109 12,064 111,268 72,073 - 146,017 264,560 1,768,153 - 43,882 68,697 41,091,143 None of the shares included in the table above are held nominally by key management personnel Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 29 Performance rights held by key management personnel: The number of performance rights held at 30 June 2023 by each of the Group’s key management personnel, including their related parties, is set out below. Balance at 1/07/2022 358,251 237,435 148,133 182,613 Granted as remunerat ion 284,628 128,026 107,230 Vested & Exercised - - - 96,221 (43,882) Forfeited/ lapsed during year (82,715) (57,876) (32,503) (43,883) Personnel Chris Richards Matthew White Brian Scutt Renee Waters Held as at 30/06/2023 Vested & not exercised Vested in FY23 560,164 307,585 222,860 191,069 82,715 57,876 - - - - - - - Total 926,432 616,105 (43,882) (216,977) 1,281,678 140,591 Loans to key management personnel The Group did not enter into any loans with key management personnel during the 2023 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 a head office and warehouse facility at Piper Lane, Bendigo East, Victoria. The premises are owned by an entity associated with Chris Richards. Rental payments in FY23 amounted to $378,303 (2022: $360,193). The Group rents a veterinary clinic and warehouse facility at Rubicon Street, Smithton, Tasmania. The premises are owned by an entity associated with Chris Richards. Rent payments made amounted to $135,941 (2022: $133,752). The Group leases an artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $119,186 (2022: $113,481). End of audited Remuneration Report. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 30 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 30 to the financial statements. A copy of the Auditor’s Independence Declaration as required under s307C of the Corporations Act 2001 is included on page 32 of this financial report and forms part of this Directors’ Report. Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 31 Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Rounding of amounts Apiam is a type of Company referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000 (where rounding is applicable), or in certain cases, to the nearest dollar under the option permitted in the Instrument. Signed in accordance with a resolution of the Directors: Dr Christopher Irwin Richards Managing Director Melbourne 28 August 2023 32 Grant Thornton Audit Pty Ltd Level 22 Tower 5 Collins Square 727 Collins Street Melbourne VIC 3008 GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 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 2023, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. Grant Thornton Audit Pty Ltd Chartered Accountants A C Pitts Partner – Audit & Assurance Melbourne, 28 August 2023 www.grantthornton.com.au ACN-130 913 594 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389 ACN 127 556 389. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Limited 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 ACN 127 556 389 and its Australian subsidiaries and related entities. Liability limited by a scheme approved under Professional Standards Legislation. #10101452v1w Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 33 Apiam Animal Health Limited Financial Statements For the year ended 30 June 2023 Apiam Animal Health Limited Financial Statements for the year ended 30 June 2023 34 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023 Revenue Other income Expenses Changes in inventory Cost of materials Employee benefit expenses Depreciation and amortisation expense Other operating expenses Share of profit from equity accounted investments 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 Note 7 2023 $’000 191,757 318 (2,309) (67,568) (82,844) (10,227) (22,240) 53 (3,774) 3,166 (995) 2,171 2,171 2,277 (106) 29 8 8 9 26 2022 $’000 157,057 167 1,740 (62,501) (61,960) (8,359) (18,195) 91 (1,570) 6,470 (1,931) 4,539 4,539 4,639 (100) Total comprehensive income/ (loss) for the period 2,171 4,539 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 27 27 1.30 1.28 3.42 3.36 The above consolidated 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 2023 35 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2023 Note Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables 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 Total equity 10 11 12 13 15 14 18 19 16 23 20 21 22 21 16 22 18 24 25 25 25 25 26 2023 $’000 3,172 13,958 15,472 2,130 34,732 163,614 43,812 274 3,605 211,305 246,037 12,435 4,984 1,346 889 2,934 10,677 33,265 66,066 24,043 543 3,718 505 94,875 128,140 117,897 134,840 (26,692) (6,615) 993 6 15,336 117,868 28 117,896 2022 $’000 2,845 13,623 17,781 1,628 35,877 126,932 31,640 271 4,458 163,301 199,178 10,968 3,558 498 1,859 2,914 8,991 28,788 39,165 17,753 657 3,626 505 61,706 90,494 108,684 127,249 (26,692) (6,615) 871 (19) 13,756 108,550 134 108,684 The above consolidated statement of financial position should be read in conjunction with the accompanying notes Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 36 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2023 Note Balance at 1 July 2021 24 Issue of new share capital Share placement 24 Transaction costs on issue of new share capital, net of tax 24 24 Issue of shares to vendors of business acquired 24 Employee share plan, transfer on exercise of rights Employee share plan, share based payments 24 Foreign currency translation adjustment Purchase of non-controlling interest Dividends paid Transactions with owners Profit / (Loss) for the period Total comprehensive income for the period Balance at 30 June 2022 24 Issue of new share capital Share placement 24 Transaction costs on issue of new share capital, net of tax 24 24 Issue of shares to vendors of business acquired 24 Employee share plan, transfer on exercise of rights Employee share plan, share based payments 24 Foreign currency translation adjustment Purchase of non-controlling interest Dividends paid Transactions with owners Profit / (Loss) for the period Total comprehensive income for the period Balance at 30 June 2023 Share capital Corporate re- organisation reserve $’000 101,010 919 20,247 (748) 5,333 488 - - - - 26,239 - - 127,249 42 - - 7,119 430 - - - - 7,591 - - 134,840 $’000 (26,692) - - - - - - - - - - - - (26,692) - - - - - - - - - - - - (26,692) Non- controlling interest acquisition reserve $’000 (6,615) - - - - - - - - - - - - (6,615) - - - - - - - - - - - - (6,615) Share based payment reserve Foreign Currency Translation Reserve Retained earnings Total attributable to owners of parent Non- controlling interest $’000 $’000 $’000 595 - - - - (488) 764 - - - 276 - - 871 - - - - (430) 552 - - - 122 - - 993 (79) - - - - - - 60 - - 60 - - (19) - - - - - - 25 - - 25 - - 6 11,596 - - - - - - - 795 (3,274) (2,479) 4,639 4,639 13,756 - - - - - - - - (697) (697) 2,277 2,277 15,336 $’000 79,815 919 20,247 (748) 5,333 - 764 60 795 (3,274) 24,096 4,639 4,639 108,550 42 - - 7,119 - 552 25 - (697) 7,041 2,277 2,277 117,868 $’000 1,002 27 - - - - - - (795) - (768) (100) (100) 134 - - - - - - - - - - (106) (106) 28 Total equity $’000 80,817 946 20,247 (748) 5,333 - 764 60 - (3,274) 23,328 4,539 4,539 108,684 42 - - 7,119 - 552 25 - (697) 7,041 2,171 2,171 117,896 The above statement should be read in conjunction with the accompanying notes Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2023 Note 28 15 33 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest paid Transaction costs paid relating to acquisition of subsidiary Income taxes paid Net cash (outflow)/inflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Proceeds from disposals of property, plant & equipment Proceeds from disposals of intangible assets Dividends received 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 Proceeds from issue of share capital Capital contribution of non-controlling interest Transaction costs paid on issue of share capital 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 10 2023 $'000 214,619 (189,993) 24,626 (3,774) (416) (3,031) 17,405 (7,855) (350) 128 - 50 (32,543) (40,570) 39,049 (10,111) (4,773) - - - (673) 23,492 327 2,845 3,172 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes 37 2022 $'000 174,352 (153,820) 20,532 (1,570) (1,802) (2,122) 15,038 (4,322) (542) 167 422 40 (28,248) (32,483) 31,497 (26,696) (3,511) 20,247 28 (1,069) (2,356) 18,140 695 2,150 2,845 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 38 Notes to the Consolidated Financial Statements 1 Nature of operations Apiam Animal Health Limited and subsidiaries’ (‘the Group’) principal activities include the provision of veterinary products and services to production animals, companion animals and equine. The Group is vertically integrated with strategic sourcing of products, custom manufacture of vaccines, in-house laboratory services and on farm delivery with its own logistics service. 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 2023 were approved and authorised for issue by the Board of Directors on 28 August 2023. 3 Changes in accounting policies New Accounting Standards and Interpretations adopted during the year The amended accounting standards and interpretations issued by the Australian Accounting Standards Board during the year that were mandatory were adopted. None of these amendments or interpretations materially affected any of the amounts recognised or disclosures in the current or prior year. 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 Restatement of prior period intangibles provisionally accounted Apiam has restated the financial statements of three of the veterinary businesses it acquired in the financial year ended 30 June 2022. The acquisitions were provisionally accounted for in that period. Subsequent to the acquisition, it was noted that there were customer relationships and trademarks within these businesses and that a portion of goodwill recognised upon acquisition must be reclassified as intangible assets. The customer relationships recognised as intangible assets are amortised over the useful life of the asset. This resulted in a restatement of each of the affected financial statement line items for prior periods as follows: Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 39 30 June 2022 Statement of financial position (extract) Previous amount $'000 Adjustment $'000 Restated amount $'000 Goodwill 113,580 (286) 113,294 Trademarks and trade names Customer relationships Deferred tax assets Other current liabilities Employee benefit obligations (current) Employee benefit obligations (non-current) Deferred tax liabilities 2,491 9,243 4,426 (500) (8,972) (657) (3,510) 63 323 32 2 (19) 1 (116) 2,554 9,566 4,458 (498) (8,991) (657) (3,626) 5 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 2023. 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 2023 40 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 segments are aggregated for reporting purposes on the basis that each segment has sales consisting predominantly of S4 products, over the counter products and service revenue and that these products and services exhibit similar economic characteristics across each business. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 41 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 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. 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 8. Intangible assets Goodwill Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. See Note 5.3 for information on how goodwill is initially determined. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 5.12 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 and have been determined to range between five and ten years. Trademarks & Trade Names Trademarks & Trade Names represents the future economic benefits arising from within a business combination that have been identified and separately recognised. Trademarks & Trade Names are carried at cost less accumulated impairment losses. The useful life is reviewed at each reporting date and each has been determined to have an indefinite useful life. 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 of between two and five years. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 42 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 5.11). Leasehold improvements, plant and equipment and motor vehicles are subsequently measured using the cost model, cost less subsequent depreciation and impairment losses. Depreciation is recognised on a straight-line basis to write down the cost less estimated residual value of buildings, IT equipment and other equipment. The following useful lives are applied: • Leasehold improvements: 10 - 33% Plant & equipment: 10 – 33% • • Motor vehicles: 20 - 25% In the case of leasehold property, expected useful lives are determined by reference to comparable owned assets or over the term of the lease, if shorter. Assets under construction commence depreciation once the asset is put into service. Material residual value estimates and estimates of useful life are updated as required, but at least annually. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses. Leased assets For any new contracts entered into, 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 2023 43 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. 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 (CGUs). As a result, some assets are tested individually for impairment and some are tested at the CGU level. Goodwill is allocated to those CGUs or a group of CGUs 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. CGUs or a Group of CGUs to which goodwill or indefinite life intangible assets has been allocated are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired. All other assets 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 assets, CGUs or a group of CGUs carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each CGU or group of CGUs 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 CGU or group of CGUs and reflect management’s assessment of respective risk profiles, such as market and asset-specific risk factors. Impairment losses for CGUs or group of CGUs reduce first the carrying amount of any goodwill allocated to that CGU or group of CGUs. Any remaining impairment loss is charged pro rata to the other assets in the CGU or group of CGUs. 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 CGUs or group of CGUs recoverable amount exceeds its carrying amount. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 44 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 45 Impairment of financial assets AASB 9’s impairment requirements use forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of the 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. 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 35.3 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. Financial liabilities are measured subsequently at amortised cost using the effective interest method, except for financial liabilities held for trading or designated at FVTPL, that are carried subsequently at fair value with gains or losses recognised in profit or loss. All derivative financial instruments that are not designated and effective as hedging instruments are accounted for at FVTPL. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned on the basis of weighted average cost. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 46 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. The Group is not tax consolidated. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Equity, reserves and dividend payments Share capital Share capital represents the fair value of shares that have been issued. Any transaction costs associated with the issuing of shares are deducted from share capital, net of any related income tax benefits. Corporate re-organisation reserve The Corporate re-organisation reserve represents the difference between the fair value of the consideration paid and the fair value of assets and liabilities acquired in a business combination whereby the business acquired was under common control at the date of acquisition. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 47 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. 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. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 48 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). The share-based payment expense is recorded proportionately over the vesting period. Provisions, contingent liabilities and contingent assets Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan’s main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. No liability is recognised if an outflow of economic resources as a result of present obligation is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote in which case no liability is recognised. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. Rounding of amounts The Parent Entity has applied the relief available to it under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instruments 2016/191 and accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000, or in certain cases, the nearest dollar. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 49 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. Identification of CGUs and allocation of goodwill to CGUs or Groups of CGUs CGUs are identified by determining the smallest identifiable group of assets that generate largely independent cash inflows from other assets or groups of assets. Identifying those largely independent cash inflows requires significant judgement in assessing the Group’s sources of revenue and how assets are utilised in generating those revenues. Goodwill is required to be allocated to the CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. Significant judgement is required to assess which CGUs or groups of CGUs benefit from the synergies and thus determine how the goodwill is allocated. 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 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 5.12). Useful lives of property, plant and equipment and definite life intangible assets Management reviews its estimate of the useful lives of property, plant and equipment and definite life intangible assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates may relate to technical obsolescence or some other event. Customer relationships Management estimates core customer revenue, customer attrition rates and revenue growth rates when valuing customer relationship intangible assets. Identification of the core customer share of revenue requires management to estimate the percentage of recurring revenue that can be attributed to the customer relationship as opposed to other factors such as convenience of the location of the clinic. Estimation uncertainty exists in regard to the core revenue resulting from the calculated percentage of recurring customers. Management estimates the attrition rate for customers through assessment of the historical attrition rates of the acquired customers. The estimates of attrition rates are uncertain to the extent that they may not reflect the historical attrition rates. Management estimates the forecast revenue growth rate for acquired businesses by assessing historical performance of the acquired business and there is uncertainty that the future growth rates of the customer base do not reflect the estimate. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 50 Business combinations Management uses valuation techniques in determining the fair values of the various elements of a business combination (see Note 5.3). Particularly, the fair value of contingent consideration is dependent on the outcome of many variables that affect future profitability. Leases – determination of the appropriate discount rate to measure lease liabilities The Group enters into leases with third-party landlords and as a consequence the rate implicit in the relevant lease is not readily determinable. Therefore, the Group uses its incremental borrowing rate as the discount rate for determining its lease liabilities at the lease commencement date. The incremental borrowing rate is the rate of interest that the Group would have to pay to borrow over similar terms which requires estimations when no observable rates are available. Leases - Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the Group’s operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The Group reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 51 6 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 segments are aggregated for reporting purposes on the basis that each 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 7 Revenue Sales revenue Goods transferred at a point in time Services transferred over time Total revenue 2023 $'000 2022 $'000 191,757 (182,493) 9,264 157,057 (145,527) 11,530 9,264 318 (1,964) (416) (315) (3,774) 53 3,166 (995) 2,171 2023 $'000 98,815 92,942 191,757 11,530 167 (1,807) (1,802) (139) (1,570) 91 6,470 (1,931) 4,539 2022 $'000 90,411 66,646 157,057 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 8 Expenses Profit before income tax includes the following specific expenses: Depreciation Leased buildings(i) Leasehold improvements Plant and equipment Motor vehicles Amortisation of intangibles Total depreciation and amortisation Right of use assets (i) Finance costs Interest expense on borrowings Interest expense on lease liabilities Share-based payments expense Rental expense 52 2022 $’000 3,323 446 2,133 882 1,575 8,359 1,168 402 1,570 765 130 2023 $’000 4,129 606 2,366 1,074 2,052 10,227 3,180 594 3,774 568 613 9 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% (2022: 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% (2022 - 30%) Adjustments for non-deductible expenses: Sundry items Income tax expense 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 18 provides information on deferred tax assets and liabilities. 2023 $’000 3,166 950 9 959 959 36 995 1,620 (625) 995 2022 $’000 6,470 1,941 (7) 1,934 1,934 (3) 1,931 2,717 (786) 1,931 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 53 10 Cash and cash equivalents Cash at bank and in hand Cash and cash equivalents 11 Trade and other receivables Trade receivables, gross Less: allowance for expected credit losses Other receivables Rebates receivable 2023 $'000 3,172 3,172 2022 $'000 2,845 2,845 2023 $'000 13,352 (642) 65 1,183 13,958 2022 $'000 12,951 (503) 58 1,117 13,623 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 35.3 Credit risk analysis. Balance at 1 July Acquired through business combinations Impairment loss Balance 30 June 12 Inventories Stock on hand, at cost Less provision for obsolescence Stock in transit, at cost 13 Other current assets Prepayments Security deposits 2023 $'000 503 113 26 642 2023 $'000 17,921 (2,607) 158 15,472 2023 $'000 1,700 430 2,130 2022 $'000 327 169 7 503 2022 $'000 17,691 (142) 232 17,781 2022 $'000 1,313 315 1,628 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 54 14 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 26,773 (7,645) 19,128 3,527 (988) 2,539 16,665 7,510 279 54,754 (9,340) (5,141) - (23,114) 7,325 2,369 279 31,640 19,128 5,245 2,539 2,643 7,325 3,352 2,369 2,123 279 31,640 (195) 13,168 5,159 557 847 616 (4,129) (606) (2,366) (1,074) - - 7,179 (8,175) 25,403 5,133 9,158 4,034 84 43,812 36,110 6,635 19,957 10,044 84 72,830 (10,707) (1,502) (10,799) (6,010) - (29,018) 25,403 5,133 9,158 4,034 84 43,812 At 30 June 2022 At cost Accumulated depreciation Net book value Year ended 30 June 2023 Opening net book value Additions Additions through business combinations Depreciation charge Closing net book value At 30 June 2023 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 2023 15 Intangible assets At 30 June 2022 Cost Accumulated amortization and impairment Carrying amount at 30 June 2022 At July 1 2022 Opening net book value Additions Additions through business combinations Amortisation Closing net book value At 30 June 2023 Cost Accumulated amortization and impairment Net book value 55 Total $'000 130,761 (3,829) 126,932 126,932 350 38,384 (2,052) 163,614 Customer Relation- ships (i) $’000 Trademarks & Trade Names (i) $’000 Capitalised develop- ment costs $'000 Goodwill (i) $'000 113,294 - 113,294 113,294 - 32,017 - 145,311 11,919 (2,353) 9,566 9,566 - 5,739 (1,642) 13,663 2,993 (1,476) 1,517 1,517 350 - (410) 1,457 2,555 - 2,555 2,555 - 628 - 3,183 3,183 - 3,183 145,311 - 145,311 17,658 (3,995) 13,663 3,313 (1,856) 1,457 169,465 (5,851) 163,614 i) Opening balances have changed due to a restatement of a prior period. Refer to Note 4. Impairment testing Goodwill is allocated to the CGU or group of CGUs that are expected to benefit from the synergies of the business combination. Each CGU or group of CGUs to which goodwill is allocated represents the lowest level within the entity at which goodwill is monitored for internal management purposes and does not exceed an operating segment before aggregation, being the Dairy and mixed, Feedlot and Pigs segments. The recoverable amounts of the CGUs and groups of CGUs 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 terminal growth rates determined by management. The present value of the expected cash flows of each CGU or group of CGUs is determined by applying the following key assumptions: Annual sales growth Pig CGU % Annual Sales growth Feedlot CGU % Annual Sales growth Dairy & mixed CGUs % Annual operating expenses growth rate % Long-term growth rate % Post-tax discount rate % 2023 3.00% 2022 3.00% 0.00% to 5.00% 5.00% to 7.50% 5.00% 2.00% 2.50% 10.00% 5.00% 2.00% 2.50% 10.79% 2023 $’000 2022 $’000 Goodwill allocation across CGUs or groups of CGUs 145,311 113,294 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 CGUs to exceed its recoverable amount. Growth rates The annual sales growth rate as per the table in 15.1, 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 2023 56 Discount rates The post-tax discount rate of 10.79% reflects appropriate adjustments relating to market risk and other risk factors. The discount rate is applied to each CGU or Group of CGU’s because they 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 CGUs and groups of CGUs described above, management is not currently aware of any other probable changes that would necessitate changes in its key estimates. The following is a summary of the CGUs or Groups of CGUs to which goodwill is allocated. Feedlot Dairy and mixed Balance 1 July 2022 Acquisitions 30 June 2023 $’000 13,330 - 13,330 $’000 91,287 32,017 Pig $’000 Total $’000 8,677 113,294 - 32,017 123,304 8,677 145,311 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 57 16 Leasing Lease liabilities are presented in the statement of financial position as follows: Lease liabilities (current) Lease liabilities (non-current) 2023 $’000 2022 $’000 4,984 3,558 24,043 17,753 29,027 21,311 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 2023 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 Total $’000 30 June 2023 Lease payments Finance charges 5,684 (700) 5,585 (565) 5,052 4,938 (430) (303) 3,405 (185) 6,817 (271) 31,481 (2,454) Net present values 4,984 5,020 4,622 4,635 3,220 6,546 29,027 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 17 Commitments 2023 $’000 525 88 613 2022 $’000 64 65 129 2023 $’000 2022 $’000 Capital commitments Committed at the reporting date but not recognised as liabilities, payable: Property, plant and equipment 1,198 - Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 58 18 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 and liabilities comprises temporary differences attributable to: Current assets Trade and other receivables Inventory Non-current assets Property, plant & equipment Intangible assets Current liabilities Trade and other payables Provisions Other Unused tax losses Listing and acquisition costs Equity raising costs Deferred tax assets Deferred tax liabilities 2023 $'000 2022 $'000 198 994 161 237 (3,977) (5,047) (2,216) (3,626) 24 3,421 3,411 635 228 (113) - 2,999 2,393 572 312 832 3,605 (3,718) 4,458 (3,626) All deferred tax assets (including tax losses and other tax credits) have been recognised in the statement of financial position. Tax losses $'000 Provis- ions $'000 Trade receiv- ables $'000 Listing & acquis- ition costs $'000 Equity raising costs $'000 Invento ry $'000 Trade and other payables $’000 Property, plant & equipment $’000 Intangible assets $’000 At 1 July 2021 1,440 2,267 110 111 72 109 (Charged)/credited: to P&L at 30 June 2022 (Charged)/credited: to P&L At 30 June 2023 • • • 953 2,393 732 2,999 1,018 3,411 422 3,421 51 161 37 198 461 572 63 635 240 312 (84) 228 128 237 757 994 (622) (2,020) Total $'000 1,467 (1,594) (2,216) (1,606) (3,626) (635) 832 - - - 24 24 (1,761) (3,977) (1,421) (5,047) (945) (113) Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 19 Trade and other payables Trade payables Sundry payables and accrued expenses 59 2022 $'000 5,737 5,231 2023 $'000 6,317 6,118 12,435 10,968 All amounts are short-term. The carrying values of trade payables and other payables are considered to be a reasonable approximation of fair value. 20 Current tax liabilities Current tax payable 21 Borrowings Current: Bank loans (a) less capitalized costs Total current borrowings Non-current bank loans (a) Total non-current borrowings Refer to Note 36 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 Assets pledged as security 2023 $'000 889 2023 $'000 2,956 (22) 2,934 2022 $'000 1,859 2022 $'000 2,932 (18) 2,914 66,066 66,066 39,165 39,165 2023 $’000 69,022 (22) 69,000 2022 $’000 42,097 (18) 42,079 (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. Banking covenants The financial covenants that must be complied with applicable to bank facilities are: • Maximum gearing ratio, defined as the ratio of Net Debt divided by Net Debt plus Equity, is to be no greater than 45% as of the 30th June each financial year, with o Net Debt meaning the amount owing (excluding AASB16 leases) less cash and cash equivalent: and o Equity meaning total assets minus total liabilities. • Maximum operating leverage ratio, defined as the ratio of Net Debt divided by EBITDA, is to be no greater than 3.5x as of the 30th June each financial year, with o EBITDA meaning earnings before interest, tax, depreciation and amortisation, excluding any one-off acquisition and integration/system expenses The Group complied with all bank covenants during the period. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 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 22 Employee benefit obligations Leave obligations current Leave obligations non-current Employee benefits 60 2022 $'000 83,700 4,500 1,000 300 89,500 42,097 1,803 43,900 41,603 2,697 1,000 300 45,600 2022 $'000 8,991 657 9,648 2023 $'000 100,000 4,500 500 500 105,500 69,022 2,875 71,897 30,978 1,625 500 500 33,603 2023 $'000 10,677 543 11,220 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 $10,677 (2022: $8,972) 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. 23 Other current liabilities Contingent consideration for acquisitions Net payable to vendors on acquisition Contract liability Make good provision . 2023 $'000 - - 1,219 127 1,346 2022 $'000 190 142 19 147 498 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 61 24 Equity 24.1 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 · share placement · transaction costs on issue of new share capital · employee shares issued Shares issued and fully paid Total shares authorised at the end of the period 2023 Shares 2022 Shares 2023 $'000 2022 $’000 166,388,823 129,896,893 127,249 101,010 11,021,249 5,976,370 7,119 5,333 - - - - 33,475 - - 516,076 177,959,623 177,959,623 1,021,307 28,924,553 - 569,700 166,388,823 166,388,823 25 - - 447 134,840 134,840 919 20,247 (748) 488 127,249 127,249 Each share has the same right to receive dividend and the repayment of capital and represents one vote at the shareholders’ meeting of Apiam. 25 Reserves Details of reserves are as follows: Balance at 1 July 2021 Employee share plan incentive Foreign currency translation Balance at 30 June 2022 Employee share plan incentive Foreign currency translation Balance at 30 June 2023 26 Non-controlling interests Issued capital Current year earnings Retained profits carried forward Total non-controlling interests Corporate reorganisation reserve $’000 (26,692) - - (26,692) - - (26,692) Non- controlling interest acquisition reserve $’000 (6,615) - - (6,615) - - (6,615) Share based payment reserve Foreign Currency Translation reserve $’000 595 276 - 871 122 - 993 $’000 (79) - 60 (19) - 25 6 Total $’000 (32,791) 276 60 (32,455) 122 25 (32,308) 2023 $’000 140 (106) (6) 28 2022 $’000 141 (100) 93 134 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 62 27 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. Profit attributable to Owners of Apiam Animal Health Limited 2023 $'000 2,277 2,277 2022 $'000 4,639 4,639 The weighted average number of shares for the purposes of calculating basic and diluted earnings per share are 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 Basic earnings per share (cents) Diluted earnings per share (cents) Dividends During the year, the following dividends were declared and paid. fully franked final dividend (1.2 cents a share) fully franked interim dividend (1.2 cents a share) fully franked final dividend (0.4 cents a share) 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 2023 Number 175,031,496 2,730,416 2022 Number 135,811,154 2,330,783 177,761,912 138,141,937 1.30 1.28 3.42 3.36 2023 $'000 - - 697 697 2022 $'000 1,616 1,658 - 3,274 2023 $'000 2022 $'000 12,528 11,179 (305) (856) 889 13,112 1,859 12,182 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 63 28 Reconciliation of cash flows from operating activities a) Reconciliation of cash flows from operating activities (a) Reconciliation of cash flows from operating activities Cash flows from operating activities Profit for the period Adjustments for: · depreciation and amortisation expense · doubtful debt expense · obsolete stock provision · amortisation of borrowing costs · profit on sale of fixed assets · share benefits expense · share of profit in equity accounted investments · 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 employee benefit obligations · increase/(decrease) in other liabilities · increase/(decrease) in other current liabilities · increase/(decrease) in foreign currency translation reserve Net cash received in operating activities 29 Employee remuneration Employee benefits expense Expenses recognised for employee benefits are analysed below: Employee benefits – expense Wages and salaries expense Bonus expense Share-based payment expense Superannuation expense Employee benefits expense 2023 $’000 2,171 10,227 233 2,464 6 (318) 570 (53) 2,028 1,166 (387) 853 (246) (1,411) (1,478) 522 - 1,033 25 17,405 2023 $’000 75,567 159 568 6,550 82,844 2022 $’000 4,539 8,359 97 100 22 (167) 764 (91) 1,347 (668) (16) (171) 295 273 (293) 562 89 (64) 61 15,038 2022 $’000 56,325 196 765 4,674 61,960 Share-based employee remuneration As at 30 June 2023, the Group maintained two share-based payment schemes for employee remuneration, the Future Leaders Long Term Incentive Plan and the Senior Executive Long Term Incentive Plan. Performance rights under these Plans 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 fair value of rights offered for the Future Leaders Long Term Incentive Plan is based on the share price at grant date. The fair value of rights offered for the Senior Executive Long Term Incentive Plan is determined using the Monte Carlo valuation model that takes into account factors specific to the performance conditions, such as the grant date, share price at grant date, vesting period, risk free rate, volatility and dividend yield. The performance rights will be issued at nil exercise price upon vesting. The number of performance rights held by employees of the Group at 30 June 2023 is set out below: Type Performance rights Balance at 1/07/2022 2,529,301 Granted 1,163,563 Vested and Exercised (391,376) Forfeited (322,063) Held as at 30/06/2023 2,979,425 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 64 30 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 2023 $ 2022 $ 352,839 235,394 2,120 122,669 124,789 477,628 13,400 118,900 132,300 367,694 31 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. 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 • accrued annual leave entitlements • non-monetary benefits Total short-term employee benefits Long- term employee benefits: • Accrued long service leave entitlements Share based payments expense Total long-term employee benefits Post-employment benefits: • superannuation Total post-employment benefits Total remuneration 2023 $ 2022 $ 1,550,579 1,310,798 61,460 15,602 28,597 19,783 1,627,641 1,359,178 59,768 47,283 107,051 107,232 107,232 25,114 55,637 80,751 75,392 75,392 1,841,924 1,515,321 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 $378,303 (2022: $360,193). 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 $135,941 (2022: $133,752). The Group leases an artificial insemination facility in Victoria from entities associated with Chris Richards. Lease payments made amounted to $119,186 (2022: $113,481). 32 Contingent liabilities In the Directors’ view, there are no contingent assets or liabilities that will have a material effect on the Group. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 65 33 Business combination The Group applies the acquisition method in accounting for business combinations. During the reporting period the Group acquired 100% of the business assets of the veterinary clinics listed below. The number of fully paid shares issued and fair value per share is included. Veterinary Business Acquisition Date No. of Shares Fair value per Victorian Equine Group (VEG) Victorian Equine Group (VEG) Harradine & Associates (HAV) 1 July 2022 1 July 2022 1 November 2022 Merimbula, Pambula & Eden Vet Clinics (MPEVC) 1 February 2023 Townsend Veterinary Clinic (TVC) 1 April 2023 issued 3,827,019 215,952 683,851 1,079,461 n/a share $0.65 $0.73 $0.72 $0.62 n/a During the reporting period the Group acquired 100% of the issued share capital and voting rights of the entities listed below. The number of fully paid shares issued and fair value per share is included. Entity Acquisition Date No. of Shares Fair value The Vet Practice (TVP) Hunter Equine Centre (HEC) Singleton Veterinary Hospital (SIVH) 1 July 2022 8 December 2022 1 February 2023 issued per share 1,697,573 623,501 2,893,892 $0.65 $0.665 $0.62 The following detailed table highlights the fair value of the identifiable assets acquired and liabilities assumed as at the date of acquisition for each of the business combinations undertaken in the period. The acquisition of these veterinary businesses expands Apiam’s presence in equine, dairy and mixed clinics in regional Victoria, New South Wales and Western Australia. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 Fair value of consideration transferred Amounts settled in cash Amount settled by issue of shares at fair value Payable to vendors Total fair value of consideration transferred Recognised amounts of identifiable net assets Cash and equivalents Trade and other receivables Inventories Other assets Total current assets Trademarks and trade names Customer relationships Property, plant & equipment Deferred tax assets Total non-current assets Trade and other payables Other current liabilities Current tax liabilities Employee benefit obligations Lease liabilities Total current liabilities Lease liabilities Employee benefit obligations Deferred tax liabilities Total non-current liabilities Identifiable net assets Goodwill on acquisition Net cash outflow on acquisition VEG $’000 7,287 2,645 - TVP $’000 7,006 1,103 - HAVB $’000 2,184 492 - 66 HEC $’000 6,304 415 - SIVH $’000 MPEVC $’000 5,739 1,794 - 2,899 669 - TVCA $’000 1,350 - - Total $’000 32,769 7,118 - 9,932 8,109 2,676 6,719 7,533 3,568 1,350 39,887 - 314 245 - 559 237 1,029 1,597 - 2,863 110 - - 86 127 323 1,244 6 352 1,602 1,497 8,435 7,287 112 35 180 26 353 - 906 1,367 - 2,273 400 - 200 311 116 1,027 619 23 171 813 786 7,323 6,894 - 308 169 - 477 27 247 953 - 1,227 - - - 67 142 209 589 9 54 652 843 1,833 2,184 89 1,719 165 36 2,009 180 1,378 1,937 - 3,495 900 - 178 132 131 1,341 1,369 - 414 1,783 2,380 4,339 6,215 25 189 175 52 441 184 1,531 708 - 2,423 296 - 63 189 92 640 399 8 453 860 1,364 6,169 5,714 - 22 301 1 324 - 525 186 - 711 1 - - 168 62 231 64 10 102 176 - 1 86 - 87 - 123 430 - 553 - - - 41 203 244 - - 24 24 628 2,940 2,899 372 978 1,350 226 2,588 1,321 115 4,250 628 5,739 7,178 - 13,545 1,707 - 441 994 873 4,015 4,284 56 1,570 5,910 7,870 32,017 32,543 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 67 Consideration transferred Acquisition related costs amounting to $416,412 are not included as part of the consideration transferred and have been recognised as an expense in the consolidated statement of profit of loss, as acquisition expenses. Acquisition related costs were made up of state government transfer duties, due diligence audit fees, legal, accounting and other miscellaneous expenses. Identifiable net assets The accounting for all business combinations has been finalised as at 30 June 2023. The fair value of the trade and other receivables acquired as part of the business combinations amounted to $2,588,000 with a gross contractual amount of $2,701,000. As at the acquisition date, the Group’s best estimate of the contractual cash flows not expected to be collected amounted to $113,000. There were no contingent liabilities assumed from the acquisitions and no separate transactions. Goodwill The goodwill that arose on the combinations can be attributed to the synergies expected to be derived from the combination including implementation of the Groups programs, software systems, support networks, supply and employment contracts. Goodwill has been provisionally allocated to CGUs at 30 June 2023 and is attributable to the Dairy & mixed segment. The goodwill that arose from this business combination is not expected to be deductible for tax purposes. 34 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 Clinics NSW & QLD 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 (deregistered 30/10/2022) 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 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 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 Group proportion of ownership interests 2023 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 51% 100% 2022 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 80% 100% 51% 100% Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 South Yarra Pharma Pty Ltd Animal Consulting Enterprises Pty Ltd The Trustee for Grampians Animal Health Unit Trust CrosVet Pty Ltd Agnes Banks Equine Clinic Pty Limited North Hill Veterinary Clinic Pty Ltd The Vet Practice Pty Ltd Hunter Equine Centre Pty Ltd Singleton Veterinary Hospital Pty Limited Australia Australia Veterinary Services Manufacturing Australia Veterinary Services Australia Australia Australia Australia Australia Australia Veterinary Services Veterinary Services Veterinary Services Veterinary Services Veterinary Services Veterinary Services 100% 100% 100% 100% 100% 100% 100% 100% 100% 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. 35 Financial instrument risk Risk management objectives and policies 68 100% 100% 100% 100% 100% 100% 0% 0% 0% 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 2023, 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% (2022: +/- 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-23 30-Jun-22 Profit for the year Equity $’000 +1% 555 399 $’000 -1% (555) (399) $’000 +1% 555 399 $’000 -1% (555) (399) Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 69 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 2023 $’000 3,172 13,958 17,130 2022 $’000 2,845 13,623 16,468 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 11) 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 2023 $’000 1,889 584 1,437 3,910 2022 $’000 2,035 646 1,070 3,751 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 70 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 2023, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 June 2023 Bank borrowings Trade and other payables Total Within 6 months $’000 6 - 12 months 1 - 4 years $’000 $’000 2,934 12,435 15,369 - - - 66,066 - 66,066 This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting periods as follows: 30 June 2022 Bank borrowings Trade and other payables Total Within 6 months $’000 6 - 12 months $’000 1 - 4 years $’000 2,914 10,968 13,882 - - - 39,165 - 39,165 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 2023 71 36 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 2023 and 30 June 2022: 30 June 2023 Contingent consideration Total liabilities Net fair value 30 June 2022 Contingent consideration Total liabilities Net fair value Level 1 $'000 - - - Level 1 $'000 - - - Level 2 $'000 - - - Level 2 $'000 - - - Level 3 $'000 - - - Level 3 $'000 190 190 190 Total $'000 - - - Total $'000 190 190 190 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 and Risk Management 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. 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 95% - 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 Contingent consideration for acquisitions / (released to profit and loss) Balance at 30 June 2023 $’000 190 (190) - 2022 $’000 - 190 190 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 72 37 Capital management policies and procedures The Group’s capital management objectives are: • • to ensure the Group’s ability to continue as a going concern, and to provide an adequate return to shareholders; by pricing products and services commensurately with the level of risk. The Group monitors capital on the basis of the carrying amount of equity less cash and cash equivalents as presented on the face of the statement of financial position. The Group’s goal in capital management is to maintain a gearing ratio below 45% (ratio of net debt to net debt and 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 2023 $'000 117,896 3,172 121,068 117,896 69,000 186,896 65% 2022 $'000 108,684 2,845 111,529 108,684 42,079 150,763 74% 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 2023 73 38 Parent entity information Information relating to Apiam Animal Health Limited (‘the Parent Entity’): Statement of financial position Current assets Total assets Current liabilities Total liabilities Net assets Issued capital Share based payment reserve 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 40 for details. The Parent Entity had no contingent liabilities at 30 June 2023 (2022: $nil). 39 Post-reporting date events 2023 $’000 2022 $’000 2,628 199,167 6,977 75,251 119,567 134,519 993 (17,616) 117,896 2,287 153,941 5,097 45,257 108,684 126,928 871 (19,115) 108,684 2,682 53 2,735 4,348 91 4,439 On 1 July 2023 the Group acquired the business assets of Boyne Tannum Vet Surgery, a provider of veterinary services in the Gladstone region of Queensland. The consideration consisted of an initial cash payment of $2,432,315. The prima facie value of net assets acquired is $140,641 and the prima facie goodwill is $2,492,133. The prima facie balance sheet is not yet fair valued and is subject to change. The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination including implementation of the Groups programs, software systems, support networks, supply and employment contracts. Separately identifiable intangible assets (customer relationships) are expected and have not yet been fair valued. The acquisition of this veterinary business expands Apiam’s presence in regional Queensland. At this time the acquisition have not been finalised and the goodwill cannot be quantified. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 74 40 Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Chris Richards & Associates Pty Ltd Country Vet Wholesaling Pty Ltd 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 Clinics NSW & QLD 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 Legislative Instrument 2016/785 issued by the Australian Securities and Investments Commission. No entities were added or removed during the financial year. 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 2023 Continuing operations Revenue Other income Expenses Changes in inventory Cost of materials Employee benefit expenses Depreciation of property, plant and equipment Other operating expenses Finance costs Share of profit from equity accounted investments Profit/(loss) before income tax Income tax (expense)/benefit Profit from continuing operations Profit for the year 2023 $'000 2022 $'000 132,220 112,416 322 139 (2,549) (43,602) (59,945) (7,038) (12,836) (3,519) 53 1,594 (42,635) (48,018) (6,256) (11,898) (1,476) 91 3,106 3,957 (1,030) 2,076 (1,180) 2,777 2,076 2,777 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 Set out below is a consolidated statement of financial position of the parties to the Deed. Statement of Financial Position as at 30 June 2023 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Intangible assets Property, plant and equipment Investments Deferred tax assets Total non-current assets Total assets Current liabilities Trade and other payables Amounts payable to vendors for business acquisitions Current tax liabilities Borrowings Lease liabilities Provisions Total current liabilities Non-current liabilities Borrowings Lease liabilities 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 - share based payment reserve - non-controlling interest acquisition reserve - retained earnings Total Equity 75 2022 $’000 2,328 11,351 13,415 1,629 28,723 123,731 24,674 268 3,261 151,934 2023 $’000 2,716 13,571 10,866 1,820 28,973 161,716 28,786 270 2,355 193,127 222,100 180,657 10,597 1,321 862 2,934 3,870 7,750 27,334 66,066 17,219 388 1,661 85,334 112,668 9,262 485 1,675 2,914 3,530 6,800 24,666 39,165 14,041 390 1,832 55,428 80,094 109,432 100,563 133,174 993 (26,692) (6,587) 8,544 109,432 125,584 (26,692) 871 (6,481) 7,281 100,563 Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 76 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 2023 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 40 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 40. 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 2023. 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 28 August 2023 77 Grant Thornton Audit Pty Ltd Level 22 Tower 5 Collins Square 727 Collins Street Melbourne VIC 3008 GPO Box 4736 Melbourne VIC 3001 T +61 3 8320 2222 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 2023, 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 b giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (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. www.grantthornton.com.au ACN-130 913 594 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Limited ABN 41 127 556 389 ACN 127 556 389. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Limited 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 ACN 127 556 389 and its Australian subsidiaries and related entities. Liability limited by a scheme approved under Professional Standards Legislation. w 78 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Intangible assets – Note 15 At 30 June 2023 the carrying value of goodwill, customer Our procedures included, amongst others: relationships and trademarks is $145.3M, $13.7M and $3.2M respectively, and is allocated to two separate cash generating units ("CGU") and one group of cash-generating units ("CGU group"). In accordance with AASB 136 Impairment of Assets, the Group is required to assess at the end of each reporting period whether there are any indicators of impairment. • Reviewing management's determination of the CGU's and CGU group; • Reviewing management's allocation of goodwill resulting from acquisitions amongst the CGU's/CGU group; • Reviewing managements impairment models for compliance with AASB 136; Goodwill must be tested for impairment annually, irrespective • Verifying the mathematical accuracy of the underlying of any indication of impairment. This is a key audit matter due to the high level of management judgment and estimation required to determine the recoverable value of the CGU's and CGU group. Business Combination – Note 33 During the year ended 30 June 2023, the Group acquired 100% of the business assets of four veterinary clinics. In addition, the Group acquired 100% of the issued share capital of three companies. Acquisitions are required to be recognised under AASB 3 Business Combinations. Separately identifiable intangible assets are to be separated from the value of goodwill and recognised as an identifiable intangible asset. This area is a key audit matter due to the high level of management judgement and estimation required to determine the fair value of net assets acquired and the fair value of identifiable intangible assets. value in use calculations and evaluating the methodology used for appropriateness; • Evaluating cash flow projections by assessing actual results compared to historical forecasts; • Reviewing key judgements and assumptions and performing sensitivity analysis on the inputs in the value in use model; • Utilising an auditor's expert to assess the reasonableness of key inputs and assumptions used in the model; and • Evaluating the disclosures in the financial statements for appropriateness and consistency with accounting standards. Our procedures included, amongst others: • Assessing whether transactions have been appropriately accounted for under AASB 3; • Reviewing management's calculation for the acquisition, including tracing inputs to supporting documentation and assessing whether any goodwill arising as a result of the acquisition has been appropriately recognised within the financial statements; • Considering if separately identifiable intangible assets exist, such as customer relationships, which are to be separated from goodwill and recognised; • Obtaining and reviewing the identification and valuation of intangible assets completed by management's expert; • Assessing the work performed by managements expert including evaluating competence, capabilities, and objectivity of the expert; • Reviewing material balances from the completion accounts for each acquisition, including selecting samples and tracing to source documentation to verify the fair value of balances on the acquisition date; and Grant Thornton Audit Pty Ltd 79 • 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 2023, 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 Group are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1_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 21 to 29 of the Directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Apiam Animal Health Limited, for the year ended 30 June 2023 complies with section 300A of the Corporations Act 2001. Grant Thornton Audit Pty Ltd 80 Responsibilities The Directors of the Group are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Grant Thornton Audit Pty Ltd Chartered Accountants A C Pitts Partner – Audit & Assurance Melbourne, 28 August 2023 Grant Thornton Audit Pty Ltd Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 81 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 24 July 2023 (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 (Fourth 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 CJOEA FAMILY COMPANY PTY LTD Ordinary Shares 38,850,000 22.27% PETSTOCK INVESTMENTS PTY LTD Ordinary Shares 21,240,500 12.3% REGAL FUNDS MANAGEMENT PTY LIMITED AND ITS ASSOCIATES Ordinary Shares 17,844,177 9.9% Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 82 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 quoted on ASX Fully paid ordinary shares restricted until 31 July 2023 and quoted on ASX Fully paid ordinary shares restricted until 4 September 2023 and quoted on ASX Fully paid ordinary shares restricted until 1 November 2023 and quoted on ASX Fully paid ordinary shares restricted until 4 December 2023 and quoted on ASX Fully paid ordinary shares restricted until 11 December 2023 and quoted on ASX Fully paid ordinary shares restricted until 1 February 2024 and quoted on ASX Fully paid ordinary shares restricted until 1 June 2024 and quoted on ASX Fully paid ordinary shares restricted until 1 July 2024 and quoted on ASX Fully paid ordinary shares restricted until 1 November 2024 and quoted on ASX Fully paid ordinary shares restricted until 9 December 2024 and quoted on ASX Fully paid ordinary shares restricted until 3 February 2025 and quoted on ASX Total restricted ordinary shares Total Ordinary Shares on issue Performance Rights Voting rights of equity securities Number of holders 168,974,266 839,247 441,825 341,927 1,124,449 311,751 1,986,677 582,660 2,762,294 341,924 311,750 1,986,676 11,031,180 180,005,446 2,693,991 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 1,830 holders of a total of 180,005,446 ordinary shares of the Company. At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a vote equivalent to the proportion which the amount paid up (not credited) on that partly paid share bears to the total amounts paid and payable (excluding amounts credited) on that share. Amounts paid in advance of a call are ignored when calculating the proportion. Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 83 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 – 999,999,999 343 562 271 515 139 208,222 1,388,001 2,067,138 15,570,594 160,771,491 Totals 1,830 180,005,446 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 0 1 15 9 25 0 0 7,686 781,681 1,904,624 2,693,991 % 0.12 0.77 1.15 8.65 89.31 100.00 % 0.00 0.00 0.29 29.02 70.70 100.00 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 ($0.525) is as follows: Total Shares 180,005,446 UMP Shares UMP Holders % of issued shares held by UMP holders 128,433 263 7.1% Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 84 Twenty largest shareholders The Company only has one class of quoted securities, being ordinary shares. The names of the 20 largest holders of ordinary shares, and the number of ordinary shares and percentage of capital held by each holder is as follows: Holder Name Balance as at Reporting Date % CJOEA FAMILY COMPANY PTY LTD 35,758,709 19.87% PETSTOCK INVESTMENTS PTY LTD CITICORP NOMINEES PTY LIMITED UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED SCOLEXIA COMMODITY PTY LTD 21,240,500 11.80% 12,817,128 7.12% 7,122,807 3.96% 5,654,958 3.14% 3,079,729 1.71% 2,755,777 1.53% CERTANE CT PTY LTD 2,018,793 1.12% COBASH PTY LIMITED 1,872,006 1.04% MR ROGER CHARLES CARMODY & MRS MARIS MOORE CARMODY MR BRIAN SCUTT JINLAND PTY LTD BUTTONWOOD NOMINEES PTY LTD OREM HOLDINGS PTY LTD 1,742,791 0.97% 1,728,879 0.96% 1,708,211 0.95% 1,640,817 0.91% 1,620,724 0.90% WARBONT NOMINEES PTY LTD 1,575,944 0.88% HAMILTON ANIMAL HEALTH PTY LTD FERGUS MACBETH HAY MATTHEW GEORGE MULLEN FOUR POST INVESTMENTS PTY LTD BNP PARIBAS NOMS PTY LTD Total Securities of Top 20 Holdings Total of Securities 1,564,270 0.87% 1,446,946 0.80% 1,446,946 0.80% 1,386,700 0.77% 1,386,561 0.77% 109,569,196 60.87% 180,005,446 100.00% Apiam Animal Health Limited Financial statements for the year ended 30 June 2023 85 Company Secretary The Company’s secretary is Eryl Baron. 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 8, 210 George Street Sydney New South Wales 2000 Telephone: (02) 9290 9600 Stock Exchange Listing The Company’s ordinary shares are quoted on the Australian Securities Exchange (ASX issuer code: AHX). Escrow 11,031,180 Ordinary Shares ae subject to Voluntary Escrow. The number of securities and end dates of escrow period are shown above. 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 2,693,991 25 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 Richard Dennis Dr Jan Tennent Evonne Collier Chairman Managing Director Non-Executive Director Non-Executive Director Non-Executive Director COMPANY SECRETARY Eryl Baron 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 395 Bourke Street Melbourne VIC 3000 SHARE REGISTRY Boardroom Pty Ltd Level 8, 210 George Street Sydney NSW 2000 T (02) 9290 9600 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 2023 A P I A M . 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