Cyclopharm Limited
Annual Report 2018
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Cyclopharm Limited and its Controlled Entities
ABN 74 116 931 250
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Contents
FINANCIAL HIGHLIGHTS
CHAIRMAN’S LETTER
MANAGING DIRECTOR’S REVIEW
DIRECTORS’ REPORT
AUDITOR’S INDEPENDENCE DECLARATION
CORPORATE GOVERNANCE
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDIT REPORT
ASX ADDITIONAL INFORMATION
GENERAL INFORMATION
2
3
5
13
32
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45
46
47
48
49
103
104
107
108
Cyclopharm Limited Annual Report 1
FINANCIAL HIGHLIGHTS
Cyclopharm Limited Annual Report 2
201620172018% ChangeSales Revenue$'00014,38613,18913,4041.6%Profit Before Tax$'0001,916705118(83.2%)Profit/(Loss) After Tax$'000891(1,525)(35)97.7%Diluted Earnings/(Loss) Per Sharecents1.55(2.25)(0.05)97.8%201620172018% ChangeTechnegas Division$'00014,38613,18913,4041.6%Molecular Imaging Division$'000- - - 0.0%Total Sales Revenue$'00014,38613,18913,4041.6%201620172018% ChangeTechnegas Division$'0002,2841,165455(60.9%)Molecular Imaging Division$'000(368)(460)(337)26.6%Total Net Profit/(Loss) Before Tax$'0001,916705118(83.2%)Net Profit/(Loss) Before Tax for the Full Year ending 31 DecemberFull Year ending 31 DecemberSales Revenue for the Full Year ending 31 December20172018Inc/(Dec)% ChangeSales Revenue$'00013,189 13,404 2151.63%Gross Margin$'00010,740 10,855 1151.07%Gross Margin % Sales%81.4%81.0%0.45%Consolidated EBITDA$'0001,043 655(388)(37.2%)Add back: Cpet/Ultralute Division$'000457 335(122)(26.7%) R&D Tax Incentive$'000(2,391)(2,122)269(11.3%) Reversal of contingent consideration$'000-(314)(314)100.0% Unrealised gain on forward exchange contract$'000-(275)(275)100.0% FDA expenses$'0002,585 2,96538014.70% Pilot Clinical Trials expenses$'000270 251(19)(100%) Expenses net of writebacks for Germany$'000677 410(267)(100%)Underlying EBITDA$'0002,641 1,905(736)(27.9%)Underlying Results for the Full Year ending 31 December
Chairman’s Letter
29 March 2019
Dear Shareholders,
2018 proved to be a pivotal year of progressing our most significant business opportunity,
approval to sell Technegas products in the US market, while also again delivering a solid
financial performance.
During the past year we proposed a streamlined process for gaining approval of Technegas
from the US regulators. We were successful; however, the US government shut-down
impacted on receiving our official response. Despite this timing setback, we are still confident
of submitting our New Drug Application this year, to enable us to be in a position to initiate
sales of Technegas in the US in 2020. Our ability to make use of an alternative pathway to
approval is also expected to expedite current patient enrolment.
Accessing the US market, which we estimate has a size of US$90 million in sales per annum
just for the nuclear medicine diagnosis of Pulmonary Embolism (PE), is a transformational
opportunity for your company that will create significant additional value. It is pleasing that we
have made significant progress towards starting sales of Technegas in the US and, at the
same time, we have increased revenues from our continuing operations and maintained our
dividend.
Our current global demand for Technegas equates to approximately 200,000 patients per
annum. Accessing the US market will significantly expand sales of Technegas into a new PE
market, where each year around 600,000 individual procedures to rule out PE are performed.
We continue to expect the total costs associated with gaining regulatory approval of
Technegas in the US will be approximately US$7.5 million, of which we have to date spent
approximately US$5.5 million. The balance will be funded through existing resources.
We are also continuing to pursue regulatory approval to sell Technegas in Russia and other
European markets. During the year, we acquired Medicall Analys AB in Sweden, our
Scandinavian distributor, allowing us direct customer access and delivering higher margins in
the Swedish, Norwegian and Finnish markets.
The Company has remained focussed on our ‘Beyond PE’ initiative to broaden the use of
Technegas in applications such as the diagnosis and monitoring of COPD and asthma. Each
of these additional markets are around 30 times larger than our existing Pulmonary Embolism
market. Our approach to delivering our Beyond PE ambitions is to demonstrate the superiority
of Technegas in these new applications through clinical trials and then raise awareness of the
trials amongst referring respiratory medicine clinicians and our nuclear imaging customers.
In 2018, as a result of feedback from potential customers, we pursued validation of UltraluteTM
as a medical device, in Europe. We expect having UltraluteTM reclassified as a medical device
will better position this technology to drive higher sales post launch in the European market.
UltraluteTM has the potential to deliver significant cost savings and efficiencies for nuclear
medicine departments.
In summary, the continuing strength of our core Technegas sales creates a strong and stable
platform from which to focus on our four levers of future growth and returns for shareholders.
Cyclopharm Limited Annual Report 3
Chairman’s Letter
Continued
On behalf of the Board, I thank our Managing Director, all our staff and wider stakeholders for
their commitment to the company and I thank you, the shareholders, for your collective
support.
David Heaney
Chairman
Cyclopharm Limited Annual Report 4
MANAGING DIRECTOR’S REVIEW
Dear Shareholders,
Cyclopharm’s continued delivery of a solid underlying financial performance in 2018 has allowed the
company to make progress against each of our strategic growth objectives.
Cyclopharm’s strategies have four distinct avenues for growth:
1. Expanding Technegas sales by attaining approval to distribute Technegas in the USA in
2020;
2. Expanding the use of Technegas beyond the traditional diagnosis of Pulmonary Embolism
(PE) into significantly larger applications such as Chronic Obstructive Pulmonary Disease
(COPD) and Asthma, Lung Cancer, Lung Volume Reduction and Pulmonary Hypertension
for both diagnosis and patient management;
Identifying, developing and commercialising complementary innovative technology such as
Ultralute™; and
3.
4. Leveraging our core global regulatory strengths, fiscal discipline, strong balance sheet and
well-developed expertise in nuclear medicine and pulmonary healthcare to seek out
complementary technologies and businesses.
Against these objectives, during 2018, Cyclopharm increased sales of our core Technegas products
in existing markets, delivering Revenue of $13.40 million; accelerated the approval process to start
sales of Technegas in the US market in 2020; invested in further R&D and support of clinicians for
the use of Technegas in new diagnostic applications; and progressed the registration of Ultralute™
as a medical device, ahead of targeted sales in Europe; and, completed the acquisition of our
Scandinavian distributor.
Key features of Cyclopharm’s financial results for the 2018 year included:
Sales revenue up 1.6% to $13.40 million, compared to the prior year
Underlying Operating EBITDA1 of $1.91 million in the Technegas division
$2.96 million expended on USFDA approval process of Technegas
Approved R&D tax incentive resulting in Other Income of $2.12 million
Direct distribution access
to key Scandinavian markets achieved
SEK8.846 million acquisition of Medicall Analys AB
through
the
$0.58 million committed to ongoing clinical trials and patient studies to evaluate Technegas
in new diagnostic applications
Strong net cash position at year-end of $5.85 million ($9.19 million as at 31 January 2019)
Final dividend maintained at 0.5 cents per share (cps), giving full year unfranked dividends of
1.0 cps.
1 Underlying Results represent results from the Technegas Division excluding R&D tax incentive, reversal of contingent consideration, unrealised gain
on foreign exchange contract, FDA Expenses, Pilot Clinical Trial expenses and net provisions for Germany.
Cyclopharm Limited Annual Report 5
Managing Director’s Review
Continued
FINANCIAL PERFORMANCE
The increase in Cyclopharm’s revenue to $13.40 million during 2018 was underpinned by improved
pricing for TechnegasPlus generator sales in Europe. Revenue from Generator sales increased 13%
over the year to $1.79 million. PAS sales decreased by $0.28 million, predominantly due to lower
sales volumes in Germany. Excluding the German market, 2018 PAS sales volume increased 8.6%
over the prior corresponding period. Service revenue in markets where we distribute our products
directly, increased by 41% to $0.99 million. Gross margins remained consistent at 81%.
Cyclopharm delivered underlying EBITDA of approximately $1.91 million, down $0.74 million on the
prior year. This EBITDA performance reflects investments in Cyclopharm’s preparation for meeting
USFDA requirements.
Expenditure on the Technegas US regulatory approval process was $2.96 million, compared to
$2.58 million in 2017. In 2019, the Company expects to spend approximately US$2.58 million on the
USFDA approval process of Technegas in the US market, bringing total expenditure to gain approval
of Technegas in the US in line with the expected US$7.5 million.
Some of Cyclopharm’s costs associated with the Group’s overseas R&D activity has been approved
for inclusion in an R&D tax Incentive program by AusIndustry. This has allowed the company to
report Other Income of $2,122,351 for the year compared to $2,390,586 reported in 2017.
Cyclopharm expects to receive an R&D tax incentive of an amount similar to that received in FY2018
through to at least FY2020.
Net loss after tax for the year, which includes USFDA expenditure, was $35,456 compared to net
loss after tax of $1,524,571 in the prior year, representing Basic Loss per Share of 0.05 cents. The
solid Underlying EBITDA supported the Board’s decision to maintain a full year final dividend of 0.5
cent per share, bringing total dividends for 2018 to 1.0 cent per share.
CYCLOPHARM’S UNDERLYING RESULTS2
YEAR ENDED 31 DECEMBER
2018
$’000
2017
$’000
INC/(DEC)
$’000
CHANGE
%
SALES REVENUE
13,404
13,189
215
GROSS MARGIN
GROSS MARGIN % SALES
10,855
81.0%
10,740
81.4%
115
(0.4%)
CONSOLIDATED EBITDA
ADD BACK / (LESS) :
CPET / ULTRALUTETM DIVISION
R&D TAX INCENTIVE
REVERSAL OF CONTINGENT
CONSIDERATION
655
1,043
335
(2,122)
(314)
457
(2,391)
-
(388)
(122)
269
(314)
2%
1%
(37%)
(27%)
11%
(100%)
UNREALISED GAIN ON FORWARD
(275)
-
(275)
(100%)
EXCHANGE CONTRACT
FDA EXPENSES
PILOT CLINICAL TRIAL EXPENSES
EXPENSES NET OF WRITEBACKS
FOR GERMANY
UNDERLYING EBITDA
2,965
251
410
2,585
270
677
1,905
2,641
380
(19)
(267)
(736)
15%
(7%)
(39%)
(28%)
2 Underlying Results represent results from the Technegas Division excluding R&D tax incentive, reversal of contingent consideration, unrealised gain
on foreign exchange contract, FDA Expenses, Pilot Clinical Trial expenses and net provisions for Germany.
Cyclopharm Limited Annual Report 6
Managing Director’s Review
Continued
OPERATIONS AND STRATEGY
During 2018, Cyclopharm’s core operations continued to generate healthy positive earnings and
cashflows. Significant progress was also made in implementing our strategy to commercialise our IP
in new markets whilst developing new applications in all markets to improve respiratory patient
healthcare outcomes.
Operating highlights for the year included:
Significant progress towards attaining USFDA approval to market and distribute Technegas
in the United States
Initiation of further pilot clinical trials targeting new applications for Technegas in chronic
respiratory disease states
Expansion of direct distribution footprint in Europe through acquisition of 100% of our
Scandinavian distributor, Medicall Analys AB
Validation of Cyclopharm’s new, patented UltraluteTM technology in the medical device
category, reflecting initial feedback from European customers and clinicians
In December 2018, Cyclopharm welcomed the release of new Canadian Association of Nuclear
Medicine (“CANM”) guidelines that strongly recommend Technegas above other ventilating agents
in the diagnosis of Pulmonary Embolism, particularly in patients with Chronic Obstructive Pulmonary
Disease (“COPD”). The company views this recent endorsement of Technegas as a positive
indicator of its sales potential in the much larger US market, once approved.
Cyclopharm also made significant progress leveraging our strategic growth objectives.
EXPAND TECHNEGAS REVENUE
Revenue from the core Technegas division, of $13.40 million, rose 1.6% over the prior year,
supported by higher average prices for TechnegasPlus generators.
Sales of PAS represented 79% of the total revenue, and were 3% lower than the prior year, which
was more than offset by sales of generators and other service revenue, which represented 21% of
revenue and were up 22% on the prior year. The increase was a result of pricing increases of
Generators in Europe and an increase in service and other revenue to $0.99 million compared to
$0.71 million in 2017.
TECHNEGAS SALES
COMPOSITION
($MILLIONS)
PAS REVENUE
GENERATOR AND SERVICE
REVENUE
2015
2016
2017
2018
CHANGE
FY17 TO 18
10.15
10.78
10.91
10.62
2.36
3.60
2.28
2.78
(3%)
22%
TOTAL
12.51
14.38
13.19
13.40
1.6%
Each box of Patient Administration Sets (PAS) is equal to 50 patient doses of Technegas.
Cyclopharm sold 3,893 PAS boxes in 2018 down from 4,238 in 2017. The Group’s sales of PAS
units included additional sales in France following the 2017 renegotiation of our supply contract in
that market and resumed PAS sales in China in the second half of the year. However, a reduction of
PAS sales in Germany, following termination of the company’s General Manager in that market
followed by various legal proceedings impacted overall unit sales in that market. Excluding the
German market, 2018 PAS sales volume increased 8.6% over the prior corresponding period.
While the Group sold 50 Technegas generators, down from 56 in the prior year, average prices in
the European market improved reflecting capturing distribution margins following acquisition of our
Scandinavian distributor Medicall Analys AB (“MA”) in May 2018. With this acquisition, Cyclopharm
Cyclopharm Limited Annual Report 7
Managing Director’s Review
Continued
now has direct access to supply Technegas products to Sweden, Norway and Finland in addition to
the Company’s existing direct markets located in Belgium, Luxembourg, Netherlands and Germany.
Regional review
Revenue in the Americas comprised sales in Canada and Latin America, with combined revenue
down 6% on 2017. Canada contributed 16% of revenue at $2.14 million, down 3% on 2017, which
included the sale of 849 PAS boxes, 63 fewer than the prior year. Revenue in Latin America was
$116,441 which included a 64% increase in PAS sales from 66 to 108 boxes. 2018 revenue was
impacted by 5 fewer Generators being sold in Latin America than in 2017.
Europe contributed approximately 64% of revenue at $8.35 million, in line with 2017 despite PAS
sales of 2,003 being down 22% on 2017 and Generator sales, at 31, being down 14% on 2017.
Revenue from Europe benefited from improved average prices, with Cyclopharm capturing the
distribution margin, following the acquisition of its distributer for our Scandinavian market in May
2018.
The decline in European volumes reflects the absence of sales in Germany while legal action,
initiated by Cyclopharm against its former distributor in Germany, continues to run its course. As
advised in an ASX announcement of 24 January 2019, Cyclopharm received a successful judgment
in its first civil case against its former distributer and was awarded a payment of approximately
A$335,000.
Revenue in the Asia Pacific region rose by 12% in 2018 to $2.66 million. In Australia, revenue was
4.1% higher with a 7% increase in PAS boxes sold compared to 2017 while generator sales
decreased to 6 units, one less than in 2017. Sales revenue to Asia was up 219% in 2018
representing 5 generators and 219 PAS boxes compared to 3 Generators and 16 PAS boxes in
2017. This was primarily due to sales to China resuming in the second half of 2018.
Revenue within the Rest of the World, predominantly sales in South Africa, were up 43% to
$131,024, reflecting the sale of 3 Generators in 2018 compared to no Generator sales in 2017. PAS
sales remained steady at 45 units.
TECHNEGAS SALES BY REGION
($MILLIONS)
2015
2016
2017
2018
CHANGE
FY17 TO 18
AMERICAS
EUROPE
ASIA PACIFIC
SOUTH AFRICA
TOTAL
2.14
7.81
2.47
0.09
2.36
7.94
4.00
0.09
2.39
8.34
2.37
0.09
2.26
8.35
2.66
0.13
12.51
14.38
13.19
13.40
(6%)
-
12%
43%
1.6%
Cyclopharm Limited Annual Report 8
Managing Director’s Review
Continued
ACCESS USA & OTHER NEW MARKETS
The most significant business opportunity for Cyclopharm is gaining USFDA approval to sell
Technegas in the US market. Cyclopharm is currently compiling the necessary elements required for
Technegas’ USFDA New Drug Application (NDA). The US Government shut-down has impacted
some of our progress in developing a critical section of NDA. Due to this unforeseeable delay
outside of the Company’s control, Cyclopharm will be submitting our NDA during the second half of
2019 with commercial sales expected in 2020.
The US market represents half of the nuclear medicine departments globally. The existing US
nuclear medicine ventilation imaging market for Technegas is valued at US$90 million, attributed to
600,000 individual procedures performed in determining the presence of Pulmonary Embolism (PE).
Consistent with its experience in other markets, Cyclopharm is targeting an 80% share of the
existing US nuclear medicine ventilation imaging market, representing around 480,000 individual
procedures per annum. Based on the Group’s experience of the rates of adoption of Technegas
following regulatory approval in Canada, Cyclopharm believes that a 50% total market conversion is
achievable over 2 to 3 years with the balance of the target market converted within 5 to 7 years.
As at 22 March 2019, Cyclopharm has enrolled 121 patients in its Phase 3 Trial in support of its
proposed application to USFDA.
Following the company’s submission of its first 40-patient interim study in the first half of 2018,
Cyclopharm met with USFDA in October to explore opportunities to refine or alter the clinical trial
program. As a result of that meeting, USFDA provided constructive guidance to Cyclopharm, relating
to an alternative 505(b)2 New Drug Application Pathway and approved a variation to the existing trial
that is expected to expedite patient enrolment.
In parallel with the clinical elements of our USFDA New Drug Application under development in the
USA, in 2018 Cyclopharm implemented an updated Quality Management System at our new
manufacturing facility located in the Sydney suburb of Kingsgrove. Furthermore, the company has
initiated a comprehensive documentation review of our medical devices to ensure compliance to the
most recent USFDA guidelines as well as the new International Medical Device Single Audit
Program (MDSAP). MDSAP is a regulatory harmonisation initiative between Australia, Brazil, Japan,
Canada and the United States. MDSAP compliance will minimise disruptions due to multiple
regulatory audits, provide predictable audit schedules and incorporate the ISO 13485 compliance
required for our CE mark in Europe. The Company is targeting MDSAP certification during 1H 2019.
In addition to the US market, Cyclopharm continues to pursue regulatory approvals to commence
sales of Technegas in Russia and additional European markets.
Cyclopharm Limited Annual Report 9
Managing Director’s Review
Continued
BEYOND PE
Cyclopharm believes the extension of Technegas into new applications such as the diagnosis and
monitoring of COPD, asthma and other respiratory disease states will create opportunities to
exponentially expand the market for Technegas beyond its traditional PE market.
These new markets represent an opportunity to drive significant growth in sales of Technegas in
mature and new markets, as more than 500 million patients per annum are treated for asthma and
COPD.
Cyclopharm’s strategy is to target new applications through clinical studies; education of clinicians;
and direct engagement with respiratory medicine referrers.
In August 2017, Cyclopharm funded a 100-patient research study, in collaboration with the Hunter
Medical Research Institute and the University of Newcastle, singling out the use of Technegas in
severe asthma patients. 100 eligible patients have been recruited to date. A 30-patient subset of
these 100 are undergoing further tests to determine response to therapy. It is envisioned that the
first articles referencing this trial will be published in the coming months. The cost of the trial is
estimated to be approximately $600,000. More information on this trial is available at the hmri.org.au
website under the news & article section with the title “Nuclear imaging to clear airway diagnosis”.
In May of 2018, Cyclopharm announced funding of a $387,000, three-year, 100-patient study by the
Woolcock Institute for Medical Research in collaboration with The University of Sydney and the
Northern Sydney Local Health District. The trial is designed to develop better tools to diagnose and
manage patients suffering from Asthma and COPD using Technegas. This study is scheduled to
commence during H1 2019.
The current Beyond PE trials build on the first, peer reviewed, article published in May 2017, from
the Cyclopharm sponsored trial in China targeting the use of Technegas in treating COPD.
Cyclopharm is actively promoting these trials to clinicians globally to encourage the use of
Technegas in new applications, such as COPD and asthma, and has received anecdotal feedback
that Technegas is already being used in lung volume reduction applications in Australia.
COMMERCIALISE ULTRALUTETM
Following an initial, test sales of UltraluteTM, Cyclopharm’s patented nuclear medicine technology, in
Canada, in 2018, and feedback from potential customers, the decision was taken to register
UltraluteTM as a medical device technology within Europe, in order to broaden its overall market
acceptance. While this has lengthened the timeframe for full commercialization, categorization of
Ultralute™ as a medical device category is expected to optimise the commercial value of this
technology.
The initial launch market for UltraluteTM is Europe and a full commercial launch is expected to
commence following registration as a medical device targeted in late 2019.
Ultralute™ has generated strong international interest given its potential to bring significant cost
savings in the delivery of pharmaceuticals used in nuclear medicine. Ultralute™ extends the useful
life of Molybdenum-99 (Mo-99) generators by up to 50%. This technology potentially gives nuclear
medicine departments the ability to dramatically improve operating efficiencies and health outcomes
for patients.
Meaningful commercial sales of Ultralute™ within the medical device category in Europe are
expected in 2020. The company believes the commercial prospects for Ultralute™ are exciting and
remains confident it will provide the basis for enhanced shareholder returns over the longer term.
Cyclopharm Limited Annual Report 10
Managing Director’s Review
Continued
OTHER BUSINESSES
Joint Venture - Macquarie Medical Imaging
Macquarie Medical Imaging (“MMI”) is a joint venture between Cyclopharm, Alfred Imaging and
Macquarie University Hospital, which provides a range of radiology, nuclear medicine and imaging
services. It is accounted for on an equity basis, due to Cyclopharm’s minority shareholding, and as a
result, MMI’s full accounts are not consolidated into our accounts.
Molecular Imaging Trading as Cyclopet
In September 2017, Cyclopharm announced it had signed a term sheet with Cyclotek (Aust) Pty Ltd,
PETTECH Solutions Pty Ltd and Macquarie University to create a new business, Cyclotek NSW, to
service the NSW and the broader Australian molecular imaging sector.
The initiative will enable the productive future utilisation of Cyclopharm’s legacy asset to enhance
health outcomes for the Australian community. Cyclopharm will also receive an income stream from
what was a suspended business and that will also, potentially, provide additional commercial
opportunities via the international commercial rights to IP developed within the collaboration.
The arrangements are subject to finalisation of agreements and completion of certain conditions,
including obtaining the necessary approvals and licenses.
Cyclopharm Limited Annual Report 11
Managing Director’s Review
Continued
SUMMARY AND OUTLOOK
2018 was a year of significant investment in the strategic priorities that will drive the next phase of
Cyclopharm’s growth strategy. During the year, we recorded a solid underlying sales and earnings
performance from our continuing operations, supporting our USFDA trials, R&D and ongoing
dividends.
The company’s core Technegas business recorded consistent underlying sales when adjusted for
the reduction of sales in Generators and PAS boxes in Germany. PAS sales volume grew across our
other major markets with total PAS sales, ex-Germany, up 8.6% on the prior year.
In 2018, $2.96 million was invested to progress USFDA regulatory approval for the use of
Technegas in the US for diagnosing PE, a market valued at US$90 million. USFDA Trials are
expected to progress to regulatory approval for use across several indications in 2020, including:
lung transplants, Pulmonary Hypertension and acute Pulmonary Embolism. We are also continuing
to pursue regulatory approvals to commence sales of Technegas in Russia and additional European
markets.
We invested over $0.25 million in a successful clinical trial to expand the use of Technegas into the
diagnosis and monitoring of Asthma which represents a much larger market than our current
application in the Pulmonary Embolism market. In addition, we completed the acquisition of Medicall
Analys AB for a consideration of SEK8.846 million paid over 3 years, to provide supply chain
synergies to the Group.
The anticipated underlying solid financial performance will allow the Group to maintain its healthy
capital position and dividend policy. I look forward to continuing to report to our shareholders our
progress against our next phase growth drivers which are expected to deliver returns for our
investors and be support by our strategic priorities, which remain:
1. Expanding Technegas sales by attaining approval to distribute Technegas in the USA in
2020;
2. Expanding the use of Technegas beyond the traditional diagnosis of Pulmonary Embolism
(PE) into significantly larger applications such as Chronic Obstructive Pulmonary Disease
(COPD) and Asthma, Lung Cancer, Lung Volume Reduction and Pulmonary Hypertension
for both diagnosis and patient management;
Identifying, developing and commercialising complementary innovative technology such as
Ultralute™; and
3.
4. Leveraging our core global regulatory strengths, fiscal discipline, strong balance sheet and
well-developed expertise in nuclear medicine and pulmonary healthcare to seek out
complementary technologies and businesses.
Finally, I thank all my colleagues who have contributed to the growth of the Company over recent
years and assure you that the Cyclopharm management team, with the ongoing support of the
Board, remains absolutely committed to delivering positive health outcomes for our patients and
growing financial rewards to our shareholders.
James McBrayer
Managing Director
Cyclopharm Limited Annual Report 12
Directors’ Report
The Directors of Cyclopharm submit their report for the year ended 31 December 2018.
DIRECTORS
The names and details of the Company’s Directors in office during the financial year and until the date of
this report are as follows. Directors were in office for this entire year unless otherwise stated.
Names, qualifications, experience and special responsibilities
Mr D J Heaney – Non Executive Chairman (Independent)
Mr Heaney was appointed to the Cyclopharm Board on 20 November 2007 and is currently the Chairman
of Cyclopharm and Chairman of the Remuneration and Board Nomination Committees. Until recently, he
was also Chairman of the Audit and Risk Committee.
Mr Heaney served as a non-executive director of Colorpak Limited from February 2004 until May 2016
and has also previously been a non-executive director of several other listed and non-listed companies.
Mr Heaney has more than 40 years experience in all aspects of wholesale banking and finance, gained in
senior management roles with National Australia Bank Limited and subsidiary companies in both
Australia and the US.
Mr V R Gould – Non Executive Director
M Com, FCA, FCPA, B Com
Mr Gould has been a member of the Board since 21 November 2005. He was the Group Non-Executive
Chairman and Chairman of the Audit and Risk, Board Nominations, and Remuneration Committees of the
Group until his voluntary redesignation as a Non-Executive Director on 7 October 2016. Mr Gould
remained as a member of the Audit and Risk, Board Nomination, and Remuneration Committees as from
that date.
Mr Gould has broad business experience having practised as a chartered accountant for more than 30
years. He is also a director of Vita Life Sciences Limited (listed on the ASX) and a director of several
other private companies and educational establishments.
Mr J S McBrayer – Managing Director and Company Secretary
BSPharm, GDM, FAICD, AIM
Mr McBrayer has been a member of the Board since 3 June 2008 at which time he accepted the role of
Managing Director. Mr McBrayer serves as a member of the Board Nominations Committee.
Mr McBrayer has more than 30 years experience in nuclear medicine and is a trained Nuclear
Pharmacist. Mr McBrayer held the role of Managing Director at Lipa Pharmaceuticals, Australia’s largest
contract manufacturer of over-the-counter products and senior management positions with Brambles
Cleanaway business and Syncor,
therapeutic
pharmaceutical provider.
radioactive diagnostic and
the world’s
largest
Cyclopharm Limited Annual Report 13
Directors’ Report
Continued
DIRECTORS (CONTINUED)
Mr T A McDonald –Non Executive Director (Independent)
B.Com, FCPA
Mr McDonald was appointed to the Board on 3 April 2017 and has been appointed Chairman of the Audit
and Risk Committee effective 1 March 2019. He holds a Bachelor of Commerce from UNSW and is a
Post Graduate of University of Technology Sydney in Business Finance. He is a Fellow of CPA Australia,
a member of the Australian Institute of Company Directors and an Associate with the Governance
Institute Australia.
Mr McDonald served as a non-executive director of ASX-listed FE Investments Group Limited, where he
was Chairman of the Audit and Risk Committee and a member of the Remunerations Committee. He has
previously held senior positions with ASX-listed Allomak Limited, CK Life Sciences Int’l Inc., ASX-listed
LIPA Pharmaceuticals Limited and ASX-listed Keycorp Limited.
Mr McDonald has more than 30 years experience in the technology and pharmaceutical industries and
has held global senior executive roles with international biotech Beckman Instruments Inc, with roles
based in USA and Asia Pacific.
Mr J S McBrayer – Company Secretary
Mr McBrayer was appointed as Company Secretary on 25 March 2011.
Interests in the shares of the Company and related bodies corporate
The number of ordinary Cyclopharm shares (no options are on issue) held directly, indirectly or
beneficially, by Directors, including their personally-related entities as at the date of this report is as
follows:
(1) On 19 December 2014, Justice Perram delivered his judgement in the case of Hua Wang Bank
Berhad v Commissioner of Taxation [2014] FCA 1392 in which he said that Director Vanda Gould
controlled certain companies that are shareholders of the Company, which would in turn, increase Mr
Gould's interests in the Company. Mr Gould acknowledges he acted as advisor to those companies
and their principals, however does not believe he had the requisite control to constitute relevant
interests in those companies. Neither the Company nor Mr Gould were listed parties in the subject
proceedings nor was Mr Gould a witness in the case. Mr Gould has advised that he may contest the
assertion that he controls certain companies that are shareholders in the Company in the appropriate
forums. In order to avoid a possible breach of the Corporations Act 2001, Mr Gould has notified the
ASX as having a relevant interest in 12,241,314 shares as at 31 December 2018.
Cyclopharm Limited Annual Report 14
InterestAs at report dateNo. of sharesDirectorsMr DJ Heaney BI200,000Mr VR Gould1NBI12,241,314Mr JS McBrayerBI3,554,555Mr TA McDonaldNBI19,83016,015,699NBI: Non beneficial interestsBI: Beneficial interest
Directors’ Report
Continued
DIVIDENDS
On 27 February 2019, the Directors declared a final unfranked dividend of 0.5 cents per share in respect
of the financial year ended 31 December 2018, to be paid on 15 April 2019 to those shareholders
registered on 8 April 2019. An interim unfranked dividend of 0.5 cents per share was paid on 17
September 2018.
A final unfranked dividend of 0.5 cents per share in respect of the financial year ended 31 December
2017 was paid on 16 April 2018.
The balance of franking credits available for future dividend payments is $1,059.
PRINCIPAL ACTIVITIES
During the year, the principal activities of the consolidated entity consisted of the manufacture and sale of
medical equipment and radiopharmaceuticals, including associated research and development. There
were no significant changes in the nature of the consolidated entity’s principal activities during the
financial year.
OPERATING AND FINANCIAL REVIEW
Operating Results for the Year
For the financial year, Cyclopharm recorded a consolidated loss after tax of $35,456. Profit after tax from
the operations of the Technegas division was $275,218.
Technegas divisional revenue of $13,404,222 was 1.6% higher than the previous year (2017:
$13,188,752).
Technegas division EBIT of $479,301 decreased by 59.5%, impacted by higher legal and professional
costs of $2,184,313 (2017:$1,268,746) associated with the legal actions in Germany initiated against a
former distributor and consultancy costs incurred to ensure compliance to the most recent USFDA
guidelines as well as the new International Medical Device Single Audit Program. Higher USFDA clinical
trial costs totalling $2,964,770 (2017: $2,584,716) also contributed to the decrease in the Technegas
division EBIT. This was offset by the recognition of $313,922 reversal of contingent consideration in
relation to the acquisition of Inter Commerce Medical bvba and an unrealised foreign exchange gain of
$274,904 arising from the fair value adjustment of a USD foreign exchange forward contract.
Cyclopet recorded a loss after tax of $310,674 to the group (2017: loss after tax of $711,892).
Financial Position
Net assets decreased to $17,015,969 at 31 December 2018 (2017: $17,249,392) after accounting for a
net loss of $35,456.
Cashflow used in operations of $1,107,335 supported ongoing investment in USFDA and pilot clinical
trials. The net cash balance of $5,854,959 at 31 December 2018 was arrived at after a payment of
$680,967 for the acquisition of Medicall Analys AB.
Further details of Cyclopharm’s Operating and Financial Review are set out on pages 5 to 12 of the
Managing Director’s Review.
Cyclopharm Limited Annual Report 15
Directors’ Report
Continued
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
Shares Issued and Cancelled during the Year
(i) 500,000 Long Term Incentive Plan shares were issued on 2 July 2018, and
(ii) 55,443 expired Long Term Incentive Plan shares were cancelled on 8 October 2018.
There were no other shares issued and cancelled during the year.
Acquisition of Wholly Owned Subsidiary
On 1 May 2018, the Group acquired 100% of the ordinary shares of Medicall Analys AB (“MA”), for a
consideration of SEK8.846 million. MA is a Swedish private company which specialises in the sales and
marketing support of medical supplies in Sweden including the distribution of nuclear medicine imaging
products.
Other than as set out above, there were no significant changes in the state of affairs of the Cyclopharm
Group during the year.
SIGNIFICANT EVENTS AFTER BALANCE DATE
FINAL DIVIDEND
On 27 February 2019, the Directors declared a final unfranked dividend of 0.5 cents per share in respect
of the financial year ended 31 December 2018, payable on 15 April 2019.
Other than the above, no matters or circumstances have arisen since the end of the financial year, not
otherwise dealt with in the financial report, which significantly affected or may significantly affect the
operations of the Group, financial position or the state of affairs of the Group in future financial periods.
LIKELY DEVELOPMENTS AND FUTURE RESULTS
Technegas
The opportunities for developing additional Technegas indications, particularly for asthma and COPD, will
continue to be a key priority. If successful, there is significant potential to expand Technegas’ revenue
and profitability over the medium to longer term.
The Directors maintain their view that FDA approval to sell Technegas into the USA market provides
Cyclopharm with the opportunity to significantly expand its sales and profitability. We anticipate a
successful conclusion to the Phase 3 USFDA clinical trial of Technegas with approval for sales in 2020.
As the USFDA approval process moves forward, the Directors advise that additional expenditure on the
USFDA trials will continue to be expensed until approval is achieved.
Molecular Imaging
In September 2017, Cyclopharm announced it had signed a term sheet with Cyclotek (Aust) Pty Ltd,
PETTECH Solutions Pty Ltd and Macquarie University to create a new business, Cyclotek NSW, to
service the NSW and the broader Australian molecular imaging sector.
The arrangements are subject to finalisation of agreements and completion of certain conditions,
including obtaining the necessary approvals and licences.
Cyclopharm Limited Annual Report 16
Directors’ Report
Continued
UltraluteTM
Meaningful commercial sales of UltraluteTM technology are expected in 2020 following registration as a
medical device targeted in late 2019.
MATERIAL BUSINESS RISKS
The Directors have identified the following material business risks which may, if they eventuate,
substantially impact on the future performance of the Cyclopharm Group, along with its approach to
managing these risks. The risk factors listed below are not exhaustive. Additional risks may also
adversely affect the financial performance of Cyclopharm.
Competition
To date, Cyclopharm has demonstrated that it can compete effectively in the medical equipment / drug
market in Australia and many other parts of the world.
The medical equipment / drug industry is very competitive and characterised by large international
companies supplying much of the global market requirements. The emergence of new and/or
unauthorised generic technologies could in certain circumstances make the Technegas System
redundant or negatively impact on the Cyclopharm Group’s plans to develop its Ultralute™ business.
Accordingly, there is a business risk in that Cyclopharm’s key revenue source from the Technegas
System could be severely disrupted or reduced. There are products that do compete with Technegas, in
particular Computed Tomography and DTPA. These products could replace Technegas and therefore
negatively impact Cyclopharm Group’s revenue and profitability. The Directors note that the lengthy
periods it takes to achieve regulatory approval and gain medical practitioners’ approval and acceptance of
new or generic products, Cyclopharm Group’s reputation for timely and quality service, the safety record
of Technegas and its competitive pricing, mitigate these risks.
In addition, the Cyclopharm Group’s business plan and stated strategy is to continue to develop sales in
new and existing international markets and to develop new diagnostic purposes for Technegas.
Reputation
The performance of the Cyclopharm Group’s products is critical to its reputation and to its ability to
achieve market acceptance of these products. Any product failure could have a material adverse effect
on the Cyclopharm Group’s reputation as a supplier of these products. Technegas has had no
contraindications or adverse patient events since the commencement of sales.
Disruption of Business Operations
As a manufacturer, the Cyclopharm Group is exposed to a range of operational risks relating to both
current and future operations. Such operational risks include equipment failures, IT system failures,
external services failure (including energy supply), industrial action or disputes and natural disasters. If
one or more such operational risks materialize, they may have an adverse impact on the operating and
financial performance of Cyclopharm.
Reliance on Distributors / Loss of key customers
The Cyclopharm Group operates through a series of contractual relationships with customers, suppliers,
distributors and independent contractors. To date, the Cyclopharm Group has generally provided
products and services on the basis of tenders submitted to customers, followed by purchase orders
incorporating the customer’s standard terms and conditions of trade as a condition of the acceptance.
Cyclopharm Group maintains a spread of customers through direct and indirect sales channels. The loss
of a major distributor could have a significant, adverse impact on Cyclopharm’s projected earnings. The
majority of sales through distributors or agents are managed through contractual arrangements. Whilst
the Cyclopharm Group has distribution agreements in place, some may be terminated by the distributor
with up to six months’ notice prior to the expiration of the current terms (which vary). Other sales
arrangements are not in writing and depend on the ongoing goodwill of the parties. The Directors are
concerned to ensure that all such relationships are formalised.
Cyclopharm Limited Annual Report 17
Directors’ Report
Continued
All contracts, including those entered into by the Cyclopharm Group, carry a risk that the respective
parties will not adequately or fully comply with their respective contractual rights and obligations or that
these contractual relationships may be terminated.
Cyclopharm’s financial result could be adversely affected by the loss of large customers, a change in the
terms of business with a large customer, or by such customers not adequately or fully complying with
their respective contractual rights and obligations. However, the risks are mitigated by the existence of
numerous alternatives available given that Technegas is a highly sought after product.
Currency and Exchange Rate Fluctuations
The financial contribution to the Cyclopharm Group of the Technegas System will depend on the
movement in exchange rates between the Australian dollar and a number of foreign currencies,
particularly the Euro.
The exchange rate between various currencies may fluctuate substantially and the result of these
fluctuations may have a material adverse impact on Cyclopharm’s operating results and financial position.
In the long term, Cyclopharm’s ability to compete against imported products may be adversely affected by
an expectation of a sustained period of a high Australian dollar that would reduce the Cyclopharm
Group’s price competitiveness.
The majority of the Cyclopharm Group’s operational expenses are currently payable in Australian dollars.
The Cyclopharm Group also supplies its product to overseas markets and hence is exposed to
movements in the A$ exchange rate. The Cyclopharm Group does not enter into forward exchange
contracts to hedge its anticipated purchase and sale commitments denominated in foreign currencies
except for a forward exchange contract entered into on 14 July 2017 and fully settled on 15 January 2019
for anticipated payments in relation to the USFDA trials. Other than the aforementioned US$ contract
related to the USFDA trials, Cyclopharm is exposed to exchange rate fluctuations.
Doing Business Internationally
As the Cyclopharm Group is and will continue operating in numerous countries, the Cyclopharm Group
will be exposed to risks such as unexpected changes in regulatory requirements (including taxation),
longer payment cycles, problems in collecting debts, fluctuation in currency exchange rates, foreign
exchange controls which restrict or prohibit repatriation of funds and potentially adverse tax
consequences, all of which could adversely impact on Cyclopharm.
The Cyclopharm Group currently requires, and in the future may require further, licenses to operate in
foreign countries which may be difficult to obtain and retain depending on government policies and
political circumstances.
Regulatory
Future expansion of Cyclopharm’s range of products and services may be governed by regulatory
controls in each target market and it is not possible for Cyclopharm to guarantee that approvals in all
target markets will be obtained and maintained in the future.
The Technegas System is required to be registered with the relevant regulatory bodies in each country or
relevant jurisdiction. If for any reason such product registrations are withdrawn, cancelled (or otherwise
lose their registered status) or are not renewed, it may have a significant effect on the sales of products
which rely on them in the relevant country or countries.
Technegas’ manufacturing does not involve the emission of any environmentally sensitive materials and
the Cyclopharm Group is not required to hold any environmental licence or consent under the
Environmental Protection Act (Cth). However, in order to expand the Company’s research and
development capabilities, in 2018, Cyclopharm secured a Radiation Management Licence from the NSW
EPA to sell, possess or store regulated materials.
It is possible that licensing requirements could change with the development of new products and any
additional regulatory requirements could impact upon the profitability of the group.
Cyclopharm Limited Annual Report 18
Directors’ Report
Continued
The Cyclopharm Group has obtained:
a Certificate of Device listing on the Australian Register of Therapeutic Goods Register for the
Technegas System;
a CE Mark approval for the device elements of the Technegas System in EU;
a marketing authorisation for the drug aspect of Technegas in EU; and
a certificate and operates a Quality Management System which complies with the requirements of
ISO:2016 for the design, manufacture, installation and repair of the Technegas System.
Ongoing regulatory audits/inspections are necessary for the retention and re-certification of the above-
named certificates/licences for continued distribution of the Technegas System.
Audits of the new Kingsgrove manufacturing premises by the Therapeutic Goods Administration along
with other regulatory agencies and notified bodies required to market Technegas have been successfully
completed.
Cyclopet Pty Limited, which is involved in the operations of the cyclotron, is subject to significant
environmental regulations under the Radiation Control Act, 1990 by the Department of Environment,
Climate Change and Water.
Intellectual Property Rights
The Cyclopharm Group’s success may be affected by its ability to maintain patent protection for products
and processes, to preserve its trade secrets and to operate without infringing the proprietary rights of third
parties.
Patents
Unless challenged, the validity of a patent or trademark may be assumed. Any patent or trademark may
be challenged on a number of grounds but the onus is on the party seeking revocation to establish those
grounds.
All patents and trademarks require renewal at regular dates and if not renewed will expire. It is the
Cyclopharm Group’s practice to renew its patents and trademarks as required. The Directors note that
whilst some patents have expired or have not been renewed, or remain to be transferred or licensed to
Cyclopharm Group companies, there remains sufficient protection in these countries through other patent
arrangements in place or being put in place.
The validity and breadth of claims covered in patents involve complex legal and factual questions and
therefore may be highly uncertain. No assurance can be given that the pending applications will result in
patents being issued, that such patents or the current patents will provide a competitive advantage or that
competitors of the Cyclopharm Group will not design around any patents issued. Further, any information
contained in the patent applications will become part of the public domain, so that it will not be protected
as confidential information. As legal regulations and standards relating to the validity and scope of
patents evolve, the degree of future protection of the Cyclopharm Group’s proprietary rights is uncertain.
However, those regulations and standards in the field of nuclear medicine (in which the Cyclopharm
Group’s technology resides) are relatively well established and non-controversial.
ENVIRONMENTAL REGULATIONS
Cyclopet Pty Limited, a member of the consolidated group’s operations is subject to significant
environmental regulations under the Radiation Control Act, 1990 by the Department of Environment,
Climate Change and Water. The Board believe that the consolidated group has adequate systems in
place for the management of its environmental requirements as they apply to the consolidated group.
RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS
In accordance with the Company’s Constitution, all Directors have been elected by members at the
Annual General Meeting (AGM) with the exception of Mr McBrayer. Mr McBrayer was appointed as
Managing Director on 3 June 2008 and under the Constitution is exempt from election by members.
Cyclopharm Limited Annual Report 19
Directors’ Report
Continued
INDEMNIFICATION AND INSURANCE OF OFFICERS
In accordance with clause 49.1 of Cyclopharm’s constitution and section 199A of the Corporations Act
2001 the Company has resolved to indemnify its Directors and Officers for a liability to a third party
provided that:
1.
the liability does not arise from conduct involving a lack of good faith; or
2.
the liability is for costs and expenses incurred by the Director or Officer in defending proceedings
save as not permitted by law.
During or since the financial year, the Company has paid premiums in respect of a contract insuring all
the Directors against legal costs incurred in defending proceedings for conduct involving:
a) a wilful breach of duty; or
b) a contravention of sections 182 or 183 of the Corporations Act 2001, as permitted by section 199B of
the Corporations Act 2001.
The total amount of insurance contract premiums paid for the year ending 31 December 2019 is $25,761
(for the year ended 31 December 2018: $20,661).
The Officers of the Company covered by the insurance policy include the Directors, the Company
Secretary and Executive Officers. The indemnification of the Directors and Officers will extend for a
period of at least 6 years in relation to events taking place during their tenure (unless the Corporations
Act 2001 otherwise precludes this time frame of protection.)
The liabilities insured include costs and expenses that may be brought against the Officers in their
capacity as Officers of the Company that may be incurred in defending civil or criminal proceedings that
may be brought against the Officers of the Company or a controlled entity.
AUDITOR’S INDEPENDENCE DECLARATION
A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act
2001 is set out on page 32.
Fees of $28,619 (2017: $25,382) have been paid for share registry services and fees of $10,901 (2017:
$3,112) for taxation services to an associate of Nexia Sydney Audit & Assurance for the year ended 31
December 2018 for non-audit related services. The Board of Directors is satisfied that the provision of
non-audit services during the year is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service does not
compromise the general principles relating to auditor independence in accordance with APES 110: Code
of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board.
The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an
auditor of the Company or any related body corporate.
REMUNERATION REPORT (AUDITED)
The Remuneration Report outlines the director and executive remuneration arrangements of the
Company and the group and the remuneration disclosures required in accordance with the requirements
of the Corporations Act 2001 and its Regulations. For the purposes of this report Key Management
Personnel of the group are defined as those persons having authority and responsibility for planning,
directing and controlling the major activities of the Company and the group, directly or indirectly, including
any Director (whether executive or otherwise) of the parent Company.
For the purposes of this report, the term 'executive' encompasses the Chief Executive, senior executives,
general managers and secretaries of the parent and the group.
Cyclopharm Limited Annual Report 20
Directors’ Report
Continued
Director and Executive Remuneration Table
* Mr McBrayer is employed on a rolling contract and his bonus, up to a maximum of $50,000, is based on achieving certain benchmarks and targets, which in
the absence of any formal agreement will default to achieving the budgeted underlying operating EBITDA approved by the Board of Directors effective 2017.
Cyclopharm Limited Annual Report 21
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%DirectorsDavid Heaney71,400 - - - - - 71,400 0%Non-Executive DirectorVanda Gould51,000 - - - - - 51,000 0%Non-Executive DirectorTom McDonald 51,000 - - - - - 51,000 0%Non-Executive DirectorExecutive DirectorJames McBrayer *334,804 50,000 - 35,367 5,371 - 425,542 12%Managing DirectorTotal Directors' Compensation508,204 50,000 - 35,367 5,371 - 598,942 8%2018 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
Cyclopharm Limited Annual Report 22
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%Key Management PersonnelMathew Farag252,300 27,000 - 26,533 - 27,450 333,283 16%Chief Operating Officer252,300 27,000 - 26,533 - 27,450 333,283 16%Total Compensation760,504 77,000 - 61,900 5,371 27,450 932,225 11%Total Key Management Personnel's Compensation2018 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
* Tom McDonald was appointed to the Board on 3 April 2017.
** Mr McBrayer is employed on a rolling contract and his bonus, up to a maximum of $50,000, is based on achieving certain benchmarks and targets, which in
the absence of any formal agreement will default to achieving the budgeted Profit After Tax approved by the Board of Directors.
Cyclopharm Limited Annual Report 23
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Bonus Non-monetary benefits Superannuation Consolidated$$$$$$$%DirectorsDavid Heaney70,000 - - - - - 70,000 0%Non-Executive DirectorVanda Gould50,000 - - - - - 50,000 0%Non-Executive DirectorTom McDonald *43,380 - - - - - 43,380 0%Non-Executive DirectorExecutive DirectorJames McBrayer **327,439 50,000 - 34,767 7,162 1,416 420,784 12%Managing DirectorTotal Directors' Compensation490,818 50,000 - 34,767 7,162 1,416 584,163 9%2017 Short-term employee benefits
Directors’ Report
Continued
Director and Executive Remuneration Table
Mathew Farag joined the Cyclopharm Group in January 2017 as Chief Operating Officer.
Cyclopharm Limited Annual Report 24
Post employment benefits Other Long-term benefits Share-based payment Total Performance related Salary & Fees Cash Non-monetary Superannuation Consolidated$$$$$$$%Key Management PersonnelMathew Farag198,154 - - 18,825 - 10,290 227,269 5%Chief Operating Officer198,154 - - 18,825 - 10,290 227,269 5%Total Compensation688,972 50,000 - 53,592 7,162 11,706 811,432 8%Total Key Management Personnel's Compensation Short-term employee benefits 2017
Directors’ Report
Continued
* Shares vested during the current financial year.
Cyclopharm Limited Annual Report 25
Cyclopharm LimitedDetails of Managing Director and Key Management Personnel's Share-based payments2018NameNumber of LTIP shares grantedFair Value at grant dateExercise price per LTIP share schemeAmount payable - limited recourse loanTermExpiry datePerformance HurdleMathew Farag225,000$0.196$0.900$202,5003 years18/4/2020Continuous employment with the Cyclopharm Group until 22 January 2020Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Approval of Technegas' use and distribution in the United States by the United States Food and Drug Administration Mathew Farag250,000$0.153$1.550$387,5003 years1/7/2021Continuous employment with the Cyclopharm Group until 31 March 2021725,000$977,500Vested but unexercised during the yearJames McBrayer1,721,554$0.061$0.900$1,549,3995 years9/5/2022Other non-Key Management Personnel96,408$0.061$0.900$86,7675 years31/8/2022Other non-Key Management Personnel*106,000$0.270$1.200$127,2005 years25/7/20231,923,962$1,763,366
Directors’ Report
Continued
* Shares vested during the current financial year.
Cyclopharm Limited Annual Report 26
Cyclopharm LimitedDetails of Managing Director and Key Management Personnel's Share-based payments2017NameNumber of LTIP shares grantedFair Value at grant dateExercise price per LTIP share schemeAmount payable - limited recourse loanTermExpiry datePerformance HurdleMathew Farag225,000$0.196$0.900$202,5003 years18/4/2020Employment with the Cyclopharm Group until 22 January 2020Other non-Key Management Personnel138,000$0.270$1.200$165,6002 years25/7/2018363,000$368,100Vested but unexercised during the yearJames McBrayer861,728$0.071$0.220$189,5805 years18/6/2020James McBrayer861,728$0.052$0.250$215,4325 years18/6/2020James McBrayer*1,721,554$0.061$0.900$1,549,3995 years9/5/2022Other non-Key Management Personnel*99,851$0.061$0.900$89,8665 years31/8/20223,544,861$2,044,277
Directors’ Report
Continued
Interests in the shares of the Company and related bodies corporate
The movement during the reporting period in the number of ordinary Cyclopharm shares (no options are
on issue) held directly, indirectly or beneficially, by Directors and key management personnel, including
their personally-related entities is as follows:
1 On 19 December 2014, Justice Perram delivered his judgement in the case of Hua Wang Bank Berhad
v Commissioner of Taxation [2014] FCA 1392 in which he said that Director Vanda Gould controlled
certain companies that are shareholders of the Company, which would in turn, increase Mr Gould's
interests in the Company. Mr Gould acknowledges he acted as advisor to those companies and their
principals, however does not believe he had the requisite control to constitute relevant interests in those
companies. Neither the Company nor Mr Gould were listed parties in the subject proceedings nor was Mr
Gould a witness in the case. Mr Gould has advised that he may contest the assertion that he controls
certain companies that are shareholders in the Company in the appropriate forums. In order to avoid a
possible breach of the Corporations Act 2001, Mr Gould has notified the ASX as having a relevant
interest in 12,241,314 shares as at 31 December 2018.
Remuneration Committee
The Remuneration Committee currently comprises of Mr Heaney, who is the Chairman of the
Remuneration Committee, Mr Gould and Mr McDonald.
The Remuneration Committee is responsible for:
reviewing and approving the remuneration of Directors and other senior executives; and
reviewing the remuneration policies of the Company generally.
Remuneration philosophy
The performance of the Company depends upon the quality of its Directors and executives. To prosper,
the Company must attract, motivate and retain highly skilled Directors and executives.
To this end, the Company embodies the following principles in its remuneration framework:
provide competitive rewards to attract high calibre executives;
link executive rewards to shareholder value;
have a significant portion of executive remuneration 'at risk'; and
establish appropriate, demanding performance hurdles for variable executive remuneration.
Cyclopharm Limited Annual Report 27
Interest31 December 2017Granted under long term incentive schemesOn market purchases31 December 2018No. of sharesNo. of sharesNo. of sharesNo. of sharesDirectorsMr DJ Heaney BI185,000-15,000200,000Mr VR Gould1NBI11,931,314-310,00012,241,314Mr JS McBrayerBI3,550,330-4,2253,554,555Mr TA McDonaldNBI19,830--19,83015,686,474-329,22516,015,699Key Management PersonnelMr M FaragBI225,000500,000-725,000NBI: Non beneficial interestsBI: Beneficial interest
Directors’ Report
Continued
Remuneration structure
In accordance with best practice corporate governance, the structure of non-executive Director and
executive remuneration is separate and distinct.
Non-executive Director remuneration
Objective
The Board seeks to set aggregate remuneration at a level that provides the Company with the ability to
attract and retain Directors of the highest calibre, whilst incurring a cost that is acceptable to
Shareholders.
Structure
The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive
Directors shall be determined from time to time by a general meeting. The latest determination was at the
Annual General Meeting held in May 2017 when Shareholders approved an aggregate remuneration
increase from $200,000 to $225,000 per year.
The amount of aggregate remuneration sought to be approved by Shareholders and the fee structure is
reviewed annually. The Board considers advice from external consultants as well as the fees paid to
non-executive Directors of comparable companies when undertaking the annual review process.
Each director receives a fee as set out in the Director and Executive Remuneration Table for being a
director of the Company. Directors’ fees cover all main Board activities and the membership of
committees. There are no additional fees for committee membership. These fees exclude any additional
‘fee for service’ based on arrangements with the Company, which may be agreed from time to time.
Agreed out of pocket expenses are payable in addition to Directors’ fees. There is no retirement or other
long service benefits that accrue upon appointment to the Board. Retiring non-executive Directors are not
currently entitled to receive a retirement allowance.
Executive remuneration
Objective
The Company aims to reward executives with a level and mix of remuneration commensurate with their
position and responsibilities within the Company so as to:
reward executives for Company, business unit and individual performance against targets set by
reference to appropriate benchmarks;
align the interests of executives with those of Shareholders; and
ensure total remuneration is competitive by market standards.
In determining the level and make-up of executive remuneration, the Remuneration Committee engages
external consultants as needed to provide independent advice.
The Remuneration Committee has entered into a detailed contract of employment with the Managing
Director and a standard contract with other executives. Details of these contracts are provided below.
Remuneration consists of the following key elements:
Fixed remuneration (base salary, superannuation and non-monetary benefits); and
Variable remuneration
o short term incentive (STI); and
o
long term incentive (LTI).
The proportion of fixed remuneration and variable remuneration (potential short term and long term
incentives) for each executive is set out in the Director and Executive Remuneration Table.
Cyclopharm Limited Annual Report 28
Directors’ Report
Continued
Fixed Remuneration
Objective
Fixed remuneration is reviewed annually by the Remuneration Committee. The process consists of a
review of Company, business unit and individual performance, relevant comparative remuneration in the
market and internally and, where appropriate, external advice on policies and practices. As noted above,
the Committee has access to external advice independent of management.
Structure
Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms
including cash and fringe benefits. It is intended that the manner of payment chosen will be optimal for the
recipient without creating undue cost for the Group. All forms of executive remuneration are detailed in
the Remuneration Report.
Variable remuneration - Short Term Incentive (STI)
The objective of the STI is to link the achievement of the Group’s operational targets with remuneration
received by the executives charged with meeting those targets. The total potential STI available is set at
a level so as to provide sufficient incentive to the executive to achieve the operational targets and such
that the cost to the Group is reasonable in the circumstances.
Actual STI payments granted to each executive depends on the extent to which specific targets set at the
beginning of the year are met. The targets consist of a number of Key Performance Indicators (KPI’s)
covering both financial and non-financial, corporate and individual measures of performance. Typically
included measures are sales, net profit after tax, customer service, risk management and leadership/team
contribution. These measures were chosen as they represent the key drivers for short term success of
the business and provide a framework for long term value.
The Group has predetermined benchmarks that must be met in order to trigger payments under the STI
scheme. On an annual basis, after consideration of performance against KPI’s, the Remuneration
Committee, in line with their responsibilities, determine the amount, if any, of the short term incentive to
be paid to each executive. This process usually occurs within 3 months of reporting date.
The aggregate of annual STI payments available for executives across the Group is subject to the
approval of the Remuneration Committee. Payments are delivered as a cash bonus in the following
reporting period. Participation in the Short Term Incentive Plan is at the Directors’ discretion.
Variable remuneration - Long Term Incentive (LTI)
Long Term incentives are delivered under the Long Term Incentive Plan (LTIP), which is designed to
reward sustainable, long-term performance in a transparent manner. Under the LTIP, individuals are
granted LTIP shares, which have a two or three year performance periods (Term). The number of LTIP
shares is determined by the Board. The number of LTIP shares that an individual will be entitled to at the
end of the Term will depend on the extent to which the hurdle has been met. Performance hurdles are
determined by the Board to align individual performance with the Company’s performance.
At the Annual General Meeting held on 8 May 2007, Shareholders approved the Company’s Long Term
Incentive Plan (“Plan”). An updated Plan was approved by Shareholders on 29 May 2018.
The purpose of the Plan is to encourage employees, Directors and officers to share in the ownership of
the Company and therefore retain and motivate senior executives to drive performance at both the
individual and corporate level. Performance hurdles have been determined by the Board to align
individual performance with the Company’s key success factors.
Cyclopharm Limited Annual Report 29
Directors’ Report
Continued
Employment contracts
Managing Director
The Managing Director, Mr McBrayer, is employed under a rolling contract. Mr McBrayer’s current
contract was executed on 13 May 2008. Mr McBrayer’s remuneration for 2018 and 2017 is disclosed in
the tables on pages 21 and 23. Under the terms of the present contract:
Each year from 1 January, on 31 December Mr McBrayer may be entitled to receive additional
amounts up to a maximum of $50,000 based on achieving certain benchmarks and targets, which
in the absence of any formal agreement will default to achieving the budgeted underlying operating
EBITDA approved by the Board of Directors effective 2017 (previously Profit After Tax). This
amount is entirely performance based and seeks to strengthen the alignment of the Managing
Director’s interests with those of the Company’s shareholders.
Mr McBrayer may resign from his position and thus terminate this contract by giving 6 months
written notice unless a mutually agreeable date can be agreed upon.
The Company may terminate this employment agreement by providing 6 months written notice or
providing payment in lieu of the notice period.
The Company may terminate the contract at any time without notice if serious misconduct has
occurred. Where termination with cause occurs the Managing Director is only entitled to that
portion of remuneration that is fixed, and only up to the date of termination.
Mr McBrayer is entitled to receive strictly limited recourse loans under the Company’s LTIP to
purchase shares.
On 1 September 2014, two strictly limited recourse loans were made to Mr McBrayer under the
Company’s LTIP to purchase shares for a period of 2 years. The first loan was to enable the
purchase of 861,728 shares at the price of 22 cents per share and the second loan was to enable
the purchase of 861,728 shares at the price of 25 cents per share. On 26 May 2015, shareholders
approved the performance hurdles to be “Employment as Managing Director for 2 years
commencing on 15 May 2013.” The LTIP shares vested on 26 May 2015, the date of the 2015
Annual General Meeting (“AGM”) given that it was more than 2 years since the 2013 AGM which
was held on 15 May 2013. The loans amounting to $353,308 were fully repaid by Mr McBrayer in
August 2018.
On 13 July 2015, a strictly limited recourse loan was made to Mr McBrayer under the Company’s
LTIP to purchase shares for a period of 2 years. The loan was to enable the purchase of 1,721,554
shares at the price of 90 cents per share. The LTIP shares vested on 9 May 2017, the date of the
2017 AGM.
On 9 May 2017, Mr McBrayer exercised his rights to purchase 1,721,554 LTIP shares and the
Company extended a loan totalling $1,549,398.60 for the purchase of the Plan Shares. The loan is
repayable in full within 5 years.
Other Executives (standard contracts)
All executives have rolling contracts. The Company may terminate the executive's employment
agreement by providing (depending on the individual’s contract) between 1 to 3 months’ written notice or
providing payment in lieu of the notice period. Where termination with cause occurs the executive is only
entitled to that portion of remuneration that is fixed, and only up to the date of termination.
Related Parties
The Directors disclose any conflict of interests in Directors’ meetings as per the requirements under the
Corporations Act (2001). Any disclosures that are considered to fall under the definition of related parties
as per AASB 124 ‘Related Party Disclosures’ are made in the Directors’ meetings and minuted.
End of Remuneration Report
Cyclopharm Limited Annual Report 30
Directors’ Report
Continued
DIRECTORS’ MEETINGS
The number of meetings of Directors (including meetings of committees of Directors) held during the year
and the numbers of meetings attended by each director were as follows:
SHARE OPTIONS
There were no share options on issue as at year end.
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.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court
under section 237 of the Corporations Act 2001.
This report is made and signed in accordance with a resolution of the Directors:
James McBrayer
Managing Director and CEO
Sydney, 29 March 2019
Cyclopharm Limited Annual Report 31
DirectorNo. of Meetings Eligible to AttendNo. of Meetings AttendedNo. of Meetings Eligible to AttendNo. of Meetings AttendedNo. of Meetings Eligible to AttendNo. of Meetings AttendedMr D J Heaney883322Mr V R Gould873222Mr J M McBrayer88----Mr T A McDonald883322Cyclopharm Board MeetingsAudit & Risk Committee MeetingsRemuneration Committee Meetings
Auditor’s Independence Declaration
The Board of Directors
Cyclopharm Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
To the Board of Directors of Cyclopharm Limited
Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
As lead audit director for the audit of the financial statements of Cyclopharm Limited for the financial
year ended 31 December 2018, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
(a) the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
(b) any applicable code of professional conduct in relation to the audit.
Yours sincerely
Nexia Sydney Audit Pty Limited
Andrew Hoffmann
Director
Dated: 29 March 2019
Cyclopharm Limited Annual Report 32
Corporate Governance
The Directors of Cyclopharm are responsible for the corporate governance of the Cyclopharm Group
(“Cyclopharm” or the “Company”). The Board guides and monitors the business and affairs of the
Company on behalf of the Shareholders by whom they are elected and to whom they are accountable.
The Company’s main corporate governance practices are applicable to all subsidiaries and are
summarised below.
1 Compliance with ASX Corporate Governance Council best practice recommendations
The ASX Listing Rules require listed companies to include in their Annual Report a statement which
discloses the extent to which they have followed the 29 best practice recommendations set by the
ASX Corporate Governance Council (“ASX Recommendations”) during the reporting period. As a
listed company, Cyclopharm must identify those recommendations which have not been followed for
any part of the reporting period, the period during which they were not followed and provide reasons
for non-compliance.
This Statement sets out in detail the Company’s compliance with the ASX Recommendations.
The Company considers that it has complied with all of the ASX Recommendations throughout the
reporting period ended 31 December 2018, other than ASX Recommendation 2.1(a)(i), 2.4 and
4.1(a)(ii) throughout the reporting period. The Company considers that it will comply with ASX
recommendations 4.1(a)(ii) from 1 March 2019, upon the appointment of Mr McDonald, an
independent non-executive director, as the Chairman of the Audit and Risk Committee.
Explanations for departures are provided in this Statement in sections 2(d), 3(a) and (b). Where
there is non-compliance, this is primarily due to the current size, scale and nature of Cyclopharm’s
operations as it is uneconomic for smaller companies such as Cyclopharm to follow the same rules
as Australia’s largest listed companies. A checklist summarising this is set out in section 9 of this
Statement.
2 The Board of Directors
(a) Membership
The Board has a range of relevant financial and other skills, experience and expertise to meet its
objectives. The current Board composition, including details of director backgrounds is contained
within the Directors’ Report.
ASX Recommendation 2.34 (refer to best practice summary)
The Company’s Constitution requires a minimum of 3 Directors and a maximum of 9 Directors. As
at 31 December 2018, there were three non-executive Directors and one executive director. The
Chairman, Mr Heaney, is a non-executive director.
The terms and conditions of appointment and retirement of Directors are set out in the Company’s
Constitution. The Board believes that its membership should have enough Directors to serve on
various committees of the Board without overburdening the Directors or making it difficult for them
to fully discharge their responsibilities.
(b) Board role and responsibilities
The Board is responsible to Shareholders and investors for the Group’s overall corporate
governance.
The Board has established and approved a Board Charter. Under this Charter the Board is
responsible for:
Considering and approving the corporate strategies proposed by the Managing Director and
monitoring their implementation;
Approving, overseeing and monitoring financial and other reporting to Shareholders, investors,
employees and other stakeholders of the Company;
Cyclopharm Limited Annual Report 33
Corporate Governance
Continued
Ensuring that the Company has the appropriate human, financial and physical resources to
execute its strategies;
Appointing and monitoring the performance of, and removing the Managing Director;
Ratifying the appointment, and where appropriate, the removal of the Chief Financial Officer (or
equivalent) and / or Company Secretary; Reviewing the effectiveness of the Company’s policies
and procedures regarding risk management, including internal controls and accounting systems;
and
Ensuring appropriate governance structures are in place including standards of ethical behaviour
and a culture of corporate and social responsibility.
The Board has delegated to the Managing Director all of the necessary power and authority to
manage the business of the Company on a day-to-day basis with the assistance of senior
management. This includes execution of the strategy approved by the Board, managing
performance and risk management.
Directors are encouraged to undertake professional development to enable them to develop and
maintain the skills and knowledge needed to effectively perform their roles as Directors.
ASX Recommendations 1.1, 2.6 (refer to best practice summary)
(c) Chairman
The Chairman, Mr Heaney, satisfies the requirements for an independent director under ASX
Recommendation 2.3 as he is a non-executive director, and has a relevant interest in approximately
0.29% of the Shares as at 31 December 2018 (Recommendations permit 5%).
The Chairman is elected by the full Board of Directors and is responsible for:
Leadership of the Board;
The efficient organisation and conduct of the Board’s functions;
The promotion of constructive and respectful relations between Board members and between the
Board and management;
Contributing to the briefing of Directors in relation to issues arising at Board meetings;
Facilitating the effective contribution of all Directors; and
Committing the time necessary to effectively discharge the role of the Chairman.
ASX Recommendation 2.5 (refer to best practice summary)
(d) Independent Directors
The Company recognises that independent Directors are important in assuring Shareholders that
the Board is properly fulfilling its role and is diligent in holding senior management accountable for
its performance. The Board assesses each of the Directors against specific criteria to decide
whether they are in a position to exercise independent judgement.
Directors are considered to be independent if they are independent of management and free from
any business or other relationship that could materially interfere with, the exercise of their unfettered
and independent judgement. Materiality is assessed on a case-by-case basis by reference to each
director’s individual circumstances rather than general materiality thresholds.
In assessing independence, the Board considers whether the director has a business or other
relationship with the Company, directly or as a partner, shareholder or officer of a Company or other
entity that has an interest or a business relationship with the Company or another Cyclopharm
group member.
As Managing Director, Mr McBrayer is not considered to be an independent director.
As noted in section 2(c), Mr Heaney is considered to be an independent director. Mr Gould is not
considered to be an independent director as he has notified the Company and the ASX that he has
in 12,241,314 Shares representing a substantial shareholding (being
an indirect interest
Cyclopharm Limited Annual Report 34
Corporate Governance
Continued
approximately 17.8% of the total Shares on issue as at 31 December 2018). Mr McDonald, satisfies
the requirements for an independent director under ASX Recommendation 2.3 as he is a non-
executive director, and has a relevant interest in approximately 0.03% of the Shares as at 31
December 2018. The structure of the Board does not comply with ASX Recommendation 2.4 that a
majority of the Board be independent directors as only half of the members satisfy the requirements
as an independent director.
ASX Recommendations 2.3, 2.4 (refer to best practice summary)
(e) Avoidance of conflicts of interest by a director
In accordance with the Corporations Act 2001 and the Company’s Constitution, Directors must keep
the Board advised of any interest that could potentially conflict with those of the Company.
In the event that a conflict of interest may arise, involved Directors must withdraw from all
deliberations concerning the matter. They are not permitted to exercise any influence over other
Board members. Further, when that matter is being considered, the Director may not vote on that
matter, in accordance with the Corporations Act 2001.
(f) Board Meetings
The Board regularly monitors the operational and financial performance of the Company and the
economic entity against budget and other key financial risks. Appropriate risk management
strategies are developed to mitigate all identified risks of the business.
The number of times the Board has formerly met and the number of meetings attended by Directors
during the financial year are reported in the Directors’ Report. The Board Charter dictates that the
Board will hold 8 scheduled meetings each year and, other meetings may be held at short notice as
required.
(g) Review of Board Performance
The process for conducting the Board’s annual performance review was agreed by the Board and
was performed by the Chairman of the Board. Matters covered in the annual performance review
include:
The Board’s contribution to developing strategy and policy;
The Board’s processes to monitor business performance and compliance, control risk and
Interaction between the Board and management, and between Board members;
evaluate Management;
Board composition and structure; and
The operation of the Board, including the conduct of Board meetings, Board Committee meetings
and group behaviours.
ASX Recommendation 1.6 (refer to best practice summary)
(h) Nomination and appointment of new Directors
Recommendations for nominations of new Directors are made by the Board Nominations
Committee and considered by the Board in full. All current members of the Board are members of
the Board Nominations Committee and Mr Heaney is Chairman of the Committee. Board
membership is reviewed annually by the Committee to ensure the Board has appropriate mix of
qualifications, skills and experience. External advisers may be used in this process. Candidates are
appointed by the Board and must stand for election at the next general meeting of Shareholders. If
a new director is appointed during that year, that person will stand for election by Shareholders at
the next annual general meeting. Shareholders are provided with relevant information on the
candidates for election. The Nominations Committee reviews appointment criteria from time to time
and makes recommendations concerning the re-election of any director by Shareholders.
ASX Recommendation 2.1 (refer to best practice summary)
Cyclopharm Limited Annual Report 35
Corporate Governance
Continued
(i) Retirement and re-election of Directors
The Company’s Constitution states that one-third of Directors excluding the Managing Director must
retire each year. The maximum term that each director can serve in any single term is three years.
A director appointed during the year must, under the Constitution, retire at the next annual general
meeting. At that meeting, they can stand for re-election. The Board Nominations Committee
conducts a peer review of those Directors during the year in which that director will become eligible
for re-election.
ASX Recommendation 1.6 (refer to best practice summary)
3 Board Committees
To assist the Board in fulfilling its duties and responsibilities, it has established the following
committees:
Audit and Risk Committee;
Board Nominations Committee; and
Remuneration Committee.
(a) Audit and Risk Committee
the Corporate Governance
The Audit and Risk Committee is governed by its charter, as approved by the Board. The Charter is
available within
section on Cyclopharm’s website, at
www.cyclopharm.com.au. The Audit and Risk Committee comprises three Directors, all of whom
are non-executive Directors. The non-executive Directors are Mr Heaney, Chairman of the Audit
and Risk Committee up to 28 February 2019, Mr Gould and Mr McDonald. Mr McDonald has been
appointed as the Chairman of the Audit and Risk Committee as of 1 March 2019. The qualifications
of the Committee members are located in the Directors’ Report on page 13 and 14. The Audit and
Risk Committee's responsibilities include:
Reviewing procedures, and monitoring and advising on the quality of financial reporting (including
accounting policies and financial presentation);
Reviewing the proposed fees, scope, performance and outcome of external audits. However, the
auditors are appointed by the Board;
Reviewing the procedures and practices that have been implemented by management regarding
internal control systems;
Ensuring that management have established and implemented a system for managing material
financial and non-financial risks impacting the Company;
Reviewing the corporate governance practices and policies of the Company; and
Reviewing procedures and practices for protecting intellectual property (“IP”) and aligning IP to
strategy.
During 2018, the Committee complies with the ASX Recommendation that it has at least 3 members
but does not comply with the ASX Recommendation that it be chaired by an independent director
who is not the chairperson of the Board. The Committee will comply with the aforementioned ASX
Recommendation upon Mr McDonald’s appointment as the Chairman of the Audit and Risk
Committee on 1 March 2019.
The number of times the Audit and Risk Committee has formerly met and the number of meetings
attended by Directors during the financial year are reported in the Directors’ Report.
The Audit and Risk Committee monitors and reviews:
The effectiveness and appropriateness of the framework used by the Company for managing
operational risk;
The adequacy of the Company’s internal controls including information systems controls an
security;
The adequacy of the process for reporting and responding to significant control and regulatory
breaches;
Cyclopharm Limited Annual Report 36
Corporate Governance
Continued
The effectiveness of the compliance function in ensuring adherence to applicable laws and
regulations, including the actioning of legal and regulatory developments which may have a
significant impact;
Operational risk issues; and
Action plans to address control improvement areas.
The Company’s Auditor, is required to attend the Annual General Meeting and to be available to
answer Shareholders’ questions about the conduct of the audit and the preparation and content of
the Auditor’s Report.
ASX Recommendations 4.1, 4.3, 7.1, 7.2 (refer to best practice summary)
(b) Board Nominations Committee
The Board Nominations Committee is governed by its charter, as approved by the Board. The
Charter is available within the Corporate Governance section on Cyclopharm’s website, at
www.cyclopharm.com.au. All current Directors are members of the Committee and Mr Heaney
(who is an independent Director) is the Chairman of the Committee. The qualifications of the
Committee members are located in the Directors’ Report on page 13 and 14.
The primary function of the Committee is performing review procedures to assist the Board in
fulfilling its oversight responsibility to Shareholders by ensuring that the Board comprises individuals
best able to discharge the responsibilities of Directors having regard to the law and the highest
standards of governance. The Committee as delegated by the Board, is responsible for:
developing and reviewing policies on Board composition, strategic function and size;
performance review process of the Board, its Committees and individual Directors;
developing and implementing induction programs for new Directors and ongoing education for
existing Directors;
developing eligibility criteria for nominating Directors;
recommending appointment of Directors of the Board;
reviewing director independence; and
succession planning for the Board.
As noted in section 2(d), Mr Gould is not considered to be an independent Director. Accordingly,
the Committee did not comply with the ASX Recommendation that a majority of its members be
independent directors.
The Board has considered the competencies and experience of each of the Directors and believes
that the current structure operates effectively and efficiently without the need for the appointment of
additional independent directors or the creation of further sub-committees. The number of times the
Board Nominations Committee has formerly met and the number of meetings attended by Directors
during the financial year are reported in the Directors’ Report.
ASX Recommendations 1.3, 2.1, 2.2 (refer to best practice summary)
(c) Remuneration Committee
the Corporate Governance
The Remuneration Committee is governed by its charter, as approved by the Board. The Charter is
available within
section on Cyclopharm’s website, at
www.cyclopharm.com.au. The Remuneration Committee comprises three non-executive Directors,
namely Mr Heaney, Mr Gould and Mr McDonald. Mr Heaney (who is an independent Director) is
the Chairman of the Committee. The qualifications of the Committee members are located in the
Directors’ Report on page 13 and 14.
The Remuneration Committee advises the Board on remuneration policies and practices generally,
and makes specific recommendations on remuneration packages and other terms of employment
for executive Directors, senior executives and non-executive Directors. Each member of the senior
executive team signs a formal employment contract at the time of their appointment covering a
range of matters including their duties, rights and responsibilities. Executive remuneration and other
terms of employment are reviewed annually by the Committee having regard to personal and
Cyclopharm Limited Annual Report 37
Corporate Governance
Continued
corporate performance contribution to long-term growth, relevant comparative information and
independent expert advice. As well as base salary, remuneration packages may include
superannuation and retirement and termination entitlements.
The Remuneration Report, which has been included in the Directors’ Report, provides information
on the Group’s remuneration policies and payment details for Directors and key management
personnel.
The Committee complies with the ASX Recommendation that it has at least 3 members and that a
majority of its members be independent directors.
The number of times the Board Remuneration Committee has formerly met and the number of
meetings attended by Directors during the financial year are reported in the Directors’ Report.
ASX Recommendations 1.3, 1.7, 8.1 (refer to best practice summary)
4 Recognising and managing risk
A range of factors and risks some of which are beyond the Company’s control can influence
performance. The Company has in place a range of procedures to identify, assess and control risks
which are reviewed by the Audit and Risk Committee and also by the Board periodically.
(a) Board oversight of the risk management system
The Board is responsible for approving and overseeing the risk management system. The Board
reviews, at least annually, the effectiveness of the implementation of the risk management controls
and procedures.
The Company recognises four main types of risk:
Market risk, relates to the risk to earnings from changes in market conditions including economic
activity, interest rates, investor sentiment and world events.
Operational risk, relates to inadequacy of or a failure of internal processes, people or systems or
from external events.
Credit risk, relates to the risk that the other party to a transaction will not honour their obligation;
and
Regulatory risk, relates to the risk that there may be changes to legislation (including but not
limited to laws which relate to corporations and taxation) in the future which restricts or limits in
some way the Company’s activities.
ASX recommendations 7.1, 7.2 (refer to best practice summary)
The Board, based on the recommendations of the Managing Director, Mr McBrayer, makes
decisions on investments for the Company. The Board considers that the general retention by it of
the power to make the final investment or divestment decision by majority vote provides an effective
review of the investment strategy.
A majority of the Directors must approve any modification to the investment parameters applying to
the Company's assets. Any proposed major change in investment strategy is first put to
Shareholders for their approval.
The Board is also responsible for identifying and monitoring areas of significant business risk.
Internal control measures currently adopted by the Board include:
monthly reporting to the Board in respect of operations and the Company’s financial position, with
a comparison of actual results against budget; and
regular reports to the Board by appropriate members of the management team and/or
independent advisers, outlining the nature of particular risks and highlighting measures which are
either in place or can be adopted to manage or mitigate those risks.
Cyclopharm Limited Annual Report 38
Corporate Governance
Continued
(b) Risk management roles and responsibilities
The Board is responsible for approving and reviewing the Company’s risk management strategy
and policy. Executive management is responsible for implementing the Board approved risk
management strategy and developing policies, controls, processes and procedures to identify an
manage risks in all of the Company’s activities.
ASX recommendation 7.2 (refer to best practice summary)
(c) Managing Director and Chief Financial Officer Certification
The Managing Director and Chief Financial Officer (or equivalent) provide to the Board written
certification that in all material respects:
The Company’s financial statements present a true and fair view of the Company’s financial
condition and operational results and are in accordance with relevant accounting standards;
The statement given to the Board on the integrity of the Company’s financial statements is
founded on a sound system of risk management, internal compliance and controls which
implements the policies adopted by the Board; and
The Company’s risk management, internal compliance and control system is operating efficiently
and effectively in all material respects.
ASX recommendation 4.2 (refer to best practice summary)
(d) Internal audit, review and risk evaluation
Due to its size, Cyclopharm does not have an internal audit function. Assurance is provided to the
Board by senior management on the adequacy and effectiveness of management controls for risk.
The external auditors will provide a report communicating significant deficiencies identified in
internal controls during the audit to the board and management.
ASX recommendation 7.3 (refer to best practice summary)
5 Remuneration
(a) Overview
The Remuneration Committee is responsible for reviewing the compensation arrangements for the
Managing Director and other key personnel. The Remuneration Committee is also responsible for
termination
reviewing management
entitlements, fringe benefits policies, and professional indemnity and liability insurance policies. The
nature and amount of each element of the fee or salary of each director and key management
personnel of the Company are set out in the Remuneration Report on pages 20 to 30. Non-
executive Directors’ fees and payments are reviewed annually by the Board. Executive Directors
are, subject to the information above, paid in salary or fees.
incentive schemes, superannuation,
retirement and
ASX recommendations 8.1, 8.3 (refer to best practice summary)
(b) Equity-based key management personnel remuneration
The Long Term Incentive Plan (LTIP) was approved by Shareholders at the Annual General
Meeting held on 8 May 2007 with an updated LTIP approved by Shareholders on 29 May 2018.
The purpose of the LTIP is to attract, retain and motivate employees and officers of the Company to
drive performance at both the individual and corporate level. Any further participation by Directors
in the LTIP will require Shareholder approval in accordance with the ASX Listing Rules.
Cyclopharm Limited Annual Report 39
Corporate Governance
Continued
6 Timely and balanced disclosure
The Company believes that all Shareholders should have equal and timely access to material
information about the Company including its financial situation, performance, ownership and
governance. The Company’s market disclosure policy approved by the Board and governs how the
Company communicates with Shareholders and the market. Shareholders are encouraged to
participate in general meetings.
(a) Market disclosure policy and practices
The Continuous Disclosure and Market Communication Policy is available within the Corporate
Governance section on Cyclopharm’s website, at www.cyclopharm.com.au.
This policy includes provision for communications by the Company to:
Be factual and subject to internal vetting and authorisation before issue;
Be made in a timely manner;
Not omit material information;
Be expressed in a clear and objective manner to allow investors to assess the impact of the
information when making investment decisions; and
Be in compliance with ASX Listing Rules continuous disclosure requirements
The policy also contains guidelines on information that may be price sensitive. The Company
Secretary has been nominated as the person responsible for communications with the Australian
Securities Exchange (ASX). This role includes responsibility for ensuring compliance with the
continuous disclosure requirements with the ASX Listing Rules and overseeing and coordinating
information disclosure to the ASX.
Policy concerning trading in Company securities
On 19 February 2009, the Board resolved to adopt a Policy concerning trading in Company
securities. An executive, director or relevant employees (‘employee’) must not trade in any
securities of the Company at any time when they are in possession of unpublished, price sensitive
information in relation to those securities. An employee should not deal in securities of Cyclopharm
without receiving clearance from a Committee comprised of the Managing Director and the
Chairman (or in the absence of either of these two directors by any other director) who has ensured
that there is no unpublished price sensitive information.
Generally, an employee must be given clearance to deal in any securities of Cyclopharm during a
prohibited period. A ‘prohibited period’ means:
(a) The period from year end and preliminary announcement of the full year results (usually 1
February to end February);
(b) The period from half year end and preliminary announcement of the half year results (usually 1
August to end August); and
(c) Any other periods advised to employees by the Board (via the Company Secretary).
As required by the ASX Listing Rules, the Company notifies the ASX of any transaction conducted
by directors in the securities of the Company.
ASX Recommendation 5.1 (refer to best practice summary)
(b) Communication strategy
The Company publishes on its website the annual reports, profit announcements, press releases
and notices to meeting to encourage shareholder and investor participation in Cyclopharm.
ASX Recommendations 6.1, 6.2, 6.3, 6.4 (refer to best practice summary)
Cyclopharm Limited Annual Report 40
Corporate Governance
Continued
7 Ethical and responsible decision-making
(a) Code of Ethics and Conduct
The Board endeavours to ensure that the Directors, officers and employees of Cyclopharm act with
integrity and observe the highest standards of behaviour and business ethics in relation to their
corporate activities. All officers and employees are expected to:
comply with the law;
act in the best interests of the Company;
be responsible and accountable for their actions; and
observe the ethical principles of fairness, honesty and truthfulness, including prompt disclosure of
potential conflicts.
ASX Recommendation 3.1 (refer to best practice summary)
8 Diversity
The Company publishes its Diversity Policy within the Corporate Governance section on
Cyclopharm's website at www.cyclopharm.com.au.
The proportion of women employees within the following three levels as at 31 December 2018 are:
Whole organisation
Senior executive positions
Board
34%
22%
0%
The Board has set the following objectives which are reviewed annually:
Establish a Diversity Committee to oversee selection of new board members and senior
executives;
For vacancies at the Board and Senior Management level ensure that a diverse candidate
pool and input from a diverse selection pool; and
Establish a senior mentoring program overseen by the Managing Director for all female
senior managers.
ASX Recommendation 1.5 (refer to best practice summary)
Cyclopharm Limited Annual Report 41
Corporate Governance
Continued
9 Checklist for summarising the best practice recommendations and compliance
Cyclopharm Limited Annual Report 42
ASX PrincipleReferenceCompliancePrinciple 1: Lay solid foundations for management and oversight1.1A listed entity should disclose:2bcomply(a)the respective roles and responsibilities of its board and management; and(b)those matters expressly reserved to the board and those delegated to management.1.2A listed entity should:comply(a)(b)1.33b,3ccomply1.4comply1.5A listed entity should:8comply(a)(b)disclose that policy or a summary of it; and(c)(i)the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined “senior executive” for these purposes); or(ii)if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act.1.6A listed entity should:2g, 2icomply(a)(b)1.7A listed entity should:3ccomply(a)(b)Principle 2: Structure the board to add value2.1The board of a listed entity should:2h, 3bdo not comply(a)have a nomination committee which:(i)has at least three members, a majority of whom are independent directors; and(ii)is chaired by an independent director,(iii)the charter of the committee;(iv)the members of the committee; and(v)as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or(b)2.23bcomply2.3comply(a)the names of the directors considered by the board to be independent directors;(b)(c)the length of service of each director.2.4A majority of the board of a listed entity should be independent directors.2a, 2ddo not comply2.52ccomply2.62bcomplyif it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively.undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; andprovide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment.The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.have a diversity policy which includes requirements for the board or a relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity’s progress in achieving them;disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity’s diversity policy and its progress towards achieving them and either:have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; anddisclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process.have and disclose a process for periodically evaluating the performance of its senior executives; anddisclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process.and disclose:A listed entity should have and disclose a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership.A listed entity should disclose:2c, 2d, Directors' Reportif a director has an interest, position, association or relationship of the type described in Box 2.3 but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position, association or relationship in question and an explanation of why the board is of that opinion; andThe chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity.A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively.
Corporate Governance
Continued
9 Checklist for summarising the best practice recommendations and compliance (continued)
Cyclopharm Limited Annual Report 43
ASX PrincipleReferenceCompliancePrinciple 3: Act ethically and responsibly3.17acomply(a)have a code of conduct for its directors, senior executives and employees; and(b)disclose that code or a summary of it.Principle 4: Safeguard integrity in financial reporting4.1The board of a listed entity should:(a)have an audit committee which:3ado not comply(i)has at least three members, all of whom are non-executive directors and a majority of whom are independent directors; and(ii)is chaired by an independent director, who is not the chair of the board,(iii)the charter of the committee;(iv)the relevant qualifications and experience of the members of the committee; and(v)in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or(b)4.24ccomply4.33acomplyPrinciple 5: Make timely and balanced disclosure5.16acomply(a)(b)disclose that policy or a summary of it.Principle 6: Respect the rights of security holders6.16bcomply6.26bcomply6.36bcomply6.46bcomplyA listed entity should:A listed entity should:and disclose:if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner.The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.A listed entity that has an AGM should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit.have a written policy for complying with its continuous disclosure obligations under the Listing Rules; andA listed entity should provide information about itself and its governance to investors via its website.A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors.A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders.A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically.
Corporate Governance
Continued
9 Checklist for summarising the best practice recommendations and compliance (continued)
Cyclopharm Limited Annual Report 44
ASX PrincipleReferenceCompliancePrinciple 7: Recognise and manage risk7.1The board of a listed entity should:3a, 4acomply(a)have a committee or committees to oversee risk, each of which:(i)has at least three members, a majority of whom are independent directors; and(ii)is chaired by an independent director,(iii)the charter of the committee;(iv)the members of the committee; and(v)as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or(b)7.23a, 4a, 4bcomply(a)(b)7.3A listed entity should disclose:4dcomply(a)(b)7.4Directors' ReportcomplyPrinciple 8: Remunerate fairly and responsibly8.1The board of a listed entity should:3c, 5acomply(a)have a remuneration committee which:(i)has at least three members, a majority of whom are independent directors; and(ii)is chaired by an independent director,(iii)the charter of the committee;(iv)the members of the committee; and(v)as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or(b)8.2Directors' Report (Remuneration Report)comply8.35bcomply(a)(b)disclose that policy or a summary of it.A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages or intends to manage those risks.and disclose:if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive.A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives.A listed entity which has an equity-based remuneration scheme should:have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; andif it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes.and disclose:if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework.The board or a committee of the board should:review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound; anddisclose, in relation to each reporting period, whether such a review has taken place.if it has an internal audit function, how the function is structured and what role it performs; or
Consolidated Statement of
Profit or Loss And Other
Comprehensive Income
for the year ended 31 December 2018
The Statement of Comprehensive Income is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 45
20182017Notes$$CONTINUING OPERATIONSSales revenue513,404,222 13,188,752 Finance revenue5103,411 79,529 Other revenue52,122,351 2,390,586 Total revenue15,629,984 15,658,867 Cost of materials and manufacturing5a (2,965,588) (2,647,649)Employee benefits expense5e (4,457,135) (4,027,216)Advertising and promotion expense (319,148) (351,462)Depreciation and amortisation expense5c (510,230) (318,088)Freight and duty expense (436,340) (450,429)Research and development expense5d (3,219,385) (2,871,288)Administration expense5f (4,040,894) (3,900,809)Reversal of contingent consideration313,922 - Other income / (expense)5g149,351 (366,708)Profit before tax and finance costs144,537 725,218 Finance costs5b (26,129) (20,079)Profit before income tax118,408 705,139 Income tax 6 (153,864) (2,229,710) (35,456) (1,524,571)Other comprehensive income after income taxExchange differences on translating foreign controlled entities (net of tax)62,230 302,106 26,774 (1,222,465)Loss per share (cents per share)7centscents (0.05) (2.25) (0.05) (2.25) (0.05) (2.25)-diluted loss per share Consolidated -basic loss per share for continuing operations -basic loss per share Loss for the year Total comprehensive income / (loss) for the year Items that will be re-classified subsequently to profit and loss when specific conditions are met:
Consolidated Statement of
Financial Position
as at 31 December 2018
The Statement of Financial Position is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 46
20182017Notes$$AssetsCurrent AssetsCash and cash equivalents85,854,959 8,689,676 Trade and other receivables96,247,065 5,337,824 Inventories102,771,546 2,677,303 Current tax asset678,377 27,778 Derivative - forward exchange contract274,904 -Other assets227,599 96,258 Total Current Assets15,454,450 16,828,839 Non-current AssetsProperty, plant and equipment112,468,406 2,682,423 Investments12- - Intangible assets134,570,344 2,767,030 Deferred tax assets61,043,521 1,098,949 Total Non-current Assets8,082,271 6,548,402 Total Assets23,536,721 23,377,241 LiabilitiesCurrent LiabilitiesTrade and other payables143,599,465 2,606,594 Interest bearing loans and borrowings 15120,577 87,536 Provisions16855,517 944,276 Tax liabilities6643,644 1,573,059 Total Current Liabilities5,219,203 5,211,465 Non-current LiabilitiesTrade and other payables14336,864 154,727 Interest bearing loans and borrowings 15- 87,330 Provisions16300,609 212,335 Deferred tax liabilities6517 549 Deferred income liabilities17663,559 461,443 Total Non-current Liabilities1,301,549 916,384 Total Liabilities6,520,752 6,127,849 Net Assets17,015,969 17,249,392 EquityContributed equity1821,905,035 21,551,727 Employee equity benefits reserve27663,005 625,038 Foreign currency translation reserve27 (540,971) (603,201)Accumulated losses (5,011,100) (4,324,172)Total Equity17,015,969 17,249,392 Consolidated
Consolidated Statement of
Cash Flows
for the year ended 31 December 2018
The Statement of Cash Flows is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 47
20182017Notes$$Operating activitiesReceipts from customers14,137,456 14,509,179 Payments to suppliers and employees (16,437,006) (15,053,572)Interest received103,411 79,529 Borrowing costs paid (26,129) (20,079)Income tax received / (paid)1,114,933 (197,178)Net cash flows used in operating activities8 (1,107,335) (682,121)Investing activitiesPayments for acquisition of subsidiary (680,967) (1,003,021)Cash acquired upon acquisition of subsidiary86,830 1,175,958 Purchase of property, plant and equipment (206,098) (641,101)Payments for intangible assets (602,878) (667,961)Net cash flows used in investing activities (1,403,113) (1,136,125)Financing activitiesProceeds from issue of shares- 6,947,816 Costs of raising capital- (359,056)Settlement of loan for Long Term Incentive Plan Shares 353,308 - Dividends paid (651,472) (600,122)Repayment of bank borrowings (54,289) (160,172)Net cash flows (used in) / from financing activities (352,453)5,828,466 (2,862,901)4,010,220 Cash and cash equivalents - at beginning of the period8,689,676 4,590,760 28,184 88,696 - at end of the year85,854,959 8,689,676 Net (decrease) / increase in cash and cash equivalents Consolidated- net foreign exchange differences from translation of cash and cash equivalents
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
The Statement of Changes in Equity is to be read in conjunction with the notes to the financial statements.
Cyclopharm Limited Annual Report 48
Contributed Equity Other Contributed Equity Total Contributed Equity Retained Earnings / (Accumulated Losses) Foreign Currency Translation Reserve Employee Equity Benefits Reserve Total (Note 27(b)) (Note 27(a)) CONSOLIDATED$$$$$$$Balance at20,296,125 (5,333,158)14,962,967 (2,199,479) (905,307)603,622 12,461,803 Loss for the year- - - (1,524,571)- - (1,524,571)Other comprehensive loss- - - - 302,106 - 302,106 - - - (1,524,571)302,106 - (1,222,465)Issue of non-renounceable entitlement offer shares6,947,816 - 6,947,816 - - - 6,947,816 Cost of raising capital (359,056)- (359,056)- - - (359,056)Dividends paid- - - (600,122)- - (600,122)Cost of share based payments- - - - - 21,416 21,416 6,588,760 - 6,588,760 (600,122)- 21,416 6,010,054 - - - - - - - Balance at26,884,885 (5,333,158)21,551,727 (4,324,172) (603,201)625,038 17,249,392 Balance at26,884,885 (5,333,158)21,551,727 (4,324,172) (603,201)625,038 17,249,392 Loss for the year- - - (35,456)- - (35,456)Other comprehensive loss- - - - 62,230 - 62,230 - - - (35,456)62,230 - 26,774 Issue of non-renounceable entitlement offer shares- - - - - - - Cost of raising capital- - - - - - - Payment of loan for Long Term Incentive Plan shares353,308 - 353,308 - - - 353,308 Dividends paid- - - (651,472)- - (651,472)Cost of share based payments- - - - - 37,967 37,967 353,308 - 353,308 (651,472)- 37,967 (260,197)Balance at27,238,193 (5,333,158)21,905,035 (5,011,100) (540,971)663,005 17,015,969 31 December 2018 Total transactions with owners and other transfers Total comprehensive loss for the year Total transactions with owners and other transfers 1 January 2017 Total comprehensive loss for the year 31 December 20171 January 2018
Notes to the
Consolidated Financial Statements
for the year ended 31 December 2018
1. CORPORATE INFORMATION
The financial report of Cyclopharm Limited (“Cyclopharm” or “the Company”) for the year ended 31
December 2018 was authorised for issue by a resolution of the Directors as at the date of this
report.
Cyclopharm is a Company limited by shares incorporated and domiciled in Australia. The shares
are publicly traded on the Australian Securities Exchange (“ASX”) under the code “CYC”.
During the year the principal continuing activities of the consolidated entity (“the Group”) consisted
of the manufacture and sale of medical equipment and radiopharmaceuticals, including associated
research and development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Preparation
The financial statements are general purpose financial statements that have been prepared in
accordance with Australian Accounting Standards, Australian Accounting Interpretations, other
authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The Group is a for-profit entity for financial reporting purposes under
Australian Accounting Standards.
Australian Accounting Standards set out accounting policies that the AASB has concluded would
result in financial statements containing relevant and reliable information about transactions, events
and conditions. Compliance with Australian Accounting Standards ensures that the financial
statements and notes also comply with International Financial Reporting Standards as issued by the
IASB. Material accounting policies adopted in the preparation of these financial statements are
presented below and have been consistently applied unless stated otherwise.
Except for cash flow information, the financial statements have been prepared on an accruals basis
and are based on historical costs, modified, where applicable, by the measurement at fair value of
selected non-current assets, financial assets and financial liabilities.
The financial report is presented in Australian dollars.
b) New and Amended Accounting Policies Adopted by the Group
Consolidated financial statements
The Group adopted the following Australian Accounting Standards (new and amended) from the
mandatory application date of 1 January 2018. The new and amended Standards are not expected
to have a significant impact on the Group’s financial statements.
AASB 2016-3: Amendments to Australian Accounting Standards – Clarification to AASB 15
This Standard amends AASB 15 Revenue from Contracts with Customers to clarify the requirements
on identifying performance obligations, principal versus agent considerations and the timing of
recognising revenue from granting a licence. In addition, it provides further practical expedients on
transition to AASB 15. This amended Standard did not have a material impact on the Group’s
financial statements.
Cyclopharm Limited Annual Report 49
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) New and Amended Accounting Standards and Interpretations adopted by the Group
(continued)
AASB 9: Financial Instruments and associated Amending Standards
The consolidated entity has adopted AASB 9 from 1 January 2018. The standard introduced new
classification and measurement models for financial assets. A financial asset shall be measured at
amortised cost if it is held within a business model whose objective is to hold assets in order to
collect contractual cash flows which arise on specified dates and that are solely principal and
interest. A debt investment shall be measured at fair value through other comprehensive income if it
is held within a business model whose objective is to both hold assets in order to collect contractual
cash flows which arise on specified dates that are solely principal and interest as well as selling the
asset on the basis of its fair value. All other financial assets are classified and measured at fair value
through profit or loss unless the entity makes an irrevocable election on initial recognition to present
gains and losses on equity instruments (that are not held-for-trading or contingent consideration
recognised in a business combination) in other comprehensive income ('OCI'). Despite these
requirements, a financial asset may be irrevocably designated as measured at fair value through
profit or loss to reduce the effect of, or eliminate, an accounting mismatch. For financial liabilities
designated at fair value through profit or loss, the standard requires the portion of the change in fair
value that relates to the entity's own credit risk to be presented in OCI (unless it would create an
accounting mismatch). New simpler hedge accounting requirements are intended to more closely
align the accounting treatment with the risk management activities of the entity. New impairment
requirements use an 'expected credit loss' ('ECL') model to recognise an allowance. Impairment is
measured using a 12-month ECL method unless the credit risk on a financial instrument has
increased significantly since initial recognition in which case the lifetime ECL method is adopted. For
receivables, a simplified approach to measuring expected credit losses using a lifetime expected loss
allowance is available.
There is no material impact on the financial statements upon the Group’s application of AASB 9.
AASB 2016-5: Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions
This Standard amends AASB 2 Share-based Payment to address:
(a) the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-
settled share-based payments;
(b) the classification of share-based payment transactions with a net settlement feature for
withholding tax obligations; and
(c) the accounting for a modification to the terms and conditions of a share-based payment that
changes the classification of the transaction from cash-settled to equity-settled.
The adoption of this amended statement is not expected to have a material impact on the Group’s
financial statements.
AASB 15: Revenue from Contracts with Customers
AASB 15 supersedes AASB 18 Revenue and related interpretations and it applies to all revenue
arising from contracts with customers, unless those contracts are in the scope of other standards.
The new Standard establishes a five-step model to account for revenue arising from contracts with
customers. Under AASB 15, revenue is recognised at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer.
This Standard requires entities to exercise judgement, taking into consideration all of the relevant
fact and circumstances when applying each step of the model to contracts with their customers. The
Standard also specifies the accounting for the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract.
Cyclopharm Limited Annual Report 50
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) New and Amended Accounting Standards and Interpretations adopted by the Group
(continued)
The Group adopted AASB 15 and there was no material impact to the financial statements.
The Group is in the business of providing medical and radiopharmaceutical equipment and
consumables and aftersales services. The equipment, consumables and services are sold on their
own in separately identified contracts with customers.
a) Sale of goods
The Group’s contracts with customers for the sale of equipment and consumables generally
include one performance obligation. The Group has concluded that revenue from sales of
equipment and consumables should be recognised at the point in time when control of the asset
is transferred to the customer, generally on delivery of the equipment. Therefore, the adoption of
AASB 15 did not have an impact on the timing of revenue recognition. The amount of revenue
recognised was not affected because contracts for the sales of equipment and consumables do
not provide customers with a right of return or any volume rebates.
b) Rendering of services
The Group provides aftersales services which are sold separately from the sale of equipment to a
customer. The aftersales services do not significantly customise or modify the equipment. Prior
to the adoption of AASB 15, the Group accounted for the equipment and aftersales service as
separate deliverables based on the invoiced amounts over the term of the aftersales contract.
Under AASB 15, the Group assessed that there is no material impact to the accounting treatment.
c) Presentation and disclosure requirements
The Group disaggregated revenue recognised from contracts with customers into categories that
depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic factors. The Group also disclosed information about the relationship between the
disclosure of disaggregated revenue and revenue information disclosed for each reportable
segment. Refer to note 3 for the disclosure on disaggregated revenue.
All revenue is stated net of the amount of goods and services tax (“GST”).
AASB 2017-1: Amendments to Australian Accounting Standards – Transfers of Investment
Property, Annual Improvements 2014–2016 Cycle and Other Amendments
This Standard clarifies that:
b) a change in classification to or from investment property can only be made where there is
evidence of a change in use of the property. A change in management’s intention is, in isolation,
not evidence of a change in use; and
b) the election by a venture capital organisation, mutual fund, unit trust or similar entity to measure
investments in an associate or joint venture at fair value through profit or loss is made separately
for each associate or joint venture.
The adoption of this Standard is not expected to have a material impact on the Group’s financial
statements.
Interpretation 22: Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that for the purpose of determining the exchange rate to use on initial
recognition of the related asset, expense or income is the date on which the entity recognises the
payment or receipt of advance consideration in a foreign currency.
The adoption of Interpretation 22 is not expected to have a material impact on the Group’s financial
statements.
Cyclopharm Limited Annual Report 51
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) New Accounting Standards and Interpretations Not Yet Adopted
Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily
applicable to the Group, together with an assessment of the potential impact of such
pronouncements on the Group when adopted in future periods, are discussed below:
Applicable to annual reporting periods beginning on or after 1 January 2019:
AASB 16: Leases
AASB 16 replaces AASB 117 Leases and set out the principles for the recognition, measurement,
presentation and disclosure of leases.
AASB 16 introduces a single lessee accounting model and requires a lessee to recognise assets and
liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low
value. A lessee is required to recognise a right-of-use asset representing its right to use the
underlying leased asset and a lease liability representing its obligations to make lease payments.
A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant
and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee
recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies
cash repayments of the lease liability into a principal portion and an interest portion and presents
them in the statement of cash flows applying AASB 107 Statement of Cash Flows.
AASB 16 substantially carries forward the lessor accounting requirements in AASB 117 Leases.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to
account for those two types of leases differently.
This Standard applies to annual reporting periods beginning on or after 1 January 2019. Earlier
application is permitted provided the entity also applies AASB 15 Revenue from Contracts with
Customers at or before the same date.
Although the Directors anticipate that the adoption of AASB 16 may have an impact on the Group’s
financial statements, it is impracticable at this stage to provide a reasonable estimate of such impact.
Interpretation 23: Uncertainty over Income Tax Treatments
Interpretation 23 clarifies how to apply the recognition and measurement requirements in AASB 112
Income Taxes when there is uncertainty over income tax treatments.
Consequential amendments are made to AASB 1 First-time Adoption of Australian Accounting
Standards as a result of Interpretation 23 by AASB 2017-4.
The adoption of this Interpretation is not expected to have a material impact on the Group’s financial
statements.
Cyclopharm Limited Annual Report 52
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) New Accounting Standards and Interpretations Not Yet Adopted (continued)
AASB 2017-6: Amendments to Australian Accounting Standards – Prepayment Features with
Negative Compensation.
This Standard amends AASB 9 to permit entities to measure at amortised cost or fair value through
other comprehensive income particular financial assets that would otherwise have contractual cash
flows that are solely payments of principal and interest but do not meet that condition only as a result
of a prepayment feature.
The adoption of AASB 2017-6 is not expected to have a material impact on the Group’s financial
statements.
AASB 2017-7: Amendments to Australian Accounting Standards – Long-term Interests in
Associates and Joint Ventures
This Standard amends AASB 128 to clarify that an entity is required to account for long-term
interests in an associate or joint venture, which in substance form part of the net investment in the
associate or joint venture but to which the equity method is not applied, using AASB 9 Financial
Instruments before applying the loss allocation and impairment requirements in AASB 128.
The adoption of this Standard is not expected to have a material impact on the Group’s financial
statements.
AASB 2014-10: Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture (Amendments to AASB 10 and AASB 128)
Amend AASB 10 and AASB 128 to remove the inconsistency in dealing with the sale or contribution
of assets between an investor and its associate or joint venture. A full gain or loss is recognised
when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or
loss is recognised when a transaction involves assets that do not constitute a business, even if these
assets are housed in a subsidiary.
The mandatory application date of AASB 2014-10 has been amended and deferred to annual
reporting periods beginning on or after 1 January 2022 by AASB 2017-5.
These new and amended Standards are not expected to have a significant impact on the Group’s
financial statements.
d) Basis of consolidation
Cyclopharm Limited is the ultimate parent entity (“the Parent”) in the wholly owned group. The
consolidated financial statements comprise the financial statements of Cyclopharm and its
subsidiaries as at 31 December each year ('the Group').
The Group’s financial statements consolidate those of the parent company and all of its subsidiaries
as of 31 December 2018. All subsidiaries have a reporting date of 31 December.
Subsidiaries
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease
to be consolidated from the date on which control is transferred out of the Group. Where there is
loss of control of a subsidiary, the consolidated financial statements include the results for the part
of the reporting period during which the Parent has control.
Cyclopharm Limited Annual Report 53
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The financial statements of subsidiaries are prepared for the same reporting period as the parent
Company, using consistent accounting policies. Adjustments are made to bring into line any
dissimilar accounting policies that may exist.
Transactions eliminated on consolidation
All intercompany balances and transactions, including unrealised profits arising from intra-group
transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be
recovered.
For business combinations involving entities under common control, which are outside the scope of
AASB 3 Business Combinations, the Company applies the purchase method of accounting by the
legal parent.
e) Foreign currency translation
Functional and presentation currency
The functional currency of each of the group’s entities is measured using the currency of the
primary economic environment in which that entity operates. The consolidated financial statements
are presented in Australian dollars (AUD $) which is the parent entity’s functional and presentation
currency.
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency at the exchange
rates ruling at the date of the transaction. Foreign currency monetary items are translated at the
year-end exchange rate. Non-monetary items that are measured in terms of historical cost continue
to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at
fair value are reported at the exchange rate when the fair value was determined.
Exchange differences arising on the translation of monetary items are recognised in the Statement
of Comprehensive Income, except where deferred in equity as a qualifying cash flow hedge or net
investment hedge. On disposal of a foreign entity the deferred cumulative amount in equity is
recognised in the Statement of Comprehensive Income.
Group companies
The functional currency of the overseas subsidiaries Cyclomedica Ireland Limited, Cyclomedica
Germany GmbH, Cyclomedica Europe Limited, and Inter Commerce Medical bvba, is European
Euro (Euro €), Medicall Analys AB is Swedish Kroner (SEK) and Cyclomedica Canada Limited is
Canadian dollars (Can $).
The financial results and position of foreign operations whose functional currency is different from
the group’s presentation currency are translated as follows:
Assets and liabilities are translated at year-end exchange rates prevailing at the reporting date.
Income and expenses are translated at the average exchange rates for the period.
Retained profits/equity are translated at the exchange rates prevailing at the date of the
transaction.
Exchange differences arising on the translation of foreign operations are recognised in other
comprehensive income and are transferred directly to the Group’s foreign currency translation
reserve in the Statement of Financial Position. On disposal of a foreign operation, the related
cumulative translation differences recognised in equity are reclassified to profit or loss and are
recognised as part of the gain or loss on disposal. Exchange differences are charged or credited to
other comprehensive income and recognised in the currency translation reserve in equity.
Cyclopharm Limited Annual Report 54
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f)
Income tax
Income tax on the profit and loss for the year comprises current and deferred tax. Income tax is
recognised in the Statement of Comprehensive Income, except to the extent that it relates to items
recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax
payable on the taxable income for the year, using tax rates enacted or substantially enacted at the
Statement of Financial Position date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the Statement of Financial Position liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantially enacted at the Statement of Financial Position
date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is
settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.
Tax consolidation
Cyclopharm Limited is the head entity of the tax consolidated group comprising all the Australian
wholly owned subsidiaries. The implementation date for the tax consolidated group was 31 May
2006. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from
temporary differences of the members of the tax consolidated group are recognised in the separate
financial statements of the members of the tax consolidated group using a "stand-alone basis
without adjusting for intercompany transactions" approach by reference to the carrying amounts of
assets and liabilities in the separate financial statements of each entity and the tax values applying
under consolidation.
Any current Australian tax liabilities (or assets) and deferred tax assets arising from unused tax
losses of the subsidiaries is assumed by the head entity in the tax consolidated group and are
recognised as amounts payable (receivable) to (from) other entities in the tax consolidated group.
Any difference between these amounts is recognised by the head entity as an equity contribution or
distribution.
Cyclopharm Limited recognises deferred tax assets arising from unused tax losses of the tax
consolidated group to the extent that it is probable that future taxable profits of the tax consolidated
group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a
result of revised assessments of the probability of recoverability is recognised by the head entity
only.
g) Property, plant and equipment
Plant and equipment is measured at cost less accumulated depreciation and impairment losses.
The cost of fixed assets constructed within the economic entity includes the cost of materials, direct
labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent
costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the group
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to
the Statement of Comprehensive Income during the financial period in which they are incurred.
Cyclopharm Limited Annual Report 55
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment
The carrying amount of plant and equipment is reviewed annually by Directors to consider
impairment. The recoverable amount is assessed on the basis of the expected net cash flows that
will be received from the assets employment and subsequent disposal. The expected net cash
flows have been discounted to their present values in determining recoverable amounts.
Depreciation
The depreciable amount of all fixed assets including capitalised lease assets are depreciated on a
straight-line basis over their useful lives commencing from the time the asset is held ready for use.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the
lease or the estimated useful lives of the improvements.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as
follows:
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on de-recognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the Statement of Comprehensive
Income in the year the item is derecognised.
h)
Investments Accounted For Using The Equity Method
Associates are companies in which the Group has significant influence through holding, directly or
indirectly, 20% or more of the voting power of the Group. Investments in associates are accounted for
in the financial statements by applying the equity method of accounting, whereby the investment is
initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group’s
share of net assets of the associate company. In addition, the Group’s share of the profit or loss of
the associate company is included in the Group’s profit or loss.
The carrying amount of the investment includes goodwill relating to the associate. Any discount on
acquisition whereby the Group’s share of the net fair value of the associate exceeds the cost of
investment is recognised in profit or loss in the period in which the investment is acquired. The
carrying amount of the investment also includes loans made to the associate which are not expected
to be repaid in the short term.
Profit and losses resulting from transactions between the Group and the associate are eliminated to
the extent of the Group’s interest in the associate.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the
Group discontinues recognising its share of further losses unless it has incurred legal or constructive
obligations or made payments on behalf of the associate. When the associate subsequently makes
profits, the Group will resume recognising its share of those profits once its share of the profits equals
the share of the losses not recognised.
Details of the Group’s investments in associates are provided in Note 12.
Cyclopharm Limited Annual Report 56
Plant and equipmentLeasehold ImprovementsMotor vehiclesUseful livesLicenses - InfiniteMethod usedImpairment test / Recoverable Amount testingBasisMethodPatents - FiniteFinite8 - 10 years - Straight line9 years - Straight lineAnnually and where an indicator of impairment existsAmortisation method reviewed at each financial year-end; Reviewed annually for indicator of impairment20 - 50%Straight-line methodNew Patents and licencesTechnegas Development costs5 - 33%Straight-line method20 - 25%Straight-line method
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i)
Intangibles
Intangible assets
Intangible assets acquired as part of a business combination other than goodwill, are initially
measured at their fair value at the date of the acquisition. Intangible assets acquired separately are
initially recognised at cost.
Indefinite life intangible assets are not amortised and are subsequently measured at cost less any
impairment. Finite life intangible assets are subsequently measured at cost less amortisation and
any impairment.
The gains and losses recognised in profit or loss arising from the derecognition of intangible assets
are measured as the difference between net disposal proceeds and the carrying amount of the
intangible assets. The method and useful lives of finite life intangible assets are reviewed annually.
Internally generated intangible assets, excluding development costs, are not capitalised and are
recorded as an expense in the Statement of Profit or Loss.
Intangible assets are tested for impairment where an indicator of impairment exists, and in the case
of indefinite life intangibles, at each reporting date, either individually or at the cash generating unit
level. Useful lives are also examined on an annual basis and adjustments, where applicable, are
made on a prospective basis.
Research and development costs
Expenditure on research activities is recognised as an expense when incurred.
Expenditure on development activities is capitalised only when it is probable that the project will be
a success considering its commercial and technical feasibility; the Group is able to use or sell the
asset; the Group has sufficient resources; and intend to complete the development and its costs can
be measured reliably. Development expenditure is measured at cost less any accumulated
amortisation and impairment losses. Amortisation is calculated using a straight-line method to
allocate the costs over a period during which the related benefits are expected to be realised.
Expenditure on the development of the Technegas Plus and Ultralute generator has been
capitalised. Costs will be amortised once the asset development is completed and the asset ready
for use. No impairment provision has been deemed appropriate. The Directors are satisfied that the
future economic benefits will eventuate to justify the capitalisation of the expenditure incurred.
Development expenditure is tested annually for impairment or more frequently if events or changes
in circumstances indicate that it might be impaired.
Cyclopharm Limited Annual Report 57
Useful livesLicenses - FiniteMethod usedImpairment test / Recoverable Amount testingBasisMethodPatents - FiniteFinite8 - 10 years - Straight line9 years - Straight lineAnnually and where an indicator of impairment existsAmortisation method reviewed at each financial year-end; Reviewed annually for indicator of impairmentNew Patents and licencesTechnegas Development costs
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j)
Inventories
Inventories are valued at the lower of cost and net realisable value where net realisable value is the
estimated selling price in the ordinary course of business, less estimated costs of completion and
the estimated costs necessary to make the sale.
Costs incurred in bringing each product to its present location and conditions are accounted for as
follows:
Raw materials: purchase cost on a first-in, first-out basis;
Finished goods and work-in-progress: cost of direct materials and labour and an appropriate
portion of manufacturing overheads based on normal operating capacity but excluding borrowing
costs.
k) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised
cost using the effective interest method, less any allowance for expected credit losses. Trade
receivables are generally due for settlement within 90 days. The Group has applied the simplified
approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To
measure the expected credit losses, trade receivables have been grouped based on days overdue.
l) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held at call with banks, short-term
deposits with an original maturity of three months or less and bank overdrafts. For the purposes of
the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as
defined above.
m) Trade and other payables
Trade payables and other payables are carried at amortised cost and represent liabilities for goods
and services provided to the Group prior to the end of the financial year that are unpaid and arise
when the Group becomes obliged to make future payments in respect of the purchase of these
goods and services. Trade payables are normally settled within 30 to 60 days.
n)
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration
received net of issue costs associated with the borrowing. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortised cost using the effective interest rate
method. Amortised cost is calculated by taking into account any issue costs and any discount or
premium on settlement. Gains and losses are recognised in the Statement of Comprehensive
Income when the liabilities are derecognised and as well as through the amortisation process.
o) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a
result of past events, for which it is probable that an outflow of economic benefits will result and that
an outflow can be reliably measured. Where the Group expects some or all of a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain. The expense relating to any
provision is presented in the Statement of Comprehensive Income net of any reimbursement.
Cyclopharm Limited Annual Report 58
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
p) Employee entitlements
Provision is made for employee benefits accumulated as a result of employees rendering services
up to the reporting date. These benefits include wages and salaries, annual leave and long service
leave.
Employee benefits expected to be settled within twelve months of the reporting date are measured
at their nominal amounts based on remuneration rates which are expected to be paid when the
liability is settled plus related on-costs. All other employee benefit liabilities are measured at the
present value of the estimated future cash outflow (after applying probability) to be made in respect
of services provided by employees up to the reporting date. In determining the present value of
future cash outflows, the market yield as at the reporting date on national government bonds, which
have terms to maturity approximating the terms of the related liability, are used.
Employee benefit expenses and revenues arising in respect of wages and salaries, non-monetary
benefits, annual leave, long service leave and other leave benefits; and other types of employee
benefits are recognised against profits on a net basis in their respective categories.
q) Employee share and performance share schemes
The fair value of performance rights issued under the Cyclopharm Long Term Incentive Plan are
recognised as a personnel expense over the vesting period with a corresponding increase in
Employee Equity Benefits Reserve.
The fair value of the implied option attached to shares granted is determined using a pricing model
that takes into account factors that include exercise price, the term of the performance option, the
vesting and performance criteria, the share price at grant date and the expected price volatility of
the underlying share. The fair value calculation excludes the impact of any non-market vesting
conditions. Non-market vesting conditions are included in assumptions about the number of
performance options that are expected to become exercisable. At each balance date, the entity
revises its estimate of the number of performance rights that are expected to become exercisable.
The personnel expense recognised each period takes into account the most recent estimate.
Shares issued under employee and executive share plans are held in trust until vesting date.
Unvested shares held by the trust are consolidated into the group financial statements.
r) Leases
Operating Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognised as an expense in the
Statement of Comprehensive Income on a straight-line basis over the lease term. Lease incentives
under operating leases are recognised as a liability and amortised on a straight-line basis over the
life of the lease.
Cyclopharm Limited Annual Report 59
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
s) Other Revenue
Interest
Revenue is recognised as the interest accrues using the effective interest rate method, which is the
rate that exactly discounts estimated future cash receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset.
Research & Development Tax Incentive
Government grants, including Research and Development incentives, are recognized at fair value
where there is reasonable assurance that the grant will be received and all grant conditions will be
met.
Grants relating to cost reimbursements are recognized as other income in profit or loss in the period
when the costs were incurred or when the incentive meets the recognition requirements (if later)
All revenue is stated net of the amount of goods and services tax (“GST”).
t) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except where the GST
incurred is not recoverable from the Australian Taxation Office (“ATO”) and is therefore recognised
as part of the asset’s cost or as part of the expense item. Receivables and payables are stated
inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as
part of receivables or payables in the Statement of Financial Position. Cash flows are presented in
the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from
investing and financing activities, which is recoverable from, or payable to the taxation authority are
classified as operating cash flows.
u) Financial instruments
Financial assets and liabilities are recognised when the entity becomes a party to the contractual
provisions to the instrument.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market and are stated at amortised cost using the effective interest rate
method.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
are subsequently remeasured to their fair value at each reporting date. The accounting for
subsequent changes in fair value depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged.
De-recognition of financial instruments
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a de-recognition of the original liability and the recognition of
a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.
Impairment of financial assets
The Group assesses at each Statement of Financial Position date whether a financial asset or
group of financial assets is impaired.
Cyclopharm Limited Annual Report 60
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
v) Contributed equity
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Other contributed equity
In accordance with AASB112 Income Taxes, additional contributed equity was recorded to
recognise the transfer of tax liabilities from Vita Medical Limited to Vita Life Sciences Limited, being
the parent of the Australian tax consolidated group at the relevant time. This event occurred prior to
Cyclopharm Limited acquiring its interests in the net assets of Vita Medical Limited.
As part of the restructure a subsidiary of Cyclopharm Limited, Vita Medical Australia Pty Ltd
acquired all the assets, liabilities and business from Vita Medical Limited, the former group parent.
With effect from 31 May 2006, Cyclopharm Limited also acquired 100% of the other group operating
subsidiaries from the ultimate holding company, Vita Life Sciences Limited. Accordingly, the group
comprises Cyclopharm Limited and the following wholly owned subsidiaries:
Cyclomedica Australia Pty Ltd (formerly Vita Medical Australia Pty Ltd)
Cyclomedica Ireland Ltd (formerly Vitamedica Europe Ltd)
Cyclomedica Europe Ltd
Cyclomedica Canada Limited (formerly Vita Medical Canada Ltd)
Cyclomedica Germany GmbH
Allrad 28 Pty Ltd (deregistered 16 July 2017)
Allrad 29 Pty Ltd (deregistered 16 July 2017)
These entities collectively comprise the medical diagnostic equipment and associated consumables
business formerly operated as the Vita Medical Group – now known as the Cyclopharm Group. The
transaction has been accounted for as a ‘reverse acquisition’ as defined in AASB 3 Business
Combinations whereby Cyclopharm Limited is the legal parent and Cyclomedica Australia Pty
Limited is the financial parent, which for accounting purposes is deemed to be the acquirer.
The consideration for the minority interests of the controlled entities and costs of acquisition have
been charged to other contributed equity in accordance with AASB 127 Consolidated and Separate
Financial Statements.
Cyclopharm Limited Annual Report 61
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
w) Earnings per share
Basic earnings per share
Basic earnings per share is determined by dividing the net profit/(loss) after income tax attributable
to members of the Company by the weighted average number of ordinary shares outstanding during
the financial year. Where there is a change in the number of ordinary shares on issue without a
corresponding change in recognised resources during the year, the number of ordinary shares for
all periods presented are correspondingly adjusted as if the event had occurred at the beginning of
the earliest period presented.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share
to take into account the after-income tax effect of interest and other financing costs associated with
dilutive potential ordinary shares and the weighted average number of shares assumed to have
been issued for no consideration in relation to dilutive potential ordinary shares. Where there is a
change in the number of ordinary shares on issue without a corresponding change in recognised
resources during the year, the number of ordinary shares for all periods presented are
correspondingly adjusted as if the event had occurred at the beginning of the earliest period
presented.
x) Fair Value
The Group subsequently measures some of its assets at fair value on a non-recurring basis. Fair
value is the price the Group would receive to sell an asset in an orderly (i.e. unforced) transaction
between independent, knowledgeable and willing market participants at the measurement date.
As fair value is a market-based measure, the closest equivalent observable market pricing
information is used to determine fair value. Adjustments to market values may be made having
regard to the characteristics of the specific asset. The fair values of assets that are not traded in an
active market are determined using one or more valuation techniques. These valuation techniques
maximise, to the extent possible, the use of observable market data.
To the extent possible, market information is extracted from either the principal market for the asset
(i.e. the market with the greatest volume and level of activity for the asset) or, in the absence of
such a market, the most advantageous market available to the entity at the end of the reporting
period (i.e. the market that maximises the receipts from the sale of the asset after taking into
account
fair value
measurement also takes into account a market participant’s ability to use the asset in its highest
and best use or to sell it to another market participant that would use the asset in its highest and
best use.
transport costs). For non-financial assets,
transaction costs and
the
y) Significant Accounting Judgements and Estimates
The preparation of financial statements requires management to make judgements, estimates and
assumptions that effect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses.
The following are the critical judgements and estimates that the directors have made in the process
of applying the Group’s accounting policies and that have the most significant effect on the amounts
recognised in the financial statements.
Cyclopharm Limited Annual Report 62
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Key Estimates
Impairment – general
The Group assesses impairment at the end of each reporting period by evaluating conditions and
events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of
relevant assets are reassessed using value-in-use calculations which incorporate various key
assumptions.
The Group’s property, plant and equipment relating to the Cyclotron facility have been fully
impaired, based on management’s assessment that the fair value of those assets is nil in the
current industry circumstances and the condition of the damaged assets. Extensive damage to the
Cyclotron facility caused by substantial water damage in June 2014, delayed any decisions about
the future use of the Cyclotron facility until it is restored to its former operational status. Recent
negotiations with other parties to establish a new business to operate the Cyclotron (as announced
in September 2017) have not yet reached a sufficiently advanced stage to confirm that this
proposed transaction will proceed. Accordingly, the suspended Cyclotron business is not
considered to be a discontinued operation pending that final decision and its outcome. Refer to
Note 11.
The assumptions used in the estimation of recoverable amount and the carrying amount of
intangible assets are discussed in Note 13. No impairment has been recognised in respect of
intangible assets at the end of the reporting period.
Useful lives of property, plant and equipment
The estimation of the useful lives of assets has been based on historical experience as well as
lease terms and turnover policies. In addition, the condition of the assets is assessed at least once
per year and considered against the remaining useful life. Adjustments to useful lives are made
when considered necessary.
Share based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair
value of the equity instruments at the date at which they are granted. The accounting estimates and
assumptions relating to equity-settled share-based payments would have no impact on the carrying
amounts of assets and liabilities within the next annual reporting period but may impact expenses
and equity.
The Group measures the cost of share-based payments at fair value at the grant date using the
Black-Scholes formula, taking into account the terms and conditions upon which the instruments
were granted. Refer to Note 25 for details of the Company’s Share Based Payment Plan.
Key Judgements
Taxation
The Group's accounting policy for taxation requires management's judgement as to the types of
arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also
required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised
on the statement of financial position. Deferred tax assets, including those arising from unrecouped
tax losses, capital losses and temporary differences, are recognised only where it is considered
more likely than not that they will be recovered, which is dependent on the generation of sufficient
future taxable profits.
Cyclopharm Limited Annual Report 63
Notes
Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Judgements are also required about the application of income tax legislation. These judgements
and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in
circumstances will alter expectations, which may impact the amount of deferred tax assets and
deferred tax liabilities recognised on the statement of financial position and the amount of other tax
losses and temporary differences not yet recognised. In such circumstances, some or all the
carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting
in a corresponding credit or charge to the consolidated statement of comprehensive income.
Cyclopharm Limited Annual Report 64
Notes
Continued
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
There are no impairment losses on receivables and contract assets arising from contracts with
customers.
Cyclopharm Limited Annual Report 65
TechnegasMolecular ImagingTotal$$$Type of goods or serviceSales of equipment and consumables12,411,070 - 12,411,070 After sales services993,152 - 993,152 Total revenue from contracts with customers13,404,222 - 13,404,222 Geographical marketsAsia Pacific2,662,870 - 2,662,870 Europe8,348,476 - 8,348,476 Canada2,145,411 - 2,145,411 Other247,465 - 247,465 Total revenue from contracts with customers13,404,222 - 13,404,222 Timing of revenue recognitionGoods transferred at a point in time13,164,161 - 13,164,161 Services transferred over time240,061 - 240,061 Total revenue from contracts with customers13,404,222 - 13,404,222 For the period ended 31 December 2018SegmentsTechnegasMolecular ImagingTotal$$$Type of goods or serviceSales of equipment and consumables12,508,594 - 12,508,594 After sales services680,158 - 680,158 Total revenue from contracts with customers13,188,752 - 13,188,752 Geographical marketsAsia Pacific2,365,268 - 2,365,268 Europe8,339,838 - 8,339,838 Canada2,199,283 - 2,199,283 Other284,363 - 284,363 Total revenue from contracts with customers13,188,752 - 13,188,752 Timing of revenue recognitionGoods transferred at a point in time12,958,680 - 12,958,680 Services transferred over time230,072 - 230,072 Total revenue from contracts with customers13,188,752 - 13,188,752 For the period ended 31 December 2017Segments
Notes
Continued
4. OPERATING SEGMENTS
The Group has identified its operating segments based on the internal reports that are reviewed and
used by the Board of Directors (chief operating decision makers) in assessing performance and
determining the allocation of resources. The Group is managed primarily on the basis of product
category as the Group's risks and returns are affected predominantly by differences in the products
and services produced. The Group also monitors the performance of the business on a
geographical basis.
The operating businesses are organised and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that
offers different products and serves different markets.
The Technegas segment is a supplier of diagnostic equipment and consumables used by
physicians in the detection of pulmonary embolism.
The Molecular Imaging segment will produce radiopharmaceuticals to be used by physicians in the
detection of cancer, neurological disorders and cardiac disease.
Transfer prices between business segments are set on an arm's length basis in a manner similar to
transactions with third parties. Segment revenue, segment expense and segment result include
transfers between business segments. Those transfers are eliminated on consolidation.
Business segments
The tables under the heading business segments present revenue and profit information and certain
asset and liability information regarding business segments for the years ended 31 December 2018
and 31 December 2017.
Geographical segments
The tables under the heading geographical segment present revenue and asset information
regarding geographical segments for the years ended 31 December 2018 and 31 December 2017.
Cyclopharm Limited Annual Report 66
Notes
Continued
4. SEGMENT REPORTING (continued)
Business Segments
Cyclopharm Limited Annual Report 67
TechnegasMolecular ImagingTotal$$$RevenueSales to external customers13,404,222 - 13,404,222 Finance revenue 101,870 1,541 103,411 Other revenue2,122,351 - 2,122,351 Total revenue15,628,443 1,541 15,629,984 ResultProfit / (loss) before tax and finance costs479,301 (334,764)144,537 Finance costs (23,452) (2,677) (26,129)Profit / (loss) before income tax455,849 (337,441)118,408 Income tax expense (180,631)26,767 (153,864)Profit / (loss) after income tax275,218 (310,674) (35,456)Assets and liabilitiesSegment assets20,664,136 2,872,585 23,536,721 Segment asset increases for the period : - capital expenditure279,143 - 279,143 Segment liabilities (5,476,181) (1,044,571) (6,520,752)Other segment informationDepreciation and amortisation (510,174) (56) (510,230)31 December 2018ConsolidatedFor the year ended
Notes
Continued
4. SEGMENT REPORTING (continued)
Business Segments (continued)
Cyclopharm Limited Annual Report 68
TechnegasMolecular ImagingTotal$$$RevenueSales to external customers13,188,752 - 13,188,752 Finance revenue 77,723 1,806 79,529 Other revenue2,390,586 - 2,390,586 Total revenue15,657,061 1,806 15,658,867 ResultProfit/(loss) before tax and finance costs1,182,365 (457,147)725,218 Finance costs (17,487) (2,592) (20,079)Profit/(loss) before income tax1,164,878 (459,739)705,139 Income tax expense (1,977,557) (252,153) (2,229,710)Profit/(loss) after income tax (812,679) (711,892) (1,524,571)Assets and liabilitiesSegment assets20,973,846 2,403,395 23,377,241 Segment asset increases for the period : - capital expenditure631,764 - 631,764 Segment liabilities (5,501,830) (626,019) (6,127,849)Other segment informationDepreciation and amortisation (318,025) (63) (318,088)31 December 2017ConsolidatedFor the year ended
Notes
Continued
4. SEGMENT REPORTING (continued)
Geographical Segments
Cyclopharm Limited Annual Report 69
ConsolidatedAsia PacificEuropeCanadaOtherTotal$$$$$RevenueSales to external customers2,662,870 8,348,476 2,145,411 247,465 13,404,222 Finance revenue 103,316 95 - - 103,411 Other revenue2,122,351 - - - 2,122,351 Total segment revenue4,888,537 8,348,571 2,145,411 247,465 15,629,984 AssetsSegment assets16,025,379 6,686,068 825,274 - 23,536,721 31 December 2018For the year endedConsolidatedAsia PacificEuropeCanadaOtherTotal$$$$$RevenueSales to external customers2,365,268 8,339,838 2,199,283 284,363 13,188,752 Finance revenue 79,529 - - - 79,529 Other revenue2,390,586 - - - 2,390,586 Total segment revenue4,835,383 8,339,838 2,199,283 284,363 15,658,867 AssetsSegment assets16,153,299 6,236,165 987,777 - 23,377,241 31 December 2017For the year ended
Notes
Continued
5. REVENUES AND EXPENSES
Cyclopharm Limited Annual Report 70
20182017Notes$$RevenueSales revenue13,404,222 13,188,752 Finance revenue - Interest received from other parties103,411 79,529 Other RevenueR&D Tax incentive refund2,122,351 2,390,586 Total other revenue2,122,351 2,390,586 (Note 3 discloses the disaggregation of the Group's revenue from contracts with customers)Expensesa)Cost of materials and manufacturingCost of materials and manufacturing 2,965,588 2,647,649b)Finance costsInterest paid on loans from external parties 26,129 20,079c)Depreciation of plant and equipment 144,358 298,639Depreciation of leasehold improvements 275,757 694Amortisation of intangibles 90,115 18,755 510,230 318,088d)Research & development expenseFDA expenses2,964,770 2,584,716 Pilot Clinincal Trial expenses251,301 270,101 Research expenses3,314 16,471 3,219,385 2,871,288 e) Employee benefits expenseSalaries and wages 3,947,991 3,532,030Defined contribution superannuation expense 297,777 316,715Non-Executive Director fees 173,400 157,055Share-based payments expense25a 37,96721,416 4,457,135 4,027,216f)Administration expenseLegal and professional costs 2,184,313 1,268,746Office and facility costs 707,308 599,075(Reversal of) / Provision for doubtful debts(122,220) 546,393Operating lease expenses20a 718,351 755,447Travel and motor vehicle costs 553,142 731,148 4,040,894 3,900,809g)Other (income) / expenseRealised Foreign exchange (gains) / losses (86,574)19,143 Unrealised Foreign exchange (gains) / losses (277,724)4,524 Other214,947 343,041 (149,351)366,708 Consolidated Depreciation and amortisation
Notes
Continued
6.
INCOME TAX
Cyclopharm Limited Annual Report 71
20182017$$The components of income tax expense comprise:Current income tax expense (98,216) (2,035,950)Deferred tax expense (55,648) (193,760) (153,864) (2,229,710)Accounting profit before income tax118,408 705,136 Statutory income tax rate of 27.5% (2017: 30%) (32,562) (211,541)Effects of lower rates on overseas income161,606 212,127 Expenditure not allowable for income tax purposes (2,130,823) (2,416,088)Tax expense offset against carry forward tax lossesNon-assessable income1,195,552 752,369 Tax losses brought to account overseas- 43,214 Over / (under) provsion of previous years709,074 (401,856)Temporary differences reversed in Australian group (55,554) (197,066)Temporary differences recognised overseas94 3,306 Tax losses not recognised overseas (1,251) (14,175)Total income tax expense (153,864) (2,229,710)Effective income tax rate(129.9%)(316.2%)Current income tax asset78,377 27,778 Current income tax liability643,644 1,573,059 Deferred tax assetsInvestments402,139 432,505 Provisions and accruals458,584 486,981 Other182,798 179,463 Total deferred tax assets1,043,521 1,098,949 Movements in deferred tax assetsOpening balance1,098,949 1,296,015 Deferred tax assets attributable to temporary differences brought to account (55,428) (197,066) Closing balance1,043,521 1,098,949 Deferred tax liabilitiesProvisions and accruals517 549 Total deferred tax liabilities517 549 Movements in deferred tax liabilitiesOpening balance549 3,855 Reversal of temporary differences (32) (3,306) Closing balance517 549 Deferred tax assets for which no benefit has been recognised:- arising from temporary differences - at 27.5% 873,948 837,633 - arising from revenue tax losses - at 27.5%- - - arising from capital tax losses - at 27.5% 21,686 21,686 Deferred tax assets from temporary differences on:Deferred tax liabilities from temporary differences on:A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Group's effective income tax rate is as follows:
Notes
Continued
7. NET TANGIBLE ASSETS AND LOSS PER SHARE
Net Tangible Assets per share
The number of ordinary shares includes the effects of 500,000 Long Term Incentive
Performance (‘LTIP’) shares issued on 2 July 2018 (2017: 225,000 Long Term Incentive
Performance shares issued on 19 April 2017) and excludes 55,443 expired LTIP shares
cancelled on 8 October 2018 as set out in Note 18.
Loss per share
The weighted average number of ordinary shares for basic loss per share excludes the effects
of 500,000 LTIP shares issued on 2 July 2018 and 225,000 LTIP shares issued on 19 April
2017 set out in Note 18 as they are contingently returnable.
Cyclopharm Limited Annual Report 72
20182017$$Net assets per share0.25 0.25 Net tangible assets per share0.18 0.21 NumberNumberNumber of ordinary shares for net assets per share68,698,873 68,254,316 20182017$$Net assets17,015,969 17,249,392 Net tangible assets12,445,625 14,482,362 Consolidated20182017centscentsBasic loss per share for continuing operations (0.05) (2.25)Basic loss per share (0.05) (2.25)Diluted loss per share (0.05) (2.25)NumberNumber67,973,873 67,891,316 67,973,873 67,891,316 20182017$$Loss used to calculate basic earnings per share (35,456) (1,524,571)Loss used to calculate diluted earnings per share (35,456) (1,524,571)Consolidated Weighted average number of ordinary shares for basic loss per share Weighted average number of ordinary shares for diluted loss per share
Notes
Continued
8. CASH AND CASH EQUIVALENTS
Cyclopharm Limited Annual Report 73
20182017$$Cash at bank and in hand5,854,959 8,689,676 Total cash and cash equivalents5,854,959 8,689,676 Reconciliation of Statement of Cash Flows20182017$$Cash at bank and in hand5,854,959 8,689,676 5,854,959 8,689,676 Net loss after tax (35,456) (1,524,571)Adjustments for non-cash income and expense items:Depreciation420,115 299,333 Amortisation90,115 18,755 Movement in intangible assets (1,290,551) (400,437)Movement provision for employee benefits (86,832) (20,141)Movement in foreign exchange34,046 213,409 Movement in employee benefits reserve37,967 21,416 Movement in other provisions558,264 708,494 (272,332) (683,742)Increase/decrease in assets and liabilities: (Increase) / Decrease in receivables (744,320)622,163 Increase in inventories (94,243) (44,199)Increase in other receivables (448,946) (2,765,564)Increase in current tax asset (50,599) (27,778)Decrease in deferred tax assets55,428 197,066 Increase in creditors1,175,008 156,689 (Decrease) / Increase in current tax liabilities (929,415)1,545,220 Decrease in deferred tax liabilities (32) (3,306)Increase in deferred income liability202,116 321,330 Net cash flow used in operating activities (1,107,335) (682,121)For the purpose of the Statement of Cash Flows, cash and cash equivalents comprise the following:(a) Reconciliation of net loss after tax to net cash flows from operationsConsolidatedCash at bank and in hand earns interest at floating rates based on daily bank deposit rates.The fair value of cash equivalents is $5,854,959 (2017: $8,689,676).
Notes
Continued
8. CASH AND CASH EQUIVALENTS (continued)
(b) Non-cash financing and investing activities
On 2 July 2018, 500,000 Long Term Incentive Plan (LTIP) shares were issued by way of loans. During
2018, 138,000 LTIP shares vested and an election was made to extend the exercise period for up to 5
years, whilst 55,443 LTIP shares lapsed and were cancelled. On 19 April 2017, 225,000 Long Term
Incentive Plan (LTIP) shares were issued by way of loans. Refer to Note 18 Contributed Equity and Note
25 Share Based Payment Plans.
9. TRADE AND OTHER RECEIVABLES
Terms and conditions
(iii)
(iv)
(v)
Terms and conditions relating to the above financial instruments
(i)
(ii)
Trade receivables are non-interest bearing and generally on 30 and 60-day terms.
Other receivables are non-interest bearing and have repayment terms between 30 and
90 days.
Other receivables includes accrued R&D Tax Incentive of $2,324,467 (2017: $2,144,586)
for the financial year ended 31 December 2018, which will be received upon lodgement and
processing of the 2018 income tax return.
Related party details are set out in the Note 21 Related Party Disclosures.
In late 2017, the company restructured its German distribution model to include the
termination of commercial activities with Almedis Altmann GmbH and the termination of its
General Manager for Germany. Almedis Altmann GmbH is an entity controlled by the
former General Manager – Germany. As a result of these actions, the company recorded a
provision for doubtful debts of $540,754 in 2017 (nil expected credit loss during the current
year) relating to trade balances with Almedis Altmann GmbH.
Cyclopharm Limited Annual Report 74
20182017Notes$$CurrentTrade receivables, third parties3,954,464 3,344,264 Allowance for expected credit loss(v) (417,610) (551,730)Net Trade receivables, third parties(i)3,536,854 2,792,534 Other receivables(ii), (iii)2,710,211 2,545,290 Total Current trade and other receivables6,247,065 5,337,824 Non-currentTrade receivables, associate230,782 230,782 Allowance for expected credit loss (230,782) (230,782)Total Non-current trade and other receivables- - Total trade and other receivables6,247,065 5,337,824 Consolidated
Notes
Continued
9. TRADE AND OTHER RECEIVABLES (continued)
Movements in the allowance for expected credit losses (2017: provision for impairment of receivables)
are as follows:
10. INVENTORIES
Cyclopharm Limited Annual Report 75
20182017Notes$$Opening balance551,730 7,512 Additional provisions recognised- 544,218 Receivables written off during the year as uncollectable- - Unused amounts reversed (134,120)- Closing balance417,610 551,730 Consolidated20182017Notes$$CurrentRaw materials at cost1,198,130 1,128,888 1,614,033 1,584,721 (40,617) (36,305)Total inventory2,771,546 2,677,303 Consolidated Finished goods at lower of cost or net realisable value Provision for obsolescence
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT
* Impairment arising from the Group’s decision to cease commercial production at its cyclotron facility at the end
of April 2014. Extensive damage to the cyclotron facility caused by substantial water damage in June 2014 has
delayed any final decisions about the future use of the cyclotron facility until its restoration to its former
operational status. Accordingly, the suspended cyclotron business is not considered to be a discontinued
operation pending that decision and its outcome. The Group initially recognises and measures its Land and
Buildings, Plant and Equipment and Leasehold Improvements at cost. The Group subsequently measures some
of its Buildings, Plant and Equipment and its Leasehold Improvements at fair value on a non-recurring basis in
accordance with AASB 136: Impairment of Assets. Refer Note 2 (y).
Cyclopharm Limited Annual Report 76
Leasehold Land and buildings Leasehold improvements Plant and equipment Leased Plant and Equipment Capital Work in Progress Total Consolidated$$$$$$at written down value305,098 1,883,597 445,726 - 48,002 2,682,423 Additions / Transfers- 90,910 116,573 - 71,660 279,143 Disposals / Transfers- - (206)- (41,832) (42,038)Foreign exchange translation4,798 3,845 (39,650)- - (31,007)Depreciation for the year (10,006) (275,757) (134,352)- - (420,115)at written down value299,890 1,702,595 388,091 - 77,830 2,468,406 Cost value2,378,282 4,919,659 8,191,866 120,901 48,002 15,658,710 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (191,224) (427,150) (3,376,849) (120,901)- (4,116,124)Net carrying amount305,098 1,883,597 445,726 - 48,002 2,682,423 Cost value2,383,603 5,010,569 8,295,535 120,901 77,830 15,888,438 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (201,753) (699,062) (3,538,153) (120,901)- (4,559,869)Net carrying amount299,890 1,702,595 388,091 - 77,830 2,468,406 31 December 2018Year ended31 December 20181 January 201831 December 20181 January 2018
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT (continued)
* Impairment arising from the Group’s decision to cease commercial production at its cyclotron facility at the end
of April 2014. Extensive damage to the cyclotron facility caused by substantial water damage in June 2014 has
delayed any final decisions about the future use of the cyclotron facility until its restoration to its former
operational status. Accordingly, the suspended cyclotron business is not considered to be a discontinued
operation pending that decision and its outcome. The Group initially recognises and measures its Land and
Buildings, Plant and Equipment and Leasehold Improvements at cost. The Group subsequently measures some
of its Buildings, Plant and Equipment and its Leasehold Improvements at fair value on a non-recurring basis in
accordance with AASB 136: Impairment of Assets. Refer Note 2 (y).
Fair Value Measurement
AASB 13 Fair Value Measurement requires the disclosure of fair value information by level of the fair value
hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level
that an input that is significant to the measurement can be categorised into, as follows:
Level 1: Measurements based on quoted prices in active markets for identical assets that the entity can access at
the measurement date.
Level 2: Measurements based on inputs other than the quoted prices included in Level 1, but that are observable
for the asset, either directly or indirectly.
Level 3: Measurements based on unobservable inputs for the asset or liability.
Cyclopharm’s management considers that the inputs used for the fair value measurement are Level 2 inputs.
Cyclopharm Limited Annual Report 77
Leasehold Land and buildings Leasehold improvements Plant and equipment Leased Plant and Equipment Capital Work in Progress Total Consolidated$$$$$$at written down value338,901 1,709,611 292,143 - - 2,340,655 Additions / Transfers- 174,680 409,082 - 48,002 631,764 Disposals / Transfers- - (2)- - (2)Foreign exchange translation (24,463)- 33,802 - - 9,339 Depreciation for the year (9,340) (694) (289,299)- - (299,333)at written down value305,098 1,883,597 445,726 - 48,002 2,682,423 Cost value2,400,108 4,744,979 7,785,879 120,901 - 15,051,867 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (179,247) (426,456) (3,124,445) (120,901)- (3,851,049)Net carrying amount338,901 1,709,611 292,143 - - 2,340,655 Cost value2,378,282 4,919,659 8,191,866 120,901 48,002 15,658,710 Impairment - Molecular Imaging* (1,881,960) (2,608,912) (4,369,291)- - (8,860,163)Accumulated depreciation (191,224) (427,150) (3,376,849) (120,901)- (4,116,124)Net carrying amount305,098 1,883,597 445,726 - 48,002 2,682,423 31 December 2017Year ended31 December 20171 January 201731 December 20171 January 2017
Notes
Continued
11. PROPERTY, PLANT AND EQUIPMENT (continued)
Valuation techniques
AASB 13 requires the valuation technique used to be consistent with one of the following valuation approaches:
Market approach: techniques that use prices and other information generated by market transactions for
identical or similar assets.
Income approach: techniques that convert future cash flows or income and expenses into a single discounted
present value.
Cost approach: techniques that reflect the current replacement cost of an asset at its current service capacity.
The Cyclopharm Board decided to cease commercial production at its Cyclotron facility at the end of April 2014
due to the impact on the Group’s profits of the government-owned competition. In making that decision, the
Board valued the Cyclotron facility, comprised of buildings, leasehold improvements and plant and equipment at
a fair value of nil, using the market approach and income approach techniques. The market technique
predominantly used recent observable market data for similar new equipment in Australia, adjusted for loss in
value caused by physical deterioration, functional obsolescence, economic obsolescence and the industry
specific aspects affecting this highly specialised asset i.e. the government-owned competition which had
rendered further participation in the molecular imaging industry uneconomic and its future use uncertain. The
same industry specific factors were applied to the income approach technique. Both techniques resulted in a fair
value of nil being recognised for the Cyclotron facility as at 31 December 2014. Cyclopharm considers that the
same conditions still apply at 31 December 2018. Furthermore, the damage caused to the Cyclotron facility in
June 2014 has delayed any final decisions about the future use of the Cyclotron facility until its restoration to its
former functionality. Accordingly, Cyclopharm has concluded that as a result of this uncertainty, the fair value of
the Cyclotron remains at nil as at 31 December 2018.
Inputs used in the market approach technique to measure Level 2 fair values were:
current replacement cost of the property being appraised less the loss in value caused by physical deterioration,
functional obsolescence and economic obsolescence, and industry specific factors set out above.
historical cost and relevant market data and industry expertise.
sales comparison for assets where available.
The assessments of the physical condition, functional obsolescence and economic obsolescence are considered
Level 3 inputs.
Non-Recurring fair value measurements:
Buildings
Plant and equipment
Leasehold improvements
Total non-financial assets recognised at fair value
Level 2
2018
$
-
-
-
-
Level 2
2017
$
-
-
-
-
The highest and best use of the assets in normal circumstances is the value in continued use, using the income
approach technique. However, in the current unusual circumstances as set out above, the fair value using this
approach is nil.
Cyclopharm Limited Annual Report 78
Notes
Continued
12. INVESTMENTS
(a) The share of the associate’s loss not recognised during the year was $517,879 (2017: loss of
$393,914) and the cumulative share of the associate’s loss not recognised as at 31 December 2018
was $3,451,842 (31 December 2017: $2,933,963). The comparative amounts have been revised
after the receipt of the audited financial report of the associate subsequent to the last financial
report of the Group.
The share of loss of associate not recognised as at 31 December 2018 is extracted from the
unaudited financial report of the associate, and it may be revised when that financial report has
been audited.
The fair value of the Group’s investment in Macquarie Medical Imaging Pty Ltd was $nil (2017: $nil).
Cyclopharm Limited Annual Report 79
20182017 Equity accounted investments Notes$$Associated companies(a)- - Name Principal Activities Principal place of business Measurement Method 20182017Macquarie Medical Imaging Pty LtdImaging centre Sydney, Australia Equity method20%20%20182017Extract from the associate's statement of financial position:Notes$$Current Assets1,667,541 1,086,606 Non-current Assets9,622,837 12,006,519 Current Liabilities (14,671,387) (12,166,215)Non-current Liabilities (8,733,080) (10,365,250)Net Liabilities (12,114,089) (9,438,340)Share of associate's Net Liabilities(a) (2,422,818) (1,887,668)20182017Extract from the associate's statement of comprehensive income:Notes$$Revenue14,650,032 13,661,612 Net Loss(a) (2,589,397) (1,969,568)ConsolidatedMacquarie Medical Imaging Pty Ltd is a private entity that provides medical imaging facilities for Macquarie University Hospital. The Group's interest in the company represents a strategic investment which provides synergies towards the provision of a fully aligned and integrated diagnostic, therapeutic and research platform.ConsolidatedOwnership InterestConsolidated
Notes
Continued
12. INVESTMENTS (continued)
Contingent liabilities
(b) Pursuant to a Shareholders’ Agreement, CycloPet Pty Limited (a wholly owned subsidiary of
Cyclopharm Limited) has undertaken to provide a put option to a 50% shareholder of Macquarie
Medical Imaging Pty Limited (“MMI”) such that if this option was exercised, CycloPet would be
required to purchase all Redeemable Preference Shares and Ordinary Shares held by the 50%
joint venturer for the value of the Redeemable Preference Shares plus any accumulated interest
plus $1 for the Ordinary Shares. The cost to CycloPet had the put option been issued and
exercised at balance date is estimated not to exceed $2,838,442 (2017: $2,393,465). If the put
option was issued and exercised, control of MMI would be transferred to the Group and MMI’s
financial statements would be consolidated from that date.
13. INTANGIBLE ASSETS
* Goodwill on consolidation arising upon the acquisition of Inter Commerce Medical bvba on 1 October
2017 and Medicall Analys AB on 1 May 2018. Refer to Note 28 for further details.
The recoverable amount of Technegas Development and Ultralute costs have been assessed using a
discounted cash flow methodology forecasting five years of pre-tax cash flows.
The following describes each key assumption on which management has based its value in use
calculations:
(a)
(b)
(c)
Five-year pre-tax cash flow projections, based upon management approved budgets and growth
rates covering a one year period, with the subsequent periods based upon management
expectations of growth excluding the impact of possible future acquisitions, business
improvement capital expenditure and restructuring.
The pre-tax discount rate used was 25.00% in 2018 (2017: 15.20%). The discount rate reflects
management’s estimate of the time value of money and the Group’s adjusted weighted average
cost of capital to reflect the current market risk–free rate but also price for the uncertainty
inherent in the assets.
The Directors have concluded that the recoverable amount of the Ultralute costs and other
intangibles exceed their carrying value.
Cyclopharm Limited Annual Report 80
Intellectual PropertyGoodwill on consolidation*LicencesTechnegas DevelopmentTargetUltraluteTotalConsolidated$$$$$$$Balance at54,164 400,437 - 427,015 27,419 1,857,995 2,767,030 Additions15,394 865,273 425,278 296,083 - 291,401 1,893,429 Transfers- (400,437)400,437 - - - - Amortisation (15,046)- (75,069)- - - (90,115)Balance at54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 Non-Current54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 54,512 865,273 750,646 723,098 27,419 2,149,396 4,570,344 Non-Current54,164 400,437 - 427,015 27,419 1,857,995 2,767,030 54,164 400,437 - 427,015 27,419 1,857,995 2,767,030 31 December 2018Total1 January 201831 December 201831 December 2017Total
Notes
Continued
14. TRADE AND OTHER PAYABLES
Terms and conditions
Terms and conditions relating to the above financial instruments:
(i)
(ii)
(iii)
Trade payables are non-interest bearing and are normally settled on 30-60 day terms.
Other payables and accruals are non-interest bearing and have an average term of 4
months.
The non-interest bearing loan, related party loan is payable when called upon. Related
party details are set out in the Note 21 Related party disclosures.
Cyclopharm Limited Annual Report 81
20182017Notes$$CurrentTrade payables, third parties(i)2,366,062 1,561,789 Other payables and accruals(ii)1,233,403 1,044,805 Total current trade and other payables3,599,465 2,606,594 Non-currentOther payables and accruals336,864 154,727 Total Non-current trade and other payables336,864 154,727 Total trade and other payables3,936,329 2,761,321 Consolidated
Notes
Continued
15. INTEREST BEARING LOANS AND BORROWINGS
(a)
Financing facilities available:
At reporting date, the following financing facilities had been negotiated and were available:
(b)
Secured Bank Loans
Cyclopharm’s wholly owned subsidiary, Inter Commerce Medical bvba (“ICM”), has a loan
provided by Bank Nagelmackers nv which will be fully repaid by January 2019. The facility is
secured by bank deposits held by the vendor of ICM.
Cyclopharm Limited Annual Report 82
20182017$$CurrentLease liabilty - secured61,592 20,204 Bank loan - secured (b)58,985 67,332 Interest bearing loans and borrowings (current)120,577 87,536 Non-currentLease liabilty - secured- 81,719 Bank loan - secured (b)- 5,611 Interest bearing loans and borrowings (non-current)- 87,330 Total interest bearing loans and borrowings120,577 174,866 Consolidated20182017Notes$$Total facilities available:- secured bank loans, third party120,577 174,866 120,577 174,866 Facilities used at reporting date:- secured bank loans, third party15120,577 174,866 120,577 174,866 Total facilities120,577 174,866 Facilities used at reporting date:(120,577)(174,866)Facilities unused at reporting date:- - Consolidated
Notes
Continued
16. PROVISIONS
A provision has been recognised for employee entitlements relating to long service and annual
leave. The measurement and recognition criteria relating to employee benefits have been
disclosed in Note 2.
17. DEFERRED INCOME LIABILITIES
A portion of the Research & Development Grant refund received during the year has been
recognised as deferred income liabilities and will be amortised over the same period as the
amortisation of the related intangible development asset.
Cyclopharm Limited Annual Report 83
Employee EntitlementsMake good TotalConsolidated$$$Balance at956,611 200,000 1,156,611 Arising during the year83,866 86,347 170,213 Utilised (170,698)- (170,698)Balance at869,779 286,347 1,156,126 Current855,517 - 855,517 Non-Current14,262 286,347 300,609 869,779 286,347 1,156,126 Number of employeesNumber of employees at year end32 Current944,276 - 944,276 Non-Current12,335 200,000 212,335 956,611 200,000 1,156,611 Number of employeesNumber of employees at year end27 Consolidated31 December 2017Total1 January 201831 December 201831 December 2018Total20182017$$Deferred income liabilities663,559 461,443 Consolidated
Notes
Continued
18. CONTRIBUTED EQUITY
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all
surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy,
at a meeting of the Company.
(i) 500,000 LTIP shares were issued on 2 July 2018 and 225,000 LTIP shares were issued on 19 April 2017 as set out in Note 25.
(ii) On 30 June 2017, the Company completed a capital raising exercise comprising a pro-rata non-renounceable entitlement offer to eligible shareholders of 1
share for every 6.8 shares held by eligible shareholders at an issue price of $0.80 per new share, resulting in the issue of 8,684,768 shares.
(iii) 55,443 expired LTIP shares were cancelled on 8 October 2018 and 382,185 expired LTIP shares were cancelled on 8 September 2017.
(iv) Proceeds from settlement of loan to acquire LTIP shares.
Cyclopharm Limited Annual Report 84
2018201720182017NotesNumberNumber$$Issued and paid up capitalOrdinary shares(a)68,698,873 68,254,316 27,238,193 26,884,885 Other contributed equity(b)- - (5,333,158) (5,333,158)Total issued and paid up capital68,698,873 68,254,316 21,905,035 21,551,727 (a) Ordinary sharesBalance at the beginning of the period68,254,316 59,726,733 26,884,885 20,296,125 (i)500,000 225,000 - - (ii)- 8,684,768 - 6,588,760 (iii) (55,443) (382,185)- - (iv)- - 353,308 - 68,698,873 68,254,316 27,238,193 26,884,885 (b) Other contributed equity- - (5,333,158) (5,333,158) Balance at the beginning and end of the period Issue of non-renounceable entitlement shares Consolidated Balance at end of period Issue of Long Term Incentive Plan shares Cancellation of expired Long Term Incentive Plan shares Settlement of loan for Long Term Incentive Plan shares
Notes
Continued
18. CONTRIBUTED EQUITY (continued)
When managing capital, management’s objective is to ensure the entity continues as a going
concern as well as to maintain optimal returns for shareholders and benefits for other
stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost
of capital available to the entity.
Management constantly assesses the capital structure to take advantage of favourable costs of
capital and/or high returns on assets. As the market is continually changing, management may
issue dividends to shareholders, issue new shares, increase the entity’s short or long term
borrowings or sell assets to reduce borrowings.
Management monitors capital through the gearing ratio (net debt/total capital). Management aims
to ensure that the Group’s gearing ratio does not exceed 45%. There are no banking covenants
as at 31 December 2018.
Dividends
During the current financial year, the Directors declared an unfranked interim dividend of 0.5 cent per
share in respect of the financial year ended 31 December 2018 and an unfranked final dividend of 0.5
cent per share in respect of the financial year ended 31 December 2017. During the 2017 financial
year, the Directors declared an unfranked interim dividend of 0.5 cent per share in respect of the
financial year ended 31 December 2017 and an unfranked final dividend of 0.5 cent per share in
respect of the financial year ended 31 December 2016.
The final unfranked dividend of 0.5 cent per share has not been recognised in these consolidated
financial statements as it was declared subsequent to 31 December 2018.
Cyclopharm Limited Annual Report 85
Consolidated20182017Notes$$Total interest bearing loans and borrowings120,577 174,866 Less: cash and cash equivalents8 (5,854,959) (8,689,676)Net cash (5,734,382) (8,514,810)Total equity17,015,969 17,249,392 Gearing ratio0.7%1.0%2018201720182017 Cents per share Cents per share $$Fully paid ordinary sharesFinal dividend in respect of the previous financial year - No franking credits attached0.50 0.5 321,653 278,309 - No franking credits attached0.50 0.50 329,819 321,813 1.00 1.00 651,472 600,122 Consolidated Interim dividend in respect of the current financial year
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES
The Group’s principal financial instruments comprise receivables, payables, bank loans, cash and
short-term deposits. The Group manages its exposure to key financial risks, including interest rate
and currency risk in accordance with the Group’s financial risk management policy. The objective
of the policy is to support the delivery of the Group’s financial targets while protecting future
financial security.
The Group uses different methods to measure and manage different types of risks to which it is
exposed. These include monitoring levels of exposure to interest rate, foreign exchange risk and
assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing
analysis and monitoring of specified credit allowances are undertaken to manage credit risk,
liquidity risk is monitored through the development of future rolling cash flow forecasts.
The Board review and agrees policies for managing each of these risks as summarised below.
Primary responsibility for identification and control of financial risks rests with the Audit and Risk
Management Committee under the authority from the Board. The Board reviews and agrees
policies for managing each of the risks identified below, including for interest rate risk, credit
allowances and cash flow forecast projections. It is, and has been throughout the year under
review, the Group’s policy that no trading in financial instruments shall be undertaken.
Details of the significant accounting policies and methods adopted, including the criteria for
recognition, the basis of measurement and the basis on which income and expenses are
recognised, in respect of each class of financial asset, financial liability and equity instrument are
disclosed in Note 2.
(a)
Interest rate risk
As the Group has moved into a low debt, strong cash position, the main interest rate risk is
now in cash assets exposure.
The following sensitivity analysis is based on the interest rate risk exposures in existence at
the Statement of Financial Position date.
At 31 December 2018, if interest rates had moved, as illustrated in the table below, with all
other variables held constant, pre-tax profit would have been affected as follows:
The movements in profit are due to possible higher or lower interest income from cash
balances.
Cyclopharm Limited Annual Report 86
20182017$$Profit before income tax+1.0% (100 basis points)57,960 86,167 -0.5% (50 basis points) (28,980) (43,084)Consolidated Judgements of reasonably possible movements:
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
At balance date, the Group had the following mix of financial assets and liabilities exposed to variable interest rate risk:
(a) Interest rate risk (continued)
Cyclopharm Limited Annual Report 87
ConsolidatedTotalYear ended1 year or less 1 to 5 years$$$$$FINANCIAL ASSETSCash and cash equivalents82.20%- 5,854,959 - - 5,854,959 Trade and other receivables9n/a6,247,065 - - - 6,247,065 Total financial assets6,247,065 5,854,959 - - 12,102,024 FINANCIAL LIABILITIESTrade payables, third parties14n/a3,936,329 - - - 3,936,329 Leases, third party150.50%- - 61,592 - 61,592 Secured bank loans, third party154.30%- - 58,985 - 58,985 Total financial liabilities3,936,329 - 120,577 - 4,056,906 Net exposure2,310,736 5,854,959 (120,577)- 8,045,118 ConsolidatedTotalYear ended1 year or less 1 to 5 years$$$$$FINANCIAL ASSETSCash and cash equivalents82.35%- 8,689,676 - - 8,689,676 Trade and other receivables9n/a5,337,824 - - - 5,337,824 Total financial assets5,337,824 8,689,676 - - 14,027,500 FINANCIAL LIABILITIESTrade payables, third parties14n/a2,761,321 - - - 2,761,321 Leases, third party150.50%- - 20,204 81,719 101,923 Secured bank loans, third party154.30%- - 67,332 5,611 72,943 Total financial liabilities2,761,321 - 87,536 87,330 2,936,187 Net exposure2,576,503 8,689,676 (87,536) (87,330)11,091,313 Fixed interest maturing inWeighted average interest rate %31 December 201831 December 2017Floating interest rateNon interest bearingWeighted average interest rate %Non interest bearingFloating interest rateFixed interest maturing in
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(b) Credit risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash
equivalents and trade and other receivables. The Group’s exposure to credit risk arises
from potential default of the counter party, with a maximum exposure equal to the
carrying amount of these instruments. Exposure at balance date is addressed in each
applicable note.
The Group does not hold any credit derivatives to offset its credit exposure.
The Group trades only with recognised, creditworthy third parties and as such collateral is
not requested nor is it the Group’s policy to scrutinise its trade and other receivables. It is
the Group’s policy that all customers who wish to trade on credit terms are subject to
credit verification procedures such as reviewing their industry reputation, financial position
and credit rating. In addition, receivable balances are monitored on an ongoing basis
with the result that the Group’s exposure to bad debts is constantly managed.
There are no significant unprovided concentrations of credit risk within the Group.
(c) Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of bank overdrafts and bank loans.
The Group‘s policy is to monitor the maturity of borrowings at all times. At 31 December
2018, 100% (2017: 49%) of the Group’s debt is due to mature in less than one year.
Refer to the table above with the heading 19 (a) Interest Rate Risk, which reflects all
contractually fixed pay-offs for settlement of financial liabilities and collection of financial
assets. Trade payables and other financial liabilities generally originate from the financing
of assets used in our ongoing operations such as investments in working capital e.g.
inventories and trade receivables and investment in property, plant and equipment. These
assets are considered in the Group’s overall liquidity risk. To monitor existing financial
assets and liabilities as well as to enable an effective controlling of future risks, the Board
and management monitor the Group’s expected settlement of financial assets and liabilities
on an ongoing basis.
The Group monitors the rolling forecast of liquidity reserves based on expected cash flow.
At balance date the Group has no unused credit facilities (2017: $nil).
(d) Commodity price risk
The Group’s exposure to commodity price risk is minimal.
Cyclopharm Limited Annual Report 88
ConsolidatedTotalYear endedNote$$$$$Trade payables, third parties143,262,601 336,864 336,864 - 3,936,329 Leases, third party1530,796 30,796 - - 61,592 Secured bank loans, third party1529,493 29,492 - - 58,985 3,322,890 397,152 336,864 - 4,056,906 Trade payables, third parties142,451,867 154,727 154,727 - 2,761,321 Leases, third party1510,102 10,102 81,719 - 101,923 Secured bank loans, third party1533,666 33,666 5,611 - 72,943 2,495,635 198,495 242,057 - 2,936,187 1 year to 5 yearsGreater than 5 years31 December 201831 December 20176 months to 1 yearLess than 6 months
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk
As a result of significant investment operations in Europe, the Group’s Statement of
Financial Position can be affected significantly by movements in the EURO / A$ exchange
rates. The Group does not hedge this exposure.
The Group also has transactional currency exposures. Such exposure arises from sales or
purchases by an operating unit in currencies other than the unit’s functional currency.
Approximately 78% (2017: 77%) of the Group’s sales are denominated in currencies other
than the functional currency of the operating unit making the sale, whilst approximately
60% (2017: 57%) of costs are denominated in the unit’s functional currency.
At 31 December 2018, the Group had the following financial instrument exposure to foreign
currency fluctuations:
Management believe the balance date risk exposures are representative of the risk exposure
inherent in the financial instruments.
Cyclopharm Limited Annual Report 89
20182017$$United States dollarsAmounts payable*4,628,580 116,347 Amounts receivable19,339 6,797 EurosAmounts payable303,270 180,577 Amounts receivable2,156,252 2,109,462 Canadian dollarsAmounts payable10,596 44,819 Amounts receivable301,079 456,204 Swedish KronersAmounts payable80,411 - Amounts receivable571,480 - Japanese YenAmounts payable13,821 11,467 Amounts receivable1,657 3,463 Chinese RenminbiAmounts payable- 80,584 Amounts receivable- - Net exposure2,477,940 (2,142,132)* includes forward exchange contract commitment.Consolidated
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk (continued)
Forward Exchange Contracts
The Company is party to a foreign exchange forward contract which was taken out as
protection against possible future falls in the value of the Australian dollar against the US
Dollar. The fair value of the contract as at 31 December has been measured and following
which, a fair value adjustment of $274,904 has been recognised in the Statement of Profit or
Loss and Other Comprehensive Income. The Company’s hedging activities have been
assessed under AASB 139 and do not meet the criteria under which hedge accounting is
required to be done by that standard.
Fair values
All of the Group’s financial instruments recognised in the Statement of Financial Position
have been assessed at their fair values using Level 1 inputs: Quoted prices (unadjusted) in
active markets for identical assets or liabilities that the entity can access at the measurement
date.
Foreign currency sensitivity
Currency risk is measured using sensitivity analysis. A portion of Cyclopharm’s receivables
and payables are exposed to movements in the values of those currencies relative to the
Australian dollar. Cyclopharm management have entered a hedge for US Dollar (USD)
movement in estimated costs to complete the USFDA trials and have determined that it is
not cost effective to hedge against other foreign currency fluctuations.
Cyclopharm is most exposed to European Euro (Euro), Canadian Dollar (CAD), US Dollar
(USD) and Swedish Kroner (SEK) movements. The following table details Cyclopharm’s
sensitivity to a 10% change in the Australian dollar against those respective currencies with
all other variables held constant as at reporting date for unhedged foreign exposure risk. A
positive number indicates an increase in net profit/equity.
Cyclopharm Limited Annual Report 90
Notes
Continued
19. FINANCIAL RISK MANAGEMENT OBJECTIVES (continued)
(e) Foreign currency risk (continued)
A sensitivity has been selected as this is considered reasonable given the current level of
exchange rates and the volatility observed on a historic basis and market expectation for
future movement.
Cyclopharm Limited Annual Report 91
Increase in AUD of 10%Decrease in AUD of 10%$$EuroNet (loss) / profit (168,453)185,298 Equity (decrease) / increase (168,453)185,298 Net (loss) / profit (169,157)186,073 Equity (decrease) / increase (169,157)186,073 CADNet (loss) / profit (26,408)29,048 Equity (decrease) / increase (26,408)29,048 Net (loss) / profit (37,399)41,139 Equity (decrease) / increase (37,399)41,139 USDNet profit / (loss)419,022 (460,924)Equity increase / (decrease)419,022 (460,924)Net (loss) / profit9,959 (10,955)Equity (decrease) / increase9,959 (10,955)SEKNet profit / (loss) (44,643)49,107 Equity increase / (decrease) (44,643)49,107 Net (loss) / profit- - Equity (decrease) / increase- - 31 December 201831 December 201731 December 201831 December 201731 December 201831 December 2017Consolidated31 December 201831 December 2017
Notes
Continued
20. COMMITMENTS & CONTINGENCIES
(a) Operating lease commitments
Future minimum rentals payable under non-cancellable operating leases are as follows:
Cyclomedica Australia Pty Ltd.’s (“CMAPL”) has entered into a commercial lease on office
and manufacturing space at Kingsgrove, New South Wales, for 5 years with renewal options
included in the contract. In 2017, the landlord extended the lease from 5 years to 10 years
with renewal options. The lease term extension is reflected in the lease commitments
disclosed above.
CycloPet Pty Ltd has entered a commercial lease for the PET Facility at Macquarie
University Hospital. The lease has a term of 10 years and commenced upon commissioning
of the Hospital in June 2010.
Cyclomedica Canada Limited has entered a commercial lease for office space in Ontario,
Canada. The lease has a term of 2 years.
The Group also has entered commercial leases on motor vehicles that have an average life
of approximately 3 to 4 years.
(b) Finance lease commitments
Cyclopharm Limited Annual Report 92
20182017$$Operating Lease CommitmentsMinimum lease paymentsDue not later than one year655,447 679,346 Due later than 1 year & not later than 5 years1,597,798 1,889,463 More than 5 years755,188 1,117,678 Total operating lease commitments3,008,433 3,686,487 718,351 755,447 ConsolidatedOperating lease expenses recognised as an expense during the year 20182017$$Finance Lease CommitmentsMinimum lease paymentsDue not later than one year61,592 20,204 Due later than 1 year & not later than 5 years- 81,719 More than 5 years- - Total finance lease commitments61,592 101,923 Consolidated
Notes
Continued
20. COMMITMENTS & CONTINGENCIES (continued)
(c) Capital commitments
There were no capital commitments as at the date of this report (2017: $nil).
(d) Contingent liabilities
(i) Pursuant to a Shareholders’ Agreement, CycloPet Pty Limited (a wholly owned
subsidiary of Cyclopharm Limited) has undertaken to provide a put option to a 50%
shareholder of Macquarie Medical Imaging Pty Limited (“MMI”) such that if this option
was exercised, Cyclopet would be required to purchase all Redeemable Preference
Shares and Ordinary Shares held by the 50% joint venturer for the value of the
Redeemable Preference Shares plus any accumulated interest plus $1 for the Ordinary
Shares. The cost to CycloPet had the put option been issued and exercised at balance
date is estimated not to exceed $2,838,442 (2017: $2,393,465). If the put option was
issued and exercised, control of MMI would be transferred to the Group and MMI’s
financial statements would be consolidated from that date.
21. RELATED PARTY DISCLOSURES
The consolidated financial statements include the financial statements of Cyclopharm and its
subsidiaries as listed below. Balances and transactions between the Company and its
subsidiaries, which are related parties of the Company have been eliminated on consolidation
and are not disclosed in this note.
The following table provides the total amount of transactions that were entered into with related
parties for the relevant financial year (for information regarding outstanding balances at year-
end, refer to Note 9 Trade and Other Receivables, Note 14 Trade and Other Payables and Note
15 Interest Bearing Loans and Borrowings):
Cyclopharm Limited Annual Report 93
Sales to related parties Purchases from related parties Amounts owed by/ (to) related parties Provision for doubtful debts on Amounts owed by related parties CONSOLIDATED$$$$Cell Structures Pty Ltd2018- 51,000 (28,050)- 2017- 43,380 (27,500)- Macquarie Medical Imaging2018- - 230,782 230,782 2017- - 230,782 230,782 Almedis Altmann GmbH2018- - - - 20171,096,875 - 530,754 540,754
Notes
Continued
21. RELATED PARTY DISCLOSURES (continued)
Ultimate parent entity
Cyclopharm Limited is the ultimate parent entity in the wholly owned group.
Terms and conditions of transactions with related parties
During the year, payments of $51,000 (2017: $43,380) were made to Cell Structures Pty Ltd
(an entity controlled by Director, Mr. Tom McDonald). All payments relate to Mr. McDonald’s
role as a non-executive director including consultancy services provided by him.
CycloPet Pty Ltd, a wholly owned subsidiary of Cyclopharm has a 20% interest in Macquarie
Medical Imaging. Prior to ceasing commercial operations at the end of April 2014, CycloPet
manufactured products that were sold to Macquarie Medical Imaging. As the trade debtor
balance of $230,782 (2017: $230,782) is not expected to be repaid in the short term, it is
included as an interest in the associate and a share of the associate’s losses has been
recognised under the equity method in the 2014 financial year. Refer to Note 12 for details
of the investment in the associate.
During the previous year, sales amounting to $1,096,875 were made to Almedis Altmann
GmBH (an entity controlled by the former General Manager – Germany). In late 2017, the
company restructured its German distribution model to include the termination of commercial
activities with Almedis Altmann GmbH and the termination of its General Manager for
Germany. As a result of these actions, the company recorded a provision for doubtful debts
of $540,754 as at 31 December 2017 relating to trade balances with Almedis Altmann
GmbH.
Transactions between related parties are at normal commercial prices and on normal
commercial terms and conditions no more favourable than those available to other parties
unless otherwise stated.
Cyclopharm Limited Annual Report 94
Notes
Continued
21. RELATED PARTY DISCLOSURES (continued)
Controlled Entities
22. EVENTS AFTER THE BALANCE DATE
FINAL DIVIDEND
On 27 February 2019, the Directors declared a final unfranked dividend of 0.5 cent per share in
respect of the financial year ended 31 December 2018, payable on 15 April 2019.
No other matters or circumstances have arisen since the end of the financial year, not otherwise
dealt with in the financial report, which significantly affected or may significantly affect the
operations of the economic entity, the results of those operations, or the state of affairs of the
economic entity in future financial periods.
Cyclopharm Limited Annual Report 95
Name Note Country of Incorporation 20182017Cyclopharm Limited1,2AustraliaControlled entitiesCycloPET Pty Ltd2 Australia100%100%Cyclomedica Australia Pty Limited2 Australia100%100%Cyclomedica Ireland Limited3 Ireland100%100%Cyclomedica Europe Limited3 Ireland100%100%Inter Commerce Medical bvba4 Belgium100%100%Medicall Analys AB5 Sweden100%-Cyclomedica Germany GmbH6 Germany100%100%Cyclomedica Canada Limited7 Canada100%100%Notes1.2.3.Audited by Andrew P.Quinn & Associates Limited, Republic of Ireland.4.5.6.7.Audited by Schwartz Levitsky & Feldman LLP, Toronto, Canada. Percentage of equity interest held Cyclopharm Limited is the ultimate parent entity in the wholly owned group.Audited by Nexia Sydney Audit Pty Ltd, Australia.Audited by HLB Dodemont - Van Impe, Belgium, acquired on 1 October 2017.Audited by Nexia Revision, Stockholm, Sweden, acquired on 1 May 2018.Audited by Bilanzia GmbH Wirtschaftsprufungsgesellschaft, Germany.
Notes
Continued
23. AUDITORS’ REMUNERATION
The following total remuneration was received, or is due and receivable, by auditors of the
Company in respect of:
Cyclopharm Limited Annual Report 96
20182017$$Audit and review of the financial statements140,052 102,000 Other services:- tax compliance10,901 3,112 - share registry28,618 25,382 179,571 130,494 Audit of the financial statements of controlled entities108,501 84,341 Other services66,440 38,933 174,941 123,274 Amounts received or due and receivable by other audit firms for:ConsolidatedAmounts received or due and receivable by the auditor of the parent entity and associated entities for:
Notes
Continued
24. DIRECTOR AND KEY MANAGEMENT PERSONNEL DISCLOSURE
Individual Directors and executives compensation disclosures
Information regarding individual Directors and executives’ compensation and some equity
instruments disclosures as required by Corporations Regulation 2M.3.03 are provided in the
Remuneration Report Section of the Directors’ report.
Summary of remuneration of Directors & Key Management Personnel:
Short-term salary, bonus, fees and leave
These amounts include fees and benefits paid to the non-executive Chair and non-executive
directors as well as salary, paid leave benefits, fringe benefits and cash bonuses awarded to
executive directors and other Key Management Personnel.
Post-employment benefits
These amounts are the current-year’s estimated cost of providing for superannuation
contributions made during the year.
Other long term benefits
These amounts represent long service leave benefits accruing during the year.
Termination benefits
These amounts represent termination benefits paid out during the year.
Share based payment expense
These amounts represent the expense related to the participation of Key Management
Personnel in equity-settled benefit schemes as measured by the fair value of the Implied
Options granted on grant date.
Further information in relation to Key Management Personnel remuneration can be found in the
Directors’ Report.
25. SHARE BASED PAYMENT PLANS
(a) Recognised share-based payment expenses
The expense recognised for employee services received in relation to share based payments
during the year is shown in the table below:
The share-based payment reserve at 31 December 2018 was $663,005 (2017: $625,038).
Cyclopharm Limited Annual Report 97
Post employment benefits Other Long-term benefits Share-based payment Total Salary & Fees Cash Bonus Superannuation Consolidated$$$$$$2018760,504 77,000 61,900 5,371 27,450 932,225 2017688,972 50,000 53,592 7,162 11,706 811,432 Short-term employee benefits20182017$$37,967 21,416 Consolidated Expense arising from equity-settled share-based payment transactions (note 5)
Notes
Continued
25. SHARE BASED PAYMENT PLANS (continued)
(b) Type of share based payment plans
The share-based payment plan is described below. There have not been any modifications to
the Long-Term Incentive Plan (“Plan”) following its approval by members at the Annual General
Meeting held on 8 May 2007 other than an amendment to allow allotment or transfer of Plan
shares to an entity wholly owned and controlled by the participant. The amendment was
approved by members at the Annual General Meeting held on 26 May 2015. An updated Plan
was approved by members at the Annual General Meeting held on 29 May 2018.
Shares
Long Term Incentive Plan (“Plan”) Shares (“Shares”) are granted to certain Directors and certain
employees.
In valuing transactions settled by way of issue of shares, performance conditions and market
conditions linked to the price of the shares of Cyclopharm Limited are taken into account. All
shares issued have market performance conditions so as to align shareholder return and reward
for the Company’s selected management and staff (“Participants”).
The Shares vest upon the satisfaction of certain performance conditions (“Hurdles”) within the
term (“Term”) specified for Participants in the Plan. The Board has residual discretion to
accelerate vesting (i.e. reduce or waive the Hurdles) and exercise of Shares in the event of a
takeover or merger or any other circumstance in accordance with the terms of the Plan.
Shares in relation to which Hurdles have not been satisfied (i.e. that do not vest) will lapse and
will not be able to be exercised, except in the circumstances described below. Shares which
have not vested will lapse where a Participant ceases employment with Cyclopharm other than
on retirement, redundancy, death or total and permanent disablement or unless as otherwise
determined by the Board in its absolute discretion.
Where a Participant has ceased employment with Cyclopharm as a result of resignation,
retirement, redundancy, death or total and permanent disablement prior to the end of a
performance period, only shares that have vested may be retained by the Participant on a pro-
rata basis. If a Participant ceases employment for any reasons mentioned above prior to the first
anniversary of the grant date, the Participant forfeits all entitlement to Shares.
LTIP Shares issued
At the Annual General Meeting held on 8 May 2007, Shareholders approved the Company’s
Plan with an updated Plan approved by Shareholders on 29 May 2018.
Implied Options
AASB 2 Share Based Payments requires that the benefit to an employee arising from an
employee share scheme such as the Cyclopharm Long Term Incentive Plan be treated as an
expense over the vesting period. All of the issues of Plan shares have been treated as Plan
Share Options (“Implied Options”) in accordance with AASB 2. The employee benefit is deemed
to be the Implied Option arising from the Plan. Consequently, the value of the discount which
has been determined using the Black Scholes option pricing model will be charged to the
Statement of Comprehensive Income and credited to the Employee Equity Benefits Reserve
over the vesting period.
Where employee shares are issued under a non-recourse loan payment plan, the loan assets
and the increments to Contributed Equity are not recognised at grant date but rather the
increments to Contributed Equity are recognised when the share loans are settled by the
relevant employees.
Cyclopharm Limited Annual Report 98
Notes
Continued
25. SHARE BASED PAYMENT PLANS (continued)
(c) Summary of Implied Options granted
The following table illustrates movements in Implied Options during the current year:
(i) 138,000 LTIP shares (2017: 1,821,405) issued to several group executives vested during the
year. These executives elected to extend the exercise period for up to 5 years under limited
security financial assistance arrangements offered by the Company, in accordance with the
Plan terms.
(d) Range of exercise price, weighted average remaining contractual life and weighted
average fair value
The exercise price for Implied Options at the end of the year was $1.35 (2017: $1.01). The
weighted average remaining contractual life for the Implied Options outstanding as at 31
December 2018 is 2.13 years (2017: 1.64 years). The weighted average fair value of Implied
Options granted during the year was $0.153 (2017: $0.196).
(e) Option pricing models
The following assumptions were used to derive a value for the Implied Options granted using
the Black Scholes Option model as at the grant date, taking into account the terms and
conditions upon which the Shares were granted:
Expected volatility percentages used for the Option pricing calculations were determined using
historic data over 24 months and were adjusted to reflect comparable companies in terms of
industry and market capitalisation. The Implied Options arising from the Plan are not listed and
as such do not have a market value.
Cyclopharm Limited Annual Report 99
Weighted AverageWeighted AverageExercise PriceExercise Price2018201720182017NumberNumber$$363,000 2,341,590 1.01 0.92 500,000 225,000 1.55 0.90 (i) (138,000) (1,821,405)1.20 0.90 - (382,185)- 0.90 725,000 363,000 1.35 1.01 (i) 1,923,962 3,544,861 ConsolidatedConsolidated Balance at the beginning of the year Granted during the year Vested but unexercised during the year Vested but unexercised at the end of the year Lapsed during the year Balance at the end of the year Exercise price per Implied Option$0.90$1.55Number of recipients1 1 Number of Implied Options225,000 500,000 Grant Date19/04/20172/07/2018Dividend yield- - 44%41%Risk-free interest rate1.80%2.09%3 years3 years$0.196$0.153$0.76$0.99Black ScholesBlack Scholes Expected life of Implied Option (years) Fair value per Implied Option Share price at grant date Model used Expected annual volatility
Notes
Continued
26. PARENT ENTITY DISCLOSURE
27. RESERVES
Nature and purpose of reserves:
(a) Employee equity benefits reserve
The employee share based payments reserve is used to record the value of share based
payments provided to employees, including key management personnel, as part of their
remuneration.
(b) Foreign currency Translation Reserve
The foreign currency translation reserve is used to record exchange differences arising from
the translation of the financial statements of foreign subsidiaries.
Cyclopharm Limited Annual Report 100
20182017$$(i)AssetsCurrent Assets6,205,679 8,599,453 Non-current Assets14,689,676 11,752,166 Total Assets20,895,355 20,351,619 LiabilitiesCurrent Liabilities560,499 1,503,270 Non-current Liabilities8,856,700 8,654,583 Total Liabilities9,417,199 10,157,853 Net assets11,478,156 10,193,766 EquityContributed equity22,105,568 21,752,259 Employee equity benefits reserve663,005 625,038 Accumulated Losses (11,290,417) (12,183,531)Total Equity11,478,156 10,193,766 (ii)Financial PerformanceLoss for the year1,819,490 (565,207)Other comprehensive income- - Total Loss for the year1,819,490 (565,207)Financial Position
Notes
Continued
28. BUSINESS COMBINATIONS
Acquisition of Medicall Analys AB
On 1 May 2018, the Group acquired via a Share Sale Agreement 100% of the ordinary shares of
Medicall Analys AB (“MA”), a Swedish private company. MA and its subsidiaries specialise in
the sales and marketing support of medical supplies in Sweden including the distribution of
nuclear medicine imaging products. MA is the distributor for Technegas products in the Sweden,
Norway and Finland markets and its purchase is expected to provide supply chain synergies to
the Group.
The acquisition has been accounted for using the acquisition method. The consolidated financial
statements include the results of MA for the period between 1 May 2018 and 31 December 2018.
The fair values of identifiable assets and liabilities of MA at the date of acquisition were:
Assets
Investments
Cash and cash equivalents
Inventories
Debtors
Other receivables and prepayments
Licences (fair valued at acquisition date)
Total Assets
Liabilities
Trade and other payables
Borrowings
Provisions and other liabilities
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred/transferable (i)
Net cash acquired with the subsidiary (included in cash flows from
investing activities)
Cash paid
Net cash inflow
Fair value
recognised on
acquisition
$
154
86,830
76,372
162,279
35,300
425,278
786,213
193,783
14,500
81,269
289,552
496,661
865,273
1,361,934
$
86,830
(680,967)
(594,137)
The fair value of trade and other receivables at acquisition date amounts to $197,579.
Cyclopharm Limited Annual Report 101
Notes
Continued
28. BUSINESS COMBINATIONS (continued)
(i) The purchase consideration of $1,361,934 included A$ 680,967 (SEK 4,423,221) future
consideration payable in cash. The future consideration is payable in 2 tranches being A$
340,483 (SEK 2,211,611) each on the first and second post completion dates.
From the date of acquisition to the end of the financial year, MA contributed revenue of
$808,822 and a net profit after tax of $307,363 to the continuing operations of the Group. If
the acquisition date had been at the beginning of the reporting period, MA would have
contributed revenue of $1,576,110 and a net profit after tax of $354,150 to the continuing
operations of the Group.
The goodwill recognised is primarily attributed to synergies available to the new group
which will enhance shareholder value through capturing agency commissions and
providing control over distribution and pricing. The goodwill is not deductible for income tax
purposes. Transaction costs of $4,899 have been expensed and are included in
Administration expense in the Statement of Comprehensive Income and are part of
operating cash flows in the statement of cash flows.
Acquisition of Inter Commerce Medical bvba
On 1 October 2017, the Group acquired via a Share Sale Agreement 100% of the ordinary
shares of Inter Commerce Medical bvba (“ICM”), a Belgian private company which specialises in
the distribution of nuclear medicine Single Photon Emission Computed Tomography (“SPECT”)
and Positron Emission Tomography (“PET”) imaging products and products used for both
diagnostic and therapeutic procedures. ICM is the agent for Technegas products in the Belgium,
Netherlands and Luxembourg markets and its purchase is expected to provide supply chain
synergies to the Group.
The acquisition has been accounted for using the acquisition method resulting in a goodwill at
acquisition date of $400,437. At 31 December 2017, the Group disclosed that the fair values of
the identifiable assets and liabilities of ICM at the acquisition were provisional. Subsequent
valuation of identifiable assets and liabilities has resulted the goodwill being revised to nil and
$400,437 being allocated to an intangible asset (Pharmaceutical Wholesale License).
The consolidated financial statements include the results of ICM for the financial year ended 31
December 2018 and for the period between 1 October 2017 and 31 December 2017 for the
comparatives.
Cyclopharm Limited Annual Report 102
Directors’ Declaration
In the opinion of the Directors of Cyclopharm Limited:
1.
(a)
The financial statements and notes of the consolidated entity as set out on pages 45 to 102
are in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 31
December 2018 and of its performance for the year ended on that date; and
complying with Accounting Standards which, as stated in accounting policy Note
2(a) to the financial statements, constitutes explicit and unreserved compliance
with International Financial Reporting Standards (IFRS); and
(b)
There are reasonable grounds to believe that the consolidated entity will be able to pay its
debts as and when they become due and payable.
2.
The Directors have been given the declarations required by section 295A of the Corporations Act
2001 from the chief executive officer and chief financial officer for the financial year ended 31
December 2018.
Signed in accordance with a resolution of the Directors:
James McBrayer
Managing Director and CEO
Sydney, 29 March 2019
Cyclopharm Limited Annual Report 103
Independent Auditor’s Report to the Members of Cyclopharm Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Cyclopharm Limited (the Company and its subsidiaries (the Group)), which
comprises the consolidated statement of financial position as at 31 December 2018, the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for
the year then ended, and notes to the 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:
i) giving a true and fair view of the Group’s financial position as at 31 December 2018 and of its financial
performance for the year then ended; and
ii) 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 entity in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given to
the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial report of the current period. These matters were addressed in the context of our audit of the financial
report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Capitalised Development Costs for Ultralute
($2,149,396)
Our audit procedures on the Ultralute development costs
included, amongst others:
Refer to note 13
Included in the Group’s intangible assets are capitalised
development costs $2,149,396 in respect of the Ultralute
product. Capitalised Ultralute development costs are
considered to be a key audit matter due to the quantum of
the asset; the degree of management judgement and
assumptions applied in measuring the carrying value of the
asset; and assessing the presence of impairment of a
development phase asset.
We assessed the project against the requirements for
capitalisation contained in AASB 138 Intangible Assets.
We tested material expenditure capitalised during the
year and checked that they were appropriately
allocated to the development asset.
We assessed management’s determination of the
Group’s cash generating units based on our
understanding of the nature of the Group’s business
and how earnings streams are monitored and reported.
Cyclopharm Limited Annual Report 104
Cyclopharm Limited Annual Report 105
Key audit matter
How our audit addressed the key audit matter
The most significant and sensitive judgments incorporated
into the assessment for impairment of capitalised
development costs include projections of cash flows,
discount rates applied and assumptions regarding the
Group’s ability to exploit new markets.
Other considerations and judgments include whether the
capitalised costs qualify for capitalisation as development
phase costs in accordance with AASB 138 Intangible
Assets. This includes an understanding of the Group’s
process for recording and measuring internally developed
assets and the Group's ability to complete the
development and demonstrate its ability to generate future
cash flows from that asset.
We tested the Group’s assumptions and estimates used
to determine the recoverable value of its assets,
including those relating to forecast revenue, cost,
capital expenditure, and discount rates by
corroborating the key market related assumptions to
external data and by reference to our understanding of
the business.
We performed sensitivity analysis in two main areas to
assess whether the carrying value of the capitalised
development costs exceeded its recoverable amount.
These were the discount rate and growth assumptions.
Business Combination and acquisition accounting
Our procedures included, amongst others:
Refer to note 27
The Group’s recent acquisitions are required to be
accounted for under AASB 3 - Business Combinations.
There is a risk that the acquisitions of these entities have
not been accounted for consistently with AASB 3.
Some business acquisitions include contingent
consideration, payable upon the occurrence of future
events. Determining the fair value of contingent
consideration payable in a business combination requires
significant estimates and judgements, including the
likelihood of future events occurring.
We consider the business combinations and accounting for
acquisitions as a key audit matter due to:
the degree of estimation involved in assessing the fair
value of assets acquired and the reliance on
management’s expert in determining these values;
the risk that all identifiable assets and liabilities are not
appropriately recognised; and
the accounting estimates and management judgements
involved in the calculation of contingent consideration,
including the likelihood that thresholds for the payment
of contingent consideration will be met.
We read the purchase agreement to understand the
key terms and conditions of the acquisition.
We obtained management’s Purchase Price Allocation
and obtained evidence supporting the completeness of
the acquired identifiable assets and liabilities;
We evaluated the capability, competency and
objectivity of management’s expert;
We evaluated the assumptions and methodology used
by management to estimate the fair value of
identifiable intangible assets in accordance with AASB
13 Fair Value Measurement;
We examined whether the treatment of transactions
costs was in accordance with AASB 3 Business
Combinations;
We tested that deferred tax liabilities arising from the
transaction were calculated in accordance with AASB
112 Income Tax;
We assessed whether the liability for contingent
consideration was consistent with the terms of the
purchase agreements, including consideration of the
discount rates used and the classification of current
and non—current liabilities;
We evaluated the key assumptions and methodology
used in management’s forecasts to assess the
probability of the contingent consideration thresholds
being met; and
We assessed the appropriateness of the disclosures in
respect of business combinations in the financial
statements.
Other information
The directors are responsible for the other information. The other information comprises the information in
Cyclopharm Limited’s annual report for the year ended 31 December 2018, but does not include the financial
report and the 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.
Cyclopharm Limited Annual Report 106
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 the other
information we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibility for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the entity’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 entity or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibility 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 Australian Auditing
and Assurance Standards Board website at: www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description
forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 20 to 30 of the directors’ Report for the year ended
31 December 2018.
In our opinion, the Remuneration Report of Cyclopharm Limited for the year ended 31 December 2018, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Nexia Sydney Audit Pty Limited
Andrew Hoffmann
Director
Dated: 29 March 2019
Sydney
ASX Additional Information
Cyclopharm Limited Annual Report 107
ShareholderNo. of ordinary shares heldPercentage held of issued ordinary capitalAnglo Australian Christian and Charitable Fund13,211,332 19.23%Barings Acceptance Limited11,433,424 16.64%8,103,322 11.80%8,000,000 11.65%6,970,393 10.15%CategoryOrdinary Shareholders1 - 1,0001051,001 - 5,0002315,001 - 10,00012310,001 - 100,000177100,001 and over39Total675 Number heldPercentage of issued shares1Anglo Australian Christian and Charitable Fund13,211,332 19.23%2Barings Acceptance Limited11,433,424 16.64%38,103,322 11.80%48,000,000 11.65%56,970,393 10.15%6McBrayer Reid Investments 1,721,554 2.51%71,176,470 1.71%8Lloyds & Casanove Investment Partners Limited975,965 1.42%9Mr James McBrayer861,728 1.25%10Mr James McBrayer861,728 1.25%11South Seas Holdings Pty Ltd675,000 0.98%12Melbourne Corporation Of Australia Pty Ltd667,376 0.97%(Super Fund A/c)13Honne Investments Pty Limited600,000 0.87%14City & Westminster Limited544,789 0.79%15Malackey Holdings Pty Ltd420,220 0.61%16Melbourne Corp Of Australia Pty Limited400,000 0.58%17Mr Anthony Rex Morgan & Mrs Elena Morgan400,000 0.58%18Melbourne Corporation Of Australia Pty Ltd350,000 0.51%(Super Fund A/c)19Sydney Schools Pty Limited300,500 0.44%20Malackey Holdings Pty Limited300,000 0.44%(The Malackey A/c)57,973,80184.39%Other equity security holders10,725,07215.61%Total 68,698,873100.00%D. VOTING RIGHTSThe following have advised that they have a relevant interest in the capital of Cyclopharm Limited. The holding of a relevant interest does not infer beneficial ownership . Where two or more parties have a relevant interest in the same shares, those shares have been included for each party.The following information is current at 28 February 2019A. SUBSTANTIAL SHAREHOLDERSThe Company's constitution details the voting rights of members and states that every member, present in person or by proxy, shall have one vote for every ordinary share registered in his or her name.National Nominees LimitedChemical Trustee LimitedStinoc Pty Limited Stinoc Pty Limited Chemical Trustee LimitedNational Nominees LimitedTwenty largest quoted equity security holdersOrdinary sharesB. DISTRIBUTION OF EQUITY SECURITY HOLDERSC. EQUITY SECURITY HOLDERS(ii) There were 36 holders of less than a marketable parcel of ordinary shares.(i) Analysis of numbers of equity security holders by size of holding as at 28 February 2019Chemical Trustee Limited
General Information
Directors
David Heaney
Non-Executive Chairman
James McBrayer
Managing Director & CEO
Vanda Gould
Non-Executive Director
Thomas McDonald
Non-Executive Director
Company Secretary
James McBrayer
Registered Office
Cyclopharm Limited
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
T: 02 9541 0411
F: 02 9543 0960
Cyclomedica Australia
Unit 4, 1 The Crescent
Kingsgrove NSW 2208
T: 02 9541 0411
F: 02 9543 0960
Auditors
Nexia Sydney Audit & Assurance
Level 16, 1 Market Street
Sydney NSW 2000
Share Registry
NextRegistries
Level 16, 1 Market Street
Sydney NSW 2000
T: 02 9276 1700
F: 02 9251 7138
Cyclopet
Basement 2
Macquarie University Hospital
3 Technology Place
Macquarie University NSW 2109
Bankers
National Australia Bank
Level 21
255 George Street
Sydney NSW 2000
Solicitors
HWL Ebsworth
Level 19, 480 Queen Street
Brisbane QLD 4001
Securities Exchange Listing
The ordinary shares of
Cyclopharm Limited are listed on
the Australian Securities
Exchange Ltd (code: CYC).
Cyclomedica Canada
615 Old York Road,
Burlington,
Ontario L7P 4Y6
Canada
Cyclomedica Germany
Lützenkirchener Str. 410
51381 Leverkusen
Germany
Cyclomedica Europe
Unit A5,
Calmount Business Park
Ballymount
Dublin 12
Ireland
Cyclopharm Limited Annual Report 108
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Cyclopharm Limited Annual Report 109